Sanshin Chemicals Industry vs Oriental Carbons And Chemicals ... on 16 February, 2001

    Sanshin Chemicals Industry vs Oriental Carbons And Chemicals Ltd. And Ors. on
16/2/2001

ORDER

   Pattanaik, J.

   1. Leave Granted.

   2. This appeal by grant of special leave is directed against the judgment of
Delhi High Court dated 8th of August, 2000. The question for consideration is
whether a decision regarding the venue of the arbitration proceedings could be
assailed in appeal under Section 34 of the Arbitration and Conciliation Act,
1996. The Division Bench of the High Court by the impugned judgment agreed with
the conclusion of the learned Single Judge and came to hold on examining the
arbitration clause in the agreement that the decision with regard to the venue
of the arbitration sitting cannot be held to be an interim award and as such
Section 34 of the Act cannot be invoked.

   3. The appellant and respondent No. 1 entered into a technical collaboration
agreement called "Insoluble Sulphur Technical Collaboration Agreement" on 1st of
August, 1989. Under the agreement, respondent No. 1 was required to provide
technical information for production of insoluble sulphur in India. Appellant
discharged its obligation under the agreement. The said respondent No. 1 in May,
1996, wrote a letter to the Indian Council of Arbitration, making a claim
against the appellant on the basis of certain disputes between the parties. But
the Indian Council of Arbitration returned the papers to respondent No. 1 on
15.5.96. On the very same day, the said respondent No. 1 filed a statement of
claim before respondent No. 2, which was registered as Arbitration Case No.
FTA/137. Said respondent No. 2, by its letter dated 25th of June, 1996 called
upon the appellant to appoint an arbitrator. On 9.7.96, the appellant wrote to
the respondent No. 2 bringing to its attention clause 8.4 of the agreement and
stated that the appellant has not received any demand for arbitration from OCCL
and as such the respondent No. 2 has no jurisdiction in the matter. Respondent
No. 2 however by its order dated 17th of July, 1996, called upon the appellant
to submit the agreement regarding the venue of arbitration with reasons within
30 days. Appellant immediately answered the aforesaid letter of the respondent
No. 2 by letter dated 22.7.96, questioning the jurisdiction of the respondent
No. 2 and also seeking clarification as to whether FICCI had accepted the
statement of claim of respondent No. 1. At this point of time, the appellant was
assured that respondent No. 2 will not proceed with the matter till the issues
regarding the venue are sorted out. On 9.8.1996, respondent No. 1's lawyer
intimated respondent no. 2 that they had already appointed an arbitrator and it
was for the arbitral tribunal to decide the venue under Section 20 of the
Arbitration and Conciliation Act, 1996. Respondent No. 2 was called upon to
nominate the appellant's arbitrator. Appellant by his letter dated 9th of
August, 1996, intimated the respondent No. 2 that the requirement of Article 8.4
not having been complied with, there is no question of nominating arbitrator on
behalf of the appellant. Appellant also wrote a letter to the respondent No. 1
on 6th of September, 1996, indicating therein that the Registrar of FICCI had no
jurisdiction and that there had been no proper demand for arbitration. It was
also stated that in any event, Japan was the designated place of arbitration. On
16th of October, 1996, respondent No. 2 sent a communication to the Manager,
Arbitration Department, Japan Commercial Arbitration Association, stating
therein that since parties had not been able to agree on the place of
arbitration within 30 days of the notice calling upon them to submit the
agreement, the JCAA may nominate a member on the Joint Arbitration Committee. In
that letter it had been stated that respondent No.2 had already nominated one
Umesh Kumar Khaitan as its Member on the Joint Arbitration Committee. Pursuant
to the aforesaid letter from respondent No. 2, the JCAA appointed respondent No.
5 as its Member by letter dated 25th of October, 1996. Appellant had made some
correspondence and queries regarding the proceedings of the Joint Arbitration
Committee. Mr. Umesh Khaitan resigned as Member of JAC on 12th of January, 1998
and he was, therefore, substituted by respondent No. 3. The aforesaid JAC met in
Delhi on 15th of July, 1998 and decided the venue for the sittings of the
arbitral tribunal. The appellant filed an application before a learned Single
Judge of Delhi High Court, assailing the decision of the Joint Arbitration
Committee dated 15th July, 1998 on various grounds under Section 34 of the
Arbitration and Conciliation Act, 1996. The learned Single Judge by his Judgment
dated 7th of April, 2000, dismissed the said application of the appellant on a
finding that the impugned decision of the Joint Arbitration Committee dated 15th
of July, 1998 is not an award and as such is not amenable to appeal under
Section 34 of the Arbitration and Conciliation Act, 1996. Against the said
judgment of the learned Single Judge, the appellant preferred an appeal and the
Division Bench having dismissed the appeal by its Judgment dated 8th of August,
2000, the present appeal has been preferred to this Court.

