Sujata Manohar, J
1. This is an appeal from a judgment and order of a learned Single Judge of this Court under which he has held a foreign award dated 16th September, 1986 made in Paris under the arbitration rules of the International Chamber of Commerce as enforceable under the Foreign Awards (Recognition and Enforcement) Act, 1961. He has accordingly passed a decree under section 6 of the Act. The appellants have challenged his findings and decree.
2. The appellant---Renusagar Power Company Ltd. is a Company registered under the Indian Companies Act, 1956. Its registered office is at Renukoot, District Mirzapur in Uttar Pradesh. It is a wholly owned subsidiary of Hindustan Aluminium Corporation Limited ('HINDALCO'). The respondent/General Electric Company is a company constituted under the laws of the State of New York. United States of America and carries on its business, inter alia, at 570. Lexington Avenue, New York, U.S.A.
3. By a contract in writing dated 24th August, 1964 between Renusagar Power Company Ltd. (hereinafter called 'Renusagar') and General Electric Company (hereinafter called 'G.E.C.') the latter agreed to sell to Renusagar plant, machinery and equipment for setting up a thermal power plant at Renukoot on the terms and conditions set out in the contract. G.E.C. under the contract, agreed to supply equipment and machinery for the plant, spare parts and services for the purpose of erection of the said power plant. The delivery of the equipment and spare parts by G.E.C. was to commence from 31st December, 1964 and was to be completed within 15 months i.e. by 30th March, 1966. The erection of the power plant was to be completed between 1-4-1966 and 30-6-1967. The parties contemplated that the plant would be fully operational by 30th June, 1967. The total purchase price agreed upon was U.S. $ 13,195.000 plus interest as stipulated in the contract. 10% of the price was to be paid by Renusagar within 30 days of the contract effective date. The balance 90% of the purchase price plus interest were to be paid in instalments in accordance with the schedule of payments set out in the agreement. Four series of promissory notes, each series containing 16 promissory notes were executed by Renusagar in favour of G.E.C. in respect of these payments. In case G.E.C. received an exemption from the Government of India, from payment of Indian income-tax on interest receivable by it from Renusagar the interest payable to Renusagar was agreed to be reduced to 6% instead of 6% per annum. Article XIV (d) of the contract further provided that should G.E.C.'s application for tax exemption be denied by the Government of India Renusagar may withhold the Indian income-tax payable on any payment of interest. Renusagar, however, was required to furnish to G.E.C. the tax receipts on 'all withheld tax amounts paid to the Central Government of India'.
4. Article XVII of the contract contained an arbitration clause under which any disagreement arising out of or related to the contract was to be referred to arbitration in accordance with the Arbitration Rules of the International Chamber of Commerce.
5. Pursuant to the contract, an application was made to obtain from the Government of India exemption from payment of Indian income tax on interest payments to be made by Renusagar to G.E.C. By two orders dated 3rd September, 1965 and 7th June, 1967 the Government of India granted exemption to G.E.C. from payment of income-tax on interest receivable by G.E.C. from Renusagar. The Government of India, however, by its order dated 11th September, 1969 retrospectively revoked the exemption so granted.
6. In February 1970 Renusagar filled a writ petition being Writ Petition No. 179 of 1976 in the Delhi High Court challenging the order dated 11th September, 1969 cancelling the tax exemption granted to G.E.C. Renusagar prayed for an interim injunction from the Delhi High Court, inter alia, restraining the Government of India from taking any steps or giving effect to the said order dated 11th September, 1969 or from preventing the payment by Renusagar of tax free interest of 6% per annum to G.E.C. in accordance with the approval granted by the Government of India under its earlier order of 7-6-1967. The Delhi High Court by its interim order dated 18-5-1970 granted this relief to Renusagar on Renusagar furnishing a Bank guarantee for Rs. 4 lacs.
7. Even so, Renusagar by its letter dated 30th June, 1970 informed G.E.C. that in view of the pending litigation Renusagar would continue to calculate interest at the rate of 6-1/2% and would pay to G.E.C. the said interest after deducting from it the tax liability. The amount so withheld by Renusagar came to 73% of the interest payable to G.E.C. This amount was not required to be deposited by Renusagar in Court nor was Renusagar required to pay this amount to the income-tax authorities. Renusagar, therefore, retained with itself the amount so withheld.
8. The writ petition was finally disposed of by the Delhi High Court by its judgment and order dated 17-11-1980 under which the order of the Government of India revoking the tax exemption was quashed. As a result, Renusagar became liable to pay to G.E.C. tax free interest at the rate of 6% p.a. By its letter dated 30-1-1981 G.E.C. demanded from Renusagar the payment of balance interest. This balance amount was calculated at the rate of 6% p.a. after giving credit to Renusagar for the amounts of interest already paid by Renusagar to G.E.C. The total claim for unpaid interest came to U.S. $ 2,130,785.52. Renusagar has not paid this amount to G.E.C. This claim has been subsequently referred to arbitration.
9. In respect of instalments due and payable by Renusagar to G.E.C. under the contract at the request of Renusagar the payment of 1st, 2nd, 4th and 5th instalments was deferred. These agreements were formally recorded on 1-10-1968 and 10-12-1968. Approval of the Government of India was sought for this change in the schedule of payment. The Government of India, however, by its order dated 1st August, 1969 refused to permit the parties to revise the schedule of payments relating to 1st, 2nd, 4th and 5th instalments on the ground, inter alia, that it would involve a larger out flow of foreign exchange. As a result the original schedule of payments remained operative. There was therefore, delay on the part of Renusagar in making payments under the original contract.
10. In respect of the delay in making these payments. Renusagar appears to have accepted its liability to pay delinquent interest. In its telex message dated 25-3-1976 Renusagar in terms acknowledged its liability to pay such interest. The claim for interest on these delayed payments has also been referred to arbitration.
11. On 28-6-1972 G.E.C. filed a suit in the Calcutta High Court being Suit No. 297 of 1972 for recovery of amounts due on the 5th promissory note. This suit was filed against UCO Bank which had furnished under the contract a guarantee for due payment of instalments of purchase price.
12. On 1-3-1982 G.E.C. addressed a letter to Renusagar notifying it of G.E.C.'s intention to take the dispute between the parties to foreign arbitration pursuant to Article XVII of the contract. On 2-3-1982 G.E.C. accordingly made a reference to arbitration before the international Chamber of Commerce at Paris.
13. On 11-6-1982 Renusagar instituted Suit No. 832 of 1982 in this High Court questioning the arbitrability of these disputes. The matter went up to the Supreme Court and ultimately the Supreme Court by its judgment and order dated 16-8-1984 held that the disputes between the parties were covered by the arbitration clause in the contract and were 'arbitrable'. It refused to grant an injunction restraining arbitration proceedings.
14. In the meanwhile on 25-11-1982 Renusagar instituted a suit being Suit No. 27 of 1982 in the Court of the Civil Judge, Mirzapur seeking a declaration that the guarantee given by UCO Bank dated 3-4-1985 for U.S. $ 2.30 million be declared non-effective and unenforceable. This was a counter-blast to the earlier suit filed by G.E.C. before the Calcutta High Court.
15. The plaint in the suit was amended on 15th October, 1984 to cover the claims made before the Arbitrators by G.E.C. On 15-4-1985 G.E.C. made an application before the Civil Judge, Mirzapur for stay of proceedings under section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961. On 9-7-1985 the Civil Judge, Mirzapur dismissed the application of G.E.C. for stay of the suit. G.E.C. preferred a revision application from this order before the Allahabad High Court. The Allahabad High Court its judgment and order dated 7-3-1986 rejected G.E.C's revision application. G.E.C. filed a Special Leave petition No. 5861 of 1986 before the Supreme Court. This was admitted on 21-7-1986. Before the Supreme Court, Renusagar undertook not to proceed further with Suit No. 127 of 1988 before the Civil Judge, Mirzapur pending disposal of the Special Leave Petition. G.E.C. in its turn undertook not to enforce the award, if any, which may be passed by the International Chamber of Commence without the leave of the Supreme Court. In effect therefore, the Supreme Court did not stay the proceedings before the Arbitrators but required G.E.C. to obtain its leave before enforcing the award. The Supreme Court finally decided the Special Leave Petition by the judgment and order dated 11-8-1987. It held that G.E.C. was entitled to a stay of the proceedings before the Mirzapur Court under section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961. It accordingly stayed the Mirzapur suit.
16. In the meanwhile the arbitration proceedings in accordance with the rules of the International Chamber of Commerce were in progress. On 24-7-1985 Renusagar applied to the Arbitrators for stay of arbitration in view of the rejection of G.E.C.'s application for stay of the said suit under section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961. The Arbitrators, by a ruling given on 1st October, 1985 by a majority of 2 : 1 held that the arbitral tribunal had not become functus officio and it proceeded with the arbitration. Thereafter on 16-9-1986 the Arbitrators gave their award which is the subject matter of challenge here.
17. Under the award the arbitrators have considered various claims made by G.E.C. as also the counter claims filed by Renusagar. The items which have been awarded and which are the subject matter of dispute relate to regular interest withheld, compensatory damages for withholding this regular interest, delinquent interest on late payments of principal amount, compensatory damages for withholding this delinquent interest and awarding of costs. The arbitrators have given the following awards under these heads :
1. Regular interest wrong- 2,130,785.52fully withheld.2. Compensatory damages to31 March, 1986 on theabove regular interestcontinuing at the annualrate of 8% on the saidregular interest untilpayment 6,347,748.503. Delinquent interest onlate payments ofprincipal. 467,076.204. compensatory damages to31st March, 1986 on theabove delinquent interestcontinuing at the annualrate of 8% on the saiddelinquent interest untilpayment 1,324,357.755. Spare parts 119,053.006. Compensatory damages to31st March, 1986 on theabove spare parts conti-nuing at the annual rateof 8% on the said sumfor the spare parts untilrepayment. 276.702.177. Forwards Claimant's costs 1,549.899.00-------------------US $ 12,215.622.14
18. G.E.C. on 15-10-1986, filed the present Arbitration Petition No. 159 of 1986 in this Court under section 5 of the Foreign Awards (Recognition and Enforcement) Act, 1961 to enforce the Award. This petition was resisted by Renusagar on several grounds. The learned Single Judge by his judgment and order dated 18/19/21st October 1988 has negatived all the contentions of Renusagar. He has come to the conclusion that the award is enforceable under the provisions of the Foreign Awards (Recognition and Enforcement) Act, 1961. He has accordingly ordered that the award be filed in this Court. He has pronounced judgment in terms of the award and has passed a decree. From this judgment the present appeal has been filed.
Whether the appeal is barred :
19. The first question that arises before us is whether an appeal is maintainable from the judgment and decree of the learned Single Judge.
20. Section 6 of the foreign Awards (Recognition and Enforcement) Act, 1961 is as follows :
6. Enforcement of foreign award.---
(1) Where the Court is satisfied that the foreign award is enforceable under this Act, the Court shall order the award to be filed and shall proceed to pronounce judgment according to the award.
(2) Upon the judgment so pronounced a decree shall follow, and no appeal shall lie from such decree except in so far as the decree is in excess of or not in accordance with the award.
