ABBAS CASHEW COMPANY Vs. BOND COMMODITIES

JUDGEMENT

(1.) The appellant company, an exporter of cashew, is aggrieved by the order of the District Court, Kollam dismissing an original petition filed by them under S.34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Indian Arbitration Act) for setting aside the award passed by the Arbitral Tribunal and also for a declaration that the award is unenforceable as the same is made in violation of the principles of public policy of India and for incidental reliefs. The appellant entered into an agreement with the first respondent, a British Company for export of cashew through the second respondent company, Indian counter part of the first respondent company. Since dispute arose between the parties over violation of the agreement, the parties referred to matter to arbitration. As per the agreement entered into between them and in pursuance to the reference the arbitrators passed an award. The original petition under S.34 of the Arbitration and Conciliation Act was filed as OP No. 152 of 2009 by the appellant before the District Court alleging that the award is against the public policy of India, is illegal, is against evidence on record, that the arbitrators are biased and that the award has been passed violating the procedure established by law. Along with the OP the appellant filed IA No. 458 of 2009 seeking stay of further proceedings in pursuance to the award and IA No. 459 of 2009 seeking to call for the records from the arbitrators. The first respondent company filed counter affidavit to IA No. 458 of 2009 disputing many of the allegations made in the application and contending that the OP is not maintainable as the appellant company cannot approach the court without exhausting the remedy of appeal provided in the agreement between the parties. According to the first respondent, the appellant company's act amounted to frog - leap. Once the company had agreed to a procedure, the company cannot be allowed to deviate from that procedure. On the basis of the contentions raised, the learned District Judge heard the parties regarding the maintainability of the original petition. The learned District Judge referred to clause (10) of the agreement and found that the above clause provides for an appeal to the Executive Committee of CENTA against the arbitration award. The learned District Judge would then refer to S.34 of the Indian Arbitration Act and would opine that there is nothing in S.34 which prohibits an appeal by agreement. According to the learned District Judge the parties did agree to confer upon the Executive Committee of CENTA the power to decide the appeal. The District Judge noticed that the right of appeal should be exercised only after complying with certain conditions.

(2.) According to the District Judge though the conditions were onerous as the conditions were engrafted by the parties with open eyes and realising the difficulties, they are not entitled to urge that because of the conditions are onerous, the right of appeal is not a meaningful right. To take such a view the learned District Judge relied on the judgment of the Madras High Court in M. A. Sons v. M. O. & S. Exchange, AIR 1965 Mad. 392 . The learned District Judge would hold on the authority of the judgment of the Supreme Court in Datar Switchgears Ltd. v. Tata Finance Ltd. and Another, 2000 KHC 1720 : 2000 (8) SCC 151 that the parties are free to choose the procedure and would hold that having chosen the procedure it is not open to the parties to blame the procedures so chosen. The appellant relied on the judgment in Montrose Canned Food Ltd. v. Eric Wells (Merchants) Ltd., 1965 Vol. 1 Page 597, a decision wherein it was held that whether or not a party should exhaust the remedy of appeal provided to him under the agreement before challenging the award of the Arbitral Tribunal in the court, was a matter of discretion. According to the learned District Judge the above decision is not an authority for the proposition canvassed by the appellant for the reason that in the case covered by the above decision there was no provision like clause (10) of the present agreement. Ultimately analysing the rival contentions raised, the learned District Judge concluded that the legislative intendment underlying the Indian Arbitration Act, 1996 was that an effective and quick method of settlement of domestic and international arbitration disputes should be brought forth, as otherwise the economic reforms introduced by the executive Government in the era of globalisation will not become fully effective. The learned District Judge would refer to S.5, a non obstante clause providing that judicial intervention in arbitration matters shall be to the limited extent provided under the Act. The learned Judge ultimately concluded that routine interference in arbitral processes under the powers conferred by S.34 will render the legislative intendment of the statute nugatory and held that the appellant's right to move under S.34 will become available to them only after they exhaust the appellate remedy provided under clause 10 and in that view of the matter dismissed the OP.