   4. Mr. Ashok H. Desai, the learned senior counsel, appearing for the
appellant contended that on a plain reading of clause 8.4 of the Technical
Collaboration Agreement, would indicate that there is no agreed venue where the
arbitral proceedings could be conducted and on the other hand, the procedure in
the arbitral proceedings would be governed by the decision of the venue inasmuch
as if it is to be held in India, then it shall be conducted in accordance with
the rules applicable in India and if it is to be conducted in Japan, then the
rules of Japan Commercial Arbitration Association would apply. According to Mr.
Desai, since the procedure and the rules to be applicable for resolving the
dispute would depend upon the very decision of the venue, such a decision
amounts to a vital right of the party being decided by the Joint Arbitration
Committee and as such the same partakes the character of an interim award and
consequently Section 34 of the Arbitration and Conciliation Act, 1996 would
apply to such a decision and aggrieved party against such decision cannot be
held to be remedy-less. Mr. Desai further urged that on an analysis of the
agreement, itself would indicate that it contains two arbitration clauses, one
nomenclature as Joint Arbitration Committee and the other is the Arbitral
Tribunal. While the former decides the dispute in relation to the venue, the
latter decides the dispute on merits of the claim. Under such circumstances to
hold that the decision of the Joint Arbitration Committee on the dispute
relating to the venue even does not amount to an interim award, is un-
sustainable in law and the learned Single Judge as well as the Division Bench
committed serious error in recording a finding that the said decision does not
amount to an award. Mr. Desai also urged that in case of an International
Commercial Arbitration, the seat of the arbitral proceeding is of paramount
importance and the parties to the agreement being conscious of the same,
provided such an elaborate mechanism for resolution of a dispute in the event no
agreement is arrived at on the question of venue. Adjudged from this stand
point, the impugned judgment illegally excludes such a decision from the purview
of a judicial review by way of filing an appeal under Section 34 of the Act and
the same must be interfered with. Mr. Desai also urged that in view of the
definition of "Award" in the Act in Section 2(c) which includes an interim
award, and an award being a final determination of a particular issue or claim
in the arbitration and the issue regarding venue being of seminal importance for
adjudication of the rights of the parties, the conclusion is irresistible that
such decision by the Joint Committee of Arbitrators, must be held to be an
interim award and as such amenable to be reviewed under Section 34 of the Act
and consequently, the High Court committed serious error in holding to the
contrary.

