Heard Sri S. Rashid and Sri Ravi Anand Agarwal, learned counsel for the applicant and Sri Navin Sinha, learned Senior Counsel assisted by Sri Kartikeya Saran and Sri Neeraj Singh, counsel for the opposite party.
The instant application has been preferred under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as "Act of 1996") laying a challenge to the award passed by the learned Sole Arbitrator, Sri Daljit Singh on 19.04.2018 in the arbitration matter, PTC Techno Pvt. Ltd. Vs Samsung India Electronics Pvt. Ltd.
Sri Navin Sinha, learned Senior Counsel assisted by Sri Kartikeya Saran and Sri Neeraj Singh, counsel for the opposite party has raised a preliminary objection contesting the maintainability of the application under Section 34 of the Act of 1996, before this Court.
The submission of the learned Senior Counsel is that the foot and the forum for challenge to an arbitral award have been provided in the Act of 1996. As per the scheme of the Act of 1996 the Allahabad High Court does not have the jurisdiction to entertain the instant application. Learned Senior Counsel relies upon the law laid down by the Hon'ble Supreme Court in the case of TDM Infrastructure Pvt. Ltd. Vs UE Development Pvt. Ltd. reported at (2008) 14 SCC 271.
Learned Senior Counsel has called attention to various provisions of the Act of 1996 and amendments to the Act made over the years which shall be considered in the course of the judgment.
Sri S. Rashid and Ravi Anand Agarwal learned counsels for the applicant do not seriously dispute the aforesaid contentions. They however contend that the opposite party is a South Korean Company.
The Act of 1996 is a complete code to ensure a fair, efficient and expeditious disposal of matters relating to arbitration. The parties to the arbitration agreement are also the parties in the instant application under Section 34 of the Act of 1996. The opposite party in the application is described as follows:-
Samsung India Electronics Pvt. Ltd.
B-1, Sector 81, Phase II Noida-201305 Gautam Budh Nagar A certificate of incorporation of the opposite party taken out by the Registrar of Companies, N.C.T. of Delhi & Haryana, under Section 31 (i) of the Companies Act, 1956 is appended to the application. The aforesaid certificate records that Samsung India Electronics Ltd. is incorporated under the Companies Act, 1956 (No. 1 of 1958) as a Ltd. Company. A fresh certificate of incorporation was issued consequent to the change of name and conversion to a Pvt. Ltd. Company. A fresh certificate of incorporation issued by Registrar of Companies, N.C.T. of Delhi & Haryana on 17.08.2005 certifies that w.e.f. 27.08.2005 the name of the company was changed to Samsung India Electronics Pvt. Ltd.
These are certificates are admitted by parties. They are appended to the application filed by the applicant. The aforesaid certificates disclose that the opposite party Samsung India Electronics Pvt. Ltd. is a body corporate incorporated in India. On these limited but also admitted facts the question of law shall turn.
Section 34 provides for a challenge or recourse to a Court of law against an arbitral award and states thus:-
"34. Application for setting aside arbitral award.
1. Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and subsection (3).
2. An arbitral award may be set aside by the Court only if-
a. the party making the application furnishes proof that-
i. a party was under some incapacity, or ii. the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or iii. the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or iv. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or v. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or b. the Court finds that-
i. the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or ii. the arbitral award is in conflict with the public policy of India. Explanation.-Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
3. An application for setting aside may not be made after three months have elapsed from the date on which die party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had bow disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
4. On receipt of an application under sub-section (1), the Court may, where it is 16 appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."
Section 2 (e) (i) of the Act of 1996 defines the word 'Court' and is extracted here under:-
2. Definitions:
e. "Court" means-
(i) in the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not-include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;
Section 2 (f) bears relevance to the controversy. However knowledge of the legislative history of provision is vital to understand the scope of the provision.
At this stage it would be apposite to take note of the legislative history of Section 2 (f) which was (amended by Act no. 3 of 2016).
