# NATIONAL THERMAL POWER CORPORATION ~ v. SINGER COMPANY AND ORS

- **Citation:** [1992] 3 S.C.R. 106
- **Court:** Supreme Court of India
- **Decided:** 1992-05-07
- **Case number:** Civil Appeal No. 1978 of 1992
- **Bench:** T.Kochu Thommen, S.C. Agrawal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/national-thermal-power-corporation-v-singer-company-and-ors-11539
- **Pages:** 27

## Headnote

-
Arbitration Act, 1940:
\._
Section 1(2)-Applicability of the AcHnternational Commercial arc bitration agreemenHndian company entering into contract with a foreign
company-Arbitration clause contained in the contrac~Stipulation that laws
in force in India applicable and Courts of Delhi would have exclusive
jurisdiction-R.ules of conciliation and arbitration of Intemational Chamber
of Commerce applicable as agreed upon-Dispute ref e"ed to Arbitral
Tribunal constituted as per these Rules-Award made in London, the seat of
D arbitration-Whether the award is governed by the Arbitration Act, 1940.
Foreign Awards (Recognition and Enforcement) Act, 1961:
Sections 2 and 9--/nternational commercial arbitration agreement
E
-Award made in a foreign country-Laws in force in India applicable as
agreed upon by parties-Such awar~Whether to be regarded as foreign
.......
award or domestic award.
Private International Law :
International contracts--Law governing the contract-Parties at liberty
>
F
to make choice of the law applicable-Substantive as also procedural-In
absence of choice, presumption that laws of country where arbitration held
.....
applicable-However presumption rebuttable having regard to true intention
of parties--Proper law of CQntrac~What is-Doctrine of renvoi-Applicability
of.
G
Words & Phrases :
'Proper Law of Contract'-Meaning of.
_......_
The appellant Corporation and Respondent Company entered into
H two agreements on 17.8.1982 at New Delhi for the supply of equipment,
106
--
.. J.
N.T.P.C. v. SINGER CO.
107
erection and commissioning of certain works in India. It was agreed that A
the law applicable to the contract would be the laws in force in India and
that the Courts of Delhi would have the exclusive jurisdiction. The agreements contained a specific provision that any dispute arising out of the
contract should be decided as per the relevant clauses of the General
conditions of the contract. According to the General Terms, the Respondent being a foreign contractor it would be governed by the provisions
relating to foreign contractors. It further provided for settlement of disputes amicably, failing which by arbitration which would be conducted by
three arbitrators one each to be nominated by the owner and the C~mtracB
tor and a third to be named by the President of the International Chamber
of Commerce (l.C.C.).
A dispute arose between the parties and it was referred to the
Arbitral Tribunal constituted in terms of rules of arbitration of the ICC
Court,s~Rule~_~nd London was chosen by the ICC Court as the place of
arbitration. The Tribunal made an interim award.
The appellant corporation filed an appli~ation under the provisions
of the Arbitration Act, 1940 before the Delhi High Court for setting aside
the said interim award. -
c
D
The High Court held that the award was not governed by the Ar· E
bitration Act, 1940; the arbitration agreement on which the award was
made was not governed by the law of India; the award fell within the ambit
of the Foreign Awards (Recognition and Enforcement) Act, 1961; London
being the seat of arbitration, English Courts alone had jurisdiction to set
aside the award; and, that it had no jurisdiction to entertain the application filed under the Arbitration Act, 1940.
F
Being aggrieved against the High Court's order, the appellant corporation preferred the present appeal by special leave.
On behalf of the appellant, it was contended that the substantive law G
which governed the arbitration was Indian law and so the competent courts
were Indian Courts. It was also contended that even in respect of procedural matters, the concurrent jurisdiction of the courts .of the place of
arbitration did not exclude the jurisdiction of Indian Courts.
It was contended on behalf of the respondent company that while the H
108
SUPREME COURT REPORTS .
[1992] 3 S.C.R.
A
main contract was governed by Indian law, as expressly stated by the
1
parties, arbitration being a collateral contract and procedural in na

## Text

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A
NATIONAL THERMAL POWER CORPORATION
~
v.
SINGER COMPANY AND ORS.
MAY 7, 1992
B
[T.KOCHU THOMMEN AND S.C. AGRAWAL, JJ.]
-
Arbitration Act, 1940:
\._
Section 1(2)-Applicability of the AcHnternational Commercial arc bitration agreemenHndian company entering into contract with a foreign
company-Arbitration clause contained in the contrac~Stipulation that laws
in force in India applicable and Courts of Delhi would have exclusive
jurisdiction-R.ules of conciliation and arbitration of Intemational Chamber
of Commerce applicable as agreed upon-Dispute ref e"ed to Arbitral
Tribunal constituted as per these Rules-Award made in London, the seat of
D arbitration-Whether the award is governed by the Arbitration Act, 1940.
