PASL WIND SOLUTIONS PRIVATE LIMITED v. GE POWER CONVERSION INDIA PRIVATE LIMITED

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

in the Act where the meaning may have to be departed from on account of the subject or context in which the word has been used and that will be giving effect to the opening sentence in the definition section, namely, unless there is anything repugnant in the subject or context. In view of this qualification, the court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words under the circumstances. Therefore, though ordinarily the word “insurer” as used in the Act would mean a person or body corporate actually carrying on the business of insurance it may be that in certain sections the word may have a somewhat different meaning.” (at pages 863-864) (ii) Bennett Coleman & Co. (P) Ltd. v. Punya Priya Das Gupta, (1969) 2 SCC 1 D “6. … But assuming that there is such a conflict as contended, we do not have to resolve that conflict for the purposes of the problem before us. The definition of Section 2 of the present Act commences with the words “In this Act unless the context otherwise requires” and provides that the definitions of the various expressions will be those that are given there. Similar qualifying expressions are also to be found in the Industrial Disputes Act, 1947, the Minimum Wages Act, 1948, the C.P. and Berar Industrial Disputes Settlement Act, 1947 and certain other statutes dealing with industrial questions. It is, therefore, clear that the definitions of ‘a newspaper employee’ and ‘a working journalist’ have to be construed in the light of and subject to the context requiring otherwise. Section 5 of the Act, which confers the right to gratuity itself contemplates in clause (d) of sub-section (1) a case of payment of gratuity to the nominee or the family of a working journalist who dies while he is in the service of a newspaper establishment. Section 17(1) provides that where any amount is due under the Act to a newspaper employee from an employer, such an employee himself or a person authorised by him or, in case of his death, any member of his family can apply to the State Government or other specified authority for the recovery thereof. Similar provisions are also to be found in Section 33-C(1) of the H

p. 578 Copy page pinpoint

A Industrial Disputes Act. Claims under that section include those for compensation in cases of retrenchment, transfer of an undertaking and closure under Chapter V-A of that Act, all of which would necessarily be claims arising after termination of service and the claimant would obviously be one in all those cases who would not be presently employed in the establishment of the B employer against whom such claims are made. Likewise, the claim for gratuity under Section 17, read with Section 5 of the Act, would itself be one which accrues after the termination of employment. These provisions, therefore, clearly indicate that it is not only a newspaper employee presently employed in a C particular newspaper establishment who can maintain an application for gratuity. The scheme of all these acts dealing with industrial questions is to permit an ex-employee to avail of the benefits of their provisions, the only requirement being that the claim in dispute must be one which has arisen or accrued whilst the claimant was in the employment of the person against whom it is made. There can, therefore, be no doubt that the definitions of a “newspaper employee” and “working journalist” being subject to a context to the contrary, the benefit of Sections 5 and 17 is available to an ex-employee though he has ceased to be in the employment of that particular newspaper establishment at the time of his application for gratuity. The contention that the respondent was not entitled to maintain his application as he was not in the service of the appellant company on the date of his claim before the Labour Court cannot be sustained.” (iii) Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472 F “12. In the case of Goodyear India Ltd. v. State of Haryana [(1990) 2 SCC 71 : 1990 SCC (Tax) 223 : (1991) 188 ITR 402] this Court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act.

p. 579 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

Court said that one should apply the rule of reasonable A interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a B reasonable interpretation can be given to the section as a whole.”

25Copy pinpoint25. We have already seen that the context of section 44 is party- neutral, having reference to the place at which the award is made. For this reason, it is not possible to accede to the argument that the very basis of section 44 should be altered when two Indian nationals have their disputes resolved in a country outside India. On the other hand, the judgment in S.K. Gupta v. K.P. Jain, (1979) 3 SCC 54 is apposite, and states as follows: “24. The noticeable feature of this definition is that it is an inclusive definition and, where in a definition clause, the word “include” is used, it is so done in order to enlarge the meaning of the words or phrases occurring in the body of the statute and when it is so used, these words or phrases must be construed as comprehending not only such things which they signify according to their natural import, but also those things which the interpretation clause declares that they shall include (see Dilworth v. Commissioner E of Stamps [(1899) AC 99, 105 : 79 LT 473]). Where in a definition section of a statute a word is defined to mean a certain thing, wherever that word is used in that statute, it shall mean what is stated in the definitions unless the context otherwise requires. But where the definition is an inclusive definition, the word not only bears its ordinary, popular and natural sense whenever that F would be applicable but it also bears its extended statutory meaning. At any rate, such expansive definition should be so construed as not cutting down the enacting provisions of an Act unless the phrase is absolutely clear in having opposite effect (see Jobbins v. Middlesex County Council [(1949) 1 KB 142 : (1948) 2 All G ER 610] ). Where the definition of an expression in a definition clause is preceded by the words “unless the context otherwise requires”, normally the definition given in the section should be applied and given effect to but this normal rule may, however, be departed from if there be something in the context to show that H

p. 580 Copy page pinpoint

26Copy pinpoint26. For this reason, it is not possible to accede to the argument that the expression “unless the context otherwise requires” can be held to undo the very basis of section 44 by converting it from a seat-oriented provision in countries that are signatories to the New York Convention to a person-oriented provision in which one of the parties to the arbitration agreement has to be a foreign national or habitually resident outside India. In any case, the context of section 44 is very far removed from the context of an international commercial arbitration in Part I which is defined for the purposes of section 11, section 28, section 29A(1), section 34(2A), and section 43I, all of which occur in Part I and deal with arbitrations which take place in India. Also, the argument of Mr. Himani would involve bodily importing the expression “international commercial arbitration” into section 44, which cannot be done because of the opening words of section 44, “In this Chapter” which is Chapter I of Part II, and then applying the definition contained in section 2(1)(f) of the Arbitration Act which, being restricted to Part I, must now be applied to Part II. No canon of interpretation would permit acceptance of such an argument.

27Copy pinpoint27. At this point, it is important to refer to the judgment of this F Court in Atlas (supra). In this case, even though the appellant, an Indian company, had entered into a contract dated 03.06.1980 with a company incorporated in Hong Kong, the goods were to be supplied through an Indian company, namely, Kotak & Co., in Mumbai. Disputes arose between the two Indian companies – Atlas Exports Pvt. Ltd. and Kotak G & Co. The contract dated 03.06.1980 incorporated an arbitration clause as follows: “2. The contract dated 3-6-1980 incorporated an arbitration clause which is extracted and reproduced hereunder: “This contract is made under the terms and conditions effective H at date of Grain and Food Trade Association Ltd., London,

p. 581 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

Contract 15 which is hereby made a part of this contract … A both buyers and sellers hereby acknowledge familiarity with the text of the GAFTA contract and agree to be bound by its terms and conditions.”

3. ”GAFTA” stands for Grain and Food Trade Association Ltd., London. Clause 27 of Standard Contract 15 of GAFTA provides as under: “27. Arbitration.—(a) Any dispute arising out of or under this contract shall be settled by arbitration in London in accordance with the arbitration rules of Grain and Food Trade Association Limited, No. 125 such rules forming part of this contract and of which both parties hereto shall be deemed to be cognisant. (b) Neither party hereto, nor any persons claiming under either of them, shall bring any such dispute until such dispute shall first have been heard and determined by the arbitrators, umpire or Board of Appeal, as the case may be, in accordance with the arbitration rules and it is expressly agreed and declared that the obtaining of the award from the arbitration, umpire or Board of Appeal, as the case may be, shall be a condition precedent to the right of either party hereto or of any person claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute.” A foreign award was delivered on 22.06.1987 as per the Rules of GAFTA, London. Kotak & Co. moved an application under sections 5 and 6 of the Foreign Awards Act before the High Court, seeking enforcement of the award by filing the same and praying for pronouncement of judgment according to the award. The award was made a rule of the court, followed by a decree, by a learned Single Judge of the Bombay High Court. A Letters Patent Appeal preferred by Atlas Exports Pvt. Ltd. was dismissed. A specific contention was raised that since both Atlas Exports Pvt. Ltd. and Kotak & Co. were Indian G parties, the award could not be enforced, being contrary to sections 23 and 28 of the Contract Act. This was repelled by this Court as follows: “10. It was however contended by the learned counsel for the appellant that the award should have been held to be unenforceable inasmuch as the very contract between the parties relating to H

p. 582 Copy page pinpoint

A arbitration was opposed to public policy under Section 23 read with Section 28 of the Contract Act. It was submitted that Atlas and Kotak, the parties between whom the dispute arose, are both Indian parties and the contract which had the effect of compelling them to resort to arbitration by foreign arbitrators and thereby impliedly excluding the remedy available to them under the ordinary B law of India should be held to be opposed to public policy. Under Section 23 of the Indian Contract Act the consideration or object of an agreement is unlawful if it is opposed to public policy. Section 28 and Exception 1 to it, (which only is relevant for the purpose of this case) are extracted and reproduced hereunder: C “28. Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent. D Exception 1.—This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.”

