# RENUSAGAR POWER COMPANY LTD v. GENERAL ELECTRIC COMPANY AND ANR

- **Citation:** [1985] 1 S.C.R. 432
- **Court:** Supreme Court of India
- **Decided:** 1984-08-16
- **Case number:** Civil Appeal No. 2434-35 of 1984
- **Bench:** V. D. Tulzapurkar, R. S. Pathak
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/renusagar-power-company-ltd-v-general-electric-company-and-anr-8692
- **Pages:** 79

## Headnote

Foreign Awards (Recognition and Enforcement) Act, 1961 Section 3,
scope of-Whether an earlier suit in the nature of a petition ur.der section 33
•f the Indian Arbitration Act, 1940 could be stayed on a petition under section
3 of the Foreign Awards Act, (a petition the nature of a petition under sectl9n
34 of the Indian Arbitration Act).
Interpretation of Statutes-Foreign Awards (Recognition and Enforcement) Act, 1961-Interpretation of Act calculated and designed to subserve the
cause of facilitaring international trade and promotion and providing speedy
settlement of disputes arising in such trade-Any expression or phrase In the
D
Act must receive an liberal construction consistent with its· liberal and grammatical sense.
I
'
G
ff
Scope1purview of the Arbitrr~l Clause in Article XVIII in the contractJurisdiction of an Arbitratar to decide the Umits of his own jurisdlctianWhether a dispute inclusive of the arbitrators' jurisdiction comes within the
scope of purview of Arbitration Clause, primarily depends on t/1e terms of the
Arbitration Clause.
Issuance of pramlssary notes further supported by Bank guarantee by the
buyer towards the purchase price under the contract itself and not by way of
separate contract, whether discharges the obligation to pay the purchase priceWhether; the claims for the "Unpaid Reg1tlar 111terest, Delinquent Interest and
Compensatory Damages" be said to be" not arising out .. of the
~ontract" and,
therefore, not referable to Arbitration.
Wards andphrase~-''Arising out of", in relation ta", "in consequence
of", "concerning", ''relatlng to", are expressions of widest amplitude and
content and include even questions as to existence, validity scope and effect of
Arbitration ay rc?ement.
Negatloble lnstruments-Nigotiable instruments taken on account oj
debt whether operates as absolute discharge or not is a question of intention of
parties-Bil/ or Promissory notes can never go in discharge of debt unl•s it
11 specified as a part of contract that It shall be so.
The first respondents Geoer~J 2l~tric Com,panr, a <_::ompan)' incor ..
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RBNUSAGAR CO. v. GENERAL ELECTRIC CO •.
433
porated under the laws of the State of New York, USA, on a contract in
writing dated August 24, 1964 agreed to sell, to the appeUant Renusagar
Power Company Ltd., equipment for a tberma1. electric generating p!ant
to be erected at Renukoot on the terms and conditions set out therein.
Work to be performed under the
contract included supply of equipment
spare parts and services for which a sum of$ 13, 195,000 being the total
purchase price and otherwise called the ~·contract Base Price" was payable
by Renusagar in lawful currency of the USA in tho manner stipulated in
the contract.
Under the contract, the parties intended completion of (a)
the delivery of the equipment and spare parts etc. within t S months of the
Contract Effective Date {December 31, 1964) i.e. upto March 30, 1966;
{b) the erection of the plant withia 16th to 30th moath (i.e. from April
!, 1966 to June 30, 1967); so that (c) the plant \.ould be fully operational by the end of 30th month from the Contract Effective Date i.e. by July
1, 1977.
.
The partie,, therefore, agreed. (a) that substantial payment of the
purchase price by Renus1gar should commence when the plant became
operational i.e.
June 30, 1967; (b) that no interest would be payable
during: the delivery period; le) that interest sbatJ be paid during the erection
period and thereafter till payment but the interest during the erection
period would be capitalised and added on to the principal; (d) that initially
teit per cent of the tctal Contract Base Price ($ 1,319,500) should be
pilid either in cash or by mf:ans of a Letter of Credit within 30 days of
. the Contract Effective Date and that the balance of 90% of the purchase
price plus interest at 6!% per. annum from 16th to 30th month aggre ..
gating to US$ 11,116,058,15 <t 11,815,SOO for principal plus$ 900.SS8,
75 being the capitalised interest at the

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432
RENUSAGAR POWER COMPANY LTD.
v.
GENERAL ELECTRIC COMPANY AND ANR.
August 16, 1984
[V. D. TULZAPURKAR AND R. S. PATHAK, JJ.]
Foreign Awards (Recognition and Enforcement) Act, 1961 Section 3,
scope of-Whether an earlier suit in the nature of a petition ur.der section 33
•f the Indian Arbitration Act, 1940 could be stayed on a petition under section
3 of the Foreign Awards Act, (a petition the nature of a petition under sectl9n
34 of the Indian Arbitration Act).
Interpretation of Statutes-Foreign Awards (Recognition and Enforcement) Act, 1961-Interpretation of Act calculated and designed to subserve the
cause of facilitaring international trade and promotion and providing speedy
settlement of disputes arising in such trade-Any expression or phrase In the
D
Act must receive an liberal construction consistent with its· liberal and grammatical sense.