Foreign Awards (Recognition and Enforcement) Act, 1961:
Sections 2 and 9--/nternational commercial arbitration agreement
E
-Award made in a foreign country-Laws in force in India applicable as
agreed upon by parties-Such awar~Whether to be regarded as foreign
.......
award or domestic award.
Private International Law :
International contracts--Law governing the contract-Parties at liberty
>
F
to make choice of the law applicable-Substantive as also procedural-In
absence of choice, presumption that laws of country where arbitration held
.....
applicable-However presumption rebuttable having regard to true intention
of parties--Proper law of CQntrac~What is-Doctrine of renvoi-Applicability
of.
G
Words & Phrases :
'Proper Law of Contract'-Meaning of.
_......_
The appellant Corporation and Respondent Company entered into
H two agreements on 17.8.1982 at New Delhi for the supply of equipment,
106
--
.. J.
N.T.P.C. v. SINGER CO.
107
erection and commissioning of certain works in India. It was agreed that A
the law applicable to the contract would be the laws in force in India and
that the Courts of Delhi would have the exclusive jurisdiction. The agreements contained a specific provision that any dispute arising out of the
contract should be decided as per the relevant clauses of the General
conditions of the contract. According to the General Terms, the Respondent being a foreign contractor it would be governed by the provisions
relating to foreign contractors. It further provided for settlement of disputes amicably, failing which by arbitration which would be conducted by
three arbitrators one each to be nominated by the owner and the C~mtracB
tor and a third to be named by the President of the International Chamber
of Commerce (l.C.C.).
A dispute arose between the parties and it was referred to the
Arbitral Tribunal constituted in terms of rules of arbitration of the ICC
Court,s~Rule~_~nd London was chosen by the ICC Court as the place of
arbitration. The Tribunal made an interim award.
The appellant corporation filed an appli~ation under the provisions
of the Arbitration Act, 1940 before the Delhi High Court for setting aside
the said interim award. -
c
D
The High Court held that the award was not governed by the Ar· E
bitration Act, 1940; the arbitration agreement on which the award was
made was not governed by the law of India; the award fell within the ambit
of the Foreign Awards (Recognition and Enforcement) Act, 1961; London
being the seat of arbitration, English Courts alone had jurisdiction to set
aside the award; and, that it had no jurisdiction to entertain the application filed under the Arbitration Act, 1940.
F
Being aggrieved against the High Court's order, the appellant corporation preferred the present appeal by special leave.
On behalf of the appellant, it was contended that the substantive law G
which governed the arbitration was Indian law and so the competent courts
were Indian Courts. It was also contended that even in respect of procedural matters, the concurrent jurisdiction of the courts .of the place of
arbitration did not exclude the jurisdiction of Indian Courts.
It was contended on behalf of the respondent company that while the H
108
SUPREME COURT REPORTS .
[1992] 3 S.C.R.
A
main contract was governed by Indian law, as expressly stated by the
1
parties, arbitration being a collateral contract and procedural in nature,
B
c
it was not necessarily bound by the proper law of the contract, but the law
applicable to it must be determined with reference to other factors and the
place of arbitration was an im:-ortant factor. It was further contended that
since London was chosen to be the seat of arbitrartion, English law was
the proper law of arbitration, and all proceedings connected with it would
be governed by that law and exclusively within the jurisdiction of the
English courts; and that the Indian courts had no jurisdiction in matters
connected with the arbitration, except to the extent permitted by the
Foreign Awards Act for recogni~ion and enforcement or. the award.
On the question as to which was the law that governed the agreement
on which the award had been made :
Allowing the appeal, this Court,
D
HELD : 1. The High Court was wrong in treating the award in
E
F
question as a foreign award. The Foreign Awards Act has no application
to the award by reason of the specific exclusion contained in Section 9 of
that Act. The award is governed by the laws in force in India, including the
Arbitration Act, 1940. [132-C]
2. The expression 'proper law of a contract' refers to the legal system
by which the parties to the contract intended their contract to be governed.
If their intention is expressly stated or if it can be clearly inferred from
the contract itself or its surrounding circumstances, such intention determines the proper law of the contract. The only limitation on this rule is
that the intention of the parties must TM: expressed bona fide and and it .
should not be opposed to public policy. Where, however, the intention of
the partfos in not expressly stated and no inference about it can be drawn,
their intention as such has no relevance. In that event, the courts endeavour to impute an intention by identifying the legal system with which
G the transaction has its closest and most real connection. [118-B, E, F]
Hamlyn & Co. v. Taliskar Distillery, (1891-4) All E.R. 849; Vita Food
Products Inc. v. Unus Shipping Co. Ltd., (1939) AC 27'7 (PC), relied on.
Dicey & Morries: The Conflict of Laws, 11th Edo. Vol. II PP.1161-62,
1-1
referred to.
