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2008 SCC OnLine Del 716 : (2008) 105 DRJ 446 : (2008) 3 Arb LR
37

In the High Court of Delhi

(BEFORE A.K. SIKRI, J.)

National Ability S. A … Petitioner;

Versus
Tinna Oil & Chemicals Ltd. & Ors … Respondents.
Ex. P. No. 74 of 2000 with OMP No. 173 of 1998
Decided on June 4, 2008

Arbitration and Conciliation Act, 1996

Sections 44 & 52 — Foreign award — Request for adjournment of the
proceedings rejected by Arbitrator — Schedule fixed by the arbitral tribunals
is strictly adhered to and only in exceptional circumstances adjournments
are given — Procedure rational and justified — In respect of disputes
relating to international commercial dealings, such arbitral tribunals ensure
that they are

Page: 447

decided with utmost alacrity and promptness — One should favour a pro-arbitration
approach with respect to the enforcement of foreign arbitral award — Held that
once it is found that the award is properly rendered, it is the duty of the courts in
India to enforce the same.

PRESENT: Mr. Arvind Nigam with Ms. Purnima Maheswari, Advocates

for the Petitioner.
Mr. Ajay Kr. Agrawal with Ms. Alka Agrawal and Ms. Anamika
Agrawal, Advocates for the Respondent No. 2.
A.K. SIKRI, J.:— The petitioner had, by a Charter Party dated
29.4.1995, on a Gencon form, chartered the vessel “AMAZON REEFER”
to the respondent No. 1 herein for a voyage from Kandla to
Novorossiysk. The said charter party contained the terms and
conditions on which the vessel was chartered. It also contained an
arbitration agreement in Clause 29 thereof which, inter alia, provided
that in the event of disputes between the parties, the same could be
settled through arbitration in London according to English Law.
Disputes and differences arose between the parties and, accordingly,
the matter was referred to arbitration in London. The said Arbitral
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Tribunal, which comprised of three arbitrators, has given award dated

19.11.1998.
2. The petitioner herein had initially filed a suit for enforcement of
this award. However, realizing that no such suit is required to be filed
inasmuch as such an award, even when it is a foreign award, is
enforceable and executable under the Arbitration and Conciliation Act,
1996 (hereinafter referred to as the ‘1996 Act’), the petitioner filed the
present execution petition and withdrew the suit, being Suit No.
740A/1999. The petitioner stated that the award in question is passed
by the Arbitral Tribunal in England, which is a country notified under
the New York Convention. The enforcement of the award is, accordingly,
sought under Sections 5, 6 and 8 of the Foreign Awards (Recognition
and Enforcement) Act, 1961. However, this Act stood repealed by the
1996 Act inasmuch as Part II, Chapter I of the same (Section 44 to 52)
lays down the provisions for enforcement of foreign arbitral award given
in the country which is signatory to the 1958 Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (hereinafter
referred to as the ‘New York Convention’).
3. According to the petitioners, when the disputes arose and were
referred to the arbitration in London, both the parties sought
substantive relief and were represented by counsel before the Arbitral
Tribunal. The Tribunal, after an oral hearing in London from 21.9.1998
to 25.9.1998, passed the reasoned award in favour of the petitioner
ordering and directing the respondent to pay to the petitioner a sum of
US$ 819, 983.16 together with interest @ 7% p.a. from 1.10.1995 till
the date of filing of the award. Costs have also been awarded in favour
of the petitioner amounting to Sterling ú 26,762.17 being the cost of
the award and Sterling Pounds ú 129,

Page: 448

929.79 being the petitioner's cost. No appeal was filed by the

respondent against this award and, therefore, the award has become
final and binding.

4. In addition to impleading respondent No. 1, namely, M/s. Tinna

Oils & Chemicals Ltd., the petitioner has also arraigned M/s. Tinna Finex
Ltd. as the respondent No. 2. Though the vessel was chartered by the
petitioner for the respondent No. 1, namely, M/s. Tinna Oils &
Chemicals Ltd., in a Scheme of Arrangement sanctioned by this Court,
the said company was taken over by M/s. Tinna Finex Ltd. Because of
this reason, the respondent No. 2 was also impleaded before the
Arbitral Tribunal and is arraigned in the execution petition as well.
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5. In this execution petition, notice was issued on 19.7.2000, which

was accepted by counsel for both the respondents, who were appearing
at that time in Suit No. 740-A/1998.
6. The petitioner has also filed OMP No. 173/1998, which is an
application under Section 9 of the 1996 Act, with the prayer that the
respondents be directed to furnish security to the tune of US$
1,308,340.54 besides costs and they be also directed to disclose, on
oath, the details of movable and immovable assets of the respondent
No. 1, which have been transferred to the respondent No. 2. It is also
prayed that they be restrained from alienating and/or encumbering
their movable and/or immovable assets. In this OMP, vide order dated
13.8.1998, a Local Commissioner was appointed to visit the factory
premises of the respondents and prepare an inventory of all the
movable assets and try to ascertain other immovable assets which are
in the names of the respondents. Interim injunction in terms of prayer
(c) of the petition was also granted which inter alia reads as under:
“Respondents, its directors, agents, representatives be
restrained by ad interim injunction restraining them from
alienating, transferring parting with possession, encumbering
and/or dealing with any movables and/or immovable assets of the
company any manner anywise and operating from the Bank Account
with Syndicate Bank, mayapuri, New Delhi.”
7. The respondents have filed their objections to this execution
petition. In the objections filed on behalf of the respondent No. 1, it is
stated that the vessel in question was chartered for carrying a cargo of
potatoes. However, on account of improper storage by the petitioner,
the said goods got spoiled and ultimately had to be dumped in the sea.
On account of the loss suffered by the respondent No. 1, the financial
worth of the said respondent suffered heavily and it became a sick
company. The situation was such that its net worth was in the negative
and the funds available with it were not even sufficient for payment of
the dues of the banks and financial institutions. It could not even pay
the costs for the counter claim for which reason it was not proceeded
with by the arbitrators. It is stated that the respondent No. 1 had to
undertake the Scheme to accommodate a foreign investor, otherwise

