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

A

August 16, 1984 •

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 Enforce- ment) 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 gram- matical sense.

Scope 1purview of the Arbitrr~l Clause in Article XVIII in the contract- Jurisdiction of an Arbitratar to decide the Umits of his own jurisdlctian- Whether a dispute inclusive of the arbitrators' jurisdiction comes within the scope of purview of Arbitration Clause, primarily depends on t/1e terms of the I 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 price- Whether; 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. G 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.

ff The first respondents Geoer~J 2l~tric Com,panr, a <_::ompan)' incor ..

RBNUSAGAR CO. v. GENERAL ELECTRIC CO •. 433 porated under the laws of the State of New York, USA, on a contract in A 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 l !, 1966 to June 30, 1967); so that (c) the plant \.ould be fully operatio- } nal by the end of 30th month from the Contract Effective Date i.e. by July 1, 1977. . 0 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 D 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~ E 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 six- monthly 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 F 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 respon- G dents 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 H

434 SUPREMB COURT REPORTS [1985} ! S.C. R.

A 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). B 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 (JGE- 9584) Contract, except that the appellanls agreed and issued a fifth series, (E series) of sixteen promissory notes bearing interest at 6-i % per annum D 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) E 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 r Government of India.

RBNUSAGA!l CO. v. GBNBRAt EtHCTRIC CO. 435

18% per annum amounting to U.S. $ 41,610,534.88 upto 31.3.1982 A (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 B 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 c 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. D 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 G 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 H

436 SUPREME coiiRt REPORTS [1985] 1 s.c.il.

A 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 B 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.

c 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 injunc- tion restraining the arbitration proceedings.

The Court of appeal negatived all the contentions and ultimately 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.

Arguments for the appellants : -

G (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 I 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,

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· tion cannot determine the question of the existence, validity or effect of 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; ~ c (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;

D (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 JiJ 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 di~charge of the obligation to pay- purchase price and interest thereon under p 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 G 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. H

438 SUPREME COURT REPORTS (1985] I S.C.R

A 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

.. B 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; c (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 ques- tions 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 D 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. 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 commer- F cial 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 G Clause co-ntained in the underlying commercial contract IGE~9584 is of I 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; I (5) The issue pertaining to the scope and effect of the arbitration agreement,- if raised in an application under· section 34 of the Indian H Arbitration Act, the Court has to decide it <1nd the Courts' decision thereof

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 affirmati- vely 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; c (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 th 0

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 bad been made out by Renusagar and it bad, therefore, rightly vacated the ad-interim injunction and stayed Renusagar's suit.

Dismissing the appeals, the Court,

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]

1.2 The Statement of Objects and reasons shows that the Foreign B 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 c l 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] D 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, 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 Arbitra- tion 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

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 Arbitra- G tion 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 11 Foreign Awards act are :

kENtisAGAR co. '· GENERAL ELECtRJC to. 441

(1) there must be an agreement to which Article II of the Conven- A tion 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 B 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] c (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, ope- rative and capable of being performed; this relates to the satisfaction about 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 Arbitra- tion 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 Arbitra- tion 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 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 H

442 SUPl\EME COURT REPORTS ' [1985] 1 s.c.n.

A 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 B 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 c 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 D 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] E 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 arbitra- F bility 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 H 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. (parti- cularly 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· B 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] c

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 "con- cerning" 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 arbi- trator 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] ff

