M/S VALUE ADVISORY SERVICES v. M/S ZTE CORPORATION

1. Two issues have been raised before me in the present proceedings. First, as to the applicability of Part-I of the Arbitration and Conciliation Act, 1996 (hereafter referred to as “1996 Act”) to a foreign award rendered prior to the decision in Bharat Aluminium Company vs. Kaiser Aluminium Technical Services INC, (2012) 9 SCC 552 (in short “BALCO”).

2. Second, as to whether the decree holder will be entitled to interest in terms of Annexure-P filed along with the execution petition? 2.[1] In this behalf, in particular, the decree holder seeks to place reliance upon the provisions of Section 31(7)(b) of the 1996 Act. 2.[2] The judgment debtor has objected to the basis of the calculations 2019:DHC:6963 made by the decree holder. Background:-

3. In order to adjudicate upon the aforementioned issues, the following broad facts are required to be noticed: - 3.[1] The judgment debtor entered into an agreement dated 01.01.2003 (hereafter referred to as “2003 agreement”) with the decree holder. In terms of the 2003 agreement, the decree holder was to render advisory services to the judgment debtor. 3.[2] Disputes erupted between the judgement debtor and the decree holder (hereafter collectively referred to as “parties”) which led to triggering of the arbitration agreement incorporated in Clause 8 of the 2003 agreement. Clause 8 of the 2003 agreement reads as follows: - “8. Governing Law and Arbitration The conclusion of this agreement, its validity, construction, performance and settlement of the disputes shall be governed by the Laws of Singapore. All disputes arising from the execution of or in connection with the contract shall be settled through friendly negotiation between both parties. In case no settlement can be reached, the disputes shall be submitted to the Singapore International Arbitration Centre for arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce in effect at the time of applying for arbitration by three (3) Arbitrators appointed in accordance with the said Rules. The venue of arbitration shall be Singapore. The arbitration award shall be final and binding upon both parties. The arbitration fee shall be borne by the losing party except otherwise award by the arbitration commission.” 3.[3] It would be obvious upon a plain reading of Clause 8 that it was not happily worded. Clause 8 provided that in case the parties were not able to arrive at an amicable settlement, their disputes could be submitted to the Singapore International Arbitration Centre (in short ‘SIAC’), for arbitration, in accordance with the rules of arbitration of the International Chamber of Commerce (in short ‘ICC’). Furthermore, the clause also provided that the venue of arbitration shall be Singapore. 3.[6] Given this construct of Clause 8, a dispute arose with regard to the constitution and the jurisdiction of the arbitral tribunal. This dispute was finally settled by an order dated 05.08.2008, passed by a majority of the members which constituted the arbitral tribunal. The judgment debtor assailed this order before the High Court of Singapore. The High Court of Singapore vide order dated 16.01.2009 repelled the challenge. 3.[7] It is important to note that the arbitral tribunal in this case was the ICC International Court of Arbitration. The record shows that the arbitral tribunal rendered two awards. The first one was a partial award dated 09.11.2009 (hereafter referred to as ‘partial award’) which related to the merits of the matter. The partial award was rendered by the majority of the members constituting the arbitral tribunal. The dissenting award, which was rendered by one of the three arbitrators, which comprised the arbitral tribunal, was passed on 30.03.2010. 3.[8] Via the partial award, the decree holder was awarded USD 8,77,569. In addition thereto the decree holder was awarded interest at the rate of 6% per annum with effect from 22.08.2005 up until the date of payment. 3.[9] Insofar as the other issues were concerned, which included the issue pertaining to costs, the arbitral tribunal decided to reserve its ruling qua the same till the pronouncement of the final award.