\ \--
--+--
_J
N.T.P.C. v. SINGER CO.
109
3. Mere selection of a particular place for submission to the jurisdicA
tion of the courts or for the conduct of arbitration will not, ie the absence of
any other relevant connecting factor with that place, be sufficient to draw an
inference as to the intention of the parties to be governed by the system of law
prevalent in that place. This is specially so in the case of arbitration. This is
particularly true when the place of arbitration is not chosen by the parties
themselves, but by the arbitrators or by an outside body, and that too for
reasons unconnected with the contract. Choice of place for submission to
jurisdiction of courts or for arbitration may thus prove to have little
relevance for drawing an inference as to the governing law of the contract,
unless supported in that respect by the rest of the contract and the surroundB
ing circumstances. Any such clause must necessarily give way to stronger c
indications in regard to the intention of the parties. [119 C-G]
Jacobs Marcus & Co. v. The Credit Lyonn.ais, [1884) 12 Q.B.D. 589
(C.A.); The Fehmam, (1958) 1 All E.R. 333, relied on.
4. Where the parties have not expressly or impliedly selected the D
proper law, the courts impute an intention by applying the objective test to
determine what the parties would have as just and reasonable persons
. intended as regards the applicable law had they applied their minds to the
question. The Judge has to determine the proper law for the parties in such
circumstances by putting himself in the place of a "reasonable man". For this
purpose the place where the contract was made, the form and object of the
contract, the place of performance, the place of residence or business of the
parties, reference to the courts having jurisdiction and such other links are
examined by the courts to determine the system of law with which the
transaction has its closest and most real connection. The expression 'proper
law' refers to the substantive principles of the domestic law of the chosen
system and not to its conflict oflaws or rules. [120 A-C; 121 A-BJ
The Assunzione, (1954) P.150, (C.A.); Mount Albert Borough Council
v.Australasian Temperance (lnd General Mutual Life Assurance Society Ltd.,
E
F
(1938) A.C. 224, (P.C.), relied on.
G
Dicey & Morris: The Conflict of Laws, 11th Edn., Vol. I pp.534-535;
Vol. II p.1164, referred to.
5. Where, there is no express choice of the law governing the contract
as a whole, or the arbitration agreement as such, a presumption may arise H
110
SUPREME COURT REPORTS
[1992] 3 S.C.R.
A
that the law of the country where the arbitration is agreed to be held is the
B
c
D
E
proper law of the arbitration agreement. But that is only a rebuttable
~·
presumpton. [121 G-H]
Whitworth Street Estates (Manchester) Ltd. v. James Miller & Partners
Ltd., 1970 AC 583, referred to.
Dicey & Morris: The Conflict of Laws, 11th Edn. Vol.I p.539, referred
to.
6. The validity, effect and interpretation of the arbitration agreement
are governed by its proper law. Such law will decide whether the arbitration clause is wide enough to cover the dispute between the parties. Such
law will also ordinarily decide whether the arbitration clause binds the
parties even when one of them alleges that the contract is void, or voidable
or illegal or that such contract has been discharged by breach or frustra-
. tion. [122-B]
Heyman & Anr. v. Darwins Ltd., 1942 (1) All E.R. 337, referred to.
7. The parties have the freedom to choose the law governing an
international commercial arbitration agreement. They may choose the
substantive law governing the arbitration agreement as well as the procedural law governing the conduct of the arbitration. Where the proper law
of the contract is expressly chosen by the parties, as in the present case,
such law must, in the absence of an unmistakable intention to the contrary,
govern the arbitration agreement. [122 D-E]
F
8. The proper law of the contract in the present case being expressly
G
stipulated to be the laws in force in India and the exclusive jurisdiction of the
courts in Delhi in all matters arising under the contract having been
specifically accepted, and the parties not having chosen expressly or by
implication a law different from the Indian law in regard to the agreement
contained in the arbitration clause, the proper law governing the arbitration
agreement is indeed the law in force in India, and the competent courts of this
country must necessarily have jurisdiction over all matters concerning
arbitration. Neither the rules of procedure for the conduct of arbitration
contractually chosen by the parties viz., the l.C.C. Rules nor the mandatory
..J-._
requirements of the procedure followed in the courts of the country in which
H
the arbitration is held can in any manner supersede the overridingjurisdic-
-
N.T.P.C. v. SINGER CO.
111
tion and control o(the Indian law and the Indian courts. [123 F-H; 124-A]
A
Bank Mel/at v.Helliniki Techniki SA, (1983) 3 All E.R. 428, referred to.
International Chamber of Commerce Arbitration, 2nd Ed. (1990); Commercial Arbitration, 2nd Ed.; Allen Redfern and Martin Hunter, Law &
Practice of International Commercial Arbitration, 1986; Russel on Arbitration B
20th Ed. (1982); Cheshire & North's Pdvate International Law, 11th Ed.
(1987), referred to.