(3.) In the appeal various grounds have been raised assailing the decision of the District Judge and Sri. N. D. Premachandran, the learned counsel for the appellant addressed very extensive arguments before us on the basis of all those grounds. Mr. Premachandran submitted that as per the definition of the term award provided under S.2(1)(c) of the Indian Arbitration Act an arbitral award includes an interim award also and that there is no dispute that the award passed by the arbitrator in this case also is not an arbitral award. Referring to S.2(1)(f) of the Indian Arbitration Act, the learned counsel submitted that international commercial arbitration would also come within the ambit of the Indian Arbitration Act, 1996. Placing strong reliance on the judgment of the Supreme Court in Bhatia International v. Bulk Trading S.A., 2002 KHC 1230 : 2002 (4) SCC 105 : AIR 2002 SC 1432, the learned counsel submitted that it has been very clearly held by the Supreme Court therein that the provisions of Part - 1 of the Indian Arbitration Act which takes in S.34 also, will apply to all arbitrations and all proceedings relating thereto wherever the arbitration is conducted. According to the learned counsel in cases of international commercial arbitration held outside India provisions of Part - 1 including S.34 would certainly apply unless the parties by agreement expressly or by necessary implications exclude any of the provisions of Part - 1. Mr. Premachandran pointed out in this context that in Bhatia International v. Bulk Trading S.A. (cited supra) the Apex Court was considering the question of applicability of S.9 of the Indian Arbitration Act in an international commercial arbitration and that as per the agreement between the parties in that case there was a clause that the arbitration was to be as per the Rules of ICC (International Chamber of Commerce) and the arbitration was to be held in Paris. Counsel submitted that the Apex Court did not accept the contention that because the parties have agreed for arbitration as per the rules of ICC S.9 would not apply. The counsel pointed out that the ICC Rules did not contain any provision specifically excluding the Indian Courts as in the present agreement where there is no provision specifically excluding the Indian Courts. Sri. Premachandran referred also to the judgment of the Supreme Court in Venture Global Engineering v. Sathyam Computer Services Ltd., 2008 KHC 4039 : 2008 (4) SCC 190 : 2008 (1) SCALE 214 : AIR 2008 SC 1061 and submitted that the Supreme Court in that case had followed the judgment in Bhatia International v. Bulk Trading S.A. (cited supra) and had held that the right of the judgment debtor under S.34 to invoke the public policy of India cannot be deprived of. Referring to para 37 of the judgment, the learned counsel highlighted that it is clearly held by the Supreme Court that even a foreign award can be challenged in India under S.34. Sri. Premachandran submitted that by passing the impugned order taking the view that the O.P. filed under S.34 is not maintainable, the learned District Judge completely failed to consider the effect of the judgment of the Supreme Court in Bhatia International v. Bulk Trading S.A. (cited supra). Referring to the counter affidavit submitted by the respondents in the O.P. Sri. Premachandran submitted that the respondents have clearly admitted that the District Court has jurisdiction under S.34 and their contention was only that the jurisdiction can be invoked only after exhausting the appeal remedy. There was no plea of exclusion of jurisdiction of Indian Courts or exclusion of any of the provision of Part - 1 of the Indian Arbitration Act in the counter. Sri. Premachandran argued that the provisions in R.10 of CENTA Rules do not have the power to oust the jurisdiction of Indian Courts or any provisions of Part - 1 of the Indian Arbitration Act. Counsel submitted that neither in S.34 nor in CENTA Rules there is a provision that unless appellate remedy is exhausted aggrieved party can approach the Civil Court challenging the award. Sri. Premachandran submitted that before the court below respondents do not rely at all on clauses 2 and 3 of the CENTA Rules