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Shilpi (Senior Manager)     12 March 2014

International commercial arbitration-enercon judgment

Introduction

 

In a landmark decision the Supreme Court of India has dealt with various facets of arbitration law including the following

  1. Separability of arbitration clause/agreement from the underlying contract.
  2. Assistance of the court in making an arbitration clause workable within the permissible limits of law.
  3. Determination of seat of arbitration applying the closest and intimate connection to arbitration.
  4. Venue versus Seat of arbitration.
  5. Concurrent jurisdiction in arbitration proceedings.
  6. Principles governing anti-suit injunction.

The Supreme Court by its decision dated February 14, 2014 in of Enercon (India) Ltd & Ors V/s Enercon GMBH & Anr has clarified the position with regards to above , removing another possible hurdle that one could face in Commercial arbitration .

 Background

There were various agreements executed between the parties including an IPLA which contained the arbitration clause. The dispute pertained to holding supplies by Enercon GMBH (respondent) to Enercon (India) (appellant). Arbitration agreement invoked by Enercon GMBH was opposed by Enercon (India) contending that the IPLA was not a concluded contract hence the arbitration agreement was not valid.

Proceedings were simultaneously initiated in Daman Court, Bombay High Court, English courts and before the arbitrators and there were disputes relating to the seat of arbitration, pertaining to workability of arbitration clause,  with respect to concurrent jurisdiction of Indian and English court in arbitration proceeding & the principles governing anti-suit injunction.

 Enercon India’s Case:

Ø  IPLA was not a concluded contact since it was not in consonance with the agreed principles and as such the arbitration agreement did not come into existence.

Ø  Clause 18.1 of the IPLA was incapable of being performed .The construction done by the HC to make it workable was not sustainable.

Ø  While determining the Seat of arbitration the courts need to see the closest and intimate connection with arbitration. In this case, seat was to be India irrespective of the venue of arbitration being London.

Ø  Since the Seat of arbitration in in India, the courts of England would have no jurisdiction.

Enercon Gmbh’s Case:

Ø  The court is required to see whether there is a valid arbitration agreement and not whether there is a concluded contract. The arbitrator shall decide with respect to the formation of underlying contract.

Ø   Arbitration clause is not non-workable .The object underlying Section 10 and 11 are to avoid failure in appointment of arbitrator. The parties had the intention of arbitrate which is clear from the agreement and subsequent conduct of parties. The sentence that a third arbitrator shall be appointed by the two arbitrators has been missed out by the draftsman. This can be supplied by the court to make the arbitration clause workable.

Ø  The seat is in London and Not India. London was mentioned as Venue and it has to be interpreted as seat unless contrary intention has been expressed.

 Judgment of the Supreme Court

Separability of arbitration clause/agreement from the underlying contract

 The court held that there is an intention between the parties to arbitrate under the IPLA .In the face of this, the question of IPLA being a concluded contract is irrelevant for the purposes of making the reference to the arbitral tribunal. It was held that the parties cannot be permitted to avoid arbitration without satisfying the court that it would be just and in the interest of the parties not to proceed with arbitration. Argument that the arbitration agreement will perish as IPLA has not been finalised was also not accepted as arbitration clause (agreement) is independent of the underlying contract. Section 16(1) (b) of the 1996 Act was referred to which provides that even if the arbitral tribunal concludes that the contract is null and void ,it should not result as a matter of law in an automatic invalidation of the arbitration clause.

 Assistance of the court in making an arbitration clause workable within the permissible limits of law

 It was held that the courts have to adopt a pragmatic approach and not a pedantic or technical approach while interpreting or construing an arbitration clause. Therefore when faced with a seemingly unworkable clause, it would be the duty of the court to make same workable within the permissible limits of law, without stretching it beyond the boundaries of recognition. Further, a statutory approach is provided under the provisions of S 10 and 11 of 1996 Act to avoid failure of arbitration agreement or arbitration clause if contained in the contract.

 Venue vs Seat

A lot of judgments were taken into consideration while deciding on the issue. It was observed that in an international commercial arbitration that Venue of arbitration can often be different from the seat of arbitration. In such circumstances the hearing of the arbitration shall be conducted at the venue fixed by the parties but this would not bring about a change in the seat of the arbitration. The intention of the parties with regards to the seat of arbitration cannot be presumed on the basis of the venue fixed by the parties. In the present case, the (i) laws governing the substantive contract,(ii) the law governing the agreement to arbitrate & the performance of that agreement (iii) the law governing the conduct of the arbitration were Indian leading to the presumption that the seat of arbitration was to be India and London was only chosen to be a venue .

Concurrent jurisdiction in arbitration proceedings

 It was observed that an agreement as to the seat is analogous to an exclusive jurisdiction clause. Any claim for remedy as to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of arbitration. The agreement of the parties would include the determination by the court as to the intention of the parties. The proposition that when a choice of a particular law is made, the said choice cannot be restricted to only a part of the Act or the substantive provision of that act only. The choice is in respect of all the substantive and curial law provisions of the Act. Further, it would lead to a lot of inconsistency and confusion if the matters were decided differently in courts of two jurisdictions (India and England in the present case)

Hence, it was held that that concurrent jurisdiction in arbitration proceedings in the present case was not sustainable.

 Anti-suit injunction:

 It was observed that the main contract IPLA is to be performed in India, governing law of the contract is the law of India .The award was to be enforced in India, interim measures wrt assets of appellant shall also be in India as the assets are situated in India .Further as the respondent had participated in various proceedings in India, there is no indication to show that Indian Courts are forum –non-conveniens for them. Hence, there cannot be any parallel proceedings in London. It was also observed that designating a convenient venue for arbitration cannot be understood as conferring concurrent jurisdiction for the English Courts over the arbitration proceedings in general. Thus, the proceedings initiated in the courts of England were not to be proceeded and hence the anti-injunction granted by the Daman trial court in the present matter was restored.



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