I
'
G
ff
Scope1purview of the Arbitrr~l Clause in Article XVIII in the contractJurisdiction of an Arbitratar to decide the Umits of his own jurisdlctianWhether a dispute inclusive of the arbitrators' jurisdiction comes within the
scope of purview of Arbitration Clause, primarily depends on t/1e terms of the
Arbitration Clause.
Issuance of pramlssary notes further supported by Bank guarantee by the
buyer towards the purchase price under the contract itself and not by way of
separate contract, whether discharges the obligation to pay the purchase priceWhether; the claims for the "Unpaid Reg1tlar 111terest, Delinquent Interest and
Compensatory Damages" be said to be" not arising out .. of the
~ontract" and,
therefore, not referable to Arbitration.
Wards andphrase~-''Arising out of", in relation ta", "in consequence
of", "concerning", ''relatlng to", are expressions of widest amplitude and
content and include even questions as to existence, validity scope and effect of
Arbitration ay rc?ement.
Negatloble lnstruments-Nigotiable instruments taken on account oj
debt whether operates as absolute discharge or not is a question of intention of
parties-Bil/ or Promissory notes can never go in discharge of debt unl•s it
11 specified as a part of contract that It shall be so.
The first respondents Geoer~J 2l~tric Com,panr, a <_::ompan)' incor ..
•
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}
RBNUSAGAR CO. v. GENERAL ELECTRIC CO •.
433
porated under the laws of the State of New York, USA, on a contract in
writing dated August 24, 1964 agreed to sell, to the appeUant Renusagar
Power Company Ltd., equipment for a tberma1. electric generating p!ant
to be erected at Renukoot on the terms and conditions set out therein.
Work to be performed under the
contract included supply of equipment
spare parts and services for which a sum of$ 13, 195,000 being the total
purchase price and otherwise called the ~·contract Base Price" was payable
by Renusagar in lawful currency of the USA in tho manner stipulated in
the contract.
Under the contract, the parties intended completion of (a)
the delivery of the equipment and spare parts etc. within t S months of the
Contract Effective Date {December 31, 1964) i.e. upto March 30, 1966;
{b) the erection of the plant withia 16th to 30th moath (i.e. from April
!, 1966 to June 30, 1967); so that (c) the plant \.ould be fully operational by the end of 30th month from the Contract Effective Date i.e. by July
1, 1977.
.
The partie,, therefore, agreed. (a) that substantial payment of the
purchase price by Renus1gar should commence when the plant became
operational i.e.
June 30, 1967; (b) that no interest would be payable
during: the delivery period; le) that interest sbatJ be paid during the erection
period and thereafter till payment but the interest during the erection
period would be capitalised and added on to the principal; (d) that initially
teit per cent of the tctal Contract Base Price ($ 1,319,500) should be
pilid either in cash or by mf:ans of a Letter of Credit within 30 days of
. the Contract Effective Date and that the balance of 90% of the purchase
price plus interest at 6!% per. annum from 16th to 30th month aggre ..
gating to US$ 11,116,058,15 <t 11,815,SOO for principal plus$ 900.SS8,
75 being the capitalised interest at the aforesaid rate for the aforesaid
period) should be paid in accordance with the schedule of payments set
ou~
in the contract.
The schedllle for tho payment of the said bala n:::e of 90 %
of the purchase price provided for payment to be made in sixteen sixmonthly instalments or U.S. $ 798,503.68 each, ihe first of such instaI ..
meats beiJ.g payable on 30. 6. 1967 and the last instalment falling due on
Jt.12,1974.
The obligation to make such payment was to be evidenced
by four series (A-B·C-D) of 16 unconditional negotiable promissory notes
to be executed by
Renu~agar (Vide Article J[[); (e) that in case ·or first
respondent receiving an exemption from . the Government of India from
payment of income tax on interests received by it from Renusagar then the
interest for that portion of the Period shall be computed at 6% instead or
61% per annum and that the concerned promissory notes would be replaced
or substituted by fresh one reflecting the adjustment in payment of .interest
necess~tated by the grant of tax exemption; (f) that should CjEC's application
for exemption be denied the appellants may withhold the Indian Jacome Tax
applicable to any payments of interest but shall furnish the first respondents witn tax receipts of all withheld amounts paiP to the Government of
India so as to enable first respondents to obtain corresponding credit for
the sum in their US tax assessment (Vide Article XlV-B); (g) that the
appellants shall furnish guarantee of the United Commercial Bank for
payment of tho full amount of promissory notes; (h) thlt the rights and
obligation of the parties would be governed in all respects by the laws of
the State of New York, U.S. A. (Vide Article XIX-A) and that (j) "Any
disagreement a•ising out of or related to this contraCt which the parties
are uaabJe tQ resolve by sincere negotiation shall be finally settled in
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434
SUPREMB COURT REPORTS
[1985} ! S.C. R.
accordance \Vith the Arbitration Rules of the foternatio11al Chamber of
Commerce.
As provided in"" the said Rules, ench party shall appoint one
Arbitrator, and the Court of Arbitration of the International Chamber of
Commerce shall appoint the third Arbitrator.
