Madras High Court
M/S Alagar Exportsthrough Its Partner vs M/S Islamic Republic Of Iran on 15 October, 2008
Author: K.Kannan
Bench: P.K.Misra, K.Kannan
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED: 15/10/2008
CORAM
THE HON'BLE MR.JUSTICE P.K.MISRA
AND
THE HON'BLE MR.JUSTICE K.KANNAN
CMA.No. 591 of 2008
and
CMA.No.592 of 2008 & M.P.Nos.2 + 2 of 2008
and
CRP.(PD).Nos.753 and 754 of 2008 and M.P.Nos.1 + 1 of 2008
CMA.Nos.591 and 592 of 2008:
M/s Alagar Exportsthrough its Partner
A.Jeyaraman ...Appellant in both CMAs.
Vs.
1.M/s Islamic Republic Of Iran
Shipping Lines of Tehran
through its Power Agent.
2. David Farrington
Fair Wind Shipping ltd., ...Respondents in
both CMAs.
Civil Miscellaneous Appeals are filed against the order passed in
Arb.O.P.No.222 and 223 of 2007 on the file of Principal District Court,
Thoothukudi dated 5.3.2008.
!For Appellant ...Mr.K.Srinivasan
^For Respondent No.1 ... Mr.R.Vijayakumar
For Respondent No.2 ... No appearance
CRP.NOS.753 and 754 OF 2008:
#M/s Alagar Exports
through its Partner A.Jeyaraman ...Petitioner in both
CRPs.
Vs.
$M/s Islamic Republic of Iran
Shipping Lines of Tehran
through its Power Agent
Hemant Prabhakar Kupavadeka ...Respondent in both CRPs.
These Civil Revision Petitions are filed against the order passed
in E.P.Nos.22 and 23 of 2007 in Arbitration Award on the file of Principal
District Court, Thoothukudi dated 5.3.2008.
!For Petitioner... Mr.K.Srinivasan
^For Respondent... Mr.R.Vijayakumar
-----
:JUDGMENT
K.KANNAN,J Nature of Lis:
1.The batch of cases arise out of the common order passed by the District Judge, Thuthukudi allowing the enforcement of a 'foreign award' through execution petitions filed in EP 22 and 23 of 2007 in favour of the respondent. The appellant had filed OPs 222 & 223/2007 for setting aside the 'foreign award' rendered by the arbitrator. Consequent on allowing further proceedings in EPs, the District Judge dismissed them summarily, even before serving the Ops on the respondent. The CRPs are against the order in EPs and CMAs are against the summary dismissals in OPs. The appellant/revision petitioner will be referred as judgment debtor and the respondent will be referred as the decree holder.
Nature of Foreign Award
2. The decree holder is Islamic Republic of Iran Shipping Lines of Tehran. The judgment debtor is M/s Alagar Exports. By a charterparty dated 9.4.2001, the Decree holder had undertaken to transport a certain quantity of cargo of bulk salt. The voyage was from Kandla, India to Belawan and Kosichang, Thailand. The charterparty stipulated demurrage charges payable in US $ for laytime at the time of loading and discharging cargo that occasioned for fault of the vessel. The demand made for US $ 67,915.53 was refused to be paid by the exporter and by invoking the arbitration clause in the charterparty, David Farrington, London was appointed to act as Sole Arbitrator. He purported to enter reference on 5. 6.2002. The decree holder scaled down the demand for US $ 59,433.98 in his claim statement. Notices of appointment of arbitrator, notice of hearings before the arbitrator were alleged to have been served on the judgment debtors and consequent on the latter's failure to participate in the proceedings, a final award was passed on 26th August 2004 for US $ 58,933.98, with costs and interest.
Proceedings for execution in India
3. Two EPs 22 and 23 of 2007 had been filed by decree holder against the judgment debtor before the District Court Thuthukudi for Rs.36,43,944.20 and Rs.40,09,835.90, with interest and costs respectively. The judgment debtor filed objections detailing several grounds, including the plea of non-issue of notice, the maintainability of EPs and the validity of the awards. The judgment debtor filed petitions under section 47 CPC read with sections 45-48 of the Arbitration and Conciliation Act,1996 stating that the award is not valid and executable and filed also petitions OP 222 and 223 of 2007 before the same court under section 34 of the Act for setting aside the award on various grounds.
