GEMINI BAY TRANSCRIPTION PVT. LTD. v. INTEGRATED SALES SERVICE LTD. & ANR.

SERVICE LTD. & ANR. [R. F. NARIMAN, J]

8(1) limits the Court’s jurisdiction pursuant to s 8(2) to enforcing a A foreign arbitral award against a party to the arbitration agreement in pursuance of which it was made. 159 Logically, the expression ‘the arbitration agreement is not valid’ in s 8(5)(b) may be inapt to accommodate the ground that a person is not a party to the arbitration agreement. This is because B a person that seeks to establish that he or she is not a party to an agreement may have no legal or factual basis for impugning the validity of the agreement. The agreement may be valid as between the parties to it, and simply not apply to any person that is not a party to it. A person who establishes that he or she is not a party to an arbitration agreement does not thereby establish that the arbitration agreement is not valid. 160 Sixthly, a reading of s 8(5) as a whole indicates that the provision assumes that the question of whether the person resisting the enforcement of the award was a party to the arbitration agreement in pursuance of which the award was made has already been resolved against that person. This is evident from s 8(5)(a), which refers to ‘a party to the arbitration agreement’, and s 8(5)(f), which refers to ‘the parties to the arbitration agreement’. If these provisions are read literally, the grounds covered by them are only available to parties to the arbitration agreement. It is not clear why these provisions should be so confined if it is the intention of the Act to permit a person that alleges that he or she is not a party to an arbitration agreement to resist enforcement of the award under s 8(5). xxx xxx xxx F 165 It cannot be said that the ground that the award debtor was not a party to the arbitration agreement in pursuance of which the award was made is more significant than, for example, the ground that the arbitration agreement pursuant to which the award was made was not valid. There is no reason to think that an award G debtor has greater justification to be aggrieved because it maintains that it was not a party to the arbitration agreement than an award debtor that maintains that the arbitration agreement was invalid because it was forged or obtained by fraud. If the forgery or fraud are not apparent on the face of the arbitration agreement, H

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A and an ex parte order is made to enforce the award, the award debtor would have the onus under s 8(5)(b) to persuade the Court that the arbitration agreement was a forgery or was obtained by fraud. There is no justification for adopting a different approach where, on the face of the arbitration agreement, the award debtor was a party to that agreement. B 166 Fourthly, the ordinary and natural meaning of the expression ‘the arbitration agreement is not valid’ is that the arbitration agreement is of no legal effect under the relevant law. A person who asserts that he or she is not a party to an arbitration agreement is, in substance, asserting that the arbitration agreement is of no C legal effect as against him or her. Accordingly, s 8(5)(b) may be taken to include the ground that the award debtor was not a party to the arbitration agreement in pursuance of which the award was made. xxx xxx xxx D 171 In relation to the question of whether s 8(5)(b) extends to the ground that the award debtor was not a party to the arbitration agreement, we respectfully agree with the approach that has been adopted in the United Kingdom.

E 172 In Dallah, Lord Collins JSC said that, notwithstanding that para 1(a) of art V of the Convention – which is reflected in s 8(5)(b) of the Act – deals expressly only with the case where the arbitration agreement is not valid, ‘the consistent international practice shows that there is no doubt that it also covers the case where a party claims that the agreement is not binding on it because that party was never a party to the arbitration agreement.’ In support of this proposition, Lord Collins JSC referred to Dardana Ltd v Yukos Oil Co. In that case, Mance LJ said that ‘[i]t is clear, and was effectively common ground before us, that [the UK equivalent of s 8(5)(b) of the Act] is one vehicle enabling the present appellants to challenge the recognition and enforcement of the Swedish award, by maintaining that they never became party to the [arbitration agreement]’ xxx xxx xxx 272 It will be recalled from [166] and [171] to [172] above that the words ‘the arbitration agreement is not valid’ in s 8(5)(b) of

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the Act include the ground that the award debtor was not a party A to the arbitration agreement. (emphasis supplied)

54Copy pinpoint54. This case in inapplicable when construing Section 48(1)(a) of the Arbitration Act, 1996 for the same reason as Dallah is inapplicable. B

55Copy pinpoint55. As a matter of fact, the Singapore High Court in Aloe Vera of America, Inc v Asianic Food (S) Pte Ltd & Anr., [2006] SGHC 78, has arrived at a conclusion, on facts similar to ours, that the equivalent of Section 48(1)(a) in the Singapore Act would not be attracted.

56Copy pinpoint56. In the facts of this case, Aloe Vera of America, Inc. [“AVA”], C a company incorporated and existing under the laws of Texas, USA, was a manufacturer and distributor of aloe vera products. One Mr. Chiew was employed by AVA to be an independent distributor of the aforesaid products. When AVA decided to close its Singapore office, Mr. Chiew persuaded AVA to let him take over AVA’s Singapore operations. He established Asianic Food (S) Pte Ltd. [“Asianic”] for this purpose, as a D result of which, an Exclusive Supply, Distributorship and License Agreement was entered into between AVA and Asianic. Mr. Chiew signed the agreement on behalf of Asianic. This agreement was subsequently terminated, with AVA commencing arbitral proceedings against both Asianic and Mr. Chiew. Mr. Chiew took the position that, E not being a party to the agreement, he had not agreed to arbitration or to the laws of Arizona applying to him personally. However, the learned Arbitrator, in his award, ordered both Asianic and Mr. Chiew to pay AVA damages, compensation, administrative fees and expenses. In this fact situation, when Section 31(2)(b) of Singapore’s International Arbitration Act [the “Singapore Act”] (equivalent of Section 48(1)(a) F of the Indian Arbitration Act, 1996) was pressed in support of Mr. Chiew’s objection to the foreign award, the Singapore High Court held: -

