different approaches depending upon the instrument falling for
interpretation. Legislative drafting is made by experts and is
subjected to scrutiny at different stages before it takes final
shape of an Act, Rule or Regulation. There is another category
of drafting by lawmen or document writers who are
professionally qualified and experienced in the field like drafting
deeds, treaties, settlements in court, etc. And then there is the
third category of documents made by laymen who have no
knowledge of law or expertise in the field. The legal quality or
perfection of the document is comparatively low in the third
category, high in second and higher in first. No doubt, in the
process of interpretation in the first category, the courts do
make an attempt to gather the purpose of the legislation, its
context and text. In the second category also, the text as well
as the purpose is certainly important, and in the third category
of documents like wills, it is simply intention alone of the
executor that is relevant. In the case before us, being a
contract executed between the two parties, the court cannot
adopt an approach for interpreting a statute. The terms of the
contract will have to be understood in the way the parties
wanted and intended them to be. In that context, particularly in
agreements of arbitration, where party autonomy is the
grundnorm, how the parties worked out the agreement, is one
of the indicators to decipher the intention, apart from the plain
or grammatical meaning of the expressions and the use of the
expressions at the proper places in the agreement.
Contextually, it may be noted that in the present case, the
respondent had invoked the provisions of English law for the
purpose of the initiation of the unsettled disputes. It has hence,
while interpreting an agreement, to be kept in mind that the
parties, intended to avoid impracticable and inconvenient
processes and procedures in working out the agreement. Potter
J. made a similar observation in Cargill International S.A. v.
Bangladesh Sugar and Food Industries Corporation7
:
“As Lord Goff observed in another context in Palm
Shipping v. Kuwait Petroleum [1988] 1 Lloyds Rep
500 at 502: “It is not a permissible method of
construction to propound a general or generally
accepted principal ... (and) ... then to seek to force
the provisions of the ... (the contract) ... into the
straightjacket of that principle.” On the other
hand, modern principles of construction require
7
[1998] 1 W.L.R. 461 CA.
the court to have regard to the commercial
background, the context of the contract and the
circumstances of the parties and to consider
whether, against that background and in that
context, to give the words a particular or restricted
meaning would lead to an apparently
unreasonable and unfair result.”
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7019 OF 2005
BHARAT ALUMINIUM COMPANY ... APPELLANT (S)
VERSUS
KAISER ALUMINIUM TECHNICAL
SERVICES INC. ... RESPONDENT
Dated;January 28, 2016
Citation;(2016)4 SCC126
1. The residue of the Constitution Bench Judgment in Bharat
Aluminium Company v. Kaiser Aluminium Technical
Services Inc. (2012) 9 SCC 552.
is the subject matter of the present appeal. At
the instance of the appellant, the Bench resolved the
conflicting, if not, confusing views on the applicability of Part I
of Arbitration and Conciliation Act, 1996 (hereinafter referred to
as ‘Arbitration Act’) and held that “… Part I of the Arbitration
Act is applicable only to all the arbitrations which take place
within the territory of India”, overruling a three-Judge Bench
decision of this Court in Bhatia International v. Bulk Trading
S.A. and another2
. Exercising its the power under Article 142
of the Constitution of India, the Constitution Bench however,
held that the law declared by it would only operate
prospectively. In other words, all agreements executed prior to
06.09.2012 were to be governed by the decision in Bhatia
International (supra).
2. In Bhatia International (supra), it was held that even in
cases of international commercial arbitrations held out of India,
provisions of Part I would apply unless the parties by agreement
express or implied, excluded all or any of its provisions. To
quote paragraph-32:
“32. To conclude, we hold that the provisions of
Part I would apply to all arbitrations and to all
proceedings relating thereto. Where such
arbitration is held in India the provisions of Part I
2
(2002) 4 SCC 105.
2Page 3
would compulsorily apply and parties are free to
deviate only to the extent permitted by the
derogable provisions of Part I. 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.”
3. Therefore, the simple question before us is whether the
parties by agreement, express or implied, have excluded wholly
or partly, Part I of the Arbitration Act.
4. The bare necessary facts of the case are that an
agreement dated 22.04.1993 was executed between the
appellant and the respondent with relation to supply of
equipment, and modernization and up-gradation of the
production facilities of the appellant at Korba in the state of
Chhattisgarh. Certain disputes arose between the parties and
the same were referred to arbitration. The arbitration
proceedings were held in England and the arbitral tribunal
made two awards in favour of the respondent dated 10.11.2002
and 12.11.2002. The appellant filed applications, under Section
34 of the Arbitration Act before the District Judge, Bilaspur,
which were dismissed. Aggrieved, the appellant filed appeals
3Page 4
before the High Court of Chhattisgarh. The High Court
dismissed the appeals.
