Andhra HC (Pre-Telangana)
11-11-2011 vs Progressive Construction Limited, A ...
Bench: N.V. Ramana, K.S. Appa Rao
THE HONOURABLE SRI JUSTICE N.V. RAMANA AND THE HONOURABLE SRI JUSTICE K.S. APPA RAO
C.M.A. NOS. 117 OF 2011 and Batch
11-11-2011
Progressive Construction Limited, a company incorporated under the Provisions
of Companies Act, having its registered office at 7th Floor, Raghava Towers,
Chirag Ali Lane, rep., by its Senior Manager.
The Louis Berger Group Inc., Banjara Hills, Hyderabad, rep., by its Senior Vice
President, and others.
Counsel for the Appellant: Sri N. Subba Rao.
Counsel for the Respondents: Sri Madhava Rao Ambadipudi, Sri S. Niranjan Reddy
and M. Narender Reddy
<GIST:
> HEAD NOTE:
? Cases referred
(2002) 4 SCC 105
(2006) 11 SCC 521
(2006) 1 SCC 540
2005 (6) ALT 642 (DB)
(1992)1 SCC 534
1994(1) SCC 1
2000(10) SCC 130
2004(11) SCC 364
2003(8) SCC 319
2005(6) SCC 149
2005(7) SCC 605
2007(7) SCC 434
(1997) 1 SCC 568
(2002) 10 SCC 508
(2007) 8 SCC 110
(1996) 3 SCC 443
(2011) 6 SCC 179
(2006) 1 Guj LR 658
C.M.A. Nos. 117 and 118 of 2011
Common Judgment: (Per N.V. Ramana, J)
These two C.M.As. are directed against the order dated 14.02.2011, passed
by the II Additional Chief Judge, City Civil Court, Hyderabad, dismissing the
O.P. Ns. 2312 and 2313 of 2009 holding that the Court has no jurisdiction to
entertain them.
Facts of the case, which are necessary for disposal of these two appeals,
may briefly be noted, and they run thus:
The appellant, namely M/s. Progressive Constructions Ltd., is a Public Limited
Company. It is engaged in the business of and carrying out construction
activities throughout the world, including India. The appellant registers an
annual turnover of INR 10,000 Million. It undertakes all types of civil
engineering contracts, such as irrigation, power, water, rail, transport,
health, housing, industrial and commercial establishments, of any magnitude all
over the world.
The appellant states that the Government of Sudan received assistance from
the United States Agency for International Development under Sudan
Infrastructure Services Project, which is being administered by respondent No.1,
namely M/s. Louis Berger Group Inc. For execution of the said project,
respondent No.1 issued notification inviting applications for pre-qualification
design/build construction of Juba at Nimule Road in Southern Sudan. As per the
notification, respondent No.1 intended to pre-qualify interested civil work
contractors for the said work. The length of the project is about 192 KMs of
newly rehabilitated and all-weather surfacing, over 200 new pipe culverts and in
excess of 0.4 cubic meters of earth work, including 40,000 Cu. Mtr. of rock
excavation with controlled blasting techniques. Responding to the said
invitation, the appellant applied for pre-qualification. On 18.10.2008,
respondent No.1 gave confirmation/approval to bid for the construction of Nimule
to Juba Road, Southern Sudan. Thereafter, respondent No.1 invited bid by
dividing the contract into packages. Accordingly, the appellant submitted its
bid. On 16.04.2009, respondent No.1 issued letter of acceptance to the
appellant and further intended to enter into contract agreement with the
appellant for execution of the work as mentioned in the tender document.
Thereafter, on respondent No.1 entered into an agreement with the appellant on
30.04.2009 for execution of contract work worth US $ 3,40,10,704.34. It was
agreed thereunder that the work shall commence from 01.05.2009 and completed by
30.10.2010.
