NOY VALLESINA ENGINEERING SpA, (NOW KNOWN AS NOY AMBIENTE S.P.A.) v. JINDAL DRUGS LIMITED & Ors.

From the Judgment and Order dated 28.04.2008 of the High Court of Bombay in Appeal No. 519 of 2002. A B C D E F G H 1022 SUPREME COURT REPORTS [2020] 12 S.C.R. A B C D E F G H Jayadeep Gupta, Sr.Adv. L.K. Bhushan, Anirudh Arun kumar, G.C.Shyam Sundar, M/S. Dua Associates, M/s D.S.K. Legal, Advs. for the appearing parties. The Judgment of the Court was delivered by S. RAVINDRA BHAT, J.

#1. The appellant, which was granted special leave, challenges a judgment of the Bombay High Court1. It urges that the impugned judgment is erroneous because it concludes that proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter “the Act”) can be maintained to challenge a foreign award, defined as one, under that enactment. The facts

#2. The appellant company (hereafter “NV Engineering” or “the appellant”) was at the relevant time, incorporated under Italian law and involved in the setting-up and construction of plants for production of synthetic fibers, polymers and ascorbic acid. The respondent (hereafter “Jindal”) is a public limited company incorporated under relevant Indian law. In 1994, Jindal negotiated with a company - Engineering Chur AG of Sagenstrasse 97, 7001 Chur, Switzerland (hereafter,‘Enco’) and, on 30.01.1995 entered into four related agreements with Enco to set up an ascorbic acid plant in India. These were: (i) Engineering Contract for Ascorbic for Acid Plant (ECAAP, or “plant contract”); (ii) Supply contract for Ascorbic Acid plant (SCAAP or “supply contract”); (iii) Service agreement for Ascorbic Acid plant (SAAAP “service contract”); and (iv) License agreement for Ascorbic acid plant (LAAAP “license contract”).

#3. Under the plant contract, Enco agreed to provide Jindal with technical information and basic engineering documentation for the construction, commission, operation and maintenance of the Ascorbic Acid Plant (“the plant”). In consideration of Enco’s obligations, Jindal was to pay a total fee of Swiss Francs 86,00,000/- in the manner provided in the Agreement. ECAAP as well as the other three agreements had an arbitration clause. In March 1995, with the consent of the respondent, Enco assigned ECAAP to NV Engineering. All the obligations of Enco towards Jindal were taken over by NV Engineering. 1 Dated 28.4.2008 in Appeal No. 519/2002 NOY VALLESINA ENGINEERING SPA, (NOW KNOWN AS NOY AMBIENTE S.P.A.) v. JINDAL DRUGS LIMITED [S. RAVINDRA BHAT, J.] 1023

#4. Disputes arose between Jindal and NV Engineering. The latter terminated the agreement and claimed damages. On 31.10.1996, Jindal filed a request for arbitration under the ECAAP, i.e. the plant contract, before the International Court of Arbitration (ICC), Paris. The appellant filed its reply to Jindal’s claim and also made a counter claim. Jindal appointed Mr. Desai as its nominee on the arbitral tribunal. NV Engineering nominated Prof. ACC Alberto Santa Maria as its nominee. The appointment of Mr. Desai and Prof. ACC Alberto Santa Maria as Arbitrators was confirmed by the ICC. Mr. Richard Fernyhough Q.C. was appointed as Chairman of the Arbitral Tribunal.

#5. After considering the claims and counter claims, the tribunal made a partial award on 01.02.2000; by that award, Jindal’s claims were rejected. NV Engineering was awarded SFr.44,33,416 (Swiss Francs) towards its counterclaims under the ECAAP. The tribunal then called upon the parties to present written representations on interest and costs in terms of Article 20 of the ICC Rules of Arbitration to enable it to frame the final award.

