# V /0 TRACTOROEXPORT, MOSCOW v. M/S. TARAPORE & COMPANY & ANR

- **Citation:** [1970] 3 S.C.R. 53
- **Court:** Supreme Court of India
- **Decided:** 1969-10-28
- **Bench:** J. C. Shah, V . .Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/v-0-tractoroexport-moscow-v-m-s-tarapore-company-anr-5068
- **Pages:** 35

## Headnote

Foreign Awards (Recognition and Enforce1nent) Act XLV of 1961,
s. 3-"Subnzission niade in pursuance of an agree1nent'', nJeaning ofAct paSsed to
implenient
international
convention-Interpretation
of
statutes-Where language is clear Act 111ust be constrned according
to
their n1ea11ing even if against object of
convention-Injunction-Juris·
diction of Indian Courts to grant injunction restraining a party in Moscow
fronz proce.cding with arbitratio1z in Mosco'rr-Arbitration Act, 1940, s. 35,
applicability of.
By article 2 of the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, 1958, to which India was a
party, each contracting State. agreed to recognise an agreement in writing
under which the parties there.to undertook to submit to arbitration
any
dispute between them and the Court of a contracting State \\-·hen seized
of an action in a matter in respect of which parties have made an agreement "shall at the request of one of the Parties
refer the parties
to
arbitration".
To implement this Conve.ntion
Parliament
enacted
the
Foreign Awards
(Recognition and Enforcement) Act XLV of
1961.
Section 3 of the Act provides, inter alia, that "if any party to a submission
made in pursuance of an agreement" commence,s any legal procccdin_gs
in any Court any other party to the submission may at any time after
appearance and before filing a \vritten statement or taking any other step
in the proceedings apply to the Court to stay the proceedings and
the
Court, unless satisfied that the agreement is null and void, inoperative
or incapable of being performed, shaH make an order staying the proceeding.5.
In respect of a contract entered into by the respondent. an
Indian
Finn, with ·the appellant, a.Russian firm, the respondent instituted a suit
in the Madras High Court alleging breach of contract. Thereafter tho
Russian finn instituted proceedings in tenns of the arbitral clause in the
contract before the Foreign Trade Arbitration Commission of the U.S.S.R.
Chamber of C.Ommerce, Moscow. The RUMian firm also ent•cd appearance. under protest, before the Madras High Court and on the same
date filed an application under section 3 of the Act for stay of the suit.
The Indian firm filed an application for an interim injunction restraining
the Russian finn from taking any further part in the arbitration proceedings
at Moscow. The High Court dismissed the application filed by the Russian
firm for stay of the suit and granted the interim injunction sought by
the Indian firm. In appeal to this Court, the Indian firm
contended
that s. 3 of ,the Act could be invoked by the Russian firm only if it had
implemented the arbitration agreement by actually submitting the dispute
for arbitration• prior to the, institution o[ the suit.
On the questions (i)
whether the words "a submission made in pursuance of an agreement" in
section 3 of the Act meaOt an actual or completed reference made pursuant to an arbitration agreement or they meant an arbitration agreement
that has come into existence as a result of commercial contract and (ii)
whether the courts in India could
grant an injunction
restraining
a
party in Moscow from proceeding with the conduct of arbitration before
a tribunal there,
54
SUPREME COURT REPORTS
(1970] 3 S.C.R.
HELD: (Per Shah and Grover, JJ.)
The 'Nord
"submission" in section 3 means
an actual submission
made in pursuance of an arbitration agreement or arbitral clause to which
the Convention setforth in the
Schedule to the Act
applies. If submission means •iagreement to refer" or an arbitral clause in a commercial
contract it makes the entire. set of words unintelligible and
completely
ambiguous. It is difficult to comprehend in that case, why the legislature
shou1d have used the words which follow the term "submission", namely
"made in pursuance of an agree.ment".
_If by "agreement" is meant a
commercial contract the words "made in pursuance of" convey no sense.
~rhe difficulties disappear if the word submi5sion is g

## Text

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V /0 TRACTOROEXPORT, MOSCOW
v.
M/S. TARAPORE & COMPANY & ANR.
October 28, 1969
(J. C. SHAH, V . .RAMASWAMI AND A. N. GROVER, JJ.]
Foreign Awards (Recognition and Enforce1nent) Act XLV of 1961,
s. 3-"Subnzission niade in pursuance of an agree1nent'', nJeaning ofAct paSsed to
implenient
international
convention-Interpretation
of
statutes-Where language is clear Act 111ust be constrned according
to
their n1ea11ing even if against object of
convention-Injunction-Juris·
diction of Indian Courts to grant injunction restraining a party in Moscow
fronz proce.cding with arbitratio1z in Mosco'rr-Arbitration Act, 1940, s. 35,
applicability of.
