M/s Arif Azim Co. Ltd. v. M/s Micromax Informatics Fze

Judgment / Order of the Supreme Court

Judgment

J.B. Pardiwala, J.

For the convenience of exposition, this judgment is divided into the following parts: -

INDEX*

A. FACTUAL MATRIX ........................................................... 3 B. SUBMISSIONS OF THE PARTIES ..................................... 11 i. Submissions on behalf of the Petitioner .................. 11 ii. Submissions on behalf of the Respondent .............. 18 C. ISSUES FOR DETERMINATION ..................................... 21

* Ed. Note: Pagination as per the original Judgment.

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D. ANALYSIS .......................................................................... 21 i. The Notional Doctrine of Concurrent Jurisdiction and Applicability of Part I of the Arbitration & Conciliation Act, 1996 ............................................ 24 a. Pre-BALCO Regime .............................................. 26 b. Post BALCO Regime .......................................... 43 ii. Criterion or Test for Determination of Seat of Arbitration: Conflict of ‘Venue’ versus ‘Seat’ of Arbitration ................................................................ 56 a. Closest Connection Test – Place of Arbitration to be ascertained by the Law governing the Arbitration Agreement and not the Place of Arbitration ............................................................. 56 b. The Shashoua Principle – ‘Venue’ to be construed as ‘Seat’ .............................................................. 71 iii. Whether the Seat of Arbitration in the underlying Distributorship Agreement is in India? ................ 81 iv. Doctrine of Forum non Conveniens .................... 89 E. CONCLUSION ................................................................... 95

1Copy pinpoint1. The present petition has been filed under Section 11 sub-section (6)(a) read with Section 11 sub-section (12)(a) of the Arbitration and Conciliation Act, 1996 (for short, the “Act, 1996”) seeking a referral of the disputes that have arisen between the parties to arbitration and consequent appointment of an arbitrator by this Court in terms of clauses 26 and 27 of the Consumer Distributorship Agreement respectively dated 09.11.2010 (hereinafter referred to as the “Agreement”) entered into between the petitioner and the respondent herein.

2Copy pinpoint2. The petitioner, ‘M/s Arif Azim Co. Ltd.’, is a company based in Afghanistan, having its registered office at 1st Floor, Zarnigar Hotel, Mohammed Jan Khan Watt, Kabul, Afghanistan and is inter-alia engaged in the business of distribution of handsets which are manufactured by the respondent no. 1 in the territory of Kabul, Afghanistan. The respondent no. 1, ‘M/s Micromax Informatics FZE’ is a Free Zone Establishment company incorporated under the

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laws of United Arab Emirates having its office at 28, Shed No. 18, Technology Park, Free Trade Zone, Ras-Al-Khaimah, UAE. Whereas, the respondent no. 2, ‘M/s Micromax India’ is a public limited company incorporated in India having its registered office at Block A, Plot No. 21/14, Naraina Industrial Area, Phase-II New Delhi. The respondent no. 1 company is a wholly owned subsidiary of the respondent no. 2 company with the same Board Members in both the companies, and together they are engaged in the business of manufacturing, importing and supplying various mobile handsets under its brand name ‘Micromax’ worldwide. We may clarify at the outset, that the respondent no. 2 company herein is a non-signatory to the arbitration agreement in respect of which the present Section 11 petition has been filed.

A. FACTUAL MATRIX

3Copy pinpoint3. The petitioner herein and the respondent no. 1 company entered into a Consumer Distributorship Agreement dated 09.11.2010 (for short, the “Distributorship Agreement”) inter-alia for the distribution of handsets which are manufactured by the respondent no. 1 and the same was executed by the parties in Kabul, Afghanistan. As per the terms of the aforesaid agreement, the petitioner herein became the authorized distributor of the respondent’s products including mobile handsets and was granted a non-exclusive right to market and distribute the same under its own account in the territory of Afghanistan as allotted and delineated under the said agreement.

4Copy pinpoint4. Before proceeding further, it would be apposite to first highlight some of the salient features of the aforesaid Distributorship Agreement which are relevant to the case at hand. Under the terms of the aforesaid Distributorship Agreement, it is stipulated that all payments shall be made by the distributor in full before the physical delivery of the products, and it further specifies that the mode of such payment shall be through a letter of credit (L/C). The Distributorship Agreement further provides that no additions or modifications made to the aforesaid agreement shall be binding unless it is in writing and is duly signed by the authorized representatives of the parties. Additionally, the said Distributorship Agreement defines a ‘supplementary agreement’ to mean and include any further agreement or agreements

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that may be executed by the parties including such other terms and conditions that are not incorporated in the main agreement. The relevant clauses read as under: - “1. DEFINITIONS In this agreement, unless the context otherwise requires, the following expressions have the following meanings:

xxx xxx xxx Supplementary Agreement: means the further agreement(s) as may be executed between the parties including such other commercial terms and conditions which are not incorporated in this Agreement.

xxx xxx xxx

5Copy pinpoint5. DISTRIBUTOR’S OBLIGATIONS

xxx xxx xxx 5.4 Payment 5.4.1 Invoice and Payment Terms. Unless credit terms have been expressly agreed by Micromax, payment for the Products shall be made through irrevocable and confirmed letter of credit (L/C) in full before physical delivery of the Products to Distributor (or Distributor’s customer). Time for payment is of the essence and Micromax reserves the right to charge interest on sums overdue, on a day to day basis at the rate of 24% per annum. Such interest shall be payable on demand. 5.4.2. Payments not received by Micromax as per the payment terms shall constitute a default by the Distributor. Micromax shall have the right to invoke the bank guarantee furnished by the Distributor for securing payments in case of default. Distributor agrees not to seek any adjustments, set-off of any other amounts outstanding to Micromax in respect of the bank guarantee nor counter claim from Micromax.

xxx xxx xxx

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23. ENTIRE AGREEMENT 23.1 This Agreement together with the Conditions of Sale, supersedes all prior agreements, arrangements, understandings and undertakings between the parties and constitutes the entire agreement between the parties relating to the subject matter hereof. 23.2 No addition to or modification of any provision of this Agreement shall be binding upon the parties unless made by a written instrument signed by a duly authorized representative of each of the parties. 23.3 Distributor hereby warrants to Micromax that it has not been induced to enter into the Agreement by any prior oral or written representations (whether innocently or negligently made) except as specifically contained in the Agreement.”

5. Furthermore, the aforesaid Distributorship Agreement inter-alia stipulates that the said agreement will be governed by the laws of UAE and subject to the non-exclusive jurisdiction of the Dubai Courts. The said Distributorship Agreement also contains an arbitration clause which states that any dispute or difference pertaining to the said agreement or arising therefrom shall be resolved through arbitration alone, the venue of the arbitration shall be Dubai, UAE and that the arbitration shall be subject to the UAE Arbitration & Conciliation rules. The relevant clauses are reproduced hereunder: - “26. DISPUTE RESOLUTION In the event of any dispute or difference arising out of the Agreement, its validity, applicability, then the same shall be referred to the arbitration. The arbitration shall be subject to UAE Arbitration and Conciliation rules made there under. The venue of arbitration shall be Dubai, UAE.

27. LAW AND JURISDICTION This Agreement shall be governed by and construed in accordance with the laws of UAE and shall be subject to the non-exclusive jurisdiction of the Dubai Courts.”

6Copy pinpoint6. Pursuant to the aforesaid Distributorship Agreement several transactions took place between the petitioner and the respondents

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for the purchase and distribution of mobile handsets. It is the case of the petitioner that the business practice mutually followed by the parties for undertaking these transactions involved the petitioner first placing a purchase order, after which the respondents would raise an invoice, and the requisite payment would then be made either to the respondent no. 1 or the respondent no. 2 as per the instructions of the respondents.

7Copy pinpoint7. Around March, 2012 the petitioner herein placed an order for purchase of 8000 (approx..) mobile handsets from the respondent no. 1. Against this purchase the respondent no. 1 raised a proforma invoice to the tune of $109,500/- (USD One hundred nine thousand five hundred) and as per the invoice the said amount was payable by the petitioner to the respondent no. 1 company.

8Copy pinpoint8. According to the petitioner, although the terms of the Distributorship Agreement mandated that both the delivery of handsets and the payments thereof be processed through the respondent no. 1 yet, interestingly, this time the handsets and the corresponding invoices for the same were issued by the respondent no. 2 instead. The respondent no. 2 supplied only 7300 handsets to the petitioner and issued a new invoice for the same amount i.e., $109,500/- (USD One hundred nine thousand five hundred), which was now payable directly to the respondent no. 2 instead.