4. The final award was rendered by the majority of the members on 23.07.2010. The third member refused to sign the final award. 4.[1] The name of the decree holder was struck-off from the register of the companies based on an application made by the decree holder under the Simplified Exit Scheme, 2003. This application was accepted on 29.12.2006 while the arbitration proceedings were going on. 4.[2] It is in these circumstances that the decree holder’s name was struckoff from the register of companies under the provisions of Section 560(5) of the Companies Act, 1956. This information was published in the official gazette on 03.02.2007. 4.[3] Once the partial award was delivered, the decree holder filed a company petition (i.e. Co. Pet. No.72/2009) for having its name restored on the register of companies. This petition, though, was rejected whereupon another company petition (i.e. Co. Pet. No.200/2011) was filed, albeit, by the creditors of the decree holder on 20.04.2011 for restoring decree holder’s name in the register of companies. 4.[4] This time around the company court allowed the restoration of the decree holder’s name on the register of companies vide order dated 08.02.2012. 4.[5] The judgment debtor challenged this order, first before the Division Bench, and then before the Supreme Court by way of a Special Leave Petition (SLP). The judgment debtor failed in its endeavours before both the courts. 4.[6] It is in this backdrop that the captioned execution petition came to be filed on 30.05.2012. Notice in the petition came to be issued to the judgment debtor on 01.06.2012. 4.[7] The record shows that the objections raised by the judgment debtor were rejected vide judgment dated 03.07.2017. Via the very same judgement, the bank guarantees furnished by the judgment debtor were directed to be encashed. A direction to that effect was issued to the 4.[8] The judgment debtor carried the matter in appeal to the Supreme Court. The Supreme Court vide order dated 06.07.2017, passed in SLP No.17087/2017, disposed of the SLP with the observations that it found no justification to interfere with the impugned order while exercising its jurisdiction under Article 136 of the Constitution of India. However, the Supreme Court permitted the judgment debtor to furnish a bank draft in favour of the Registrar General of this court for a sum equivalent to the value of the bank guarantees. For this purpose, the judgement debtor was accorded a week’s time. 4.[9] The record also reveals that when the matter came up before this court on 11.07.2017, an issue arose as to the amount which was payable by the judgment debtor. It was the submission of the decree holder that it was entitled to USD 21,65,675.14 while as per the calculation of the judgment debtor, the decree holder was to be paid only USD 16,87,430. The judgment debtor’s counsel had indicated on that date that the figure of USD 16,87,430 had been arrived at by factoring in interest @ 6% per annum up until 22.07.2017.

5. Given these submissions, the court directed the judgment debtor to remit, directly, USD 16,87,430 to the account of the decree holder, the details qua which were given in paragraph 11 of the said order. In addition, the Court directed the judgment debtor to deposit an amount equivalent to USD 62,570 (which was the difference between USD 17,50,000 and USD 16,87,430). The Court observed further that upon the judgment debtor remitting USD 16,87,430 and depositing a sum of USD 62,570, the bank guarantees furnished by the judgment debtor shall stand discharged and released to it. 5.[1] The Court thereafter, re-notified the matter on 24.07.2017 for compliance as well as for hearing arguments with regard to the calculations trotted out by both parties in respect of the amounts payable pursuant to the aforementioned awards. 5.[2] To be noted, the figure of USD 17,50,000 was incorporated in the order dated 11.07.2017 as the bank guarantees which were available with the Registrar General had a cumulative value equivalent to the aforementioned amount, though, according to the judgement debtor, the amount payable was USD 16,87,430. 5.[3] When the matter came up for compliance on 24.07.2017, it was noticed that the bank draft(s) that had to replace the bank guarantees had not been deposited. The court directed the encashment of the bank guarantees. 5.[4] The record also shows that the fact that bank guarantees were encashed was noticed in the court’s proceedings of 04.08.2017. The Court observed that the banks guarantees amounting to USD 17,50,000 had been converted into Indian Rupee (INR) and had been received by the Registry. Accordingly, the court directed the Registry to forthwith release the INR equivalent to USD 16,87,430 to the decree holder. Insofar as the balance amount available in INR was concerned, the Court directed the Registry to invest the same in a fixed deposit for a minimum period of 120 days subject to further orders of the court.

6. Thus, as far as the judgment debtor is concerned, the decree stands satisfied, though, the decree holder contends to the contrary. It is in this context that the two issues adverted to right at the beginning of this judgement have been raised before me by the parties. Analysis and Reasons:- Issue No.1

7. Insofar as the first issue is concerned, Mr. Mehta submitted that the decree holder was entitled to interest on the amount awarded under the final award in terms of Section 31(7)(b) of the 1996 Act. 7.[1] Mr. Mehta submitted that the decree holder, in line with the judgment of this court rendered in Sunagro Seed Pvt. Ltd. vs. National Seeds Corporation Ltd., 2018 SCC OnLine Del. 13053, was seeking interest at the rate which was “2% higher than the current rate of interest prevalent on the date of the award”, commencing from the date of the award up until the date of payment. 7.[2] In support of his submission that the provisions of Section 31(7)(b) of the 1996 Act would be applicable even though the awards in issue were, concededly, foreign awards, Mr. Mehta sought to rely upon the judgment of the Supreme Court rendered in Bhatia International vs. Bulk Trading S.A. & Anr., (2002) 4 SCC 105 and Venture Global Engineering vs. Satyam Computer Services Ltd. and Anr., (2008) 4 SCC 190. 7.[3] The contention was that Part-I of the 1996 Act [which included Section 31(7)(b)] would be applicable [as per law declared in Bhatia International case and Venture Global Engineering case] in view of the fact that the disputes which arose between the parties emanated from an agreement that was executed prior to 06.09.2012. 7.[4] In other words, the submission was that the law declared by the Constitution Bench of the Supreme Court in BALCO would not be applicable on account of the observations made in paragraph 197 of the said judgment to the effect that the ratio of the judgement would be applicable to only those arbitration agreements which were executed after the date of the judgment i.e. 06.09.2012. 7.[5] In sum, the submission was that all arbitration agreements which were executed prior to 06.09.2012, i.e. the date when the decision in BALCO was rendered by the Constitution Bench, would be governed by Part-I of the 1996 Act unless the parties explicitly or impliedly had agreed to exclude all or any of the provisions of Part-I of the 1996 Act. 7.[6] In this context it was sought to be emphasized that the disputes between the parties arose from an agreement executed in 2003.