Page: 449

the company was financially unviable and would have gone bankrupt. It
is also stated that various options were considered for revival of the
respondent No. 1. The detailed restructuring report was prepared. It
dealt with the need for restructuring, the strategy for revival and
various alternatives. It recommended the acceptance of an offer from
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M/s. Archer Daniels Midland Singapore Pte. Ltd., which is a Fortune 500
company and a world leader in oilseeds processing. The entire exercise
has taken place during the years 1995-1996, much prior to the
commencement of the arbitration proceedings. The Scheme of
Arrangement, as formulated, required that only the manufacturing
assets will remain in the respondent No. 1 so that the new company
could start with a clean state. M/s. Archer Daniels Midland Singapore
Pte. Ltd. will bring in funds and all other assets and financial liabilities
will be transferred to another company M/s. Tinna Finex. This was the
only way for revival of the respondent No. 1.

8. It is further stated that prior to the Scheme of Arrangement, the

respondent No. 1 had three divisions, Head Office/Merchant Export
Division, Oil Processing Division at Latur and Cargo Handling Division at
Vizag. Export sales are a part of merchant export division as proved
from the balance sheet. All legal and other proceedings of the ‘Spin Off
Division’ or any matter arising before the date of arrangement and
relating to any property, right, power, liability, obligation or duty of the
respondent No. 1 were to be continued and enforced by or against the
respondent No. 2 only. A petition under Section 391 of the Companies
Act was also filed in the Delhi High Court being C.P. No. 303/1997 for
seeking the mandatory approval of this Court to the Scheme of
Arrangement. With effect from the date of arrangement, i.e. 1.4.1997,
all assets and liabilities of ‘Spin Off Division’ were to vest in the
respondent No. 2, without any further act, deed or thing, by operation
of law. The Scheme was approved by this Court on 7.11.1997. Before
approving the Scheme, the Court had ordered for convening the
meeting of the creditors, which meeting was held on 2.8.1997 and the
Scheme of Arrangement was approved by the creditors. The petitioner
never participated in the meeting and never objected to the Scheme of
Arrangement. This Scheme was also duly registered with the Registrar
of Companies on 15.1.1998. The arbitration took place only thereafter,
i.e., in September 1998.
9. It is, thus, the case of the respondent No. 1 that the liability of
the petitioner was taken over by the respondent No. 2 and, therefore, it
is only the respondent No. 2 which is liable to make payments, if any.
This stand is also sought to be buttressed by pleading that after the
sanction of the Scheme by this Court, the claim of the petitioner
regarding present arbitration were reflected in the accounts of the
respondent No. 2 from the financial year 1997-1998 onwards. The
respondent No. 2 even paid off other secured creditors, bankers and
financial institutions and the payments made in this regard was more
than Rs. 20 crores, which proves the genuineness of the Scheme. M/s.
Archer Daniels Midland Singapore Pte. Ltd.
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Page: 450

acquired 60% shareholding of the respondent No. 1 (now increased to

75%) by infusion of funds, and used to pay off debts. Not only this, the
respondent No. 2 even took over the litigation and contested the matter
before the Arbitral Tribunal. It is stated that when the hearing took
place before the Arbitral Tribunal from 21st to 25th September 1998, it
was agreed to pass the award in the name of the respondent No. 2.
However, no formal order was passed. The cost of arbitration was also
to be borne by the respondent No. 2. This plea is sought to be
supported from the fact that a letter was issued from the solicitors on
30.9.1998 for recording the agreement that award was passed in the
name of the respondent No. 2. The petitioner's solicitors, by their letter
dated 2.10.1998, accepted the above. Their only plea was that the
order of Scheme of Arrangement was not registered and, therefore,
proof of registration be given. But they never denied that the
respondent No. 2 only was liable. Since they demanded the proof of
registration, it was also furnished to them vide letter dated 12.10.1998.
It is also pointed out that in the final award, which was passed on
19.11.1998, the name of the respondent appears as Tinnal Oils &
Chemicals Ltd. in a Scheme of Arrangement by order of the High Court
of Delhi with Tinna Finex Ltd’, which would show that even the Arbitral
Tribunal had accepted the position regarding the Scheme of
Arrangement as per which only the respondent No. 2 is liable for all
consequences arising out of the litigation. Not only this, even the
proceedings for taxation for costs commenced by the petitioner
thereafter were only against the respondent No. 2. It is further stated
that filing of the execution petition against the respondent No. 2 would
also indicate that the petitioner admits the legal consequences arising
out of the Scheme of Arrangement, which is a statutory transfer of
assets and liabilities and is binding on all concerned. The petitioner has
not challenged the Scheme of Arrangement even after coming to know
of the same and, therefore, in these proceedings it is estopped from
challenging the Scheme or denying the legal consequences.