9Copy pinpoint9. It is the case of the petitioner herein that as on 12.05.2012, the petitioner company had a credit balance of $190,625/- (USD One hundred ninety six hundred twenty-five) with the respondent no. 1 company i.e., the running account of the respondent no. 1 reflected a sum of $190,625/- (USD One hundred ninety six hundred twenty- five) in favour of the petitioner company as outstanding credit. However, the respondent no. 2 whilst raising the invoice for supply of the aforesaid 7300 handsets, ignored the abovementioned credit balance of the petitioner and demanded payment, to be made directly to the respondent no. 2 in India.

10Copy pinpoint10. Thereafter some email correspondences were exchanged between the petitioner company and one Shri Vikas Jain, the executive director of the respondent no. 1 and the business director of the respondent no. 2 company for the adjustment of the abovementioned credit balance lying in favour of the petitioner against the outstanding invoices. On 23.10.2012, the respondents vide an email informed the petitioner

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company that since the accounts of Micromax Informatics FZE & M/s Micromax India are separate, the credit balance lying in its favour in the respondent no. 1’s account cannot be directly adjusted for the invoices raised by the respondent no. 2. It further stated that, the petitioner company should first make payment to the respondent no. 2 towards the invoices that have been raised, and thereafter, the respondent no. 1 company would remit the outstanding credit balance to the petitioner. The relevant portion of the respondent’s email dated 23.10.2012 is reproduced below: - “Dt. 23.10.2012 Subject: Account Statement Dear Sir, Kindly note that from Arif Azim we need to receive USD 109500 for sales made in MMX India and Need to pay USD 190625 in respect of advance received respect of sale to be made in FZE. Both these accounts are of separate Cos. Hence we should first receive payment of MMX India account; then let Micromax FZE pay to Arif. Regards, Anita”

11Copy pinpoint11. On 15.01.2013, the petitioner made the requisite payment of $109,500/- (USD One hundred nine thousand five hundred), which was now payable directly to the respondent no. 2 towards the aforesaid invoices raised by it. Thereafter, it appears from the materials on record, that over a period of time many more transactions took place between the petitioner company and respondent no. 1 inter-alia for purchase and supply of various products whereby the credit balance lying in the respondent no.1’s account in favour of the petitioner company now came out to be $88,425/- (USD Eighty-Eight Thousand Four Hundred Twenty-Five).

12Copy pinpoint12. On 09.09.2019, the petitioner vide an email again requested Shri Vikas Jain to confirm the credit balance lying in its favour with the respondent no. 1 and to undertake steps to transfer the same to the petitioner’s account. In response, Shri Vikas Jain directed the finance department of respondent no. 1 to confirm the credit balance lying

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with it in favour of the petitioner and further requested the petitioner to furnish its statement of account so that the two books of account may be reconciled for making the requisite payment.

13Copy pinpoint13. Thereafter, several more correspondences took place between the petitioner and Shri Vikas Jain on behalf of the respondents through emails and texts inter-alia requesting for various documents and statements for the purpose of ascertaining the outstanding credit balance in favour of the petitioner. On 06.05.2022, the petitioner furnished the necessary statement of accounts to the respondents and requested for an update on the payment.

14Copy pinpoint14. It appears from the material on record, that over the next 2-months several requests were made by the petitioner to the respondents for furnishing the outstanding credit balance in its favour and to make the requisite payment; however, the same were to no avail. Shri Vikas Jain, on behalf of the respondents’ time to time expressed his difficulty in ascertaining the exact figure for the outstanding credit balance, inter-alia citing that it was a very old running account and that the accountants responsible for maintaining the records had left the company, and thus requested for more time to do the needful.

15Copy pinpoint15. On 14.09.2022, the petitioner sent a notice for invocation of arbitration under Section 21 of the Act, 1996, in terms of Clause 26 of the Distributorship Agreement to the respondent nos. 1 & 2. Vide the notice, the petitioner raised a claim of $88,425/- (USD Eighty-Eight Thousand Four Hundred Twenty-Five) with interest @24% p.a. as per the terms agreed in the Distributorship Agreement and nominated Shri. V. Giri and Shri. R. Basant, Senior Advocate as its nominee arbitrators and called upon the respondents to accordingly appoint an arbitrator either from the above suggested panel or any other suitable name within 28-days from receipt of the said notice.

16Copy pinpoint16. It is material to note that in the aforesaid notice of invocation dated 14.09.2022, the petitioner further alluded that in the Distributorship Agreement more particularly Clause 27 the parties had not designated a specific court to the exclusion of all other courts to adjudicate the dispute, thus no exclusive jurisdiction had been conferred by the parties upon any particular court. It further stated that, as the cause of action had concurrently both in Afghanistan and India, the petitioner expressed its preference to resolve the dispute through arbitration administered under the jurisdiction of the courts in India.

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17Copy pinpoint17. Since no reply to the aforesaid notice of invocation of arbitration was elicited from either of the respondents, the present petition came to be filed by the petitioner on 19.04.2023 before this Court for seeking appointment of an arbitrator under Section 11(6) of the Act, 1996 in other words due to the failure on part of the respondents in nominating an arbitrator as per the mutually agreed upon terms and procedure under the aforesaid Distributorship Agreement.

B. SUBMISSIONS OF THE PARTIES

i. Submissions on behalf of the Petitioner.

18Copy pinpoint18. Mr. R. Sathish the learned counsel appearing for the petitioner in his written submissions has stated thus: - “WRITTEN SUBMISSIONS MADE BY R. SATHISH, ADVOCATE ON BEHALF OF THE PETITIONER

1. The Dispute Resolution clause defined the venue of arbitration as Dubai and the curial law as UAE Arbitration and Conciliation Rules and the jurisdiction clause, suggestive of control, does not confer jurisdiction to Dubai courts to the exclusion of all other courts.

2. For international arbitrations, the concept of seat assumes greater significance as it acts as the indicator for both curial law as well as supervisory jurisdiction whereas venue is not associated with the jurisdiction.

3. The agreement, in so far the identity of Dubai courts, for jurisdiction, suffers from vagueness in that, it doesn’t specify which of the courts of Dubai and the laws governing thereunder, shall have jurisdiction to hear the disputes among three different courts constituted, namely (i) The UAE Courts (the language is not English) (ii) Dubai International Financial Court (DIFC-Common law) (iii) Abu Dhabi Global court (ADGM-common law). Therefore, at the threshold, it is submitted that the 2nd part of clause 27 dealing with jurisdiction that “……….and shall be subject to the non-exclusive jurisdiction of the Dubai

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courts” is a valid opting out of the exclusive jurisdiction of Dubai courts, as the parties have intended to avoid impracticable and inconvenient process and procedures as a result of subsequent amendments and modifications to the agreement involving 3 countries, Afghanistan, India and UAE. This submission is discernible from a plain reading of various clauses in the subject of the agreement as well as the conduct of the parties including a non -signatory to the agreement.

4. As held in Bharat Aluminium vs Kaiser Aluminium Technical Services Inc. 2012 (9)SCC 522, at para 99, that, it would be a matter of construction of the individual agreement to decide, whether the designated foreign “seat” would be read as in fact only providing a “venue”/“place” where the hearings would be held; and in the present case on hand, given the choice of UAE Arbitration and Conciliation Rules as being the curial law and the venue at Dubai, will not dictate what the governing or controlling law would be when the 2nd part of clause 27 reiterates the parties’ autonomy in deciding/choosing the seat by expressly stating its intention that “This agreement shall be subject to the non-exclusive jurisdiction of the Dubai Courts”. Regard being to other clauses in the agreement, this clause has been incorporated to avoid conflicts related to the jurisdictions of courts and confer jurisdiction on other courts too, it is submitted. (Emphasis supplied).

5. At the outset, be it kindly noted that, the relied upon decision by the respondent to oust the jurisdiction of Indian courts in Mankatsu Impex Private Limited vs Airvisual Limited 2010 (5) SCC 399 is misplaced as it was a case of exclusive jurisdiction in terms conferred by the agreement. A clause therein like Cl.17.2 which provides “the place of arbitration shall be Hong Kong”, in addition to, also providing that “all disputes arising out of the MoU shall be referred to and finally resolved and administered in Hong Kong”…is conspicuously absent in the subject agreement. Still on a matter of law, emphasising the Party’s autonomy, Mankatsu Impex held;

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Quote “20. It is well-settled that “seat of arbitration” and “venue of arbitration” cannot be used interchangeably. It has also been established that mere expression “place of arbitration” cannot be the basis to determine the intention of the parties that they have intended that place as the “seat” of arbitration. The intention of the parties as to the “seat” should be determined from other clauses in the agreement and the conduct of the parties.” Unquote

5. Proposition (i) Where in substance, the parties agreed that the local laws of one country will govern and control a given arbitration, the place where the arbitration is to be heard will not dictate what the governing law or controlling law will be. (Bharath Aluminium vs Kaiser Aluminium Technical services 2012 (9) SCC552 at page 613 Para 107. (ii) When an agreement expressly designates the venue without any express reference to seat, given the various factors connecting the dispute to India in a contract executed in Kabul and wholly to be performed in India and Afghanistan and the absence of any foreign factors connecting the dispute to Dubai with its vagueness and uncertainty of what the parties had intended by their reference to the “Dubai courts”, the burden is on the respondents to establish that its terms constituted Dubai as the seat of arbitration.