21. Mr. Shanti Bhushan, learned Counsel for G.E.C. contends that in view of the provisions of section 6(2) of the said Act, the present appeal is not maintainable. It is, however, the contention of Dr. Singhvi, learned Counsel for Renusagar that although the learned Single Judge has pronounced a decree, no decree has yet been drawn up. Hence the judgment and decree passed by the learned Single Judge must be considered only as a judgment. The bar of an appeal against a decree under section 6(2) therefore does not apply. From the 'judgment' of the learned Single Judge an appeal under clause 15 of the Letters Patent is maintainable.
22. In the alternative, Dr. Singhvi submits that section 6 requires the Court (a) to pronounce judgment according to the award and (b) upon the judgment so pronounced a decree shall follow. He contends that from the judgment so pronounced an appeal lies under clause 15 of the Letters Patent; although from the decree which follows, an appeal is barred except on the limited grounds set out in section 6(2).
23. An examination of the language of section 6 of the Foreign Awards (Recognition and Enforcement) Act is necessary for dealing with this contention. Section 6 makes a distinction between 'judgment' and 'decree'. In order to understand the distinction, it is necessary to turn to the definitions of 'decree' and 'judgment' under section 2 of the Code of Civil Procedure. The relevant parts of section 2 of the Code of Civil Procedure are as follows :
2. In this Act, unless there is anything repugnant in the subject or context,---
xx xx xx xx(2) 'decree' means the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit and may be either preliminary or final ...... but shall not include---
(e) any adjudication from which an appeal lies as an appeal from an order.....
xx xx xx xx(9) 'Judgment' means the statement given by the Judge on the grounds of a decree of order.
xx xx xx xx14) 'order' means the formal expression of any decision of a Civil Court which is not a decree.
Section 33 of the Code of Civil Procedure is as follows :---
33. The Court, after the case has been heard, shall pronounce judgment, and on such judgment a decree shall followOrder XX, Rule 6 of the Code of Civil Procedure further clarifies the position by providing that the decree shall agree with the judgment and shall specify clearly the relief granted or other determination of the suit.
24. Under rule 6-A, the last paragraph of the judgment shall state in precise terms the relief which has been granted by such judgment. So long as the decree is not drawn up, the last paragraph of the judgment shall be deemed to be the decree for the purpose of execution.
25. Under Rule 7 the decree shall bear date of the day on which the judgment was pronounced.
26. Under the Scheme of the Code of Civil Procedure, therefore, the decree is a formal expression of adjudication. The judgment is the statement given by the judge of the grounds of a decree or order. The two are intertwined and cannot be separated. This is made clear in section 33 of the Civil Procedure Code and Order XX, Rules 6 6-A, and 7. Since both the words 'judgment' and 'decree' are used in juxtaposition in section 6 of the Foreign Awards (Recognition and Enforcement) Act, 1961 the language of section 6 reproduces the language of section 33 of the Code of Civil Procedure, the words 'judgment' and 'decree' have to be understood in the sense in which they have been used in the Code of Civil Procedure. In this sense, therefore, 'judgment' as used in section 6 of the said Act of 1961 refers to the statement given by the Judge of the grounds of the decree and the decree which follows is a formal expression of such adjudication. The term 'judgment' and 'decree' cannot be separated for the purposes of appeal. An appeal from one is equally an appeal from the other. This sense in which the term 'judgment' is used in section 6 of the said Act of 1961 is quite different from the sense in which the terms 'judgment' has been used in clause 15 of the Letters Patent. The term 'judgment' is used in clause 15 to include, inter alia, decrees. It is in the wider sense that an appeal lies under clause 15 of the Letters Patent from a judgment.
27. In the case of Shah Babulal Khimji v. Jayaben D. Kania, reported in 84 Bom.L.R. 187, the Supreme Court has considered the meaning of the word 'judgment' as used in clause 15 of the Letters Patent. The Supreme Court says : 'Clause 15 makes no attempt to define what a judgment is. As Letters Patent is a special law which carves out its own sphere, it would not be possible for us to project the definition of the word 'judgment' appearing in section 2(9) of the Code of 1908, which defines 'judgment' into the Letters patent.' The Supreme Court further observes : 'Thus, under the Code of Civil Procedure, a judgment consists of the reasons and grounds for a decree passed by a Court. As a judgment constitutes the reasons for the decree it follows as a matter of course that the judgment must be a formal adjudication which conclusively determines the rights of the parties with regard to all or any of the matters in controversy. The concept of a judgment as defined by the Code of Civil Procedure seems to be rather narrow and the limitations engrafted by sub-section (2) of section 2 cannot be physically imported into the definition of the word 'judgment' as used in clause 15 of the Letters Patent because the Letters Patent has advisedly not used the terms 'order' or 'decree' anywhere. The intention, therefore, of the givers of the Letters Patent was that the word 'judgment' should receive a much wider and more liberal interpretation than the word 'judgment' used in the Code of Civil Procedure.'
28. The appeal under clause 15 of the Letters Patent is not from the statement of grounds for adjudication, but from the adjudication or decree. A right of appeal under clause 15 would, therefore, be from a 'decree' under section 6 and not from 'judgment' under that section. In view of the restriction placed by section 6(2) on appeals, an appeal cannot be maintainable except on restricted grounds. It would be absurd to say that although an appeal cannot be filed against a decree (except on limited grounds), an appeal can be filed against the judgment on the basis of which this decree is drawn up. The 'judgment' and 'decree' under section 6 of the Foreign Awards Act are inter-connected. The two cannot be severed so as to permit an unrestricted right of appeal under clause 15 of the Letters Patent from the judgment which merely states the reason for adjudication while restricting an appeal from the decree which is a formal expression of such adjudication.
29. It was submitted that since the decree is not yet drawn up, there is no decree in existence and hence an appeal should be permitted from the 'judgment'. This argument cannot be accepted for reasons already set out. Moreover, Order XX, rule 6A(2)(b) sets out that until a decree is drawn up the last paragraph of the judgment which sets out the reliefs which have been granted is deemed to be a decree for the purpose of execution. 'Judgment' under section 6 is, therefore, both 'judgment' and 'decree' until the decree is drawn up. Provisions of CI. 15 of the Letter Patent, therefore, cannot be resorted to by the appellants in order to establish an unrestricted right of appeal which section 6 (2) expressly curtails.
30. In this context it is also necessary to bear in mind the Statements of Objects and Reasons for the Foreign Awards (Recognition and Enforcement) Act, 1961. The Statement of Objects and Reasons sets out that the Geneva Convention of 1927 which held the field prior to New York convention of 1958 hampered a speedy settlement of disputes through arbitration, and hence no longer met the requirements of the International Trade. Therefore, a Draft Convention was prepared and adopted at New York in June 1958. This convention was duly ratified by the Government of India. The new Act implements the New York Convention. The purpose, therefore, of the Act is to secure a speedy settlement of disputes relating to international trade through arbitration. That is why a restricted right of appeal from a decree on the award is provided under the Foreign Awards Act, 1961. Enlarging this right by an unwarranted resort to clause 15 of the Letters Patent would defeat the purpose of the Act.
31. Our attention was drawn to a judgment of the Division Bench of the Calcutta High Court in the case of Shiva Jute Baling Ltd. v. Hindley and company Ltd., reported in I.L.R. (1955) Cal. 29. In that case, in a dispute between the sellers in India and buyers in England, an arbitration award was obtained in London. The buyers applied to the Calcutta High court under section 5 of the Arbitration (Protocol and Convention) Act, 1937 for filing of the award and for judgment and decree in terms of the award. The trial Judge made an order that the award should be filed and that there should be a judgment in terms of the award. A decree followed. The sellers appealed. It was contended that no appeal was maintainable in view of the provisions of section 6(2) of the Arbitration (Protocol and Convention) Act, 1937. Section 6(2) of the Arbitration (Protocol and Convention) Act, 1937 is identical with section 6(2) of the Foreign Awards (Recognition and Enforcement) Act, 1961. The Division Bench held that since the judgment of the trial Judge was a 'judgment' within the meaning of clause 15 of the Letters Patent an appeal was maintainable. The Court held that although a decree had been passed, the decree did not wipe out the judgment. This judgment has been followed in a subsequent judgment of the Calcutta High Court in the case of S. Mohd. Naim Mohd. Alam v. Rouraffie and Far Eastern Ltd., reported in : AIR1960Cal146 . With due respect to the learned judges of the Calcutta High Court, we are unable to agree with the view so taken. The attention of the Division Bench does not appear to have been drawn to the definition of 'judgment' and 'decree' in section 2 of the Code of Civil Procedure. Nor is its attention drawn to the meaning of 'judgment' in clause 15 of the Letters Patent. Apart from observing that a decree does not wipe out the judgment, there is no discussion as to why, inspite of the restriction on appeals under section 6(2) of the said Act, an unrestricted right of appeal can still be spelt out under clause 15 of the Letters Patent. In our view the words 'judgment' and 'decree' used in section 6 are interlinked and inter dependent. A provision which bars an appeal against a decree except in very limited circumstances, equally bars an appeal against the 'judgment' by which such a decree is pronounced.
32. It was urged that had the learned Single Judge held the award to be unenforceable, there could have been an appeal under clause 15 of the Letters patent. Therefore, an appeal is equally maintainable from a judgment which holds the award to be enforceable and pronounces a judgment in terms of the award. We are unable to agree with this submission. The purpose of the Foreign Awards (Recognition and Enforcement) Act, 1961 is to provide a speedy settlement of disputes by arbitration. With this in view a finality is sought to be given to an award, which is found enforceable. Hence a very restricted right of appeal is given from a decree in terms of the award. A right to file an appeal is a right created by statute. It is permissible to legislate only a restricted right or appeal.
33. We are not called upon to decide whether an appeal would lie under Clause 15 of the Letters patent if the award is held unenforceable. We will assume for the sake of argument that it does lie. But even so, it is permissible to provide by statute for a limited right of appeal when the award is enforceable and a wider right of appeal when it is held unenforceable. The purpose clearly is to promote enforcement of awards. Other statutes also make such a differentiation in analogous situations. In fact, in the Cods of Civil Procedure itself Order 43 provides an appeal from an order under Order IX, Rule 13 rejecting an application to set aside a decree passed exparte. There is no corresponding right of appeal from an order which sets aside the exparte decree. The differentiation is legitimate. In view, therefore, of the express provisions of section 6(2), an appeal is restricted when a decree is pronounced in terms of judgment which upholds the award. The present appeal is not on grounds permitted under section 6(2). It is, therefore, barred.
34. Renusagar contends that under section 6 of the Foreign Awards (Recognition and Enforcement) Act, 1961 before the Court pronounces judgment, it has to be satisfied that the award is enforceable. An appeal lies from this finding regarding enforceability. Dr. Singhvi relies upon section 39 of the Arbitration Act which prescribes an appeal from an order setting aside or refusing to set aside an award. We find it difficult to impose section 39 of the Arbitration Act on the foreign Awards (Recognition and Enforcement) Act, 1961.
35. The scheme of the two Acts is quite different. Under section 5 and 6 of the Foreign Awards (Recognition and enforcement) Act any person interested in a foreign award has to apply to the Court having jurisdiction that the Award be filed in Court. A show cause notice has to be served on the other side. Thereafter, if the Court is satisfied that the foreign award is enforceable, the Court shall order the award to be filed and shall proceed to pronounce judgment according to the award. On such judgment a decree shall follow. From the decree so pronounced no appeal lies unless the decree is in excess of or not in accordance with the award.