   5. Mr. D.A.Dave, the learned senior counsel, appearing for the respondents on
the other hand submitted that though the expression "award" has been defined to
include an interim award under Section 2(c) of the Act, but a decision to become
an award must be a final determination of a particular issue or claim in the
arbitration. The decision on the question of venue by a forum under the
agreement termed as Joint Arbitration Committee, is at an earlier stage of
initiation of the proceedings of the arbitral tribunal and, therefore, the same
cannot be termed as an interim award. The High Court, therefore, was justified
in not entertaining an appeal against the same under Section 34 of the Act. With
regard to the different clauses of the agreement, Mr. Dave contends that the
parties themselves agreed that the place of arbitration shall be determined by
the Joint Arbitration Committee and such determination shall be binding and
final, whereas the arbitration clause stipulates that any claim or dispute
arising out of or relating to the agreement shall be settled by arbitration. The
very fact that the parties agreed that the question of venue will be determined
by a Joint Arbitration Committee in the event parties do not designate the place
of arbitration or are unable to agree within 30 days of the demand, indicates
that the parties never intended the said decision to partake the character of an
award to be assailed in appeal and on the other hand the agreement not having
authorised the arbitral tribunal to determine the place of arbitration, clearly
establishes that such a determination by a separate forum is not an award and,
therefore, is not appealable under Section 34 of the Arbitration and
Conciliation Act. Mr. Dave also contended that the argument advanced on behalf
of the appellant that the decision with regard to the venue of the arbitral
proceeding is an adjudication of a vital right of the parties inasmuch as the
procedure to be adopted in the arbitral proceedings would be the law which
governs the venue of the proceedings, is devoid of any force in view of Clause
9(1) of the agreement which categorically indicates that the agreement shall be
interpreted in accordance with and governed by the laws of India. According to
Mr. Dave, this provision in the arbitration agreement is conclusive of the fact
as to which law will govern and consequently, the decision of the Joint
Arbitration Committee with regard to the venue looses its significance. It is
next contended by the learned senior counsel for the respondents that the
arbitration clause providing resolution of any dispute or claim arising out of
the agreement by arbitration can obviously relate to a claim or dispute in
relation to the contract and a decision or determination by the Joint
Arbitration Committee on the question of venue, which power the Committee gets
under the agreement itself, cannot be held to be a decision in course of the
arbitral proceedings nor can it be said to be an adjudication of claim arising
out of the agreement and, therefore, is not an award. Mr. Dave also after
referring to the different provisions in the Arbitration and Conciliation Act
contended that making of an arbitral award and termination of proceedings occurs
in Chapter VI and starts from Section 28, whereas place of arbitration occurs in
Chapter V dealing with the conduct of arbitral proceedings. The commencement of
arbitral proceedings contemplated under Section 21 is the date when a particular
dispute is referred to the arbitration. In this view of the matter a decision on
the question of venue will not be an award or interim award against which a
party can take recourse to a Court under Section 34 and as such the impugned
judgment of the learned Single Judge as well as the Division Bench remain
unassailable.

   6. Before we examine the rival submissions made, it would be appropriate for
us to notice the relevant clauses of the agreement, which ultimately would help
us to decide the question as to whether the decision of the Joint Arbitration
Committee dated 15.7.1998 can be held to be an interim award. Clause 8.4 is in
fact the most crucial clause that requires consideration, which is quoted
herein-below in extenso:-

     "Clause 8.4 - Any dispute or claim arising out of or relating to this
Agreement shall be settled by arbitration. If the arbitration is to be held in
India, the dispute shall be submitted to the Arbitration Tribunal of the
Federation of Indian Chambers of Commerce and Industry and shall be conducted in
accordance with the Rules of that Tribunal. If the arbitration is to be held in
Japan, it shall be conducted in accordance with the Rules of the Japan
Commercial Arbitration Association.

     In the event that the parties have not designated the place of arbitration
or are unable to agree thereon within thirty (30) days after the demand for
arbitration has been made, the place of arbitration shall be determined by a
Joint Arbitration Committee of three members, one to be appointed by the
Arbitration sub-committee of the Federation, another by the Japan Commercial
Arbitration Association and the third of a nationality other than that of any
one of the parties to act as Chairman to be chosen by the other two members. In
deciding the place of arbitration, the Joint Arbitration Committee shall
consider among others the principle that, if only the quality of the good is in
dispute and/or inspection of the goods is necessary, arbitration of such case
shall take place at the place where the merchandise is located. The party
demanding arbitration according as it is resident in India or Japan shall give
notice to the Arbitration Tribunal of the Federation or the Japan Commercial
Arbitration Association, as the case may be. The Arbitration Tribunal of the
Federation or the Japan Commercial Arbitration Association, as the case may be,
shall request both the parties to submit their agreement and reasons within
thirty (30) days for preference regarding the place of arbitration. The
determination of the place by the Joint Arbitration Committee shall be final and
binding."

   Clause 9.1 stipulates that the agreement shall be interpreted in accordance
with and governed by the laws of India. Clause 9.7 is extracted herein-below in
extenso:

     "9.7. The terms and conditions herein contained constitute the entire
agreement between the parties and shall supersede all previous communication,
either oral or written, between the parties with respect to the subject matter
hereof, and no agreement or understanding varying or extending the same shall be
binding upon either party unless in writing signed by a duly authorized
representative thereof in which writing this Agreement is expressly referred
to."