9. The procedural powers and duties of the arbitrators, are matters
regulated in accordance with the rules chosen by the parties to the extent that
those rules are applicable and sufficient and are not repugnant to the C
requirements of the procedural law and practice of the seat of arbitration.
The concept of party 1mtonomy in international contracts is respected by all
systems of law so far as it is not incompatible with the proper law of the
contract or the mandatory procedural rules of the place where the arbitration is agreed to be conducted or any overriding public policy. (124 B-D]
D
10. An award rendered in the territory of a foreign State may be
regarded as a domestic award in India where it is sought to be enforced by
reason of Indian law being the proper law governing the arbitration agreement in terms of which the award was made. The Foreign Awards Act,
incorporating the New York Convention, leaves no room for doubt on the E
point. [125-E]
ICC Rules of Arbitration, 1988; Craig, Park and Pauls son : International
Chamber of Commerce Arbitrartion, 2nd Ed. (1990), referred to.
11. The difference between an ad hoc arbitration and an institutional F
arbitration, is rwt a difference between one system of law and another; for
whichever is the proper law which governs either proceeding, it is merely a
ditTernce in the method of appointment and conduct of arbitration. Either
method is applicable to an international arbitration, but neither is determinative of the character of the resultant award, namely, whether or not it is G
a Foreign Award as defined under the Foreign Awards Act, 1961.
[125-H; 126 A-8]
12. An arbitration agreement may be regarded as a collateral or
ancillary contract in the sense that it survives to determine the claims of the
parties and the mode of settlement of their disputes even after the breach or H
112
SUPREME COURT REPORTS
(1992] 3 S.C.R.
A
repudiation of the main contract. But it is not an independent contract, and
it has no meaningful existence except in relation to the rights and liabilities
of the parties under the main contract. It is a procedural machinery which is
activated when disputes arise between parties regarding their rights and
liabilities. The law governing such rights and liabilities is the proper law of
B
the contract, and unless otherwise provided, such law governs the whole
contract including the arbitration agreement, and particularly so when the
latter is contained not in a separate agreement, but, as in the present case, in
one of the clauses of the main contract. (129 A-CJ
Heyman & Anr. v. Darwins Ltd., 1942 (1) All E.R. 337, Bremer Vulkan
C
Schiffbau Und Maschinenfabrik v. South India Shipping Corpn., 1981 (1) All
E.R. 289, relied en.
Mustil & Boyd: Commercial Arbitration, 2nd Ed. (1989), referred to.
13. In a proceeding such as the present which is intended to be
D controlled by a set of contractual rules which are self-sufficient and
designed to cover every step of the proceeding, the need to have recourse
to the municipal system of law and the courts of the place of arbitration
is reduced to the minimum and the courts of that place are unlikely to
interfere with the arbitral proceedings except in cases which shock the
judicial conscience. (130 C-E] -
E
Bank Me/lat v.Helliniki Techniki SA, (1983) 3 All E.R. 428, referred to.
14. If the parties had agreed that the proper law of the contract
should be the law in force in India, but had also provided for arbitration
F
in a foreign country, the laws of India would undoubtedly govern the
validity, interpretation and effect of all clauses including the ·arbitration
clause in the contract as well as the scope of the arbitrators' jurisdiction.
It is Indian law which governs the contract, including the arbitration
clause, although in certain respects regarding the conduct of the arbitration proceedings the foreign procedural law and the competent courts of
G that country may have a certain measure of control. (130 F-G]
International Tank and Pipe SAK v. Ku.wait Aviation Fueling Co. KSC,
(1975) 1 All E.R. 242, relied on.
15. The choice of the place of arbitration was, as far as the parties
H are concerned, merely accidental in so for as they had not expressed any
N.T.P.C. v. SINGER CO. [TIIOMMEN, J.)
113
intention in regard to it and the choice was made by the ICC Court for A
J_
reasons totally unconnected with either party to the contract. On the other
hand, apart from the expressly stated intention of the parties, the contract
itself, including the arbitration agreement contained in one of its clauses,
is redolent of India and matters Indian. The disputes between the parties
under the contract ha".e no connection with anything English, and they B
have the closest connection with Indian laws, rules and regulations. Any
attempt to exclude the jurisdiction of the competent courts and the laws
in force in India is totally inconsistent with the agreement between the
parties. (131 A, B, C]
16. All substantive rights arising under the agreement including that
which is contained in the arbitration clause are governed by the laws of c
India. In respect of the actual conduct of arbitration, the procedural law
of England may be applicable to the extent that the ICC Rules are insufficient or repugnant to public policy or other mandatory provisions of the
~~
laws in force in England. Nevertheless, the jurisdiction exercisable by the
English courts and tbe applicability of the laws of that country in proceD
dural matters must be viewed as concurrent and consistent with the
jurisdiction of the competent Indian courts and the operation of Indian
laws in all matters concerning arbitration in so for as the main contract
as well as that which is contained in the arbitration clause are governed
by the laws of India. (131 -H; 132 -A,B]
E
~
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1978 of
1992.