444 SUPREME COURT REPORTS [19'85] 1 s.c.R·

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 B 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 Arbitra- tion 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 c 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 neces- sary 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. D [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''. [4780-B] E A combined reading of the provisions in sub.clause a, b, c, of clause 3 of Article-Ill and XIV·B of the contract (IGE-9584) clearly sho'¥S that the promissory notes are not the sole and exclusive repository of GEC's right 10 claim aed receive further interest on unpaid price after June 30J 1967 but that the contract itself provides for the obligation to pay such interest after that date till payment. [476C·D, E·G) , - F Admittedly, interest on the purch1se price at the agreed rate upto June 30, 1967 was capitalised and included in the principal amount of each of the instalments represented by the concerned promissory note as mentioned in the schedule of payment<> given in Arti~le IIC-AJ 3(b) of the Contract. The f0rm of the promi,,sory note attached as Exhibit 'B' to the contract as G also the promissory notes that were actuaily exccp.ted clearly contain a recital that Renusagar ''rromises to pay to GBC interest thereon (i.e. on the capitalised principal) from June 30, 1967 semi-annually at the rate of 6f% per annum on the last date of June & December in e1cb yi;:ar until paid. The rectial in each of the Promissory Note bas to be in terms of the provision in Article Ill-A 3 (c) of the commercial contract itself. Further Article XIV-8 clearly shows that the parties to the contract were contemplating to obtain from the Government of India Income Tax exemption on the interest income which GEC was going to receive from Renuo;agar under the contract and the ff provision is that tbe 'rinterest incorne" oQ which tat; exemption was being

RENUSAGAR CO. V. GBNERAL ELECTRIC CO. 445 sought, is said to include capitalised interest and interest thereon that is to say interest on the amounts of the promissory notCs (which included capitalised interest), \\hich obviously means further ihterest on outstanding principal balance under the notes from June 30, 1967 till payment. [475F-H, 476A, 477A-F) 2.S The contention that if Rcnusagar had failed to execute promissory notes as required under the contract, GEC would not have become entitled to receive or claim interest after June 30, 1967 but would have ,had only a right to calI upon Renusagar to execute such pro-notes and to claim damages for failure to fulfil contractual obligations cannot be accepted. The question is not ·~hat rights GEC would have had on Renus~gar's failure to execute that promissory notes as required but the question is wh ~t the contract provides for. Sub-clauc;c (c) of clause 3 of Ari icle IH-A provides for not merely the execution of promissory notes but that the promissory notes c would also bear interest after June 30, 1961. Further the very fact that the failure of Renusagar to execute promissory notes of course as required- by the contract would have conferred a right of GEC to call upon Renusagar to execute such notes also shows that the obligation to pay interest after June 30, 1967 ti\\ payment has been provided for by the contract. [476D-H) D Commissloner of Income T."X v. M/s. Ogale Gla.~s Work~ Ltd, AIR (1954) SC 429=[1955] 1 SCR 185; H.P. Gupta v. Hfra Lal, [1970] 3 SCR 788; Bihari-Diwan Singh v. Jaffe & Son~, AIR 1922 Lahore 353; Dhiraj Lal v. Sir Jacob Behrens & Sons, AIR 1933 Allahab.'.ld 74; M/s. Va.1vani Na1ji v. KPC Spinners, AIR 1983 Madras 31; Ghewarchandv. Shi>Ja Jute Baillng Ltd., AIR 1950 Calcutta 568; NOVA <Jer.iey) Knit Ltd., v. Spinnerei, [1977] 2 All England Report 463; Monrov. Bognor Urban District Council, (1914·15] Reprint All England Report 523 referred to . E • 2.6 Neither the fact that the bank guarantee endorsed on each pro· missory note is restricted only to the paymeat of principal and interest oa the note as per its terms and does not extend to or cover any residuary payment obligation contained in the contract, debors the promissory note nor the fact that GBC has filed a Suit No. 786 of 1982 against UCO Bank in the Calcutta High Court to recover the million dollars for the interest a~ being due under the promissory notes read with guarantee, lead to an inference that the cause of action arose only out of pro-notes. Since the Bank guarantee is in connection with and endorsed on the promissory notes it would ordinarily refer to the obligation arising there under and not to any obligation arising under any other document and the question whether the contract contai11s such obligation to pay future interest must depend upon its contents and not up:>n what is not to be foaad in the bank guarantee. Again the suit agqinst the UCO" Bank is necessarily to be on the pro-notes read with the guarantee, the contract not b~ing a document to which UCO Bank is a party. [477F-H, 47oA-B]