8. To my mind, the answer to this knotty problem lies in the ratio of the judgement in Bhatia International case itself and, therefore, I need not take recourse to the observations made by the Constitution Bench of the Supreme Court in BALCO. In paragraph 32 of Bhatia International case, the Court made the following crucial observations: “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.” (Emphasis is mine) 8.[1] Concededly, the Supreme Court in Venture Global Engineering case affirmed what was observed by the court in paragraph 32 of Bhatia International. This aspect emerges upon a perusal of the following observations made in paragraphs 31 and 47 of Venture Global Engineering: “31. On close scrutiny of the materials and the dictum laid down in the three-Judge Bench decision in Bhatia International [Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105] we agree with the contention of Mr K.K. Venugopal and hold that paras 32 and 35 of Bhatia International [ Arising out of SLP (C) No. 8491 of 2007. From the Final Judgment and Order dated 27-2-2007 of the High Court of Judicature, Andhra Pradesh at Hyderabad in CCCA No. 26 of 2007: (2007) CLC 1086 (AP)] 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 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 [Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105]. xxx xxx xxx

47. In terms of the decision in Bhatia International [Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105] we hold that Part I of the Act is applicable to the award in question even though it is a foreign award. We have not expressed anything on the merits of claim of both the parties. It is further made clear that if it is found that the court in which the appellant has filed a petition challenging the award is not competent and having jurisdiction, the same shall be transferred to the appropriate court. Since from the inception of ordering notice in the special leave petition both parties were directed to maintain status quo with regard to transfer of shares in issue, the same shall be maintained till the disposal of the suit. Considering the nature of dispute which relates to an arbitration award, we request the court concerned to dispose of the suit on merits one way or the other within a period of six months from the date of receipt of copy of this judgment. Civil appeal is allowed to this extent. No costs.” 8.[2] Therefore, what is required to be ascertained is: did the parties expressly or impliedly agree to exclude the provisions of Part-I of the 1996 Act? 8.[3] In the facts of the present case, what has come to fore is that in terms of Clause 8 of the 2003 agreement (which has been extracted hereinabove), arbitration was, concededly, held in Singapore by the arbitral tribunal governed by the Rules of ICC International Court of Arbitration. 8.[4] Thus, the seat of arbitration was outside India and the arbitration proceedings were governed by the curial law which is not the 1996 Act. 8.[5] Both the provisions of Clause 8, which encapsulated the arbitration agreement, and how it ultimately got operated, reveal that the parties never intended to be governed by Part-I of the 1996 Act. This is precisely what the Supreme Court has held in paragraph 32 of Bhatia International case. 8.[6] Furthermore, the Supreme Court in Eitzen Bulk A/S vs. Ashapura Minechem Ltd., (2016) 11 SCC 508, has made similar observations after noting the observations made in paragraph 32 of Bhatia International case. The same being apposite are set forth hereafter: “31. When the judgment in Reliance [Reliance Industries Ltd. v. Union of India, (2014) 7 SCC 603: (2014) 3 SCC (Civ) 737] was sought to be indirectly reviewed in another case under the same agreement and between the same parties, this Court reiterated its earlier view and observed in Union of India v. Reliance Industries Ltd. [Union of India v. Reliance Industries Ltd., (2015) 10 SCC 213: (2016) 1 SCC (Civ) 102] in para 18 as follows: (SCC p. 227) “18. It is important to note that in para 32 of Bhatia International [Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105] itself this Court has held that Part I of the Arbitration Act, 1996 will not apply if it has been excluded either expressly or by necessary implication. Several judgments of this Court have held that Part I is excluded by necessary implication if it is found that on the facts of a case either the juridical seat of the arbitration is outside India or the law governing the arbitration agreement is a law other than Indian law. This is now well settled by a series of decisions of this Court [see Videocon Industries Ltd. v. Union of India [Videocon Industries Ltd. v. Union of India, (2011) 6 SCC 161: (2011) 3 SCC (Civ) 257], Dozco India (P) Ltd. v. Doosan Infracore Co. Ltd. [Dozco India (P) Ltd. v. Doosan Infracore Co. Ltd., (2011) 6 SCC 179: (2011) 3 SCC (Civ) 276], Yograj Infrastructure Ltd. v. Ssang Yong Engg. and Construction Co. Ltd. [Yograj Infrastructure Ltd. v. Ssang Yong Engg. and Construction Co. Ltd., (2011) 9 SCC 735: (2011) 4 SCC (Civ) 864], the very judgment in this case reported in Reliance Industries Ltd. v. Union of India [Reliance Industries Ltd. v. Union of India, (2014) 7 SCC 603: (2014) 3 SCC (Civ) 737] and a recent judgment in Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd. [Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd., (2015) 9 SCC 172: (2015) 4 SCC (Civ) 341] ].”