SUBMISSIONS ON BEHALF OF THE PETITIONER

6. The petitioner submits that the laws of the country with which the subject agreement was most closely connected are India and Afghanistan. The recitals in Sub- Cl. 22.4 (Interpretation Clause) of the Distribution agreement and the conduct of the parties reveal that the parties had attached very little importance to its local subsidiary FZE within the “Micromax Group” of companies that ultimately signed the Distributor agreement. It was formed to take advantage of concessional benefits in a free economic zone. The intention of the parties as to the “seat” should

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be determined from other clauses in the agreement and the conduct of the parties.

7. A plain conjoint reading of the following 6 clauses in the agreement with a supplementary agreement executed by Micromax Inc. (Non-signatory parent Co.) in the form of two emails forming its integral part (Pages 37 to 54) would negate the contra plea of the respondents as to the jurisdiction of Indian courts. (i) Clause 26 Clause 27 deals with Dispute Resolution; law and jurisdiction. Quote..”Cl. 26. Dispute Resolution In the event of any dispute or difference arising out of the agreement, its validity, applicability, then the same shall be referred to arbitration. The arbitration shall be subject to UAE Arbitration and conciliation rules made there under. The venue of arbitration shall be Dubai, UAE. Cl. 27. Law and jurisdiction This shall be governed by and construed in accordance with the laws of UAE and shall be subject to the non-exclusive jurisdiction of the Dubai Courts.” ....Unquote

8. Petitioner submits that Clause 27 preserved the party’s autonomy in allowing the concerned parties to choose their seat/jurisdiction. The second part of jurisdictional Cl. 27 discloses the intention - an agreement by itself- to opt out of Dubai court’s jurisdiction and this is what the parties had intended by their reference to “the non-exclusive jurisdiction of the Dubai Courts. Since the parties had agreed not to confer exclusive jurisdiction to courts in Dubai, neither of the parties to the agreement construed the arbitration clause as designating courts in Dubai as the seat of arbitration. Vide PASL vs GE 2021 SCC online 226.

9. DETERMINATION OF THE SEAT BASED ON THE CLOSEST CONNECTION TEST IF IT IS UNCLEAR THAT THE SEAT HAS BEEN DESIGNATED EITHER BY THE PARTIES.

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The petitioner submits that the laws of the country with which the subject agreement was most closely connected is India. However, there is no stipulation whatsoever in the subject agreement about the supervisory power over the arbitration proceedings. In Enercon (India) Limited and others v. Enercon GMBH and another (2014) 5 SCC 1, the arbitration clause provided London as the venue and not the seat. The Court pointed out various factors connecting the dispute to India and the absence of any foreign factors connecting the dispute to England. Supreme Court held that “the location of the Seat will determine the courts that will have exclusive jurisdiction to oversee the arbitration proceedings. It was further held that the Seat normally carries with it the choice of that country’s arbitration/curial law”. In the present case, the parties have only agreed on Dubai as a “Venue” of arbitration and not the juridical seat of the arbitration. If Dubai is treated as seat of the arbitration, ipso jure, local laws will be applied. So much so, the stipulation regarding the governing law of the agreement -Laws of UAE - contained in the first part of Cl. 27 will not dictate, what the governing or controlling law would be, whereas the second part applies to both the substantive law and curial law, did not concede an exclusive jurisdiction to Dubai courts. Therefore on a matter of construction, Dubai cannot be the seat of Arbitration.

10. In Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Ors. (2017) 7 SCC 678 followed by M/s Emkay Global Financial Services Ltd. v. Girdhar Sondhi reiterated that “seat” in the context of arbitration proceedings is akin to an exclusive jurisdiction clause and would not vest the courts with seat if exclusive jurisdiction is not conceded.

11. Submission is that “supervisory control over the arbitral proceedings” is not exclusively given to Dubai courts by the 2nd part of Clause 27 and the party’s autonomy is thus preserved.

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12. 2nd submission. The Bi-party Agreement executed between the petitioner and a foreign company in Kabul was altered by invoking the Group of Companies doctrine by a non-signatory to the agreement. In terms, the agreement has become a tri-partite agreement where a non-signatory to the original agreement directed the petitioner to make a direct payment of $109500 to India by changing the original invoice raised by a party to the agreement. Submission is, 2nd part of Cl.27 envisages a jurisdictional situation as had happened subsequently by the conduct of parties. 12.1 A jurisdiction clause is suggestive of control. In the context of this particular case, the Dubai Courts would have no real control or supervisory jurisdiction over the arbitral process, in as much as, this supplementary agreement further reiterates the party’s autonomy of choosing the juridical seat of Arbitration in consonance with 2nd part of Cl.27 in which case, a reference to the “venue” cannot be treated as the “seat” of the arbitration. 12.2 Micromax Inc.’s insistence on payment in India by altering the original terms is a non-contest/in terrorem clause or a condition precedent which again substantiates the Party’s autonomy lest the respondents would have terminated the subsisting distribution agreement for violating the supplementary agreement by giving written notice under clause 15. Equally, clause 16.7 (Effect of termination), obliges respondents to pay forthwith any amount standing to the credit of distributor, should they choose to terminate the agreement. Respondents have perpetrated a continuous wrong. 12.3. The petitioner’s submission in this regard are fortified by a plain reading of the following clauses r/w the supplementary agreement, in the form of emails forming an integral part of the Agreement u/s 7 (4) (b) and Mc. Dermott International vs Burn Standard (2006 (11) SCC 181) Clause 1. Definitions. Quote “Products: means goods but not spare or replacement parts supplied by Micromax (but not

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necessarily manufactured, assembled or, in the case of software, owned by Micromax Inc. or any of its subsidiary companies or affiliates) to the Distributor. ..Unquote (emphasis supplied) Quote “Supplementary agreements: means further agreement(s) as may be executed between the parties including such other commercial terms and conditions which are not incorporated in this agreement”. Cl. 5.4 Payment ……….. Cl. 5.4.3 “Micromax shall be entitled to deduct from any monies due to the Distributor any sums owed by Distributor to Micromax……” Unquote Cl. 22 Interpretation ……… “22.4. references to Micromax shall be deemed to include reference to affiliates of Micromax where the context so requires”.

24. Assignment - Micromax may assign or otherwise transfer this Agreement or any of its rights and obligations hereunder whether in whole or in part” …….. Unquote. 12.5 Acting upon the supplementary terms, the petitioner made a payment of $109500 by SWIFT to Micromax Inc. in Bombay. (page 64 Annexure P7). In juxtaposition, curated details of the two emails originating from Sh. Vikash Jain (deponent in the counter) who is the Executive Director of Micromax FZE (at page 62 Annex P-4) and an authorised representative of Micromax Inc. is given below: Date: 11 December, 2012 Dear Ali Bhai, Please find attached your debit balance to Micromax, India. Also sending a credit balance statement from FZE, Would appreciate if you can make the mentioned payment to India and we remit credit balance to you back from FZE.

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Thanks Vikas” (Page 52 of the Paper book) “Date 11 December, 2012 Dear Ali Bhai, This is about $190K that we owe back to your firm from FZE. Would appreciate if we can resolve the accounts at the fastest. Thanks Vikas” (Page 54 of the Paper book) Final submission- Mere expression of venue of arbitration will not entail that the parties intended it to be the seat. The intention of the parties- keeping intact Party autonomy - has to be determined from other clauses of the Agreement and the conduct of the parties.”

ii. Submissions on behalf of the Respondent.