By article 2 of the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, 1958, to which India was a
party, each contracting State. agreed to recognise an agreement in writing
under which the parties there.to undertook to submit to arbitration
any
dispute between them and the Court of a contracting State \\-·hen seized
of an action in a matter in respect of which parties have made an agreement "shall at the request of one of the Parties
refer the parties
to
arbitration".
To implement this Conve.ntion
Parliament
enacted
the
Foreign Awards
(Recognition and Enforcement) Act XLV of
1961.
Section 3 of the Act provides, inter alia, that "if any party to a submission
made in pursuance of an agreement" commence,s any legal procccdin_gs
in any Court any other party to the submission may at any time after
appearance and before filing a \vritten statement or taking any other step
in the proceedings apply to the Court to stay the proceedings and
the
Court, unless satisfied that the agreement is null and void, inoperative
or incapable of being performed, shaH make an order staying the proceeding.5.
In respect of a contract entered into by the respondent. an
Indian
Finn, with ·the appellant, a.Russian firm, the respondent instituted a suit
in the Madras High Court alleging breach of contract. Thereafter tho
Russian finn instituted proceedings in tenns of the arbitral clause in the
contract before the Foreign Trade Arbitration Commission of the U.S.S.R.
Chamber of C.Ommerce, Moscow. The RUMian firm also ent•cd appearance. under protest, before the Madras High Court and on the same
date filed an application under section 3 of the Act for stay of the suit.
The Indian firm filed an application for an interim injunction restraining
the Russian finn from taking any further part in the arbitration proceedings
at Moscow. The High Court dismissed the application filed by the Russian
firm for stay of the suit and granted the interim injunction sought by
the Indian firm. In appeal to this Court, the Indian firm
contended
that s. 3 of ,the Act could be invoked by the Russian firm only if it had
implemented the arbitration agreement by actually submitting the dispute
for arbitration• prior to the, institution o[ the suit.
On the questions (i)
whether the words "a submission made in pursuance of an agreement" in
section 3 of the Act meaOt an actual or completed reference made pursuant to an arbitration agreement or they meant an arbitration agreement
that has come into existence as a result of commercial contract and (ii)
whether the courts in India could
grant an injunction
restraining
a
party in Moscow from proceeding with the conduct of arbitration before
a tribunal there,
54
SUPREME COURT REPORTS
(1970] 3 S.C.R.
HELD: (Per Shah and Grover, JJ.)
The 'Nord
"submission" in section 3 means
an actual submission
made in pursuance of an arbitration agreement or arbitral clause to which
the Convention setforth in the
Schedule to the Act
applies. If submission means •iagreement to refer" or an arbitral clause in a commercial
contract it makes the entire. set of words unintelligible and
completely
ambiguous. It is difficult to comprehend in that case, why the legislature
shou1d have used the words which follow the term "submission", namely
"made in pursuance of an agree.ment".
_If by "agreement" is meant a
commercial contract the words "made in pursuance of" convey no sense.
~rhe difficulties disappear if the word submi5sion is given the meaning of
an actual submission
o·f
a particular dispute to the authority of an
arbitrator.
There is no
rule of
interpretation
by which
rank ambiguity can be first introduced by giving certain expressions a particular
meaning and then an attempt can be made to emerge out of semantic
confusion and obscurity by having resort to the presumed intention of
the Jcgis.lature to give effect to in.ternational obligations.
In this country, as is the case in England, a treaty or international protocol or convention does not become operative by
its own force unless
domestic
legislation has been introduced to attain a specific result.. Once Parliament has legislated the court must first look at the legislation and construe
the language employed in it.
If statutory enactments are clear in meaning
they must be construed according to their meaning even though they are
contrary to the comity of nations or international law. A clear deviation
from the rigid and strict rule that the courts must. stay a _suit whenever
an international commercial arbitration,
as contemplated by the protocol
and the Conventions, was to take p]ace, is to be found in Section 3.
It is
of a nature which is common. to all p~ovisions relating to stay in English
and Indian arbitration laws, the provision being that the application
to
the Court for stay of the suit must be made by a party before filing
a
\'•ritten statement or taking any other step in the proceedings. If the
condition is not fulfilled no stay can be granted. [65 G-66H; 68 DJ
Owners of Cargo on Board the Merak v. The Merak (Owners), (1965)
2 W.L.R., 250, Unipat A.G. v. Dowty Hydraulic Units, (1967) R.P.C.
401, Barras v. Ab.rdee11 Steam Trawling & Fishing Co .. Ltd., [1933] A.C.
402 and W. Wood & Son Ltd. v_ Bengal Corporation, A.I.R. 1959 Cal. 8.
referred to.
(Per Ramaswami, J. dissenting.) The expression
11submission made in
pursuance of an agreement" in section 3 bas to be construed in its historical setting. The. word "submission" must be interpreted to mean the
arbitral clause itself and the word "agreement" as the commercial or the
business agreement which
includes or embodies that clause. In other
words
the
word
"submission"
in
the
opening
words
of
the section means an agreement to refer to arbitration and the
words
"the agreement to which the convention setforth in the schedule applies."
means the business agreement or contract containing the arbitral cJausc.