36. The provisions of the Indian Arbitration Act, 1940 which apply to arbitrations within the country are very different. Under section 14 of the Arbitration Act, when the arbitrators have made their award and signed it they are required to give a notice in writing to the parties of the making and signing of the award. Thereafter the arbitrators have to file the award in Court. After the award is so filed, the Court has to give notice to the parties of the filing of the award. At this stage proceedings may be taken to set aside the award. Under section 17, where the Court sees no cause to remit the award or to set aside the award, the Court shall, after the time for making an application to set aside the award has expired or such an application having been made, after refusing it, proceed to pronounce judgment according to the award. Union the judgment so pronounced a decree shall follow and no appeal shall lie from such decree except on the ground that it is in excess of or not otherwise in accordance with the award.
37. Unlike section 5 of the Foreign Awards (Recognition and Enforcement) Act, separate proceedings are contemplated under section 17 of the Arbitration Act for setting aside the award. Under section 39 of the Arbitration Act, an appeal is provided from (inter alia) an order setting aside or refusing to set aside an award. It is only after these proceedings are completed or after the time for commencing such proceedings has expired, that the court can pronounce a judgment according to the award. The Foreign Awards (Recognition and Enforcement) Act, 1961 does not contain any such provisions. Section 6 contemplates a single proceeding in which the Court should be satisfied that the foreign award is enforceable, and order that the award be filed, proceed to pronounce judgment on the award upon which a decree shall follow. No separate appeal is provided from that part of the judgment dealing with the Court's satisfaction regarding enforceability. Such a right cannot be created by a resort to clause 15 of the Letters Patent.
38. Under section 17 of the Arbitration Act also, after the proceedings for setting aside the award have been completed or after time for applying to set aside an award has expired, the Court is required to pronounce judgment according to the award and upon the judgment so pronounced a decree shall follow. This decree cannot be challenged in appeal except on the limited grounds and its being in excess of or not in accordance with the award. A wider right of appeal has not been spelt out under clause 15 of the Letters Patent from the 'judgment according to the award' under the Arbitration Act, 1940.
39. The Supreme Court in a different context considered the applicability of clause 15 of the Letters Patent to appeals under the Arbitration Act, 1940 in the case of The Union of India v. The Mohindra Supply Co., reported in : 3SCR497 . Under section 39 sub-section (2) of the Arbitration Act, 1940 'no second appeal shall lie from an order passed in appeal under this section'. The Supreme Court held that section 39 sub-section (2) bars all kinds of second appeals from an appeal under section 39(1). This bar of second appeals includes an appeal under clause 15 of the Letters patent. By the same reasoning a restriction on appeals under section 6(2) covers an appeal under clause 15 of the Letters Patent also.
40. In any view of the matter, section 6(2) of the Foreign Awards (Recognition and Enforcement) Act, 1961 restricts appeals from judgment and decree pronounced by the Court under that section. The present appeal, which is on grounds other than those permitted under section 6(2) of the Foreign Awards (Recognition and Enforcement) Act, 1961 is not maintainable.
41. Even assuming that such an appeal is maintainable, we find that on merit also there is no substance in the appeal. We have gone into the merits of the appeal only on the express request of both the sides. We find that even on merits the appeal cannot be sustained. In this regard we are in substantial agreement with the learned trial judge.
Are Arbitrators Functus Officio ?
42. The arbitration award was given during the pendency of the suit before the Civil Court at Mirzapur which allegedly covered substantially the same matters which were referred to arbitration. The arbitration award was given on 16th September, 1986 much before the Supreme Court passed an order on 11th August, 1987 staying the suit before the Mirzapur Court. The appellants contend that the award, pronounced when the Court proceedings were not stayed, is a nullity. As the suit was pending the arbitrators has becomes functus officio.
43. The contention is without merit. In the first place, the Supreme Court set aside the orders of the lower Courts refusing stay. The Supreme Court held that the provisions of section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 were attracted. Section 3 of the Foreign Awards (Recognition and enforcement) Act, 1961 is as follows :---
3. Stay of proceedings in respect of matters to be referred to arbitration - Notwithstanding anything contained in Arbitration Act, 1940, or in the Code of Civil Procedure, 1908 if any party to an agreement to which Article II of the convention set forth in the Schedule applies, or any person claiming through or under him commences any legal proceedings in any Court against any other party to the agreement or any person claiming through or under him in respect of any matter agreed to be referred to arbitration in such agreement, any party to such legal proceedings may, at any time after appearance and before filing a written statement or taking any other step in the proceedings apply to the Court to stay the proceedings and the Court, unless satisfied that the agreement is null and void, inoperative or incapable of being performed or that there is not, in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings.
Under this section a stay of the suit is mandatory if requirements set out in that section are fulfilled. These requirements were admittedly fulfilled in the present case. Hence under the order of the Supreme Court, the previous orders of the Allahabad High Court as well as of the Mirzapur Court were set aside. Moreover, during the pendency of proceedings before it, the Supreme Court did not prevent the arbitrators from proceeding with the reference. It merely took an undertaking from G.E.C. that in case an award was made G.E.C. would not take steps to enforce it. Ultimately the Supreme Court set aside the earlier orders and stayed the suit. The orders which have been so set aside cannot now be looked at in order to render the arbitration award, which has been given in the interregnum, a nullity. The effect of a general and unqualified reversal of a judgment, order or decree is to nullify it completely and to leave the case standing as if such judgment, order or decree had never been rendered. (of. Corpus Juris Secuudum Vol. 5-B, Paras 1950). (of. also Smt. Kausalya Devi Bogra and others v. Land Acquisition Officer Aurangabad and another, : 2SCR900 ; and State of Gujarat v. Mohd. Ismail Jumma and others, : 1982CriLJ421 . Therefore a wrongful refusal to stay the suit in the teeth of section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 which has been set aside by the Supreme Court cannot render an arbitration unlawful.
44. Secondly, there is no provision in the Foreign Awards (Recognition and Enforcement) Act, 1961 which renders a foreign award made by a foreign tribunal during the pendency of a legal proceeding (on the same subject-matter) in a local Court invalid. The applicants say that the principle of section 35 of the Arbitration Act, 1940 should be extended, by analogy to the Foreign Awards (Recognition and Enforcement) Act for invalidating such an arbitration. But the Scheme of the Foreign Arbitration (Recognition and Enforcement) Act is quite different from that of the Arbitration Act. Sections 34 and 35 of the Arbitration Act are designed to avoid a conflict between a local Court and a local private tribunal. The latter gives way to the former. In cases such as the present, the conflict is between a local Court and a foreign private tribunal which is beyond the jurisdiction of the local Court. A local Court may face difficulties in superseding a foreign tribunal. The principles of the Arbitration Act cannot, therefore, be easily applied to foreign arbitrations.
45. Under section 34 of the Arbitration Act, if a party to an arbitration agreement commences any legal proceedings regarding subject matter of the agreement, the Court may stay the legal proceedings if prescribed requirements of section 34 are met. if such stay is not granted, then under section 35, upon notice to the arbitrators, all further proceedings in a pending reference become invalid (provided the legal proceedings cover the entire subject matter of the reference). It is difficult to extend this principle of section 35 to arbitration proceedings pending before a foreign tribunal. Hence, unlike section 34 of the Arbitration Act, section 3 of the Foreign Awards (Recognition and Enforcement) Act provides for a mandatory stay of legal proceedings in a local Court. When stay of legal proceedings is mandatory, there is no question of applying section 35 which comes into operation only if stay is not granted. Section 3 of the Foreign Awards (Recognition and Enforcement) Act clearly gives precedence to the forum chosen by the parties rather than to a Civil Court.
46. In the case of Mury Exportation v. D. Khaitan & Sons Ltd., reported in : AIR1956Cal644 , a Division Bench of the Calcutta High Court considered the provisions of the Arbitration (Protocol and Convention) Act, 1937 which are similar to those contained in section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961. While considering the argument whether section 35 of the Arbitration Act, 1940 can be extended to arbitrations under the Arbitration (Protocol and Convention) Act, 1937, P.B. Mukherji, J., observed at page 646 as under :-
'The Protocol Act and the Arbitration Act are two Statutes governing different kinds of arbitration, and to introduce sections of one Act to regulate the arbitration under the other Act will be to create confusion and contradiction which I do not think was intended by the Legislature. I shall attempt to give my reason briefly. To my mind it is clear that the basic object of section 35, Arbitration Act, 1940 is that within the same system of law, in the same country, two Tribunals, one a Court of law and the other a Court of arbitration, should not be allowed to compete in deciding the same dispute, and therefore provision is made to avoid such conflict either by staying the suit under section 34, Arbitration Act, 1940 and allowing the arbitration to proceed or by nullifying the arbitration under section 35, Arbitration Act, 1940 by giving notice of the suit. That consideration of conflict between Courts and arbitrators under the same sovereign working under the same system of law is absent where parties under different systems of law and different sovereigns are concerned and in the case of arbitration governed by the Protocol Act which involves the questions of both public and private International law in regulating commercial disputes of parties who are subjects of different States and carry on international trade.'
These observations has been quoted with approval by the Calcutta High Court in a later case of Serajuddin and Co. v. Michael Golodetz, reported in : AIR1960Cal47 .
47. Our attention was, however, drawn to the case of M/s. V/O Tractoroexport, Moscor v. M/s. Tarapore and Co., Madras, reported in : 3SCR53 , where in respect of an agreement between a party in Madras and a Russian party, the contract contained a clause for arbitration in Moscow. The Indian firm instituted a suit in the Madras High Court. The Russian firm instituted arbitration proceedings at Moscow. The Russian firm applied before the Madras High Court for stay of legal proceedings under section 3 of the Foreign Awards (Recognition and Enforcement) Act. The Supreme Court, however, was required to consider section 3 as it stood prior to its amendment in 1973. The unamended section 3 required that the parties should have made a submission to arbitration before they could apply for the mandatory stay of suit under that section. There was no such submission to arbitration in that case. Hence the Supreme Court held that section 3 did not apply. The Supreme Court next considered whether, since section 3 was not applicable, it should stay the legal proceedings before the Madras High Court or restrain the Russian firm from proceeding with arbitration at Moscow. It said (Para 27) :
'Although it is a moot point whether section 35 of the Arbitration Act, 1940, will be applicable to the present case..... the principle embodied in that section cannot be completely ignored while considering the question of injunction.......... Ordinarily, a party which has entered into a contract of which an arbitral clause forms an integral part, should not receive the assistance of the Court when it seeks to resile from it.' But after considering the circumstances of the case the Supreme Court said that the only proper course to follow was to restrain the Russian firm which had gone to the Moscow tribunal for adjudication of the disputes from getting the matter decided by the tribunal so long as the suit here was pending and had not been disposed of. The Supreme Court thus considered section 35 of the Arbitration Act, 1940 in the context of granting an injunction restraining arbitration proceedings and said that the principle embodied in that section could not be ignored while considering the question of injunction. It did not hold that section 35 of the Arbitration Act, 1940 applied to foreign arbitrations.
48. In the present case section 3 applies to the legal proceedings instituted in the Civil Court at Mirzapur. In view of its express provision for a mandatory stay of the suit, there can be no question of invoking the principles of section 35 of the Arbitration Act, 1940.