19Copy pinpoint19. Mr. Mudit Sharma the learned counsel appearing for the petitioner in his written submissions has stated thus: - “WRITTEN SUBMISSIONS ON BEHALF OF THE RESPONDENTS “M/S MICROMAX FZE (UAE)” I. PETITION NOT MAINTAINABLE AND THIS HON’BLE COURT LACKS JURISDICTION:

1. It is humbly submitted that this Hon’ble Court does not have the jurisdiction to either entertain the Petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“the Act”) and / or appoint an Arbitrator in terms of the Arbitration Agreement between the Petitioner and the Respondent i.e. M/s. Micromax Informatics FZE(UAE) for neither the arbitration seat is India nor the parties ever envisaged the redressal of disputes through arbitration in terms of Indian laws and in India as per the Distributor Agreement dated 09.11.2010 between the Parties (Ann. P-1 @ Pg. 37 ( PDF Pg. 66 of Petition) (hereinafter referred to as “Distributor Agreement”)

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2. Moreover, admittedly, both the Petitioner (an entity of Afghanistan) and the Respondent, M/s. Micromax Informatics FZE(UAE) (an entity of UAE) are body corporates incorporated, registered and situated outside India (Please see description of Parties, Ann. P-1 @Pg.37 (PDF Pg. 66) & 50 (PDF Pg. 79) of Petition) and the Distributor Agreement admittedly was entered and executed between the parties outside India.

3. The Territory defined under the Distributor Agreement is Afghanistan (Please see Ann. P1 Clause 1 -Territory @Pg.50 (PDF Pg. 66) read with the Schedule @ PDF Pg. 79 of Petition). All business transactions are outside India.

4. Clause 26 (Distributor Agreement, Ann. P-1 @ Pg. 49 (Pdf Pg. 78 of Petition) of the Distributor Agreement provides for dispute resolution at Dubai, UAE under UAE Arbitration and Conciliation rules.

5. Clause 27 of the Distributor Agreement (Ann. P-1, @Pg. 49 (Pdf Pg. 78 of Petition) specifically provides that governing law to be exclusively of UAE.

6. There is clear intent between the parties that Dubai shall be the seat of Arbitration and the venue in the present case has to be construed as seat of arbitration.

7. Section 2 (2) of the Act with respect to the applicability of Part-1 stipulate that Section 11 of the Act has no application to arbitrations seated outside India. Thus, this a an arbitration seated outside India and Part-1 of the Act would have no applicability.

8. An “International Commercial Arbitration” in terms of Section 2(f) to attract the applicability of Section 11 for exercise of power of appointment of Arbitrator by this Hon’ble Court mandates that at least one party should be an individual or a body corporate in India and the

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arbitration agreement should compulsorily provide for seat of Arbitration in India. Admittedly neither of the Parties are individuals or body corporates in India nor the Distributor Agreement provides for arbitration seat in India.

9. Reliance is placed on the two Judgements of this Hon’ble Court: i. “Mankatsu Impex Private Limited Vs. Airvisual Ltd. (2020) 5 SCC 399”; relevant Paras being Para 20 at Page 406; Para 25 at Page 408 and Para 26 and Para 27 at Page 409 and ii. “BGS SGS Soma JV Vs. NHPC Limited (2020) 4 SCC 234”; relevant Paras being Paras 61, 62 and 67 at are Page 242).

10. It is further submitted that the use of “non-exclusive jurisdiction of Dubai Courts” in Distributor Agreement did not ever envisage jurisdiction of Courts outside UAE and in no manner whatsoever the “Courts of India”. The word “non-exclusive: has been used in the context that jurisdiction of other Courts in UAE may not be restricted.

11. Invoking of the provisions under section 11 of the Act; would tantamount to re-writing the terms of the Distributor Agreement and taking away parties’ autonomy which is the sole principle on which arbitration is based. As such; this Hon’ble Court cannot exercise its powers of appointment of Arbitrator to the present alleged dispute between the Parties.

12. Given that the Governing law and jurisdiction is of Courts in UAE and Arbitration is stipulated to be under UAE Arbitration and Conciliation rules ; this Hon’ble Court has no jurisdiction to either entertain the present Petition and apply any provisions of the Arbitration Act or any other Indian law.

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II. NO PRIVITY OF CONTRACT BETWEEN PETITIONER AND MICROMAX INFORMATICS LTD. (INDIA):

13. Admittedly the Distributor Agreement dated 09.11.2010 containing the Arbitration Clause provides for dispute resolution between the Petitioner and Respondent, M/s. Micromax Informatics FZE (UAE), an entity of UAE. Admittedly, Micromax Informatics Ltd. (India) is neither a party nor a signatory to the Distributor Agreement. Micromax Informatics Ltd. (India) is not even a Respondent to the present proceedings but has been sought to be impleaded by an Interim Application No.110064/2023. Thus, there exists no privity of contract between the Petitioner and the Indian Entity, Micromax Informatics Ltd. (India).

14. Further, the Petitioner has sought to rely on communications between the Parties to establish privity of contract and assert Micromax Informatics Ltd. (India) as party to dispute. But in an email dated 23.12.2012 (Ann. P-2 @Pg.52 (PDF Pg. 81) of Petition); Micromax Informatics Ltd. (India) while making reference to M/s. Micromax Informatics FZE (UAE) and Micromax Informatics Ltd. (India) has explicitly and categorically stated that the accounts of both companies are separate and there are sums receivable in Micromax Informatics Ltd. (India).

15. Even assuming though not admitting that the transactions with Micromax India were under the Distributor Agreement then too, the terms of the Distributor Agreement with respect to territory, rules of arbitration, governing law, jurisdiction and other terms of agreement would remain same and cannot be considered to be varied. The Distributor Agreement in Clause 23.2 (Ann. P-1 at Pg. 48) (PDF Pg 77) stipulates that no addition to or modification of any provision of this agreement shall be binding unless made by a written instrument signed by duly authorized representative of each of the parties.

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In view of the above, it is most respectfully prayed that the present Petition may kindly be dismissed.”

C. ISSUES FOR DETERMINATION

20Copy pinpoint20. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the following questions of law fall for our consideration: - I. Whether, the present petition under Section 11 of the Act, 1996 is maintainable? II. Whether, Part I of the Act, 1996 is applicable to the arbitration clause contained in the Distributorship Agreement dated 09.11.2010? III. What is the seat of the arbitration in terms of the Distributorship Agreement dated 09.11.2010?

D. ANALYSIS

21Copy pinpoint21. It is necessary to delve into the history of the law of arbitration in India. Prior to the 1996 Act, three Acts governed the law of Arbitration in India — the Arbitration (Protocol and Convention) Act, 1937, which gave effect to the Geneva Convention, the Arbitration Act, 1940 (for short, the “Act, 1940”), which dealt with domestic awards, and the Foreign Awards (Recognition and Enforcement) Act, 1961 (for short, the “Act, 1961”) which gave effect to the New York Convention of 1958 and which dealt with challenges to awards made which were foreign awards. Thereafter, in order to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules, the Act, 1996 was enacted.

22Copy pinpoint22. The Act, 1996 is divided into four parts. Part I which is headed “Arbitration”; Part II which is headed “Enforcement of Certain Foreign Awards”; Part III which is headed “Conciliation” and Part IV being “Supplementary Provisions”.

23Copy pinpoint23. There was no concept of “juridical seat” or “situs of arbitration” under the Act, 1940, rather the jurisdiction of courts was determined on the basis of the definition of “court” under Section 2(c) of the Act, 1940

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which was defined as any civil court having jurisdiction to decide questions forming the subject-matter of the reference to arbitration if the same had been the subject-matter of a suit.

24Copy pinpoint24. Under the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21-6-1985) which forms the basis of the Act, 1996, the concept of ‘place of arbitration’ or ‘seat of arbitration’ was encompassed in Article 20 which reads as under: - “20. Place of arbitration.— (1) The parties are free to agree on the place of arbitration. Failing such agreement, the place of arbitration shall be determined by the Arbitral Tribunal having regard to the circumstances of the case, including the convenience of the parties. (2) Notwithstanding the provisions of paragraph (1) of this article, the Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of goods, other property or documents.”

25Copy pinpoint25. When the Act, 1996 was enacted replacing the earlier Act, 1940, a new provision of Section 20 was inserted by the legislature which was absent in the earlier Act, 1940. The said provision reads as under: - “20. Place of arbitration.— (1) The parties are free to agree on the place of arbitration. (2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the Arbitral Tribunal having regard to the circumstances of the case, including the convenience of the parties. (3) Notwithstanding sub-section (1) or sub-section (2), the Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.”

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26Copy pinpoint26. A cursory reading of the aforesaid provision would reveal that it is a replication of Article 20 of the UNCITRAL Model Law whereunder, the place or seat of arbitration has been given pride and primacy. However, despite the aforesaid inclusion, the legislature retained the definition of “court” from the Act, 1940 in Section 2(e) of the Act, 1996 with a minor tweak that instead of any civil court of the lowest grade competent to entertain the subject-matter, now only the principal civil court or the High Court of original jurisdiction which is competent to entertain the subject-matter shall have jurisdiction. Due to this, the concept of juridical seat of the arbitral proceedings and its interrelationship with the jurisdiction of courts in respect of arbitral proceedings the Doctrine of Concurrent Jurisdiction emerged in the Indian Arbitration Regime.

i. The Notional Doctrine of Concurrent Jurisdiction and Applicability of Part I of the Arbitration & Conciliation Act, 1996.