10. The maintainability of the execution petition is also challenged

on the ground that Ms. Priya D. Nair, who has filed this petition on
behalf of the petitioner as its constituted attorney, is not authorised to
file such a petition inasmuch there is no resolution of the petitioner
giving her such authorisation. The maintainability is also questioned on
the ground that it is contrary to public policy and as it will have the
effect of nullifying the Scheme of Arrangement sanctioned by this
Court.
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11. The respondent No. 2 has also challenged the maintainability of

the execution petition. In addition to questioning the competence of
Ms. Priya D. Nair to file the petition, the respondent No. 2 has
submitted that it has been impleaded only because of the Scheme of
Arrangement approved by this Court vide order dated 7.11.1997 under
which the Spin Off Division of the respondents No. 1 stands transferred
to the respondent No. 2. Therefore, liability of the respondent No. 2 is
limited to what is provided in the Scheme of Arrangement. The
respondent No. 2 has already acted upon the Scheme

Page: 451

of Arrangement and discharged its obligations. It has paid off the

secured creditors, bankers and financial institutions an amount of over
Rs. 20 crores from the funds given to it under the Scheme of
Arrangement. It is additionally contended that the award dated
19.11.1998 is not a ‘Foreign Award’. The petitioner company is
registered in Panama and is carrying on its business from there.
Panama is not a reciprocating territory either under the New York
Convention or under the Geneva Convention. Panama has also not been
recognized as a reciprocating territory by the Government of India,
therefore, provisions of Part II, Chapter I of the 1996 Act are not
applicable. The validity of the award is also challenged on the ground
that the very constitution of the Arbitral Tribunal was contrary to the
Charter Party Agreement between the petitioner and the respondent
No. 1 as per which the Arbitral Tribunal was to consist of two
arbitrators, one each to be nominated by each party. The said
arbitrators were to appoint an Umpire. No power is vested on the two
arbitrators to appoint a third arbitrator.

12. On merits, the validity of the award is challenged on the ground

that the counter claims preferred by the respondent No. 1, in whose
shoes the respondent No. 2 has stepped in, have not even been
considered by the Arbitral Tribunal, whereas the entire claim filed by
the petitioner has been considered in detail. It is also submitted that
the respondent No. 2 has been denied the opportunity to prosecute its
claim, only because it could not give security as demanded. It is
submitted that a party cannot be deprived of its legal rights due to
financial inability of the party to give security and, therefore, the same
amounts to violation of principles of natural justice thereby rendering
the award unenforceable. It is also stated that the award has been
based on certain documents in respect of which no sufficient notice was
given to the respondents and no opportunity was provided to them to
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lead evidence to disprove the said documents. In this respect it is

submitted that on 22.7.1998, the Arbitral Tribunal passed the order
stipulating the schedule which was to be followed by the parties, as
under:—
“(i) Tinna Oils and Chemicals Limited to instruct new solicitors and
appoint replacement for Mr. Ferryman by no later than close of
business in London on Friday, 24th July 1998.
(ii) Witness statements to be exchanged by close of business in
London on Friday 14th August, 1998.
(iii) Experts reports to be exchanged by no later than close of
business in London on Friday, 28th August, 1998, together with
the service of any civil evidence act notices.
(iv) Bundles for the hearing to be agreed by 11th September 1998.
(v) Actual dates of hearing were fixed from 21st September to 25tb
September 1998.”
It is further submitted that the hearing of the matter by the Arbitral
Tribunal commenced on 21.9.1998. The petitioner on 22.9.1998, at the
close of the hearing for the day, produced a report by the Cambridge
Research

Page: 452

Technology Institute, which had not been filed by the petitioner at the
time of the filing of the documents and submissions of the report of the
experts, and sought to rely on the same. The respondent No. 2 was
directed to cross-examine a person on the said report even though he
was not the author of the same. The request of the respondent No. 2 to
produce the author of the report for cross-examination on the basis of
the same was also not accepted by the Arbitral Tribunal. The said report
was a highly technical report and the same required a detailed study
before any effective cross-examination could be conducted on the same
and before evidence and arguments could be led to disprove the said
report. Further, the aforesaid report could be proved by its author
alone. However, the author of the said report was not produced in
evidence by the petitioner. Thus, the said report was not proved in
accordance with law. Despite that, the Arbitral Tribunal has relied upon
the said report and it is only on the basis of the same that the finding
against the respondent No. 2 has been returned by the Arbitral
Tribunal. It is submitted that the petitioner had produced evidence by
way of affidavits of the Master and Chief Officer of the ship. Their
testimony has been heavily relied upon by the Arbitral Tribunal.
However, the said persons were not produced for cross-examination by
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the petitioner. It is a settled principle of law and public policy in India

that any testimony which has not been tested on the touchstone of a
cross-examination cannot be relied upon under any circumstances.

13. In addition, it is also submitted that it was the petitioner's

negligence in not storing the cargo properly, as the petitioner was
unable to maintain the stipulated temperature of 5-7oC in the holds
during the currency of the voyage, which resulted in sprouting in the
potatoes and the entire cargo had to be discarded due to the
negligence of the petitioner because of which the respondent No. 2
suffered heavy losses. The Arbitral Tribunal has not even considered
these contentions raised by the respondents before it. It is also
submitted that even if the evidence were to be considered entirely in
favour of the petitioner, at best a finding to the effect that the potatoes
of poor quality can be returned against the respondent No. 2, though
the same is denied. There is no evidence whatsoever to prove that the
goods, as loaded in the ship, were of a quality which was unacceptable
to the importer.
14. The award is also challenged on the ground that though proof of
the actual damage suffered by the petitioner is given, still the entire
claim of the petitioner has been accepted, which is against the law of
India as well as England inasmuch as the parties can be compensated
for the actual damage and no notional damages can be granted. Even
otherwise, nothing was suggested before the Arbitral Tribunal by the
petitioner to mitigate the alleged loss and, therefore, the quantum of
damages, as granted, is clearly unreasonable.

Page: 453

15. The petitioner has filed response to the aforesaid objections of the
respondent No. 1 & 2, note whereof shall be taken while considering
these objections.