49. The appellants next placed strong reliance upon the principle laid down in the case of Doleman & Sons v. Ossett Corporation, reported in 1912(3) K.B. 257. In that case an action had been commenced upon a contract containing a provision for reference to an arbitrator. No application was made to stay the action under the provisions of the English Arbitration Act. Despite the commencement of an action the arbitrator proceeded with the reference and made an award. The Court held that ordinarily when parties had agreed to arbitrate, the Court would stay the legal action. But 'if the Court has refused to stay an action, or if the defendant has abstained from asking it to do so the Court has seisin of the dispute and it is by its decision, and by its decision alone, that the rights of the parties are settled. It follows, therefore, that in the latter case the private tribunal, if it has ever come into existence, is functus officio................... (pg. 269).'
50. Prior to the Arbitration Act of 1940, Doleman's case was interpreted and applied by the High Courts of Lahore, Madras and Calcutta as laying down that if a reference to arbitration is made and a suit is also filed in respect of the subject matter of the reference, the arbitrators become functus officio as soon as the suit is filed (unless the Court stays the proceedings before it). cf. Jowahir Singh v. Fleming Shaw & Co. A.I.R. 1937 Lah. 851; Firm Ghansham Dass v. Gowerdan Dass A.I.R. 1935 Lah. 916; Appavu Rowther v. Seeni Rowther, A.I.R. 1918 Mad 719; Jokhiram Kaya v. Ganeshandas Kedarnath, A.I.R. 1921 Cal. 244. The Judicial Commissioner of Sind took a different view of the ratio in Doleman's case in Khillooram Lockuram v. Louis Dreyfus and Co., reported in A.I.R. 1919 Sind 57. He held that a mere filing of a suit did not automatically supercede an arbitration. But as soon as a stay order was refused or the party had, by pleading in the suit waived arbitration, that the arbitration proceedings became invalidated. The Court alone thereafter has session of the dispute. This ratio was followed in a subsequent case in M/s. Mitsue Bussan Kaisha Ltd. v. M/s. Bhoorji Bhagwandas A.I.R. 1924 Sind 146. Subsequent statutory enactments have done away with this conflict.
51. The Arbitration Act, 1940 has, by virtue of section 35 diluted the Doleman principle. It provides that no reference nor award shall be rendered invalid by reason only of the commencement of legal proceedings. But the reference becomes invalid upon a notice of such legal proceedings being served on the arbitrator-unless the Court has stayed the legal proceedings under section 34. Doleman principle has taken a back seat under other statutory provisions also. Under section 21 of the old Specific Relief Act, 1877, (i) if the parties have contracted to arbitrate no specific performance can be granted of such a contract. But (ii) if a party to a contract to arbitrate refuse to perform it, a suit on the subject matter is barred. With the coming into force of the Arbitration Act, 1899, the last of section 21 of the Specific Relief Act, 1877 which barred a suit was delted by section 3 of the Act. Instead section 19 of the Arbitration Act, 1899 gave the Court power to stay a suit in its discretion. These provisions were continued under clauses 18 and 22 of the Second Schedule to the Civil Procedure Code of 1908 as it originally stood. When the Arbitration Act, 1940 was enacted, sections 34 and 35 were introduced. Under section 14 of the current Specific Relief Act 1983, arbitration agreements which are not covered by the Arbitration Act, 1940 cannot be specifically enforced. But a party to such an arbitration agreement cannot file a suit in respect of the same subject matter. There can therefore, be no presumption that the principle in Doleman's case continues to apply in cases of arbitrations which are not governed by the Arbitration Act, 1940.
51-A. We have, therefore, not accepted the Doleman principle in toto. What is more important, Doleman principle was enunciated only in the context of local arbitrations which can be overridden by local Courts. It does not apply to foreign arbitrations. Section 3 of the Foreign Awards (recognition and Enforcement) Act clearly gives a go-bye to Doleman principle, by giving preference to arbitration over legal adjudication. Doleman principle, therefore, has no application here.
52. It is also pointed out by the respondents that the subject-matters of the suit and the reference were not identical. Renusagar tried to make the two identical by making an application before the Arbitrators on 23rd July 1985 to withdraw some of its counter-claims. The arbitrators however, did not allow Renusagar to withdraw these claims. In view of this lack of identity in the subject-matter, the arbitrators cannot become functus officio in any event. It is not necessary to examine this contention at any length since in any case, in our view, the arbitrators had not become functus officio.
53. The respondents have also urged that this contention ought to have been raised by Renusagar before the Supreme Court when it decided upon the stay of the Mirzapur suit. Before the Supreme Court decided the question, the award was already made. Had it been a nullity as contended by the appellants, they could have properly urged before the Supreme Court that there was no point in staying the suit. Such a submission is, therefore, now barred by the principles of constructive re-judicata. There is some substance in this contention also. We need not examine it at any length in view of our finding that the arbitrators were not functus officio in any event.
is the Award contrary to public policy?
54. Section 7 of the Foreign Awards (Recognition and Enforcement) Act, 1961 lays down conditions for enforcement of foreign awards. Under section 7(i)(b)(ii) 'A foreign award may not be enforced under this Act... ............(b) if the Court dealing with the case is satisfied that ........................... (ii) the enforcement of the award will be contrary to public policy.
55. In the present case Renusagar contends that the award is against public policy and hence it should not be enforced. Renusagar objects to the award on the ground that it grants interest on interest and awards heavy costs not entirely incurred in arbitration proceedings. Both these, according to it, are against public policy.
56. The portions of the award objected to, are :
(i) Regular interest whichWas wrongfully withheld. ...US $. 2,130,785,52.(2) Delinquent interest onlate payments ofinstalments of principalamount. ... US $. 467,076,20.
On both these amounts the arbitrators have granted compensatory damages for late payment at the annual rate of 8% compounded every year until payment.
57. Is the enforcement of these claims against public policy? According to Renusagar, granting these claims is contrary to law. Renusagar seeks the support of English Common Law as laid down in the case of The London, Chatham and Dover Railway Company v. The South Eastern Railway Company, reported in (1893) A.C. 429. It lays down that in the absence of any agreement or statutory provisions for the payment of interest, a Court cannot award interest by way of damages for late payment of a debt. So that if a debt has been paid, however late, the creditor cannot maintain an action merely for the recovery of interest.
58. It is not necessary to examine the intricacies of English law on the question of payment of interest. But the position under English law has been summed up by the House of Lords in the case of President of India v. La Pintada Cia Naveqacion SA, reported in 1984(2) All. E.R. 773. The House of Lords upheld the principle of common law laid down in The London, chatham and Dover Railway Co. case and overruled the decision of the Court of Appeal in the case of Techno-Impex v. Gabervan Weelde Scheepvartkantoor BV, reported in 1981(2) All. E.R. 669. Summarising the position under English law (at page 778) Lord Brandon said that four areas of the law have to be looked at : the area of the common law, the area of Admiralty law the area of equity and the area of statutory law. At common law, the House of Lords upheld the ruling in London, Chattam and Dover Railway Co. case. In the area of Admiralty law, it said that simple interest had, for more than a century, been awarded as a matter of course on damages recovered in a damage action. In the area of equity, it said that the Chancery Courts, differing from the common law Courts, had regularly awarded simple interest as ancillary relief in respect of equitable remedies. The Chancery Court had further regularly awarded not merely simple interest but also compound interest, when the interest of justice so demanded i.e. in cases where money had been obtained and retained by fraud, or where it had been withheld or misapplied by a trustee or any one else in a fiduciary position. In the area of statutory law it dealt with the provisions of the Law Refrom (Miscellaneous Provision) Act, 1934.
59. The Common Law of England, which lays down that an action for interest on late payment of debt cannot be maintained, has been severely criticised by the House of Lords itself in the above judgment and in a number of other previous judgments. Nonetheless, the House of Lords overruled the judgment of the Court of Appeal in Techno-Impex case where Lord Denning had held that an arbitrator was not bound by the common law principle laid down in London, Chattam and Dover Railway Co's case on the ground that the rule was merely a rule of practice and not a rule of common law. It is did not accept Techno-Impex decision that in Admiralty jurisdiction on a claim for interest for late payment of a debt or damages was sustainable. The intricacies of English Law need not detain us any further because Indian law is some what different as later discussed.
60. The more substantial objection of Renusagar relates to compensatory damages in the from of compound interest at 8% compounded annually, which is granted on both these claims of withheld interest. Renusagar contends that this award of interest on interest is contrary to the law in India. Hence it must be considered as against public policy and not be enforced. It is, therefore, necessary to examine the provisions of the interest Act, 1978 in this connection.
61. The interest Act, 1978 defines a 'Court' to include an arbitrator also. (See section 2(a)). Hence the Act applies to arbitrations in India. Under section 3 of the Interest Act, 1978 in any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the Court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making such claim as the case may be, at a rate not exceeding the current rate of interest. This section, therefore, contemplates 3 kinds of proceedings : (i) for the recovery of a debt, (ii) for damages and (iii) a proceeding in which a claim for interest in respect of any debt or damage already paid is made. On each of these to the person who is entitled to (i) the debt, (ii) damages or (iii) to person making claim for interest in respect of debt or damages already paid, as the case may be. Therefore, under section 3 of the interest Act it is clearly permissible to grant interest on a claim for interest for late payment of a debt or damages unlike the English common law.
62. Sub-section (3)(c) however lays down that nothing in this section shall empower the Court to award interest upon interest. This prohibition relates to interest which in awarded under section 3 of the interest Act i.e. interest which is awarded on the three categories of claim referred to in section 3 sub-section (1). Under the Indian law, therefore, interest can be awarded on a claim for interest for late payment of a debt. But under sub-section (3)(c) further interest on such interest or compound interest cannot be so awarded. This prohibition however is confined to interest which can be granted under section 3 of the interest Act.
63. Section 4 of the interest Act, on the other hand, expressly says that notwithstanding anything contained in section 3, interest shall be payable in all cases in which it is payable by virtue of any enactment or other rule of law or usage having the force of law. Under sub-section (2) without prejudice to the generality of these provisions the Court shall allow interest at such rate as the Court may consider reasonable in categories specified in sub-section (2). These include an obligation to pay money or restore any property which arises by virtue of a fiduciary relationship or the money or other property which is obtained or retained by fraud and some other similar cases. In all these cases the Court has a discretion to award either simple interest or compound interest at such rate as the Court may consider reasonable. The interest Act, 1978, therefore, does not prescribe any absolute prohibition against payment of compound interest. This prohibition is confined only to interest which is payable under section 3.
64. The 63rd Report on the Interest Act, 1839 as a result of which the Interest Act, 1978 was enacted says in Chapter VII that cases where on equitable consideration, interest was allowed, should be enacted in the interest Act e.g. where there is a fiduciary relationship interest should be allowed by a specific provision. Hence section 4 has been enacted.