Arbitration proceedings
shall be conducted at such time 'and place as the Court of Arbitration shall
decide.
Judgment upon an award may be entered in any court of competent
jurisdiction." (Vide Arbitration Clause in Article XVII).
Pursuant to the said Contract the appellants fulfilled all preliminary
conditions of the contract, including the furnishing of a guarantee executed
by the UCO Bank irre".ocably guaranteeing to the first respondents and to
any subsequent holdef in due course of the notes the full and prompt
payment of the principal and interest on the notes.
Subsequently on an
agreement recorded in the first respondents Jetter dated June 11, 1965 and
as approved by the Central Government, the 1964 Contract
(IGE-9~84)
was extended to include the supply of unfabricated structural steel to
Renusagar ror approximately U.S. $ 300,COO on the same conditions
including the Arbitration Clause as contained in the original 1964 (JGE9584) Contract, except that the appellanls agreed and issued a fifth
series,
(E series) of sixteen promissory notes bearing interest at 6-i % per annum
evidencing 90 % of the price of the structural steel; and the payments dates
thereof being the same dates as the corresponding promissory notes of the
earlier four series.
During the implementation of the contract two events occurred giving
rise to the GEC's·three claims against the appellants that are sought to be
referred to arbitration of International Chamber of Comn1ercc, namely, (i)
grant of exemption by the Government of India to G. E. C .. in respect of
interests on purchase pr~ce receivable by it from the appellants 3nd the
revocation thereof, leading the appellants to file a civil writ petition No,
179 of 1970 in the Delhi High Court and getting the revocation orders
quashed and (ii) re-scheduling dates of payment of purchase price agreed
to by the parties but not approved by the Reserve Bank of India and the
Government of India.
The three claims of G. B. C. were (i) the Unpaid Regular interest to
the tune of 2.1 million dollars (U.S.) wrongly deducted and wrongly with.
held and kept with themselves by the appellants from 1970 onwards denying
G. E. C. of thec..benefit of getting the corresponding credit in their U.S.
taK
asse!sment from 1970 onwards.
The amount represented the difference
between U. S. $ 24,12,680.20 (73 % of the intr.rest payable calulated on the
basis of 6!% subject to tax) and U.S.$ 21,30,785. 52 (calculated on 6%
tax free basis); (ii) Liability for Delinquent Interest on account of the delays in
payment of four instalments of purchase price together with interest, due
1
to the
failure to have re-scheduling of payments approved by Reserve
Bank and Government of India; to the tune of U. S. S 7,84,lSl. 84
(calculated on the basis of 6% tax free basis); and (iii) The Compensatory
Damages arising out of non-payment of the aforesaid two claims of Unpaid
Regular Interest and Delinquent Interest for over twelve years, the quantum
being calculated by way of interest on those amounts at tbe markot rata of
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RBNUSAGA!l CO. v. GBNBRAt EtHCTRIC CO.
435
18% per annum amounting to
U.S. $ 41,610,534.88 upto 31.3.1982
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(to bo extendi!d till the date of actual payment).
According to G.E.C. the
app~llants for a long period of 12 years had~illegally and wrongfully retained
on one pretext or the other these two fund:i with itself and had enjoyed the
use thereof for its o·Nn private advantage and had correspondingly totally
deprived G.E.C. of their use fJr which the appellants must compensate by
way of dalnages in as much as they must be regarded as a stake holder or
constructive trustee of those funds from the various dates on which tho
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payments became due and payable and under the common law jurisdictioo
restitution was payable by a stake holder to the party ultimately determined
to be a rightful beneficiary owner of the funds.
By a notice of intention to arbitrate dated March 1, 1982 G.E.C •
called upon the appellants to remit the aforesaid sums and also addressed
a letter dated March 2, 1982. to the Secretariat Court of Arbitration of
ICC containing a request for arbitration being undertaken by it seeking
reliefs as set out in the notice to the appellants.
After ICC took cogaiz ..
aace of the request for arbitration by G,E.C. it called upon the appellants
to nominate its Arbitrator, file its reply and remit certain sums towards
the administrative expenses and arbitration fees.
Thereupon, the appellants on June 11, 1982 filed suit No. 832/82
io the Bombay High Court on its original side against G.E.C. and ICC
seeking a declaration that the cla.ims referred to the arbitration of ICC by
G.E.C. were beyond the scope/purview of the
arbitration agreement
contained
in Article
XVIC of contract
IGE-9584 d,1ted August 24,
1964 and that G.E.C. was not entitled to refer the same to the arbitration
with consequential prayers for injunctions restraining G.E.C. and ICC from
proceeding further with thl.l reference and restrainiug I.C.C. from requiring
the appellants to n1ake
~ny deposit towards administrative expenses and
Arbitration fees and obtained an ex;-parte ad-interhn relief.
On August
11, 1982 G.E.C. filed Arbitration Potitioo No. 96 of 1982 under section
3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 seeking
stay of suit No. 83.l of 1982 aud all proceedings tberGill with a prayer for
vac.:ating the ad-interim ex-parte reliefs obtained by the appellants ia the
said Suit.