16. Before coming to other objections, the three fundamental issues

raised by the respondents, which go to the root of the matter and
challenge the maintainability of the petition itself, need to be
addressed. These are:—
(i) Authority of Ms. Priya D. Nair to file the present petition?
(ii) Whether the award in question is a ‘Foreign Award'?
(iii) What is the effect of the Scheme of Arrangement between the
respondent No. 1 and the respondent No. 2, as sanctioned by
this Court vide order dated 7.11.1997?
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The answer to these questions would determine as to which respondent

is liable, if at all, and to what extent.
17. RE.—Regarding competency of Ms. Priya D. Nair to file the
petition
This issue proceeds on the premise that there is no resolution of the
petitioner company authorizing Ms. Priya D. Nair to file the petition on
its behalf, which has been produced and submitted to the Court and
further that Ms. Juliet Sarah Blanch has no authority to swear the
affidavit.
I may note that Ms. Blanch, who had filed the affidavit, is a Solicitor
and Partner of Norton Rose, a firm from which solicitor was engaged by
the petitioner. I may also note that affidavit dated 27.4.2006 of Mr.
Christopher Hobbs is also filed. He is a solicitor of Supreme Court of
England and Wales. In the affidavit he has stated that he has been a
partner of Norton Rose within the Dispute Resolution Department for a
period of 11 years and was swearing the said affidavit in connection
with a claim by the petitioner herein. In that affidavit, it is inter alia
stated that after the award was published and in the absence of
payment of the award by the respondents, the petitioner instructed his
firm Norton Rose to enforce the award against the respondents. He
further stated that as per well recognized and established practice in
England, the solicitors who are instructed by clients to enforce an
arbitration award to take all such procedural steps as are necessary in
order to implement such instructions. It is further mentioned in para 5
of the said affidavit as under:—
“5. As part of the procedure for enforcement of an arbitration
award under the New York Convention for reciprocal recognition and
enforcement of arbitral awards, it is necessary to file an affidavit
confirming that the award is one to which the New York Convention
applies and that it remains binding on the parties. This is simply a
procedural requirement, and following the instructions given to Ms.
Juliet Sarah Blanch, Solicitor & Partner with Norton Rose, by
National Ability SA to enforce the Award, I affirm that Ms. Juliet
Sarah Blanch had the necessary authority from, and was thus fully
authorized by, National Ability S.A. to swear the Affidavit dated 2
February 1999 in respect of enforcement of the Award.”

Page: 454

From the aforesaid, it can be stated that Ms. Blanch has the necessary
instructions and also requisite knowledge of the facts of the case on the
basis of which she could swear the affidavit.
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18. Insofar as power in favour of Ms. Priya D. Nair is concerned, the

petitioner has also placed on record original power of attorney dated
5.4.2006 in her favour, duly certified by the officials in the Ministry of
Affairs in the Republic of Panama. By this power of attorney, act of
filing the present petition is duly ratified and confirmed. This act
indicates the objection of the respondents. At this stage, I may quote
from the judgment of this Court in Delhi Lotteries v. Rajesh Aggarwal,
69 (1997) DLT 543, wherein such a contention was brushed aside by
observing as under:—
“11. Learned Counsel for the respondent in support of his
contention has led me through quite a good number of authorities
which lay down in unequivocal terms that if the suit is filed by a
Manager of a proprietorship concern who is authorized to do so and
the intention to do so can be gathered from the averments in the
plaint, in that eventuality the frame of the suit cannot be said to be
defective. The power of attorney can be placed on record, if has
already not been done, even at a subsequent stage to ratify the
acts of the Manager, including the institution of the suit. It was so
held by a Division Bench of the Madras High Court as reported in
AIR 1976 Madras 151, M.C.S. Rajan & Co. v. National Nail
Industries, Tiruchirapalli and. Others. The facts of the said authority
are in pari material with the facts of the present case. Hence
observations in the said case pari passu can be made applicable to
the facts of the present case without any difficulty. I am tempted
here to cite a few lines from para 4 of the said judgment “.But in a
case where a Manager of a proprietorship concern signs the
pleadings and verifies them as a person who has been duly
authorized to sign the same and as one who has been acquainted
with the facts of the case, then it is reasonable to say that, if at any
material point of time and particularly when the defendants raise a
specific plea that the pleading has not been properly signed or
verified, he produces the requisite authority from the sole proprietor
or satisfies the Court that he is fully acquainted with the facts of the
case, the principle and substance of Rules 14 and 15 are satisfied.
The case has to be decided on the elementary principle of
ratification of an act by a principal. That the person who signed the
pleadings and verified it is the Manager of the concern is not in
dispute.. Ex.A-20 is the power of attorney produced during the trial
of the case which establishes that Padmanabhan has appointed and
constituted Mr. Narayana to file a suit against the defendants and
take all such steps necessary in the said matter.”
12. To the same effects are the observations of a Division Bench of
the Rajasthan High Court as reported in AIR 1955 Rajasthan 57,
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Page: 455

Machosingh v. Union of India, and (1948) 2 A11.E.R. 482, Alexander

Mountain & Co. v. Rumere Ltd.