65. The present arbitration proceedings, however, were governed neither by the English common Law, nor by the Indian Law. By an agreement between the parties it was the law of the State of New York which was applicable to the present arbitration proceedings. The arbitrators have relied upon the law of the State of New York for the purpose of awarding compensatory damages. The arbitrators in their award have said that sections 5001 and 5004 of the New York Civil Practice Law and Rules (C.P.L.R.) are applicable to arbitrators. Section 5001 provides that in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the Court's discretion. The arbitrators have held that the proceedings before them are of an equitable nature within the meaning of section 5001(a). They relied upon a decision in the case of Sprinzen v. Nomberq, 415 N.Y.S. 2nd 974, 977 where the New York Court of Appeals stated that 'An arbitrator's paramount responsibility is to reach an equitable result.' The arbitrator cited a number of cases of the New York Court of Appeal and came to the conclusion that the function of the arbitrates is find a just solution to the controversy between the parties. The arbitrators stressed the equitable character of the arbitrators function and held that in view of section 5001(a) they had a discretion to determine the rate of interest and the date from which it could be computed in awarding compensatory damages for the delay in payment of claims which were before them. They held that an equitable result required that the compensatory damage awarded should put the injured party in the same economic position so far as feasible, that it would have occupied had the contract been performed in accordance with its terms. They said that the best way of doing this was to see how GEC could have obtained from the market funds which were improperly withheld by Renusagar. The best way of determining this was to see how it could have obtained short term borrowings as per average prime rate of interest prevailing under the New York Banking system. This interest as per banking practice would have been compounded annually. Hence taking the average prime rate at 8% the arbitrators have awarded 8% interest on the claims granted by them compounded annually. The arbitrators have held that compounding is essential in computing compensatory damages because the claimant would have had to pay compound interest if it had replaced the improperly withheld funds by borrowings. The arbitrators have also observed that ordinarily interest would have been compounded under the current U.S. banking practice much more frequently than annually. But, since the claimant had no proposed that interest be compounded more frequently than annually, the award was restricted to annual compounding.
65-A. According to Dr. singhvi, there is no equity in favour of granting compound interest because regular interest was withheld on account of pending petition before the Delhi High Court. He also submits that G.E.C. could have got tax credit for this amount from the U.S. Government even though Renusagar did not deposit the withheld amount with the Indian tax authorities. Both these contentions are challenged by G.E.C. One thing is clear, Renusagar was not prevented by the Delhi high Court from paying the withheld interest to G.E.C. The withholding of interest, therefore, was unjust. Equitable considerations can, therefore, play a part in the granting of compound interest on this amount.
65-B. There was also no prohibition from the Reserve Bank of India either on payment of regular interest or on payment of interest for delayed payment of the principle amounts. Reserve Bank did not sanction only the rescheduling of payments. Dr. Singhvi's contention to the contrary cannot be accepted. Renusagar has no justification for withholding these amounts.
66. The arbitrators have examined at length in their award whether granting of compound interest in this manner is contrary to New York public policy. After considering several cases dealt with by the Courts in New York it has come to the conclusion that the awarding of such interest is not against the public policy of the State of New York. Our attention was drawn to a number of cases in the State of New York where the Court considered awarding of compound interest as contrary to public policy. At the same time, in a number of cases, such as where equitable considerations came into play, compound interest has been granted under the New York law. We were also shown cases relating to tax laws in the State of New York where interest was compounded daily 1. These cases need not detain us. Renusagar relies upon the opinion of Prof. Joseph N. Perillo of Fordhan University, New York and a member of the American and New York Bar Associations, in which he points out that a prohibition against imposing interest on interest or interest as damages for unpaid interest under the New York law is alive and well. He has said that granting such interest is against the public policy of New York. The arbitrators have, however, taken into account equitable considerations in making the award and have said that New York law and public policy do not come in the way of granting, out of equitable considerations, interest on interest or compensatory damages in the from of interest. We do not, however, have to decide this question. The arbitrators have taken into account the relevant law and the public Policy considerations in making the award. We are not sitting in appeal over it.
67. The question before us is whether enforcing such an award is contrary to our public policy. It is important to bear in mind that under section 7 of the Foreign Awards (Recognition and Enforcement) Act the enforcement of an award may be prohibited if the award is against public policy and not if the award is contrary to our laws. This is an important departure from the provisions of the Arbitration (Protocol and Convention) Act, 1937. The language of section 7 of the Arbitration (Protocol and Convention) Act, was somewhat different. Under section 7 of the Arbitration (Protocol and Convention) Act, 1937 in order that a foreign award may be enforceable, enforcement thereof must not be contrary to the public policy or the law of India. The last phrase 'the law of India' is omitted from the Foreign Awards (Recognition and Enforcement) Act, 1961. We have, therefore, to consider whether the awarding of compound interest on the claim granted by the award is contrary to our public policy; or rather, whether the enforcement of an award which grants compound interest can be considered as contrary to our public policy. Section 7(1)(b)(ii) refers to public policy of the country where the award is sought to be enforced and not to the public policy of the country whose law governs the arbitration proceedings. It is the Court where enforcement is sought which has to determine whether the enforcement of an award by that Court would be contrary to public policy.
68. Therefore, although the arbitrators have held that the awarding of compound interest in not contrary to public policy of the State of New York , what we have to consider is whether the enforcement of an award which grants compound interest is contrary to our public policy.
69. It is not enough to say that the award is contrary to our laws. A foreign award may be contrary to our laws. There is basic distinction between what is contrary to public policy and what is a contrary to our laws. Albert Jan van den Berg while commenting on this provisions of the New York Convention which is embodied in the Foreign Awards (Recognition and Enforcement) Act has said at page 360 of his book 'The New York Arbitration Convention of 1958 towards a Union Judicial Interpretation' as follows :
'In general, public policy is a traditional ground for the refusal of enforcement of foreign arbitral awards and foreign judgments, as well as for the refusal to apply a foreign law. A public policy provision can be found in almost every international convention or treaty relating to these matters. Its function is basically to be the guardian of the 'fundamental moral convictions or policies of the forum'. The reason why the concept of public policy is so difficult to grasp is that the degree of fundamentality of moral conviction or policy is conceived differently for every case in the various States.'
In Parsons and Whittemore Overseas Inc. v. RAKTA, reported in 508-F 2d 969 (1974) the United States Court of Appeals, Second Circuit, considered the public policy defence of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It said that enforcement of foreign arbitral awards may be denied on the basis of public policy only where enforcement would violate the forum State's most basic notions of morality and justice. While commenting on the difference in the language of Geneva Convention and New York Convention on this point, it observed that New York Convention language signifies a narrowing of the defence. The general pro enforcement bias informs the New York convention. Explaining the suppression of Geneva Convention, it points towards narrow reading of public policy defence. An expansive construction of this defence would vitiate the conventions's basis effort to remove pre-existing obstacles to enforcement. It said 'we conclude therefore that the convention's public policy defence should be construed narrowly. Enforcement of foreign arbitral awards may be denied on this basis only where enforcement would violate the forum State's most basis notions of morality and justice.
70. The Courts, however, will recognise only public policy as embodied in the Constitution, the laws and judicial decisions. There may be matters of public policy which are not embodied in laws of judicial decisions or the Constitution. The courts will not take cognisance of such matters. But what is contrary to law may not necessarily be contrary to public policy. It is only when a law embodies public policy that its violation will lead to an action which is contrary to public policy.
71. In the case of Murlidhar Agarwal v. State of Uttar Pradesh, reported in : 1SCR575 the Supreme Court considered the public policy aspect of the Rent Control legislation. The Supreme Court has observed (pg. 29) :
'The expression 'public policy' has an entirely different meaning from 'policy of the law' and one much more extensive................. It seems clear that the conception of public policy is not only now quite distinct from that of the policy of law but has in fact always been so except in some exceptional instances of confusion which have had no substantial effect on the general course of authority.x x x x x x'Public policy has been defined by Winfield as a principle of judicial legislation or interpretation founded on the current needs of the community.'
72. In the case of Gherulal Parakh v. Mahadeodas Maiye, reported in : AIR1959SC781 the Supreme Court considered whether a wagering contract is contrary to public policy. It held that 'the common law of England and that of India have never struck down contracts of wager on the ground of public policy; indeed they have always been held to be not illegal notwithstanding the fact that the statute declared them void' It said that there is no definite head or principle of public policy evolved by Courts or laid down by precedents which would directly apply to wagering contracts. Even if it is permissible for Courts to evolve a new head of public policy under extraordinary circumstances giving rise to incontestable harm to the society, wager is not one of such instances of exceptional gravity, for it has been recognised for centuries and has been tolerated by the public and the State alike. Applying the same principle to compound interest, one can say that granting of compound interest has been tolerated in several types of cases and the Courts have not evolved any public policy ground on which awarding of compound interest by the arbitrators can be invalidated. The Supreme Court in the above case observed at page 792.
'The doctrine, as Lord Atkin remarked in a leading case,' should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds.
x x x x x............'public policy' like any other branch of the Common Law, ought to be and I think is,, governed by the judicial use of precedents. If it is said that rules of public policy have to be moulded to suit new conditions of a changing world, that is true : but the same is true of the principles of the Common Law generally.'
In Halsbury's Laws of England, 3rd Edn. Vol. 8, pg. 130, it is said that---
'Any agreement which tends to be injurious to the public or against the public good is void as being contrary to public policy.... It seems however that this branch of the law will not be extended. The determination of what is contrary to the so-called policy of the law necessarily varies from time to time. Many transactions are upheld now which in a former generation would have been avoided as contrary to the supposed policy of the law. The rule remains, but its application varies with the principles which for the time being guide public opinion.'
73. In the present case, the awarding of compound interest by the arbitrators cannot be said to violate any public policy of this country. In the first place, there are several types of cases where even Court's award compound interest e.g. if there is an agreement between the parties to this effect. In fact, in all banking transactions which the Courts enforce the banks invariably charge on loans granted by them compound interest not merely with interest compounded annually but much more frequently such as every quarter. All these agreements are enforced by courts and these have not been held as void on account of being contrary to any public policy. Had there been any public policy prohibiting charging of compound interest, the parties could not have, by an agreement between them, opted out of a matter of public policy.
74. Secondly, the interest Act itself has laid down in section 4 a number of cases where the Court may in its discretion award compound interest. The prohibition of compound interest which is contained in section 3 is, therefore, not a rule of law which embodies any public policy nor does it protect any basic principles of morality or public welfare. Moreover, section 3 permits interest on a claim for interest when principal amount has already been paid, although belatedly.
75. It is true that in certain types of transactions we have enacted laws which control interest which can be charged e.g. interest which may be charged by money lenders is controlled by legislation. But such is not the present case. This is not a money lending transaction nor is it a transaction which can be dubbed as a usurious loan. This was a transaction between a vendor and a purchaser; and compound interest which is awarded is by way of compensation for the gross delay in payment of agreed interest. It is difficult to see how this kind of compensatory damages which have been awarded in equity to compensate the person for the long delay in payment of his just dues would be considered as contrary to our public policy. One can say that law has regulated compound interest and not prohibited it so that this matter is not in the domain of public policy. We need not go into a large number of decisions of this country as well as of the United States which have been cited by both the parties in order to illustrate various types of cases in which the Courts have either granted or not granted compound interest.
76. The only narrow point before us is whether the award is unenforceable and contrary to public policy because the arbitrators have awarded compound interest instead of simple interest on the claims put forward before the arbitrators. In our view, the enforcement of such an award would not be against public policy. The arbitrators have pointed out that they have, out of equitable consideration, awarded compound interest so as to put, as far as possible, the claimant in a position in which it would have been had the claimant received its claims on time.
77. Looked at slightly differently also, it the debtor in the present case did not have the use of money which he ought to have had, the debtor would have been required to borrow these monies from financial institutions. He would have had to pay compound interest at a much higher percentage than 8% which the arbitrators have awarded in order to obtain the benefits of using the money which has been wrongly with-held. If, therefore, the debtor is now required to pay compound interest on the monies wrongly withheld by him, this cannot be said to violate any norms of public policy. Because ultimately, whether any action or decision violates public policy or not will depend very much on the circumstances of each case. The law itself justifies awarding of compound interest in various circumstances out of equitable considerations. If the arbitrators have based their award on the same equitable considerations, it cannot be said that enforcement of such an award would be violative of our public policy. We do not have to see whether the award is in accordance with our law or not because the provisions of the Foreign Awards (Recognition and Enforcement) Act, 1961 in this behalf are different from the provisions of the previous Act viz the Arbitration (protocol and Covenant) Act. The question, therefore, whether the award is contrary to any of our laws or not is irrelevant. What is relevant is whether the enforcement of the award is contrary to our public policy. We do not see any reason for holding that the award is contrary to our public policy.