The petitions filed in EP by the judgment debtor were unnumbered and the petitions for setting aside the awards had not even been served on the decree holder. The EPs alone had been taken up for consideration and allowed. Whle allowing the petitions, the District Judge observed that having regard to the fact that the foreign award was found to be enforceable, the petitions under section 47 CPC read with section 45-48 did not require to be re-appraised and decided the issue against the judgment debtor. Having regard to allowing the EPs, the Ops for setting aside the awards were summarily dismissed. Grounds of challenge
4. The grounds of challenge were both on procedural as well as substantial grounds. According to the judgment debtor, the petitions filed under section 47 CPC read with section 45-48 of Arbitration and Conciliation Act were dismissed even without numbering the same. The petitions for setting aside the award had similarly been dismissed without serving notice on the decree holder summarily by advancing the date of hearing by the only fact that further proceedings in the EPS were awarded. Of the substantive grounds, the judgment debtor would contend that when the petitions for setting aside the award were filed, the court ought to have put on hold execution petitions as the admission of the petitions under section 34 of the Act operated as automatic stay and the order passed allowing the EPs were contrary to law. The foreign award itself was not valid, since the judgment did not have any notice of arbitration proceedings at all. The alleged facsimile messaged did not arrive at all and the transmission reports relied by the decree holder as having been made by the arbitrator and the decree holder were concocted. The award was fraudulent and not enforceable. There were other grounds also relating to the so called wrong assumptions of the award relating to the calculation of lay hours at the port of discharge amounting misconduct of the arbitrator, the delay in the award affecting the law of limitation and the award as being opposed to public policy.
5.The decree holder counters the arguments by contending that counters in the EPs filed were in pari materia to what had been set forth in the petitions under section 47 CPC read with sections 45-48 of the Arbitration and Conciliation Act and the court below had, while dealing with the objections to the EPs had adverted to all the objections in the counter and the grounds set forth in the unnumbered petitions. Consequently, the judgment debtor could not be said to be prejudiced. The OPs for setting aside the foreign award was not maintainable in Indian Court, having regard to the express provisions relating to arbitral clause in the charterparty and the other relevant clauses in the document. According to the respondent's counsel, if the respondent did not object to want of notice in the applications filed by the judgment debtor, the latter cannot himself complain that notices should have been sent to the decree holder in the applications.
Enforceability of Foreign Award in India
6. The Arbitration and Conciliation Act defines a foreign award under section 45 thus:
"In this Chapter, unless the context otherwise requires, "foreign award" means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960-
(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and
(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies."
It is not in dispute before us that we are concerned with the enforcement of a foreign award, having been rendered by agreement between parties providing for resolution of disputes arising out putting the charter partery in operation through clause 36 of the Charter that "all disputes from time to time arising should, unless the parties agreed forthwith on a single Arbitrator, be referred to the final arbitration of two Arbitrators carrying on business in London who shall be engaged in the shipping trade and/or be LMAA members, one to be appointed by each of the parties. " The seat of arbitration as per the Charter is England. The requirements of proof of the award and the agreement having been satisfied under section 47 by the Executing Court, when the duly authenticated copies of arbitration award and the charter party were put in Court, the Award being a decree of Court became enforceable as per section 49 of the Act. The assumption of jurisdiction by the District Court at Thuthukudi was unexceptional, having regard to the fact that the judgment debtor and the properties that were sought to proceeded against were within the territorial jurisdiction of the executing court.
Grounds of post-award challenge under section 48 are the same as the grounds for setting aside the award under section 34 of the Arbitration Act The court before which a party puts in execution a foreign award may refuse enforcement if a judgment debtor challenges the award on any of the grounds mentioned under section 48 of the Act. The grounds are exhaustive:
Sub-section (1) of Section 48 lists five conditions, any one or more of which needs to be satisfied for refusing enforcement of foreign award. Clause (a): Incapacity When any of the parties to the agreement or both were under some incapacity as per the law applicable to them, enforcement may be refused. This clause also speaks of invalidity of agreement under the law to which the parties have subjected it or failing any reference thereto under the law of the country where the award was made.
Invalidity of an agreement may arise on account of factors like involuntariness, misrepresentation, fraud, undue influence, duress, etc., and non-compliance with the law governing the arbitration agreement.