Both the matters, G.E.C.'s stay petition under section 3 and the
appdlauts' Notice of Motion for confirmatiou of ad-inlerim reliefs were
beared together and by a common judgment and o:der dated April 19,20,
1983 the learned Single Judge allowed the Arbitration Petition 96 of
1982, granted the stay of Suit No. 832 of 1982 and all the proceedings
therein since all the ·ingred1ents of section 3 of the Foreign Awards (Recog~
nilion and Enforcement) Act, 1961 had been satisfied and vacated alJ the
interjm reliefs granted earlier,
The learned Judge he!J : (a) that the
Arbitration Clause in the original 1964 Contract could be aVa.iled of by G.B.C.
in as much as not only bad theOctob.ir 1908 Amendtn~at kept alive all otber
terms and conditions of the 1964 Colltract including Arbllratio.i CLi.u.;e
but it had fJ.ll.::a through .for lack of Government's approval; (b) thJJ~ll
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SUPREME coiiRt REPORTS
[1985] 1 s.c.il.
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the first two claims sought to be referred to arbitration by G.E.C. were
based on the promissory notes towards the purchase price was provided
under the Contract itself and these were not by way of any independent
or separate Contracts in discharge of the obligation to pay the purchase
price under the contract and since the Arbitration Clause covered all the
disputes arising out of the contract those claims fall within the Arbitration
Clause and; (c) that the liability to pay the compensatory damages arose
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out of failure to carry out the terms and conditions of the contract in regard
to payment of purchase price and that even assuming that the said claim
was one in tort it was directly and inextricably connected with the terms
and conditions of the contract and certainly uarose out ofu the contract
of was ''in relation to" the contract aod therefore, could be entertained by
the Arbitrators.
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Renusagar preferred two appeals being civil Appeal Nos. 404·405 of
1983 and
contend~d : (a) An Arbitrator bad no jurisdiction to decide the
limits of his own jurisdiction and since in the case of International Arbitra·
tion the jurisdiction of the Arbitrator bad to be decided according to the
Law of the Forum where the question is raised (in the instant case being
the Indian Law) the jurisdiction of the Arbitrator, "lCCorJiog to that Law 1
had to be decided by the GJurt and not by th' Arbitra\ Tribunal; (b) the
dispute sought to be referred related substal)tially to the claim for intere'it
and that claim was
(and it was so stdted in
the notice of intention
to arbitrate) founded on the promissory notes wh~cb W.!r...:
independl!nt
contracts by themselves and tllercfi.Jro, the c!aim did not arise out of the
suit contract and
henc~ could not be the
sulij~ct m1tter of Arbitration;
(c) that claim for compensatory intere:it w.1s really a· claim for damages
arising out of tort aod such a claim was in. any case not
case by the
suit contract and fell outsid~ the scop;i of th~ Arbitr.itioa Clau>e; and (d) in
any event Renusagar h1d m 1di:: out a prirn<1.
fa.:ie ag:1.iast by ra1s1ng
serious 1riable issues in the suit which should enable it to claim an injunction restraining the arbitration proceedings.
The Court of appeal negatived all the contentions and ultimately
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confirmed the trial Judge's order whereby Renusagar's suit was stayed and
the interim reliefs granted to it were vacated and hence the appeal by
certificate by Renusagar.
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Arguments for the appellants :-
(1)
The Arbitration Petition under section 3 (which is really in the
nature of a Petition under section 34 of the Indian Arbitration Act, 1940,
is totally misconceived and liable to be dismissed because the Suit
No.
832/ 1982 filed by the appellants is merely for a declaration that the tbree
claims sought to be referred to arbitration are b~yond the scope/purivew
of arbitration clause and no other relief on the merits of those claims is
sought, and the Suit, being really in the nature of a petition under section
33 of the Indian Arbitration. Act, 1940, in as much as it seeks to have
the effect
~scope) of tbe arbitration Pgreement determined, can never by
stayed under section 3 of the Foreign Awards Act,
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RENUSAGAR co. v. GENERAL ELECTRIC CO.