11. The case at hand is clearly covered by Exception 1 to Section

28Copy pinpoint28. Right of the parties to have recourse to legal action is not excluded by the agreement. The parties are only required to have their dispute/s adjudicated by having the same referred to arbitration. Merely because the arbitrators are situated in a foreign country cannot by itself be enough to nullify the arbitration agreement when the parties have with their eyes open willingly entered into the agreement. Moreover, in the case at hand the parties have willingly initiated the arbitration proceedings on the disputes having arisen between them. They have appointed arbitrators, participated in arbitration proceedings and suffered an award. The plea raised before us was not raised either before or during the arbitration proceedings, nor before the learned Single Judge of the High Court in the objections filed before him, nor in the letters patent appeal filed before the Division Bench. Such a H

p. 583 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

plea is not available to be raised by the appellant Atlas before this A Court for the first time.”

28. It is clear that this Court categorically held that a foreign award cannot be refused to be enforced merely because it was made between two Indian parties, under pari materia provisions of the Foreign Awards Act. The Court also held that since this plea had never been taken in any of the courts below, it was not available to the appellant to raise the said plea before this Court for the first time.

29Copy pinpoint29. It is clear that there can be more than one ratio decidendi to a judgment. Thus, In Jacobs v. London County Council, (1950) 1 All ER 737, the House of Lords, after referring to some earlier decisions, held, as follows: “… However, this may be, there is, in my opinion, no justification for regarding as obiter dictum a reason given by a Judge for his decision, because he has given another reason also. If it were a proper test to ask whether the decision would have been the same apart from the proposition alleged to be obiter, then a case which ex facie decided two things would decide nothing. A good illustration will be found in London Jewellers Ltd. v. Attenborough, (1934) 2 KB 206 (CA). In that case the determination of one of the issues depended on how far the Court of Appeal was bound by its previous decision in Folkes v. R., E (1923) 1 KB 282 (CA), [in which] the court had given two grounds for its decision, the second of which [as stated by Greer, L.J., in Attenborough case, (1934) 2 KB 206] was that: (KB p. 222): ‘… where a man obtains possession with authority to sell, or to become the owner himself, and then sells, he cannot be F treated as having obtained the goods by larceny by a trick.’” In Attenborough case, (1934) 2 KB 206 it was contended that, since there was another reason given for the decision in Folkes case, (1923) 1 KB 282, the second reason was obiter, but Greer, L.J., said in reference to the argument of counsel: (Attenborough G case, KB p. 222) “I cannot help feeling that if we were unhampered by authority there is much to be said for this proposition which commended itself to Swift, J., and which commended itself to me in Folkes v. R., (1923) 1 KB 282, but that view is not open to H

p. 584 Copy page pinpoint

A us in view of the decision of the Court of Appeal in Folkes v. R., (1923) 1 KB 282. In that case two reasons were given by all the members of the Court of Appeal for their decision and we are not entitled to pick out the first reason as the ratio decidendi and neglect the second, or to pick out the second reason as the ratio decidendi and neglect the first; we must take both as B forming the ground of the judgment.” So, also, in Cheater v. Cater, (1918) 1 KB 247 (CA) Pickford, L.J., after citing a passage from the judgment of Mellish, L.J., in Erskine v. Adeane, (1873) LR 8 Ch App 756, said: (Cheater case, KB p. 252) C “… That is a distinct statement of the law and not a dictum. It is the second ground given by the Lord Justice for his judgment. If a Judge states two grounds for his judgment and bases his decision upon both, neither of those grounds is a dictum.”

D (at page 741) The said judgment has been followed in State of Gujarat v. Manoharsinhji Pradyumansinhji Jadeja, (2013) 2 SCC 300 (at paragraphs 78 and 79) and in Shayara Bano v. Union of India, (2017) 9 SCC 1 (at footnote 65).

30Copy pinpoint30. Obviously, there were two reasons for discarding the appellant’s argument in Atlas (supra) – the first reason was clearly on merits. The second reason undoubtedly refused to entertain this plea as it had not been raised earlier. However, this was coupled with the fact that the parties participated in the arbitral proceedings and suffered an award, F after which such plea was then taken. We are, therefore, unable to accede to the contention of Mr. Himani that this case cannot be regarded as an authority for the proposition that sections 23 and 28 of the Contract Act are out of harm’s way when it comes to enforcing a foreign award under the Foreign Awards Act, 1961, where both parties are Indian companies. G

31Copy pinpoint31. It is interesting to note that under U.S. law, an arbitration agreement or award made between two U.S. citizens shall not fall under the New York Convention unless such relationship involves properties located abroad, envisages performance of a contract, entered in the U.S., to take place abroad, or has some reasonable connection with one H

p. 585 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

or more foreign states. Thus, section 202 of the Federal Arbitration Act A [Title 9, U.S. Code] states as follows: “Section 202.Agreement or award falling under the Convention—An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States.”

32Copy pinpoint32. It is important to note that no such caveat is entered when D India acceded to the New York Convention and enacted the Foreign Awards Act and the Arbitration Act, 1996. On the contrary, we have seen as to how “persons” mentioned in section 44 has no reference to nationality, residence or domicile. This is another important pointer to the fact that, unlike the U.S. Code, section 44 of the Arbitration Act E does not enter any such caveat.

33Copy pinpoint33. In Sasan I (supra), the dispute resolution clause contained in the contract between two Indian companies was set out in paragraph 33 of the judgment as follows: “33. However, Article 12 deals with the governing law and a F dispute resolution mechanism. Section 12.¹ and 12.2(a), which are relevant, read as under: “Section 12.1-Governing Law – This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the United Kingdom without regard to its conflicts G of law principles. Section 12.2-Dispute Resolution Arbitration H

p. 586 Copy page pinpoint

A (a) Any and all claims, disputes, questions or controversies involving Reliance on the one hand and NAC on the other hand arising out of or in connection with this Agreement (collectively, ‘Disputes’) which cannot be finally resolved by such parties within 60(sixty) days of arising by amicable negotiation shall be resolved by final and binding arbitration to be administered by the International Chamber of Commerce (the ‘ICC’) in accordance with its commercial arbitration rules then in effect (the ‘Rules’). The place of arbitration shall be London, England. Each party shall appoint one (1) arbitrator and the two (2) arbitrators so appointed shall together select and appoint a third arbitrator. If either Reliance, on the one hand, or NAC, on the other hand, fail to appoint their respective arbitrator within 30(thirty) days after receipt by respondent(s) of the demand for arbitration or if the two (2) party-appointed arbitrators are unable to appoint the chairperson of the arbitral tribunal within thirty (30) days of the appointment of the second arbitrator, then the ICC shall appoint such arbitrator or the chairperson, as the case may be, in accordance with the listing, ranking and striking provisions of the Rules. Save and except the provision under Section 9, the provisions of the Part 1 of (Indian) Arbitration and Conciliation Act, 1996, as amended E (the ‘Arbitration Act’) shall not apply to the arbitration. The arbitrators shall not award punitive, exemplary, multiple or consequential damages. In connection with the arbitration proceedings, the parties hereby agree to cooperate in good faith with each other and the arbitral tribunal and to use their respective best efforts to respond promptly to any reasonable F discovery demand made by such party and the arbitral tribunal.’ Sub-clause (d) of this Article deals with payments to be made by the parties for the purpose of Arbitration. ‘(d) Each party shall bear its own arbitration expenses, and G Reliance on the one hand, and NAC, on the other hand, shall pay one-half of the ICC’s and the chairperson’s fees and expenses, unless the arbitrators determine that it would be equitable if all or a portion of the prevailing party’s expenses should be borne by the other party. Unless the Award provides for non-monetary remedies, any such Award shall be made H

p. 587 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

and shall be promptly payable in (i) US Dollars if payable to A NAC or (ii) Rupees if paid to Reliance net of any tax or other deduction. The Award shall include interest from the date of any breach or other violation of this Agreement and the rate of interest shall be specified by the arbitral tribunal and shall be calculated from the date of any such breach or other violation B to the date when the Award is paid in full.’” The Court then referred to BALCO (supra) and held: “46. Finally, in paragraph 118 [Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552], the crucial part heavily relied upon by Shri. V.K. Tankha, learned Senior C Advocate, reference is made to section 28, and it is held as under: ‘118. It was submitted by the learned counsel for the appellants that Section 28 is another indication of the intention of Parliament that Part I of the Arbitration Act, 1996 was not confined to arbitrations which take place in India. We are unable to accept the submissions made by the learned counsel for the parties. As the heading of Section 28 indicates, its only purpose is to identify the rules that would be applicable to ‘substance of dispute’. In other words, it deals with the applicable conflict of law rules. This section makes a distinction between purely domestic arbitrations and international commercial arbitrations, with a seat in India. Section 28(1)(a) makes it clear that in an arbitration under Part I to which section 2(1)(f) does not apply, there is no choice but for the Tribunal to decide ‘the dispute’ by applying the Indian ‘substantive law applicable to the contract’. This is clearly to ensure that two or more Indian F parties do not circumvent the substantive Indian law, by resorting to arbitrations. The provision would have an overriding effect over any other contrary provision in such contract. On the other hand, where an arbitration under Part I is an international commercial arbitration within Section 2(1)(f), the parties would be free to agree to any other ‘substantive G law’ and if not so agreed, the ‘substantive law’ applicable would be as determined by the Tribunal. The section merely shows that the legislature has segregated the domestic and international arbitration. Therefore, to suit India, conflict of law rules have been suitably modified, where the arbitration is in India. This H

p. 588 Copy page pinpoint

A will not apply where the seat is outside India. In that event, the conflict of law rules of the country in which the arbitration takes place would have to be applied. Therefore, in our opinion, the emphasis placed on the express ‘where the place of arbitration is situated in India’, by the learned Senior Counsel for the appellants, is not indicative of the fact that the intention of Parliament was to give an extra-territorial operation to Part I of the Arbitration Act, 1996.’ (emphasis in original)

47. Hon’ble Supreme Court holds that section 28 makes a clear distinction between purely domestic arbitration and international arbitration with a seat in India, and it is indicated that section 28(1)(a) makes it clear that in an arbitration under Part I to which section 2(1)(f) does not apply, there is no choice but for the Tribunal to decide the dispute by applying the Indian substantive law applicable to the Contract. It is this part of the judgment which was heavily relied upon by Shri. V.K. Tankha, learned Senior Advocate further refers to the next sentence which says that two or more Indian parties cannot circumvent the substantive Indian Law by resorting to arbitration. By placing much emphasis on this part, learned Senior Advocate tried to indicate that the order of the learned District Judge is unsustainable.