Similarly, it is the substance of GBC's pleading (notice of intention t? arbitrate) that matters and not the description of the claims. Though at one place in the Notice of Inten.tion to arbitrate the two claims are On fact only the first claim of 2.1 million U.S. dollars is) said to be "on the promissory n~te.~", )'et at tQe corn~encement of that notice the subject matter thereof i& H

446 SUPREME COURT REPORTS [1985] I S.CR.

A aptly stated as "Reg: Interest under the contract No. IGE-9584 between GEC and Renusagar" and the substance of the entire pleading shows how the first two claims have arisen under the cantract and how under the terms thereof and in the correspondence their amounts got adjusted and quantified at certain figures and that reference to tho contract is not by way of any antecedent or historical fact. Viewed from any angle the 1.wo .::!aims cannot be said to arise under the Promis.;ory Notes. [478B-E] B 2~7 Whether a negotiable instrumenc taken on account of debt ope· rates as absolute discharge of the debt or not i<> always a question of inten- tion of the partie.s to the commercial car.tract. Here, the promissory notes. on the terms or the Contract cannot be regarded as arnounting to payment in discharge of the obligation arising under the Contract on the ground that c since it is one of the modes of payment iaJicJt~d in the Contract the exe- \ cution of the notes should be held to be piyrnents by way of discharging the obligation under the contract, because thero is yet one mode of payment indicated the contract namely the opening or a Letter of Credit and the mere fact of the Letter or Credit having been opened by Renusag:\r in a bank in New York valid for 18 months will h1ve to bJ regarded as actual paymea i which is hardly arguable. Fi.irther, a Bill or a promissJry note can never JI go in the discharge of a debt unle~~ it i5 a p.1rt or a coatra:t that it shall D be so. [478F-H, 481E-F]

Cornmissloner of Income Tax v. Ka1neshwar Singh of Darbhanga, AIR [1933] P.C. 108; Keshav Mill> Co. Ltd. v. Com1nissio11er of Income Tax, AIR [1950] Bombay 166, quoted with approval. . Commissioner of J,;con1e Tax v. M/s. Ogale Glass Works Ltd., AIR E [1954] SC 429~ 19~5 (I) SCR 185; H.P. Gupta v. Hira Lal [1970] 3 SCR 788 discussed and distinguished. -

2.8 The terms of the contract, far from showing that these were pay- ments in discharge of the original obligation clearly indicate that the parties had intended that these were to operate as conditional p~yments. [481F-G] - F If Ardcle III of the contract which deals with the topic of payfilent of price for the sale of good,; and services is carefully analysed, the following factors emerge very clearly; (a) that the pro-notes ara not \Xpressed to be payments; in fact it is in terms stated that the ~'total contract purchase price shall be paid by the purchaser in lawful money of the USA" (Article III-A) and promissory notes are not "lawful money of USA"; ~b) that because the Contract so prov1d.::s even the pro-notes also recite that the principal and interest there-under are "payable in lawful money of the USA"; G (c) that Article III-A (3) ;,hich deals with pro-notes provides for payment of the remaining 90% of the price ''in accordance with the following Schedule or Paynients·" and expressly states that '"the obligation to make such payments is to be evidenced by four series of purchaser's unconditional negotiable promissory notes''~ which clearly shows that the pro· notes are not payments but are intended merely to be the evidence of the obligation to pay the price; (d) that though stated to be "unconditional and negotiable 11 (perhaps so between the drawer and subsequent assigness in case of ne$otiation), as between the seller and tbe purchaser these have been made