It follo\vs therefore that if there is an arbitral clause whether this is
followed by actual reference to arbitration or not, the very existence of
this clause in the commercial agreement would render the stay of the
suit mandatory under section 3.
This view is considered with the rule
of construction that as far a,.;; practicable wunicipal law must be· interpreted by thb courts in conformity with international obligations \\'h~ch
the law may seek to effectuate. It is well settled that if the language of
a section is ambiguous or is capable of more than one meaning the protocol
itself becomes rele;vant, for, there is a prin1a facie presumption that Parliament does not intend to act in breach of intcrn.ational law including
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TRACTOROEXPORT, MOSCOW V. TARAPORE & CO.
55
specific treaty obligations. Article 2 of the convention imposes a duty on
the court of a contracting state when seized of such an action to refor
tbe parties to arbitration.
Section 3 must tbe~fore b~ read. in cooso~anc.e
with this international obligation. The doctnne of literal mtepretation 1s
not always the best method for ascertaining the intention of Parliament.
The better rule of interpretation is that a statute should be so construed
as to preveot the mischief and advance the remedy according te
the
true intent of the makers of the statute. [79 C-G; 85 CJ
Owners of Cargo on Board of the Merak v. The Merak (Owners),
(1965) 2 W.K.R. 250, Unipat A.G. v. Dowty Hydrau/h; Units. (1967)
R.P.C. 4-01, Barras v. Aberdeen Steam Trawling & Fishing Co. Ltd., [1933].
AC. 4-02, W. Wood & Son Ltd., v. Bengal Corporation, A.I.R.
1959 Cal.
8, Shiva Jute Balling Limited v. Hindley & Company Limited, [1960] 1
S.C.R. 569, Salomon v. Comnzissioners of Custo1ns and
Excise,. [1966]
3 A.E.R. 871, Ellerman Lines
Ltd. v. Murray [1930] All E.R.
503.
Owners of Cargo on Board The Mark v. The Merak, (1965) 2 W.L.R.
250,
Radjo
Publicity
Ltd. v. Compagine
Luxe1nbourgeoise
de
Radiodifusion, [1936J 2 All E.R. 721, In Ex P. Campbell,
1870 L.R. 5
Ch. 706, Webb v. Outrim, [1907] A.C. 81, P Emden v. Pedder,
[1904]
I C.L.R. 91, Barras v. Aberdeen Steam Trawling Co., [1933J A.C. 402,
Bajrang Electric Steel Co. v. Corn1nissioners for Port of Calcutta, A.I,_R.
1957 Cal. 240, W. Wood & Sons Ltd. v. Bengal Corporation, A.l.R. 1959
Cal. 8, K. E. Corporation v. De Traction, A.I.R. 1965 Born. 114, R. v.
Blnpe, [1849] Q.B. 769, Eastman Phorographic Co. v. Comptroller of
Patents, [18981 A.C. 571 and Hawkine v. Cat/Jercole.
(1856) 6 D.M. &
G I.
(ii) (Per Shah and Grover, JJ,) The point about the Russian firm
having no representative in India was not agitated before the High Court
and the position taken up in the plaint was that the Russian firm
was
carrying on business in the U.S.S.R. and at Madras.
The principle, cm·
bodied in s. 35 the Arbitration Act,
1940 cannot be completely ignored
while considering the question of injunction.
In the present case when
the suit is not being stayed under section 3 of the Act it would be contrary to the principle underlying s~ 35 not to grant an injunction restrainin,g the Russian firm from proceeding with the Arbitration at Moscow.
The principle essentiaHy is that the ·arbitrator should not proceed with
the, arbitration side by side in rivalry or in competition as if it were a
civil court. [69 H, 70 HJ
(Per Ramaswami J dissenting.)
Even assuming that 3 of the
Act
is not applicable this is not a proper case in which the High
Court
~bould. have issu~ an. injunction restraining the appellant from proceed10.g with the
arb1trat1on.
As a rule the Court
has to exercise
its
discretion
with
great circumspection
for it is
imperative that
the
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right of a~cess to .the tribunals of a country should not be lightly in·
terfered with. It is not sufficient merely to show that two actions have
been started for it is not prima facie vexatious to commence two actions
about. the same subject matter, one here and one abroad,
The reason
H
o~ this reluctance to exercise the jurisdiction is that owing to a J>Qssible
difference between the laws of the two countries, the stay of one of the
~ctions ~ay deprive the plaintiff of some advantage which he is justified
ID pursu1Dg.