5. Party autonomy being the brooding and guiding spirit in
arbitration, the parties are free to agree on application of three
different laws governing their entire contract – (1) proper law of
contract, (2) proper law of arbitration agreement and (3) proper
law of the conduct of arbitration, which is popularly and in legal
parlance known as curial law. The interplay and application of
these different laws to an arbitration has been succinctly
explained by this Court in Sumitomo Heavy Industries
Limited v. ONGC Limited and others3
, which is one of the
earliest decisions in that direction and which has been
consistently followed in all the subsequent decisions including
the recent Reliance Industries Limited and another v.
Union of India4
.
6. In order to ascertain the applicable laws, we have to
certainly refer to the relevant clauses of the arbitration
agreement, viz., Article 17 and Article 22, which read as
follows:
3
(1998) 1 SCC 305.
4
(2014) 7 SCC 603.
4Page 5
“Article 17 - ARBITRATION
17.1: Any dispute or claim arising out of or
relating to this agreement shall be in the first
instance endeavour to be settled amicably by
negotiation between the parties hereto and failing
which the same will be settled by arbitration
pursuant to the English Arbitration Law and
subsequent amendment thereto.
Article 17.2: The arbitration proceedings shall be
carried by two arbitrators, one appointed by the
Petitioner and one by Respondent chosen freely
and without any bias. The Court of arbitration shall
be wholly in London, England and shall use the
English language in the proceedings. The finding
and award of the Court of Arbitration shall be final
and binding.
Article 17.3: Before entering upon the
arbitration, the two Arbitrators shall appoint an
Umpire. If the two arbitrators are not able to reach
an agreement on the selection of an Umpire, the
Umpire shall be nominated by the International
Chamber of Paris.
Article 22: GOVERNING LAW
This agreement will be governed by the prevailing
law of India and in case of Arbitration, the English
Law shall apply.”
7. In order to coherently analyse the situation, we shall first
see the proper law of contract, the law governing the
arbitration agreement and finally the law governing the
procedure. Article 22 of the Arbitration Agreement leaves no
room for any doubt, and it has also not been disputed, that the
proper law of contract is Indian law. Therefore, crossing that
gate, we shall now proceed to the door on the Arbitration
Agreement.
8. Article 17 is solely on arbitration. Article 17.1 clearly
stipulates that the disputes or claims arising out of or relating
to the agreements, if not amicably settled by negotiation, will
be settled by the arbitration pursuant to the English Arbitration
Law and subsequent amendments thereto. The expression
“pursuant to”, according to Concise Oxford English Dictionary
means “in accordance with”. The New Oxford Dictionary of
English has also given the same meaning to the expression.
Words and Phrases, Permanent Edition, Volume 35A, explains
the expression as “in conformity with”. “The expressions
“pursuant to or in pursuance of” have a restrictive
interpretation and have been regarded as equivalent to “in
conformity with”, and imply that what is done is in accordance
with an instruction or direction”.5
In Aircraft Employees’
Housing Cooperative Society Limited v. Secretary, Rural
Development and Panchayat Raj, Government of
Karnataka, Bangalore and others6
, though in the context of
5 Words and Phrases, Permanent Edition, Volume 35A, page 337, citing
Fabianich v. Hart, D. C. Mun App., 31A.2d 881, 883.
6
(1996) 11 SCC 475
the pre-amended Land Acquisition Act, this court has dealt with
the meaning of the expression “in pursuance of”. It has been
held –
“4…..“In pursuance of” would mean under the
authority of or by virtue of or in the course of
carrying out in accordance with the scheme or
plan or direction or order or anything in
consequence or conformable to or according to;
act of pursuing, carrying out and performance,
prosecution.”
Therefore, it is clear that the parties have agreed in
expressed terms that the law of arbitration would be English
Arbitration Law.
9. Article 22 has in fact two parts. In the first part of that
Article, it is agreed between the parties that the proper law of
the contract will be governed by the prevailing law of India, and
in the case of arbitration, English Law would apply. In other
words, the agreement as a whole would be governed by Indian
Law, and in case of arbitration, the English Law will apply. No
doubt, one should not strain too much to interpret an
agreement between two parties as in the case of a statutory
interpretation. The approach in analysing the terms of
agreement should be straight and plain but at the same time
cohesive and logical.