Section 2 (f) as it stood prior to the amendment defined international commercial arbitration in following terms:-
"2 (f). "international commercial arbitration" means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in for in India and where at least one of the parties is-
i. an individual who is a national of, or habitually resident in, any country other than India; or ii. a body corporate which is incorporated in any country other than India; or iii. a company or ail association or a body of individuals whose central management and control is exercised in any country other than India; or iv. the Government of a foreign country;"
The scope of the terms "international commercial arbitration" as stipulated in the unamended Section 2(f) came up for consideration before the Hon'ble Supreme Court in the case of TDM Infrastructure Pvt. Ltd. (supra). The legal controversy before the Hon'ble Supreme Court was set out in paragraph 14 of the said judgment which is reproduced here under:-
"14. Whereas Part I of the 1996 Act deals with domestic arbitration, Part II thereof deals with the Foreign Award. The term "International Commercial Arbitration" has a definite connotation. It inter alia means a body corporate which is incorporated in any country other than India. However, according to the petitioner, it is a company whose central management and control is exercised in any country other than India and, thus, despite the fact that the company is incorporated and registered in India, its central management and control being exercised in Malaysia, it will come within the purview of Clause (iii) of Section 2(1)(f) of the 1996 Act."
After due consideration of the scheme of the Act of 1996, the Hon'ble Supreme Court clarified the ambit and meaning of the phrase "international commercial arbitration" in the Act. The Hon'ble Supreme Court set the controversy to rest by holding thus:-
"19. Determination of nationality of the parties plays a crucial role in the matter of appointment of an arbitrator. A company incorporated in India can only have Indian nationality for the purpose of the Act. It cannot be said that a company incorporated in India does not have an Indian nationality. Hence, where both parties have Indian nationalities, then the arbitration between such parties cannot be said to be an international commercial arbitration.
20. The learned Counsel contends that the word "or" being disjunctive, Clause (iii) of Section 2(1)(f) of the 1996 Act shall apply in a case where Clause (ii) shall not apply. We do not agree. The question of taking recourse to Clause (iii) would come into play only in a case where Clause (ii) otherwise does not apply in its entirety and not where by reason of an exclusion clause, consideration for construing an agreement to be an international commercial arbitration agreement goes outside the purview of its definition. Once it is held that both the companies are incorporated in India, and, thus, they have been domiciled in India, the arbitration agreement entered into by and between them would not be an international commercial arbitration agreement and, thus, the question of applicability of Clause (iii) of Section 2(1)(f) would not arise. "
The Law Commission of India saw enduring value in the proposition of law laid down in the judgment entered by the Hon'ble Supreme Court in the case of TDM Infrastructure Pvt. Ltd. (supra) and recommended relevant amendments to the Arbitration and Conciliation Act, 1996. The recommendations made by Law Commission merit consideration since they would assist in interpreting the provision at hand;
"A statute which provides for an arbitration between the parties and a taxing statute must be interpreted differently. The term "International Commercial Arbitration" even does not find place in the UNCITRAL Model Law. It finds place only in the English Arbitration Act which has also not been given effect to."
The provision which comes up for consideration in this case was thereafter brought into existence by the Arbitration and Conciliation (Amendment) Act, 2015. The statement of objects and reasons of the Act are a reliable guide to the intent of the legislation. The statement of objects are reproduced herein for ease of reference:-
"1. The general law relating to arbitration is contained in the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act). The Act, which is based on the UNCITRAL Model Law on International Commercial Arbitration, as adopted in 1985 by the United Nations Commission on International Trade Law (UNCITRAL), applies to both international as well to domestic arbitration.
2. The Act was enacted to provide for speedy disposal of cases relating to arbitration with least court intervention. With the passage of time, some difficulties in the applicability of the Act have been noticed. Interpretation of the provisions of the Act by courts in some cases have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act. With a view to overcome the difficulties, the matter was referred to the Law Commission of India, which examined the issue in detail and submitted its 176th Report. On the basis of the said report, the Arbitration and Conciliation (Amendment) Bill, 2003 was introduced in the Rajya Sabha on 22nd December, 2003. The said Bill was referred to the Department-related Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice for examination and Report. The said Committee, submitted its Report to the Parliament on 4th August, 2005 wherein the Committee recommended that since many provisions of the said Bill were contentious, the Bill may be withdrawn and a fresh legislation may be brought after considering its recommendations. Accordingly, the said Bill was withdrawn from the Rajya Sabha.
3. On a reference made again in pursuance of the above, the Law Commission examined and submitted its 246th Report on "Amendments to the Arbitration and Conciliation Act, 1996" in August, 2014 and recommended various amendments in the Act. The proposed amendments to the Act would facilitate and encourage Alternative Dispute Mechanism, especially arbitration, for settlement of disputes in a more user-friendly, cost effective and expeditious disposal of cases since India is committed to improve its legal framework to obviate in disposal of cases.
