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NTPC V. SINGER COMPANY (1992) 3 SCC 551

NTPC V. SINGER COMPANY (1992) 3 SCC 551

 

FACTS

  • National Thermal Power Corporation (NTPC), an Indian company, and Singer Company, a foreign company.
  • NTPC entered into two contracts with Singer Company for the supply, erection, and commissioning of equipment in India.
  • The contracts specified that Indian law would govern and the courts of Delhi would have exclusive jurisdiction.
  • Disputes were to be resolved through arbitration under the International Chamber of Commerce (ICC) rules, with the place of arbitration chosen by the arbitrators.
  • The ICC arbitrators chose London as the venue and an interim award was made there.
  • NTPC filed an application under the Arbitration Act, of 1940, before the Delhi High Court to set aside the interim award made in London.
  • The court dismissed the application, stating that the award was governed by the Foreign Awards (Recognition and Enforcement) Act, 1961 and that only English courts had jurisdiction to set it aside.
  • NTPC appealed to the Supreme Court.

 

 ISSUE

  • Whether the arbitration award made in London was governed by the provisions of the Indian Arbitration Act, 1940, or the Foreign Awards (Recognition and Enforcement) Act, 1961, and whether the Indian courts had jurisdiction over the award.

 

RULE

  • The proper law of a contract is the law chosen by the parties or most closely connected to the contract, including substantive principles but not conflict of laws rules. It stated that an arbitration agreement governed by Indian law results in a domestic award, even if arbitration occurs abroad, making it subject to Indian court jurisdiction.

 

HELD

  • The Supreme Court discussed the concept of the proper law of contract, emphasizing that it is the law chosen by the parties or the law most closely connected to the contract.
  • The court distinguished between the substantive law governing the arbitration agreement and the procedural law governing the arbitration proceedings.
  • In this case, the substantive law was Indian law as chosen by the parties, while procedural aspects were governed by English law due to the arbitration being conducted in London.
  • The court noted that while ICC rules allow parties to determine the applicable law, these rules are subject to the overriding authority of national courts.
  • The Supreme Court concluded that the substantive law governing the contract was Indian law.
  • Considering various factors such as the execution of the agreement in Delhi, performance in India, and specific mention of Indian enactments.
  • The Delhi High Court had jurisdiction to entertain the application under the Arbitration Act, 1940, as the arbitration agreement was governed by Indian law.
  • An award is considered foreign not merely because it is made in a foreign territory but because it is made under an arbitration agreement not governed by Indian law. Since the agreement was governed by Indian law, the award was not a foreign award.
  • The Supreme Court set aside the Delhi High Court's judgment and ruled that the interim award made in London was a domestic award under Indian law.

 

COMMENTARY-

  • [s 1.8] Proper Law of Contract

 In Dhanrajmal Gobindram v Shamji Kalidas and Co, the Supreme Court observed that whether the proper law applicable was the lex loci contractus or lex loci solutionis was a matter of presumption; but there were accepted rules for determining which of the two is applicable. Where the parties had expressed themselves, the intention so expressed overrode the presumption. Where there was no expressed intention, then the rule to apply was to infer the intention from the terms and nature of the contract and from the general circumstances of the case. The true intention of the parties, in absence of an express selection, has to be discovered by applying “sound ideas of business, convenience and sense to the language of the contract itself”. In such a case, selection of courts of a particular country as having jurisdiction in matters arising under the contract is usually, but not invariably, an indication of the intention of the parties that the system of law followed by those courts is the proper law by which they intend their contract to be governed.

If there is no express choice of the proper law of the contract, the law of the country of the chosen court will usually, but not invariably, be the proper law (British India Steam Navigation Company Ltd v Shanmughvilas Cashew Industries).