Thus he may have a personal remedy in one country and
~ remedy only against the goods . in another; or a remedy against land
ID one State but no such remedy m another. The rule therefore is that
a plea of /is alibi pendens will not succeed and the court will not order a
stay of proceedings unless the defendant proves vexation in point of fact.
He must show that the continued prosecution of both actions is oppressive
or embarra;sing, an onus which he will find it difficult to discharge if the
56
SUPREME COURT REPORTS
(1970) 3 S.C.R.
plaintiff
can
indicate
some
material
advantage
that is
likely
to result from each separate action.
Each case, therefore depends upon
the setting of its own facts and circumstances. [86 H]
Mettenry v. Lewis, 22 Ch.D. 401, referred to.
C1v1L APPELLATE JURISDICTION: Civil Appeal No. 1208 and
1209 of 1969.
Appeals by special leave from the judgment and order dated
December 16, 1968 of the Madras High Court in O.S. Appeals
A
B
Nos. 25 and 28 of 1968 and Appeals by special leave from the
judgme.'lt and order dated April 12, 1968 o~ the Madras High
Court in Applications Nos. 105 and 106 of 1968 in C.S. No. 118 c
Of 1967.
S. Mohan Kumaramangalam, M. K. Ramamurthi, S. M . .Ali
Mohd., Mrs. Shamala Pappu, I. Ramamurth,v, Vineet Kumar and
C. R. Somasekharan, for the appellant.
V. P. Raman, S. N. Srivastava, B. Datta, D. N, Mishra and
J. B. Dadachanji, for respondee:it No. I.
Rameshwar Nath and Mahinder Narain, for respondent No. 2.
The Judgment of J. C. SHAH and A. N. GROVER, JJ., was
delivered by GROVER, J. RAMASWAMI, J.,
gave a
dissenting
Opinion.
Grover, J.
These connected appeals ~ch involve points of
importance and interest in international commercial arbitration
arise out of a suit instituted on the original side of the High Court
of Judicature at Madras by M/s. Tarapore & Co.
against
M/s. V. 0. Tractoroexport, Moscow.
Initially the claim was for a permanent injunction restraining
the Russian firm from realizing the proceeds of a Letter of Credit
opened on June 9, 1965 with the Barne of India Ltd., Madras,
which had also been impleaded as a defendant. Subsequently by
an amendment of the plaint the ·plaintiff has confined relief to
recovery of damages.
The facts chronologically are as follows : A contract was
entered into on February 2, 1965, between the Indian and the
Russian firms for the supply of earth-moving machinery for a
value of Rs. 66,09,372.00. The machinery was required by the
Indian firm for executing the work of excavation of a feeder canal
as part of the Farakka Barrage Project. On June 9, 1965, the
Indian firm opened a Letter of Credit with the Bank of India Ltd.,
for the entire value of the machinery in favour of the Russian firm.
The consignments started arriving at Calcutta in October 1965.
On February 22, 1966, the Indian firm wrote to the Russian firm
saying that there was something wrong with the design and workD
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TRACTOROBXPORT, MOSCOW v. TARAPORB & co. (Grover,/.) 57
A ing of motorised scrapers which had been supplied and which
formed one of the items of machinery covered by the contract.
One June 6, 1966 came the devaluation of the Iudian rupee by
57 .48 % as a result of which the amount that became payable by
the Indian firm to the Russian firm under the contract increased
by Rs. 25 lakhs or so. On June 20, 1966, the Russian firm
B demanded an increase in the Letter of Credit owing to the
devaluation. On August 1, 1966, the Indian firm served a notice
on the Russian firm containing the main allegations relating to
breech of contract on the part of the Russian firm.
The letter
was called upon to remedy the breaches and pay compensation.
It was made clear that until this was done the Russian firm would
c not be entitled to encash the Letter of Credit for the balance
amount. On August 4, 1966, the Indian firm filed a suit on the
original side of the Madras High Court and obtained an ex parte
order of injunction in respect of the operation of the Letter of
Credit. On August 14, 1966, the parties arrived at a settlement
at Delhi after mutual discussion.
D
Pursuant to the agreement the suit was withdrawn by the
Indian firm but no amicable settlement, as contemplated, took
place. The Indian firm instituted a suit (No. C.S. 118 of 1967)
on the original side of the Madras High Court on August 14,
1967. It also filed an application for an interim injunction in
the matter of the operation of the Letter of Credit. On October
E
26, 1967, another application was filed for an· interim injunction
against the encashment of the· devaluation drafts.
On November 4, 1967, the Russian firm instituted proceedings in terms of
the arbitral clause in the contract before the Foreign Trade Arbitration Commission of the U.S.S.R. Chamber of C:ommerce,
Moscow.
On November 14, 1967, the Russian firm entered
F
appearance under protest before the Madras High Court in the
suit filed by the Indian firm. On the same date the Russian firm
filed an application under s. 3 of the Foreign Awards (Recognition and Enforcement) Act XLV of 1961, hereinafter called the
Act. A prayer was made for stay of the suit. On January 15,
1968, the Indian firm filed an application for an interim injuncc
G
tion restraining the Russian firm from taking any further part in
the arbitration proceedings at Moscow.