61. First of all, it should be remembered that under s 31(2) of the Act, it is the party who wishes the court to refuse enforcement of the award who has the burden of establishing that one of the G grounds for refusal exists. Sub-section (2)(b) calls on the challenger to establish that the arbitration agreement in question is not valid under the law to which the parties have subjected it. In this case, the arbitration agreement was subject to the law of Arizona and therefore Mr Chiew bore the burden of establishing H

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A that it was not valid under the law of Arizona and that under the law of Arizona the clauses of the Agreement could not have any application to him. It would not be correct in this situation for me to construe cl 13.7 or any other clause of the Agreement in the same way as I would be able to if it were subject to Singapore law in order to establish whether there was a valid arbitration agreement binding Mr Chiew.

62. The same argument was brought before the assistant registrar who correctly held that the issue as to whether there was a valid arbitration agreement had to be determined on the basis of foreign law. He also recognised that Mr Chiew had the burden to adduce evidence to establish his contention. The assistant registrar found that Mr Chiew had failed to adduce such evidence. On the contrary, the evidence showed that Mr Chiew had signed the Agreement and was also active in running Asianic. The assistant registrar found support from the reasoning of the US District Court D decision in the Sarhank case [Sarhank Group v Oracle Corporation reported in Yearbook Comm Arb¼n XXVIII (2003) p 1043)]. Batts J who decided it at first instance stated: [T]he court has been asked to enforce an international arbitral award in which arbitrability has already been established under E the laws of Egypt. … … [T]he Convention … does not sanction second-guessing the arbitrator¼s construction of the parties¼ agreement. … It is well-settled that absent “extraordinary circumstances”, a F confirming court is not to reconsider the arbitrators¼ findings. … … [The arbitrators¼] conclusion of partnership under the contract is one of “construction of the parties¼ agreement” and will G not be reviewed by the Court, absent extraordinary circumstances. In the instant case, no such extraordinary circumstances exist. Whilst the decision of Batts J may have been reversed by the Court of Appeals [404 F 3d 657 (2nd Cir, 2005)], I respectfully H

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agree with his observations which are in line with the general approach taken by an enforcement court to the decision of the arbitral tribunal in question. They are also consonant with the views of the court in the Hebei case which underline that the approach towards the decisions of foreign arbitral tribunals in Convention countries is to recognise the validity of the same and give effect to them subject to basic notions of morality and justice. The Court of Appeals in the Sarhank case took a different view, one that I hope will not be generally endorsed.

57Copy pinpoint57. In the facts of the present case, what this Court is being asked to do, in the guise of applying Section 48(1)(a), is really to undertake a review on the merits. As has been pointed out by us hereinabove, the application of the alter ego doctrine under Delaware law would depend primarily upon the Arbitrator applying the oral and documentary evidence led before him to arrive at this conclusion on facts. This he has done by not only adverting to the documentary evidence, but also adverting to the oral evidence of Ms. Parker of ISS, Mr. Pathak, MD of DMC and D Arun Dev Upadhyaya, Chairman of DMC. Given the fact that the foreign award gives reasons on facts in this case to apply the alter ego doctrine, it would not be possible for us to re-appreciate these facts especially when the burden lies on the appellants to establish the grounds made out in Section 48(1), none of which go to the merits of the case. E

58Copy pinpoint58. Shri Vishwanathan also argued that the award is perverse in that vital evidence was not led in support of the claimant’s case before the arbitrator. Perversity as a ground to set aside an award in an international commercial arbitration held in India no longer obtains after the 2015 amendment to the Arbitration Act, 1996. This Court in Ssangyong (supra)held as follows: F

41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders v. DDA, (2015) 3 SCC 49, while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based G on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch H

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A as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse.

42. Given the fact that the amended Act will now apply, and that the “patent illegality” ground for setting aside arbitral awards in international commercial arbitrations will not apply, it is necessary B to advert to the grounds contained in Sections 34(2)(a)(iii) and (iv) as applicable to the facts of the present case. (emphasis supplied)

59Copy pinpoint59. The judgment in Ssangyong (supra)noted in para 29 that Section 48 of the Act has also been amended in the same manner as C Section 34 of the Act. The ground of “patent illegality appearing on the face of the award” is an independent ground of challenge which applies only to awards made under Part I which do not involve international commercial arbitrations. Thus, the “public policy of India” ground after the 2015 amendment does not take within its scope, “perversity of an D award” as a ground to set aside an award in an international commercial arbitration under Section 34, and concomitantly as a ground to refuse enforcement of a foreign award under Section 48, being a pari materia provision which appears in Part II of the Act. This argument must therefore stand rejected.

