Facts: Appellants 2 and 3, two individuals of Mehra family entered into a joint venture agreement with Respondent No 1, Enercon GMBH, and set up Appellant 1, Enercon India, to manufacture and sell wind turbine generator (hereinafter “WTG”) in India. Respondent No 2, a company incorporated in Germany held the patent technology in connection with the WTGs. In furtherance to the Joint venture agreement, parties entered into various agreements, including an Intellectual Property License Agreement (hereinafter “IPLA”) and Agreed Principles, which provided the basis for the final agreements to be executed. Disputes arose between the parties as to whether IPLA was in consonance with the Agreed Principles and this led to the unilateral suspension of supplies by Respondent No 1, to pressurize Appellant No 2 and 3 to sell their share holding in Appellant No 1 to Respondent No1. This 18 SC judgment dated 14th February 2014. This article is authored by Mr. Vikram Nankani, Partner and Ms Neeti Sachdeva, Senior Associate. led to a series of legal proceedings between the parties as detailed below: Derivative Suit: Appellant Nos. 2 and 3 filed derivative suit in Bombay High Court seeking resumption of supplies by Respondent No 1. The Respondent No 1 in response, filed application under section 45 of the Arbitration and Conciliation Act (hereinafter “the Act”), seeking reference of dispute to arbitration in London in view of the Arbitration clause. The High Court passed an interim measure directing resumption of supplies by Respondent No 1. Appellant contended that Respondent No 1 complied with the order only for some time and discontinued the supplies thereafter. The Appellant hence filed a contempt petition. All the three proceedings are still pending adjudication. Invocation of Arbitration: Respondent No 1 invoked arbitration under clause 18.1 of the IPLA and nominated Mr VV Veeder as its arbitrator. Respondent No 1 called upon the Appellants to nominate their arbitrator. Appellants contested the invocation of arbitration on the ground that IPLA was not a concluded contract and only a draft.Proceedings before English Court: Respondent No 1 filed application before the English Commercial Court seeking constitution of the arbitral tribunal under the IPLA. Proceedings in Daman Court: Appellants filed a suit in Daman Trial Court seeking a declaration that the draft IPLA was not a concluded contract and hence there is no arbitration agreement between the parties. The Court passed an order directing the Respondent to maintain status quo with regard to English proceedings. Meanwhile, Appellants without prejudice nominated Justice BP Jeevan Reddy as their nominee arbitrator. Justice Reddy wrote to the Appellants intimating that the arbitration clause had inherent defects and was unworkable and hence expressed inability to appoint third arbitrator. Later the two nominated arbitrators issued joint letter reiterating that they were unable to appoint the presiding arbitrator. The Respondents then filed an application under section 45 of the Act before the Daman Court seeking reference of dispute to arbitration, which was dismissed by the Daman Court. The Appellants also filed an application for interim injunction in Daman Court seeking to restrain Respondents from pursuing proceedings in English High Court. The Court granted the anti- arbitration injunction sought by the Appellants. Respondents filed appeal against both the orders in Daman Appellate Court. The Daman Appellate Court allowed both the appeals, thereby allowing the Section 45 application and vacating the anti- arbitration injunction. Against these orders the Appellants filed writ petitions before the Bombay High Court. The Bombay High Court ordered the status quo order of the Daman Trial Court to be continued granting interim stay of the English proceedings. English Proceedings: Despite order of the Bombay High Court, Respondents proceeded with the English proceedings. The Court granted anti-suit injunction, restraining Appellants from prosecuting the writ petitions before the High Court. The Court also passed ex-parte injunction restraining Appellant No 1 from disposing its assets. Thereafter, the English Court decided the matter finally and held that the Bombay High Court anti-suit injunction was in force. The Court also discharged the anti suit injunction granted against pursuit of proceedings before theBombay High Court on the undertaking given by the Appellants that the proceedings before the High Court would be expedited and that the Appellants would not seek any further directions for interim relief from the Bombay High Court. The Appellant filed an application before the Bombay High Court for expeditious listing and hearing of the writ petitions. However, in the meanwhile the Respondents filed an application in English High Court for constitution of Arbitral Tribunal. Since no action was taken by the Bombay High Court, the Appellants moved the Supreme Court seeking expeditious hearing of writ petitions. The Supreme Court requested the Bombay High Court to take up the writ petitions expeditiously. Resumption of writ proceedings before Bombay High Court: The Bombay High Court dismissed the writ petitions and held that prima facie there is an arbitration agreement; curial law of arbitration agreement is Indian law; London, as designated in clause 18.3 of IPLA is only a convenient geographical location; London is not the seat of arbitration; English courts have concurrent jurisdiction since the venue of arbitration is London; and scope of enquiry in writ jurisdiction is restricted to existence of the arbitration agreement and not the main underlying agreement, which can be challenged before the Arbitral Tribunal. English Proceedings: The Respondent No 1 issued a letter to