437
(2)
Th~ suit filed by the appellants is not "in respect of any matter
agreed to be referred to arbitration" as required by section 3, and therefore,
the stay sought for by G.E.C. should be refused;
(3)
The Court acting under section 3 (like the Court acting under
section 33 of the Indian Arbitration Act) being a court of limited Jurisdic·
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tion cannot determine the question of the existence, validity or effect of
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the arbitration agreement (which is the only issue to be tried in the appe~
llants' suit) and it is for the court trying the suit to decide the question
raised in the suit, and therefore, a stay, if granted under section 3 appli·
cation would finally determine the suit or render it almost dead for all
practical purposes and thercforeJ no relief on the said petition can be
granted which will have such effect;
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(4)
The question raised in the suit relating to the effect (scope of
the Arbitration Agreement, which is the same as the question relating to
the existence thereof, is such as is incapable of being finally determined
by the Arbitrators and hence such a suit cannot be stayed under section 3
of the Foreign Awards Act;
(5) The underlying commercial contract (IGE-9584) for sale of goods
and services contains no obligation to pay any interest after Juno 30, 1967
(i.e. after the 30th month from the contrac1 effective date) (whether six and
a half per cent or six per cent) but that such obligation to pay interest after
June 30, 1967 is only to be found in the promissory notes and the two claims
of G.E.C., namely, first claim of 2.1 million D.S. dollars a·nd the second
claim for U.S. $ 78, 1S1.24 towards approximately 80% for Unpaid
Regular Interest and Delinquent Interest respectively, being dues after
June 30, 1967, preferred before the arbitrators do not
~'arise out ofl~ the
contract nor are they
er in relation to" ·thereto but
arise under the
promissory notes and hence fall outside the scope ofarbitration agreement ;
(6) The promissory notes executed by the appellants were in complete
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di~charge of the obligation to pay- purchase price and interest thereon under
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the contract and these notes constitute independent and separate contracts
by themselves, and therefore, lhe liability arising out thereunder cannot
.be regarded as "any arising of the contract" or "in relation thereto'' and
what is more these claims have been described by the G.B.C. in their notice
of intention to arbitrate as "ari11ing under the promissOry notes"';
(7)
The claim for compensatory damages being a liability arising in
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tort, for wrongful detention of the first two funds and si11ce it was being
enforced on the basis of appellants' status as a stake holder or constructive
trustee the same is clearly outside the scope of the arbitration agreement;
and
(8)
Since the issue of arbitrability of these claims is raised in the
appellants' suit it is but proper that till the issue raised in the suit is
finally decided by the Court, tbe
arbitration
proceedings should be
iniuncted.
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SUPREME COURT REPORTS
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Arguments for respondent company :
(1)
The schemes of the Foreign Awards Act and the Indian Arbitra·
tion Act, 1940 being not identical, there are various n1aterial differences
which have a bearing on the issue whether a suit seeking determination of
of the effect (scope) of an arbitration agreement c::in or cannot be stayed
in a petition under section 3 of the Fofeign Awards Act and that answer
to it depends upon proper construction to be placed on that section in the
light of the scheme of that Act;
(.2)
Since all the ingredients of section 3 have been satisfied the stay
of Renusagar's suit will be obligatory;
(3)
Alternatively, the legal position is that both under English Law
and Indian Law, it is open to the parties to have an arbitration agreement
incorporating words of the widest amplitute so as to embrace even the questions of its existence, validity or effect (scope) but an enquiry into lhe
scoDe and effect of an arbitration agreement and a challenge to the existence
or validity thereof are not the same but fundamentally different in as much
as the first pre-supposes that the arbitration agreement exists in fact and
in law and the enquiry then is limited to the scop" and effect thereof;
(4)
Whenever it is said that an arbitrator cannot decide the question
of his own jurisdiction all that is intended is that he canno: determine.....:.....
that too .finally, the question of the existence (factual) or validity (i.e.
legal existence) of the arbitration agreemi;ont, if contained in the underlying
commercial contract and this must be so, for, if the existence or validit7
of the underlying commercial contract is successfully challanged the arbi·
tration clause which is the pa1t and parcel thereof must perish with ft and
·therefore, the Arbitrator will have no jurisdic·ion to decide tfie issue of the
existence or validity of the agreement but even here if the arbitration
agreement so widely worded if separate and independent from the commercial contract the arbitrator will have jurisdiction to decide the questions
about existence or validi•y of the commercial contract; but these principles
have no application whatsoever to a case where the issue relates to the
scope and effect of the arbitration agreement contained in the underlying
commercial contract and the arbitration agreement is wide enough to include
such an issue, for, in such a case the Arbitrator will have Jarisdiction to
decide that issue.
Therefore, since
in the instant case the Arbitration
Clause co-ntained in the underlying commercial contract IGE~9584 is of
the widest amplitude it is the Court of Arbitration of I.C.C. which will
have jurisdiction to adjudicate not merely three claims of G.E.C. on merits
but also the issue whether those claims fall within the Arbitration· Clause
or not;
(5) The issue pertaining to the scope and effect of the arbitration
agreement,- if raised in an application under· section 34 of the Indian
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Arbitration Act, the Court has to decide it <1nd the Courts' decision thereof
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RENUSAGAR CO, v. GENERAL ELECTRIC CO.
439
will naturally be binding on the Arbitrators even though the issue was
within the competence of the Arbitrators because of the wide wording of
the Arbitration Clause. Here, sir ce the Court has decided the issue whether
the three claims "arise out of" or are ·crelated to" the contract affirmatively it will be binding on the Court of ..\rbitration of I.CC. and it will be
futile for that court of Arbitrati0n to go into that question again;
(6) The commercial contract (IGE-9584) does contain an obligation
on the part of Renusagar to pay interest on unpaid purchase price after June
30, 1967 (and not merely in the promissory notes), ·which could be readily
inferred from Art. III (a) 3(c) read with Article XIV-B and therefore the
first
two clairrs for Urip<iid Regular
Iaterest
and Delinquent Interest
due after June 30, 1967 preferred before the Arbitrators not merely "arise
out or• but really arise "under' the contact;
(7) The third claim for Compensatory Damages which flows by way
of corollary from wrongful detention of the first tv..o funds which ought to
have been paid under the Contract is so closely connected with the contract
that it is clearly "in relation to it";
(8) The promissory notes executed by Renusagar were· not and are
not in discharge of the obligation to pay the price and interest thereon
under the contract; nor do these notes constitute independents and separate
contract by themselves,
These arc a part of the contract and the two are
so ioseverab\y and inextricably bound together that the obligation under the
contract can never be deemed nor intended to h1ve
b~en completely disr
charged by the mere execution of the no e;.