78. The appellants also contend that the costs of U.S. $ 15,498.99 which have been awarded by the arbitrators are unconscienable and therefore the enforcement of the award is contrary to public policy, Renusagar contends that this figure of costs includes the costs incurred by G.E.C. in prosecuting various proceedings in India. These costs, therefore, are not the costs of arbitration and hence the award should not be enforced. This submission of Renusagar is strongly contested by G.E.C. The arbitrators have themselves disallowed the costs claimed by G.E.C. in respect of proceedings taken in India in connection with the arbitration. The arbitrators have only allowed costs incurred in connection with the arbitration proceedings before them. G.E.C. had originally, however, submitted statements showing separately the costs incurred in India and the costs incurred before the arbitrators. It subsequently submitted revised statements of costs incurred in the arbitration proceedings. Renusagar alleges that the revised statement merely adds the costs incurred in India to the costs which were originally claimed as costs of the arbitration proceedings.
79. It is, however, the case of G.E.C. that on the question of arbitrability, G.E.S. had incurred costs of obtaining opinions and other material from various counsel. These costs were incurred in the arbitration proceedings because the question of arbitrability was first argued at length before the arbitrators. It was only thereafter that the same question was the subject matter of dispute before the Indian Courts. In this situation originally G.E.C. had divided the costs incurred half and half between the proceedings in India and the proceedings before the arbitrators. It subsequently revised its statement to show that these were all costs incurred in the arbitration proceedings because in fact, the entire question of arbitrability was argued at length before the arbitrators; and the arbitrators gave their decision on this point. The material which was gathered and the opinions which were obtained were as much a part of the arbitration proceedings as of litigation in India. They were, therefore, entitled to claim these costs in the arbitration proceedings G.E.C. has also submitted detailed billings in respect of costs so incurred. After looking into the documents submitted, the arbitrators have awarded the costs in question. The quantum of costs, therefore, is a matter which the arbitrators have decided on the basis of documents submitted before them. They have only awarded costs which have been incurred in the arbitration proceedings. There is, therefore, nothing objectionable about the costs so awarded. The arbitrators have themselves pointed out that by adopting dilatory tactics and taking various small technical objections Renusagar itself has prolonged the arbitration proceedings and thereby increased the costs which have been incurred in the arbitration proceedings. In these circumstances, it cannot be said that the award, because it grants heavy costs, is against public policy, when costs are based on the bills which were supplied by G.E.C. and are based on the actual costs incurred by the claimant in the arbitration proceedings. In these circumstances, in our view, the enforcement of this award is not against public policy. We agree with the learned Single Judge in this regard.
Whether the Awards is binding:
80. Under Section; 7(1) (a) (v) of the Foreign Awards (Recognition and Enforcement) Act, 1961 it is provided as follows:
7, Conditions for enforcement of foreign awards.---(1) A foreign award may not be enforced under this Act---
(a) if the party against whom it is sought to enforce the award proves to the Court dealing with the case that---
(i) xxx xxx xxx(ii) xxx xxx xxx(iii) xxx xxx xxx(iv) xxx xxx xxx
(v) the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made;
x x x x x x
The burden is on the party who wishes to prevent enforcement to prove (i) that the award is not binding or (ii) that it has been set aside or suspended by the Court of the country in which the award was made. Secondly pendency of an application for setting aside or suspension of an award in a Foreign Court (within whose jurisdiction the award was made) does not automatically result in a stay of enforcement of an award in our Court under the Foreign Awards (Recognition and Enforcement) Act, 1961. Our Court has a discretion in such a case whether to adjourn its decision or not. It may even ask the party opposing enforcement in such circumstances to furnish suitable security. In other words, under the scheme of section 7 the law is weighted in favour of enforcement of an award. It is the party opposing enforcement which must establish one of the grounds set out in section 7 of the Foreign Awards (Recognition and Enforcement) Act, 1961.
81. It is the contention of Renusagar that the award has not yet become binding on the parties. Hence it cannot be enforced. Since the award was made in Paris, we have to examine the provisions of the French law to ascertain whether the award is binding on the parties. The French law provides for a challenge to the award and applying for setting it aside. It is only after such proceedings are over that the award becomes final and enforceable or capable of execution under French law. Renusagar contends that until the award becomes capable of execution under French law, the award cannot be said to be binding on the parties.
82. This submission must be examined in the context of the Foreign Awards (Recognition and Enforcement) Act, 1961 and the previous history of legislation in this connection. Under Section 7 of the arbitration (Protocol and Convention) Act, 1937 which was a result of the Geneva Convention, in order that a Foreign Award may be enforceable, it must have become final in the country in which it was made. But when the New York Convention was adopted, this language was deliberately departed from. The words now used are that the award should have become binding on the parties.
83. This has been generally interpreted as meaning that the award becomes binding when no possibility exists for an appeal from the award either to a Court or to an arbitral tribunal. In contra-distinction, the award becomes final when all steps for setting aside the award have either been taken and rejected or the time has expired for having the award set aside. The award is then ready for enforcement. At this stage it becomes final and it can be executed in the country in which it has become final.
84. Albert Jan van den Berg in his book 'The New York Arbitration Convention of 1958- Towards a Uniform Judicial Interpretation' has explained this departure made by the New York Convention from the previous Geneva Convention. He says, 'Another improvement of the New York Conventions scheme for enforcement of an award is the elimination of the 'double exequatur'. Under the Geneva Convention the party seeking enforcement of an award had to prove that the award had become 'final', in the country in which it was made. In practice this could be proven only by producing an exequatur (leave for enforcement or the like) issued in the country in which the award was made. As the party had also to obtain a leave for enforcement in the country in which he sought enforcement, this amounted to the system of 'double exequatur.'......... The elimination of the 'double exequatur' is achieved in two ways. In the first place, the word 'final' is replaced by the word 'binding' inorder to indicate that it does not include the exequatur in the country of origin. (Art. V(1)(e) ......... .' According to the Summary Records, the Chairman of the Working party explained this as follows:
'......... The Working party agreed that the award should to be enforced if under the applicable arbitral rules it was still subject to an appeal which had a suspensive effect, but at the same time felt it would be unrealistic to delay the enforcement of an award until all the time limits provided for by the statues of limitations had expired or until all possible means of recourse, including those which normally did not have a suspensive effect, have been exhausted and the award had become 'final'.'
Albert Jan van den Berg points out (page 337) that it has been almost unanimously affirmed by various Court of various countries that by this change in the language 'double exequatur' has been abolished. He gave the instance of a French Court which rejected an objection by the French respondent to an award made in federal Republic of Germany on the ground that no leave for enforcement had been issued by a German Court. The French Court held that as the convention has done away with the system of 'double exequatur' it does not require a leave for enforcement from the country in which the award was made. Similarly, the Italian Supreme Court overruled the objection of the Italian respondent to the enforcement of an award made in the United States on the ground that the United States Court should have entered judgement upon the award. For the same reason a Mexican Court been brushed aside the defence of the Mexican respondent that the award, which was made in France should have been declared enforceable in France by means of an exequatur. The last case dealt with the question whether an award which was made in France should be declared as executable or enforceable in France by means of exequatur. The Mexican Court rejected this contention on the ground that 'double exequatur' had been abolished.
85. In Dicey and Morris, 'The Conflict of Laws' 11th ed. at P. 586 it is stated as follows:
'......The Private International Law Committee in their Fifth Report suggest that an award is 'binding' if no further recourse may be had to another arbitral tribunal (e.g. an appeal tribunals); and that the fact that recourse may be had to a Court of law does not prevent the award from being 'binding' . One thing seems clear: the Conference which approved the New York Convention wished to avoid a double exequatur of arbitration awards, one in the country where award was made and the other in the country where it is sought to be enforced.'
86. Rene David in 'Arbitration in International Trade' has made the following observations:
'......In order to clarify the two changes which they wanted to make in the system of Geneva, the drafters of the New York Convention in Art. V. paragraph 1(e) used the word 'binding' instead of the word 'final' which was used in the Geneva Convention. The idea underlying this change is that an award is binding as soon as it has been rendered; it is only 'final' when no further possibility exists for appeal left to a Court for the award to be set aside.
xx xx xx xx xx...The award will not be regarded as binding, if there is a possibility of bringing the dispute to an appeal arbitration tribunal, or if there is a conditional award, condemning one party to pay a sum of money to the other unless he performs certain duties within a particular period. Another case where the award is not binding is constituted by a practice followed in some countries of Latin America, where an option is given to a party either to execute the award or to pay a penalty stipulated in the arbitration agreement. ......'
87. Is the present award binding on the parties under French Law? Both G.E.C. and Renusagar have relied upon the opinion of French legal experts. G.E.C. has relied upon an opinion of Fernand Charles Jeantet, a member of the Paris Bar, Doctor of Law and, inter alia, a member of the Board of Directors of the Association Francaise de 1' Arbitrage. He has relied upon article 1476 of the French Code of Civil Procedure, which says that 'The award has, as of the moment it is rendered, res judicata effect with respect to the dispute which it decides.' Articles 1500 of the French Code of Civil Procedure applies to the provisions of Art. 1476 to award made in International arbitrations. He has also relied upon the arbitration rules of the International Chamber of Commerce Court of Arbitration under which the arbitration shall be final so that no other arbitral procedure is necessary to insure finalty. He has said that the award is binding at this stage under the New York Convention of 1958 and no further stay is required to be taken by G.E.S. in France in order to permit it to seek enforcement of the award in any the country that is a signatory to the Convention.
88. Renusagar, on the other hand, relies upon the opinion of Christopher R. Seppala of Law Office of S.G. Archibald, Paris. The questions which were asked to Seppala, however, are not based either upon the provisions of the New York Convention or section 7 of the Foreign Award (Recognition and Enforcement) Act, 1961. Questions have been posed to Seppala on the basis of Rule 801 of the Rules and Forms of the High Court of Judicature at Bombay. Original Side, to which we will shortly refer. Under these rules one of the requirements is that the award should have become final. The question therefore which Seppala answered is : Whether the award has become final in the country in which it was made i.e. in France. In view of this question he has said that in his opinion the arbitral award has become final in France so long as it is still open to challenge before the France Court. In this connection he relies upon the provisions of the French Civil Procedure Code which deal with the order of exequatur of enforcement of an international award. Under article 1477 an arbitral award may be forcibly executed only by virtue of an order of exequatur by the Tribunal de Grande Instance. He refers to the subsequent articles under which a decision granting enforcement of an award is subject to appeal in certain circumstances. Article 1501 provides that an arbitral award rendered in France in matters of international arbitration can be challenged by an action to annul the award on the basis of the ground provided for in article 1502. These are all provisions which deal with the right to enforce an international award in France. In view of the question which was posed to him Seppala has opined that the award has not become final because enforcement proceedings in the Courts of France have not taken place. He was not required to answer the question whether the award is binding as between the parties. Hence he has observed that article 1476 does not make the award enforceable in France: nor does it prevent the award from being subject to an action for annulment before the French Court. He, therefore rightly says that article 476 has no bearing on the question whether the award has become final. Seppala was thus not called upon to opine whether the award is binding between the parties or not.
