IN THE SUPREME COURT OF INDIA
P.E.C Limited. v. Austbulk Shipping Sdn Bhd
[civil appeal no. 4834 of 2007]
dated: 14.11.2018

FACTS

The Appeal was filed against the Delhi High Court order dated 18.02.2005. The order was in the favor of an enforcement petition of AUSTBULK SHIPPING SDN BHD (the Respondent) regarding a Foreign Arbitral award dated 30.05.2001.

In the present case, P.E.C Limited (the Appellant) had chartered a bulk carrier from the Respondent for transportation of certain quantity of chickpeas in bulk from Geraldton Port, Australia to Jawahar Lal Nehru Port, India (JNPT).

The Respondent invoked arbitration after certain disputes reared up between the parties on the issue of final freight amount to be paid by the Appellant.

While the Respondent filed its claim and supporting documents before the Ld. Arbitrator, the Appellant submitted a brief response contending that the Appellant did not sign the Charter Party and they did not agree for arbitration by London Maritime Arbitration Association.

The Arbitrator proceeded with the Arbitration proceedings and finally awarded USD 150,362.18 to the Respondent with interest @8% per annum compounded at three-monthly intervals from 1st July, 2000 till the date of payment by the order dated 30.05.2001.

The Respondent filed a petition for enforcement of the said award in Delhi High Court and the Appellant filed its objections to the enforcement petition.

The main point that was considered by the High Court was the maintainability of the petition for enforcement of the award without an authenticated copy of the original Arbitration agreement being filed at the time of presentation of the application.

The High Court took the view that there was substantial compliance with the provisions of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "Act") as the certified copy of the arbitration agreement was placed on record by both the parties.

According to the Honorable High Court, the application filed for enforcement under Section 47 of the Act was in the nature of an execution and in case the relevant documents were not filed along with the application, the adjudicating forum has an obligation to return the same for compliance with the requirements of the Act. Re-filing of the Petition after curing defects is not barred by any law.

The High Court also rejected the submissions made on behalf of the Appellant that there was no arbitration agreement. For this, the High Court referred to the discussion & findings of the Arbitrator and analyzed the correspondence exchanged between the parties and the relevant material placed on record.

The Supreme Court had issued a notice in this appeal and had subsequently stayed the proceeding on 29.08.2005.

The present appeal was heard and decided by Supreme Court bench comprising of J. A.M Khanwilkar and J. L. Nageswara Rao.

ISSUES BEFORE SC

Two issues were for consideration before the Court:

  • Whether an application for enforcement under Section 47 of the Act is liable to be dismissed if it is not accompanied by the arbitration agreement.

&

  • Whether there is a valid arbitration agreement between the parties and what is the effect of a party not signing the Charter Party?

OBSERVATION

FIRST ISSUE

For determining the 1st issue, the Honorable Supreme Court referred to Section 47 of the Act which postulates that:

"......the party applying for the enforcement of a foreign award "shall" produce before the Court at the time of application the following:

  1. The original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;
  2. The original agreement for arbitration or a duly certified copy thereof, and
  3. Such evidence as may be necessary to prove that the award is a foreign award."

In response to the contention of the Appellant that the "production of the arbitration agreement at the time of filing of the award is mandatory, the non-compliance of which ought to have resulted in the dismissal of the application", the Court observed that the word "shall" appearing in Section 47 of the Act relating to the production of the evidence as specified in the provision at the time of application has to be read as "may".

In the light of above observation, the Court has also referred to Article II, III and IV of the New York Convention, ICCA Guide and UNCITRAL Model Law on International Commercial Arbitration and observed that the scheme of the Act also provides for a 'smooth' and 'swift' enforcement of foreign awards.

The Court observed that no prejudice would be caused to the party objecting to the enforcement of the Award by the non-filing of the arbitration agreement at the time of the application for enforcement.

Further, the Court also observed that Section 48 (which refers to the grounds on which the enforcement of a foreign award may be refused) does not include the non-filing of the documents mentioned in Section 47, and an application for enforcement of the foreign award can be rejected only on the grounds specified in Section 48.

SECOND ISSUE

For determining the 2nd issue, the Supreme Court observed that:

"There is no dispute that the contract is governed by the English law under which there is no requirement for the Charter Party to be signed by the parties to make it binding."

Supreme Court also noted that:

"An arbitral clause need not necessarily be found in a contract or an arbitral agreement. It can be included in the correspondence between the parties also. In the present case the arbitration agreement is found in the Charter Party which has been accepted by both the Arbitrator and the High Court."

CONCLUDING VIEW

The Supreme Court upheld the judgment of the High Court and dismissed the appeal with the observation that:

"Keeping in view the object and purpose of the New York Convention, we are of the view that the word "shall" in Section 47 of the Act has to be read as "may". The opposite view that it is obligatory for a party to file the arbitration agreement or the original award or the evidence to prove that the award is a foreign award at the time of filing the application would have the effect of stultifying the enforcement proceedings. The object of the New York Convention will be defeated if the filing of the arbitration agreement at the time of filing the application is made compulsory. At the initial stage of filing of an application for enforcement, non-compliance of the production of the documents mentioned in Section 47 should not entail in dismissal of the application for enforcement of an award. The party seeking enforcement can be asked to cure the defect of non-filing of the arbitration agreement. The validity of the agreement is decided only at a later stage of the enforcement proceedings."

However, the Court also made it clear:

"Reading the word "shall" in Section 47 of the Act as "may" would only mean that a party applying for enforcement of the award need not necessarily produce before the Court a document mentioned therein "at the time of the application". We make it clear that the said interpretation of the word "shall" as "may" is restricted only to the initial stage of the filing of the application and not thereafter"

REASON OF JURISPRUDENCE

The Court reasoned by reiterating the principle propounded in Mohan Singh v. International Airport Authority of India, (1997) 9 SCC, that:

"The word "shall", though prima facie gives an impression of being of mandatory character, is required to be considered in light of the intention of the legislature by carefully attending to the scope of the Statute, its nature and design and the consequences that would flow from the construction thereof one way or the other. The Court is required to keep in mind the mischief that would ensue by the construction of the word "shall" as "may". Whether the public convenience would be sub served or whether public inconvenience or general inconvenience may ensue if it is held mandatory."

The Court also quoted 'Craies on Statute Law, 5th Edition':

"It is the duty of the Courts of Justice to try to get at the real intention of the Legislature by carefully attending to the whole scope of the statute to be construed."

AMLEGALS REMARKS

Supreme Court's ruling in the instant case signifies the judicial intent, in the first place, of bringing closer the Indian Arbitration regime, with the International standards.

"The conformity of rulings of both High Court and the Supreme Court can be deemed to be the stance of Indian Judiciary of not per se looking to challenge an arbitration award (foreign or domestic) passed by arbitral tribunals, on technicalities, procedural lapses and/or a strict reading of statute.

This liberal and constructive approach of the Court would go a long way in ensuring an efficient and quick disposal of applications along with maintaining the highest standards of imparting justice.

Finally, in order to implement the real intent and purport of the New York Convention read with Section 47 & 48, the reading of "shall" as "may" is another area to be well observed and understood.

"It is the bounden duty of the Courts to ensure that justice meets its end. The reading of the provision with "may" is their prerogative so that if there is any mischief created by the words of the statute, then without wasting such words, it can be suitably read down as read in this case.

This decision will also boost the morale of ease of doing business in India as well.

This content is purely an academic analysis under "Legal intelligence series".

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