RENUSAGAR CO. V. GENERAL ELECTRIC CO. 447 subject to several conditions such as-(i) the amounts thereof were payable only on the assumption that deliveries of items of equipment were completed within 15 months of Contr~ct Effective Date and interest at the rate of 61% was to become 6% on receipt of income Tax exemption (Art. III-A (3)" (b) (ii) th~se were tc lie in Escrow Agreements to Qe released to the seller syncronising with the stated progress of supply of goods according to certain formulate (Art. 111-D), (iii) these were to be replaced by fresh Notes depen .. ding on receipt of income· tax exemption (Art. III-A (3) (f) or price modi- B " fication (Att. 111-D); (iv) each one contains a default clnuse saying "upon default in the .,rompt and full payment of the principal or of the interest on this Note when due, all of the notes in each and every series, together with interest to the date of payment, shall immediately become due and be paya~ bleat the option and demand of the holder thereof". [48IG·H; 482A-H]

' These factors and circumstances and particularly the fact that these noti.:s were as between the seller and the purchaser subject to several conditions leading to variation and adju~tment and replacement and the c default Clause contained in each, clearly indicate that these were not inten- ded to constitute independent or separate contracts by themselves but that they were a part and parcel of one integrated transaction embodied in the contract and that the promissory notes were and are meant to be governed at all times by various olher terms of the Conttact and could be modified and D substituted under given conditions as set out in the Contract. Therefore, a dispute of non-payment of interest on the instalments-whether regular of delinquent-is a dispute "relating to the Contract," In fact, both the claims-2.1 million U.S. dollars and U.S.$ 7,84,151.84-arise "under the contract" and have been preferred by GEC be forethe Court of Arbitration of J.C.C. expressly on that basis and not under the promissory notes. [483A-E] E [The Court in view of the above, adopted ''Non-liquet" on the ~ub· inission for the appellant based on the so-called factors of unconditional aature and negotiability of the promissary notes as destroying the arbitra- bility of the claims thereunder and also the alternative submission for G.E.C. that the two claims ,,·ould still fall within the wide expressions occurring in the contract even on the assumstion ·that the promissory notes are severable from the Cont;act, that the obligation arising thereunder is different from the one under the Contract and that these promissory notes are in payment of the obligation to pay the price under the contract.] [483E·G]

2.9 As regards the third claim of compensatory damages, the mere fact that Renusagar is being saddled with this liability as tort-feaser, a stnke-holder and/or a constructive trustet'", by itself will not justify a con- clusion that the same is not covered b)' the arbitration clause because the question is not whether the claim lies in tort but the question is whether even though it has lain ill tort it "arises out of" or is "related to'' the Contract, that is to say, whether it arises out of the terms of the Contract or is consequential upon any breach thereof. [483G.~; 484A]

' and by way of The third claim is based on and is consequential upon corollary to the non-paym~nt of the two detained amounts by Renusagar to GEC in breach of the terms of the contract. Therefore, before adjudicating upon thi$ ~laiiu the adjudicating authority will have first to adjudicate H

448 SUPREME COURT REPORTS [1985] I S.C.R.

A upon the first two claims preferred by G.E.C. and only if is found that GEC is entitled to receive the first two amounts which ought to have been paid by the appellant under the terms of the contract but which Renus::igar had failed to pay that this third claim could, if at all be allowed to GEC. In the real sense, therefore, this third claim is directly, closl!ly and inextri- cably connected with the terms and conditions of the Contract, the payments to be made thereunder ao.d the breaches thereof and as such will have to be B regarded as a clain1 ''arising out of" or "related to" lhe contract. [484A-C]

Woolfv. Collis Removal Se,,ice,[1947] 2 All. E. R. 260;.Ast'o Ven- cedor Compania Naviera SA of Panama v. Mabanaft Gm b. h, [1971] 2 All. E. R. 1301; Govt. of Gibra/ter v. Kenney & Anr [1956] 3 All. E. R. 22 quoted with approval. l c Alliance Jute Mills Co. Ltd. v. Lal Chand Dllara.;chand and Another, AIR 1978 Cal. 19, Union of India v. Sa/wceh Tin.>be1 Construcl!on (/ndia, & Ors. (1969] 2 SCR 224; Ruby General Insurance Co. Ltd. v. Peary Lal Kurnar [1952] SCR 501, referred to.