Clause (b): Absence of hearing The violation of the principles of natural justice in arbitral proceedings is a ground for refusing enforcement. Inability to present the case for want of proper notice of appointment of arbitrator, or proper notice of the arbitral proceedings or for similar valid reason are covered by the provision. Notice of the arbitral proceedings is not complete without supply of statement of claim and copies of the documentary evidence to the defendant. Accordingly, a foreign award made in violation of this principle cannot be enforced. Where a party refuses to participate or chooses to remain silent in arbitral proceedings, the award cannot be set aside. Inability referred to must arise on account of factors which are beyond the control of that party or in disregard to the principle of equal treatment to parties.
Clause (c): Award on existing reference The award should restrict to questions actually submitted to the arbitral tribunal because the jurisdiction of the Tribunal is confined only to the terms of reference.
The proviso to this clause carves out an exception. It is to the effect that if the decision on matters submitted for reference and the decision on matters not submitted, are separable the former part may be enforced. It is for the party seeking enforcement to prove that separation is possible. Clause (d): Legality of composition of arbitral tribunal and procedure Under this clause, enforcement of a foreign award may be refused on the following grounds:
(a) the composition of the arbitral tribunal was not in accordance with the agreement; or
(b) arbitration procedure was not as agreed between the parties; or
(c) failing such agreement if the composition of the arbitral tribunal or the procedure was not in accordance with the law of the country where the arbitration took place.
Clause (e) : Award not yet binding, set aside, or suspended Under this clause, enforcement of a foreign award may be refused where the award has not yet become binding on the parties or the award has been either set aside or suspended by a competent authority of the country in which or under the law of which that award was made. The courts of the country in which or under the law of which the award was made have the exclusive jurisdiction and competence to set aside or suspend that award.
Sub section (2) affords two more grounds on which enforcement of an arbitral award may be refused by the court: (i) if the subject matter of difference between the parties is not capable of settlement by arbitration under Indian law; and (ii) its enforcement is contrary to the public policy of India. Section 34 contains similar provisions as grounds for setting aside the award. All the grounds under the section 48 are also available under section 34. Consequently, if a foreign award is susceptible to challenge under section 48, a fortiorari, it need not be set aside again under section 34 or put through the test of challenge under the said section. This obtains relevance in this case for two reasons:
After the foreign award was filed in court for execution, apart from filing objections on grounds available under section 48 and also through independent applications under section 47 CPC, the judgment debtor filed OPs 222 and 223 of 2008. By such a process, the judgment debtor wanted to contend that the filing of the applications under section 34 operated as automatic stay of execution and the court could not have proceeded with the execution. Section 48 itself provides as one of the grounds under clause (e) such an eventuality. If the foreign award had already been set aside, the enforceability does not arise. The respondent provides a tabulation that proves that grounds under section 48 are the same under section 34, which we reproduce as under:
SECTION 34 SECTION 48 Application for setting aside arbitral Award Conditions for enforcement of foreign awards (2) An arbitral award may be set aside by the Court only if-
(a) the party making the application furnishes proof that- (1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the Court 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
(a) the parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(iii) the party making the application was not given proper notice or the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present this case; or
(b) the party against whom the award is invoked was not given proper notice of the appointment of the 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
(c) the award deals with a difference 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, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or
(v) the compensation 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
(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
2 (b) the Court finds that-
(2) Enforcement of an arbitral award may also be refused if 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
(a) the subject matter of the difference is not capable of settlement by arbitration under the law of India; or
(ii) the arbitral award is in conflict with the public policy of India.
(b) the enforcement of the award would be contrary to the public policy of India;
Explanation - Without prejudice to the generality of sub-clause (ii) of clause
(b), 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. Explanation - Without prejudice to the generality of clause (b) of this sub section, 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.