The real nature of the claims
preferred beforo \.he arbitrators and not the nomenclature or deicriptioa
thereof by any party would be relevant and
decisive· AlternatiYely, even
assuming (a) that the promissory notes are not an inseverablc anJ e~extri
cable part of the Contract, (b) that the obligation arising under the Notes
is totally different from the one arising under the contract and (c) that the
Notes .ere in discharge of the oblig.ition to make payment under the Contract
(all of which are strongly denied), the threF: claims would still be covered by
the Arbitration Clause which is of the widest ampiitude, for it would be
erroneous to determine whether a claim arises out of or in relation to th0
Contract by looking at the cause of action on which the claim is based.
(9) The Court of Appeal was justified in coming to the conclusion
that no prima facz'e case for injunction restraining arbitration proceedings
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bad been made out by Renusagar and it bad, therefore, rightly vacated the
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ad-interim injunction and stayed Renusagar's suit.
Dismissing the appeals, the Court,
HELD :
1.1 Tbe question, whether under section 3 of the Foreign
Award (Recognition and Enforement) Act, 1961 having regard to its scopeJ
a suit in the nature of a petition under section 33 of the Arbitration Act,
1940 could be stayed must necessarily depend upon a correct construction
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440
StiPkEMB COURT REPOkts
[1985] 1 s.C.R.
A
of the said section 3, by keeping in mind the objective sought to be achieved
by that Act and its scheme and not on the basis of similar or analogous
provisions that a.re to be found in the Arbitration Act, 1940 or the manner
in which such similar or analogous provisions have been construed by
Indian Courts. [49 IF-G; 492A-B]
B
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1.2
The Statement of Objects and reasons shows that the Foreign
Awards (Recognition and Enforcement) Act, 196 t seeks
teo achieve speedy
settlement cf disputes arising from international trade through arbitration.
The Act, a successor to the Arbitration (Protocol and Convention)
Act,
1937 was enacted to give effect to the New York International Coovenl-ion
on the Recognition and Enforcement of Arbitral Awards adopted o·n 10th
June, 1958 and to which India is a party.
Section 2 of the Act defines
the expression "Foreign Awards", and closely follows the language of
Article II of the convention which provides for recognition by contracting
States of agreements, including !lrbitral clauses in writing by which the
parties to the agreement
~ndertake to submit to arbitration all or any
difference which have arisen or which may arise between them in respect
of defined legal relationship, whether contractual or not, concerning a
subject matter capable of settlement by arbitration. [4928; D;G]
1.3
Since the Act is calculated and designed to subserve the cause
of facilitatiog intetnational trade and promotion thereof by providing for
speedy settlement of disputes arising in such trade through arbitration,
l
any exprl!Ssion or phra')e occurring therein should, therefore, receive
•
consistent with its literal and grarnmaticJ\ sense, a liberal construction.· An
examination of the relevant provisions of the Foreign Awards Act and the
E
Arbitration Act of 1940 show that the schemes of the two ~ .. cts are not
identical and there are various differences which have a malerial bearing
on the question under consideration and as such decisions on similar or
analogous provisions contained in the Arbitration Act cannot help in deciding
the issu~ arising under the Foreign Awards Act because just as the Arbitration Act, 1940 iS a consolidating enactment governing all domestic awards
the Foreign Awards Act constitutes a complete code by itself providing
F
for all possible contingencies in relation to Foreign Awards made pursuant
to agreements to which Article II of the Convention Applies. [492G; 493A-BJ
G
11
1.4 On a plain reading of Section 3 of the Foreign Awards Act two
things become very clear, namely, (i) the section opens with a· non obstante
clause giving over riding effect to the provisions contained therein and
making it prevail over anything to the contrary contained in the Arbitration Act, 1940 or the Code of Civil Procedure, 1908; and (ii) unlike
section 34 of the Arbitration Act which confers a discretion upon the Court,
the section uses the mandatory expression "shall" and imakes it obligatory
upon the Court to pass the order staying tha legal proceedings commenced
by a"party to the agreement if the conditions specified therein are fulfilled.
[494A·B]
The conditions required to be fulfilled for invoking section 3 of the
Foreign Awards act are :
kENtisAGAR co. '· GENERAL ELECtRJC to.
441
(1)
there must be an agreement to which Article II of the Convention set forth in the Schedule applieS.