#6. On 20.2.2000 Jindal filed a petition2 before the Bombay High Court under Section 34 of the Act challenging the partial award. The petition was admitted for final hearing on 01.03.2000 and notice was issued to the respondents (including the ICC and the tribunal). An interim injunction restraining the said respondents “from receiving any further submissions, and/or passing any further direction and/or Ruling and/or Award in the arbitration proceedings….” was issued. This order was continued from time to time till the petition was decided. The ICC tribunal in the meanwhile was of the view that the interim order passed by the high court was not binding on it and consequently, proceeded further. NV Engineering filed written submissions on interest and cost on 14.03.2001. Jindal, however, notified the tribunal that it did not intend to make any submission on the issue of interest and cost. Mr. Desai (the respondent’s nominee) indicated that he was unable to continue on the tribunal due to the interim order passed by the court. Resultantly the ICC appointed Mr. Ashok Sancheti as a replacement co-arbitrator in place of Mr. Desai, and the tribunal made its final Award on 22.10.2001. When the final award was made, Jindal’s challenge to the partial award, and the interim application3 were both pending in the High Court. 2 Arbitration petition No. 49/2000. 3 No. 98/2000, under Section 9 of the Act. A B C D E F G H 1024 SUPREME COURT REPORTS [2020] 12 S.C.R. A B C D E F G H

#7. The petition (under Section 34) challenging the partial award was decided by the High Court by an order of a Single Judge dated 6.2.20024, which held that the since the partial award was a foreign award, a challenge through a petition was not maintainable under Section 34 of the Act. Jindal preferred an appeal against that order before the Division Bench5 (hereafter “Jindal’s challenge appeal”). During the pendency of the appeal, NV Engineering had applied for enforcement of the two awards, i.e. the partial and final awards, under Sections 47 and 48 of the Act, in the chapter relating to foreign awards. This petition was allowed and Jindal’s objections against the two awards’ enforceability were overruled. The single judge who decided the petition held, in a judgment (hereafter referred to as “the enforcement order”)6 that the two awards “at Exh. A & B are enforceable, save and except that part of the award at Exh. A which directs payment of Swiss Fr.1,453,316” by Jindal to NV Engineering. Jindal preferred an appeal (hereafter “Jindal’s enforcement appeal”) and NV Engineering filed a cross appeal7.

#8. By the impugned judgment, even as the later two appeals, which directly dealt with the same subject matter (enforcement of a foreign award were pending), the Division Bench decided Jindal’s challenge appeal preferred in 2002, and set aside the single judge’s order (which had ruled that a petition under Section 34 was not maintainable). The Division Bench relied on the judgments of this court, i.e. Bhatia International v. Bulk Trading S. A. & Anr8 and Venture Global Engineering v. Satyam Computer Services Ltd. & Anr9 to hold that proceedings under Section 34 of the Act could be validly maintained to challenge a foreign award. The parties’ contentions

#9. Appearing for the appellant, NV Engineering, Mr. Joydeep Gupta, learned senior counsel, urged that the impugned judgment is 4 Dated 06.02.2002, which is now reported as Jindal Drugs Ltd v Noy Vallesina 2002 (2) Mah. LJ 820. 5 Appeal No. 519/2002. 6 Noy Vallesina v Jindal Drugs Ltd 2006 (3) Arb.LR 510 (Bom). The enforcement proceeding, under Sections 47/48 were registered as Arb. Petition No. 156/2005. The decision was rendered on 05.06.2006. 7 Jindal’s appeal was Appeal No. 492/2006; NV Engineering’s appeal was Appeal. No. 8 (2002) 4 SCC 105 9 2008 (4) SCC 190 NOY VALLESINA ENGINEERING SPA, (NOW KNOWN AS NOY AMBIENTE S.P.A.) v. JINDAL DRUGS LIMITED [S. RAVINDRA BHAT, J.] 1025 unsupportable in law because a foreign award cannot be challenged under Section 34 of the Act. It was urged that the three-judge decision in Bhatia International10 and the subsequent holding in Venture Global11 were both held to be incorrect in the larger, five judges ruling in Bharat Aluminium Company vs Kaiser Aluminium Technical Services Inc12 (“BALCO” hereafter). Learned counsel submitted that even the caveat in BALCO that a class of foreign awards made prior to its pronouncement cannot aid Jindal’s essential argument with respect to maintainability of a challenge under Section 34 and that such challenge under Part I is untenable.