27Copy pinpoint27. It can thus be seen from the discussion in the preceding paragraphs of this judgment that the scheme of the Act, 1996 is bifurcated into distinct parts being Part I, II, III & IV. Each of these parts delineates a unique scheme that deals with different aspects of arbitration or conciliation as the case may be. Section 11 of the Act, 1996 which inter-alia empowers this Court to appoint an arbitrator in case of an international commercial arbitration is contained in Part I of the said Act. Section 2(2) in Part I of the Act, 1996 expressly provides that this part (sic Part I and by extension the provisions thereunder) shall apply where the place of arbitration is in India. The said provision is reproduced hereunder: - “2. Definitions.

xxx xxx xxx (2) This Part shall apply where the place of arbitration is in India. Provided that subject to an agreement to the contrary the provisions of section 9, 27 and clause (a) of sub-section (1) and sub-section (3) of Section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or

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to be made in such place is enforceable and recognized under the provisions of Part II of this Act.”

28Copy pinpoint28. Thus, a cursory reading of the aforesaid provision makes it clear that the exercise of power to appoint an arbitrator under Section 11 of the Act, 1996 is dependent upon whether the said Part is applicable in the first place or not. As such it would be apposite to first understand the scope of Part I of the Act, 1996, more particularly the import of the expression “where the place of arbitration is in India” occurring in Section 2(2) of the Act and in which situations is the said Part applicable in order to enable this Court to exercise its powers under Section 11 to appoint an arbitrator.

a. Pre-BALCO Regime.

29Copy pinpoint29. In National Thermal Power Corporation v. Singer Company & Ors. reported in (1992) 3 SCC 551, although the award which was the subject-matter of the said case had been challenged under the then Act, 1940 yet the observations made therein by this Court in regards the applicability of the Act, 1940 are significant insofar as the Act, 1996 is concerned. In the aforesaid case, the question before this Court was whether the Act, 1940 was applicable to the arbitration agreement between the parties therein. This Court held as follows: - (i) First, it held that the choice of law governing the arbitration agreement i.e., the lex arbitri would determine which system of law would be applicable. It observed that since the arbitration agreement therein was to be governed by Indian laws, the Act, 1940 would be applicable to such arbitration proceedings. The relevant observations read as under: - “2. The National Thermal Power Corporation (the ‘NTPC’) appeals from the judgment of the Delhi High Court in FAO (OS) No. 102 of 1990 dismissing the NTPC’s application filed under Sections 14, 30 and 33 of the Arbitration Act, 1940 (No. X of 1940) to set aside an interim award made at London by a tribunal constituted by the International Court of Arbitration of the International Chamber of Commerce (the “ICC Court”) in terms of the contract made at New Delhi between the NTPC and the respondent — the Singer Company (the ‘singer’) for the supply of

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equipment, erection and commissioning of certain works in India. The High Court held that the award was not governed by the Arbitration Act, 1940; the arbitration agreement on which the award was made was not governed by the law of India; the award fell within the ambit of the Foreign Awards (Recognition and Enforcement) Act, 1961 (Act 45 of 1961) (the ‘Foreign Awards Act’); London being the seat of arbitration, English courts alone had jurisdiction to set aside the award; and, the Delhi High Court had no jurisdiction to entertain the application filed under the Arbitration Act, 1940. xxx

47. The decisions relied on by counsel for the Singer do not support his contention that the mere fact of London being the place of arbitration excluded the operation of the Arbitration Act, 1940 and the jurisdiction of the courts in India. In Whitworth Street Estates (Manchester) Ltd. v. James Miller & Partners Ltd. the parties had not expressly stated which law was to govern their contract. On an analysis of the various factors, the House of Lords held that in the absence of any choice of the law governing arbitration proceedings, those proceedings were to be considered to be governed by the law of the place in which the arbitration was held, namely, Scotland because it was that system of law which was most closely connected with the proceedings. Various links with Scotland, which was the place of performance of the contract, unmistakably showed that the arbitral proceedings were to be governed by the law of Scotland, although the majority of the learned Law Lords (Lords Reid and Wilberforce dissenting on the point) held that, taking into account certain other factors, the contract was governed by English law. That case is no authority for the proposition that, even where the proper law of the contract is expressly stated by the parties, and in the absence of any contrary indication, a different law governed arbitration. The observations contained

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in that judgment do not support the contention urged on behalf of the Singer that merely because London was designated to be the place of arbitration, the law which governed arbitration was different from the law expressly chosen by the parties as the proper law of the contract. xxx

51. In sum, it may be stated that the law expressly chosen by the parties in respect of all matters arising under their contract, which must necessarily include the agreement contained in the arbitration clause, being Indian law and the exclusive jurisdiction of the courts in Delhi having been expressly recognised by the parties to the contract in all matters arising under it, and the contract being most intimately associated with India, the proper law of arbitration and the competent courts are both exclusively Indian [...] xxx

54. The Delhi High Court was wrong in treating the award in question as a foreign award. The Foreign Awards Act has no application to the award by reason of the specific exclusion contained in Section 9 of that Act. The award is governed by the laws in force in India, including the Arbitration Act, 1940. Accordingly, we set aside the impugned judgment of the Delhi High Court and direct that Court to consider the appellant’s application on the merits in regard to which we express no views whatsoever. The appeal is allowed in the above terms. We do not, however, make any order as to costs.” (Emphasis supplied)

(ii) Secondly, the Court held that where the parties have agreed to two distinct choices of law, one governing the arbitration agreement and the other governing the arbitration proceedings i.e., both lex arbitri and lex curiae, then the appropriate courts under both the laws will have concurrent jurisdiction in

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respect of the matters governed by their respective system of law. Thus, where the parties have agreed that the arbitration agreement would be governed by the Indian Laws whereas the arbitration proceedings would be conducted in accordance with the English Laws, then in such cases two different courts will have concurrent jurisdiction in respect of matters as agreed upon by the parties i.e., the competent English Courts will have jurisdiction in respect of procedural matters concerning the conduct of arbitration while the competent courts in India will have jurisdiction over all matters pertaining to and arising out of the arbitration agreement. The relevant observations read as under: - "26. Whereas, as stated above, the proper law of arbitration (i.e., the substantive law governing arbitration) determines the validity, effect and interpretation of the arbitration agreement, the arbitration proceedings are conducted, in the absence of any agreement to the contrary, in accordance with the law of the country in which the arbitration is held. On the other hand, if the parties have specifically chosen the law governing the conduct and procedure of arbitration, the arbitration proceedings will be conducted in accordance with that law so long as it is not contrary to the public policy or the mandatory requirements of the law of the country in which the arbitration is held. If no such choice has been made by the parties, expressly or by necessary implication, the procedural aspect of the conduct of arbitration (as distinguished from the substantive agreement to arbitrate) will be determined by the law of the place or seat of arbitration. Where, however, the parties have, as in the instant case, stipulated that the arbitration between them will be conducted in accordance with the ICC Rules, those rules, being in many respects self-contained or self-regulating and constituting a contractual code of procedure, will govern the conduct of the arbitration, except insofar as they conflict with the mandatory requirements of the proper law of arbitration, or of the procedural law

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of the seat of arbitration. [See the observation of Kerr, LJ. In Bank Mellat v. Helliniki Techniki SA. See also Craig, Park and Paulsson, International Chamber of Commerce Arbitration, 2nd edn. (1990).] To such an extent the appropriate courts of the seat of arbitration, which in the present case are the competent English courts, will have jurisdiction in respect of procedural matters concerning the conduct of arbitration. But the overriding principle is that the courts of the country whose substantive laws govern the arbitration agreement are the competent courts in respect of all matters arising under the arbitration agreement, and the jurisdiction exercised by the courts of the seat of arbitration is merely concurrent and not exclusive and strictly limited to matters of procedure. All other matters in respect of the arbitration agreement fall within the exclusive competence of the courts of the country whose laws govern the arbitration agreement. [See Mustil & Boyd, Commercial Arbitration, 2nd edn.; Allen Redfern and Martin Hunter, Law & Practice of International Commercial Arbitration, 1986; Russel on Arbitration, 20th edn. (1982); Cheshire & North’s Private International Law, 11th edn. (1987).]” (Emphasis supplied)

30Copy pinpoint30. Thus, this Court for the first time in NTPC (supra) laid down the Doctrine of Concurrent jurisdiction in arbitration albeit in a limited sense inasmuch as the exercise of concurrent jurisdiction by two different but competent courts was limited only to matters of procedure and conduct of arbitration, and that the exercise of jurisdiction by courts at the seat or situs of arbitration over the arbitration agreement and its ancillaries was still regarded to be an exclusive jurisdiction.