We are not concerned
with the branch of the litigation which came up to this Court at
a prior stage in respect of the interim injunctions granted by the
single judge with regard to the operation of the Letter of Credit
and the subsequent arrangement made for payment as a result of
H
devaluation. It is sufficient to mention that the appeals brought
to this Court were allowed on November 26, 1968, and the temporary injunction granted by the learned single judge relating to
the operation of the Letter of Credit was vacated,
6Sup. CI/70-S
58
SUPREME COURT REPORTS
[1970] 3 S.C.R.
The application which had, been
fil.~ by the Russian firm
for stay of the suit under s. 3 of the Act was dismissed by Ramamurthi J., on April 12, 1968.
The application of the Indian
firm for an interim injunction restraining the Russian firm from
taldng any further part in the arbitration proceedings at Moscow
was, however, granted.
The Russian firm preferred appeals
against the orders of the learned single judge before a division
bench. The bench maintained the orders of Ramamurthi, J. The
present appeals have been brought by the Russian firm by special
leave both against the order of the division bench and against
the judgment of the learned single judge. This was presumably
done because there was some controversy about the finality of
the orders which had been made by the -single judge of the
High Court.
·
The questions which have to be determined in these appeals
are quite narrow.
The first question is whether the words "a
submission made in pursuance of an agreement" mean an actual
or completed reference made pursuant to an arbitration agreement or they mean an arbitration agreement that has come into
existence as a result of a commercial contract. According to the
appellant firm whenever there is an arbitration agreement or an
arbitral clause in a commercial contract of the nature mentioned
in the Convention the court is bound to stay the suit provided
the other conditions laid down in s. 3 are satisfied.
On this
approach the word "submission" is te be understood as an arbitration agreement or arbitral clause relating to existing or future
differences and the word "agreement" means an agreement of a
commercial or business character to which the Convention
applies.
The respondent firm maintains that the critical words
"submission" and "agreement" must be given their natural
and
grammatical
meaning
and
the
word
"submission"
made in
pursuance of an agreement can o_nly
mean an
actual submission of the disputes to the arbitral tribunal. The
word "agreement" can have reference to and can be construed
<>nly in the sense of an arbitration agreement or an arbitral
clause in a commercial contract.
It cannot mean a commercial contract because
an arbitration
agreement . cannot
be stated to have been made pursuant to a commercial
contract.
In other words, if submission has to· be taken in the
sense of an arbitration agreement it would render the words
"submis.sion .11'.ade in pursuance of a'.1 agreement" meaningless
3;11d unmtelltg1ble. , Th~ second quesllon relates to the jurisdic-
!Jon of the coi~rts .m. this country to grant an injunction restrainmg a party which 1s m Moscow from proceeding with the conduct
?f .ar~it~ation before a tribunal there.
Even if the ~ourts have
1unsd1ctron- to grant an injunction, it is said, . it would not be a
proper exercise of that jurisdiction in the circumstances of the
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TRACTOROEXPORT, MOSCOW v. TARAPORE & co. (Grover, J.) 59
present case to give an injunctory relief. The learned single judge
has decided certain other controversial issues but the division
bench did not go into them nor do we propose to deal with them
unless the decision on the true and correct interpretation of s. 3
of the Act goes in favour of the appellant firm.
The Act has been enacted to enable effect to be given to the
Convention on the recognition and enforcement of foreign arbitral awards done at New York on June 10, 1558, to which India
is a party. In the statement of objects and reasons it has been
pointed out that the procedure for settlement through arbiration
of disputes arising from internation trade was first regulated by
the Geneva Protocol On Arbitration Clauses 1923 and the
Geneva Convention On the .Execution of Foreign Arbitral Awards
to which India was a party and which was given effect to in India
by the Arbitration (Protocol and Convention) Act, 1937.
The provisions of the Act may be noticed. Sections 2 and 3
are in these terms :
S.2 "In this Act llllless the context otherwise
requires, "foreign awards" means· an award on differences between persons arising out of legal relationships,
whether contractual or not, considered as commercial
under the law in force in India made on or after the
1 lth day of October 1960--
(a) In pursuance of an agreement in writing for
arbitration to which the Convention
s.etforth in the
Schedule applies and
(b) in one of such territories as the Central Government being satisfied that reciproc&l provisions have
been made may, by notification in the Official Gazette,
declare to be territories to which the said Convention
applies."