89. Renusagar has produced a second opinion from him before us at the stage of appeal (which has been taken on record with the consent of both the sides). The second opinion also does not carry the matter any further because once again wrong questions have been put to Seppala. Question (a) which is put to him is : 'What is the correct view in respect of the award as filed by G.E.C. in the proceedings before the Bombay High Court regarding its finality? and question (c) is : 'Whether an enforcement order is required under Article 1498 of the N.C.P.C. in France if, and only if, the Award is sought to be enforced in France and not otherwise?' He is not asked whether an enforcement order is necessary to make the award binding on the parties.
90. On question (a), since he has been asked to opine whether the award has become final, he has reaffirmed his earlier opinion. On questions (c), he has said that while an enforcement order is required under Article 1498 of the N.C.P.C. in order for an international arbitration award, such as this Award, to be enforced in France, it is not necessary for this purpose only. For example, if it were necessary in order for an award to be enforceable in a foreign country that it should previously have become final in France, it would be necessary first to have obtained an enforcement order under article 1498.
91. These experts opinions, therefore, also support the authors earlier cited regarding the distinction between an award which is binding and an award which is final. Since the Foreign Awards (Recognition and Enforcement) Act does not require an award to have become final in the country in which it was made, obtaining an enforcement order in France is not necessary. It is not necessary for G.E.C. to obtain an order of enforcement or 'exequatur' from the French Court before filing a petition here. Under the French Law the award has the effect of 're judicata' with respect to the dispute it decides. It is binding as between Renusagar and G.E.C. as it is.
92. Renusagar relied upon a decision of the Supreme Court in the case of Badat and Co. v. East India Co., reported in A.I.R. 1963 S.C. 538. In that case the parties had agreed to an arbitration in New York. The award was made in New York and the judgment was pronounced in terms of the award by the Supreme Court of New York. The plaintiff brought an action to enforce this judgment in the Bombay High Court. Since the Arbitration (Protocol and Convention) Act was not applicable to the award, the Court held that the common law of England would apply to such a foreign judgment and to such an award. One of the questions which the Court considered in this context was whether the award had become final in the country in which it was made. Under the laws of the New York State an award had no finality until the entire procedure relating to setting aside of an award had been gone through and a judgment had been obtained in terms of the award. The Court said (p. 558) 'From all these provisions it would be abundantly clear that the award has no finality till the entire procedure is gone through and that the award as such can never be enforced. What is enforceable is the judgment.' The Supreme Court held that it is this judgment which can now furnish a cause of action to the plaintiffs and not the awards themselves. This judgment has no relevance to the present case at all. It does not deal with the question when an award becomes binding between the parties.
93. The next judgment relied upon is the case of Oil and Natural Gas Commission v. Western Company of North America, reported in : 1SCR1024 . In that case the parties had agreed that the arbitration would be governed by the Indian Arbitration Act and the laws of India. The arbitration took place in London and the award was declared by the Umpire which was filed in the Bombay High Court. The defendant lodged a plaint in the U.S. District Court, inter alia, seeking an order confirming the two awards and a judgment against the ONGC. The ONGC instituted an arbitration petition in the Bombay High Court for setting aside the award and prayed for an interim order restraining the Western Company from proceedings further in the U.S. Court. Interim order was not granted and hence the matter went up to the Supreme Court by Special Leave. The Supreme Court has in this connection expressly observed that they are not concerned with the question as to how an arbitral award which is not a domestic award in India can be enforced in a Court in India in the context of the Indian legislation enacted in that behalf namely the Foreign Awards (Recognition and Enforcement) Act, 1981 (See paragraph 5 at pg. 678). It said in paragraph 15; '......It appears unnecessary to examine the meaning and context of the relevant articles of the New York Convention for the purpose of the present appeal. All the same we will briefly indicate the questions which were debated in the context of the Convention since considerable debate has centred around the interpretation and scope of some of the articles of the Convention.'
94. On the controversy as to the distinction between the word 'binding' under the New York Convention as against the word 'final' in the Geneva Convention, the Supreme Court has observed at page 684 : 'We however consider that it is desirable to bring into focus certain aspects of the matter in the context of the debate on this point.' It refers to Article V(1)(e) of the New York Convention and observes that the expression not yet become binding on the parties' postulates that the Convention has visualised an award which becomes binding at a point of time later than the making of the award; and has quoted the views expressed by Albert Jan Van den Berg in his treatise. The New York Arbitration Convention of 1958---Towards a Uniform Judicial Interpretation.' The Supreme Court has observed that the Judicial interpretation seems to be that this question---'Whether an award has become binding or not'---is to be determined under the law applicable to the award and this law is the law of the country in which or under the law of which that award was made. It has quoted a decision of the Court of Appeal of Naples where the Italian respondent had resisted the request for enforcement of an award made in London alleging that the award should have been declared enforceable in England. The Court rejected the defend and held that the leave for enforcement is not necessary in order to confer binding force upon the award. It also cites another example of the Court of First instance of Strasbourg before which the French respondent had asserted that the enforcement of an award made in Federal Republic of Germany could not be granted because a leave for enforcement had not been issued by a German Court. While observing that the Convention has abolished the 'double exequatur', the Court reasoned that the award had become binding when it had been deposited with the German Court. Similarly the Supreme Court cited the observations of the Swiss Court that 'binding' should be understood as ready for enforcement' and not as 'enforced'. It concluded that enforceability must be determined as per as the law applicable to the award. The French, German and Italian Courts have taken the view that enforceability as per the law of the Country which governs the award is an essential pre-condition for asserting that it has become binding under Art. V(1)(e). We must remember that the Supreme Court clearly stated that it was not called upon to examine the provisions of the New York Convention or the Foreign Awards (Recognition and Enforcement) Act, 1961. It has also not made any obiter findings on this question. It has merely referred to the Trusties of Albert Jan van den Berg and has summarised his comments in the from of propositions. Even these propositions as summarised by the Supreme Court do not in any way help Renusagar because they do not lay down that an exequatur should have been obtained from the Court of the country where the award is made before it can be enforced under the Foreign Awards (Recognition and Enforcement) Act, 1961 in India. In our view, the award has become binding as per French law.
95. The appellants Renusagar, however, rely upon the Rules framed by the Bombay High Court under the Foreign Awards (recognition and Enforcement) Act, 1961. Under Rule 801, the party seeking to enforce a foreign award shall produce with his petition, inter alia, an affidavit or affidavits showing that 'it had become final in the country in which it was made'. Sub-clause (4) of Rule 801(c) requires an affidavit to show that the award has become final in the country in which it was made. As pointed out by the learned Single Judge, this part of the Rule seems to be merely a reiteration of the earlier Rules which were framed by the High Court under the Arbitration (Protocol and Convention) Act, 1937 without noticing the difference in the language used under the Foreign Awards (Recognition and Enforcement Act, 1961. The Rule cannot go beyond the Act under which it has been framed. When the Act requires only that the award should be binding as between the parties, the Rules cannot prescribe something more namely that the award should also have become final. The word 'final' therefore which is used in Rule 801(c) must be read down so as to bring it in harmony with the Act under which it is framed. The term 'final' therefore must be construed in this context in the limited sense of 'binding' and nothing more. By virtue of Rule 801(c)(4) the provisions of the previous Arbitration (Protocol and Convention) Act, 1937 cannot be imported into the Foreign Awards (Recognition and Enforcement) Act, 1961.
96. In the premises, we have no difficulty in holding that the award is binding as between the parties and is capable of being enforced.
97. It is next submitted by Dr. Singhvi, learned Counsel for the appellants, that when the petition was filed before the learned Single Judge a duly authenticated copy of the original award was not filed in Court as per section 8 of the Foreign Award (Recognition and Enforcement) Act, 1961. He, therefore, submits that the entire proceeding is bad in law and should be set aside. Section 8 of the said Act provides as follows :
8. Evidence (1) The Party applying for the enforcement of foreign award shall, at the time of the application, produce-
(a) the original a ward or a copy there of, duty authenticated in the manner required by the law of the country in which it was made;
xxx xxx xxx
In addition, under the Rules framed by the Bombay high Court pursuant to powers so given under section 11 of the Foreign Awards (Recognition and Enforcement) Act, 1961 there are following provisions in this connection :
Rule 801. The party seeking to enforce a foreign award shall produce with his petition :
(a) the document specified in section 8(1) of the Act, and where such document is in a foreign language, a translation thereof into English certified in the manner prescribed in sub section (2) of the said section 8;
xxx xxx xxx
Rule 802. If the application under section 5 of the Act be presented without the document specified in Rule 801(a), it shall forthwith be returned to the party presenting it. If such application is not accompanied by the documents specified in Rule 801(b) and (c) the Judge may allow, time to file such documents.
In view of these Rules it is urged by the appellants that since the original application under section 5 of the said Act was not accompanied by a duly authenticated copy of the original award, the application must be now returned to the party presenting it and the learned Judge erred in going ahead with the said application.
98. It is not dispute that the original petition was accompanied by xerox copy of the original award certified to be a true copy by the International Chamber of Commerce. It is also not in dispute that the copy of the award so annexed is a true copy of the original award. This copy however was not duly authenticated as required by the law of the country in which it was made. Such a duly authenticated copy countersigned by officials of France and India was filed only on 19th October, 1988 but before the judgment was delivered by the learned Single Judge.
99. It was urged by Dr. Singhvi that in view of Rule 802 of the Bombay High Court Rules, Original Side, if the application is presented without a duly authenticated copy of the award as required by section 8(1)(a), the Single Judge was bound to return the application to the party presenting it. He has relied upon an unreported judgment of Lentin J., dated 16th June, 1976 in the case of European Grain and Shipping Ltd. v. Indo Univarsal Corporation, in Arbitration Petition No. 8 of 1968 in support of his contention. In the present case, however, the application was not presented without a copy of the original award. The only question was whether it was an authenticated copy required under law. This irregularity was cured by subsequently filing a duly authenticated copy. Therefore, this is not a case where the application was made without the original award or the copy of the Award at all. Secondly, there is no doubt or dispute that the copy which was annexed was a correct copy of the original award. In these circumstances, we do not see any reason why on this technically the judgment and order of the learned Judge should be disturbed. In fact, under section 99 of the Code of Civil Procedure, no decree shall be reversed or substantially varied, inter alia, on account of any error, defect or irregularity in any proceedings not affecting the merits of the case or the jurisdiction of the Court. In these circumstances, we do not see any reason why we should intervene on account of this technical objection.
100. It is next submitted by the appellants that this Court has no jurisdiction to pass a decree in terms of the award. Under section 5 of the Foreign Awards (Recognition and Enforcement) Act, 1961 any person interested in a foreign award may apply to any Court having jurisdiction over the subject matter of the award that the award be filed in Court. The learned Single Judge has held that this Court has jurisdiction over the subject-matter of the present award. He has pointed, out that the earlier proceeding in this very arbitration, which was filed by Renusagar itself, was filed in this Court. There is no reason why this Court cannot be said to have jurisdiction over the subject-matter of the award. This finding is challenged in appeal before us.
101. Now, under section 21 of the Code of Civil Procedure no objection as to the place of using shall be allowed by any Appellate Court unless as a result, there has been a failure of justice. Therefore, unless there has been a consequest faiure of justice, we do not see why we should set aside the decree passed by the learned Single Judge on the ground that he had no territorial jurisdiction.