After entering into the agreement, the appellant states that they
mobilized men and machinery and applied for visas for the staff. They could
not get the visas in time. They brought this fact to the notice of respondent
Nos. 1 and 2 through series of correspondence. Immediately after getting visas,
they deployed their men at the project site. They have also shifted their
machinery from Northern Sudan, where they executed contract, to the present
project site, but there was delay as the Government of Southern Sudan, did not
grant permission for shifting. They have also brought this fact to the notice
of respondent Nos. 1 and 2. The appellant states that as required by Clause
10.1 of the agreement, they have furnished Performance Security, even though
furnishing of the same is condition precedent to the initial interim payment
that has to be paid by respondent Nos. 1 and 2. They also submitted performance
bank guarantee under pressure from respondent Nos. 1 and 2 to their
satisfaction.
The appellant states that even though they arranged men and material at the work
site and incurred expenditure, respondent No.1 did not pay the same. That even
though they brought to the notice of respondent Nos. 1 and 2 about the delays,
and also furnished performance security, respondent No.1 without considering the
same, addressed letter dated 01.06.2009 to the appellant alleging that there are
laches on their part in complying with the terms and conditions of the agreement
and called upon the appellant to comply the same. The appellant states that
they submitted detailed reply explaining the reasons for the delay in deployment
of men and machinery at the project. However, the appellant states that
respondent No.1, without considering their reply, addressed another letter
12.08.2009, indicating as if there was delay on the part of the appellant in
fulfilling the contractual obligations, and further calling upon the appellant
to explain why they should not recommend to the USAID, to terminate the contract
by invoking Clause 63.1 of the Federation Internationale Des Ingenieurs Conseils
(FIDIC). The appellant by their letter dated 17.08.2009 expressed their concern
over the threatening attitude of respondent No.1, and submitted their reply
explaining the delay in getting visas, non-cooperation of Sudan Government in
according permission for shifting of machinery etc. and also about the things
beyond their control.
Thereafter, respondent No.1 addressed another letter dated 22.08.2009 to the
appellant reiterating the very same issues and called upon the appellant to
explain the same. Again on 01.09.2009, respondent No.1 addressed letter to the
appellant referring to Clause 63.1 of FIDIC of the contract, wherein it is
stated that after 14 days from the issue of the said notice, respondent No.1 can
enter upon the site and expel the appellant by releasing them from their
obligations and liabilities under the contract. Responding to the same, the
appellant vide letter dated 16.09.2009 elaborated the reasons for the delay that
has occurred and the things beyond their control, and assured respondent No.1
that they would complete the project within the time period stipulated in the
agreement. In spite of giving assurance, the appellant states that respondent
No.1 addressed another letter dated 22.09.2009 raising concerns over the delay
in the execution of the project and called upon the appellant to send a recovery
plan with appropriate actions demonstrating serious commitment to the project.
As desired by respondent No.1, the appellant states that they submitted recovery
plan and assured completion of the project within the time stipulated in the
agreement. That their Managing Director and Chief General Manager also met the
officials of respondent No.1 at Washington and explained the reasons for the
delay and assured completion of the project in time. But it is the case of the
appellant, that respondent No.1, without considering the same, issued the
impugned notice of expulsion dated 21.10.2009 expelling the appellant from the
site.
According to the appellant, respondent No.1 to cover up its laches and to avoid
payment to the appellant has resorted to issuing the impugned notice of
expulsion dated 21.10.2009 expelling the appellant from the site. To
demonstrate the same, the appellant contended that the funds of respondent No.1
are lying in Nile Commercial Bank, which collapsed. Due to collapse of Nile
Commercial Bank, the funds of respondent No.1 which are kept in the said Bank,
are unavailable, and even if the appellants completes the project, respondent
No.1 will not be in a position to pay the money. Respondent No.1, knowing
fully well about the laches on its part, and also knowing fully well that it
will not be able to pay the money to the appellant even if it completed the
work, as the Nile Commercial Bank in which they kept their funds collapse,
played fraud upon the appellant by asking them to give recovery plan and at the
same time forced them to furnish performance bank guarantees, and even before
the appellant could act on the recovery plan, immediately after the appellant
furnished the bank guarantees, sought to encash the same. This conduct of
respondent No.1 shows their intention to defraud the appellant and unlawfully
enrich themselves of the monies of the appellant. The appellant further
contends that as per Clause 63.1 of FIDIC, 28 days notice period has to be given
to the contractor to show progress and in case of continued default, then they
can expel the contractor, but in the instant case, respondent No.1 without
following the said procedure, immediately after the appellant furnished the bank
guarantee, sought to encash them and issued the impugned notice of expulsion,
expelling the appellant from the site, which is illegal and arbitrary and
violative of principles of natural justice.