S.3 ''Notwithstanding anything contained in the
Arbitration Act, 1940, or in the Code of Civil Procedure, 1908, if any party to a submission made in pursuance of an a~reement to which the Convention .set
forth in ·the Schedule applies, or any person claiming
through or under him commences any legal proceedings
in any Court against any other party to the submission
or any person claimiQg through or under him in respect
of any matter agreed to be referred any paily to such
legal proceedings may, at any time after appearance
and before filing a written statement or taking any
other step in the proceedings, apply 10 the Court to stay
the proceedings and the Court unless satisfied that the
60
SUPllEME COURT llEPORTS
[1970] 3 s.c.R.
agreement is null and void, inoperative or incapable of
being performed or that there is not in fact any dispute
betwen the parties with regard to the matter agreed to
be referred shall make an order staying the proceedings."
A
The , Schedule contains the Convention on the recognition
B
and enforcement of foreign arbitral awards.
Article II may be
reprOduced with advantage;
Article II
"1. Each Contracting State shall recognise an
agreement in writing under which the parties undertake
to submit to arbitration all or any differences which
have arisen or which may arise between them in respect
of defined legal relationship, whether contractual or not,
i:Qncerning a subject-matter capable of settlement by
. arbitration.
. '
2. The term "agreement in writing" shall include
an arbitral clause in a contract or an arbitration agree-
, ment, signed by the parties or contained in an exchange
~f letters or telegram.
3. The Court of a Contracting State, when seized
-· . of an action in a matter in respect of which the parties
· have made an agreement within the meaning of , this
article, shall, at the request of one of the parties, refer
the parties to arbitration, unless it finds that the said
·agreement is null and void, inoperative or incapable of
being performed."
In order to resolve the controversy on the first question the
history of ·the International Protocols and Conventions as a result
of which legislation had to be enacted in England and India as
also the relevant provisions of the Arbitration law may be set out.
The Geneva Protocol On Arbitration Clauses, 1923 recognised
the validity of an agreement between each of the Contracting
States whether relating to existing or future differences between
parties subject respectively to the jurisdiction of different Contracting States by which the parties to a contract agreed to submit
to arbitration all or any differences that might arise in connection
with such contract relating to commercial matters or to any other
mater capable of submission by arbitration whether or not the
arbitration was to take place in a country to whose jurisdiction
none of the parties was subject.
Article 4 of the Protocol was
as follows:
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TRACTOROEXPORT, MOSCOW v. TARAPORE & co. (Grover, J.) 61
"The tribunals of the Contracting Parties, on being
seized of a dispute regarding a contract made between
persons "to whom Article applies and including an arbitration agreement whether referring to present or future
differences which is valid in virtue of the said Article
and capable of being carried into effect, shall refer the
parties on the application of either of them to the decision of the arbitrators .......... "
ln order to give effect to this Protocol the Arbitration Clauses
(Protocol) Act, 1924 was enacted in England. Section 1(1) of
that Act contained provisions similar to s. 3 of the Act with
certain differences. When the aforesaid Act of 1924 was enacted
the meaning of "submission" as contained in s. 27 of the English
Arbitration Act, 1889 was "a written agreement to submit present
or future differences to arbitration whether an arbitrator was
named therein or not."
The Arbitration (Foreign Awards) Act, 1930 was enacted to
give effect "to a certain convention on the execution of arbilral
awards and to amend sub-s. ( 1) of s. 1 of the Arbitration Clauses
(Protocol) Act, 1924 which provision was described in s. 8 as
one "for staying of legal proceedings in a court in respect of
matters to be referred to arbitration under agreements to which
the Protocol applies". The Arbitration Act, 1889 was amended
by the Arbitration Act of 1934 which also provided for other
matters relating to arbitration law in England. In sub-s. (2) of
s. 21 the expression "arbitration agreement" was defined 'to mean"
a written agreement to submit present or future differences to
arbitration whether an arbitrator was named therein or not".
Although the definition of the expression "arbitration agreement" was introduced by the amendment made by the Arbitration
Act of 1934 the definition of the word "submission" contained
in s. 27 of the Arbitration Act of 1889 remained unaffected and
unchanged.
To comple.te the history of legislation in England
mention may be made of the Arbitration Act, 1950 which repealed
the earlier enactments.
Section 4 ( 2) of this Act provided for
stay when legal proceedings were commenced in court by any
party "to a submission to arbitration made in pursuance of an
agreement to which the protocol set out in the First Schedule to
this Act applies". The Schedule to this Act contained the GeneV\l
Protocol on Arbitration Clauses of J 923 and the Geneva Convention on the execution of foreign arbitral awards of 1927. In
this Act the definition of "submission" contained in the Act of
1889 was omitted. By s. 32 "arbitration agreement" was defined
to mean "a written agreement to submit present or future differ-
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SUPREME COURT REPORTS
(1970] 3 S.C.R.
ences to arbitration, whether an arbitrator is named therein or
not".
In India the Arbitration (Protocol and Convention) Act, 1937
was enacted for the first time to give effect to the Protocol and the
Convention of 1923 and 1927 respectively.