102. The appellants contend that section 21 of the Code of Civil Procedure cannot apply in the present case because the Code of Civil Procedure does not apply to proceedings on the Original Side of the High Court. This argument has to be stated to be rejected. Under section 120 of the Code of Civil Procedure only sections 16, 17 and 20 of the Code of Civil Procedure do not apply to the High Court in the exercise of its original jurisdiction. The territorial and pecuniary jurisdiction of the High Court on the Original Side is governed by the express provisions of the Letters Patent. Section 21 is, therefore, applicable.
103. The respondents then contend that proceedings under the Foreign Awards (Recognition and Enforcement) Act, 1961 are not governed by the Code of Civil Procedure. Once again this argument must be rejected outright. Under section 5 of the Foreign Awards (Recognition and Enforcement) Act, 1961 the award has to be filed in any Court having jurisdiction over the subject-matter of the award. The Civil Court where such an award is filed has to function having regard to the provisions of the Code of Civil Procedure. There is nothing in the Foreign Awards (Recognition and Enforcement) Act, 1961 which says that any provision of the Code of Civil Procedure shall not apply to such proceedings. This is a civil proceeding like any other civil proceeding and it must be governed by the provisions of the Code of Civil Procedure unless such provisions are expressly excluded or excluded by implication under the Foreign Awards (Recognition and Enforcement) Act, 1961. Section 141 of the Code of Civil Procedure lays down that the procedure provided in the Code of Civil Procedure in regard to suits shall be followed, as far as it can be made applicable, in all proceedings in any Court of Civil jurisdiction. Section 21, therefore, applies to the present proceedings.
104. In the case of Kiran Singh and others v. Chaman Paswan and others, reported in : 1SCR117 the Supreme Court explained the principle underlying section 21 of the Code of Civil Procedure with reference to objections relating to territorial jurisdiction. It said that the policy is that when a case had been tried by a Court on the merits and judgment rendered, it should not be liable to be reversed purely on technical grounds unless it had resulted in failure of justice. The policy of the legislature has been to treat objections to jurisdiction both territorial and pecuniary as technical and not open to consideration by an appellate Court unless there has been a prejudice on the merits.
105. Similarly in the case of Hiralal v. Kali Nath, reported in : 2SCR747 the Supreme Court has said that it is well settled that the objection as to territorial jurisdiction of a Court does not stand on the same footing as an objection to the competence of a Court to try a case. The competence of a Court to try a case goes to the root of the jurisdiction and where it is lacking, it is a case of inherent lack of jurisdiction. On the other hand, an objection as to local jurisdiction of a Court cannot be considered as going to the root of jurisdiction and this principle has been given a statutory recognition, inter alia, by reason of section 21.
106. In the case of Koopilan Uneen's daughter Pathumma and others v. Koopilan Uneen's Son Kuntalan Kutty, reported in : 1SCR183 the Supreme Court once again considered section 21, sub-section (1) of the Code of Civil Procedure. It held that it is necessary that there should be a failure of justice on account of the place of suing having been wrongly selected before an Appellate Court will intervene on the ground of the trial Court's lack territorial jurisdiction. In the present case, there has been no failure of justice as a result of the suit having been filed in this Court. No prejudice has been caused to Renusagar as a result of it. In fact, Renusagar had itself chosen to file the earlier proceedings in respect of this very arbitration in this Court. In view of section 21, therefore, we do not see why we should interfere with the decree passed by the trial Judge on the ground of his alleged lack of territorial jurisdiction.
107. Under section 5 of the Foreign Awards (Recognition and Enforcement) Act, 1961 the Court having jurisdiction over the subject-matter of the award is the Court where the award has to be filed. It is contended by Dr. Singhvi, learned Counsel for Renusagar, that the subject-matter of the award is only the quantum of money which is awarded. According to him, the rest of the award has to be ignored. He submits that the place where this money is physically located, is the place which is relevant for jurisdiction. The Court having jurisdiction over that place is the Court where the award has to be filed. Dr. Singhvi relies upon the following authorities in support of his contention that the Court having jurisdiction is the Court where the money is physically located.
108. In the case of Mohesh Chandra Kundu v. Amar Chand Kundu, reported in A.I.R. 1914 Cal. 683 the Court held that in order to decide, the pecuniary jurisdiction of the Court one his to look at the amount which is awarded and not to the amount which was the subject-matter of the claim before the arbitrator. This authority has no application. In the case of Raja Setrucharlu v. Maharaja of Jeypore and others, reported in A.I.R. 1919 P.C. 150 there was an order for sale of certain lands under the provisions of the Code of Civil Procedure. The Privy Council held that some of these lands were situate in a territory to which the Code of Civil Procedure did not extend. Hence the order pertaining to the sale of these lands was a nullity for want of jurisdiction. Once again this case has no application here.
109. In Ramlal v. Kisanchandra, reported in A.I.R. 1924 P.C. 95 the award pertained to some immoveable property in Berar and other immoveable properties which were outside British India within the dominion of the Nizam. A large part of the award related to the disputes relating to properties within the Nizam's dominion. The Court said that the Berar Court did not have jurisdiction especially when there was no dispute concerning the properties which were within Berar while a substantial part of the dispute related to properties outside British India over which the Courts in Berar had no jurisdiction. It is difficult to see how this authority helps the appellants in any manner.
110. The same is the case is Murti Mal v. Sant Ram, reported in A.I.R. 1929 Lah 24 where the award related to immoveable properties situate outside British India. It was held that the award cannot be filed in British India.
111. The case of Bupendra Nath v. B. Het Lal, reported in : AIR1933All380 and the case of V.N. Krisha Iyer v. V.N. Subbarama Iyer, reported in A.I.R. 1932 Mad 462, both relate to the Code of Civil Procedure, 1908, Schedule 2, para 20. In both the cases the awards dealt with immoveable properties. The Court said that the award relating to immoveable properties can be filed under para 20 Schedule 2 only before the Court which has jurisdiction over the whole of the subject-matter of the award. If the immoveable property is only partly within the jurisdiction of the Court and partly outside, then, the Court would have no jurisdiction to take the award on file under para 20, Schedule 2. These cases have also no application here.
112. Dr. Singhvi relied upon an observation in the case of Messrs Lochman Das Sat Lal and another v. Permeshri Dass and another, reported in where the Punjab High Court, in dealing with a foreign award, observed that the provisions of sections 14 and 1(4) of the Arbitration Act, 1940 and section 20 of the Code of Civil Procedure have no application to foreign awards. It held that in the absence of any statutory provision, one must fail back upon the general law for enforcement of foreign awards. It is difficult to see how this observation can assist in any manner.
113. Under Clause 12 of the Letters Patent, when the claim is for moveables jurisdiction lies in the Court of the place where a material part of the cause of action arose or where the defendant raises or carries on business. There is no question of ascertaining the physical location of money in the case of a money claim.
114. Under section 5 of the Foreign Awards (Recognition and Enforcement) Act, 1961 the Court having jurisdiction over the subject matter of the award has jurisdiction to take the award on file. The subject matter of the award in not merely the quantum of money. In the present case it is a reasoned award where the amounts awarded and the heads under which the amounts have been awarded and reasons for the award are clearly laid down. The entire award has to be looked at in order to decide what the subject matter of the award is. The Court having jurisdiction over the subject-matter is the Court where the award has to be filed. In the present case, the petitioners G.E.C. have averred that a substantial part of the cause of action has arisen in Bombay because considerable correspondence pertaining to the disputes between the parties has been exchanged by a Renusagar from Bombay. Tax deduction certificates have also been sent by Renusagar from Bombay. They also allege that Renusagar carried on business in Bombay at the material time because its letter-head clearly showed that it has an office at Bombay. It also had a bank account in Bombay. Hence this Hon'ble Court has jurisdiction.
115. Renusagar have disputed some of these contentions. According to them, the bank account was closed during the pendency of the present petition. They also say that they had only a small office in Bombay. Whatever it may be, looking to the correspondence and the letter-head of Renusagar, they did carry on business in Bombay. It does seem as if the correspondence in which disputes are raised relating to the subject-matter of the claim before the arbitrators has been addressed by Renusagar from Bombay. This Court would, therefore, have territorial jurisdiction. But we need not examine this aspect further in view of section 21 of the Code of Civil Procedure. In our view, therefore, this Court has jurisdiction to entertain the award and pass a decree in terms of it.
116. In the premises, we agree with the findings of the learned Single Judge. The appeal is, therefore, dismissed with costs.
117. The learned Single Judge while pronouncing judgment and decree in terms of the Award has not specified the rate of exchange for conversion of the decretal amount which is in terms of U.S. Dollars to Indian rupees. Our attention was drawn to a judgment of the Supreme Court in the case of Forasol v. Oil and Natural Gas Commission, reported in : 1SCR526 . The Supreme Court in that case considered the various dates on which a decretal amount in terms of Foreign Currency can be converted into Indian rupees as per the prevailing rate of conversion. The Supreme Court confirmed that the date of the decree was the date of such conversion from a foreign currency into Indian rupees. The Supreme Court has observed that of the various dates considered by it, it would be fair to both the parties to take the date of the passing of the judgment and decree as the date for fixing the rate of exchange. In the event of the decree being challenged in appeal, the appellate Court should follows the same procedure as the trial Court for the purpose of ascertaining the rate of exchange prevailing on the date of the appellate decree.
118. In the present case, however, we have held that the appeal is not maintainable. There was also no stay of the execution granted pending appeal although it seems that the parties had agreed that the decree would not be executed for some period. In our view, looking to the circumstances of the present case, the date on which the decretal amount can be converted into Indian rupees is the date of which the learned Single Judge completed pronouncing his judgment, that is to say, 21st October, 1988.
119. We, therefore, direct that the date of conversion of the decretal amount which is in U.S. dollar's shall be the opening selling rate of U.S. dollars as on 21st October, 1988 as ascertained by the State Bank of India. The rate of exchange will be the rate of exchange for foreign currency.
120. Decree to be drawn up accordingly.
121. On the application of the appellants, a Certificate is granted for appeal to the Supreme Court under Article 134-A read with Article 133 since in our view the case involves substantial questions of law of general importance which need to be decided by the Supreme Court.
122. Mr. Singhvi does not press for stay of the operation of the order of this Court since he desires to move the Supreme Court.
123. Decree and Certificates to be drawn up expeditiously.
Appeal No. 681 of 1989 from Order in Chamber summons No. 1010 of 1988 in Arbitration Petition No. 159/86, decided on 12 October, 1989.
During the hearing of oral arguments in Appeal No. 680 of 1989 in Arbitration Petition No. 159 of 1986 Renusagar took out a Chamber Summons being Chamber Summons No. 1010 of 1988 praying that the entire record relating to the arbitration proceedings before the international Chamber of Commerce and all inquiries held by the International Chamber of Commerce pertaining to the arbitration should be produced here. It also prayed for the issue of a commission for the examination of Mr. Christopher R. Seppala, Mr. S.G. Archibold and Prof. Perillo.
The learned Single Judge has given cogent reasons for disallowing the Chamber Summons. He has rightly held that production of entire record is not necessary nor is it necessary to examine the exports on commission. We respectfully agree with his findings which are recorded in paragraph 48 of the main judgment in Appeal No. 680 of 1981.
This appeal is, therefore, dismissed with costs.