#10. Mr. Gupta relied on BALCO extensively in support of his argument that the foreign awards in this case, having been rendered outside India under the aegis of the ICC cannot be challenged merely because a condition in the underlying contract says that the law governing the agreement, would be Indian law. The following discussion in BALCO was pressed into service: “117. It would, therefore, follow that if the arbitration agreement is found or held to provide for a seat/place of arbitration outside India, then the provision that the Arbitration Act, 1996 would govern the arbitration proceedings, would not make Part I of the Arbitration Act, 1996 applicable or enable the Indian courts to exercise supervisory jurisdiction over the arbitration or the award. It would only mean that the parties have contractually imported from the Arbitration Act, 1996, those provisions which are concerned with the internal conduct of their arbitration and which are not inconsistent with the mandatory provisions of the English procedural law/curial law. This necessarily follows from the fact that Part I applies only to arbitrations having their seat/place in India. ****** ******* ********

#123. Thus, it is clear that the regulation of conduct of arbitration and challenge to an award would have to be done by the courts of the country in which the arbitration is being 10 Supra n. 8 11 Supra n. 9 12 2012 (9) SCC 552 A B C D E F G H 1026 SUPREME COURT REPORTS [2020] 12 S.C.R. A B C D E F G H conducted. Such a court is then the supervisory court possessed of the power to annul the award. This is in keeping with the scheme of the international instruments, such as the Geneva Convention and the New York Convention as well as the UNCITRAL Model Law. It also recognises the territorial principle which gives effect to the sovereign right of a country to regulate, through its national courts, an adjudicatory duty being performed in its own country. By way of a comparative example, we may reiterate the observations made by the Court of Appeal, England in C v. D [2008 Bus LR 843 : 2007 EWCA Civ 1282 (CA)] wherein it is observed that: “It follows from this that a choice of seat for the arbitration must be a choice of forum for remedies seeking to attack the award.” (emphasis supplied) In the aforesaid case, the Court of Appeal had approved the observations made in A v. B [(2007) 1 All ER (Comm) 591: (2007) 1 Lloyd’s Rep 237] wherein it is observed that: “… an agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. Any claim for a remedy … as to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of arbitration.” (emphasis supplied) ***** ****** ******

#133. The party which seeks to resist the enforcement of the award has to prove one or more of the grounds set out in Sections 48(1) and (2) and/or the Explanation of sub-section (2). In these proceedings, we are, however, concerned only with the interpretation of the terms “country where the award was made” and “under the law of which the award was made”. The provisions correspond to Article V(1)(e) of the New York Convention, which reads as under: “V(1) Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent NOY VALLESINA ENGINEERING SPA, (NOW KNOWN AS NOY AMBIENTE S.P.A.) v. JINDAL DRUGS LIMITED [S. RAVINDRA BHAT, J.] 1027 authority where the recognition and enforcement is sought, proof that— A (a)-(d)*** (e) 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. (2) Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that— (a) the subject-matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) the recognition or enforcement of the award would be contrary to the public policy of that country.” B C **** ******* ****** D