-
From the Judgment and Order dated 12.2.1991 of the Delhi High
Court in FAO (OS) No. 102 of 1990.
F
Shanti Bhushan,. Dr. A.M. Singhvi, C. Mukhopadhaya, J.C. Seth, O.P.
Mittal, Sudarsh Menon and G.G. Malhotra for the Appellant.
S.K. Dholakia, O.P.Sharma, D.C.Singhania, Ms. Nanita Sharma, Hari
Menon, P. Piwany and R.K. Gupta for the Respondents.
G
The Judgment of the Court was delivered by
THOMMEN, J. Leave granted.
The National Thermal Power Corporation (the 'NTPC') appeals H
114
SUPREME COURT REPORTS
[1992) 3 S.C.R.
A
from the judgment of the Delhi High Court in FAO (OS) No.102/90
dismissing the NTPC's application filed under sections 14, 30 and 33 of the
Arbitration Act, 1940 (No. X of 1940) to set aside an interim award made
at London by a tribunal constituted by the International Court of Arbitration of the International Chamber of Commerce (the "ICC Court") in terms
B
c
of the contract made at New Delhi between the NTPC and the respondent
. the Singer Company (the 'Singer') for the supply of equipment, erection
and commissioning of certain works in India. The High Court held that the
award was not governed by the Arbitration Act, 1940; the arbitration
agreement on which the award was made was not governed by the law of
India; the award fell within the ambit of the Foreign Awards (Recognition
and Enforcement) Act, 1961 (Act 45 of 1961) (the 'Foreign Awards Act');
London being the seat of arbitration, English Courts alone had jurisdiction
to set aside the award; and, the Delhi High Court had no jurisdiction to
entertain the application filed under the Arbitration Act, 1940.
The NTPC and the Singer entered into two formal agreements dated
D
17:8.1982 at New Delhi. The General Terms and Conditions of Contract
dated 14.2.81 (the 'General Terms') are expressly incorporated in the
agreements and they state :
· "the laws applicable to this Contract shall be the laws in force
E
in India. The Courts of Delhi shall have exclusive jurisdition in
all matters arising under this Contract." (7.2).
The General Terms deal with the special responsibilities of foreign
contractors and Indian contractors. The Singer, being a foreign contractor,
is governed by the provisions relating to the foreign contractors. The
F
General Terms further provide for settlement of disputes by amicable
settlement, failing which by arbitration.
Sub-clause 6 of clause 27 of the General Terms deals with arbitration
in relation to an Indian contractor and sub-clause 7 of the said clause deals
G with arbitration in respect of a foreign contractor. The latter provision says:
H
"27.7. In the event of foreign Contractor, the arbitration shall
be conducted by three arbitrators, one each to be nominated
by the Owner and the Contractor and the third to be named
by the President of the International Chamber of Commerce,
Paris. Save as above all Rules of Concilliation and Arbitration
N.T.P.C. v. SINGER CO. [TIIOMMEN, J.]
115
of the International Chamber of Commerce shall apply to such A
*
arbitrations. The arbitration shall be conducted at such places
as the arbitrators may determine."
In respect of an Indian Contractor, sub-clause 6.2 of clause 27 says
that the arbitration shall be conducted at New Delhi in accordance with
the provisions of the Arbitration Act, 1940. It reads :
B
"27.6.2. The arbitration shall be conducted in accordance with
·:
the provisions of the Indian Arbitration Act, 1940 or any
statutory modification thereof. The venue of arbitration shall
be New Delhi, India."
c
The General Terms further provide :
"the Contract shall in all respects be construed and governed
;>!.
according to Indian laws." (32.3).
The formal agreements which the parties executed on 17.8.82 contain D
a specific provision for settlement of disputes. Article 4.1 provides :
"4.1. Settlement of Disputes : It is specifically agreed by and
between the parties that all the differences or disputes arising
out of the contract or touching the subject matter of the E
~-
contract, shall be decided by process of settlement and arbitration as specified in clause 26.0 and 27.0 excluding 27.6.1 and
27.6.2., of the General Conditions of the Contract."
Being a foreign contractor, the provisions of sub-clause 6 of clause
27 of the General Terms are not applicable to the Singer, but the other F
provisions of clause 27 govern the present contract. Accordingly, the
_A
dispute which arose between the parties was referred to an Arbitral
Tribunal constituted in terms of the rules of arbitration of the ICC Court
(the 'ICC Rules'). In accordance with Article 12 of those Rules, the ICC
Court chose London to be the place of arbitration.
G
It is significant that the parties have expressly stated that the law
__,....,_
which governs the": contract, i.e., the proper law of the contract is the law
in force in India and the courts of Delhi have exclusive jurisdiction in all
matters arising under the contract. One of the clauses of the Contract deals
with arbitration (Clause 27 of the General Terms).