60Copy pinpoint60. The appellants then pressed Section 48(1)(c) into operation. As can be seen, Section 48(1)(c) relates to an award which deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submissions to arbitration. Given the fact that the expression ‘submission to arbitration’ would refer primarily to the arbitration agreement (see Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651 at para 19), sub-clause (c) only deals with disputes that could be said to be outside the scope of the arbitration agreement between the parties – and not to whether a person who is not a party to the agreement can be bound by the same. In fact, the proviso to Section 48(1)(c) makes this even clearer, in that it states that an award may be partially enforced, provided that matters which are outside the submission to arbitration can be segregated, thereby again showing that the thrust of the provision is whether the dispute between parties are qua excepted matters for example, or are otherwise outside the scope of the arbitration agreement. In Ssangyong (supra), this Court narrowed H

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SERVICE LTD. & ANR. [R. F. NARIMAN, J]

the scope of the challenge contained in Section 34(2)(a)(iv), which is pari materia with Section 48(1)(c) as follows:

58. So far as this defence is concerned, standard textbooks on the subject have held that the expression “submission to arbitration” either refers to the arbitration agreement itself, or to disputes submitted to arbitration, and that so long as disputes raised are within the ken of the arbitration agreement or the disputes submitted to arbitration, they cannot be said to be disputes which are either not contemplated by or which fall outside the arbitration agreement. The expression “submission to arbitration” occurs in various provisions of the 1996 Act. Thus, under Section 28(1)(a), an Arbitral Tribunal “… shall decide the dispute submitted to arbitration C …”. Section 43(3) of the 1996 Act refers to “… an arbitration agreement to submit future disputes to arbitration …”. Also, it has been stated that where matters, though not strictly in issue, are connected with matters in issue, they would not readily be held to be matters that could be considered to be outside or beyond D the scope of submission to arbitration. …. xxx xxx xxx

67. In State of Goa v. Praveen Enterprises, (2012) 12 SCC 581 (Praveen Enterprises), this Court set out what is meant by “reference to arbitration” as follows : (SCC pp. 587-88, paras 10- E 11) “10. “Reference to arbitration” describes various acts. Reference to arbitration can be by parties themselves or by an appointing authority named in the arbitration agreement or by a court on an application by a party to the arbitration agreement. We may elaborate: (a) If an arbitration agreement provides that all disputes between the parties relating to the contract (some agreements may refer to some exceptions) shall be referred to arbitration and that the decision of the arbitrator shall be final and binding, the “reference” contemplated is the act of parties to the arbitration agreement, referring their disputes to an agreed arbitrator to settle the disputes. (b) If an arbitration agreement provides that in the event of any dispute between the parties, an authority named therein H

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A shall nominate the arbitrator and refer the disputes which required to be settled by arbitration, the “reference” contemplated is an act of the appointing authority referring the disputes to the arbitrator appointed by him. (c) Where the parties fail to concur in the appointment of the arbitrator(s) as required by the arbitration agreement, or the authority named in the arbitration agreement failing to nominate the arbitrator and refer the disputes raised to arbitration as required by the arbitration agreement, on an application by an aggrieved party, the court can appoint the arbitrator and on such appointment, the disputes between the parties stand referred to such arbitrator in terms of the arbitration agreement.

11. Reference to arbitration can be in respect of all disputes between the parties or all disputes regarding a contract or in respect of specific enumerated disputes. Where “all disputes” are referred, the arbitrator has the jurisdiction to decide all disputes raised in the pleadings (both claims and counterclaims) subject to any limitations placed by the arbitration agreement. Where the arbitration agreement provides that all disputes shall be settled by arbitration but excludes certain matters from arbitration, then, the arbitrator will exclude the excepted matter and decide only those disputes which are arbitrable. But where the reference to the arbitrator is to decide specific disputes enumerated by the parties/court/appointing authority, the arbitrator’s jurisdiction is circumscribed by the specific reference and the arbitrator can decide only those specific disputes.” F

68. A conspectus of the above authorities would show that where an Arbitral Tribunal has rendered an award which decides matters either beyond the scope of the arbitration agreement or beyond the disputes referred to the Arbitral Tribunal, as understood in Praveen Enterprises, the arbitral award could be said to have dealt with decisions on matters beyond the scope of submission to arbitration.

69. We therefore hold, following the aforesaid authorities, that in the guise of misinterpretation of the contract, and consequent “errors of jurisdiction”, it is not possible to state that the arbitral award would be beyond the scope of submission to arbitration if

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otherwise the aforesaid misinterpretation (which would include going beyond the terms of the contract), could be said to have been fairly comprehended as “disputes” within the arbitration agreement, or which were referred to the decision of the arbitrators as understood by the authorities above. If an arbitrator is alleged to have wandered outside the contract and dealt with matters not allotted to him, this would be a jurisdictional error which could be corrected on the ground of “patent illegality”, which, as we have seen, would not apply to international commercial arbitrations that are decided under Part II of the 1996 Act. To bring in by the backdoor grounds relatable to Section 28(3) of the 1996 Act to be matters beyond the scope of submission to arbitration under Section C 34(2)(a)(iv) would not be permissible as this ground must be construed narrowly and so construed, must refer only to matters which are beyond the arbitration agreement or beyond the reference to the Arbitral Tribunal.

61Copy pinpoint61. In the Aloe Vera of America case (supra), the Singapore D High Court adverted to Section 31(2)(d) of the Singapore Act (which is the equivalent to Section 48(1)(c) of the Indian Arbitration Act, 1996), and then held:

64. Under s 31(2)(d), enforcement of the Award may be refused if it “deals with a difference not contemplated by, or not falling within the terms of, the submission to arbitration or contains a decision on the matter beyond the scope of the submission to arbitration”.