4. As India has been ranked at 178 out of 189 nations in the world in contract enforcement, it is high time that urgent steps are taken to facilitate quick enforcement of contracts, easy recovery of monetary claims and award of just compensation for damages suffered and reduce the pendency of cases in courts and hasten the process of dispute resolution through arbitration, so as to encourage investment and economic activity.
5. As Parliament was not in session and immediate steps were required to be taken to make necessary amendments to the Arbitration and Conciliation Act, 1996 to attract foreign investment by projecting India as an investor friendly country having a sound legal framework, the President was pleased to promulgate the Arbitration and Conciliation (Amendment) Ordinance, 2015.
6. It is proposed to introduce the Arbitration and Conciliation (Amendment) Bill, 2015, to replace the Arbitration and Conciliation (Amendment) Ordinance, 2015, which inter alia, provides for the following, namely-
(i) to amend the definition of "Court" to provide that in the case of international commercial arbitrations, the Court should be the High Court;
(ii) to ensure that an Indian Court can exercise jurisdiction to grant interim measures, etc., even where the seat of the arbitration is outside India;"
(iii) an application for appointment of an arbitrator shall be disposed of by the High Court or Supreme Court, as the case may be, as expeditiously as possible and an endeavour should be made to dispose of the matter within a period of sixty days
(iv) to provide that while considering any application for appointment of arbitrator the High Court or the Supreme Court shall examine the existence of a prima facie arbitration agreement and not other issues;
(v) to provide that the arbitral tribunal shall make its award within a period of twelve months from the date it enters upon the reference and that the parties may, however, extend such period up to six months, beyond which period any extension can only be granted by the Court, on sufficient cause,
(vi) to provide that a model fee Schedule on the basis of which High Courts may frame rules for the purpose of determination of fees of arbitral tribunal, where a High Court appoints arbitrator in terms of section 11 of the Act;
(vii) to provide that the parties to dispute may at any stage agree in writing that their dispute be resolved through fast track procedure and the award in such cases shall be made within a period of six months;
(viii) to provide for neutrality of arbitrators, when a person is approached in connection with possible appointment as an arbitrator
(ix) to provide that application to challenge the award is to be disposed of by the Court within one year
7. The amendments proposed in the Bill will ensure that arbitration process becomes more user-friendly, cost effective and lead to expeditious disposal of cases.
8. The Bill seeks to replace the aforesaid Ordinance."
Section 2 (f) of the Act of 1996, after amendment and as applicable to the facts of this case, speaks thus:-
f. "international commercial arbitration" means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in for in India and where at least one of the parties is-
i. an individual who is a national of, or habitually resident in, any country other than India; or ii. a body corporate which is incorporated in any country other than India; or iii. (*****) an association or a body of individuals whose central management and control is exercised in any country other than India; or iv. the Government of a foreign country;
"Section 2(f) in clause (f), in sub-clause (iii) the words "a company or" shall be omitted;
Clearly the nationality of parties and place of incorporation of a company are the conclusive tests to establish whether the arbitration is an "international commercial arbitration." The place of incorporation of a body corporate determines its nationality for the purpose of the Act of 1996.
It is not disputed that applicant is a company incorporated in India. Likewise it has been found that the opposite party is a body incorporated in India. For the purpose of the Act of 1996, both contesting parties have Indian nationality.
The sequitor of this finding of fact and the proposition of law made earlier, is that the agreement in issue does not satisfy the prerequisites of an "international commercial agreement" under section 2(f) of the Act of 1996. The arbitration agreement which is the subject matter of controversy cannot be called an "international commercial arbitration" under Section 2 (f) of the Act of 1996.
The question then arises whether this Court is competent to entertain the instant application under Section 34 of the Act of 1996. Section 2(e) (i) of the Act of 1996, will be applicable to the facts of this case, to determine the jurisdiction of this Court to entertain the instant application.
The Allahabad High Court does not exercise ordinary original civil jurisdiction, hence as per Section 2 (e) (i) of the Act of 1996 the instant application is not maintainable before this Court. The Allahabad High Court does not have the jurisdiction to try the instant application.
At this stage, learned counsel for the applicant submits that liberty may be granted to approach the competent court and the competent court may condone the delay in instituting the proceedings under Section 34 of the Act of 1996.
It is always open to the applicants to approach the competent court in accordance with law and make any such prayers which are tenable in law.
The application is dismissed.
Order Date :- 26.2.2019 Pravin