Case Note & Summary
The dispute arose from a Marketing Agreement dated 20.4.1982 between a German company and a Government of Orissa undertaking, under which the undertaking was to establish a plant for producing charge chrome and market the product exclusively through the German company. The agreement contained an arbitration clause providing for ICC arbitration in London with Swiss substantive law. A subsequent agreement in 1987 brought a wholly-owned subsidiary into the arrangement, treating the subsidiary as replacing the original undertaking. After substantial deliveries, a Government department ordered merger of the subsidiary with the original undertaking, and shortly thereafter the State Government promulgated an Ordinance taking over the Charge Chrome Division, which was later transferred by sale to a private company. After unsuccessful negotiations, the German company invoked the arbitration clause and claimed a specific sum with interest. The State, which had received notice of the arbitration, filed a civil suit seeking declarations that it was not a successor, not liable under the agreement, the dispute was not arbitrable, and an injunction restraining the arbitration. The German company applied under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 for stay of the suit. The trial court stayed the suit, and the High Court dismissed the State's miscellaneous appeal and civil revision, holding that the Foreign Awards Act applied because the parties had agreed to a foreign seat and foreign substantive law, and that the conditions for mandatory stay were fulfilled. The State and the original undertaking appealed to the Supreme Court. The State argued that it was not a party to the agreement and did not claim through the undertaking, so the suit could not be stayed; it also relied on two Supreme Court decisions. The German company argued that the State had taken over the division under the Ordinance and relied on specific clauses of the Ordinance and terms of transfer. The provided excerpt ends during the submissions, and the Supreme Court's final decision is not contained in the text. The lower courts had consistently held that the stay was proper under Section 3 because the agreement was not shown to be null and void, inoperative, or incapable of performance, and there existed a dispute between the parties.
Headnote
A) Arbitration - Foreign Awards Act, 1961 - Section 3 - Applicability when parties choose foreign seat and foreign law - Agreement provided for ICC arbitration in London with Swiss substantive law - High Court found Foreign Awards Act applicable and stay mandatory if conditions fulfilled - State did not contend award would be domestic - High Court held that stay under Section 3 was proper.
B) Arbitration - Stay of Legal Proceedings - Section 3 Foreign Awards Act - Conditions for mandatory stay - Unless agreement is null and void, inoperative or incapable of being performed or there is no dispute - Court found agreement acted upon and disputes existed - High Court upheld trial court's finding that no exception established - High Court held stay mandatory.
C) Contract - Arbitration Agreement - Non-signatory State liability - Whether State bound by arbitration clause though not party - State contended it did not claim through OMC - Klockner contended State took over Charge Chrome Division under Ordinance clauses 4,5,7,12 and terms of transfer to Tata Iron & Steel - Issue of successor liability central to appeal - Supreme Court heard arguments but final holding not included in excerpt.
D) Procedural Law - Appeals and Revision - Multiple proceedings - Doubt whether appeal or revision lay against order under Section 3 - State filed both miscellaneous appeal and civil revision; High Court decided in revision - Parties filed multiple SLPs leading to consolidation.
Issue of Consideration
Whether a suit filed by the State of Orissa, which was not a signatory to the Marketing Agreement containing an ICC arbitration clause with London seat and Swiss law, is liable to be stayed under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961; and whether the State could be considered a successor to the original contracting party through the takeover Ordinance.
Law Points
- Where parties choose a foreign seat of arbitration and foreign substantive law
- the Foreign Awards (Recognition and Enforcement) Act
- 1961 applies and a suit in respect of matters agreed to be referred to arbitration must be stayed under Section 3 if conditions are fulfilled
- a non-signatory State cannot escape a stay application merely by asserting it is not a party to the arbitration agreement if it has taken over the subject matter by statute and may be a successor
- Section 3 mandate is triggered when the agreement is not shown to be null and void
- inoperative or incapable of performance
- existence of an arbitration dispute is sufficient for stay of parallel court proceedings.
Case Details
1996 LawText (SC) (04) 118
Civil Appeal Nos. 7574-76 of 1996; Special Leave Petition (C) No. 19846 of 1995
K. Venkataswami, Jagdish Saran Verma
JT 1996 (4) 254, 1996 SCALE (3)527
B.M. Patnaik (for State of Orissa and Orissa Mining Corporation); C.S. Vaidyanathan (for Klockner & Co.)
State of Orissa; Orissa Mining Corporation (in connected appeals)
Klockner & Company & Others
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Civil suit seeking declaratory and injunctive relief to prevent foreign arbitration, and an appeal against order staying the suit under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961.
Remedy Sought
State of Orissa sought declarations that it was not a successor to Orissa Mining Corporation (Alloys) Ltd., not liable under the Marketing Agreement, the claim was not arbitrable, and permanent injunction restraining Klockner & Company from prosecuting ICC arbitration; in the present appeals, State and OMC sought to set aside the stay order and allow the suit to proceed.