48. However, if we further read the findings recorded by the Supreme Court in the same paragraph 118, as reproduced hereinabove, it is held by the Supreme Court that when the seat is outside India, the conflict of law rule of the country in which the arbitration takes place would have to be applied, and thereafter it is held that the expression ‘whether the place of arbitration is situated in India’ does not indicate the intention of the Parliament to give extra territorial operation to Part I, of the Arbitration Act of 1996. In paragraph 123 also, the matter has been considered in the backdrop of the provisions contemplated under section 28, G this also makes us to come to the inevitable conclusion that the provisions of Part I will not apply where the seat of arbitration is outside India.

49. On consideration of the law laid down in the case of TDM Infrastructure (supra), we find, that the proceeding before the H

p. 589 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

Hon’ble Supreme Court was with regard to appointing an arbitrator under section 11(6) and after taking note of the definition of International Commercial Arbitration as provided in section 2(1)(f), the procedure for appointment of arbitrator and the provision of section 28, it was held that Part I of the Act of 1996 deals with domestic arbitration and Part II deals with ‘foreign award’, and by specifically taking note of the provisions of section 28, has held that companies incorporated in India and when both the parties have Indian nationality, then such arbitration cannot be said to be an international commercial arbitration. However, after having said so, in paragraph 23 reference is made to section 28, the intention of the legislature, to hold that two Indian nationals should not be permitted to derogate Indian Law.

50. Finally, in para 23 the following observations are made by the Supreme Court in the aforesaid case: ‘23. Section 28 of the 1996 Act is imperative in character in view of Section 2(6) thereof, which excluded the same from those provisions which parties derogate from (if so provided by the Act). The intention of the legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian Law. This is part of the public policy of the country. E

36. It is, however, made clear that any findings/observations made hereinbefore were only for the purpose of determining the jurisdiction of this Court as envisaged under Section 11 of the 1996 Act and not for any other purpose.’ (emphasis in original) F

51. If we analyse this judgment, we find, that apart from being one rendered in a proceeding held under section 11(6), is based on the consideration made with reference to section 28(1), as is evident from paragraph 23 relied upon by Shri. V.K. Tankha and thereafter in paragraph 36, a caution is indicated with regard to G applicability of this judgment. Whereas in the case of Atlas Exports (supra), we find that in Atlas Exports, in paragraphs 10 and 11, the following principles have been laid down:- ‘10. It was however contended by the learned counsel for the appellant that the award should have been held to be H

p. 590 Copy page pinpoint

A unenforceable in as much as the very contract between the parties relating to arbitration was opposed to public policy under Section 23 read with Section 28 of the Contract Act. It was submitted that Atlas and Kotak, the parties between whom the dispute arose, are both Indian parties and the contract which had the effect of compelling them to resort to arbitration by foreign arbitrators and thereby impliedly excluding the remedy available to them under the ordinary law of India should be held to be opposed to public policy. Under section 23 of the Indian Contract Act the consideration or object or an agreement is unlawful if it is opposed to public policy. Section 28 and Exception 1 to it, (which only is relevant for the purpose of this case) are extracted and reproduced hereunder: ‘28. Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent. Exception 1 - This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.’

11. The case at hand is clearly covered by Exception 1 to Section

F 28. Right of the parties to have recourse to legal action is not excluded by the agreement. The parties are only required to have their dispute/s adjudicated by having the same referred to arbitration. Merely because the arbitrators are situated in a foreign country cannot by itself be enough to nullify the arbitration agreement when the parties have with their eyes open willingly entered into the agreement. Moreover, in the case at hand the parties have willing initiated the arbitration proceedings on the disputes having arisen between them. They have appointed arbitrators, participated in arbitration proceedings and suffered an award. The plea raised before us was not raised either before or during the arbitration proceedings, nor before the

p. 591 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

learned Single Judge of the High Court in the objections filed before him, nor in the letters patent appeal filed before the Division Bench. Such a plea is not available to be raised by the appellant Atlas before this Court for the first time.’ (emphasis in original)

52. In this case i.e. Atlas Exports (supra), Sections 23 and 28 of the Contract Act are considered and it is held that when a dispute arises where both the parties are Indian, and if the contract has the effect of compelling them to resort to arbitration by foreign arbitrators and thereby impliedly excluding the remedy available to them under the ordinary law of India, the same is not opposed to public policy. Section 28 exception (1) of the Contract Act is taken note of and it is held that merely because the arbitrators are situated in a foreign country that by itself cannot be enough to nullify the arbitration agreement, when the parties have with their eyes open, willingly entered into an agreement. If this observation made by the Supreme Court is taken note of, we find that merely because two Indian companies have entered into an arbitration agreement to be held in a foreign country by agreed arbitrators, that by itself is not enough to nullify the arbitration agreement.

53. Shri. V.K. Tankha, learned Senior Advocate, tried to indicate that Atlas Exports (supra) case was rendered in a proceeding held under the Arbitration Act, 1940 which is entirely different from the Act of 1996 and, therefore, the said judgment will not apply in the present case. Instead, the judgment in the case of TDM Infrastructure (supra) would be applicable.

54. We cannot accept the aforesaid proposition. Shri Anirudh F Krishnan, learned counsel, had taken us through the provisions of both the Act of 1940 and the Act of 1996, and thereafter he had referred to the judgment of the Supreme Court in the case of Fuerst Day Lawson Limited (supra), where after a detailed comparison of various sections of both the Acts, from paragraphs G 65 onwards, Hon’ble Supreme Court discussed the provisions of both Acts, and finally has observed that there is not much of a difference between them. If the aforesaid judgment in the case of Fuerst Day Lawson Limited (supra) is considered, the same holds that both, the Act of 1980 [sic 1940] and 1996 are identical and the Hon’ble Court has also indicated the similarity in both the H

p. 592 Copy page pinpoint

A Acts. That being so, we see no reason as to why the principle laid down of Atlas Exports (supra), which is by a Larger Bench i.e.. Division Bench, should not be applied particularly in the light of the law of precedent as laid down in the case of A.R. Antulay (supra). The contention of Shri. V.K. Tankha, learned Senior Advocate, that the learned District Judge relied upon the B judgment in the case of Atlas Exports (supra) and refused to rely upon the case of TDM Infrastructure (supra) only because it is by a Single Bench is not convincing or acceptable, as the Division Bench Judgment in the case of Atlas Exports (supra) is a binding precedent and once it is held in the aforesaid case that two Indian C companies can agree to arbitrate in a foreign country and the same is not hit by public policy, we see no error in the order passed by the learned District Judge.

55. That apart, we also find that in the case of TDM Infrastructure (supra), a note of caution is indicated in paragraph D 36, which was added by a corrigendum subsequent to pronouncement of judgment, this clearly indicates the principle laid down by the Supreme Court was only for determining the jurisdiction under section 11 and nothing more. We need not go into the questions any further now, as we find that the judgment in the case of Atlas Exports (supra) is a binding precedent. E

56. Various other contentions were also advanced by Shri. Anirudh Krishnan, learned counsel, to say that the judgment in the case of TDM Infrastructure (supra) is not by a Court and, therefore, the provision of Article 141 of the Constitution will not apply. Once we have held that the principle of law laid down by the Supreme F Court in the case of Atlas Exports (supra) is binding on us and is applicable to the present dispute, we need not go into all these questions.

57. On going through the scheme of the Arbitration and Conciliation Act, 1996, we find that based on the seat of arbitration so also the G nationality of parties, an arbitration is classified to be an ‘International Arbitration’, and the governing law is also determined on the basis of the seat of arbitration. Therefore, it is clear that based on the seat of arbitration, the question of permitting two Indian companies/parties to arbitrate out of India is permissible. H In the case of Atlas Exports (supra) itself, the principle has been

p. 593 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

settled that two Indians can agree to have a seat of arbitration outside India. Now, if two Indian Companies agree to have their seat of arbitration in a foreign country, the question would be as to whether the provisions of Part I or Part II would apply. Section 44, of the Act of 1996, contemplates a foreign award to be one pertaining to difference between persons arising out of legal relationship, whether contractual or not, which is in pursuance to an agreement in writing for arbitration, to which the convention set forth in the first schedule applies.