13. It is now well settled principle of law that a suit is not to be

dismissed for technical reasons such as the plaint was not signed and
verified by a competent person because such type of objections do not
go to the root of the matter if a party has otherwise substantiated his
claim. It was opined by their Lordships of the Supreme Court in AIR
1997 Supreme Court 3, United Bank of India v. Naresh Kumar. “Where
the Courts came to a conclusion that money had been taken by certain
parties from Bank and certain persons had stood as guarantors and that
the claim of the Bank was justified, it will be a travesty of justice if the
Bank is to be non suited for a technical reason which does not go to the
root of the matter and the only defect which was alleged on behalf of
the parties was on which was curable.”
19. RE.—Foreign Award
The contention of the respondent No. 2 that the award dated
19.11.1998 is not a foreign award predicates on the plea that the
petitioner company is registered in Panama and is carrying on its
business from there and Panama is not a reciprocating territory either
under the New York Convention or under the Geneva Convention. It is
also submitted that Panama has not been recognized as a reciprocating
territory by the Government of India and, therefore, provisions of Part
II, Chapter I of the 1996 Act are not applicable.
This submission of the objector is factually incorrect inasmuch as
requisite documents were produced by the petitioner, which show that
Panama is recognized as a reciprocating territory. That apart, Section
44(b) of the 1996 Act states that the country where the award has
been issued must be a country notified by the Indian Government to be
a country to which the New York Convention applies. Thus, it is to be
borne in mind that award in question is rendered by the Arbitral
Tribunal in England, which is admittedly a country notified under the
New York Convention.
20. Section 44 of the Arbitration and Conciliation Act, 1996 defines
‘Foreign Award’ as under:—
“44. Definition.—In this Chapter, unless the context otherwise
requires, “foreign award” means an arbitral award on differences
between persons arising out of legal relationships, whether
contractual or not, considered as commercial under the law in force
in India, made on or after the 11th day of October, 1960—
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(a) in pursuance of an agreement for arbitration to which the

Convention set forth in the First Schedule applies, and
(b) in one of such territories as the Central Government, being
satisfied that reciprocal provisions have been made may, by
notification in the Official Gazette, declare to be territories to
which the said Convention applies.”

Page: 456

21. The ingredients which are to be satisfied, as per the said section, to
term an award as a ‘foreign award’ are the following:—

1. It must have been made on or after the 11th day of October,

1960.
2. It must be on differences between persons arising out of legal
relationships, whether contractual or not, considered as
commercial under the law in force in India
3. It must have been made pursuant to an agreement for
arbitration to which the Convention set forth in the First
Schedule applies.
4. It must have been made in one of the territories of the
reciprocating contracting States for which the Union
Government may issue notification declaring the territories to
which the New York Convention would apply.
The aforesaid ingredients stand satisfied in this case and, therefore, the
award in question is to be treated as ‘foreign award’. This issue,
therefore, stands answered in favour of the petitioner.
22. RE.—Scheme of Arrangement
The factual position, on this issue, which is not in dispute is that
there is a Scheme of Arrangement arrived at between the respondent
No. 1 and respondent No. 2 under the Companies Act, 1956, which has
been approved by the court as well in a petition filed under Section 391
of the Companies Act. Date of arrangement fixed as per the said
Scheme is 1.4.1997. From this date, all assets and liabilities of ‘Spin
Off Division’ vested in the respondent No. 2 without any further act,
deed or thing or by operation of law.
23. Before I come to the legal effect of the Scheme, I may deal with
the objection of learned counsel for the petitioner to the Scheme. It
was argued that notice of the Scheme was never given to the petitioner
though the petitioner was a creditor and, therefore, the petitioner could
not participate in the meeting and object to the Scheme of
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Arrangement. The plea, thus, was that such a Scheme was not binding
upon the petitioner. I am not inclined to accept this plea. It is not in
dispute that the court had ordered convening of the meeting of
creditors before approving the Scheme. Meeting was held on 2.8.1997
and the Scheme of Arrangement was approved by the creditors.
Thereafter, the court put its seal of approval to the said Scheme on
7.11.1997. If the petitioner did not receive any notice of the said
Scheme, it was for the petitioner to move appropriate application before
the said Company Judge, which it could do so even after the approval
of the Scheme. No such step was taken even when the petitioner came
to know about the said Scheme during the pendency of the arbitration
proceedings. Having failed to take any such step, it does not now lie in
the mouth of the petitioner to contend that the Scheme is not binding
upon it for want of notice. I may record that whether the petitioner
received notice of the meeting or not is a disputed question of fact
which the petitioner was to establish and it could

Page: 457

be done by moving appropriate application before the Company Judge.

On this basis, even the plea of learned counsel for the petitioner that
fraud was played upon the petitioner by not serving notice would not be
available to it.

24. Insofar as effect of the Scheme is concerned, the law on the

point is abundantly clear when such a scheme is approved by the court
under Section 391 of the Companies Act binding on all the parties,
including all the creditors. Therefore, the petitioner shall also be bound
by the same. The alleged liability qua the petitioner, as per the award,
relates to ‘Spin Off Division’. All the assets and liabilities of this Division
have been taken over by the respondent No. 2 by operation of law and
no further act, deed or things were required to be done for this
purpose. Thus, from the appointed date, i.e. 1.4.1997, it is the
respondent No. 2 which assumed all the liabilities, including the liability
of the petitioner, if any. Therefore, the Scheme of Arrangement would
be binding on the petitioner as well as the respondent No. 2.
25. The effect of decision on this issue would be to hold that the
respondent No. 1 was no more liable towards the petitioner after
1.4.1997. This fact was disclosed by the respondent No. 1 before the
Arbitral Tribunal and taken note of by the Arbitral Tribunal as well,
which is reflected from the Cause Title of the Award itself. As a
consequence, objections of the respondent No. 1 succeed and it is held
that the respondent No. 1 is not liable for any payment under the said
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award.
26. In view of the aforesaid decision on the three fundamental
issues, the objections of the respondent No. 2 to the said award remain
to be discussed.
27. RE.—Objections of the Respondent No. 2
The objections of the respondent No. 2, which remain to be dealt
with, can be paraphrased as under:—
(a) The Arbitral Tribunal was not constituted properly as it was
contrary to the Charter Party Agreement between the petitioner
and the respondent No. 1 as per which the Arbitral Tribunal was
to consist of two arbitrators, one each to be nominated by each
party. The said arbitrators were to appoint an Umpire. No power
is vested on the two arbitrators to appoint a third arbitrator.
This objection hardly has any merit. The two arbitrators had to
appoint a third person. Whether he is treated as an Umpire or a
third arbitrator would not be of much consequence. The
petitioner also explained that it was agreed by a letter dated
12.12.1995 from the attorneys of the respondent No. 1 that
both parties, namely, the petitioner and the first respondent
would appoint their own arbitrator, with the arbitrators so
appointed being at liberty to choose an umpire. It was in view
of this letter of the respondent No. 1 itself that each party
nominated its