65. Mr Loh submitted that the Award should not be enforced in Singapore because it contains a decision on matters that are beyond the scope of the submission to arbitration – the arbitration agreement was between AVA and Asianic and the submission to arbitration was restricted to those parties only. Joining Mr Chiew and entering an award against him went beyond the scope of the submission to arbitration. Javor v Francoeur [2003] BCJ No 480 was cited in support. Additionally, Mr Loh said certain academics (though he referred me to only one article, that by Prof Wedam-Lukic, “The Jurisdictional Problems of Arbitration” (1994) 1 Croatian Arbitration Yearbook 51) were also of the view that an award seeking to bind non-parties to an arbitration agreement was a ground for refusal of enforcement under Art H

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A V(1)(c) of the Convention (the equivalent of s 31(2)(d) of the Act).

66. On behalf of AVA, Mr Dhillon submitted that s 31(2)(d) dealt with the grounds of excess of power or authority of the arbitrator. He cited para 20.145 of Halsbury¼s Laws of Singapore vol 2 B (LexisNexis, 2003 Reissue) where the author stated that this ground of challenge assumed that the tribunal had jurisdiction over the parties and that the excess of jurisdiction should be looked at in relation to the scope of the arbitration agreement and not be restricted to the pleadings filed in the arbitration. The author added that when the court examined such a challenge, it should be cautious C that in doing so it did not go into the merits in the case raised before the arbitrator, including any issue of law.

67. Mr Dhillon further submitted that s 31(2)(d) did not overlap with s 31(2)(b) which was the proper section to invoke when a challenge was being made on the basis that a person was not a D party to the arbitration agreement. He pointed out that in Peter Cremer GmbH & Co v Co-operative Molasses Traders Ltd [1985] ILRM 564, the appellant had argued that there was no binding contract between the parties and that therefore there could not be a binding agreement to submit disputes to arbitration. Dealing E with this argument in the Irish Supreme Court, Finlay CJ held at 573 that: I am not satisfied that this issue can properly be made the subject matter of a defence pursuant to either s.9(2)(d) or s.9(2)(f) of the Act of 1980. S.9(2)(d) clearly, in my view, refers to a situation where there is an undoubted submission to arbitration … If, as is contended by the appellants in this case, there was no binding agreement containing an arbitration clause then, by definition, there could be no submission to arbitration and in the absence of a submission to arbitration there could be no issue as to whether an award dealt with differences not contemplated or falling within the terms of a submission or went beyond the scope of the submission. In Peter Cremer, no challenge was mounted on the basis of the Irish equivalent of s 31(2)(b) but it is quite clear that the court did not consider that a challenge, premised on the argument that a H

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person was not a party to an agreement, could be made under s A 31(2)(b). 68.In any event, Mr Dhillon submitted that in order to determine whether the award dealt with matters that were beyond the scope of the submission to arbitration, the law to be applied would have to be the governing law of the arbitration agreement since that B law would control the way in which the arbitration agreement was construed. Accordingly, where a Convention award is to be enforced, the foreign law of the award would be applicable. In this case, Mr Chiew had brought no evidence based on Arizona law to prove that the Award contained a decision on a matter beyond the scope of the submission to arbitration. As for Javor v C Francoeur, this case was distinguishable on its facts as the arbitrator there had held that the respondent was liable without finding him to be a party to the arbitration agreement.

69. Having considered Mr Dhillon’s arguments, I accept them. I agree with the assistant registrar that this ground of challenge D relates to the scope of the arbitration agreement rather than to whether a particular person was a party to that agreement. Mr Chiew has not established that this ground avails him in this instance.

62Copy pinpoint62. We think this judgment states the law correctly. E

63Copy pinpoint63. Shri Vishwanathan then pressed the ground that since the Arbitrator’s Award in the present case contained reasoning which was perfunctory in nature, it would not pass muster and it would be a breach of natural justice, ‘reasons’ being a part of natural justice as understood in this country. For this, he referred to Section 48(1)(b) of the Arbitration F Act, 1996. Section 48(1)(b) does not speak of absence of reasons in an arbitral award at all. The only grounds on which a foreign award cannot be enforced under Section 48(1)(b) are natural justice grounds relatable to notice of appointment of the arbitrator or of the arbitral proceedings, or that a party was otherwise unable to present its case before the arbitral G tribunal, all of which are events anterior to the making of the award. Section 48(1)(b) has in any case been narrowly construed in the case of Vijay Karia (supra) as follows:

81. Given the fact that the object of Section 48 is to enforce foreign awards subject to certain well-defined narrow exceptions, H

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A the expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase. In short, this expression would be a facet of natural justice, which would be breached only if a fair hearing was not given by the arbitrator to the parties. Read along with the first part of Section 48(1)(b), it is clear that this expression would apply at the hearing stage and not after the award has been delivered, as has been held in Ssangyong. A good working test for determining whether a party has been unable to present his case is to see whether factors outside the party’s control have combined to deny the party a fair hearing. Thus, where no opportunity was given to deal with an argument which goes to the root of the case or findings based on evidence which go behind the back of the party and which results in a denial of justice to the prejudice of the party; or additional or new evidence is taken which forms the basis of the award on which a party has been given no opportunity of rebuttal, would, on the facts of a given case, render a foreign award unenforceable on the ground that a party has been unable to present his case. This must, of course, be with the caveat that such breach be clearly made out on the facts of a given case, and that awards must always be read supportively with an inclination to uphold rather than destroy, given the minimal interference possible with foreign awards under Section 48.