H
.,
A
B
c
D
E
F
116
SUPREME COURT REPORTS
(1992] 3 S.C.R.
The point for consideration is whether the High Court was right in
rejecting the appellant's application filed under the provisions of the
Arbitration Act, 1940 and in holding that the award which was made in
London on an arbitration agreement was not governed by the law of India
and that it was a foreign award within the meaning of the Foreign Awards
Act and beyond the jurisdiction of the Indian Courts except for the purpose
of recognition and enforcement under the latter Act.
The award was made in London as an interim award in an arbitration
between the NTPC and a foreign contractor on a contract governed by
the law of India and made in 1ndia for its performance solely in India. The
fundamental question is whether the arbitration agreement contained in
the contract is governed by the law of India so as to save it from the ambit
of the Foreign Awards Act and attract the provisions of the Arbitration
Act, 1940. Which is the law which governs the agreement on which the
award has been made ?
Mr. Shanti Bhushan, appearing for the NTPC, sumbits that admittedly the proper law of the contract is the law in force in India. The ·
arbitration agreement is contained in a clause of that contract. in the
absence of any stipulation to the contrary, the contract has to be seen as a
whole and the parties must be deemed to have intended that the substantive l~w applicable to the arbitration agreement is exclusively the Jaw which
governs the main contract, although, in respect of procedural matters, the
competent courts in England will also be, concurrently with the Indian
courts, entitled to exercise jurisdiction over the conduct of arbitration. But
occasions for interferance by the courts in England would indeed be rare
and probably unnecessary in view of the elaborate provisions contained in
the ICC Rules by which the parties have agreed to abide. The substantive
law governing arbitration, which concerns questions like capacity, validity,
effect and interpretation of the contract etc., is Indian law and the competent courts in such matters are the Indian courts. Even in respect of
procedural matters, the concurrent jurisdiction of the courts of the place
G of arbitration does not exclude the jurisdiction of the Indian· courts.
Mr. S.K. Dholakia appearing for .the Singer, on the other hand,
submits that the arbitration agreement is a separate and distinct contract,
and collateral to the main contract. Although the main contract is governed
H by the laws in force in India, as stated in the General Terms, there is no
- --
N.T.P.C. v. SINGER CO. [THOMMEN, J.]
117
express statement as regards the law governing the arbitration agreement. A
In the circumstances, the law governing the arbitration agreement is not
the same law which governs the contract, but it is the law which is in force
in the country in which the arbitration is being conducted. Counsel accordingly submits that the Delhi High Court is right in saying that the saving
clause in section 9 of the Foreign Awards Act has no application to the B
award in question made in London by an Arbitral Tribunal constituted in
\
.
accordance with the ICC Rules. Counsel submits that the High Court has
rightly held that the impugned award falls under .the Foreign Awards Act
and it is not liable to be challenged on the alleged grounds falling under
sections 14, 30 and 33 of the Arbitration Act, 1940.
Counsel says that the award, having been made in London in terms c
of the ICC Rules to which the parties have submitted, is governed by the
provisions of the New York Convention, as incorporated in the Foreign
Awards Act, and its enforceability· in India can be resisted only in the
circumstances postulated under that Act, and the Delhi High Court has
rightly rejected the petition invoking the jurisdiction of that court in terms D
of t.he Arbitration Act, 1940.
Mr. Dholakia does not dispute that the substantive rights of the
parties under the Contract are governed by the law of India. His contention, however, is that while the main contract is governed by Indian law, as E
expressly stated by the parties, arbitration being a collateral contract and
procedural in nature, it is not necessarily bound by the proper law of the
contract, but the law applicable to it must be determined with reference to
other factors. The place of arbitration is an important factor. London
having been chosen in accordance with the ICC Rules to be the seat of
arbitration, English law is the proper law of arbitration, and all proceedings F
connected ~th it are governed by that law and exclusively within the
jurisdiction of the English courts. He denies that the Indian courts have
any jurisdiction in matters connected with the arbitration, except to the
extent permitted by the Foreign Awards Act for recognition and enforcement of the award.
G
Dicey & Morris in The conflict of Laws, 11th edn., Vol. II ('Dicey')
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~...J..
refer to the 'proper law of a contract' thus :
"Rule 180 - The term 'proper law of a contract' means the
system of law by which the parties intended the contract to be H
.
/
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B
c
D
E
F
G
H
118
SUPREME COURT REPORTS
[1992) 3 S.C.R.
governed, or, where their intention is neither expressed nor to
be inferred from the circumstances, the system of law with
which the transaction has its closest and most real connection."
(pages 1161-62)
The expression 'proper law of a contract' refers to the legal system
by which the parties to the contract intended their contract to be governed.