Thus contending, the appellant, pending initiation of arbitration proceedings,
filed the present O.Ps. under Section 9 of the Arbitration & Conciliation Act,
1996 hereinafter referred to as 'the Act') to declare the action of respondent
No.1, in issuing notice of expulsion dated 21.10.2009 to the appellant and the
consequences following therefrom as illegal and arbitrary, and to grant
injunction restraining respondent No.1 from issuing letter of demand to
respondent Nos. 3 and 4 in order to invoke/encash the bank guarantee and also
restrain them from demanding any amount from the appellant pursuant to
invocation of bank guarantee, and further restrain respondent Nos. 3 and 4 from
making any payment to respondent Nos. 1 and 2 pursuant to the
invocation/encashment of performance bank guarantees
The Court below by order dated 20.11.2009 while ordering notice to the
respondents, ordered status quo to be maintained by respondent Nos. 3 and 4 till
20.11.2007, which later was extended pending the O.P.
Respondent Nos. 1 and 2 having received the notice in the petition, filed
counter inter alia stating that as per Clause 67.3, the parties have agreed to
settle the disputes arising out of the agreement finally under the rules of
American Arbitration Association. The Arbitration proceedings shall be in
English and be held in Morris Town, New Jersey, U.S.A., or such other place as
is mutually acceptable to both the parties. Therefore, the civil Courts in
India, which includes the Courts at Hyderabad, have no jurisdiction to entertain
petitions in respect of the disputes arising out of the agreement.
They further contended that, even otherwise, the provisions of Indian
Arbitration and Conciliation Act are not applicable, because before entertaining
an application under Section 9 of the Act, and passing an order, the Court has
to satisfy for itself that there exist a valid arbitration agreement and the
applicant intends to take the disputes to the Arbitrator. The appellant having
not satisfied the Court that they intend to take the disputes to arbitration,
the present petition under Section 9 of the Act is not maintainable.
They further contended that a party seeking injunction from encashing bank
guarantee has to show prima facie case of established fraud and an irretrievable
injury. They further contended that as the appellant failed to meet the
deadlines and failed to rectify the lapses in spite of issuing several notices,
respondent No.1 issued the impugned notice of expulsion, and it cannot be said
to be illegal or arbitrary.
At any rate, they contended that since the Courts in India, including the Courts
at Hydeabad, have no jurisdiction to entertain petitions, involving disputes
arising out of the agreement in question, the Court has no jurisdiction to
entertain the present petition, and prayed to dismiss the petition by setting
aside the order of status quo granted earlier.
Respondent Nos. 3 and 4 also filed their respective counters.
The Court below considering the rival contentions, framed the following two
points for determination:
1. Whether the City Civil Court, Hyderabad has no territorial jurisdiction to
entertain the petition in view of the agreement between the parties to hold the
arbitration proceedings in Morris Town, New Jersey, United States of America?
2. Whether the appellant is entitled for injunction restraining the first
respondent from invoking the performance bank guarantee?