Appellant for relisting of application for appointment of presiding arbitrator. The Respondent No 1 also filed for anti suit injunction seeking restraint of filing any special leave petition by the Appellant in Supreme Court against the dismissal of writ petitions. The English Court held that the issues before the Bombay High Court is whether there is a binding arbitration agreement between the parties, whether the seat of arbitration is London, whether English courts could exercise supervisory jurisdiction if the seat is not London. The Court further held that if the Supreme Court of India and the English Court decided differently on these questions, then it would be very confusing and cause injustice, hence the decision of the Supreme Court should be awaited even if there are delays. The Appellants also filed an undertaking that they would not seek injunction from the Indian Courts unless the issue of seatof arbitration was conclusively determined and also would not seek injunction restraining Respondents from pursuing proceedings in English Courts. Thereafter, the decision of the Bombay High Court was challenged in the Supreme Court by way of this present appeal. Issue: The Court considered the following seven issues: 1) Is IPLA a valid and concluded contract?; 2) Should the court or the arbitral tribunal decide the validity of IPLA; 3) Whether the Appellants can refuse to join arbitration on the plea that there is no concluded IPLA; 4) Assuming that IPLA is a concluded contract, is arbitration under clause 18.3 workable?; 5) Is the seat of arbitration London or India?; 6) If the seat is in India, would the English Courts have concurrent jurisdiction as the venue of arbitration is London; and 7) Whether Appellants are entitled for an anti-suit injunction? Appellant’s Contentions: The Appellant contended that there can be no arbitration agreement in the absence of a concluded contract and IPLA is not a concluded contract since it is not in consonance with the Agreed Principles. It was contended that instead of relying upon prior contracts/ agreements/communications/ correspondence is not permissible to determine whether IPLA is concluded or not. On the contrary, subsequent correspondence and contract can be looked into for the purpose of determining whether the substantive contract containing arbitration agreement is concluded or not. Reliance was placed on Godhra Electricity Co Ltd & Anr v The State of Gujarat & Anr19. It was also argued that mere signing of a document will not make it a concluded document, if in law, the contract is not concluded. Reliance, in this context, was placed upon British Electrical v Patley Pressings20, Harvey v Pratt21, Bushwall v Vortex22, Kollipara v Aswathanarayana23 and Dresser Rand v Bindal Agro24 . On the next issue the Appellant contended in a Section 45 application, the matter of the existence of the substantive agreement is a matter required to be determined by the Court. Reliance was placed upon Chloro Control Pvt Ltd v Seven Trent Water Purification Inc & ors25. On the workability of the arbitration clause it was contended that Clause 18.1 of the IPLA is incapable of being performed and therefore, there can be no reference to arbitration under Section 45 of the Act. it was further submitted that even though an arbitration clause can be construed by the Court in such a way as to make it workable when there is a defect or an omission, nonetheless, such an exercise would not permit the Court to rewrite the clause. Reliance was placed on Shin Satellite Public Co. Ltd. v Jain Studio Ltd26. It was also contended that the reconstruction of the arbitration clause in the present case cannot be achieved without doing violence to the language to the arbitration clause; and that this would not be permissible in law. On the issue of seat of arbitration, it was contended that for the purpose of fixing the seat of arbitration the Court would have to determine the territory that will 25 (2013) 1 SCC 641 26 (2006) 2 SCC 628 have the closest and most intimate connection with the arbitration. In the present case provisions of the Indian Arbitration Act, 1996 are to apply; substantive law of the contract is Indian law; law governing the arbitration is Indian Arbitration law; curial law is that of India; Patents law is that of India; IPLA is to be acted upon in India; enforcement of the award is to be done under the Indian law; Joint Venture Agreement between the parties is to be acted upon in India; relevant assets are in India. Therefore, applying the ratio of law in Naviera Amazonica Peruana S.A. v Compania Internacional De Seguros Del Peru27 , the seat of arbitration would be India. It was submitted that if ‘venue of arbitration’ is to be interpreted as making London the seat of arbitration it would: (a) make the English Act applicable when it is not chosen by the parties; (b) would render the parties’ choice of the Indian Arbitration Act, 1996 completely nugatory and otiose. Respondents’ contention: The Respondent contended that the over-riding principle for the Courts in arbitration is to see whether there is an intention to arbitrate. The Court should concern itself only with the existence of the arbitration clause and not the existence of the main contract. Reliance was placed on Section 16 of the Act that the Tribunal has the power to rule on its own jurisdiction and that the existence of the arbitration clause should be treated as an agreement independent of the contract. Reliance was placed on the decision in National Insurance Company Ltd v Bhogara Polyfab Ltd28. It was also contended that since all the essential elements of the arbitration agreement are present, clumsy drafting will not make any difference in the interpretation of the arbitration clause. On the workability of the