If their intention in expressly stated or if it can be clearly inferred from the
contract itself or its- surrounding circumstances, such intention determines
the proper law of the contract. In the words of Lord Herchell, L.C. :
" ....... .In this case, as in all such cases, the whole of the contract
must be looked at, and the contract must be regulated by the
intention of the parties as appearing from the contract. It is
perfectly competent to those who, under such circumstances as
I have indicated, are entering into a contract, to indicate by the
terms which they employ which system of law they intend to be
applied to the construction of the contract, and to the determination of the rights arising out of the contract".
Hamlyn & Co. v. Ta/isker Distillery, (1891-4) All E.R. 849 at
852.
Where, however, the intention of the parties is not expressly stated
and no inference about it can be drawn, their intention as such bas no
relevance. In that event, the courts endeavour to 'impute an intention by
identifying the legal system with which the transaction has its closest and
most real connection.
The expressed intention of the parties is generally decisive in determining the proper law of the contract.* The only limitation on this rule is
that tlie intention of the parties must '.f>e expressed bona fide and it should
not be opposed to public policy. In the words of Lord Wright :-
" ...... where there is an express statement by the parties of their
intention to select the law of the contract, it is difficult to see
Rule 180 is further elucidated by Dicey in the sub-rules. Sub-rule (1) i:eads :-
"Sub-rule (1) - When the intention of the parties to a contract, as to the law governing
the contract, is expressed in "W"Ords, this expressed intention, in general, determines the
proper law of the contract.•
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N.T.P.C. v. SINGER CO. [THOMMEN, J.]
119
what qualifications are possible, provided the intention exA
pressed is bona fide and legal, and provided there is no reason
for avoiding the choice on the ground of public policy ........ "
Vita Food Products Inc. v. Unus Shipping Co. Ltd., (1939) AC
277, 290 (PC).
B
In the absence of an express statement about the governing law, the
inferred intention of the parties determines that law.* The true intention
of the parties, in the absence of an express selection, has to be discovered
c
by applying "sound ideas of business, convenience and sense to the language of the contract ifself'. Jacobs Marcus & Co., v. The Credit Lyonnais,
(1884) 12 Q.B.D. 589, 601 (C.A.). In such a case, selection of courts of a
particular country as having jurisdiction in matters arising under the contract. is usually, but not invariably, be an indication of the intention of the
parties that the system of law followed by those courts is the proper law D
by which they intend their contract to be governed. However, the mere
selection of a particular place for submission to the jurisdiction of the
courts or for the conduct of arbitration will not, in the absence of any other
relevant connecting factor with that place, be sufficient lo draw an inference as to the intention of the parties to be governed by the system of
law prevalent in that place. This is specially so in the case of arbitration,
for the selection of the place of arbitration may have little significance
where it is chosen, as is often the case, without regard to any relevant or
significant link with the place. This is particularly true when the place of
arbitration is not chosen by the parties themselves, but by the arbitrators
or by an outside body, and that too for reasons unconnected with the
contract. Choice of place for submission to jurisdiction of courts or for
arbitration may thus prove to have little relevance for drawing an inference
as to the governing iaw of the contract, unless supported in that respect by
the rest of the contract and. the surrounding circumstances. Any such
clause must necessarily give way to stronger indications in regard to the
intention of the parties. See The Fehmam, (1958) 1 All E.R. 333.
Dicey's sub-rule (2) of rule 180 reads :-
"Sub-rule (2). - When the intention of the parties to a contract with regard to the law
governing the contract is not expressed in words, their intention is to be inferred from
the terms and nature of the contract. and from the general circumstances of the case.
E
F
G
and such inferred intention determines the proper law of the contract."
H
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B
c
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SUPREME COURT REPORTS
(1992) 3 S.C.R.
Where the parties have not expressly or impliedly selected the proper
law,. the courts impute an intention by applying the objective test to
determine what the parties would have as just and reasonable persons
intended as regards the applicable law had they applied their minds to the
question.• The judge has to determine the proper law for the parties in
such circumstances by putting himself in the place of a "reasonable man".
He has to determine the intention of the parties by asking himself "how a
just and reasonable person would have regarded the problem", The Assunzione (1954) P. 150, 176 (C.A.); Mount Albert Borough Council v.
Australasian Temperance and General Mutual Life Assurance Society Ltd.
(1938) A.C. 224, 240 (P.C.)
For this purpose the place where the contract was made, the form
and object of the contract, the place of performance, the place of residence
or business of the parties, reference to the courts having j~risdiction and
such other links are examined by the courts to determine the system of law
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D with which the transaction has its closest and most real connection.