58. In the First Schedule to the Act of 1996, convention on the recognition and enforcement of foreign award popularly known as New York Convention has been laid down and admittedly in this case the parties have agreed to have an arbitration with its seat outside India i.e.. London. If that be the position then the provisions of section 45 would be attracted until and unless it is established that the agreement is null and void, inoperative or incapable of being performed. If we analyse the scheme of the D Arbitration and Conciliation Act, 1996, we find that there is a distinction between ‘International Commercial Arbitration’ and a ‘Foreign Award’. It is the case of the appellant that in a dispute between two Indian Parties, which is a domestic arbitration, Part II and Section 45 of the Act of 1996 will not apply. However, when we consider the distinction between ‘International E Commercial Arbitration’ and ‘Foreign Award’, we find that there is a difference between an International Commercial Arbitration and an Arbitration which is not an International Commercial Arbitration. The same is based on the nationality of the parties and this distinction is only relevant for the purpose of following the appointment procedure as contemplated under section 11. As far as nationality of the parties are concerned, the same has no applicability for considering the applicability of Part II, of the Act of 1996. Applicability of Part II is determined solely based on what is the seat of arbitration, whether it is in a country which is signatory to the New York Convention. If this requirement is fulfilled, Part II will apply and in the present case as this requirement is fulfilled, we have no hesitation in holding that the dispute in question is covered by Part II of the Act of 1996.” *** H

p. 594 Copy page pinpoint

A “72. Finally, we may observe that once it is found by us that parties by mutual agreement have decided to resolve their dispute by arbitration and when they, on their own, chose to have the seat of arbitration in a foreign country, then in view of the provisions of Section 2(2) of the Act of 1996, Part I of the Act, will not apply in a case where the place of arbitration is not India and if Part I B does not apply and if the agreement in question fulfils the requirement of Section 44 then Part II will apply and when Part II applies and it is found that agreement is not null or void or inoperative, the bar created under Section 45 would come into play and if bar created under Section 45 comes into play then it is C a case where the Court below had no option but to refer the parties for arbitration as the bar under Section 45 would also apply and the suit itself was not maintainable.” This statement of the law has our approval. It may only be mentioned that the judgment in Fuerst Day Lawson Ltd. v. Jindal D Exports Ltd., (2011) 8 SCC 333 [“Fuerst Day Lawson”], referred to the provisions of the Foreign Awards Act, 1961 and Part II of the Arbitration Act of 1996 and not the Arbitration Act, 1940, as has been incorrectly held in paragraphs 53 and 54 of the aforesaid judgment. In addition, it may only be mentioned that the judgment of this Court by a learned Single Judge, under section 11 of the Arbitration Act, in TDM E (supra) cannot, in any case, be regarded as a binding precedent, having been delivered by a Single Judge appointing an arbitrator under section 11 – see State of West Bengal v. Associated Contractors, (2015) 1 SCC 32 (at paragraph 17).

34Copy pinpoint34. The Bombay High Court has referred to and relied upon TDM F (supra) to arrive at the opposite conclusion of Sasan I (supra). Thus, in Seven Islands Shipping Ltd. v. Sah Petroleums Ltd., (2012) 5 Mah LJ 822, one of us (Gavai, J.) sitting as Single Judge of the Bombay High Court, after placing reliance on TDM (supra), held: “13. Mandate of section 45 to refer a dispute to the Arbitrator is also on a condition that the said agreement has to be a legal agreement. When the Apex Court, in unequivocal terms has held that when both the Companies are incorporated in India an agreement cannot be termed as an “International Arbitration Agreement”, I am of the view that since both the plaintiff and the defendants are companies incorporated in India even for the sake

p. 595 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

of argument, there is an arbitration agreement, it cannot be an A “International Arbitration Agreement” and as such not valid in law. However, I may clarify that I have not gone through the question whether in fact there is an arbitration agreement between the parties or not.”

35Copy pinpoint35. Likewise, another learned Single Judge of the Bombay High B Court, in M/s. Addhar Mercantile Pvt. Ltd. v. Shree Jagadamba Agrico Exports Pvt. Ltd., Arbitration Application No. 197 of 2014 (decided on 12.06.2015), after referring to TDM (supra), then held: “8. It is not in dispute that both parties are from India. A perusal of clause 23 clearly indicates that intention of both parties is clear that the arbitration shall be either in India or in Singapore. If the seat of the arbitration would have be at Singapore, certainly English law will have to be applied. Supreme Court in case of TDM Infrastructure Private Limited (supra) has held that the intention of the legislature would be clear that Indian nationals should not be permitted to derogate from Indian law. This is part of the public policy of the country.

9. Insofar as submission of the learned counsel for the respondent that if such provision is interpreted in the manner in which it is canvassed by the learned counsel for the applicant, it would be in violation of section 28(1)(a) is concerned, since I am of the view that the arbitration has to be conducted in India, under section 28(1)(a), the arbitral tribunal will have to decide the disputes in accordance with the substantive law for the time being in force in India. In my view the said agreement which provides for arbitration in India thus does not violate section 28(1)(a) as canvassed by the learned counsel for the respondent.”

36Copy pinpoint36. Both these decisions rely on the judgment of this Court in TDM (supra) and have not appreciated the law in its correct perspective and, therefore, stand overruled. On the other hand, a learned Single Judge of the Delhi High Court in GMR Energy Limited v. Doosan G Power Systems India, CS (COMM) 447/2017 (decided on 14.11.2017), considered the same question and followed the judgment of the Madhya Pradesh High Court in Sasan I (supra) – see paragraphs 29, 30 and 31. It distinguished the judgment in TDM (supra) correctly, as follows:

p. 596 Copy page pinpoint

A “33. However, in para-36 of TDM Infrastructure (supra) Supreme Court clarified that any findings/observations made hereinabove were only for the purpose of determining the jurisdiction of the Court as envisaged under Section 11 of the 1996 Act and not for any other purpose and is also evident from the conclusions noted in para 20 and 22 of the report. Thus GMR Energy cannot rely B upon the decision in TDM Infrastructure (supra) to contend that in the present case Part-I of the Arbitration Act would apply and not Part-II.” The learned Single Judge of the Delhi High Court then relied upon this Court’s judgment in Atlas (supra) in paragraph 41. In paragraph 43, C the learned Single Judge then referred to the table that is set out in Fuerst Day Lawson (supra) as follows: “43. Contention of learned counsel for GMR Energy that the judgment in Atlas (supra) was given prior to Arbitration and D Conciliation Act, 1996, and therefore not applicable to the present case, also deserves to be rejected in view of the decision of the Supreme Court reported as (2011) 8 SCC 333 Fuerst Day Lawson v. Jindal Exports Ltd. wherein comparing the pre amendment and post amendment Arbitration Act it was observed that the new Act is more favourable to international arbitration than its previous incarnation. The report comparing the provisions of the two Acts noted:

64. The provisions of Chapter I of Part II of the 1996 Act along with the provisions of the Foreign Awards (Recognition and Enforcement) Act, 1961, insofar as relevant for the present are placed below in a tabular form:

p. 597 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

p. 598 Copy page pinpoint

p. 599 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

p. 600 Copy page pinpoint

65. A comparison of the two sets of provisions would show that Section 44, the definition clause in the 1996 Act is a C verbatim reproduction of Section 2 of the previous Act (but for the words “chapter” in place of “Act”, “First Schedule” in place of “Schedule” and the addition of the word “arbitral” before the word “award” in Section 44). Section 45 corresponds to Section 3 of the previous Act.

D 66. Section 46 is a verbatim reproduction of Section 4(2) except for the substitution of the word “chapter” for “Act”. Section 47 is almost a reproduction of Section 8 except for the addition of the words “before the court” in sub-section (1) and an Explanation as to what is meant by “court” in that section. E

67. Section 48 corresponds to Section 7; Section 49 to Section 6(1) and Section 50 to Section 6(2).

68. Apart from the fact that the provisions are arranged in a far more orderly manner, it is to be noticed that the provisions of the 1996 Act are clearly aimed at facilitating and expediting the enforcement of the New York Convention Awards.

69. Section 3 of the 1961 Act dealing with a stay of proceedings in respect of matters to be referred to arbitration was confined in its application to “legal proceedings in any court” and the court had a wider discretion not to stay the proceedings before it. The corresponding provision in Section 45 of the present Act has a wider application and it covers an action before any judicial authority. Further, under Section 45 the judicial authority has a narrower discretion to refuse to refer the parties to arbitration.” H

p. 601 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

The learned Single Judge thereafter arrived at the conclusion, on A the facts of that case, that the arbitral award delivered in Singapore between the two Indian parties would be enforceable under Part II, and not Part I, of the Arbitration Act.