   Apart from the aforesaid relevant clauses, it would be appropriate to notice
a few sections of the Arbitration and Conciliation Act, 1996. Section 2(6) is
extracted herein-below in extenso:

     "Sec. 2(6): Where this Part, except section 28, leaves the parties free to
determine a certain issue, that freedom shall include the right of the parties
to authorise any person including an institution, to determine that issue."

   Section 20 is the provision for deciding the place of arbitration, which is
extracted herein-below in extenso:-

     "Sec. 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."

   On a construction of Clause 8.4 of the agreement, it is apparent that the
parties themselves have maintained a distinction between submission of dispute
to the arbitration tribunal and decision as to the place of arbitration to be
determined by a Joint Arbitration Committee of three members. In the first part
of the Clause, parties have agreed for referring any dispute or claim arising
out of, or relating to the agreement to be settled by arbitration of an
arbitration tribunal. The second part of the agreement relates to a decision as
to the venue of arbitration which in the event of lack of agreement between the
parties, is required to be determined by a Joint Arbitration Committee of three
members. Such decision of the Committee with regard to the venue is not a
decision of a dispute or claim arising out of, or relating to the agreement and,
therefore, cannot partake the character of an award or an interim award. Under
Section 2(6) of the Arbitration and Conciliation Act, 1996, excepting Section
28, parties are free to determine certain issues and that freedom would include
the right of the parties to authorise any person including an institution to
determine that issue. Section 20 is the provision which sees that the parties
are free to agree on the place of arbitration and failing upon any agreement,
then under sub-section(2), it has to be determined depending upon the
circumstances of the case and convenience of the parties. A conjoint reading of
Section 2(6) and Section 20, therefore leads to the conclusion that in the
event, parties do not agree with regard to the place of arbitration, though they
were free to determine the same, then they had the right to authorise any person
including an institution and in the case in hand, the Joint Committee is such an
institution for deciding the venue of the arbitration and such decision of the
Committee will not partake the character of adjudication of a dispute arising
out of the agreement, so as to clothe it the character of an award. Chapter V of
the Act contains Sections 18 to 27 and chapter VI deals with making of arbitral
award and termination of proceedings which starts with Section 28. The decision
on the question of venue under Section 20 would not come within making of an
arbitral award starting from Section 28 and on this view of the matter also, the
said decision on the question of venue will not be either an award or an interim
award so as to be appealed under Section 34 of the Act. The decision of the
Joint Committee on the question of the venue under Clause 8.4 is not a decision,
deciding legal rights of the parties under the contract. There is no mutuality
and the said Committee is merely a machinery for deciding the question of venue.
Such a decision does not have the characteristics of an arbitration award nor
even can it be held to be an interim award. The conclusion of the Joint
Committee is a conclusion on the guidelines contained in second part of Clause
8.4 of the agreement and is not a judicial determination and as such the said
conclusion would not amount to an award. In K.K.Modi vs. K.N.Modi & Ors. , this
court considered the question as to whether Clause (9) of the Memorandum of
understanding would constitute an arbitration agreement. The Court answered the
question in the negative after considering as to what would be the attributes to
be present for an agreement to be considered as an arbitration agreement.
Paragraph (17) of the aforesaid judgment is quoted herein-below in extenso:-

     "17. Among the attributes which must be present for an agreement to be
considered as an arbitration agreement are:

     (1)The arbitration agreement must contemplate that the decision of the
tribunal will be binding on the parties to the agreement,

     (2)that the jurisdiction of the tribunal to decide the rights of parties
must derive either from the consent of the parties or from an order of the court
or from a statute, the terms of which make it clear that the process is to be an
arbitration,

     (3)the agreement must contemplate that substantive rights of parties will
be determined by the agreed tribunal,

     (4)that the tribunal will determine the rights of the parties in an
impartial and judicial manner with the tribunal owing an equal obligation of
fairness towards both sides,

     (5)that the agreement of the parties to refer their disputes to the
decision of the tribunal must be intended to be enforceable in law and lastly,

     (6)the agreement must contemplate that the tribunal will make a decision
upon a dispute which is already formulated at the time when a reference is made
to the tribunal."