31Copy pinpoint31. The applicability of the Act, 1940 was again looked into by this Court in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. & Ors. reported in (1998) 1 SCC 305. The said decision is in three-parts: - (i) First, it was held that as per Section 47 of the Act, 1940 the provisions of the said Act applies to all arbitrations and to all

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proceedings thereunder, and as such where the agreement to arbitrate is governed by the laws of India, then the said Act would be applicable. The relevant observations read as under: - “16. The law which would apply to the filing of the award, to its enforcement and to its setting aside would be the law governing the agreement to arbitrate and the performance of that agreement. Having regard to the clear terms of clause 17 of the contract between the appellant and the first respondent, we are in no doubt that the law governing the contract and the law governing the rights and obligations of the parties arising from their agreement to arbitrate, and, in particular, their obligation to submit disputes to arbitration and to honour the award, are governed by the law of India; nor is there any dispute in this behalf. Section 47 of the Indian Arbitration Act, 1940, reads thus: “47. Act to apply to all arbitrations.—Subject to the provisions of Section 46, and save insofar as is otherwise provided by any law for the time being in force, the provisions of this Act shall apply to all arbitrations and to all proceedings thereunder: Provided that an arbitration award otherwise obtained may with the consent of all the parties interested be taken into consideration as a compromise or adjustment of a suit by any court before which the suit is pending.”

17. [...] By reason of Section 9(b), the 1961 Act does not apply to any award made on an arbitration agreement governed by the law of India. The 1961 Act, therefore, does not apply to the arbitration agreement between the appellant and the first respondent. The 1940 Act applies to it and, by reason of Section 14(2) thereof, the courts in India are entitled to receive the award made by the second respondent. We must add in the interests of completeness that it is not the

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case of the appellant that the High Court at Bombay lacked the territorial jurisdiction to do so.” (Emphasis supplied)

(ii) Secondly, it reiterated that, where the parties have chosen both the law governing the arbitration agreement i.e., lex arbitri and the law governing the arbitrator’s procedure and conduct thereof i.e., the curial law, it would confer concurrent jurisdiction whereby the competent courts under the curial law will have jurisdiction to administer the procedure of arbitration and the competent courts under the law governing the arbitration agreement will have jurisdiction to administer the performance of such agreement and the arbitrability of the dispute including the enforcement or setting aside of an award pursuant to such agreement. It further observed that the court administering the curial law will only have the jurisdiction to administer the conduct of such arbitration or reference. As soon as the arbitration concludes the curial law ceases and with it the jurisdiction of the courts to administer it ceases as well. The relevant observations read as under: - "11. The conclusion that we reach is that the curial law operates during the continuance of the proceedings before the arbitrator to govern the procedure and conduct thereof. The courts administering the curial law have the authority to entertain applications by parties to arbitrations being conducted within their jurisdiction for the purpose of ensuring that the procedure that is adopted in the proceedings before the arbitrator conforms to the requirements of the curial law and for reliefs incidental thereto. Such authority of the courts administering the curial law ceases when the proceedings before the arbitrator are concluded.” (Emphasis supplied)

(iii) Lastly, this court added that, when it comes to the courts administering the law governing the arbitration agreement / the reference to arbitration, they will continue to exercise concurrent jurisdiction when it comes to the performance of the arbitration

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agreement even if the arbitration has concluded inasmuch as it is competent to first apply the lex arbitri to see if the dispute is arbitrable and then to apply the curial law to see how the reference ought to be conducted in order to give effect to the award. The relevant observations read as under: - “12. The proceedings before the arbitrator commence when he enters upon the reference and conclude with the making of the award. As the work by Mustill and Boyd aforementioned puts it, with the making of a valid award the arbitrator’s authority, powers and duties in the reference come to an end and he is “functus officio” (p. 404). The arbitrator is not obliged by law to file his award in court but he may be asked by the party seeking to enforce the award to do so. The need to file an award in court arises only if it is required to be enforced, and the need to challenge it arises if it is being enforced. The enforcement process is subsequent to and independent of the proceedings before the arbitrator. It is not governed by the curial or procedural law that governed the procedure that the arbitrator followed in the conduct of the arbitration. xxx

15. We think that our conclusion that the curial law does not apply to the filing of an award in court must, accordingly, hold good. We find support for the conclusion in the extracts from Mustill and Boyd which we have quoted earlier. Where the law governing the conduct of the reference is different from the law governing the underlying arbitration agreement, the court looks to the arbitration agreement to see if the dispute is arbitrable, then to the curial law to see how the reference should be conducted, “and then returns to the first law in order to give effect to the resulting award”. (Emphasis supplied)

32Copy pinpoint32. The aforesaid Doctrine of Concurrent Jurisdiction in Arbitration was further expanded by this Court in Bhatia International v. Bulk

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Trading S.A. reported in (2002) 4 SCC 105, wherein this Court examined the scope of Section 2(2) viz-a-viz Section 2(1)(e) & (f) of the Act, 1996 and held that Part I of the said Act applies to both (i) domestic arbitrations that take place in India and (ii) international commercial arbitrations that take place outside India. It held that unless the arbitration agreement states to the contrary, even if the seat or place of arbitration is outside India, the national courts in India will have concurrent jurisdiction in terms of Section 2(1)(e) along with the courts situated in the seat jurisdiction in terms of the arbitration agreement. The aforesaid decision is in two-parts: - (i) First, it held that although Section 2 sub-section (2) of the Act, 1996 says that Part I will apply where the place of arbitration is in India, yet the Act more particularly Section 2(1)(f) makes no distinction between international commercial arbitrations held in India or outside India, thus the courts in India will have jurisdiction in terms of Section 2(1)(e) even in respect of international commercial arbitrations. The relevant observations read as under: - "14. At first blush the arguments of Mr Sen appear very attractive. Undoubtedly sub-section (2) of Section 2 states that Part I is to apply where the place of arbitration is in India. [...] xxx

16. A reading of the provisions shows that the said Act applies to arbitrations which are held in India between Indian nationals and to international commercial arbitrations whether held in India or out of India. Section 2(1)(f) defines an international commercial arbitration. The definition makes no distinction between international commercial arbitrations held in India or outside India. An international commercial arbitration may be held in a country which is a signatory to either the New York Convention or the Geneva Convention (hereinafter called “the convention country”). An international commercial arbitration may be held in a non-convention country. The said Act nowhere provides that its provisions are not to apply

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to international commercial arbitrations which take place in a non-convention country. Admittedly, Part II only applies to arbitrations which take place in a convention country. Mr Sen fairly admitted that Part II would not apply to an international commercial arbitration which takes place in a non-convention country. He also fairly admitted that there would be countries which are not signatories either to the New York Convention or to the Geneva Convention. It is not possible to accept the submission that the said Act makes no provision for international commercial arbitrations which take place in a non-convention country. xxx

20. Section 2(1)(e) defines “court” [...] A court is one which would otherwise have jurisdiction in respect of the subject-matter. The definition does not provide that the courts in India will not have jurisdiction if an international commercial arbitration takes place outside India. Courts in India would have jurisdiction even in respect of an international commercial arbitration. As stated above, an ouster of jurisdiction cannot be implied. An ouster of jurisdiction has to be express.” (Emphasis supplied)

(ii) Secondly, this Court observed that Section 2 sub-section (2) of the Act, 1996 nowhere specifies that Part I will “only” apply where the place of arbitration is in India, nor does it provide that Part I shall not apply where the place of arbitration is not in India. Thus, by not specifically providing in black and white, whether Part I of the Act, 1996 would apply to international commercial arbitrations held outside India, the legislature’s intention appears to be to allow the parties the freedom to choose whether Part I or any of its provisions therein would apply or not by an express or implied agreement. The relevant observations read as under: -

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"21. Now let us look at sub-sections (2), (3), (4) and (5) of Section 2. Sub-section (2) of Section 2 provides that Part I would apply where the place of arbitration is in India. To be immediately noted, that it is not providing that Part I shall not apply where the place of arbitration is not in India. It is also not providing that Part I will “only” apply where the place of arbitration is in India (emphasis supplied). Thus the legislature has not provided that Part I is not to apply to arbitrations which take place outside India. The use of the language is significant and important. The legislature is emphasising that the provisions of Part I would apply to arbitrations which take place in India, but not providing that the provisions of Part I will not apply to arbitrations which take place out of India. The wording of sub-section (2) of Section 2 suggests that the intention of the legislature was to make provisions of Part I compulsorily applicable to an arbitration, including an international commercial arbitration, which takes place in India. Parties cannot, by agreement, override or exclude the non-derogable provisions of Part I in such arbitrations. By omitting to provide that Part I will not apply to international commercial arbitrations which take place outside India the effect would be that Part I would also apply to international commercial arbitrations held out of India. But by not specifically providing that the provisions of Part I apply to international commercial arbitrations held out of India, the intention of the legislature appears to be to ally (sic allow) parties to provide by agreement that Part I or any provision therein will not apply. Thus in respect of arbitrations which take place outside India even the non-derogable provisions of Part I can be excluded. Such an agreement may be express or implied.