32. We see no reason to take a different view. In Bhatia International case [Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105], this Court concluded as follows: (SCC p. 123, para 32) “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.”

33. We are thus of the view that by Clause 28, the parties chose to exclude the application of Part I to the arbitration proceedings between them by choosing London as the venue for arbitration and by making English law applicable to arbitration, as observed earlier. It is too well settled by now that where the parties choose a juridical seat of arbitration outside India and provide that the law which governs arbitration will be a law other than Indian law, Part I of the Act would not have any application and, therefore, the award debtor would not be entitled to challenge the award by raising objections under Section 34 before a court in India. A court in India could not have jurisdiction to entertain such objections under Section 34 in such a case.

34. As a matter of fact the mere choosing of the juridical seat of arbitration attracts the law applicable to such location. In other words, it would not be necessary to specify which law would apply to the arbitration proceedings, since the law of the particular country would apply ipso jure. The following passage from Redfern and Hunter on International Arbitration contains the following explication of the issue: “It is also sometimes said that parties have selected the procedural law that will govern their arbitration, by providing for arbitration in a particular country. This is too elliptical and, as an English court itself held more recently in Breas of Doune Wind Farm it does not always hold true. What the parties have done is to choose a place of arbitration in a particular country. That choice brings with it submission to the laws of that country, including any mandatory provisions of its law on arbitration. To say that the parties have “chosen” that particular law to govern the arbitration is rather like saying that an English woman who takes her car to France has “chosen” French traffic law, which will oblige her to drive on the right-hand side of the road, to give priority to vehicles approaching from the right, and generally to obey traffic laws to which she may not be accustomed. But it would be an odd use of language to say this notional motorist had opted for “French traffic law”. What she has done is to choose to go to France. The applicability of French law then follows automatically. It is not a matter of choice. Parties may well choose a particular place of arbitration precisely because its lex arbitri is one which they find attractive. Nevertheless, once a place of arbitration has been chosen, it brings with it its own law. If that law contains provisions that are mandatory so far as arbitration are concerned, those provisions must be obeyed. It is not a matter of choice any more than the notional motorist is free to choose which local traffic laws to obey and which to disregard.”

35. In this view of the matter, the judgment of the Gujarat High Court holding that Ashapura's objections under Section 34 of the Arbitration Act are tenable before a court in India, that is, the court at Jamkhambhalia, Gujarat is contrary to law. The proceedings under Section 34, which occurs in Part I, are liable to be dismissed as untenable. The civil appeals of Eitzen are liable to succeed and are, therefore, allowed. The judgment of the Bombay High Court dated 3-12-2015 [Eitzen Bulk A/S v. Ashapura Minechem Ltd., 2015 SCC OnLine Bom 5909: (2016) 1 Bom CR 466] enforcing the foreign award under Part II of the Arbitration Act is correct and liable to be upheld.” 8.[7] The observations in Eitzen Bulk case have been reiterated by the Supreme Court in IMAX Corporation v. E-City Entertainment (I) Pvt. Ltd., (2017) 5 SCC 331. [See observations made in paragraphs 32 to 39 at pages 341-344].

9. Thus, it is pertinent to note that the Supreme Court in Eitzen Bulk case, while considering the issue as to whether or not parties qua a foreign award were governed by Part-I of the 1996 Act, specifically observed that while deliberating upon the issue, they were not considering the decision rendered in BALCO, as the agreement in that case predated the date on which the decision in BALCO was rendered. [See paragraph 25 at pages 516-517]. 9.[1] Mr. Mehta’s contention to the contrary, thus, cannot be accepted.