(It is not disputed that this is so
in the instant case); [494C]
(2)
a party to that agreement must commence legal proceedings
against another party thereto; (it is again not disputed that Renusagar and
G.E.C. are the two parties to the arbitration agreement an that Renusagar
bas commenced legal proc,edings against G E.C. by filing· Suit No. 832
of 1982); [494D]
(3)
the legal proceedings must be uin respect of any. matter agreed
to be referred to arbitration" ''in such agreement; (tho question whether
this condition is fulfilled here needs to be decided), [494E]
(4)
the application for stay must be made before filing the written
statement or taking any other step in the legal proceedings; (admittedly
this condition is fulfilled); [494F]
(5)
The Court bas to be satisfied that the agreement is valid, opeA
B
c
rative and capable of being performed; this relates to the satisfaction about
D
rexistence and validity, of 1be arbitration agreement; (in the instant case
these questinns do not ariso); and [494G]
(6)
the Court bas to be satisfied that there are disputes between
the parties wilh regard to the matters agreed to be referred; this relates to
effect (scope) of the arbitration agreement touching the issue of the arbi~
trability of the clain1s
(it will have to be dealt with while considering
the satisfaction of condition (3), [494H]
(In the instant case, the parties were thus at issue as to the fulfil·
ment of conditions (3) and (6) only and it is on the fulfilment of these that
the obligation of the court to stay the suit.of Renusagar will arise.) [495A]
1.5
The scheme 1Jf the two Acts (Foreign Awards Act and Arbitration Act) materially differ on several aspects having a bearing on the points
at issue I as seen by an examination of section 3, 4, 7, of the Foreign
Awards Act, in juxta-position with sections 32. 33 and 34 of the Arbitration Act.
Under section 32 of the Arbitration Act suits no challenge the
existence or validity of an arbitration agreement or award as also suits to
E
have the effect (scope) of an arbitration agreement determined are barred
G
and such questions can be raised only by an application under section 33
of the Act whereas under the Foreign Awards Act there is no provision
similar or akin to sections 32 and 33 (and that iS why a suit of the nature
filed by Reousagarqua
the arbitration agreement covered by the Convention
is maintainable) but by virtue of sections 3 and 7 the same purpose is
served though by different procedure.
Sections 3 and 7 read together
disclose a scheme that so far as questions of existence, validity and effect
(scope) of the arbitratioll agreement are concerned, the determination thereof
. by the arbitrators is also subject to the decision of the Court and this
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442
SUPl\EME COURT REPORTS '
[1985] 1 s.c.n.
decision of the court can be had either before the arbitration
proceedings
commence or during their pend ency, if the matter is decided by the Court
in a section 3 petition, as in the present case, or can be had u11der section 7
after the award is filed in the court and is S(}Ught to be enforced under
section 6.
Tru~ section 4(2) declares that a foreign award shall be filled
treated as binding 'for all purposes' on persons as between when it is made
but that is subject to section 7 whereunder enforcea.bility thereof is made
dependent up:Jn s.itisfacdon of ccrlain conditions specified therein; for
exa1nple, under section 7( I) (a) (iii) one of such conditions for enforcibility
is that the awJ.rd should not deal with questions not referred nor should
it contain decisions on matters beyo!ld the scope of the agreement.
In
effect, section 3 of the Foreign Awards Act so to say combines in its own
ambit both S'::lctions 33 and 34 of the Arbitration Act; in other
words,
questions regarding the existence, validity or effect (scope) of the arbitration
agreement which can be decided under section 3 3 of the Arbitration Act are
required to be decided under
section 3 of ti.le Foreign Awards Act
before
a stay
of legal
proceedings
contemplated therein could be
granted and the right to have legal proceedings stayed contained in section
34 of the Arbitration Act is also to bo found in the same section 3. Further
the Foreign Awards Act has also taken cognizance of the possibility that
there may not be a Section 3 petition at all the matter being directly
proceeded before the arbitrators and the possibility of the arbitrators
giving a decision on an issue not within their competence or jurisdiction and
in such cases sectio1 7 cvntains a safeguard which prevents any such award
from being niadc enforceable.
Su::b being the. scheme uader the Foreign
Awards Act the decisions of the Indian Courts oa similar or analogous pro ..
visions contained in the Arbitration A::t would not be of any help to decide
questions arising under the Foreign Awards Act. [495B·H; 496A·C]
Balabux Agarwa/la v. Shree Luchminarain A1anufacturing Co. ILR 1948
Calcutta page 265; Gaya Electric Supply Co. v. State of Biha,, [t953] SCR
572 at 579-580 held in applic<ble.
1.6
Conditions (3) and (6) which are inter related and in substance
bear upon the same aspects ard also satisfied since, firstly. the language of
the Arbitration Clause is wide enough to embrace the issue of arbitrability of the claims and secondly, the phrase in section 3 of the Foreign
Awards Act, namely, "in respect of any
matt~r agreed to be referred to
the arbitration"· cannot be given a narrow construction, becaus(:: (a) there is
nothing in the section warranting the same.
What matters are agreed to
be referred to arbitration will depend upon what language is employed
by the parties to the arbitration agreement and there is nothing in law or
equity which prevents the parties from referring even the questions of
existence, validity or eff~ct (scope) of the arbitration agreement itself to the
arbitrators On fact; Lord Porters' obstirvations in Heymen v. Darwins Ltd.
and Da~ J's view in Balabux Aggarwala's case show that the parties can do
it), and (b) the scheme of sections 3 and 7 of the Poreign Awards ActJ
clearly suggests that the relevent phrase would include even qu~stio11s of
existence, validity and effect (scope) of the arbitration agreement.
