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Delhi High Court
M/S. Shivnath Rai Harnarain … vs M/S. Italgrani S.P.A. And Another on 1 January, 1800
Author: N Nandi
Bench: N Nandi


JUDGMENT

N.G. Nandi, J.

1. In this Petition under Section 33 of the Indian Arbitration Act, 1940 (hereinafter referred to as “the Act”), the petitioner prays for a decree of declaration to the effect that there exists no legal binding and subsisting arbitration agreement between respondent No. 1 and the petitioner firm or that any such alleged agreement is not valid or binding on the petitioner and that respondent No. 2 is not entitled to enter upon the reference or proceed with the arbitration in regard to disputes referred to by respondent No. 1, arising out of the contract dated 12.5.1994.

2. The facts leading to the filing of this petition, as set out in the petition, shortly stated are, that the petitioner is a partnership firm registered under the provisions of the Indian Partnership Act; that respondent No. 2 is a company incorporated under the laws of Italy having its registered office at Nepal Italy, whereas respondent No. 2 is a Trade Organization, having its office at London (UK); that respondent No. 1, vide FAX communication dated 12.5.1994, agreed to purchase 20,000 M/T of Durum Wheat from the petitioner, which FAX message was received by the petitioner and the contract accepted at Delhi, that the initial offer of petitioner did not contain any further condition, that respondent No. 1 unilaterally added a clause in “other conditions”, which provide that “all terms and conditions not in contradiction with the term set out above, as per GAFTA Rules 64, 125 and its successive amendment (in force at the time and place of shipment date) which the parties admit that they have the knowledge and notice”, that no copy of the said GAFTA Rules was sent to the petitioner, that the petitioner did not have, any dealings earlier with the respondent and was not fully aware of the GAFTA Rules as the petitioner was not a member of GAFTA, that the petitioner did not deal with GAFTA or any GAFTA member before, that the petitioner had sent a copy of FAX in token of acceptance of the contract in bona fide belief that these “other conditions” would relate to the condition relating to the supply, delivery, payment, etc., that respondent No. 1 vide its FAX dated 23.8.1994 had communicated to the petitioner that there was some discrepancy in the quality of wheat and had alleged that the wheat loaded was soft wheat and not Durum Wheat, that respondent No. 1 had sent a FAX dated 4.11.1994 wherein for the first time, respondent No. 1 alleged that he was claiming arbitration and was appointing of Mr. A. J. Sear as its arbitrator, that the terms of the contract dated 12.5.1994 clearly suggest that there was no arbitration clause in the contract and neither had the parties at any point of time agreed to refer the matter to arbitration, that the alleged agreement is hit by Section 19(2) of the Indian Partnership Act, that contract dated 12.5.1994 was signed by only one partner of the partnership firm, that one partner of a partnership firm cannot refer dispute to arbitration or design an arbitration agreement for and on behalf of the firm; that the other partners of the petitioner firm have not, at any point of time, ratified any reference of disputes with the firm to arbitration. On these averments, the petitioner prays for the relief, aforesaid, prayed more particularly in para 39 of the petition.