Page: 458

arbitrator and the two arbitrators chose Mr. Michael Baskerville to act as
umpire. This course was, thus, adopted by the parties willingly.
Moreover, no objection was taken by the respondent before the Arbitral
Tribunal questioning its constitution. Therefore, it is too late in the day
to take such an objection.

(b) Other objection is that the award is contrary to public policy of

India. It is premised on the ground that the counter claim filed
by the respondent No. 2 had not been considered by the
arbitrators and he was denied an opportunity to prosecute its
claims. The basis of this plea is that the respondent No. 2 was
asked to give security, which it could not furnish due to
financial inability, and that was the reason that it was deprived
of its legal right, which amounts to violation of principles of
natural justice. The question would be as to whether demand by
the Arbitral Tribunal to furnish such a security is illegal? It
cannot be disputed by the respondents that they agreed for
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settlement of disputes by a specific forum which was to

adjudicate the disputes as per its rules. When the rules provide
for furnishing of security, the respondents knew the rigors of
such a mechanism. Therefore, they cannot now turn around and
say that they could disobey such directions to furnish security
as ordered by the Arbitral Tribunal and complain that even if
there was default on their part in refusing to furnish the
security, their claims/counter claims should have been
considered. That apart, in the present case, it does not even lie
in the mouth of the respondents to take such an objection
inasmuch as the direction to furnish security was at their
instance. In this behalf, I may note that on 26.4.1996 the
respondent No. 1, through its counsel, addressed a fax dated
26.4.1996 to the Arbitral Tribunal seeking directions from the
tribunal to direct the petitioner to furnish security for cause in
the sum of US$150,000 for prosecuting its claim in the
arbitration. On this the Arbitral Tribunal passed orders dated
1.5.1996 whereby the petitioner as well as the first respondent
were directed to furnish security in the sum of US$ 150,000 to
secure the cost of the claims and counter claims brought by the
petitioner and the respondent No. 1, respectively. Thus, it is on
the insistence and at the instance of the respondents that such
an order was passed. Thereafter, if the respondents failed
and/or neglected to comply with the said order dated 1.5.1996
and refuse to furnish the security, the Arbitral Tribunal was
justified in staying the counter claims of the respondents.
Learned counsel for the petitioner explained that directions to
give such security and disregard the claim for failure to furnish
the security is in consonance with the English law.
I, therefore, do not find any merit in this objection either.

Page: 459

(c) The next objection is that the award is based on certain documents
in respect of which sufficient notice was not given to the respondents
and no opportunity was given to them to lead evidence to disprove the
said documents. The precise grievance in this behalf was that as per
the schedule fixed by the Arbitral Tribunal vide its orders dated
22.7.1998, the actual dates of hearing were fixed from 21.9.1998 to
25.9.1998. Before the hearings on the aforesaid dates, as per the
schedule, the statement of witnesses were to be exchanged by
14.8.1998 and expert reports were also to be exchanged by 24.8.1998.
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However, the petitioner did not adhere to this schedule and gave any
documents in advance, but produced the same only at the time of
hearing. It is further stated that on 22.9.1998, report by Cambridge
Research Technology Institute (CRTI) was produced which was not filed
earlier. The respondent had objected to production of this report at a
belated stage, but this objection was ignored by the Arbitral Tribunal
and the report was taken on record. In these circumstances, the
respondent made request for postponing of the hearing to enable it to
study the said report, which request was also rejected. So much so, the
respondent was directed to cross-examine a person on the said report
even though he was not the author of the same. Not only this, request
of the respondent to produce the author of the report for cross-
examination was also rejected. It is argued that the said report was
highly technical in nature and required detailed study, but no time was
given to the respondents to study the same for effective cross-
examination of the witness. It was also argued that in any case the
report was not proved in accordance with the law as author of the
report was not produced. Despite this, the Arbitral Tribunal relied upon
this report, which is the sole basis of its findings against the
respondents.

It is further contended that the petitioner had produced the

evidence by way of affidavits of the Master and Chief Officer of the
ship and though their testimony has been heavily relied upon by
the Arbitral Tribunal, the said persons were not produced for cross-
examination by the petitioner. According to the objector, this is
against the public policy of India that any testimony which has not
been tested on the touchstone of the cross-examination is relied
upon.
I may note that in reply to these objections the petitioner has
denied that it failed to adhere to the schedule fixed by the Arbitral
Tribunal vide its order dated 22.7.1998. The allegation that CRTI
report was filed only on 22.9.1998 is also denied. Other allegations
made by the respondent No. 2 regarding refusal of request to
adjourn the proceedings or giving it chance to produce evidence in
rebuttal to the CRTI report were rejected by the Tribunal. In view of
this denial, onus was upon the

Page: 460

respondent No. 2 to show that the report was filed on 22.9.1998. I also
find that even the respondent No. 2 had filed report of the technical
expert. Therefore, it is not a case where the respondent No. 2 was not
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given a chance.