64Copy pinpoint64. This judgment also expressly referred to arbitral awards which may be poorly reasoned as follows: -

24. …. Also, it would only be in a very exceptional case of a F blatant disregard of Section 48 of the Arbitration Act that the Supreme Court would interfere with a judgment which recognises and enforces a foreign award however inelegantly drafted the judgment may be. …

83. Having said this, however, if a foreign award fails to determine G a material issue which goes to the root of the matter or fails to decide a claim or counterclaim in its entirety, the award may shock the conscience of the Court and may not be enforced, as was done by the Delhi High Court in Campos Bros. Farms v. Matru Bhumi Supply Chain (P) Ltd., 2019 SCC OnLine Del 8350 : H (2019) 261 DLT 201 on the ground of violation of the public policy

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of India, in that it would then offend a most basic notion of justice in this country. It must always be remembered that poor reasoning, by which a material issue or claim is rejected, can never fall in this class of cases. ….

65Copy pinpoint65. This argument also stands rejected.

66Copy pinpoint66. Shri Salve argued that since damages were given in tort in the present case, they would be outside the scope of the arbitration agreement. The arbitration agreement in this case reads as follows: - (ii) In the event a dispute arises in connection with this Agreement such dispute shall be referred to a single arbitrator in Kansas City, Missouri, U.S.A. to be appointed by agreement between the parties hereto, or failing agreement to be appointed according to the rules of the American Arbitration, Association the same rules under which any dispute which any dispute shall be decided. (emphasis supplied) D

67Copy pinpoint67. As has been noticed by us earlier in this judgment, Section 44 recognises the fact that tort claims may be decided by an arbitrator provided they are disputes that arise in connection with the agreement. Thus in Renusagar Power Co. Ltd. v. General Electric Co., (1984) 4 SCC 679, this court held: - E

39. As regards the third claim of compensatory damages it is true that Renusagar is being saddled with this liability as tortfeasor, a stake-holder and/or a constructive trustee, but, in our view, that aspect by itself will not justify a conclusion that the same is not covered by the arbitration clause because the question is not whether the claim lies in tort but the question is whether even though it has lain in 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. As explained earlier, this claim is based on and is consequential upon and by way of corollary to the non-payment of the two detained amounts by Renusagar to G.E.C. in breach of the terms of the contract. In other words, it is clear that before adjudicating upon this claim the adjudicating authority will have first necessarily to adjudicate upon first two claims preferred by G.E.C. and only if it is found that G.E.C. is entitled to receive the first two amounts which ought to have been paid by Renusagar under the terms of the contract but H

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A which Renusagar had failed to pay that this third claim could, if at all, be allowed to G.E.C. In the real sense, therefore, this claim 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 as such will have to be regarded as a claim “arising out of” or “related to” the contract. As we shall point out presently this Court in one of its decisions has laid down the test for determining the question in such cases and the test is whether recourse to the contract, by which both the parties are bound, would be necessary for the purpose of determining whether the claim in question was justified or otherwise and this test, as indicated above, is clearly satisfied with regard to the third claim in the instant case.

40. We may, at this stage, refer to a passage in Russell on Arbitration and a few decided cases which fortify our aforesaid conclusion. In Russell on Arbitration (Twentieth Edn.) the following statement of law occurs at p. 90: “Claims in tort may be so intimately connected with a contract that a clause of appropriate width designed primarily to make contractual disputes arbitrable will nevertheless render such claims in tort arbitrable as well.”

E 41. In Woolf v. Collis Removal Service [(1947) 2 All ER 260 : (1948) 1 KB 11 : 177 LT 405 (CA)] the defendants had contracted to remove plaintiff’s furniture and effects from London to their store in Marlow and there safely to keep and take care of them, but, according to the plaintiff, the defendants had, in breach of the contract, removed the goods to a different destination where some were lost and others damaged. Alternatively the plaintiff claimed that the goods were lost and damaged owing to the negligence of the defendants in using an unsuitable place in which to store them and guarding them inefficiently. The clause providing for arbitration ran: “If the customer makes any claims upon or counter-claim to any claim made by the contractors” the same shall be referred to the decision of the two arbitrators. The question was whether the claim for damages was covered by this clause. The Court of Appeal held that even if the claim in negligence was a claim in tort and not under the contract yet there was a sufficient close connection between that claim and the transaction to bring the

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claim within the arbitration clause. This authority clearly shows A that even though a claim may not directly arise under the contract which contains an arbitration clause, if there was sufficient close connection between that claim and the transaction under the contract it will be covered by the arbitration clause.