37Copy pinpoint37. Likewise, a learned Single Judge of the Delhi High Court, in Dholi Spintex v. Louis Dreyfus, CS (COMM) 286/2020 (decided on B 24.11.2020), had occasion to consider the same point of law, and after referring to Sasan I (supra), correctly held: “43. Learned counsel for the plaintiff has heavily relied upon Section 23 of the Contract Act which provides for considerations and object which are lawful and which are not, thus emphasizing that two Indian parties contracting out of Indian law would defeat the provisions of the law and would be opposed to public policy. Learned counsel for the plaintiff seeks either declaration of Clause 6 of the agreement between the parties as null and void or by applying the Blue Pencil Test give meaningful interpretation to clause-6 whereby the parties can then subject themselves to the jurisdiction of Indian Cotton Association. Three Judge Bench of the Hon’ble Supreme Court in (2017) 2 SCC 228 Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd. emphasized the principle of party autonomy in arbitration and held that the same is virtually the backbone which permit parties to adopt the foreign law as the proper law of arbitration. In (2005) 5 SCC 465 Technip SA v. SMS Holding Pvt. Limited, a three Judge Bench of the Hon’ble Supreme Court dealing with the conflicts of law held that disregard of applicability of foreign law must relate to basic principles of morality and justice and only when the foreign law amounts to a flagrant or gross breach of such principle that power should be exercised to hold inapplicability of foreign law that too, exceptionally and with great circumspection. It was held that in a sense all statutes enacted by Parliament or the States can be said to be part of Indian public policy, but to discard a foreign law only because it is contrary to an Indian statute would defeat the basis of private international law to which India undisputedly subscribes. ***

47. Therefore, an arbitration agreement between the parties being an agreement independent of the substantive contract and the H

p. 602 Copy page pinpoint

A parties can choose a different governing law for the arbitration, two Indian parties can choose a foreign law as the law governing arbitration. Further there being clearly a foreign element to the agreement between the parties, the two Indian parties, that is the plaintiff and defendant could have agreed to an international commercial arbitration governed by the laws of England. Hence B Clause 6 of the contract dated 30th May, 2019 between the parties is not null or void.” The argument of the appellant based on sections 23 and 28 of the Contract Act

38Copy pinpoint38. Mr. Himani has argued that even if Atlas (supra) is to be taken to be a binding precedent, it contains no discussion on how section 23 of the Contract Act is not infracted and does not, in any case, deal with his argument based on section 28(1)(a) and section 34(2A) of the Arbitration Act. Sections 23 and 28 of the Contract Act read as follows: D “23. What considerations and objects are lawful, and what not.—The consideration or object of an agreement is lawful, unless— it is forbidden by law; or is of such a nature that, if permitted, it would defeat the E provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. F In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful, is void.” “28. Agreements in restraint of legal proceedings void.— Every agreement,— G (a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, or H

p. 603 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

(b) which extinguishes the rights of any party thereto, or discharges any party thereto from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent. Exception 1.—Saving of contract to refer to arbitration dispute that may arise.—This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.” C

39Copy pinpoint39. The elusive expression “public policy” appearing in section 23 of the Contract Act is a relative concept capable of modification in tune with the strides made by mankind in science and law. An important early judgment of the Court of Appeal, namely, Maxim Nordenfelt Guns and Ammunition Company v. Nordenfelt, [1893] 1 Ch. 630 [“Nordenfelt”], puts it thus: “Rules which rest upon the foundation of public policy, not being rules which belong to the fixed or customary law, are capable, on proper occasion, of expansion or modification. Circumstances may change and make a commercial practice expedient which formerly was mischievous to commerce. But it is one thing to say that an occasion has arisen upon which to adhere to the letter of the rule would be to neglect its spirit, and another to deny that the rule still exists. The dicta which Lord Justice Fry cites from Hitchcock F v. Coker [142. 6 A. & E. 348], from Tallis v. Tallis [1 E. & B. 391], and from Mallan v. May [11 M. & W. 653], are all dicta in cases of partial restraint, where the reasonableness of the particular contract necessarily came under consideration. The necessary protection of the individual may in such cases be the G proper measure of the reasonableness of the bargain. When Lord Justice Fry passes on [14 Ch. D. 366] to examine the question of the existence of the common law rule, he assumes, as it appears to me, without sufficient justification, that complete protection of the individual is the only reason which ought to lie at the root of H

p. 604 Copy page pinpoint

A the doctrine. But the reasonableness of the legal principle which forbids general restraint altogether is not the same thing as the reasonableness (as between the parties) of the bargain in any particular case. With regard to the argument that the rule, if it existed, would be an artificial one, and would therefore admit of no exceptions, the judgments of the Judges and of the House of B Lords in the case of Egerton v. Earl Brownlow [4 H. L. C. 1], illustrate, I submit, the distinction between a fixed rule of customary law and a rule based on reason and policy. The latter may admit of exceptions, although the former may not.” (at pages 661-662) C *** “The result seems to me to be as follows: General restraints, or, in other words, restraints wholly unlimited in area, are not, as a rule, permitted by the law, although the rule admits of exceptions. Partial D restraints, or, in other words, restraints which involve only a limit of places at which, of persons with whom, or of modes in which, the trade is to be carried on, are valid when made for a good consideration, and where they do not extend further than is necessary for the reasonable protection of the covenantee. A limit in time does not, by itself, convert a general restraint into a partial E one. “That which the lawdoes not allow is not to be tolerated because it is to last for a short time only.” In considering, however, the reasonableness of a partial restraint, the time for which it is to be imposed may be a material element to consider.” (at pages 662-663) F

40Copy pinpoint40. The classic judgment of this Court in Gherulal Parakh v. Mahadeodas Maiya, 1959 Supp (2) SCR 406 [“Gherulal”] states as follows: “… Cheshire and Fifoot in their book on Law of Contract 3rd Edn., observe at p. 280 thus: G “The public interests which it is designed to protect are so comprehensive and heterogeneous, and opinions as to what is injurious must of necessity vary so greatly with the social and moral convictions, and at times even with the political views, of different judges, that it forms a treacherous and unstable H

p. 605 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

ground for legal decision. … These questions have agitated the Courts in the past, but the present state of the law would appear to be reasonably clear. Two observations may be made with some degree of assurance. First, although the rules already established by precedent must be moulded to fit the new conditions of a changing world, it is no longer legitimate for the Courts to invent a new head of public policy. A judge is not free to speculate upon what, in his opinion, is for the good of the community. He must be content to apply, either directly or by way of analogy, the principles laid down in previous decisions. He must expound, not expand, this particular branch of the law. C

Secondly, even though the contract is one which prima facie falls under one of the recognized heads of public policy, it will not be held illegal unless its harmful qualities are indisputable. The doctrine, as Lord ATKIN remarked in a leading case, “should only be invoked in clear cases in which the harm to the public is substantially D incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds … In popular language … the contract should be given the benefit of the doubt.” Anson in his Law of Contract states the same rule thus, at p. 216: E “Jessel, M.R., in 1875, stated a principle which is still valid for the Courts, when he said: ‘You have this paramount public policy to consider, that you are not lightly to interfere with the freedom of contract ‘; and it is in reconciling freedom of contract with other public interests which are regarded as of not less importance that the difficulty in these cases arises …. F We may say, however, that the policy of the law has, on certain subjects, been worked into a set of tolerably definite rules. The application of these to particular instances necessarily varies with the conditions of the times and the progressive development of public opinion and morality, but, as Lord Wright G has said, ‘public policy, like any other branch of the Common Law, ought to be, and I think is, governed by the judicial use of precedents. If it is said that rules of public policy have to be moulded to suit new conditions of a changing world, that is H

p. 606 Copy page pinpoint

A true; but the same is true of the principles of the Common Law generally.” In Halsbury’s Laws of England, 3rd Edn., Vol. 8, the doctrine is stated at p. 130 thus: “Any agreement which tends to be injurious to the public or against the public good is void as being contrary to public policy…. It seems, however, that this branch of the law will not be extended. The determination of what is contrary to the so-called policy of the law necessarily varies from time to time. Many transactions are upheld now which in a former generation would have been avoided as contrary to the supposed policy of the law. The rule remains, but its application varies with the principles which for the time being guide public opinion.” …” (at pages 432-434) *** D “… The doctrine of public policy may be summarized thus: Public policy or the policy of the law is an illusive (sic elusive) concept; it has been described as “untrustworthy guide”, “variable quality”, “uncertain one”, “unruly horse”, etc; the primary duty of a Court of Law is to enforce a promise which the parties have made and to uphold the sanctity of contracts which form the basis of society, but in certain cases, the Court may relieve them of their duty on a rule founded on what is called the public policy; for want of better words Lord Atkin describes that something done contrary to public policy is a harmful thing, but the doctrine is extended not only to harmful cases but also to harmful tendencies; this doctrine of public policy is only a branch of common law, and, just like any other branch of common law, it is governed by precedents; the principles have been crystallized under different heads and though it is permissible for Courts to expound and apply them to different situations, it should only be invoked in clear and incontestable cases of harm to the public; though the heads are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is advisable in the interest of stability of society not to make any attempt to discover new heads in these days.” H (at pages 439-440)

p. 607 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

41Copy pinpoint41. This judgment has been referred to with approval in several A subsequent decisions. Thus, in Murlidhar Aggarwal v. State of U.P., (1974) 2 SCC 472, this Court held: “30. ”Public Policy” has been defined by Winfield as “a principle of judicial legislation or interpretation founded on the current needs of the community” [Percy H. Winfield, Public Policy in English B Common Law, 42 Harvard Law Rev. 76]. Now, this would show that the interests of the whole public must be taken into account; but it leads in practice to the paradox that in many cases what seems to be in contemplation is the interest of one section only of the public, and a small section at that. The explanation of the paradox is that the courts must certainly weigh the interests of C the whole community as well as the interests of a considerable section of it, such as tenants, for instance, as a class as in this case. If the decision is in their favour, it means no more than that there is nothing in their conduct which is prejudicial to the nation as a whole. Nor is the benefit of the whole community always a D mere tacit consideration. The courts may have to strike a balance in express terms between community interests and sectional interests. So, here we are concerned with the general freedom of contract which everyone possesses as against the principle that this freedom shall not be used to subject a class, to the harassment of suits without valid or reasonable grounds. Though there is considerable support in judicial dicta for the view that courts cannot create no (sic) new heads of public policy [Gherulal Parekh v. Mahadeodas Maiya, 1959 Supp (2) SCR 406, 440] , there is also no lack of judicial authority for the view that the categories of heads of public policy are not closed and that there remains a broad field within which courts can apply a variable notion of policy as a principle of judicial legislation or interpretation founded on the current needs of the community [Dennis Lloyd, Public Policy (1953) pp. 112 & 113.].”