#135. Thus, the intention of the legislature is clear that the court may refuse to enforce the foreign award on satisfactory proof of any of the grounds mentioned in Section 48(1), by the party resisting the enforcement of the award. The provision sets out the defences open to the party to resist enforcement of a foreign award. The words “set aside or suspended”, in clause (e) of Section 48(1) cannot be interpreted to mean that, by necessary implication, the foreign award sought to be enforced in India can also be challenged on merits in Indian courts. The provision merely recognises that courts of the two nations which are competent to annul or suspend an award. It does not ipso facto confer jurisdiction on such courts for annulment of an award made outside the country. Such jurisdiction has to be specifically provided in the relevant national legislation of the country in which the court concerned is located. So far as India is concerned, the Arbitration Act, 1996 does not confer any such jurisdiction on the Indian courts to annul an international commercial award made outside India. Such provision exists in Section 34, which is placed in Part I. Therefore, the applicability of that provision is limited to the awards made in India. If the E F G H 1028 SUPREME COURT REPORTS [2020] 12 S.C.R. A B C D E F G H arguments of the learned counsel for the appellants are accepted, it would entail incorporating the provision contained in Section 34 of the Arbitration Act, 1996, which is placed in Part I of the Arbitration Act, 1996 into Part II of the said Act. This is not permissible as the intention of Parliament was clearly to confine the powers of the Indian courts to set aside an award relating to international commercial arbitrations, which take place in India. ****** ****** ******

#134. The aforesaid Article of the New York Convention has been bodily lifted and incorporated in the Arbitration Act, 1996 as Section 48. ****** ****** ******

#151. Redfern and Hunter [ Blackaby, Partasides, Redfern and Hunter (Eds.), Redfern and Hunter on International Arbitration (5th Edn., Oxford University Press, Oxford/New York 2009).] at Para 11.96 state that the court which is competent to sustain or set aside an award is the court of the country in “alternative one” or “alternative two”. The authors, however, further state that “this court will almost invariably be the national court at the seat of the arbitration”. They point out that the prospect of an award being set aside under the procedural law of a State other than that at the seat of arbitration is unlikely. They point out that an ingenious (but unsuccessful) attempt was made to persuade the US District Court to set aside an award made in Mexico, on the basis that the reference to the law under which that award was made was a reference to the law governing the dispute and not to the procedural law (para 11.96). The learned authors had made a reference to International Standard Electric Corpn. (US) v. Bridas Sociedad Anonima Petrolera (Argentina) [(1992) 7 Ybk Comm Arb 639] . The Court rejected the aforesaid argument with the following observations: “Decisions of foreign courts under the Convention uniformly support the view that the clause in question means procedural and not substantive (that is, in most cases, contract law)…. NOY VALLESINA ENGINEERING SPA, (NOW KNOWN AS NOY AMBIENTE S.P.A.) v. JINDAL DRUGS LIMITED [S. RAVINDRA BHAT, J.] 1029 Accordingly, we hold that the contested language in Article V(1)(e) of the Convention … refers exclusively to procedural and not substantive law, and more precisely to the regimen or scheme of arbitral procedural law under which the arbitration was conducted.”

#152. The correct position under the New York Convention is described very clearly and concisely by Gary B. Born in his book International Commercial Arbitration (Kluwer Law International, Vol. 1), Ch. X, p. 1260 as follows: “This provision is vitally important for the international arbitral process, because it significantly restricts the extent of national court review of international arbitral awards in annulment actions, limiting such review only to the courts of the arbitral seat (that is, the State where the award is made or the State whose procedural law is selected by the parties to govern the arbitration). In so doing, the Convention ensures that courts outside the arbitral seat may not purport to annul an international award, thereby materially limiting the role of such courts in supervising or overseeing the procedures utilized in international arbitrations. At the same time, the New York Convention also allows the courts of the arbitral seat wide powers with regard to the annulment of arbitral awards made locally. The Convention generally permits the courts of the arbitral seat to annul an arbitral award on any grounds available under local law, while limiting the grounds for non-recognition of Convention awards in courts outside the arbitral seat to those specified in Article V of the Convention. This has the effect of permitting the courts of the arbitral seat substantially greater scope than courts of other States to affect the conduct or outcome of an international arbitration the vehicle of annulment actions. Together with the other provisions of Articles II and V, this allocation of annulment authority confirms the (continued) special importance of the arbitral seat in the international arbitral process under the New York Convention.” through (emphasis supplied) A B C D E F G H 1030 SUPREME COURT REPORTS [2020] 12 S.C.R. A B C D E F G H