The Court below upon considering the above points in the light of the pleadings
of the rival parties and considering the evidence placed, answered point No.1 in
favour of respondent No.1 and against the appellant holding that as the parties
have specifically decided to settle the disputes under the Rules of American
Arbitration Association and arbitration proceedings shall be in English and be
held in Morris Town, New Jersey, U.S.A., the principal Civil Court at Hyderabad
has no territorial jurisdiction to entertain an application under Section 9 of
the Arbitration and Conciliation Act and; it also answered point No.2 in favour
of respondent No.1 and against the appellant that since arbitration proceedings
initiated by the appellant are pending, and even assuming that the Court has
jurisdiction to entertain the appellant, yet it cannot grant the relief of
declaration that the impugned notice of expulsion dated 21.10.2009 as null and
void or relief of injunction restraining respondent No.1 from invoking the
performance bank guarantee. Accordingly, by the judgment and decree, impugned
in the appeals, dismissed the petitions.
The learned counsel for the appellant submitted that the agreement entered into
between the parties provides an arbitration clause in Clause 6.1(b), whereunder
the parties have agreed that the contract shall be construed and interpolated in
accordance with the specified laws of State of New Jersey and laws of United
States of America. Clause 6.1(b) provides that the contract expressly agreed to
waive any right to invoke the jurisdiction of local/national courts where this
contract is performed and agrees to accept the exclusive jurisdiction of State
and Federal Courts at New Jersey, U.S.A., and since they are executing the work
at Southern Sudan, by virtue of operation of the above clause, the jurisdiction
of National Courts at Sudan itself are excluded and not the jurisdiction of
Indian Courts. Therefore, according to the appellant, the Courts in India,
namely the Courts at Hyderabad have got jurisdiction to entertain the present
petition filed under Section 9 of the Act, unless the parties specifically
agreed to bar the jurisdiction of Indian Courts. The arbitral clause in the
agreement provides exclusion of jurisdiction of Courts at Sudan and not the
Indian Courts.
He further submitted that respondent No.1 is having its Registered Office
at Hyderabad and its activities are also being regulated from its office at
Hyderabad. The appellant has submitted its tender for the contract and
furnished bank guarantee and complied with the other requisite formalities from
Hyderabad. In the absence of any specific clause excluding the jurisdiction of
Indian Courts, in particular, the interim measures being taken by the appellant
before initiation of arbitration proceedings as per the arbitration clause
contained in the agreement entered into by them with respondent Nos. 1 and 2,
the appellant contends that the jurisdiction of the civil Courts in India is not
waived. He relied on the judgments of the Apex Court in Bhatia International
v. Bulk Trading S.A.1, Jindal Vijayanagar Steel (JSW Steel Ltd.) v. Jindal
Praxair Oxygen Co. Ltd.2 and Transmission Corpn. of A.P. Ltd. v. Lanco
Kondapalli Power (P) Ltd.3 and of this Court in INCOMM Tele Limited v. Bharat
Sanchar Nigam Ltd.4.
He further submitted that respondent No.1 to cover up its laches, and to
avoid payment has resorted to issuing the impugned notice of expulsion dated
21.10.2009 expelling the appellant from the site. He submitted that Nile
Commercial Bank, where respondent No.1 kept its funds collapsed. Due to
collapse of Nile Commercial Bank, respondent No.1 will not be able to pay money
to the appellant even if it completes the work. Respondent No.1, being well
aware of this, yet played fraud upon the appellant by asking them to give
recovery plan and forcing them to furnish performance bank guarantees, and
immediately after the appellant furnished the bank guarantees, sought to encash
the same, which shows their intention to defraud the appellant and unlawfully
enrich themselves of the monies of the appellant. In support of his argument
that fraud vitiates entire proceedings, irrespective of other technicalities,
and as such, the Court has jurisdiction to grant injunction restraining
respondent Nos. 1 and 2 from invoking the bank guarantee, placed reliance on the
judgments of the Apex Court in Shrisht Dhawan v. Shaw Brothers5, S.P.