42Copy pinpoint42. In Union of India v. Gopal Chandra Misra, (1978) 2 SCC G 301, this Court held: “38. It must be remembered that the doctrine of public policy is only a branch of the common law, and its principles have been crystallised and its scope well delineated by judicial precedents. It is sometimes described as “a very unruly horse”. Public policy, as H

p. 608 Copy page pinpoint

A Burroughs, J. put it in Fauntleroy case [Amicable Society v. Boeland, (1830) 4 Bligh, (NS) 194 : 2 Dow & C11] , “is a restive horse and when you get astride of it, there is no knowing where it will carry you”. Public policy can, therefore, be a very unsafe, questionable and unreliable ground for judicial decision and courts cannot, but be very cautious to mount this B treacherous horse even if they must. This doctrine, as pointed out by this Court in Gherulal Parakh case [AIR 1959 SC 781 : 1959 Supp 2 SCR 406] (ibid.), can be applied only in a case where clear and undeniable harm to the public is made out. To quote the words of Subba Rao, J. (as he then was): C Though theoretically it may be permissible to evolve a new head (of public policy) under exceptional circumstances of a changing world, it is advisable in the interest of stability of society not to make any attempt to discover new heads in these days. D There are no circumstances, whatever, which would show that the withdrawal of the resignation by the appellant would cause harm to the public or even to an individual. The contention, therefore, is repelled.”

43Copy pinpoint43. This Court’s judgment in Central Inland Water Transport E Corpn. v. Brojo Nath Ganguly, (1986) 3 SCC 156, after referring to the case law on the subject, then held: “92. The Indian Contract Act does not define the expression “public policy” or “opposed to public policy”. From the very nature of things, the expressions “public policy”, “opposed to public policy”, F or “contrary to public policy” are incapable of precise definition. Public policy, however, is not the policy of a particular government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the G public good or the public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the courts and similarly where there has been a well-recognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not H

p. 609 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

even flinched from inventing a new head of public policy. There A are two schools of thought— “the narrow view” school and “the broad view” school. According to the former, courts cannot create new heads of public policy whereas the latter countenances judicial law-making in this area. The adherents of “the narrow view” school would not invalidate a contract on the ground of public B policy unless that particular ground had been well-established by authorities. Hardly ever has the voice of the timorous spoken more clearly and loudly than in these words of Lord Davey in Janson v. Driefontein Consolidated Gold Mines Ltd. [(1902) AC 484, 500]: “Public policy is always an unsafe and treacherous ground for legal decision”. That was in the year 1902. Seventy- C eight years earlier, Burrough, J., in Richardson v. Mellish [(1824) 2 Bing 229, 252 : 130 ER 294, 303 and (1824-34) All ER 258, 266] described public policy as “a very unruly horse, and when once you get astride it you never know where it will carry you”. The Master of the Rolls, Lord Denning, however, was not a man to shy away from unmanageable horses and in words which conjure up before our eyes the picture of the young Alexander the Great taming Bucephalus, he said in Enderby Town Football Club Ltd. v. Football Assn. Ltd. [(1971) Ch 591, 606]: “With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles.” Had the timorous always held the field, not only the doctrine of public policy but even the common law or the principles of Equity would never have evolved. Sir William Holdsworth in his History of English Law Vol. III, p. 55, has said: “In fact, a body of law like the common law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them.” G It is thus clear that the principles governing public policy must be and are capable, on proper occasion, of expansion or modification. Practices which were considered perfectly normal at one time have today become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a H

p. 610 Copy page pinpoint

A case, then the court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. Above all, in deciding any case which may not be covered by authority our courts have before them the beacon light of the Preamble to the Constitution. Lacking precedent, the court can always be guided by that light and the B principles underlying the Fundamental Rights and the Directive Principles enshrined in our Constitution.”

44Copy pinpoint44. Likewise, in Rattan Chand Hira Chand v. Askar Nawaz Jung, (1991) 3 SCC 67, this Court took the view that: C “17. I am in respectful agreement with the conclusion arrived at by the High Court. It cannot be disputed that a contract which has a tendency to injure public interests or public welfare is one against public policy. What constitutes an injury to public interests or welfare would depend upon the times and climes. The social milieu in which the contract is sought to be enforced would decide the factum, the nature and the degree of the injury. It is contrary to the concept of public policy to contend that it is immutable, since it must vary with the varying needs of the society. What those needs are would depend upon the consensus value judgments of the enlightened section of the society. These values may sometimes get incorporated in the legislation, but sometimes they may not. The legislature often fails to keep pace with the changing needs and values nor is it realistic to expect that it will have provided for all contingencies and eventualities. It is, therefore, not only necessary but obligatory on the courts to step in to fill the lacuna. When courts perform this function undoubtedly they legislate judicially. But that is a kind of legislation which stands implicitly delegated to them to further the object of the legislation and to promote the goals of the society. Or to put it negatively, to prevent the frustration of the legislation or perversion of the goals and values of the society. So long as the courts keep themselves tethered to the ethos of the society and do not travel off its course, so long as they attempt to furnish the felt necessities of the time and do not refurbish them, their role in this respect has to be welcomed.”

45Copy pinpoint45. In Renusagar Power Co. Ltd. v. General Electric Co., H 1994 Supp (1) SCC 644, this Court held:

p. 611 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

“48. Since the doctrine of public policy is somewhat open-textured and flexible, Judges in England have shown certain degree of reluctance to invoke it in domestic law. There are two conflicting positions which are referred as the ‘narrow view’ and the ‘broad view’. According to the narrow view courts cannot create new heads of public policy whereas the broad view countenances judicial law making in this areas. (See : Chitty on Contracts, 26th Edn., Vol. I, para 1133, pp. 685-686). Similar is the trend of the decision in India. In Gherulal Parakh v. Mahadeodas Maiya [1959 Supp 2 SCR 406 : AIR 1959 SC 781] this Court favoured the narrow view when it said: “… though the heads are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is admissible in the interest of stability of society not to make any attempt to discover new heads in these days” (p. 440)

49. In later decisions this Court has, however, leaned towards the broad view. [See : Murlidhar Agarwal v. State of U.P. [(1974) 2 SCC 472, 482 : (1975) 1 SCR 575, 584]; Central Inland Water Transport Corpn. v. Brojo Nath Ganguly [(1986) 3 SCC 156, 217]; Rattan Chand Hira Chand v. Askar Nawaz Jung [(1991) 3 SCC 67, 76-77].]” E

46Copy pinpoint46. In Zoroastrian Coop. Housing Society Ltd. v. District Registrar, Coop. Societies (Urban), (2005) 5 SCC 632, this Court held: “38. It is true that our Constitution has set goals for ourselves and one such goal is the doing away with discrimination based on F religion or sex. But that goal has to be achieved by legislative intervention and not by the court coining a theory that whatever is not consistent with the scheme or a provision of the Constitution, be it under Part III or Part IV thereof, could be declared to be opposed to public policy by the court. Normally, as stated by this G Court in Gherulal Parakh v. Mahadeodas Maiya [1959 Supp (2) SCR 406 : AIR 1959 SC 781] the doctrine of public policy is governed by precedents, its principles have been crystallised under the different heads and though it was permissible to expound and apply them to different situations it could be applied only to clear and undeniable cases of harm to the public. Although, theoretically H

p. 612 Copy page pinpoint

A it was permissible to evolve a new head of public policy in exceptional circumstances, such a course would be inadvisable in the interest of stability of society.”

47Copy pinpoint47. In State of Rajasthan v. Basant Nahata, (2005) 12 SCC 77, this Court held: B “39. The principles have been crystallised under different heads and though it may be possible for the courts to expound and apply them to different situations but it is trite that the said doctrine should not be taken recourse to in “clear and incontestable cases of harm to the public though the heads are not closed and though C theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world”. (See Gherulal Parakh v. Mahadeodas Maiya [1959 Supp (2) SCR 406 : AIR 1959 SC 781].)”