42. In Astro Vencedor Compania Naviera SA of Panama v. B Mabanaft GmbH [(1971) 2 All ER 1301 (QBD & CA)] the arbitration clause contained in a contract of charter-party ran: “any dispute arising during the execution of this charter-party” shall be settled by two arbitrators, one to be appointed by the owners and the other by the charterers. The relevant charterers ordered the vessel to a Dutch port not named in the bill of lading whereby satisfactory bills of lading were not available in time and disputes arose as to unloading. By action of the relevant charterers the vessel was arrested and released on a bank guarantee. Later, under a charter quite unconnected with the relevant charterers the vessel happened to be again in a Dutch port and was arrested again as a result of disputes as to the satisfactory nature of the original bank guarantee. The owners arbitrated a claim for damages in respect of each of the two arrests of the vessel. The charterers argued that these were claims in tort and outside the arbitrator’s jurisdiction. The Court held that arbitrator had jurisdiction (1) over the first arrest as it was closely connected with the dispute under the contract, and was indeed a direct consequence of a claim for damages under the contract, and (2) over the second arrest as it was part and parcel of the original arrest. xxx xxx xxx F

44. In Alliance Jute Mills Co. Ltd. v. Lalchand Dharamchand [AIR 1978 Cal 19] disputes between the parties to a commercial contract were arbitrable under the bye-laws of the East India Jute & Hessian Exchange Association and the relevant bye-law ran thus: “All matters, questions, disputes, difference and/or claims arising out of and/or concerning and/or in connection with and/or G in consequence of or relating to this contract shall be referred to arbitration....” Under the commercial contract Respondent 1 had sold, through a broker, certain quantities of fibre to the appellant Mill and after effecting delivery of the goods Respondent 1 had submitted bills to the appellant Mill again through the broker; the H

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A appellant Mill, however, claimed reduction in price on account of shortage in weight and submitted claims in that respect. Since the price was not paid, Respondent 1 referred the claim to the arbitration of Bengal Chamber of Commerce and Industry. The appellant Mill informed the Chamber of Commerce and Industry that it had filed a suit upon the whole of the subject-matter of the reference and served a notice under Section 35 of the Arbitration Act. In the suit so filed against Respondent 1 and the broker apart from the declaration sought that the broker had no claims against the appellant Mill in respect of the contract or in respect of the bills submitted by the broker for the price of goods sold and delivered the appellant Mill had also claimed a decree for Rs 50,000 as damages for the alleged libel published by Respondent 1 and the broker. In an application for stay of the suit under Section 34 of the Arbitration Act, 1940, one of the questions raised was whether the arbitration clause was wide enough to include the claim for damages for the alleged libel. The High Court held that the claim in damages for defamation arose “out of” and “in connection with” the non-payment of the bills of Respondent 1 and in going into the question of tort the Court would necessarily have to go into the terms and conditions of the contract relating to payment and that the claim in tort was directly and inextricably connected with the terms and conditions of the contract and as such came within the scope of the arbitration clause which was wide enough to cover the same. In this view of the matter Court stayed the suit under Section 34 of the Arbitration Act. xxx xxx xxx

F 46. As stated earlier since this third claim for compensatory damages 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 thereof recourse to the contract would be necessary it will have G to be held that it is a claim “arising out of” and in any event “related to” the contract. xxx xxx xxx

48. Having regard to the aforesaid discussion we are clearly of the view that all the three claims referred by G.E.C. to the Court H

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of Arbitration of I.C.C. do “arise out of” and are “related to” the commercial contract in fact the first two claims arise “under the contract”) and squarely fall within the widely worded Arbitration clause being Article XVII contained in the commercial contract. It is also clear that the Arbitration clause embraces even the question of its effect (scope), that is to say, it embraces the issue of the arbitrability of the three claims Questions whether in law, namely, the law of the Forum, the arbitrators will have jurisdiction and power to decide the arbitrability of the claims or not and whether Renusagar’s suit is liable to be stayed or not will be considered by us next but at this stage we are categorically negativing the contentions of counsel for Renusagar that on merits the three claims are beyond the scope or purview of the Arbitration clause or that the Arbitration clause on its own language does not embrace the issue of arbitrability of the three claims.

68Copy pinpoint68. In Tarapore & Co. v. Cochin Shipyard Ltd., (1984) 2 SCC 680, this Court held: D

39. Phrases such as “claim arising out of contract” or “relating to the contract” or “concerning the contract” on proper construction would mean that if while entertaining or rejecting the claim or the dispute in relation to claim may be entertained or rejected after reference to the contract, it is a claim arising out of contract. E Again the language of clause 40 shows that any claim arising out of the contract in relation to estimates made in the contract would be covered by the arbitration clause. If it becomes necessary to have recourse to the contract to settle the dispute one way or the other then certainly it can be said that it is a dispute arising out of the contract. And in this case the arbitration clause so widely F worded as disputes arising out of the contract or in relation to the contract or execution of the works would comprehend within its compass a claim for compensation related to estimates and arising out of the contract. The test is whether it is necessary to have recourse to the contract to settle the dispute that has arisen. [ G (See Russel on Arbitration, Twentieth Ed., page 85)]

69Copy pinpoint69. It then specifically referred to Astro Vencedor Compania Naviera S.A. of Panama v. Mabanaft GmbH [(1971) 2 QB 588 as follows: H

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A 42. In Astro Vencedor Compania Naviera S.A. of Panama v. Mabanaft GmbH [(1971) 2 QB 588 : (1971) 2 All ER 1301 : (1971) 3 WLR 24] a question arose whether a claim in tort would be covered by the arbitration clause? It was admitted that the claim for wrongful arrest is a claim in tort. And it was contended that a claim in tort cannot come within the arbitration B clause. The Court of Appeal speaking through Lord Denning held that the claim in tort would be covered by the arbitration clause, if the claim or the issue has a sufficiently close connection with the claim under the contract.