3. Respondent No. 1 filed reply to the petition, inter-alia contending that the petition is not maintainable as the provisions of the Act are not applicable, that by contract dated 12.5.1994 between respondent No. 1 and the petitioner, the petitioner had agreed to supply to respondent No. 1, 20,000 M/T of Durum Wheat of Indian origin on the terms and conditions; set out in the said agreement, that the said contract under “Other Conditions” stipulated “all other terms and conditions not in contradictions with the above to be as per GAFTA Rules 64, 125, and its successive amendments (in force at time and place of shipment date) which the parties admit that they have knowledge and notice”; that disputes and differences arose between the petitioner and respondent No. 1 under and in respect of said contract and respondent No. 1 invoked the arbitration clause and referred the said disputes and differences to the arbitration of GAFTA, respondent No. 2, in view of clauses 28 and 29 of GAFTA Contract No. 64, that the petitioner submitted to the jurisdiction of GAFTA Tribunal and alleged, inter alia, that GAFTA Tribunal had no jurisdiction to arbitrate over the disputes and differences; that GAFTA Tribunal gave an interim award dated 16.10.1995 inter alia holding that there is a valid arbitration agreement between the petitioner and respondent No. 1 and that the tribunal has jurisdiction to proceed with the arbitration of the disputes and differences referred to it; that in terms of the contract between the petitioner and respondent No. 1 and the proper law of the contract and proper law of arbitration agreement is English Law, the disputes are to be settled in accordance with the law of England and the English Court has exclusive jurisdiction; that the contract specifically provides that the contract is deemed to have been made in England and deemed to be performed in England notwithstanding any offer, acceptance, place of payment or otherwise as stipulated or referred to in the contract that the contract including the arbitration agreement and arbitration proceedings between the parties are governed by the provisions of foreign Awards (Recognition and Enforcement) Act, 1961, (hereinafter referred to as “the Foreign Awards Act”); that Article 11 of the Convention set forth in the schedule to the Foreign Awards Act is applicable to the arbitration agreement the arbitration proceedings and the award made and to made by the arbitrators, that respondent No. 1 is a party based in Italy, the arbitration proceedings are to be held and are being held by the arbitration tribunal constituted by GAFTA at London, that the provisions of the Act are wholly inapplicable and the petition under Section 33 of the Act is not maintainable, that the proper law of contract and proper law of arbitration agreement is English law, the over-riding principle is that the courts of the country whose substantive laws govern the agreement are competent courts in respect of all matters arising under the agreement, these matters fall within the exclusive competence of the courts of the country whose laws govern the agreement i.e., England in the present case; that the petitioner cannot challenge the existence, validity and/or effect of the arbitration agreement and/or the arbitration award before this court, under the provisions of Section 33 of the Act.

4. As seen above, admittedly, the petitioner accepted, the contract of supply of 20,000 MT of Durum wheat to respondent No. 1. In the say of the petitioner, the initial offer of petitioner did not contain any further condition but respondent No. 1, subsequently, unilaterally added in the contract dated 12.5.1994, a clause in “Other Conditions” which reads as follows :

“All other terms and conditions not in contradictions with the above to be as per GAFTA Rules 64/125 and its successive amendments (in force at time and place of shipment date) which the parties admit that they have knowledge and notice.”

In the submissions of Mr. Tiku, learned counsel for the petitioner that the petitioner was not aware of GAFTA Rules 64, 125 and did not know that it contains an arbitration clause; that the “Other Conditions” does not refer to GAFTA Form No. 64/125, it refers to GAFTA Rules 64, 125; that there is nothing like GAFTA Rules that the copy of the contract supplied to the petitioner produced at page 5 along with the petition did not contain “Other Conditions” which refer to GAFTA Rules 64, 125; that the respondent has produced GAFTA Arbitration Rules – Form No. 125 and Contract Form No. 64; that the petitioner sent copy of FAX in the bona fide belief that these “Other Conditions” would relate to the conditions relating to the supply, delivery, payment, etc.

In the submission of Mr. V. P. Singh, learned Senior Counsel for respondent No. 1, in view of clauses 28 and 29 of the Contract Form No. 64, the arbitration agreement and arbitration proceedings are governed by the provisions of the Foreign Awards Act.

5. It may be appreciated that in “Other Conditions”, GAFTA Rules 64, 125 have been specifically referred to and the petitioner has accepted the contract including “Other Conditions” Clause 28 of the Contract No. 64 reads as under :

“Buyers and Sellers agree that for the proceedings either legal or by arbitration this contract shall be deemed to have been made in England and to be performed there, any correspondence in reference to the offer, the acceptance, the place of payment or otherwise, notwithstanding, and the Courts of England or arbitrators in England, as the case may be, shall, except for the purpose of enforcing any award made in pursuance of the arbitration clause hereof, have exclusive jurisdiction over all disputes which may arise under this contract. Such disputes shall be settled according to the law of England, whatever the domicile, residence or place of business of the parties to this contract may be or becomes. Any party to this contract residing or carrying on business elsewhere than in England or Wales, shall for the purpose of proceedings at Law or in arbitration be considered as ordinarily, resident carrying on business at the office of the Grain and Feed Trade Association.”