   The second part of clause 8.4 conferring powers on a Joint Committee to
decide the question of venue of the arbitration does not satisfy the aforesaid
test laid down in Modi's case and, therefore would not be an arbitration
agreement. Necessarily, therefore, the ultimate decision of the said Committee
on the question of venue cannot be held to be an award, so as to confer a right
of appeal to an aggrieved person under Section 34 of the Act. Russel on
Arbitration in paragraph 2.098 deals with the question of venue of arbitration
and the same is quoted herein-below in extenso:

     "Ascertaining the seat. The place of arbitration is often specified in the
arbitration agreement, by the selection of a particular place or country in
which the arbitration is to be held. If the seat is not agreed on by the
parties, the matter may be resolved by the arbitration institution or person the
parties have agreed should have the power to designate the seat, or by the
arbitral tribunal if the parties have authorised the tribunal to do so. The
rules of various arbitration institutions contain a means of establishing the
place of arbitration in the absence of express agreement by the parties. In all
other cases, it is necessary to look at the parties' agreement and all the
relevant circumstances. A reference to arbitration under the English Arbitration
Acts would be construed as implying that English would be the place of
arbitration. Similarly, provisions in an arbitration agreement stipulating for
arbitration by a local tribunal or institution may indicate the appropriate
place of arbitration."

   In the present case, the second part of Clause 8.4 of the agreement conceived
of the institution of Joint Committee, which institution had the power to decide
with regard to the venue and such decision of the said Joint Committee cannot be
held to be an award of a arbitral tribunal. In view of our analysis on the
different provisions of the agreement as well as the provisions of the Act
itself, we are unable to accept Mr. Desai's argument that the agreement
conceived of two arbitral proceedings, one in relation to any dispute for the
venue and the other in relation to the dispute arising out of the agreement.

   7. It would be appropriate for us to notice at this stage that respondent No.
2 had intimated the Manager, Arbitration Department, Japan Commercial
Arbitration Association that the parties had not been able to agree on the place
of arbitration within 30 days of the notice, calling upon them to submit the
agreement and, therefore, the said Japan Commercial Arbitration Association
could nominate a Member to the Joint Arbitration Committee and pursuant to the
said communication from respondent No. 2, the Japan Commercial Arbitration
Association, appointed respondent No. 5 as its Member in the Joint Arbitration
Committee by letter dated 25th of October, 1996. The aforesaid conduct of the
Japan Commercial Arbitration Association and the unanimous decision of the Joint
Arbitration Committee about the venue, is also quite significant in the context
of the dispute.

   8. Besides, bearing in mind the object behind the Arbitration and
Conciliation Act, 1996, as has been indicated by this Court in the case of
Konkan Railway Corpn. Ltd. & Ors. vs. Mehul Construction Co., , which is in
consonance with the UNCITRAL model law, it would not be conducive to interpret
the decision of the Joint Arbitration Committee with regard to the venue to be
an interim award, conferring a right of challenge to an aggrieved person under
Section 34 of the Act.

   9. Mr. Desai's contention that the question of venue is of utmost importance,
since the arbitral proceeding will be conducted in accordance with the rules
applicable to the place where the arbitration proceeding is conducted and
consequently, denial of a right to appeal against the same is never contemplated
of,requires consideration. It is undoubtedly true that if the arbitration is to
be held in India, then the proceeding will be conducted in accordance with the
rules applicable in India and if the arbitration is to be held in Japan, it has
to be conducted in accordance with the rules of Japan Commercial Arbitration
Association and as such the decision on the question of venue is of utmost
importance. But the further contention that an aggrieved party has no right to
assail the same, once the said decision is not assailed at this stage, does not
appear to be correct. The ultimate arbitral award could be assailed on the
grounds indicated in sub-section(2) of Section 34 and an erroneous decision on
the question of venue, which ultimately affected the procedure that has been
followed in the arbitral proceeding could come within the sweep of Section 34(2)
and as such it cannot be said that an aggrieved party has no remedy at all.

   10. This appeal, accordingly fails and is dismissed.