10. In the matter of interpretation, the court has to make
different approaches depending upon the instrument falling for
interpretation. Legislative drafting is made by experts and is
subjected to scrutiny at different stages before it takes final
shape of an Act, Rule or Regulation. There is another category
of drafting by lawmen or document writers who are
professionally qualified and experienced in the field like drafting
deeds, treaties, settlements in court, etc. And then there is the
third category of documents made by laymen who have no
knowledge of law or expertise in the field. The legal quality or
perfection of the document is comparatively low in the third
category, high in second and higher in first. No doubt, in the
process of interpretation in the first category, the courts do
make an attempt to gather the purpose of the legislation, its
context and text. In the second category also, the text as well
as the purpose is certainly important, and in the third category
of documents like wills, it is simply intention alone of the
executor that is relevant. In the case before us, being a
contract executed between the two parties, the court cannot
adopt an approach for interpreting a statute. The terms of the
contract will have to be understood in the way the parties
wanted and intended them to be. In that context, particularly in
agreements of arbitration, where party autonomy is the
grundnorm, how the parties worked out the agreement, is one
of the indicators to decipher the intention, apart from the plain
or grammatical meaning of the expressions and the use of the
expressions at the proper places in the agreement.
Contextually, it may be noted that in the present case, the
respondent had invoked the provisions of English law for the
purpose of the initiation of the unsettled disputes. It has hence,
while interpreting an agreement, to be kept in mind that the
parties, intended to avoid impracticable and inconvenient
processes and procedures in working out the agreement. Potter
J. made a similar observation in Cargill International S.A. v.
Bangladesh Sugar and Food Industries Corporation7
:
“As Lord Goff observed in another context in Palm
Shipping v. Kuwait Petroleum [1988] 1 Lloyds Rep
500 at 502: “It is not a permissible method of
construction to propound a general or generally
accepted principal ... (and) ... then to seek to force
the provisions of the ... (the contract) ... into the
straightjacket of that principle.” On the other
hand, modern principles of construction require
7
[1998] 1 W.L.R. 461 CA.
the court to have regard to the commercial
background, the context of the contract and the
circumstances of the parties and to consider
whether, against that background and in that
context, to give the words a particular or restricted
meaning would lead to an apparently
unreasonable and unfair result.”
11. A close perusal of the terms between the parties would
clearly show that the first part of Article 22 is on the law
governing the contract and in the second part the parties
intended to lay down the law applicable to the arbitration
agreement, viz., the proper law of the agreement of arbitration.
It is unnecessary that after already agreeing on the procedural
law governing the arbitration in Article 17.1, the parties
intended to state the same again in a separate clause within
the same contract in Article 22. Therefore, the intention of the
parties to apply English Law to the arbitration agreement also
and not limit it to the conduct of the arbitration is fairly clear
from Article 22.
12. Sumitomo (supra) is of no avail to the appellant. In
Sumitomo (supra), there was no specific choice on the law of
arbitration agreement and this court held that in absence of
such choice, the law of arbitration agreement would be
10Page 11
determined by the substantive law of the contract. That is not
the case in this agreement.
13. It is clear that the law applicable to arbitration agreement
in the present case is English Law. Once it is found that the law
governing the arbitration agreement is English Law, Part I of the
Indian Arbitration Act stands impliedly excluded. This has been
a long settled position and the latest judgment in Union of
India v. Reliance Industries Limited and others8
reaffirms
the same. In the words of R.F. Nariman J.,
“20. The last paragraph of Bharat Aluminium's
judgment has now to be read with two caveats, both
emanating from paragraph 32 of Bhatia International
itself-that where the Court comes to a determination
that the juridical seat is outside India or where law
other than Indian law governs the arbitration
agreement, Part-I of the Arbitration Act, 1996 would be
excluded by necessary implication. Therefore, even in
the cases governed by the Bhatia principle, it is only
those cases in which agreements stipulate that the seat
of the arbitration is in India or on whose facts a
judgment cannot be reached on the seat of the
arbitration as being outside India that would continue to
be governed by the Bhatia principle. Also, it is only
those agreements which stipulate or can be read to
stipulate that the law governing the arbitration
agreement is Indian law which would continue to be
governed by the Bhatia rule.”
8 2015 (10) SCALE 149.
11Page 12
14. We are hence unable to be persuaded by the persuasive
argument advanced by Shri Sundaram, learned Senior Counsel
appearing for the appellant that the arbitration agreement is to
be governed by the Indian Law.
15. Accordingly, we find no error in the view taken by the High
Court that the applications filed by the appellant under Section
34 of the Indian Act are not maintainable against the two
foreign awards dated 10.11.2002 and 12.11.2002 between the
appellant and the respondent.
16. The appeals are accordingly dismissed. There shall be no
order as to costs.
.......................J.
(Anil R. Dave)
......................J.
(Kurian Joseph)
......................J.
(Amitava Roy)
New Delhi;
January 28, 2016
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