70Copy pinpoint70. As a result, this contention has no legs on which to stand. C

71Copy pinpoint71. Shri Salve argued relying upon three judgments of this Court, namely, Indowind Energy Ltd. v. Wescare (India) Ltd., (2010) 5 SCC 306, Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641, Cheran Properties Ltd. v. Kasturi & Sons Ltd., (2018) 16 SCC 413 that a comparison between D Sections 35 and 46 of the Arbitration Act, 1996 would show that the legislature circumscribed the power of the enforcing court under Section 46 to persons who are bound by a foreign award as opposed to persons which would include ‘persons claiming under them’ and that, therefore, a foreign award would be binding on parties alone and not on others. E First and foremost, Section 46 does not speak of “parties” at all, but of “persons” who may, therefore, be non-signatories to the arbitration agreement. Also, Section 35 of the Act speaks of “persons” in the context of an arbitral award being final and binding on the “parties” and “persons claiming under them”, respectively. Section 35 would, therefore, refer to only persons claiming under parties and is, therefore, more restrictive in F its application than Section 46 which speaks of “persons” without any restriction. Quite apart from this, another important conundrum arises from the Division Bench judgment in the present case. The Division Bench judgment applied Delaware law to satisfy itself that such law had indeed been followed to apply the alter ego doctrine correctly, as a G result of which the foreign award would have to be upheld. We wish to indicate that this approach is completely erroneous. First and foremost, Section 48 does not contain any ground for resisting enforcement of a foreign award based upon the foreign award being contrary to the substantive law agreed to by the parties and which it is to apply in reaching its conclusion. As a matter of fact, whether the award is correct in law H

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(applying Delaware law), would be relevant if at all such award were to be set aside in the State in which it was made and that too if such law permitted interference on the ground that the arbitral award had infracted the substantive law of the agreement. As has been pointed out hereinabove, the arbitral award in this case was not challenged in the State of Missouri. Hence, the Division Bench’s foray into this line of reasoning is wholly incorrect.

72Copy pinpoint72. As a matter of fact, if an international commercial arbitration were to be held in India, Section 28(1)(b) recognises that an arbitral tribunal can decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute which, in turn, has a direct nexus to the substantive law of the country whose laws are said to apply. There is no ground in the pari materia provisions of Section 34 to set aside such award on the ground that the substantive law of that country has been infracted. Indeed, the only ground on which such award could possibly be interfered with is if such award, valid under the law which it applied, could be held to be contrary to the public policy of India. Gary Born (supra) has this to say on this aspect: Despite the potentially expansive and unruly character of “public policy,” courts in most jurisdictions have been very reluctant to invoke the exception to deny recognition to foreign awards. Rather, E they have underscored the narrow, exceptional character of the public policy defense in recognition proceedings, emphasizing that the exception is not satisfied merely because foreign law or foreign tribunal reached a different result, or even an entirely opposite reslt, from that provided by domestic law. One leading Swiss judicial decision sums up this approach as follows: F

“The appellant forgets that the enforcement court does not decide on the arbitral award as an appellate instance; the merits of the award cannot be reviewed under the cover of public policy.” [Judgment of 9 January 1995, Inter Maritime Mgmt SA v. Russin & Vecchi, XXII Y.B. Comm. Arb. 789,796 (Swiss G Federal Tribunal)] Other courts have also repeatedly made clear that “erroneous legal reasoning or misapplication of law is generally not a violation of public policy within the meaning of the New York Convention. H

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A That result has been repeatedly and squarely affirmed by decisions in U.S., Swiss, French, English, German, Austrian, Singaporean, Hong Kong, Indian, Korean and other courts. Thus, the fact that an arbitral tribunal applies a law that is different from that of the recognition forum’s law, or wrongly applies the recognition forum’s laws, or reaches a result that is contrary to that which the B recognition forum’s courts would reach when applying their own (or a foreign) law, is not a basis for finding a violation of public policy under Article V (2) (b). The same principle is even more clearly applicable with regard to factual findings by an arbitral tribunal … C (at pages 3667-3669) xxx xxx xxx It is frequently said that conduct involving violations of certain types of criminal prohibitions implicates national and international D public policies, crimes of terrorism, piracy, slave-trading, drug smuggling, torture, murder, kidnapping and robbery are all typically identified as examples of public policy. As discussed above, in the context of arbitration agreements: “The English court would not recognise an agreement between E …highwaymen to arbitrate their differences any more than it would recognise the original agreement to split the proceeds.” [Soleimany v. Soleimany [1999] QB 785, 797 (English Ct. Appl)] Equally, neither an English court nor courts of most other states would recognize awards that split the proceeds of a criminal F enterprise or that otherwise facilitated serious criminal activities, whether highway robbery, terrorism, drug smuggling, slave- trading, human-trafficking, or similar crimes. In practice, however, it is highly unusual for criminals involved in such enterprises to come anywhere close to either lawyers or arbitrators; other forms of alternative dispute resolution are used in almost all such settings. G As a consequence, there are very few national court decisions involving the text-book cases of serious criminal activities. (at pages 3672-3693)

73Copy pinpoint73. Thus, if in a given case the substantive law of a foreign country H were to recognise a narcotic drug as being legal based upon which an

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award for the supply of such drug is then ordered, such award may possibly be resisted in India on the ground that it would be contrary to the fundamental policy of Indian law to give effect to such agreement in a case in which the Narcotic Drugs and Psychotropic Substances Act, 1985 prohibits import of such a drug. A foreign award cannot be set at naught under Section 48 on the ground that it has infracted the substantive law of the agreement.