Clause 29 of GAFTA Contract No. 64 reads as follows :

“(a) Any dispute arising out of or under this Contract shall be settled by arbitration in accordance with the Arbitration Rules No. 125 of the Grain and Feed Trade Association in the edition current on the date of this contract, such Rules forming part of this contract and of which both parties hereto shall be deemed to be cognisant.

(b) Neither party hereto, nor any persons claiming under either of them shall bring any action or other legal proceedings against the other of them in respect of any such dispute until such dispute shall first have been heard and determined by the arbitrator(s) or a Board of Appeal, as the case may be, in accordance with the Arbitration Rules and it is expressly agreed and declared that the obtaining of an award from the arbitrator(s) or a Board of Appeal as the case may be, shall be a condition precedent to the right of either party hereto or of any persons claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute.”

6. GAFTA Arbitration Rules – Form 125 deals with arbitration, the procedure for claiming arbitration and time limit, finality, appointment of arbitrators, arbitration procedure, right of appeal, Board of Appeal, Appeal procedure, withdraw of appeal, etc.

7. In the case of National Thermal Power Corporation Ltd. v. The Singer Company and others , the learned Single Judge of this court held that “in spite of the fact that the contract between the parties would be governed by the laws of India, the parties could nevertheless agree that the arbitration agreement would be governed otherwise. Thus, though a contract may be governed by the laws of Indian the arbitration clause contained in it need not be so governed by the Indian law. The result is that the petition under Sections 14, 30 and 33 is not maintainable under the Indian Arbitration Act, 1940 ……” Further held that “there are all the characteristics of a foreign arbitration and the award in question being the foreign award, example, ICC Rules of Arbitration are to apply. Arbitration Act is specifically excluded arbitration proceedings are being held in foreign land, one of the parties is a foreign party; ICC Court has appointed a third arbitrator who acts as a Chairman of the Arbitral Tribunal and he is also a foreigner, the English law is to govern the arbitration proceedings as has been rightly held by the arbitrators”.

Confirming the above view in appeal, the Supreme Court in the decision held that “in the case of commercial contract between parties of two different countries, proper law by which contract is to be governed, depends upon intention of parties and the intention of the parties would decide as to law of which country would govern the contract and which court would have jurisdiction.” Further held that “parties not having selected ‘proper law’ which would govern the contract, court would infer intention of parties by applying objective test for determining that law”. Further held that proper law of arbitration is normally the same as proper law of contract. The parties can, however, expressly choose the law applicable.”

8. The petitioner admittedly accepted the “Other Conditions”, produced at page 5 under the belief that the same relate to delivery, supply, price etc. Clause 29, reproduced above, mutates mutants applicable to the present contract provides that the disputes, arising out of the contract dated 29.5.1994 would be required to be settled by arbitration in accordance with the arbitration Rule 125 of GAFTA. It is also suggested that Rule 125 has been made part of the contract. Clause 29 also debars other party to the contract from bringing, any action or other legal proceeding against each other in respect of any such dispute until such disputes are first heard and determined by the arbitration in accordance with the Rules.