22. If read in this manner there would be no conflict between Section 1 and Section 2(2). The words “every arbitration” in sub-section (4) of Section 2 and the words “all arbitrations and to all proceedings

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relating thereto” in sub-section (5) of Section 2 are wide. Sub-sections (4) and (5) of Section 2 are not made subject to sub-section (2) of Section 2. It is significant that sub-section (5) is made subject to sub-section (4) but not to sub-section (2). To accept Mr Sen’s submission would necessitate adding words in sub-sections (4) and (5) of Section 2, which the legislature has purposely omitted to add viz. “subject to provision of sub-section (2)”. However read in the manner set out hereinabove there would also be no conflict between sub-section (2) of Section 2 and sub-sections (4) and/or (5) of Section 2.” (Emphasis supplied)

Thus, this Court held that Part I of the Act, 1996 would apply to all arbitrations. Where such arbitration is held in India, the provisions of Part I would be compulsorily applicable, and parties may deviate only to the extent permitted by the derogable provisions of Part I. In cases of international commercial arbitrations held out of India the provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case the laws or rules agreed upon by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply. The operative portion reads as under: - “32. To conclude, we hold that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I. In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply. xxx

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35. Lastly, it must be stated that the said Act does not appear to be a well-drafted legislation. Therefore the High Courts of Orissa, Bombay, Madras, Delhi and Calcutta cannot be faulted for interpreting it in the manner indicated above. However, in our view a proper and conjoint reading of all the provisions indicates that Part I is to apply also to international commercial arbitrations which take place out of India, unless the parties by agreement, express or implied, exclude it or any of its provisions. Such an interpretation does not lead to any conflict between any of the provisions of the said Act. On this interpretation there are no lacunae in the said Act. This interpretation also does not leave a party remediless. Thus such an interpretation has to be preferred to the one adopted by the High Courts of Orissa, Bombay, Madras, Delhi and Calcutta. It will therefore have to be held that the contrary view taken by these High Courts is not good law.” (Emphasis supplied)

33Copy pinpoint33. In yet another decision of this Court in Venture Global Engineering v. Satyam Computer Services Ltd. reported in (2008) 4 SCC 190 it was held that Part I of the Act, 1996 and the provisions thereunder would apply to all arbitrations including international commercial arbitrations. It further clarified that although Part II of the Act, 1996 provides a special set of provisions that are applicable only to “foreign awards” passed pursuant to international commercial arbitrations held outside yet this in no manner means that by virtue of the same the Part I would be inapplicable. Part I of the Act, 1996 would apply to all arbitrations outside India including “foreign awards” passed pursuant thereto unless its application has been specifically excluded by the parties. The relevant observations read as under: - “19. Mr Nariman heavily relied on para 26 of Bhatia International which we have extracted supra. According to him, the said paragraph contains not only the submissions of Mr Sen, who appeared for Bhatia International therein but also the ultimate conclusion of the Bench. He reiterated that the Court concluded:

26. … Thus Section 44 (in Chapter I) and Section 53 (in Chapter II) define foreign awards, as being

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awards covered by arbitrations under the New York Convention and the Geneva Convention respectively. Part II then contains provisions for enforcement of ‘foreign awards’ which necessarily would be different. For that reason special provisions for enforcement of foreign awards are made in Part II. To the extent that Part II provides a separate definition of an arbitral award and separate provisions for enforcement of foreign awards, the provisions in Part I dealing with these aspects will not apply to such foreign awards. It must immediately be clarified that the arbitration not having taken place in India, all or some of the provisions of Part I may also get excluded by an express or implied agreement of parties. But if not so excluded the provisions of Part I will also apply to ‘foreign awards’. The opening words of Sections 45 and 54, which are in Part II, read ‘notwithstanding anything contained in Part I’. Such a non obstante clause had to be put in because the provisions of Part I apply to Part II.” xxx

31. On close scrutiny of the materials and the dictum laid down in the three-Judge Bench decision in Bhatia International20 we agree with the contention of Mr K.K. Venugopal and hold that paras 32 and 35 of Bhatia International1 make it clear that the provisions of Part I of the Act would apply to all arbitrations including international commercial arbitrations and to all proceedings relating thereto. We further hold that where such arbitration is held in India, the provisions of Part I would compulsorily apply and parties are free to deviate to the extent permitted by the provisions of Part I. It is also clear that even in the case of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. We are also of the view that such an interpretation does not lead to any conflict between any of

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the provisions of the Act and there is no lacuna as such. The matter, therefore, is concluded by the three-Judge Bench decision in Bhatia International.

32. The learned Senior Counsel for the respondent based on para 26 submitted that in the case of foreign award which was passed outside India is not enforceable in India by invoking the provisions of the Act or CPC. However, after critical analysis of para 26, we are unable to accept the argument of the learned Senior Counsel for the respondent. Paras 26 and 27 start by dealing with the arguments of Mr Sen who argued that Part I is not applicable to foreign awards. It is only in the sentence starting at the bottom of para 26 that the phrase “it must immediately be clarified” that the finding of the Court is rendered. That finding is to the effect that an express or implied agreement of parties can exclude the applicability of Part I. The finding specifically states: “But if not so excluded, the provisions of Part I will also apply to all ‘foreign awards’. …” (Emphasis supplied)

34Copy pinpoint34. Thus, the concept of “concurrent jurisdiction” in arbitration in India was further expanded in Venture Global (supra) inasmuch as by holding Part I of the Act, 1996 to be applicable to foreign awards as- well, this Court clarified that even after the arbitration has concluded and the award has been passed, the courts in India will continue to have jurisdiction in terms of Section 2(e) of the said Act.

35Copy pinpoint35. Similarly, in Indtel Technical Services (P) Ltd. v. W.S. Atkins Rail Ltd., reported in (2008) 10 SCC 308, this Court reiterated that Part I of the Act, 1996 applies to both domestic and international arbitrations, notwithstanding the provisions of Section 2(2) of the said Act and irrespective of whether the seat of arbitration is in India or not. It further observed that the courts of the country, whose substantive laws govern the arbitration agreement, are competent courts in respect of all matters arising under the arbitration agreement, and the jurisdiction exercised by the courts of the seat of arbitration is merely concurrent and not exclusive and strictly limited to the matter of procedure. Thus, an application under Section 11 for appointment of arbitrator in India was held to be maintainable though the seat of arbitration was in England. The relevant observations read as under: -

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“16. The submissions made on behalf of Bhatia International were accepted by this Court upon a finding that, although, Section 2(2) of the Arbitration and Conciliation Act, 1996, provides that Part I of the Act would apply where the place of arbitration is in India, it did not provide that Part I would not apply where the place of arbitration is not in India. It was also held that it was nowhere provided that Part I of the aforesaid Act would not apply to arbitrations taking place outside India. … xxx

26. Referring to the decision in NTPC case [(1992) 3 SCC 551] which had also been referred to by Mr Gupta, Mr Tripathi submitted that in the said decision the views of jurists such as Dicey, Mustill and Boyd and Russell had been reiterated in support of the contention that the overriding principle is that the courts of the country, whose substantive laws govern the arbitration agreement, are competent courts in respect of all matters arising under the arbitration agreement, and the jurisdiction exercised by the courts of the seat of arbitration is merely concurrent and not exclusive and strictly limited to the matter of procedure. Mr Tripathi submitted that the decision in the aforesaid case supports the proposition that when the parties to the contract, do not express any choice with regard to the law governing the contract or the arbitration agreement in particular, a presumption has to be drawn that the parties intended that the proper law of the contract as well as the law governing the arbitration agreement would be the same as the law of the country which is the seat of arbitration. But when the parties expressly choose the proper law of the contract, as in the instant case, in the absence of a clear intention such law must govern the arbitration agreement also though it is collateral and ancillary to the main contract. xxx

36Copy pinpoint36. Although the matter has been argued at great length and Mr Tripathi has tried to establish that the decision of this Court in Bhatia International case [(2002) 4 SCC 105]

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is not relevant for a decision in this case, I am unable to accept such contention in the facts and circumstances of the present case. It is no doubt true that it is fairly well settled that when an arbitration agreement is silent as to the law and procedure to be followed in implementing the arbitration agreement, the law governing the said agreement would ordinarily be the same as the law governing the contract itself. The decisions cited by Mr Tripathi and the views of the jurists referred to in NTPC case [(1992) 3 SCC 551] support such a proposition. What, however, distinguishes the various decisions and views of the authorities in this case is the fact that in Bhatia International [(2002) 4 SCC 105] this Court laid down the proposition that notwithstanding the provisions of Section 2(2) of the Arbitration and Conciliation Act, 1996, indicating that Part I of the said Act would apply where the place of arbitration is in India, even in respect of international commercial agreements, which are to be governed by the laws of another country, the parties would be entitled to invoke the provisions of Part I of the aforesaid Act and consequently the application made under Section 11 thereof would be maintainable.