D Monro v. Bognor Urban District Cofir;cil [1914-15] Reprint All. E. R. 523; Ghewarchand v. Shiva Jute Bailing Lrd., AIR 1950 Cal. 568 distinguished.

The question as to whether a claim based on tort is a claim de hors the contract which contains the arbitration clause or is directly or inex- tricably connected with the contract has to be decided on the facts of each case and the language used in the arbitration clause. [488G-H]

3.1 The contention that even assuming that arbitrability of the three claims falls within the wide ambit of the :trbitration cl1use and that therefore Renusagar's suit is in respect of a matter agreed to be referred to the arbi~ tration within the meaning of section 3, in law, that is, under the law of Forum (being the Indian law 1 in the instant case) the is5ue of arbitrability of claim cannot be finally determined by the arbitrators but must re~t with the court and, therefore. Rcnusagar's 'suit cannot be stayed under section 3, cannot be accepted, in the face of the scheme en" isaged in the Foreign Awards Act. [498C-D]

3 .2 The scheme that emerges on a combined reading of sections 3 and G 7 of the Foreign Awards Act clearly contemplates that questions of existence, validity or effect (scope) of the arbitration agreement itself, in cases where such agreement itself, in cases where such agreement wide enough to include within its ambit such questions, may be decided by the arbitrators initially but their determination is subject to the decision of the court and such deci- sion of the court ~aa be had either before the arbi,tration proceedings comm- ence or during their pendency, if the matter is decided in a section-3 petition or can be had under section 7 after the award is made and filed in the Court and is sought to be enforced by a party thereto. All that the condition H (3) of section 3 requires is that the Iesal proceedings m1,1st ~e in respect of

RENUSAGAR CO. V. GENERAL I LECTRIC CO. 449

,. matter "agrC"ed L be refernid to the arbitrat 'on" and there is no warrant to add further words riamely, ''agreed to be r :ferrcd to the arbitration for fin.11 determination."{) OH;·501A; D]

3.3 There is noth' ig in the general law of arbitration either.. ED!!:liSb or Intlirtn which prevents t 1e arbitrators or on umpire from deciding '}Ues- 1:ons of their own jurisdi tioo provisio.1ally or tcniatively and to proceed _,, to 'llrtke their awards o that basis, thotJgh their own jurisdiction would be st °'iect to the finnl ctcrmination by d::: court and if the cour~ takes a contrary "iew their ~. "rd will not be given eftccl .. : - d this is exactly the scheme of the._.:,.. e1gn Awards Act. [502E-F]

- Attomey General fer Manitoba v. Kelly and Ors.; [1922] l AC 26~ at 27 5; Dalmia Dai1_v Indistries Ltd v. National Bank of Pakistan [1978] 2 c·. Lloycd LR 223 at page 292-293; Becker Auto Radio's case [1978] SSS Federal 2nd series page 39; R. Prince and Co. v. G vemor-Genera!-ln Council, AIR 1955 p. 240 at page 242; Municipal lloardv. Eastern U.P. Elect lcity Supplv Co. Ltd. and Ors. AIR 1958 see 506 at page 510; M/s. Jaf;an 1'.'ath Pltool Chand v. Union of India and Ors. AIR 1982 Delhi 93 at page 97 and 98; Vallabh Pitti v, Narsingdas, 65 Bombay L.R. 20 held in applic;able, D. 3.4. Further~ the statement that many national arbitration laws allow the arbitrator to give a provisional ruling on his competence iii order not to del::iy the arbitration and to alleviate dilatory tactics by obstructing respondents is bor-ne out in regard to the general law of arbitration both- Fnglish and Indian-by several decisions. Similarly, there is no difference t...etweeo English law and Indian law on the point that an arbitration agree~ E. n 'Jt which emp )Wers an arbitrator to decide the question of ils existence, va"idity or effect (scope) is neither invalid nor vo-id. [5020-H; 504 A]