arbitration clause, the Respondent contended that the sentence “the third arbitrator shall be appointed by the two arbitrator” seems to have been missed out by the draftsman and the same should be supplied by the Court to make the arbitration clause workable. It was contended that there exists a manifest intention to refer disputes to arbitration and even if there is lacuna it can be cured. Reliance was placed on MMTC v Sterlite Industries29, Shin Satellite Public Co Ltd v Jain Studious30, Visa International v 28 (2009) 1 SCC 267 29 AIR 1997 SC 605 30 (2006) 2 SCC 628 Continental Resources31, Jagdish Chander v Ramesh Chander32, Nandan Biometrix Ltd v DI Oils33. On the issue of seat of arbitration, it was contended that the court has to determine where the centre of gravity for arbitration is situated. The terms normally used to denote a seat are “venue”, “place” or “seat” and the court should not adopt a semantic approach. It was also submitted Section 20 (1), (2) and (3) of the Act use the term “place” to connote different meanings. Under Section 20(1) place means seat of arbitration, whereas under section 20(3), place would mean venue. Therefore, the expression “the venue of arbitration proceedings” will have reference only to the seat of arbitration. It was further contended that all the surrounding circumstances would also show that parties intended to designate England as the seat of arbitration. Reliance was placed on Shashoua v Sharma34, Dozco India Pvt. Ltd. v Doosan Infracore Company Ltd.35, Videocon Industries v Union of India36,Yograj Infrastructure Ltd. v Ssang Yong Engineering and Construction Ltd.37 Next it was submitted that law of the seat dictates the curial law, and that the proper law of the arbitration agreement does not overwhelm law of the seat. If place is designated then curial law will be that of such place. It was submitted that the proper law, law of arbitration and the curial law have all been expressly mentioned in the present case. It was also submitted that in the present case London as venue has to be interpreted having conferred London the status of seat, unless some contrary intention has been expressed. It was contended that closest connection test is completely irrelevant when the parties have specified all the three laws applicable in a contract. Decision: The Court held that in a Section 45 application, the court has to decide whether the arbitration agreement is null and void or inoperative or incapable of performance and not the agreement containing the arbitration clause. On the issue of validity of IPLA, the Court held that it is a question which the arbitral tribunal is competent to decide. The Court further held that the question as to whether there was a concluded contract 37 (2011) 9 SCC 735 or not is not relevant for the question as to whether the matter has to be referred to arbitration and hence Appellant cannot refuse to participate in the arbitral proceedings on this ground. The Court next applied the doctrine of separability as enshrined in Section 16 of the Act and held that it is a necessary to ensure that the intention of the parties to resolve the disputes by arbitration does not evaporate into thin air with every challenge to the legality, validity, finality or breach of the underlying contract. It went on to hold that the arbitration clause is widely worded and encompasses the present disputes and a Court must be conscious of the overarching policy of least intervention by courts or judicial authorities in matters covered by the Act. On the question of workability of the arbitration clause, the Court held that the Court should adopt a pragmatic approach while interpreting an arbitration clause, and try and make an unworkable clause as workable within the permissible limits of law. In order to do so, the courts must see it from the perspective of reasonable business person, adopting the business common sense test as well as being equipped with the knowledge that may be peculiar to the business venture. The Court further held that the principle of minimum judicial intervention as recognized in Section 5 of the Act, further dictates that the arbitration clause should not get frustrated for the reason that it is unworkable. The unworkability pertains only to the machinery of arbitration and not the intent to refer disputes to arbitration. Court held that while construing the arbitration clause, the court would be well within its rights to set right an obvious omission without necessarily leaving itself open to the criticism of having reconstructed the clause. On the issue of seat of arbitration, the court held that London is only a venue chosen for convenience and is not the seat of arbitration. India is the seat of arbitration considering that it has the closest and intimate connection to the arbitration as the parties agreed that the Act applied to the arbitration proceedings. Court held that since in the present case, all the chosen laws are of India, therefore, it cannot be said the laws of England would have any application. Having held that the seat of arbitration is India, Court went on to hold that coming to a conclusion that English courts will have supervisory jurisdiction would lead to unnecessary confusion and complications. The Court also held that the Indian courts are competent to issue anti-suit injunctions. Respondent was carrying on business through its agent, Appellant No 1. Further, the IPLA is governed by Indian laws, neither party is English; hence, continuance of parallel proceedings by Respondent No 1 is not correct. The Court finally held that ordinarily the two nominated arbitrator should appoint the third arbitrator, however, considering the peculiar facts and inordinate delay, the court appointed Lord Hoffmann as the presiding arbitrator.