37Copy pinpoint37. The decision in Bhatia International case [(2002) 4 SCC 105 has been rendered by a Bench of three Judges and governs the scope of the application under consideration, as it clearly lays down that the provisions of Part I of the Arbitration and Conciliation Act, 1996, would be equally applicable to international commercial arbitrations held outside India, unless any of the said provisions are excluded by agreement between the parties expressly or by implication, which is not so in the instant case.” (Emphasis supplied)

b. Post BALCO Regime.

36. The correctness of the decision in Bhatia International (supra) came under cloud, and the same was ultimately referred to a larger bench, which then culminated into the landmark decision of a 5-Judge

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Constitution Bench of this Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc reported in (2012) 9 SCC 552.

37. This Court in BALCO (supra) after a thorough examination of the scheme of the Act, 1996 held that the conclusions reached by this Court in Bhatia International (supra) are neither supported by the text nor the context of the provisions of Section 1(2) and the proviso thereto or Section 2(2) of the said Act. It held that the applicability of Part I of the Act, 1996 is limited only to arbitrations that take place in India. The said decision is in two-parts: - (i) First, it held that a plain reading of Section 2(2) makes it clear that Part I of the Act, 1996 is limited in its application to arbitrations which take place in India. It observed that although the UNCITRAL Model Law which was the basis for the Act, 1996 has not been boldly adopted, yet it does not mean that the territorial principle envisaged under the Model Law has not been accepted. It held that the Parliament through Section(s) 1(2) and 2(2) of the Act, 1996 has clearly given recognition to the territorial principle that Part I of the said Act will only apply to arbitrations having their place / seat in India. The relevant observations read as under: - “64. [...]Thereafter, this Court has given further instances of provisions of the Arbitration Act, 1996, not being in conformity with the Model Law and concluded that “… The Model Law and judgments and literature thereon are, therefore, not a guide to the interpretation of the Act and, especially of Section 11 thereof”. The aforesaid position, according to Mr Sorabjee has not been disagreed with by this Court in SBP & Co. We agree with the submission of Mr Sorabjee that the omission of the word “only” in Section 2(2) is not an instance of “casus omissus”. It clearly indicates that the Model Law has not been bodily adopted by the Arbitration Act, 1996. But that cannot mean that the territorial principle has not been accepted. We would also agree with Mr Sorabjee that it is not the function of the court to supply the supposed omission, which can only be done by Parliament. In our opinion, legislative surgery is not

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a judicial option, nor a compulsion, whilst interpreting an Act or a provision in the Act. xxx

67. We are unable to accept the submission of the learned counsel for the appellants that the omission of the word “only” from Section 2(2) indicates that applicability of Part I of the Arbitration Act, 1996 is not limited to the arbitrations that take place in India. We are also unable to accept that Section 2(2) would make Part I applicable even to arbitrations which take place outside India. In our opinion, a plain reading of Section 2(2) makes it clear that Part I is limited in its application to arbitrations which take place in India. We are in agreement with the submissions made by the learned counsel for the respondents, and the interveners in support of the respondents, that Parliament by limiting the applicability of Part I to arbitrations which take place in India has expressed a legislative declaration. It has clearly given recognition to the territorial principle. Necessarily therefore, it has enacted that Part I of the Arbitration Act, 1996 applies to arbitrations having their place/seat in India. xxx

70. [...] Therefore, the Arbitration Act, 1996 consolidates the law on domestic arbitrations by incorporating the provisions to expressly deal with the domestic as well as international commercial arbitration by taking into account the 1985 Uncitral Model Laws. It is not confined to the New York Convention, which is concerned only with enforcement of certain foreign awards. It is also necessary to appreciate that the Arbitration Act, 1996 seeks to remove the anomalies that existed in the Arbitration Act, 1940 by introducing provisions based on the Uncitral Model Laws, which deals with international commercial arbitrations and also extends it to commercial domestic arbitrations. Uncitral Model Law has unequivocally accepted the territorial principle. Similarly, the Arbitration Act, 1996

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has also adopted the territorial principle, thereby limiting the applicability of Part I to arbitrations, which take place in India. xxx

77. We are of the opinion that the omission of the word “only” in Section 2(2) of the Arbitration Act, 1996 does not detract from the territorial scope of its application as embodied in Article 1(2) of the Model Law. The article merely states that the arbitration law as enacted in a given State shall apply if the arbitration is in the territory of that State. The absence of the word “only” which is found in Article 1(2) of the Model Law, from Section 2(2) of the Arbitration Act, 1996 does not change the content/import of Section 2(2) as limiting the application of Part I of the Arbitration Act, 1996 to arbitrations where the place/seat is in India.

78. For the reasons stated above, we are unable to support the conclusion reached in Bhatia International and Venture Global Engg., that Part I would also apply to arbitrations that do not take place in India. xxx

81. We quote the above in extenso only to demonstrate that Section 2(2) is not merely stating the obvious. It would not be a repetition of what is already stated in Section 1(2) of the Arbitration Act, 1996 which provides that “it extends to the whole of India”. Since the consolidated Arbitration Act, 1996 deals with domestic, commercial and international commercial arbitrators, it was necessary to remove the uncertainty that the Arbitration Act, 1996 could also apply to arbitrations which do not take place in India. Therefore, Section 2(2) merely reinforces the limits of operation of the Arbitration Act, 1996 to India.” (Emphasis supplied)

(ii) Secondly, this court rejected the contention that the Act, 1996 is ‘subject-matter centric’ and not exclusively ‘seat centric’. It

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observed that the words “subject-matter of the arbitration” and “subject-matter of the suit” occurring in Section 2(1)(e) should not be conflated as the former confers jurisdiction on the basis of cause of action while the latter confers jurisdiction on the basis of “place of arbitration”, thus, the Act, 1996 is not merely ‘subject-matter centric’. It observed that although the legislature by use of the words “subject-matter of arbitration” in addition to “subject-matter of the suit” under Section 2(1)(e) has conferred jurisdiction to two-courts i.e., the court of jurisdiction over the cause of action and the court of the seat of the arbitration process, yet the expression “subject-matter of suit” occurring in Section 2(1)(e) is confined only to Part I of the Act, 1996, and thus, wherever it is found that the seat or place of arbitration is outside India, Part I would be inapplicable and the jurisdiction then will be “exclusively seat centric”. In other words, where the seat of arbitration is outside India, only those courts situated where the ‘subject-matter of arbitration’ lies i.e., at the place of arbitration will be competent to exercise supervisory jurisdiction over arbitration in terms of Section 2(1)(e) of the Act, 1996. The relevant observations read as under: - “95. The learned counsel for the appellants have submitted that Section 2(1)(e), Section 20 and Section 28 read with Section 45 and Section 48(1)(e) make it clear that Part I is not limited only to arbitrations which take place in India. That these provisions indicate that the Arbitration Act, 1996 is subject-matter centric and not exclusively seat-centric. That therefore, "seat” is not the “centre of gravity” so far as the Arbitration Act, 1996 is concerned. We are of the considered opinion that the aforesaid provisions have to be interpreted by keeping the principle of territoriality at the forefront. We have earlier observed that Section 2(2) does not make Part I applicable to arbitrations seated or held outside India. In view of the expression used in Section 2(2), the maxim expressum facit cessare tacitum, would not permit by interpretation to hold that Part I would also apply to arbitrations held outside the territory of India. The expression “this Part shall apply where the place of arbitration is in India” necessarily excludes application

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