Chengalvaraya Naidu (Dead) by L.Rs. v. Jagannath (Dead) by L.Rs.6, Delhi
Development Authority v. Skipper Construction Co. (P) Ltd.7, Commissioner of
Customs v. Essar Oils Ltd.8, Ram Chandra Singh v. Savitri Devi9, State of A.P.
v. T. Suryachandra Rao10, Bhurao Dagdu Paralkar v. State of Maharashtra11 and
Tanna & Modi v. CIT, Mumbai XXV12
Hence, he submitted that the Courts in India, including those at Hyderabad, have
jurisdiction to entertain the present petition, and the Court below committed an
error in dismissing the petitions. He relied on the judgments of the Apex Court
in U.P. State Sugar Corporation v. Sumac International Ltd.13, State of Haryana
v. Continental Construction Ltd.14 and Himadri Chemicals Industries Ltd. v. Coal
Tar Refining Co.15
On the other hand, the counsel for the respondent Nos. 1 and 2 contended
that the agreement was not entered in India. The agreement entered between the
parties contains arbitration clause whereunder the parties have agreed that in
case of any dispute, they would be bound by the provisions of such clause. It
is also contended in view of the clause 6.1(b), the Courts in India, have no
jurisdiction to entertain any dispute, including the application filed under
Section 9 of the Act. He further contended that once the seat of arbitration is
agreed to between the parties, in that place alone, the parties have to agitate
their rights either for interim protection or to arbitrate the dispute between
them.
He relied on clause 6.1(b) of Section III of letter of offer in the agreement,
which reads as follows:
"This contract shall be construed and interpolated in accordance with
substantive laws of the State of New Jersey and the applicable laws of the
United States of America. By the execution of this contract, the contractor
expressly agrees to waive any rights to invoke jurisdiction of local national
Courts where this contract is performed and agrees to accept the exclusive
jurisdiction of the State and federal courts of New Jersey, U.S.A."
According to the learned counsel, in view of the above terms agreed to
between the parties, the Courts in India have no territorial jurisdiction to
entertain any application either under Part I or Part II of Arbitration Act.
He relied on the judgment of the Apex Court in South East Asia Shipping Co. Ltd.
v. Nav Bharat Enterprises Pvt. Ltd.16 in support of his contention that
execution of performance guarantee at a particular place, will not give cause of
action, to file suit at a place other than the place agreed to under the
agreement. Insofar as the contention of fraud raised by the appellant is
concerned, the learned counsel for respondent Nos. 1 and 2 contended that though
the plea of fraud is raised by the appellant before the trial Court, the same
was not proved by adducing appropriate direct evidence. He further submitted
that the question of going through material with regard to fraud would arise
only in cases where the court has jurisdiction to entertain the petition filed.
He further supported the findings arrived by the trial Court in dismissing the
O.P. and submitted that the order passed by the trial Court does not suffer
from any infirmity though it gave finding on merits even after it came to the
conclusion that it has no territorial jurisdiction to entertain the petitions.
The counsel for the appellant, in his reply, reiterated his submission on
territorial jurisdiction of the Courts in India and fraud. He also contended
that the trial Court erred in coming to conclusion that plea of fraud was not
raised in the pleadings and sought for setting aside the order of the trial
Court. He strongly relied on the judgment of the Supreme Court in Bhatia
International Case and prayed for allowing the appeal.
Having heard the learned counsel for the appellant and the learned counsel
for respondent Nos. 1 and 2 and perused the judgment and award under appeal, the
following questions arise for consideration in these appeals:
1) Whether the Courts in India have territorial jurisdiction to entertain the
application under Section 9 of the Act?
2) Whether the trial Court is justified in recording the findings on facts,
having coming to the conclusion that Courts have no jurisdiction to entertain
application under
Section 9 of the Act, as the application itself is for an interim measure to
protect the interest of parties pending arbitration between the parties?
3) Whether the respondent committed fraud on appellant?