The proceedings recorded by the Arbitral Tribunal are not

produced before me. In these circumstances, the respondent No. 2
has failed to show that any request was made for adjournment of
the proceedings on the purported ground that the report was filed
only on 22.9.1998 and the request was rejected. Even if it is
presumed that nothing in this behalf was recorded by the Arbitral
Tribunal in the day-to-day proceedings, minimum which was
expected from the respondent No. 2 was to put it on record that
such a request was made and the Tribunal did not accede to that
request. One cannot be oblivious of the nature of such international
arbitration proceedings. The schedule fixed by the arbitral tribunals
is strictly adhered to and only in exceptional circumstances
adjournments are given. There is a rational and justification for the
same. In respect of disputes relating to international commercial
dealings, such arbitral tribunals ensure that they are decided with
utmost alacrity and promptness. Such proceedings are not allowed
to be dragged on unnecessarily causing delays. In fact, this is the
culture which needs to be set-in in all kinds of arbitration
proceedings, whether international or domestic.
It is stated by the petitioner that proceedings were conducted
in accordance with the established practice in England and
procedure followed there. This is an important fact which cannot be
lost sight off. If such procedure is followed as prevalent in the
country where the arbitration took place, it cannot be said that the
same would be in violation of principles of natural justice when
considered on the touchstone of law prevailing in India. Way back
in the year 1963, the Supreme Court in the case of R.
Vishwanathan v. R. Gajambal Ammal, AIR 1963 SC 1, made
following pertinent observations relating to enforcement of foreign
judgments in India:—
“40. Before we deal with the contentions it may be necessary to
dispose of the contention advanced by the executors that it is not
open in this suit to the plaintiffs to raise a contention about bias,
prejudice, vindictiveness or interest of the Judges constituting the
Bench. They submitted that according to recent trends in the
development of Private International law a plea that a foreign
judgment is contrary to natural justice is admissible only if the
party setting up the plea is not duly served, or has not been given
an opportunity of being heard. In support of that contention counsel
for the executors relied upon the statement made by the Editors of
Dicey's “Conflict of Laws”, 7th Edition Rule 186 at pp. 1010-1011
and submitted that a foreign judgment is open to challenge only on
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the ground of want of competence and not on the

Page: 461

ground that it is vitiated because the proceeding culminating in the

judgment was conducted in a manner opposed to natural justice. The
following statement made in “Private International Law” by Cheshire,
6th Edition pp. 675 to 677 was relied upon:

“The expression ‘contrary to natural justice’ has, however,

figured so prominently in judicial statements that it is essential
to fix, if possible, its exact scope. The only statement that can
be made with any approach to accuracy is that in the present
context the expression is confined to something glaringly
defective in the procedural rules of the foreign law. As Denman,
C.J. said in an early case:
“That injustice has been done is never presumed, unless we see
in the clearest light that the foreign law, or at least some part of
the proceedings of the foreign court, are repugnant to natural
justice: and this has often been made the subject of inquiry in
our Courts”
In other words, what the Courts are vigilant to watch is that the
defendant has not been deprived of an opportunity to present his
side of the case. The wholesome maxim audi alteram partem is
deemed to be of universal, not merely of domestic application. The
problem, in fact, has been narrowed down to two cases.
The first is that of assumed jurisdiction over absent
defendants.. Secondly, it is a violation of natural justice if a litigant,
though present at the proceedings, was unfairly prejudiced in the
presentation of his case to the Court.”
It is unnecessary to consider whether the passages relied upon are
susceptible of the interpretation suggested, for private international law
is but a branch of the Municipal law of the State in which the Court
which is called upon to give effect to a foreign judgment functions and
by S. 13 of the Civil Procedure Code (Act V of 1908) a foreign judgment
is not regarded as conclusive if the proceeding in which the judgment
was obtained is opposed to natural justice. Whatever may be the
content of the rule of private international law relating to “natural
justice” in England or elsewhere (and we will for the purpose of this
argument assume that the plea that a foreign judgment is opposed to
natural justice is now restricted in other jurisdictions only to two
grounds - want of due notice and denial of opportunity to a party to
present case) the plea has to be considered in the light of the Statute
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law of India, and there is nothing in S. 13 of the Code of Civil

Procedure, 1908 which warrants the restriction of the nature suggested.
41. By S. 13 of the Civil Procedure Code a foreign judgment is
made conclusive as to any matter thereby directly adjudicated upon
between the same parties. But it is the essence of a judgment of a
Court that it must be obtained after due observance of the judicial
process, i.e. the Court rendering the judgment must observe the
minimum requirements

Page: 462

of natural justice - it must be composed of impartial persons, acting

fairly, without bias, and in good faith, it must give reasonable notice to
the parties to the dispute and afford each party adequate opportunity of
presenting his case. A foreign judgment of a competent Court is
conclusive even if it proceeds on an erroneous view of the evidence or
the law, if the minimum requirements of the judicial process are
assured: correctness of the judgment in law or on evidence is not
predicated as a condition for recognition of its conclusiveness by the
Municipal Court. Neither the foreign substantive law, nor even the
procedural law of the trial be the same or similar as in the Municipal
Court. As observed by Charwell, J., in Robinson v. Fenner, (1913) 3 K B
835 at p. 842, “In any view of it, the judgment appears, according to
our law, to be clearly wrong, but that of course is not enough: Godard
v. Gray, (1870) 6 QB 139 and whatever the expression “contrary to
natural justice”, which is used in so many cases, means (and there
really is very little authority indeed as to what it does mean), I think
that it is not enough to say that a decision is very wrong, any more
than it is merely to say that it is wrong. It is not enough, therefore, to
say that the result works injustice in the particular case, because a
wrong decision always does.” A judgment will not be conclusive,
however, if the proceeding in which it was obtained is opposed to
natural justice. The words of the statute make it clear that to exclude a
judgment under cl. (d) from the rule of conclusiveness the procedure
must be opposed to natural justice. A judgment which is the result of
bias or want of impartiality on the part of a Judge will be regarded as a
nullity and the “trial coram non judice” (Vassiliades v. Vassiliades, AIR
1945 PC 38 and Manak Lal v. Dr. Prem Chand, 1957 SCR 575 : (S) AIR
1957 SC 425.”