or any of the provisions of the English Arbitration Law and much less S.70(2)(b) of the English Arbitration Act. They are therefore, not entitled to rely on those provisions before this Court as the above contention is beyond their pleadings before the court below. Sri. Premachandran submitted that at any rate these provisions do not have the effect of excluding the jurisdiction of Indian Courts. These provisions are applicable only for appointment of Arbitrators and for regulating the procedure to be followed by the Arbitrators. These provisions cannot have any application to the present post award stage. Sri. Premachandran submitted that there is no provision parallel to S.70(2) of the English Arbitration Act in the Indian Arbitration Act prohibiting the parties from approaching the Civil Court before exhausting the appellate remedy. Hence, S.70(2) of the English Arbitration Act cannot have application in this case. It can have application only when a party approaches the English Court challenging the award. According to Sri. Premachandran the two Supreme Court judgments does not make any distinction between substantive law and procedural law relating to contract and arbitration. Hence, the contention that by clause 2 and 3 of the CENTA terms and conditions there is implied exclusion cannot be accepted at all. The theory of implied exclusion presently advanced by the respondents goes contrary to their admissions in the counter affidavit which are to the effect that S.34 can be invoked but only after the appeal remedy is exhausted. Sri. Premachandran submitted that the contention presently raised only reveals that the respondents want to avoid scrutiny of the arbitral award by Indian Courts as the award has been passed with grave procedural irregularity in not appointing the umpire and in awarding damages to a party who has not performed as part of the contract and had not taken any letter of credit for buying the goods and coming to the conclusion that the contract is mutually extended. The term public policy of India is given wider interpretation in decisions such as in O.N.G.C v. Saw Pipes Ltd., 2003 KHC 1068 : 2003 (5) SCC 705 : AIR 2003 SC 2629 : JT 2003 (4) SC 171 and Indtel Technical Services (P) Ltd. v. W. S. Atkins Rail Ltd., 2008 KHC 5126 : 2008 (10) SCC 308 : 2008 (70) AIC 256 : AIR 2009 SC 1132 : 2008 (11) SCALE 735 . Mr. Premachandran reiterated his submissions that clauses 2 and 3 of CENTA Rules do not have effect of excluding any of the provision of Part - 1 of the Indian Arbitration Act. By referring to the judgment of the Supreme Court in Citation Infowares Ltd. v. Equinox Corpn., 2009 KHC 4699 : 2009 (7) SCC 220 Mr. Premachandran once again highlighted the contention taken by the respondents before the Court below that S.34 of the Indian Arbitration can be invoked after the appeal remedy under clause - 10 is exhausted. According to Mr. Premachandran, the District Judge failed to notice that it was relying on the judgments of the Supreme Court in Bhatia Intnl's case (cited supra) and Venture Global Engg. v. Satyam Computers, 2008 KHC 4039 : 2008 (4) SCC 190 : 2008 (1) SCALE 214 : AIR 2008 SC 1061 that the O.P. was sought to be maintained by the appellant. The District Court relied solely on clause 10 of CENTA Rules. But that Court should have noticed that the above clause is against the legislative intendment underlying Arbitration Law which is to ensure that there is speedy and inexpensive justice to the party aggrieved. Referring to the judgment of the Supreme Court in Indtel Technical Services (P) Ltd. v. W. S. Atkins Rail Ltd., 2008 KHC 5126 : 2008 (10) SCC 308 : 2008 (70) AIC 256 : AIR 2009 SC 1132 : 2008 (11) SCALE 735, Mr. Premachandran submitted that the remedy of appeal provided under clause - 10 of CENTA Rules is merely an empty formality and a futile exercise. The appellate body of the CENTA are members of the trade association and not a judicial authority or body vested with adjudicatory powers of a court as defined under S.2(1)(e) of the Indian Arbitration Act. The appeal remedy under clause - 10 can by no stretch of imagination be construed as an effective statutory remedy comparable to the remedy under S.34.