48Copy pinpoint48. In Vodafone International Holdings BV v. Union of India, D (2012) 6 SCC 613, this Court held: “263. This Court in Gherulal Parakh v. Mahadeodas Maiya [AIR 1959 SC 781 : 1959 Supp (2) SCR 406] held that freedom of contract can be restricted by law only in cases where it is for some good of the community. The Companies Act, 1956 or the E FERA, 1973, RBI Regulation or the IT Act do not explicitly or impliedly forbid shareholders of a company to enter into agreements as to how they should exercise voting rights attached to their shares.”

49Copy pinpoint49. A reading of the aforesaid judgments leads to the conclusion F that freedom of contract needs to be balanced with clear and undeniable harm to the public, even if the facts of a particular case do not fall within the crystallised principles enumerated in well-established ‘heads’ of public policy. The question that then arises is whether there is anything in the public policy of India, as so understood, which interdicts the party autonomy of two Indian persons referring their disputes to arbitration at G a neutral forum outside India.

50Copy pinpoint50. It can be seen that exception 1 to section 28 of the Contract Act specifically saves the arbitration of disputes between two persons without reference to the nationality of persons who may resort to arbitration. It is for this reason that this Court in Atlas (supra) referred H to the said exception to section 28 and found that there is nothing in

p. 613 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

either section 23 or section 28 which interdicts two Indian parties from getting their disputes arbitrated at a neutral forum outside India.

51Copy pinpoint51. However, it was argued by Shri Himani, with specific reference to section 28(1)(a) and section 34(2A) of the Arbitration Act, that since two Indian parties cannot opt out of the substantive law of India and therefore, ought to be confined to arbitrations in India, Indian public policy, as reflected in these two sections, ought to prevail. We are unable to agree with this argument. It will be seen that section 28(1)(a) of the Arbitration Act, when read with section 2(2), section 2(6) and section 4, only makes it clear that where the place of arbitration is situated in India, in an arbitration other than an international commercial arbitration (i.e. an arbitration where none of the parties, inter alia, happens to be a C national of a foreign country or habitually resident in a foreign country), the arbitral tribunal shall decide the dispute in accordance with the substantive law for the time being in force in India.

52Copy pinpoint52. It can be seen that section 28(1)(a) of the Arbitration Act makes no reference to an arbitration being conducted between two Indian D parties in a country other than India, and cannot be held, by some tortuous process of reasoning, to interdict two Indian parties from resolving their disputes at a neutral forum in a country other than India.

53Copy pinpoint53. Take the case of an Indian national who is habitually resident in a country outside India. Any dispute between such Indian national and an Indian national who is habitually resident in India would attract the provisions of section 2(1)(f)(i) and, consequently, section 28(1)(b) of the Arbitration Act, in which case two Indian nationals would be entitled to have their dispute decided in India in accordance with the rules of law designated by the parties as applicable to the substance of the dispute, which need not be Indian law. This, by itself, is a strong indicator that section 28 of the Arbitration Act cannot be read in the manner suggested by Mr. Himani.

54Copy pinpoint54. Even otherwise, BALCO (supra), which has been referred to by the Madhya Pradesh High Court in Sasan I (supra), in paragraph 118 thereof specifically indicated that section 28(1)(a) of the Arbitration G Act will not apply where the seat is outside India as, in that event, the conflict of law rules of the country in which the arbitration takes place would have to be applied.

55Copy pinpoint55. Coming to the example given by Shri Himani, namely, that the application of the Benami Transactions Act cannot be sought to be H

p. 614 Copy page pinpoint

A circumvented by two Indian nationals by resorting to an arbitration in a seat outside India, it is more than likely that, as in the present case, two Indian nationals will apply the substantive law of India to disputes between them which arise from a breach of contract which takes place in India. Even in the absence of any designation of which rules will apply to the substance of the dispute, which dispute pertains to transactions concluded in India and breach thereof, the substantive law of India will be applied by the arbitrator in accordance with the conflict of law rules of the country in which the arbitration takes place. Dicey, Morris and Collins on the Conflict of Laws (Sweet & Maxwell, 15th Edn.) states as follows: “Rule 224 – (1)(a) Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not be prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement.” *** D “The principle in Ralli Bros.: It has already been seen that at common law there was thought to be a principle that a contract (whether lawful by its governing law or not) was, in general, invlaid in so far as the performance of it was unlawful by the law of the country where the contract was to be performed (lex loci solutionis). This principle as formulated in the second edition of this work, was adopted by the Court of Appeal in the Ralli Bros case. There remains a question, however, whether it is a rule of the conflict of laws (as its formulation would suggest) or is, on the contrary, a principle of the domestic law of contract relating to supervening illegality. The answer affects the question whether the principle has any application since the incorporation of the Rome Convention and the enactment of the Rome I Regulation. It is clear that if an English contract was to be performed abroad, the English court would refuse to enforce it if its performance would directly or indirectly violate the law of the place of performance. Hence an agreement governed by English law for the payment in Spain of chartered freight beyond the maximum permitted by Spanish law did not support an action in England. Where such a contract was illegal ab initio according to the foreign law and was made by the parties with the object of defying the foreign law, its invalidity would often follow from a general principle H

p. 615 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

of public policy stated below in connection with Rule 229. We are here mainly concerned with contracts which are not against the public policy of this country by reason of their interference with the friendly relations towards a foreign government, but which nevertheless involve the doing of something unlawful according to the law of the country in which the contractual obligation is to be performed, e.g. because performance was rendered illegal by the lex loci solutionis after the making of the contract. If English law is the governing law of the contract, the consequences of illegality, whether initial or supervening, according to the law of the place of performance will be identical with those which arise from the initial or supervening illegality according to English C domestic law of a contract to be performed in England. For the principle in Ralli Bros, as so understood, to be applicable it is necessary that “performance includes the doing in a foreign country of something which the laws of that country make it illegal to do. What this means is not that performance is excused whenever it includes an act in a country whose law makes this act illegal. It is not enough that performance is excused, or that the act is unlawful by the law of the country in which it happens to be done, or that the contract is contrary to public policy according to the law of the place of performance. It must be “unlawful by the law of the country in which the act has to be done,” i.e. by the law of the country in which, according to its express or implied terms, the contract is to be performed. It would not matter whether the person liable to perform would, by doing so, infringe the laws of the foreign country in which he is resident or carries on business, or of which he is a national, if the law of that country is neither the governing law of the contract nor the lex loci solutionis. Up to this point the question of the consequences of illegality according to the lex loci solutionis is covered by authority. It was, however, doubtful and highly controversial whether, according to the English rules of the conflict of laws, illegality according to the lex loci solution is as such had any effect on the validity or operation of a contract governed by foreign law and to be performed in a third country, i.e. in a foreign country other than that of the governing law. Would an English court enforce a French contract for the payment in Spain of chartered freight beyond the maximum H

p. 616 Copy page pinpoint

A permitted by Spanish law? Would it hold that the consequences of such illegality were governed by Spanish law, the lex loci solutionis, or would it leave it to French law, the governing law of the contract, to determine whether illegality according to the lex loci solutionis had any, and if so what, effect upon the validity and operation of the contract? B The prevailing academic view was that supervening illegality according to the law of the place of performance did not as such prevent an English court from enforcing the contract, unless it were governed by English law. The principle in Ralli Bros, on this view, was not a principle of the conflict of laws at all, but merely an application of the English domestic rules with regard to the discharge or suspension of contractual obligations by supervening illegality, and the illegality of performance under the lex loci solutionis was no more than a fact to be taken into account by an English court in judging whether performance had become impossible. Whether an English court would enforce a French contract for the doing in Spain of something which Spanish law had forbidden after the making of the contract would depend on French law, and, in particular, on the French law of suspension or discharge of contracts. There was no direct authority on the point. In Kahler v. Midland Bank Ltd. Lord Reid said that “the law of E England will not require an act to be done in performance of an English contract if such act….would be unlawful by the law of the country in which the act has to be done.” In Zivnostenska Banka v. Frankman, however, he regarded it as “settled law that, whatever be the proper law of the contract, an English court will not require a party to do an act in performance of a contract which would be an offence under the law in force at the place where the act is to be done.”