[496H; 497A·F]
Shiva Jute Bailing Ltd. v. Hindley Co, [1960] I SCR 509, Khardah
Company Ltd. v. Raymon and Co. Undla) Prl•••• Ltd., [1963) 3 SCR 183
••
-
RENUSAGAR CO. v. GENERAL ELECTRIC CO,
443
Waverly Jute Mills Co. v. Raymon and Co., [1963] 3 SCR 209; M(<. R.N.
A
Ganekar and Co. v. Hindustan Wire> Ltd. AIR 1974 SC 203=[1974] I SCC
309 at 313-314 distinguished and held in applicable.
2.1
Apart from the fact that the relevant rules of I.C.C. (particularly Rules 8 3 and 8.4) in terms confer jurisdiction upon the Arbitrators
to decide questions as to the existence or validity of the Arbitration agree·
ment contained in the commercial contract, in the inStant case, since the
parties to the underlying commercial contract have used the expressions
"arising out of" or "related to this contract" in the Arbitration
Clau~e
XVII contained in•the contract, the parties clearly intended to refer the
issue pertaining to the effect (scope-) of the Arbitration Agreement to the
Court of Arbitration of International Chamber of Commerce, in other words
the issue about the arbitrability of the three clain1s under reference has been
referred. [465E-F; 471G·H; 472A]
2.2
Four propositions emerge very clearly from lhe authorities
· decided by the Indian Courts; [470F]
(a)
Whether a given dispute inclusive of the arbitrator's jurisdiction
comes within the scope or purview of an arbitration clause or not primarily
depends upon the terms of the alause iiself; it is a question- of wbat the
pa~ties intend to provide and what 1·anguage they employ; (4700-H]
(b)
Expressions such as "arising out of" or "in respect of" or
"in connection with" or "in relation to" or ''inconsequence of" or "concerning" or "relating to" the contract are of the w:dest amplitude and
content aud include even questions as to the existence, validity and effecc
(scope) of tbe arbitration agreement; [471A-B]
(c)
Ordinarily as a rule a11
arbitrator cannot clothe himself with
power to decide the
qu~s~iotis of his own jurisdiction (and it will be for
the Court to decide tho:3e questions) but there is nothing to prevent the
parties from itivesting him with power to decide those questions, as for
instance, by a collateral or separate agreement which will be effective and
operative; [17lC]
(d)
If, however, the arbitration clause, so widely worded as to
include within its
scop~ questions of- its existence, validity and effect
(scope}, is contained iO the underlying commercial contract then decided
cases have made a distinction between questions as to the existence and or
validity of the agreement on the one hand and its effect (scope) on the
other and have held that in the case of former those questions cannot be
decided by the arbitrator. as by sheer logic the arbitration clause must
fall along with underlying commercial contract which is
either non-existent
or illegal while in the case of the latter it will ordinarily be for the arbitrator to decide the effect or scope of the arbitration agreement, i.e. to
decide the issue of ar~ilrabilily of tb~ c;
1 ;i~Pl preferred before him. [471D·F]
B
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ff
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D
E
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444
SUPREME COURT REPORTS
[19'85] 1 s.c.R·
Government of Gibralter v. Kenney and Anr. [1956) 3 All E. R. 22;
Heyman v. Darwlns Ltd, [1942) AC 356; Wil/e.iford v. Watson, [.1873) L.R.
8 Cb. Appeals 473 quoted with approval.
Dhanrajmal Gobindram v. Shamji Ka/idas and ::a., [1961) 3 SCR 1020;
Khardah Company Ltd. v. Raymon and Co. (India) Private Limited, [1963) l SCR
183; Jawahar Lal Burman v. Union of India, [1962) 3 SCR 769; Waverly Jute
Mills Co. v. Raymon and Co. [1963) 3 SCR 209; Balabux Agarwal/av. Sree
Luchminarain Manufacturing Co., !LR [1948) I Cal. 265 referred to.
2.3 All the three claims referred by G.E.C. to the Court of Arbitration of J.C.C. do "arise out of" and are "related to" the commercial con·
tract On fact the firft two claims arise ''under the contract") and squarely fall
within (be widely worJed arbitration clause being Art.
XVII contained in
the commercial contract.
The third clairn for compensa:ory damaaes is
directly, closely and inextricably connected with the terms and conditions of
the contract the payments to be made thereunder and the breaches thereof
and since for adjudication thercor recourse to the contract would be necessary it is a claim er arising out of" and in any event "related to. the contractu.
The Arbitration Clause embraces even the question of its effect (scope) that
is to say it embraces the issue or the arbitrability of the three issues.
[488D-E, 489A-B)
2.4 The contract does contain thl':l obligation to pay future interests
on the unpaid purchase price from June 30, .1967 oow.irds till payment and
the two claims of GEC for Unpaid Regular Interest and Delinquent Interest
have been correctly preferred before the Court of Arbitration of ICC as
arising not merely "out of" but "under the contract''.