E
F
G
The position in these respects is summarised by the Privy Council in
Mount Albert Borough Council v. Australasian Temperance and General
Mutual Life Assurance Society, Limited, (1938) A.C. 224 at 240 :-
"The proper law of the contract means that law which the
English or other Court is to apply in determining the obligations
under the contract ...... .It may be that the parties have in terms
in their agreement expressed what law they intend to govern,
and in that case prim a f acie their intention will be effectuated
by the Court. But in most cases they do not do so. The parties
may not have thought of the matter at all. Then the Court has
to impute an intention, or to determine for the parties what is
the proper law which, as just and reasonable persons, they
ought or would have intended if they had thought about the
question when they made the contract....".
Dicey's sub-rule (3) of rule 180 reads :-
. "Sub-rule (3). - When ·the intention of the parties to a contract with regard to the law
governing it is not expressed and cannot be inferred from the circumstances. the
contract is governed by the system of law with which the transaction has its closest and
H
most real connection."
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N.T.P.C. v. SINGER CO. [THOMMEN, J.]
121
Proper law is thus the law which the parties have expressly or A
impliedly chosen, or which is imputed to them by reason of its closest and
most intimate connection with the contract. It must, however, be clarified
that the expression 'proper law' refers to the substantive principles of the
domestic law of the chosen system and not to its conflict of laws rules. The
law of contract is not affected by the doctrine of renvoi. See Dicey, Vol.
II, p. 1164.
B
In a case such as the present, there is no need to draw any inference
about the intention of the parties or to impute any intention to them, for
they have clearly and categorically stipulated that their contract, made in
India to be performed in India, is to be governed by the 'laws in force in C
India' and the courts in Delhi are to 'have exclusive jurisdiction in all
matters arising under this contract' (cl. 7). The cardinal test suggested by
Dicey in rule 180 is thus fully satisfied.
As regards the governing law of arbitration, Dicey says :
"Rule 58. - (1) The validity, effect and interpretation of an
arbitration agreement are governed by its proper law.
(2) The law governing arbitration proceedings is the law chosen
D
by the parties, or, in the absence of agreement, the law of the E
country in which the arbitration is held." (Vol. I, Pages 534535).'
The principle in rule 58, as formulated by Dicey, has two aspects
(a) the law governing the arbitration agreement, namely, its proper law;
and (b) the law governing the conduct of the arbitration, namely, its F
procedural law.
The proper law of the arbitration agreement is normally the same as
the proper law of the contract. It is only in exceptional cases that it is not
so even where the proper law of the contract is expressly chosen by the
parties. Where, ·however, there is no express choice of the law governing G
the contract as a whole, or the arbitration agreement as such, ·a presumption may arise that the law of the country where the a~bitration is agreed
to be held is the proper law of the arbitration agreement. But that is only
a rebutable presumption. See Dicey, Vol I, p. 539; see the observation in
Whitworth Street Estates (Manchester) Ltd. v. James Miller & Partners Ltd., H
122
SUPREME COURT REPORTS
[1992] 3 s.t.R.
A
1970 AC 583, 607, 612 and 616).
The validity, effect and interpretation of the arbitration agreement
are governed by its proper law. Such law will decide whether the arbitration
clause is wide enough to cover the dispute between the parties. Such law
B
will also ordinarily decide whether the arbitration clause binds the parties
even when one of them alleges that the contract is void, or voidable or
· illegal or that such contract has been discharged by breach or frustration.
See Heyman & Anr. v. Darwins, Ltd., 1942 (1) All E.R. 337. The proper
,;._ -
law of arbitration will also decide whether the arbitration clause would
,
equally apply to a different contract between the same partieS' or between
c one of those parties and a third party.
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The parties have the freedom to. choose the law governing an international commercial arbitration agreement. They may choose the substantive law governing the arbitration agreement as well as the procedural law
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D governing the conduct of the arbitration. Such choice is exercised either
expressly or by implication. Where there is no express choice of the law
,.
governing the contract as a whole, or the arbitration agreement in par- , ,
ticular, there is, in the absence of any contrary indication a presumption
that the parties have intended that the proper law of the contract as well
as the law.governing the arbitration agreement are the same as the law of
E
the country in which the arbitration is agreed to be held. On the other
~
hand, where the proper law of the contract is expressly chosen by the
parties, as in the present case, such law must, in the absence of an
unmistakable intention to the contrary, govern the arbitration agreement
which, though collateral or ancillary to the main contract, is nevertheless a
F
part of such contract.
......
Whereas, as stated above, the proper law of arbitration (i.e., the
;....._
substantive law governing arbitration) determines the validity, effect and
interpretation of the arbitration agreement, the arbitration proceedings are
G
conducted, in the absence of any agreement to the contrary, in accordance
with the law of the country in which the arbitration is held. On the other
hand, if the parties have specifically chosen the law governing the conduct
and procedure of arbitration, the arbitration proceedings will be conducted
---
in accordance with that law so long as it is not contrary to the public policy
or the mandatory requirements of the law of the country in which the
H arbitration is held. If no such choice has been made by the parties,
N.T.P.C., v. SINGER CO.