Case Note & Summary
The dispute arose out of a collaboration agreement dated April 22, 1959, between Societe De Traction Et D’Electricite Societe Anonyme, a Belgian corporation, and Kamani Engineering Company Ltd., an Indian company registered under the Indian Companies Act, 1913. Traction agreed to provide technical assistance for overhead railway electrification, tramway systems, and trolley buses in India, Burma, Ceylon, and Nepal. The agreement contained Article X, which provided that all disputes arising in connection with the agreement would be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with those Rules. Kamani filed Suit No. 296 of 1961 in the Bombay High Court on September 1, 1961, seeking a declaration that Traction had committed breaches of the agreement, accounts, and damages of Rs. 9,00,000 with interest. Traction then took out a notice of motion on January 22, 1962, seeking stay of the suit under Section 3 of the Arbitration (Protocol and Convention) Act, 1937, Section 34 of the Arbitration Act, 1940, and Section 151 of the Code of Civil Procedure, 1908, alternatively an injunction restraining Kamani from proceeding with the suit. The High Court single judge refused the stay, and the Division Bench confirmed, holding that the arbitration clause was invalid because it obliged Kamani, contrary to Section 389 of the Indian Companies Act, 1956, to arbitrate otherwise than in accordance with the Indian Arbitration Act, 1940. On appeal by certificate, the Supreme Court considered whether an agreement to refer future disputes to ICC arbitration between an Indian company and a foreigner was binding despite Section 389. The appellant contended that Section 389 was enabling and did not compel arbitration only under the domestic Act, and that sub-section (3) applied only to statutory arbitration under Section 494(b). The respondent supported the High Court's view that the clause violated Section 389. The Supreme Court examined Section 389 of the Companies Act, 1956, and Section 47 of the Arbitration Act, 1940. The Court held that Section 389 was intended to provide that all arbitration to which a company is a party shall be conducted in accordance with the Indian Arbitration Act, 1940. However, Section 47 of the Arbitration Act, 1940, provides that its provisions apply to all arbitrations subject to Section 46 and save insofar as otherwise provided by any law for the time being in force. The Court held that these words incorporate the Arbitration (Protocol and Convention) Act, 1937, into the scheme of consensual arbitration under the Arbitration Act, 1940, when the conditions for its application are attracted, even if the arbitration scheme under the Protocol Act is inconsistent with Sections 3 to 38 of the Arbitration Act, 1940. Consequently, arbitration according to the Protocol and Convention Act, 1937, including under ICC Rules, was recognized by the Arbitration Act, 1940, and was not inconsistent with Section 389 of the Companies Act, 1956. The Court distinguished the earlier High Court decisions relied upon, noting that the Protocol Act provided an exception. The Supreme Court allowed the appeal, set aside the order of the High Court, and held the arbitration clause valid and enforceable; the suit was liable to be stayed under Section 3 of the Arbitration (Protocol and Convention) Act, 1937.
Headnote
A) Arbitration - International Commercial Arbitration - Enforceability of Foreign Arbitration Clause - Indian Companies Act, 1956, Section 389; Arbitration Act, 1940, Sections 46, 47; Arbitration (Protocol and Convention) Act, 1937, Section 3 - Dispute concerned validity of ICC arbitration clause between Indian company and Belgian corporation. Court held Section 389 does not invalidate such clause because Section 47 of Arbitration Act preserves Protocol Act and thus consensual arbitration under ICC Rules is recognised by law. Held that agreement to refer disputes to ICC arbitration was binding and enforceable (Paras Not mentioned). B) Statutory Interpretation - Harmonious Construction - Reading Section 47 of Arbitration Act with Protocol Act - Arbitration Act, 1940, Section 47 - The phrase 'save in so far as is otherwise provided by any law for the time being in force' in Section 47 incorporated the Arbitration (Protocol and Convention) Act, 1937, even if inconsistent with Sections 3 to 38 of Arbitration Act. Court held this legislative scheme allows foreign arbitration agreements under Protocol Act to operate as an exception to domestic arbitration provisions (Paras Not mentioned). C) Civil Procedure - Stay of Legal Proceedings - Arbitration (Protocol and Convention) Act, 1937, Section 3 - Appellant sought stay of suit filed by respondent relying on ICC arbitration clause. Supreme Court held that once clause valid, suit was liable to be stayed under Section 3 of Protocol Act; High Court's refusal was set aside and appeal allowed (Paras Not mentioned).
Issue of Consideration
Whether an agreement to refer a future dispute to arbitration according to the rules of the International Chamber of Commerce between a Company registered under the Indian Companies Act and a foreigner is binding upon the former.
Final Decision
Supreme Court allowed the appeal, set aside the Bombay High Court order, and held that the arbitration clause providing for ICC arbitration was valid and binding, as Section 389 of Companies Act, 1956 read with Section 47 of Arbitration Act, 1940 incorporates Arbitration (Protocol and Convention) Act, 1937. Consequently, the agreement to refer disputes to ICC arbitration was enforceable, and the suit was liable to be stayed under Section 3 of the Protocol and Convention Act.
Law Points
- Section 389 of Indian Companies Act
- 1956
- regulates company arbitration but must be read with Section 47 of Arbitration Act
- 1940
- which preserves Arbitration (Protocol and Convention) Act
- 1937
- foreign arbitration under ICC Rules is valid and binding
- Section 3 of Protocol Act mandates stay of suit when valid arbitration agreement exists
- harmonious construction of domestic arbitration and international arbitration statutes