Maintainability of petitions under section 34 in respect of foreign award, under the relevant clauses in charter party The petitions filed by the judgment debtor for setting aside the award under section 34 was dismissed by the District Court without adverting to the merits on the only ground that the award was found executable while disposing of the EPs. The appellant relied on the judgments of the Supreme Court in Bhatia International v Bulk Trading S.A. and another (2002) 4 SCC 105 and Venture Global Engineering v Satyam Computer Services Ltd and another 2008(1) CTC 348. In Bhatia International the Supreme Court dealt with the issue of when the arbitral agreement provided for a foreign country as a forum of arbitration, whether it was possible for an Indian court to grant interim protection under section 9. It said, it could on the ground that section 9 which was in Part I of the Act would apply to all arbitrations and to all proceedings and that included a foreign award also, unless the parties had contracted out of such a right. Venture Global has greater relevance because, there the foreign award had been put in execution in the foreign country where the award had been passed and a petition under section 34 had been filed in India. The Court while considering the contention that a foreign award could be set aside only before a competent authority of the country in which or under the law of which the award was made, said, "On close scrutiny of the materials and the dictum laid down in Three- Judge Bench decision in Bhatia International (supra), we agree with the contention of Mr.K.K.Venugopal and hold that paragraphs 32 and 35 of the Bhatia International (supra) make it clear that the provisions of part I of the Act would apply to all arbitrations including international commercial arbitrations and to all proceedings relating thereto. We further hold that where such arbitration is held in India, the provisions of Part I would compulsorily apply and parties are free to deviate to the extent permitted by the provisions of Part I. It is also clear that even in the case of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. We are also of the view that such an interpretation does not lead to any conflict between any of the provisions of the Act and there is no lacuna as such. The matter, therefore, is concluded by the three-Judge Bench decision in Bhatia International (supra)."
Therefore, the maintainability of section 34 petitions before the Indian court for setting aside the foreign award could not be in doubt. But having regard to the congruence of the grounds available under sections 34 and 48, the disposal under one section will conclude the issue under the other. The ideal procedure would have been to dispose of the petitions under the respective sections by a common order after a common trial by a common order instead of a summary rejection of petitions under section 34 after disposal of executability of the foreign award. If the petitions under section 48 had been numbered and a disposal on merits adverting to all the grounds therein, we would have let the matter to reside there. But the court below did not even number the petitions under section 48, but proceeded to dispose of the execution petitions on the mere consideration of the aspect whether a foreign award was enforceable in Indian Courts and proceeded to deal with the objections under section 48 in the same order in a laconic fashion.
We agree with the learned counsel for the respondent that even the execution petitions filed by the decree holder and objections filed by the judgment debtor adverting to the grounds under section 48 as substantial compliance, even if section 48 applications were not numbered. The Supreme Court has held in Fuerst Day Lawson Ltd v Jindal Exports Ltd (2001) 6 SCC 356 as follows:
" Thus, in our view, a party holding a foreign award can apply for enforcement of it but the court before taking further effective steps for the execution of the award has to proceed in accordance with Sections 47 to 49. In one proceeding there may be different stages. In the first stage, the court may have to decide about the enforceability of the award having regard to the requirement of the said provisions. Once the court decides that the foreign award is enforceable, it can proceed to take further effective steps for execution of the same. There arises no question of making foreign award a rule of court/decree again. If the object and purpose can be served in the same proceedings, in our view, there is no need to take two separate proceedings resulting in multiplicity of litigation. It is also clear from the objectives contained in para 4 of the Statement of Objects and Reasons, Sections 47 to 49 and the scheme of the Act that every final arbitral award is to be enforced as if it were a decree of the Court. The submission that the execution petition could not be permitted to convert as an application under Section 47 is technical is of no consequence in the view we have taken. In our opinion, for enforcement of a foreign award there is no need to take separate proceedings, one for deciding the enforceability of the award to make it a rule of the court or decree and the other to take up execution thereafter. In one proceeding, as already stated above, the court enforcing a foreign award can deal with the entire matter."
Proof of notices in arbitration proceedings go to root of the matter:
8. We have seen above that absence of hearing is one of the potent grounds of attack for the non-enforceability of a foreign award. The learned district judge has gloated over the issue by a reference to what is contained in the award itself about the notices and the copies of documents referring to the fax transmissions of notices by the decree holder before and at the arbitral proceedings and the notices of the arbitrator. When the award itself is under challenge, it would be question begging to allow the recitals in the award about service of notice to decide the issue of whether notices had been properly served. The counsel for the respondent referred us to the decision of the Supreme Court in SIL Import, USA v Exim Aides Silk Exporters (1999) 4 SCC 567, which has laid down in the context of notice requirements of section 138 of Negotiable Instruments Act as follows:
"15.Facsimile (or fax) is a way of sending handwritten or printed or typed material as well as pictures by wire or radio. In the West such mode of transmission came to wide use even way back in the late 1930s. By 1954, the International News Service began to use facsimile quite extensively. Technological advancement like facsimile, internet, e-mail etc. were in swift progress even before the Bill for the Amendment Act was discussed by Parliament. So when Parliament contemplated notice in writing to be given we cannot overlook the fact that Parliament was aware of modern devices and equipment: already in vogue."