56Copy pinpoint56. The case of Ralli Brothers was followed in Foster v. Driscoll 1929 1 Kings Bench 470. Both these judgments were then referred to in Regazzoni v. KC Sethia [1958] A.C. 301. In this case, the House of Lords decided a case in which the respondents agreed to sell and deliver to the appellant, jute bags. Both parties contemplated that they should be shipped from India to Genoa for resale in South Africa. The parties were also aware that the export of jute from India to South Africa was prohibited by Indian law. Despite the fact that English H law was the proper law of the contract, the House of Lords held that the

p. 617 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

contract was unenforceable since an English court will not enforce a A contract which violates the law of a foreign and friendly state. Vicount Simonds put it thus: “The question then arises — and it is, as I say, the only question for your Lordships’ consideration — whether the respondents were justified in repudiating the contract. They claim to be justified on B the ground that I have already stated. Their broad proposition is that whether or not the proper law of the contract is English law, an English court will not enforce a contract, or award damages for its breach, if its performance will involve the doing of an act in a foreign and friendly State which violates the law of that State. For this they cite the authority of the well-known case of Foster C v. Driscoll, [1929] 1 K.B. 470 and much of the debate in this House has been whether that case was rightly decided, and if so, whether it is distinguishable from the present case. The appellant contends that it was not rightly decided, and further invokes a familiar principle which he states in these wide but questionable D terms, “An English court will not have regard to a foreign law of a penal, revenue, or political character,” and claims that the Indian law here in question is of such a character.” (at pages 317-318) *** E

“Here, my Lords, was a formidable line of authority when in 1920 Ralli Brothers v. Compañia Naviera Sota y Aznar, [1920] 2 K.B. 287 came before the Court of Appeal. In that case the contract in suit was governed by English law but it required the performance in Spain of an act illegal by Spanish law, and it was held that for that reason it could not be enforced. I will cite one passage only from the judgment of Scrutton L.J. “Where,” he said, [1920] 2 K.B. 287, 304: ”a contract requires an act to be done in a foreign country, it is, in the absence of very special circumstances, an implied term of the continuing validity of such a provision that the act to be done in the foreign country shall not be illegal by the law of that country. This country should not in my opinion assist or sanction the breach of the laws of other independent States.” In the Ralli Brothers case, [1920] 2 K.B. 287, the relevant law was not a revenue law, and I am content to assume that Scrutton L.J. might have qualified his statement if he had had such a law in H

p. 618 Copy page pinpoint

A mind. But I venture to return to what I said earlier in this opinion. It does not follow from the fact that today the court will not enforce a revenue law at the suit of a foreign State that today it will enforce a contract which requires the doing of an act in a foreign country which violates the revenue law of that country. The two things are not complementary or co-extensive. This may be seen if for revenue law penal law is substituted. For an English court will not enforce a penal law at the suit of a foreign State, yet it would be surprising if it would enforce a contract which required the commission of a crime in that State. It is sufficient, however, for the purposes of the present appeal to say that, whether or not an exception must still be made in regard to the breach of a revenue law in deference to old authority, there is no ground for making an exception in regard to any other law. I should myself have said — and this is, I think, the only point upon which I do not agree with the Court of Appeal — that the present case was precisely covered by the decision in Ralli Brothers, [1920] 2 K.B. 287. For when the fact is found that the very thing which the parties intended to do was to export the jute bags from India in order that they might go via Genoa to the Union of South Africa, it appears to me irrelevant that upon the face of the documents that wrongful intention was not disclosed. But, whether this is so or not, it is clearly covered by Foster v. Driscoll, [1929] 1 K.B. 470, a decision the correctness of which is not to be doubted. The distinctive feature of the case was that Scrutton L.J. thought that the contract there in question could be carried out legally, and forthat reason, differing from Lawrence and Sankey L.JJ., held that it was not invalid. The principle of the decision in Ralli Brothers, [1920] 2 F K.B. 287 was emphatically reasserted and the apparent innocence of the documents was disregarded, the guilty intention being proved ab extra. So, here, it has been conclusively found that the common intention of the parties was to violate the law of India, and it is of no consequence that the documents did not disclose their intention. G I ought not to part from the case without noting that Sankey L.J. observed that the cases relating to the breach of a revenue law were not germane to the issue. Nor are they germane to this appeal. Whether they are still to be regarded as a binding authority is a question that must await determination.” H (at pages 321-323)

p. 619 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

Lord Reid, concurring, held: A “The only recent authority which is directly in point is Foster v. Driscoll, [1929] 1 K.B. 470. There Scrutton L.J. dissented because he took a different view of the facts: if he had held that performance of the contract necessarily involved a breach of American law, I think that he would have agreed with the majority. He said, [1929] B 1 K.B. 470, 496: “I have no doubt that if seller and buyer agreed to ship the whisky into the United States contrary to the laws of that country the contract would not be enforced here: Ralli’s case, [1920] 2 K.B. 287, not because it was illegal here but as a matter of public policy based on international comity.” He then cited with approval, [1929] 1 K.B. 470, 497, Dicey’s Conflict of Laws, 4th C ed., p. 620: “‘It must, however, be noted that if a contract is an English contract, it will only be held invalid on account of illegality if it actually necessitates the performance in a foreign and friendly country of some act which is illegal by the law of such country.’” And he also quoted with approval a passage from the judgment of D Blackburn J. in Waugh v. Morris, (1873) L.R. 8 Q.B. 202, 208: “We quite agree, that, where a contract is to do a thing which cannot be performed without a violation of the law it is void, whether the parties knew the law or not. But we think, that to avoid a contract which can be legally performed, on the ground that there was an intention to perform it in an illegal manner, it is necessary to show that there was the wicked intention to break the law; and, if this be so, the knowledge of what the law is becomes of great importance.” By “a thing which cannot be performed without a violation of the law,” I think that Blackburn J. meant a thing which the contract expressly or by clear implication requires to be done. This contract does not require the seller to obtain the goods from India: it is only after investigation of the facts that it appears that he could not have got them anywhere else. And this contract does not disclose the buyer’s intention to send the goods to South Africa. On the face of it this contract could be performed without a breach of the laws of any country. I shall also quote from what Lawrence L.J. said in Foster’s case, [1929] 1 K.B. 470, 510:”On principle, however, I am clearly of opinion that a partnership formed for the main purpose of deriving profit from the commission of a criminal offence in a foreign and friendly country is illegal, even although the parties have not succeeded in H

p. 620 Copy page pinpoint

A carrying out their enterprise, and no such criminal offence has in fact been committed; and none the less so because the parties may have contemplated that if they could not successfully arrange to commit the offence themselves they would instigate or aid and abet some other person to commit it.” These passages cover the present case, and I agree with them. B Finally, it was argued that, even if there be a general rule that our courts will take notice of foreign laws so that agreements to break them are unenforceable, that rule must be subject to exceptions and this Indian law is one of which we ought not to take notice. It may be that there are exceptions. I can imagine a foreign law involving persecution of such a character that we would regard an agreement to break it as meritorious. But this Indian law is very far removed from anything of that kind. It was argued that this prohibition of exports to South Africa was a hostile act against a Commonwealth country with which we have close relations, that such a prohibition is contrary to inter national usage, and that we cannot recognize it without taking sides in the dispute between India and South Africa. My Lords, it is quite impossible for a court in this country to set itself up as a judge of the rights and wrongs of a controversy between two friendly countries, we cannot judge the motives or the justifications of governments of other countries in these matters and, if we tried to do so, the consequences might seriously prejudice international relations. By recognizing this Indian law so that an agreement which involves a breach of that law within Indian territory is unenforceable we express no opinion whatever, either favourable or adverse, as to the policy which caused its enactment. In my judgment this appeal should be dismissed.” (at pages 324-326)

57Copy pinpoint57. It will thus be seen that where the law of India prohibits a G certain act, the conflict of law rules as set down in Dicey’s authoritative treatise will take care of this situation in most cases as the arbitrators would then apply these rules on the ground of international comity between nations in cases which arise between two Indian nationals in an award made outside India, which would fall within the definition of “foreign award” under Section 44 of the 1996 Act. H

p. 621 Copy page pinpoint

CONVERSION INDIA PVT. LTD. [R. F. NARIMAN, J.]

58Copy pinpoint58. Even otherwise, a ground may be made out under section 48 A against enforcement of a foreign award where enforcement of such award would be contrary to the public policy of India. If, on the facts of a given case, it is found that two Indian nationals have circumvented a law which pertains to the fundamental policy of India, such foreign award may then not be enforced under section 48(2)(b) of the Arbitration Act. B On the assumption that Mr. Himani’s example of the Benami Transactions Act pertains to the fundamental policy of Indian law, if the foreign award is contrary to such fundamental policy, such award will then not be enforced in India.

59Copy pinpoint59. When it comes to the ground raised under section 34(2A) of the Arbitration Act, it is clear that in an international commercial arbitration, say, between an Indian national habitually resident outside India and an Indian national resident in India, even when the arbitration takes place in India resulting in an award being made in India, the ground available under section 34(2A) would not be available, as it would not apply to an international commercial arbitration held in India. In agreeing to a neutral forum outside India, parties agree that instead of one bite at the cherry under section 34 of the Arbitration Act, where an arbitration between two Indian nationals is conducted in India [with the grounds for setting aside the award being available under section 34(2A)], what is instead put in place by the parties is two bites at the cherry, namely, the recourse to a court or tribunal in a country outside India for setting aside the arbitral award passed in that country on grounds available in that country (which may be wider than the grounds available under section 34 of the Arbitration Act), and then resisting enforcement under the grounds mentioned in section 48 of the Arbitration Act. The balancing act between freedom of contract and clear and undeniable harm to the public must be resolved in favour of freedom of contract as there is no clear and undeniable harm caused to the public in permitting two Indian nationals to avail of a challenge procedure of a foreign county when, after a foreign award passes muster under that procedure, its enforcement can be resisted in India on the grounds contained in section 48 of the Arbitration Act, which includes the foreign award being contrary to the public policy of India. Party Autonomy

60Copy pinpoint60. The decks have now been cleared to give effect to party autonomy in arbitration. Party autonomy has been held to be the brooding H

p. 622 Copy page pinpoint