2007 (5) SCC 692
The Petitioner (P) and Respondent (R) entered into an agreement with R agreeing to purchase from the P certain amount of of iron-ore fines at a definite price. Clause 17 of the agreement provided that if no settlement can be reached by negotiation and mutual agreement, the matter in dispute would be referred to and finally resolved by arbitration in Hong Kong in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any other statutory modification, enactment or amendment thereof for the time being in force.
P alleged that R failed to take delivery of the cargo and that in view of such breach, the petitioner incurred losses and other costs. Therefore, R is now liable to pay a definite sum. The refusal by R to pay the sum led to dispute and P invoked the arbitration agreement and furnished a panel of three names to enable R to give concurrence for appointment of any one of them as the sole arbitrator. R again refused to comply. This gave rise to the filing of application under Section 11(5) of the Act, seeking appointment of the sole arbitrator.
- Part I of the Act applies only where the place of arbitration is in India. As place of arbitration is Hong Kong, outside India, the provisions in Part I including Section 11 of the Act are inapplicable and this Court has no jurisdiction to appoint an arbitrator. It is the law of arbitration, as in force in Hong Kong, which will govern the arbitration.
- Since, the contract was abrogated by mutual agreement, the contract came to an end. With this the arbitration agreement which forms part of the contract, also came to an end.
- Whether an arbitration clause comes to an end, if the contract containing such arbitration agreement, was abrogated?
- Whether Section 11 of the Act is inapplicable in regard to the arbitrations which are to take place outside India?
- Whether the appointment of the Arbitrator and the reference arbitration are governed by the laws in force in Hong Kong and not by the Arbitration and Conciliation Act, 1996?
(w.r.t 1st Contention of the Respondent) The Court referred to the judgment in Bhatia International v. Bulk Trading S.A. and held that R’s contention cannot be sustained.
The relevant para of the judgement in Bhatia International v. Bulk Trading S.A. are cited below-
Sub-section (2) of Section 2 provides that Part I would apply where the place of arbitration is in India. To be immediately noted, that it is not providing that Part I shall not apply where the place of arbitration is not in India. It is also not providing that Part I will “only” apply where the place of arbitration is in India.
By omitting to provide that Part I will not apply to international commercial arbitrations which take place outside India the effect would be that Part I would also apply to international commercial arbitrations held out of India.
In cases 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. In that case the 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 will not apply.
(w.r.t 2nd contention of the Respondent): An arbitration clause is a collateral term in the contract, which relates to resolution disputes, and not performance. Even if the performance of the contract comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract. Sub-section (1) of Section 16 of the Act makes it clear that while considering any objection with respect to the existence or validity of the arbitration agreement, an arbitration clause which forms part of the contract, has to be treated as an agreement independent of the other terms of the contract; and a decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. The first contention is, therefore, liable to be rejected.
CONCLUSION: An independent arbitrator may be appointed as the sole Arbitrator, keeping in view Sub-section (9) of Section 11 which provides that in the case of appointment of a sole arbitrator in an international commercial arbitration, the Chief Justice of India or his designate may appoint an arbitrator of a nationality other than the nationality of the parties if the parties belong to different nationalities.