I do not find the objection of the respondent No. 2 getting

covered by any of the principles on which such an award could be
challenged, namely, the respondent No. 2 could not establish that
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the Tribunal did not consist of impartial persons or it did not act
fairly, without bias, or in good faith. Reasonable notice was given to
the parties to the dispute by fixing the schedule much in advance
and if that schedule was followed rigorously and even if
adjournment was refused, that would not amount to denial of
principles of natural justice. The Apex Court in Hariom Maheshwari
v. Vinit Kumar Parikh, JT 2004 (10) SC 360, clearly laid down that
where a party is refused an adjournment and where it is not
prevented from presenting its case, it cannot, normally, claim
violation of natural justice and denial of a fair hearing.
The observations made in R. Vishwanathan v. R. Gajambal
Ammal (supra) (para 41), answers the other objection of the
respondent No. 2 as well, i.e. foreign award (which is not
enforceable as decree) is conclusive even if it proceeds on an
erroneous view of the evidence or law. Therefore, it is not
permissible to go into the other issues

Page: 463

raised regarding non-production of the author of the CRTI report and

instead the petitioner producing its own experts, etc.

(d) Some other objections to the award are also taken, as noted
in the earlier paragraphs of this judgment, namely, negligence on
the part of the petitioner in not storing the cargo properly; not
going into the question of mitigation of losses; quantum of
damages granted being unreasonable, etc. However, these are the
issues on the merits of the award which are not within the
permissible scope of objections. Therefore, I do not find merit in
any of the other objections.
The aforesaid objections clearly remind us that the same are simply
hyper-technical in nature.
28. For international arbitration to have credibility, the arbitral award
arising from it must be a meaningful remedy. In other words, success
in arbitration is ultimately determined by the successful enforcement of
the arbitral award. Once the arbitral tribunal's decision has been made
in the form of an award, it is an implied term of every arbitration
agreement that the parties will carry it out. Although, one may
acknowledge that to be performed the award should be recognized and
enforced in a national court otherwise it does not have much practical
value [Source: Tibor VBrady, et al., International Commercial
Arbitration, Thompson West (2003), p. 733]. Gunther Horvath in its
article The Duty of the Tribunal to Render an Enforceable Award’ (2001)
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18 Journal of International Arbitration 135 remarked:

“Faith in this system of international arbitration largely explains
the higher rate of voluntary compliance with arbitral awards and the
extremely low rate of vacatur and non-enforcement in situations
where awards are not automatically observed. Nonetheless, the risk
of non-enforcement remains looming like a ‘Sword of Damocles’
over the entire system, and the costs of non-enforcement, even
when rare, are enormous for the parties, the arbitrators, the
institutions, the States and the system as a whole.”
29. It is therefore essential that such an award when properly
rendered be legally binding and enforceable both at the place where it
is rendered and at the place where the judgment debtor has assets. As
Alan Redfern & Martin Hunter [Law & Practice of International
Commercial Arbitration, Sweet & Maxwell Ltd. (3rd Ed. 1999), p. 449]
aptly puts it:
“… the purpose of recognition on its own is generally to act as a
shield. Recognition is used to block any attempt to raise in fresh
proceedings issues that have already been decided in the
arbitration that gave rise to the award whose recognition is sought.
By contrast, the purpose of enforcement is to act as a sword.
Enforcement is a positive step taken to compel the losing party to
carry out an award that he is unable or unwilling to carry out
voluntarily. Enforcement of an award means applying legal
sanctions to compel the party against whom the award was made to
carry it out.”

Page: 464

30. Thus, one should favour a pro-arbitration approach with respect to

the enforcement of foreign arbitral award. The said approach is
apparent from the observation of the Singapore High Court (per Judith
Prakash, J.) whereby an argument was rejected on the ground of public
policy in the course of resisting the enforcement of a foreign arbitral
award In Re An Arbitration between Hainan Machinery Import and
Export Corporation and Donald & McArthy Pte Ltd., [1996] 1 SLR 34
which reads as under:

“… the principle of comity of nations requires that the awards of

foreign arbitration tribunals be given due deference and be enforced
unless exceptional circumstances exist. As a nation which itself
aspires to be an international arbitration centre, Singapore must
recognize foreign awards if it expects its own awards to be
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recognized abroad.”
It is not suggested that the courts in India would not refuse to enforce
an international award even if a case is made out for interference within
the four corners of Section 48 of the 1996 Act read with section 13 of
the Code of Civil Procedure. However, once it is found that the award is
properly rendered, it is the duty of the courts in India to enforce the
same.
31. In view of the aforesaid discussion, prayer made in OMP No.
173/1998 is allowed and interim order dated 13.8.1998 is made
absolute till the time the decretal amount as per the award is paid by
the respondent No. 2 and decree satisfied. OMP is disposed of with
these directions.
32. Insofar as Execution Petition is concerned, the respondent No. 2
is directed to make the payment within eight weeks from today. If no
payment is made, the petitioner would be entitled to get the orders of
attachment of the properties of the respondent No. 2 and take further
course of action to realize its amounts under the award from the
respondent No. 2. Matter shall be listed before the Regular Bench on
18th August 2008.
———
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