In re Question No.1:
The appellant is a Public Limited Company having its Registered Office in
Hyderabad. It entered into an agreement with respondent No.1, having its
Registered Office at U.S.A. The work required to be executed by the appellant
is at Southern Sudan. The material on record indicates that respondent No.1 is
an International Consulting Firm, having its Headquarters at Morristown, New
Jersey, U.S.A., and Branch Office at Hyderabad. It invited bids to execute work
at Southern Sudan. The bid submitted by the appellant was accepted for
packages. The agreement was entered between the appellant and respondent No. 1
on 30.04.2009. As per the terms of the contract, bank guarantees are required
to be furnished by the appellant. The appellant obtained the bank guarantees
from its bankers at Hyderabad and furnished the same to respondent No.1.
Respondent No.1, during the subsistence of the contract, terminated the contract
on various allegations and sought to encash the bank guarantees. The appellant
filed O.Ps. under Section 9 of the Act seeking an injunction restraining
respondent No.1 not to encash the bank guarantees. The injunction was granted
by the Court below, pending O.P. injuncting respondent No. 1 not to encash the
bank guarantees by maintaining the status quo with regard to bank guarantees, by
both parties.
The contention of appellant is that the Courts in India have territorial
jurisdiction as its Registered Office is at Hyderabad, the bid was submitted
from Hyderabad and bank guarantees were also obtained at Hyderabad and as such
part of cause of action arose at Hyderabad and therefore the Courts at Hyderabad
had territorial jurisdiction.
We are unable to agree with this submission of the appellant. The appellant
and the respondents in Clause 67.3 of the agreement, agreed to the arbitration
clause, which to the extent relevant reads:
Any dispute in respect of which:
(a) the decision, if any, of the Engineer has not become final and binding
pursuant to sub-clause 67.1, and
(b) amicable settlement has not been reached within the period stated in sub-
clause 67.2,
shall be finally settled, unless otherwise specified in the contract, under the
Rules of Conciliation and Arbitration of the International Chamber of Commerce
by one or more arbitrators appointed under such Rules.
The appellant and the respondents further in Appendix to Bid, relating to
contract documents at Clause 6.1(b) agreed as follows;
The contract shall be construed and interpolated in accordance with the
substantive laws of the State of New Jersey and the applicable laws of the
United States of America. By the execution of this contract the contractor
expressly agrees to waive any rights to invoke jurisdiction of local national
courts where this contract is performed and agrees to accept the exclusive
jurisdiction of the State and Federal Court of New Jersey, USA.
From a plain reading of the above clauses, it becomes clear that the appellant
and respondent No.1 under the agreement have agreed for final settlement of the
disputes under the Rules of Conciliation and Arbitration of the International
Chamber of Commerce by one or more arbitrators. They have also agreed that the
contract shall be construed and interpolated in accordance with the substantive
laws of the State of New Jersey and the applicable laws of the United States of
America. By the execution of the contract, the appellant has agreed to waive
their right to invoke the jurisdiction of the local national courts where the
contract is performed (Southern Sudan) and also further agreed to accept the
exclusive jurisdiction of the State and Federal Court of New Jersey, USA. They
nowhere agreed to the jurisdiction of the Courts in India.
It is the contention of the appellant that since it is an international
arbitration, and as part of cause of action has arising at Hyderabad, the
appellant is entitled to invoke the jurisdiction of the Courts at Hyderabad in
India. This contention of the appellant is bereft of any merit. Section 2(f)
of the Act defines "international commercial arbitration" to mean an arbitration
relating to disputes arising out of legal relationships, whether contractual or
not, considered as commercial arbitration under the law in force 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 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 7, which deals with "arbitration agreement", defines
"arbitration agreement", to mean an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may arise between
them in respect of a defined legal relationship, whether contractual or not.
The Act does not differentiate between "arbitration" and "international
commercial arbitration". In view of that, "arbitration" cannot be
differentiated with "international commercial arbitration". Once the parties
agreed to the juridical seat of arbitration by concluded agreement between them,
they are bound by such clause.