Clause 28 suggests that the parties to the contract dated 12.5.1994 agreed for proceedings either legal or by arbitration. The contract deemed to have been made in England and to be performed, there. It further provides that any correspondence in reference of the offer, the acceptance, the place of payment, or otherwise, notwithstanding and the Courts of England or arbitrators in England, as the case may be, shall except for the purpose of enforcing any award made in pursuance of the arbitration clause hereof, have exclusive jurisdiction over all disputes which may arise under the contract, that such disputes shall be settled according to the law of England, whatever the domincile, residence or place of business of the parties to this contract may be or becomes, that any party to this contract residing or carrying on business elsewhere then in England or Wales, shall for the purpose of proceedings at Law or in arbitration be considered as ordinarily resident carrying on business at the office of the Grain and Feed Trade Association.

9. One of the argument advanced by Mr. Tiku is that the provisions of the Foreign Awards Act, 1961 would not apply to the present case, as there is no notification under Section 2 of the said Act making the award a Foreign Award within the meaning of the said Act.

In the case of C.O.S.I.D. Inc. and another v. Steel Authority of India, AIR 1986 Delhi it is held that the intention of recognition and enforcement of foreign arbitral award applies to award made in England and such an award is a foreign award under Section 2 of the Foreign Awards Act.” In para 22 of the said judgment, it is observed that “in spite of the fact that the contract between the parties would be governed by the laws of India the parties can nevertheless agree that the arbitration agreement would be governed otherwise. As a matter of fact under Article II(2) of the Convention, the term “agreement in writing” under which the parties undertake to submit to arbitration their differences would include an arbitral clause in a contract. The contention applies to the recognition and enforcement of arbitral award made in London, U.K. and the recognition and enforcement of this award is being sought in New Delhi in India.”

10. In the instant case, clause 28 of the GAFTA Contract No. 64, reproduced above, clearly suggests that the contract dated 12.5.1994 between the petitioner and respondent No. 1 including the arbitration agreement and the arbitration proceedings would be governed by the laws of England and the courts of England or the arbitrators in England shall have exclusive jurisdiction over all disputes which may arise under the contract. Thus, in light of the facts of the present case, especially clauses 28 and 29 of GAFTA Contract No. 64 made applicable mutates mutants by “Other Conditions”, as reproduced in the petition and also to be found in page 5 of the contract, the provisions of the Foreign Awards Act, 1961 would be applicable and the arbitration proceedings, between the petitioner and respondent No. 1 would be governed by the provisions of the said Act. It may be noted that respondent No. 1 is the party based in Italy. The arbitration proceedings under Section 28 are to be held by the arbitral tribunal constituted by GAFTA at London (U.K.). As per agreement dated 12.5.1994, read with clauses 28 and 29 of GAFTA Rules 64, 125, English courts have exclusive jurisdiction for all purposes. The proper law of the contract would be the proper law of arbitration as per clause 28 and that would be English Law. Following the principle laid down in , the overriding principle is that the courts of the country whose substantive laws govern the agreement, are competent courts in respect of all matters arising under the agreement. These matters fall within the exclusive competence of the courts of the country whose laws govern the agreement, i.e., England in the instant case.

11. One of the argument advanced by Mr. Tiku is that in view of Section 19 of the Partnership Act, the petitioner would not be bound by the contract dated 12.5.1994 since one of the partners of the partnership firm cannot refer the disputes to the arbitration and on that score also the arbitration agreement cannot be said to exist. This argument is noted for being rejected for the simple reason that the provisions of the Indian Partnership Act, assuming sub-section (2) of Section 19 of the Act to be applicable, would be attracted provided the said contract would be governed by the Indian laws. As observed above, the provisions of the Act would not be applicable for the aforesaid reasons and since the proper law of arbitration and proper law of contract in the instant case would be the laws applicable in England, the argument on Section 19(2) of the Arbitration Act does not deserve any cognizance.

12. Counsel for the petitioner has relied on the decisions on the basis of the applicable of the Act to the present case. Since I am of the view that the provisions of the Foreign Awards Act would be applicable and not the provisions of the Act, to the present case, the decisions relied on by the petitioner will be of no application.

13. In the result, this petition under Section 33 of the Arbitration Act fails as not maintainable.


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