This was done as
the Government wanted to meet he widely expressed desire of
the commercial world that arbitration agreements should be ensured effective recognition and protection. Section 3 of the 1937
Act employed the same language as is contained in s. 3 of the Act
except with some minor" differences.
Both the Geneva Protocol
of 1923 and the Convention of 1927 were appended as Schedules
to this Act. So far as the ordinary arbitration law was concerned,
prior to the enactment of the Indian Arbitration Act, 1940 there
were two sets of laws applicable to what were called Presidency
towns and areas which did not fall within those towns.
Th~
Indian Arbitration Act, 1899 applied to cases where the subject
matter submitted to arbitration was of a nature that if a suit were
to be instituted it could be instituted in a Presidency town. Section
4(b) contained the definition of the word "submission" which
was similar to the definition in the English Act of 1889. In the
Civil Procedure Code of 1882 Part V dealt with arbitration.
These provisions were applicable to such areas which were outside the Presidency towns. When the Civil Procedure Code, 1908
was enacted it contained in the IInd Schedule similar provisions
for arbitration.
There
was,
however,
no
definition
of
"submission" or "arbitration agreement".
The Arbitration Act,
1940 was meant to consolidate and amend the law relating to
arbitration in India.
The word "submission" was not defined but
the word "arbitration agreement" ins. 2(a) was stated to meav
a written agreement to submit present or future differences
to
arbitration whether the arbitrator was named therein or not.
The phraseology which has been employed in the
English
statute and the Indian enactment for giving effect to the Protocol
and the Conventions relating to arbitration is practically the same.
In the English Act of 1924 the words used were identical with
the words to be found in s. 3 of the Act, namely, "a submission
made in pursuance of an agreement".
The only change which
has been effected in the English Arbitration Act of 1950 in
s. 4 ( 2) is that the words "to arbitration" have been inserted·
within the words "submission" and "made''. Among the authoritative text book writers there has been a good deal of divergence
of opinion on the meaning of the above phraseology. ·In the 8th
Edn. of th€? Conflict of Laws by Dicey and Morris, Rule 182 has
been formulated which is based on s. 4( 2) of the English Arbitration Act 1950. Referring to s. 4(2) and the meaning of the
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word_s "a submission to arbitraJion made in pursuance of an agreement to which the protocol applies" the authors are of the view
that this condition is satisfied if the parties have agreed to submit
present or future ·disputes to arbitration. The Court is, according
to. them, under a'du(y to stay proceedings although no arbitrators
have been appointed.
The ~ord "submission" mus( be regardec\
as synoriymou~ with the term "arbitration agreement" in the Protocol and the term· ''.agree111ent to which the Protocol applies" is
used "to identify the commercial or business contract between the
parties". This statement i~ based on tμe judgn,JCl)t of Scarm'an, J.,
in Owners of Cargo
on Bo_ard the Merak v. The Merak
( Owners)( 1 ). Even before the pronouncement 9f thiS juJ!gment
preference for the view which later on came to be-expressed by
Scarman J., had been indicated in the 7th Edn. of the saine book.
(See pages 1075 to 1076). According to the well known \YOrk
of Russell on Arbitration, 17th Edn., the English translation of
,the Protocol is most obscure.
This is what' pas been· stated at
page 79 :
"The words of the section, however, would seem
to limit its operation to cases where some sort of "agreement to submit" is followed by an actual "submission"
made "pursuant to" it,
(Presumably, the word
"submission" here bea~s its natural meaning, of "a submission written or not) of an actual dispute to the
authority of an arbitral tribunal, "rather than the statutory meaning which it bore under the 1889 Act and
which is now borne by the phrase "arbitration agreement)". Thus the common case, of an agreement to
refer which is never (ollowed by a submission because
the claimant prefers to sue instead, is apparently outside
the section, although the Protocol clearly meant it to be
covered; see' the French text of Article 4".
The Englis.h translation of the French text in the 1950 Act has
·been stated to be a mistranslation.
It has been suggested that
the Parliament may have enacted not the true text of the Protocol
but a very limited interpretation of the false translation.
In
Halsbury's Laws of England, Third Edn., Cumulative Supplement 1968, Vol. II, Arbitration, p. 2, reference has been made
to the decision of Scarman J., in The Merak('), which was
affirmed on appeal and .'Yhich has been followed in Uni pat A.G.
v. Dowty Hydraulic Units(') the statement in the text being that
this provision of. law applies although no actual submission to
arbitration has been made.
{I) (!965) 2 W.L.R 250.
12) [1967] R.P.C. 401.
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SUPREME COURT REPORTS
[197\)] 3 S.C.R.
In the Merak('), Scarman J., read, s. 4(2) of the Act of 1950
with the translation of the Protocol in the First Schedule to the
Act.