Filing Reason
Klockner & Company initiated arbitration before ICC claiming US $2,949,938.42 plus 10% interest against State and OMC under the Marketing Agreement; State filed suit to challenge arbitrability and its liability before arbitration proceeded.
Previous Decisions
Civil Judge, Bhubaneswar allowed Klockner's application under Section 3 and stayed the suit. Orissa High Court dismissed State's miscellaneous appeal and civil revision, upholding stay, reasoning that Foreign Awards Act applied and conditions for mandatory stay were fulfilled.
Issues
Whether the suit filed by State of Orissa was liable to be stayed under Section 3 of the Foreign Awards Act even though State was not a party to the arbitration agreement.
Whether the Marketing Agreement dated 20.4.1982 and its arbitration clause bound the State of Orissa as successor/transferee of Charge Chrome Division under Ordinance 8 of 1991.
Whether conditions under Section 3 were satisfied (agreement not null and void, inoperative or incapable of being performed, and existence of dispute).
Whether the arbitration agreement was governed by foreign law/seat, making Foreign Awards Act applicable rather than domestic Arbitration Act.
Submissions/Arguments
For State of Orissa and OMC: State was not a party to the agreement nor claimed any right through or under Orissa Mining Corporation Ltd.; therefore not bound by the arbitration clause and the suit cannot be stayed; also raised merits of Klockner's claim; relied on Renusagar Power Co Ltd v. General Electric Company and Svenska Handelsbanken v. Indian Charge Chrome Ltd.
For Klockner & Co.: State had nexus with the agreement due to clauses in the Ordinance under which the Government took over the Charge Chrome Division and the terms under which the division was handed over to Tata Iron & Steel Company; relied on clauses 4, 5, 7 and 12 of the takeover Ordinance.
Ratio Decidendi
The available excerpt shows the High Court upheld the stay order on the ground that the Foreign Awards Act applied because the arbitration agreement provided for London seat and Swiss substantive law, and the conditions of Section 3 were fulfilled; no final ratio of the Supreme Court is contained in the provided text.
Judgment Excerpts
Clause 15.1 ... 'In the remote and unlikely event of there being any dispute or difference whatsoever arising between the parties out of/or relating to the construction, meaning and operation or effect of this contract or the breach thereof shall be settled in the first place by amicable agreement, failing an agreement all disputes arising between OMC and Klockner within the framework of this contract are to be referred to the International Chamber of Commerce. The place of arbitration shall be London or such other place as is mutually agreed upon. The law applicable shall be substantial Swiss Law or any other law mutually agreed upon.'
The learned Single judge ... observed as follows: '9. Testing the case at hand on the touch stone of the principles enunciated in the decided cases discussed above. the position is manifest that the parties to the arbitration agreement have decided that the place of arbitration shall be London and the law applicable shall be substantive Swiss Law.'
As held by the Apex Court in the case of Renusagar Power Co. (supra) stay of the suit is mandatory if the conditions specified in Section 3 are fulfilled.
Procedural History
Klockner and OMC entered Marketing Agreement on 20.4.1982. On 16.2.1987 agreement between OMC and OMC Alloys Ltd for implementation; Alloys to be treated as replacing OMC. 108,429 MT delivered out of 250,000 MT; balance 141,571 MT undelivered. On 30.8.1991 Department of Company Affairs ordered merger of OMC Alloys with OMC. Shortly after merger, Government of Orissa promulgated Ordinance 8 of 1991 dated 24.8.91 and took over Charge Chrome Division. Charge Chrome Division transferred by sale to Tata Iron & Steel Company. After unsuccessful negotiations, Klockner initiated ICC arbitration invoking clause 15. State of Orissa received notice of arbitration on 3.5.1993. State filed T.S. No.152/93 before Civil Judge, Bhubaneswar for declarations and injunction. Klockner filed Misc Case No.426/93 under Section 3 for stay of suit. Civil Judge, Bhubaneswar passed order dated 16.4.94 staying suit under Section 3. State of Orissa filed Misc Appeal No.553/94 and Civil Revision No.262/94 before Orissa High Court; OMC was third respondent before High Court. Orissa High Court by order dated 12.5.95 dismissed the miscellaneous appeal and civil revision, upholding stay. State of Orissa and OMC filed Special Leave Petitions; leave granted and numbered as Civil Appeal Nos.7574-76/1996; Klockner also filed SLP (C) No.19846/1995 against OMC. Supreme Court heard appeals.
Acts & Sections
- Foreign Awards (Recognition and Enforcement) Act, 1961: Section 2, Section 3
- Orissa Ordinance 8 of 1991: Clauses 4, 5, 7, 12