The learned counsel for the appellant submitted that the facts of the present
case is squarely covered by the judgment in Bhatia International v. Bulk Trading
S.A, wherein the apex Court, upon perusal of the facts of the said case, held
that in the absence of any specific exclusion of jurisdiction of Indian Courts,
Section 9 of the Act has application, even though arbitration required to be
arbitrated outside the territory of India. In the instant case, as per the
agreed terms between the parties, as noticed earlier, the law applicable in
U.S.A. alone is applicable and the seat of arbitration is New Jersey. The said
clause without any ambiguity agreed for the jurisdiction of the Courts at U.S.A.
The apex Court recently had an occasion to consider the judgment in Bhatia
International v. Bulk Trading S.A. in Dozco India Private Limited v. Doosan
Infracore Company Limited17 and held:
The learned single Judge of the Gujarat High Court in Hardy Oil & Gas Ltd. V.
Hindustan Oil Exploration Co. Ltd.18 referred to para 32 of the judgment in
Bhatia International v. Bulk Trading S.A. and observed that once the parties had
agreed to be governed by any law other than Indian law in cases of international
commercial arbitration, then that law would prevail and the provisions of the
Act cannot be invoked questioning the arbitration proceedings or the award.
This is evident from para 11.3 of the judgment, which is extracted below:
11.3. However, Their Lordships observed in para 32 that in cases of
international commercial arbitration 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. In that case laws or rules chosen by the parties would
prevail. Any provision, in Part I, which is contrary to or excluded by that law
or rules would not apply. Thus, even as per the decision relied upon by the
learned advocate for the appellant, if the parties have agreed to be governed by
any law other than Indian law in cases of international commercial arbitration,
same would prevail. In the case on hand, it is very clear even on plain reading
of Claus 9.5.4. that the parties' intention was to be governed by English law in
respect of arbitration. It is not possible to give a narrow meaning to this
clause as suggested by learned Senior Advocate Mr. Thakore that it would apply
only in case of dispute on arbitration agreement. It can be interpreted only to
mean that in case of any dispute regarding arbitration, English law would apply.
When the clause deals with the place and language of arbitration with a specific
provision that the law governing arbitration will be the English law, such a
narrow meaning cannot be given. No other view is possible in the light of
exception carved out of Clause 9.5.1 relating to arbitration. Term
'arbitration', in Clause 9.5.4 cannot be taken to mean arbitration agreement.
Entire arbitral proceedings have to be taken to be agreed to be governed by
English Law.
In our opinion, the learned Single Judge of the Gujarat High Court had rightly
followed the conclusion recorded by the three-Judge Bench in Bhatia
International v. Bulk Trading S.A. and held that the District Court, Vadodara
did not have the jurisdiction to entertain the petition filed under Section 9 of
the Act because the parties had agreed that the law governing the arbitration
will be English law.
(emphasis supplied)
In view of the above, and having regard to the arbitration clauses in the
agreement, entered into by and between the appellant and respondent No.1, as
extracted above, we are of the considered opinion, the jurisdiction of Indian
Courts is excluded by an express exclusion in terms of the agreement entered
into between the appellant and respondent No.1. Since the juridical seat of
arbitration is New Jersey, U.S.A., as agreed by the parties, the contract shall
be construed and interpolated in accordance with the substantive laws of the
State of New Jersey and applicable laws of U.S.A., and as such, the Courts in
India have no territorial jurisdiction to resolve the disputes arising out of
the contract entered into by and between the appellant and respondent No.1, even
if a part of cause of action has arising within the jurisdiction of the Indian
Courts. Therefore, the theory of part of cause of action arose in Hyderabad,
put forth by the counsel for the appellant, is wholly misconceived and the
citations relied on by the counsel for the appellant both on the ground of
jurisdiction and conferring jurisdiction on the ground of fraud, have no
relevance in view of the facts and circumstances of the case. Accordingly, it
is held that the Court below has no territorial jurisdiction to entertain the
present petition.