Dalmia Dairy Industries Ltd. v, National Bank of Pakistan [1978] 2 Lloyed L.R. 223 at page 292, 293; Brown v. Oesterrefchischer Walbesitzer R. G111bh [1954] l QB P. 8; Lunada Exportadora and Ors. v. Tarnari and So,1s and Ors. [1967] 2 Llyod's Rep: 353; 364; Vallabh Pitti v. Narsingdas, F 65 Bombay, L.R. 20; Pannallal Sagoremull v. Fatey Clzand Muralidhar, [1951] 88 CLJ 34; Fertilizer Corporation of India v. Chemical Construction Corporation 15 Bombay Law Reporter 335 referred to.

3-5. However, in cases where the arbitration clause contained in the underlying commercial Contract is so. widely worded as to incliide G within its scope the questions cases have m~1de a distinction bclween questions as to the its existence or validity of the agreement on the one hand and its effect (scope) on the other and have held that in the case of the former those questions can not be decided by the arbitr.ttors, as by sheer .Jogic the arbitration clause must fall along with the underlying commercial contract which is either non-existent or illegal, while in the case of the latter it will o:·dinarily be for the arbitrators to decide the effect (scope) oft he arbitration agreement, for the reasons that (a) conceptually a challen$e to th.e e~istCQIYe of validitr of t41! arbitr~rion a~reeqie~t coq-

450 SUPREME COURT RUPORTS (1985] I S.C.R.

A tained in an underlaying commercial contract is fundamentally different from an inquiry into the scope and effect of such agreement in as much as the former goe~ to the rOot of the arbitration agreem:nt whereas the latter pre-supposes that the arbiiration agrement exists in fact a!ld in law and the inquiry is then undertaken as to its true scope and effect; (b) when- ever the question of arbitrators, jurisdiction depended upon the scope and effect of the agreement, courts have readily direcled the parties to go before B tho arbitrators. [504H; 50SA·B; D·F]

RENUSAGAR co. r. GENERAL ELECTRIC co. (Tulzapurkar, J.) 4SI

U?O:t the proper c;,n'itru:tion thereof in the light of the conduct of the \. parties an surrounding circumstances and no prejudice was caused to any of the parties as both Renus1gar's application for injunction and GEC's stay petition under section 3 were heard together and parties did put before the court-Trial court, the Appe1\ court and even Supreme Court-the entire material such as each wanted to rely apon and sought a decision on the concerned issue and therefore, the prayer for injunction restraining B arbitration sought by Renusagar was rightly refused. The triable issue raised in the suit having been found upon against Renusagar no question of balance of convenience survives. [S lOE~F]

(The Court directed that the decision of issue of arbitrability of three claims will have to be regarded as final1 conclusive and binding and that issue would not arise before the Court of arbitration of I.C.C. and eveo if it is raised it would be purely academic.) [S lOG-H] 0

CIVIL APPELLATE JURISDICTION : Civil Appeal

No. 2434-35 of 1984 D

Appeals by Special leave from the Judgment and Order dated the 19th to 21st day of October, 1983 of the Bombay High Court in Appeal Nos. 404 & 405 of 1983.

F.S. Nariman, S.S. Ray, I.M.Chagla, P.L. Dubey, A.P E Chinoy, E.B Desai, N.P. Bharucha, N.R. Khaitan, Anil Kumar Sharma & Praveen Kumar for the appellants.

N.A. Pa/khivala, K.S. Cooper, S.F. Dastur & Dr.· Y.S. Chitale, S.S. Shroff. S.A. Shroff & Mrs. P.S. Shroff for Respondents in CA. No. 1488 of 1984. t'

K.S. Cooper, i.J. Bhatt, Amit Desai, S.A. Shroff and Mrs. P.S. Shrojffor the Respondent in CA. No. 1489 of 1984.