74Copy pinpoint74. The final argument that the damages that have been awarded have been awarded on no basis whatsoever would again not fall within any of the exceptions contained in Section 48(1). In order to attract Section 48(2) read with Explanation 1(iii), this Court in Ssangyong (supra) has held that it is only in exceptional cases which involve some basic infraction of justice which shocks the conscience of the court that such a plea can be entertained. This Court held:

70. The expression “most basic notions of … justice” finds mention in Explanation 1 to sub-clause (iii) of Section 34(2)(b). Here again, what is referred to is, substantively or procedurally, some fundamental principle of justice which has been breached, and which shocks the conscience of the Court. …. xxx xxx xxx

76. However, when it comes to the public policy of India, argument based upon “most basic notions of justice”, it is clear that this ground can be attracted only in very exceptional circumstances when the conscience of the Court is shocked by infraction of fundamental notions or principles of justice. ….

75Copy pinpoint75. The Arbitrator correctly held that as nothing was forthcoming from any of the appellants, he would have to make a best judgment assessment for damages. In making that assessment, he took into account the commission that was being earned by GBT from the two clients of DMC and arrived at a figure of 100,000 USD per month and then found, on a reasonable estimate, that they would continue to be clients for a period of four years, as a result of which the figure of 6,948,100 USD G was reached.

76Copy pinpoint76. That such ‘guesstimates’ are not a stranger to the law of damages in the U.S. and other common law tradition nations has been established very early on in a judgment of Asutosh Mookerjee, J. reported as Frederick Thomas Kingsley v. The Secretary of State for India H

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A AIR 1923 Cal 49. In this judgment, a learned Division Bench of the Calcutta High Court put it thus: - It may be conceded that though every breach of duty arising out of a contract gives rise to an action for damages, without proof of actual damage, Marzetti v. Williams [(1830) I B & Ad. 415 : 35 B R.R. 329.], Embery v. Owen [(1851) 6 Exch. 353 : 86 R.R. 331], the amount of damages recoverable is, as general rule, governed by the extent of the actual damage sustained in the consequence of the defendant’s act, Hiort v. L.N.W. Ry. Co.[(1879) 4 Exch. Div. 188.]. In cases admitting proof of such damage, the amount must be established with reasonable certainty, The Commerce C [(1850) 3 W. Rob. 283.]. But this does not mean that absolute certainty is required, nor in all cases, is there a necessity for direct evidence as to the amount. Damages are not uncertain for the reason that the loss sustained is incapable of proof with the certainty of mathematical demonstration or is to some extent contingent and incapable of precise measurement. As Harlan J. observed in delivering the judgment of the Supreme Court of the United States in Heztel v. Baltimore and O.R. Co. [(1897) 169 U.S. 26 (38)], certainty to reasonable extent is necessary, and the meaning of that language is that the loss of damage must be so far removed from speculation or doubt as to create in the minds of intelligent and reasonable men the belief that it is most likely to follow from the breach of the contract and was a probable and direct result thereof. To the same effect is the decision in Morris v. U.S. [174 U.S. 291.] that where absolute certainty is impossible, judgment of fair men as to damages directly resulting governs. F (at pages 50,51)

77Copy pinpoint77. Significantly, this judgment referred to and relied upon U.S. Supreme Court judgments to arrive at this conclusion.

78Copy pinpoint78. However, Shri Viswanathan relied upon Agritrade G International (P) Ltd. v. National Agricultural Coop. Mktg. Federation of India Ltd., (supra) and para 24 in particular, which states:-

24. There is also merit in the submissions made on behalf of NAFED that there was no material produced before the Arbitral Tribunal by Agritrade to show that it had, in fact, suffered any loss as a result of NAFED not opening an L/C for the quantity of H

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5000 MT of CPO. In its final Award dated 14th January 2008, the A Arbitral. Tribunal merely accepted the default date as 7th October 2004 and proceeded to determine the “close out price” to assess the damage. Unless there was actual proof of loss suffered by Agritrade, awarding of any differential between the contracted price and close out price must also be held to be based on no evidence.

79Copy pinpoint79. The facts in this case are far removed from the facts in the aforesaid High Court Judgment. There can be no doubt whatsoever that as a result of the machinations of Upadhyaya and Pathak, as found by the arbitral tribunal, ISS was deprived of commission legitimately due to it under the representation agreement. This being so, there can be no doubt that, on facts as proved before the arbitral tribunal, actual loss can be said to have been occasioned to ISS.

80Copy pinpoint80. In any case, the damages so awarded in the facts of this case cannot even remotely be said to shock the conscience of this Court so as to clutch at “the basic notion of justice” ground contained in Section D 48(2) Explanation (1)(iii).

81Copy pinpoint81. The result is that the appeals are dismissed for the reasons given by us without any order as to costs.

E Nidhi Jain Appeals dismissed.