In re Question No. 2:
The arbitration proceedings under Section 9 of the Act cannot be equated
with proceedings in a regular suit. The application under Section 9 is
legislated to protect the interest of parties before initiation of arbitration
proceedings or during the pendency of the proceedings. It is never the intention
of the Legislature to bypass the arbitration clause totally. While determining
the application under Section 9 of the Act, it is required to determine the need
to protect the property pending before the arbitration. Once the Court finds
that it has no territorial jurisdiction to entertain the matter, the only course
open to the Court is to reject the application to enable the parties to go
before the competent Court, instead of making a decision on merits. In case it
proceeds and records the findings on merits, it would affect the rights of the
parties on merits. The law is well settled that any finding or observations
made by a Court, which has no jurisdiction to entertain a suit or application
would be coram non judice (a Court which has no jurisdiction to decide the
matter). In view of the above, we are of the considered opinion that the
findings recorded by the Court below that the appellant has no prima facie case
in his favour for grant of interim relief under Section 9 of the Act and other
findings recorded on merits, cannot be sustained and accordingly set aside.
This point is answered accordingly.
In re Question No. 3:
It is the contention of the appellant that the Court below committed an error in
holding that the appellant has not taken specific pleading with regard to the
fraud played by respondent No.1, and that the appellant has to foresee the
contingencies. He submitted that the plea of fraud must be gathered from the
facts of the case and not based on isolated statement made. To demonstrate that
the respondents have played fraud upon the appellant, the learned counsel took
us through the voluminous correspondence. He submitted that as per the
concluded agreement, the appellant has to provide bank guarantees before
30.04.2009. While admitting that there was delay on the part in executing the
work, the appellant attributed to the said delay on account of obtaining visas
and permission from the Sudan Government for movement of the men and machinery
to the site. He contended that the appellant has not faced the problems which
he faced for executing the works in Northern Sudan. He also brought to the
notice of the Court the time at which the respondents forced the appellant to
furnish bank guarantees under the threat of canceling the agreement for the
delay in the execution of the work, which in fact, occasioned due to the non-co-
operative attitude of the respondents. He contended that Nile Commercial Bank,
where respondent No.1 had kept its monies relating to the project had collapsed.
The respondents knowing fully well that they will not be in a position to
execute the contract, due to loss of money kept by them in Nile Commercial Bank,
even after expiry of the time stipulated for furnishing the bank guarantees,
entered into correspondence with them and obtained bank guarantees. Even though
the appellant assured respondent No.1 that they will execute the work in time,
however, immediately after their furnishing the bank guarantees, they issued the
impugned notice of expulsion and sought to encash the bank guarantees. These
circumstances, the appellant contends, clearly go to show that respondent No.1
to defraud the appellant and to enrich themselves of the monies of the appellant
with a view to cheat them, played fraud upon the appellant to furnish the bank
guarantees and immediately after furnishing the same, issued the impugned notice
of expulsion and sought to encash the bank guarantees.
Since on question No.1, we have held that the Courts in India, and the Court
below has no jurisdiction to entertain the present petition, and since after
answering question No.2, we have set aside the findings recorded by the Court
below that the appellant has no prima facie case for grant of interim relief and
other findings on merits, we are of the opinion that any findings recorded by
the Court below, touching the aspect of fraud also have to be set aside.
Accordingly, we set aside the findings recorded by the Court below touching the
aspect of fraud. In view of this, we feel that there is no necessity for us to
determine the issue of fraud raised by the appellant in this petition, because
if we record any opinion on that aspect, it would affect the rights of the
parties. Therefore, we deem it appropriate to leave this issue open to the
parties to agitate the same before the Arbitration Tribunal, as both the counsel
represented during the course of arguments that the arbitration proceedings has
been initiated and pleadings were completed and the arbitrator is only required
to hear and dispose of the dispute. Accordingly, it is left open to the parties
to agitate this issue before the arbitrator.
The C.M.As. are accordingly allowed in part. No costs.
_________________
N.V. RAMANA, J.
_________________ K.S. APPA RAO, J. Dated: 11th November, 2011