#153. In our opinion, the aforesaid is the correct way to interpret the expressions “country where the award was made” and the “country under the law of which the award was made”. We are unable to accept the submission of Mr Sundaram that the provision confers concurrent jurisdiction in both the fora. “Second alternative” is available only on the failure of the “first alternative”. The expression under the law is the reference only to the procedural law/curial law of the country in which the award was made and under the law of which the award was made. It has no reference to the substantive law of the contract between the parties. In such view of the matter, we have no hesitation in rejecting the submission of the learned counsel for the appellants. *** ******* ******

#154. At this stage, we may notice that in spite of the aforesaid international understanding of the second limb of Article V(1)(e), this Court has proceeded on a number of occasions to annul an award on the basis that parties had chosen Indian law to govern the substance of their dispute. The aforesaid view has been expressed in Bhatia International [(2002) 4 SCC 105] and Venture Global Engg. [(2008) 4 SCC 190] In our opinion, accepting such an interpretation would be to ignore the spirit underlying the New York Convention which embodies a consensus evolved to encourage consensual resolution of complicated, intricate and in many cases very sensitive international commercial disputes. Therefore, the interpretation which hinders such a process ought not to be accepted. This also seems to be the view of the national courts in different jurisdictions across the world. For the reasons stated above, we are also unable to agree with the conclusions recorded by this Court in Venture Global Engg. [(2008) 4 SCC 190] that the foreign award could be annulled on the exclusive grounds that the Indian law governed the substance of the dispute. Such an opinion is not borne out by the huge body of judicial precedents in different jurisdictions of the world.”

#11. It was next argued that BALCO, a five-judge decision, clearly enunciated the principle that the seat of arbitration also indicated the choice of the law governing the arbitration. Learned counsel relied NOY VALLESINA ENGINEERING SPA, (NOW KNOWN AS NOY AMBIENTE S.P.A.) v. JINDAL DRUGS LIMITED [S. RAVINDRA BHAT, J.] 1031 on the observations of the larger bench, and its emphasis on the “Shashoua principle”13. It was contended that according to that principle, the designation of a “seat” of the arbitration would carry with it “something akin to an exclusive jurisdiction clause”. Learned counsel referred to identical conditions in each contract, in the present case, which expressly stated that arbitration would be “under the Rules of Conciliation and arbitration of the International Chamber of Commerce, Paris and Arbitration proceedings shall be in the English language and shall take place in London.” NV Engineering therefore, argued that the intention of the parties expressed unambiguously in the contract was that the arbitration was governed by the law of the seat, i.e. UK law. Therefore, the findings in the impugned judgment were clearly untenable.

#12. The appellants also contended that Union of India v Reliance Industries14 Harmony Innovation Shipping Ltd v Gupta Goal India Ltd15 and Roger Shashoua v Mukesh Sharma16 have now established that pre-Balco awards involving agreements which stipulate that the juridical seat is in India, and which stipulate or can be read as stipulating that the law governing arbitration would be Indian law, would not be ruled by BALCO. However, cases where juridical seat is not in India, or the law governing arbitration is not Indian law, would be bound by BALCO. Therefore, the impugned judgment, which held to the contrary, cannot be sustained.

#13. The appellant lastly relied on Section 50 of the Act and argued that the order holding that the petition under Section 34 was not maintainable was not appealable. Learned counsel also relied on Fuerst Day Lawson Ltd. v. Jindal Exports Ltd.17 in this context.

#14. Mr. Jay Salva, learned senior counsel for Jindal, submitted that the impugned judgment is unexceptionable and not liable to be interfered with. He argued that Section 34 operates in a field different from Section 48. The latter enables the enforcement of a foreign award, and the court may only refuse enforcement, whereas under Section 34, the legality of an award can be gone into and the court has the jurisdiction