The fax transmissions are all denied as having been received by the judgment debtor. The counsel for the respondent stated that all the copies of the documents filed in court have been filed in the paper book filed by the appellant/revision petitioner himself and he cannot deny them. This attempts to trivialize the ground of attack of want of notice taken by the judgment debtor. The court below has not marked any exhibits. If even without marking the documents, the court could have taken note of the documents in its file, it could be on matters of admitted documents. The facsimile messages could be copies because the fax transmission report must be of originals, when the truth is denied by the judgment debtor. The primary evidence is not before court nor are any explanations given for production of only the secondary evidence, even though the documents of proof of service had been specifically denied. The vital matter of service of notices and proof of opportunity for participation at the hearing could not have been matters of inference on conjectures. We are aware of the fact tht mere marking of documents themselves will not render the documents admissible. The proof of the same will have to confirm to the requirements of the Indian Evidence Act. The learned Judge has made references to the dates of communication of the Fax massages as found placed in the Arbitration awards and as stated by the decree holder in the execution petitions. We are afraid that it would be impermissible to accept the documentary evidence without adequate proof of the same in the manner known ot law viz. by requiring the decree holder to prove the mode of service with right of cross-examination given to the respondent. If the decree holder chooses not to let in any evidence at all, it would always be possible to make such judicial inference, as the law permits. The Judgment Debtor will also have adequate opportunity to explain the reference to tele-fax numbers found in the transmission reports and also give evidence regarding the alleged suspicious entries in the report, as contended by the Judgment debtor. Failure to consider all objections by way of grounds of challenge under section 48 of the Arbitration Act vitiates order The order of the learned District Judge raises three issues for consideration viz.
The court has dealt with under issue No.1. The aspect of the service of notices of the arbitral proceedings. The issue whether foreign award can be executed and challenged by eityher side in India under the Arbitration Act, cannot have any doubt any longer for the reasons given by us in the aforesaid paragraphs. The Court below has come to the correct conclusion that the foreign award can be enforceable, as if it were the decree under Section 48 of the Arbitration and Conciliation Act. It has not however adverted to several grounds urged by the Judgment debtor in the execution petition and replicated in the unnumbered petitions under Section 47 CPC read with 48 of the Arbitration and Conciliation Act as well as int he ground of challenge made in O.P.Nos.222 and 223 of 2008. The second issue regarding the fact whether the foreign award can be set aside on an re-appraisal in the ground set down under Section 48 as obtained, no more attention from learned District Judge, except to state that in view of his finding that the foreign award can be executed in a Court in India and for the reasons given by him under Issue No.1. Issue No.2 was not required to be dealt with in detail. This line of reasoning is clearly, in our view, not tenable. While we may observe that the merits of the award of the line of reasoning of the arbitrator could not be examined, in the proceedings under Section 48 or Section 34 of the Arbitration Act, as if it were an appealable order, the Couert will have to examine the enforcibility of the award under the grounds specifically adumberated in the sections. We have therefore to hold that the failure of the court below to examine all the objections by way of grounds of challenge under Sections 34 and 48 of the Arbitration and Conciliation Act vitiates to order of the learned District Judge.
Conclusion and ultimate disposition :
10. In the circumstances, we set aside the common order passed in Execution Petition Nos.22 and 23 of 2007 on the file of the Principal District Judge, Toothukudi. Consequently, the order of dismissal passed in O.P.NOS. 222 AND 223 of 2008 are also set aside. The unnumbered petitions under Section 47 CPC read with Section 48 of the Arbitration and Conciliation Act shall be numbered and taken up along with the matters that stand remitted to the Court below. It will be open to the decree holder to treat his own averments in the execution petitions and the objection filed for both the petitions in O.P.Nos.222 and 223 of 2008 as well as for the unnumbered petitions which have been directed to be numbered as referred to above. The decree holder if he so chooses, may also file his independent petitions to the aforesaid petitions. The pleadings shall be completed within fifteen days from the date of receipt of the records before the Court below and thereafter the learned District Judge is requested to fix the date of hearing after affording opportunity to both the parties to adduce such documentary and oral evidence on the issues touching upon the respective petitions and conclude the matter within the period of two months from the date of commencement of enquiry and proceed to pass final orders, as expeditiously as possible.
The CMAs, and CRPs. are disposed of on the above terms. No costs. Consequently, connected M.Ps. are closed.
VJY