According to him the Protocol was concerned with two
agreements--one, .a contract commercjal in character or giVing
rise to a difference relating to matters that were either commercial or otherwise capable of settlement by arbitration between
parties subject to the jurisdiction of different contracting States;
the other an arbitration agreement whereby the parties to such a
contract agreed to submit their differences to arbitration.
(The
arbitration agreement might itself included in and simultaneous
with the commercial or business contract). Section 4(2) of the
Act was intended to make the same distinction between the
parties' business contract and their arbitration agreement.
He
proceeded to say :
"It uses the term "submission to arbitration" to
identify the protocol's agreement to submit their differences to arbitration and the term "agreement to whlch
the protocol applies" to identify, the commercial or business contract between the parties.
Section 4·(2); in
my opinion, applies to agreements to submit to arbitration made in pursuance of a contract to whlch, because
of its character and the character of its parties, the protocol applies. The words "in pursuance of" merely
establish the link that there must be between the agreement to submit present or future differenees to arbitration and the agreement of a commercial or business
character between parties of a certain class to which
the protocol applies. They have in this context no tern-
. poral significance".
One of the main reasons which prevailed in The Merak(') was
that by construing "submission to arbitration" as an actual submission of an existing dispute to a particular arbitrator, it would
make "non-sense of the Protocol".
Now, as stated in Halsbury's Laws of England, Vol. 36, page
414, there is a presumption that Parliament does not assert or
assume jurisdiction which goes beyond the limits established by
the common consent of nations and statutes are to be interpreted
provided that their language permits, so as not to be inconsistent
with the comity of nations or with the established principles of
Inernational Law.
But this principle applies only where there
is an ambiguity and must give way before a clearly expressed
intention.
If statutory enactments are clear in meaning, they
must be construed according to their meaning even though they
are contrary to the comity of nations or International Law.
( I) (1965) 2 W.L.R. 250.
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65
We may look at another well recognised principle.
In this
country, as is the case in England, the treaty or International
Protocol or convention does not become effective or operative of
its own force as in some of the continental countries unless domestic legislation has been introduced to attain a specified result.
Once, the Parliament has legislated, the Court must first look at
the legislation and construe the language employed in it. If the
terms of the legislative enactment do not suffer from any ambiguity or lack of clarity they must be given effect to even if they
do not carry out the treaty obligations.
But the treaty or the
Protocol or the convention becomes important if the meaning of
the expressions used by the Parliament is not clear and can be
construed in more than one way.
The reason is that if one of
•he meanings which can be properly ascribed is in consonance
with the treaty obligations and the other meaning is not so consonant, the meaning which is consonant is to be preferred. Even
where an Act had been passed to give effect to the convention
which was scheduled to it, the words employed in the Act had
to be interpreted in the well established sense which they had in
municipal law (See Barras v. Aberdeen Steam Trawling & Fishing Co. Ltd.(').
The approach in "The Merak" appears to have been dominated by the Protocol of 1923 and the question to be examined
is whether the language of s. 4(2) of the English Act of 1950
and s. 3 of the Act contains any such ambiguity or suffers from
any such lack of clarity as would justify the use of the Protocol
to the extent made in the English case.
The term 'submission'
as defined in the English Act of .1889 and the Indian Act of
1899, was meant to cover both an arbitration clause by which the
parties agreed that if disputes arose they would be referred to
arbitration and also an actual submission of a particular dispute
or disputes to the authority of a particular arbitrator.
For the
sake of convenience, a distinction could be made calling the
first "an agreement to refer" and the second, "a submission". The
term-"arbitration agreeme~t'! as defined by the English Act
of 1950 and the Indian Act of 1940 also covers both "an agreement to refer" and "an actual submission". Turning to the words
used in s. 3 of the Act "submission made in pursuance of an agreement to which the convention setforth in the schedule applies".
the first critical expression "submission" can have both the meanings in view of the historical background of the legislation which
was enacted to give effect to the Protocol and the Conventions.
If this terni is to be given the larger meaning of including of "an
agreement to refer" as also "an actual submission" of a particular
dispute, it has to be determined which meaning would be appro-
(ll [1933] A.C. 402.
66
SUPREME COURT REPORTS
[1970] 3 S.CR.
priate in the context in which the term "submission" has been
used in s. 3 of the Act. If "submission" means "agreement to
refer"' or an "arbitral clause" in a commercial contract, it makes
the entire set of words unintelligible and completely ~mbiguous.
It is difficult to comprehend in that case why the Legislature
should have used the words which follow the term "submission",
namely, "made in pursuance of an agreement".
This brings us
to
the true import of the exprnssion "agreement". If by
"agreement'' is meant a commercial contract of the nature mentioned in the "Merak", the words "made in pursuance of" convey
no sense.
Another anomaly which militates against, the established rule of interpretation would arise if by the w()rd "ag~eement"
is meant a commercial contract. . It cannot. even by stretching
the language bear that meaning in the second part of s. 3 which
reads :
". . . . . . . .