NTPC v. Singer Company

Case Summary

Full Case Details

The Supreme Court in National Thermal Power Corporation v. Singer Company has traced
the legal position with regard to the proper law of contract in all its perspective generally as well as
in the Indian context. It has thus laid down in clear terms the Indian law in the area of international
contracts. The modern theories relate to the doctrine of proper law in the field of contracts where
parties have expressly chosen the applicable law, where the law is inferred and where there is no
such express choice by the parties. The Supreme Court has also clarified other important legal
complications of pragmatic importance in international commercial arbitration.
In NTPC v. Singer Company, an Indian Company, National Thermal Power Corporation(NTPC)
entered into two contracts with foreign company, Singer Company, for the supply of equipment,
erection and commissioning of certain works in India. The general terms and conditions of contract
incorporated in the agreements state:
“The laws applicable to this contract shall be the laws in force in India. The courts of Delhi
shallhaveexclusivejurisdictioninallmattersarisingartierthiscontract”.
The terms of the contracts include also a clause for submission of disputes for arbitration
where in the place of arbitration was left to the choice of the arbitrators. The parties had contractually
chosen rules of the International Chambers of commerce(ICC)fo rconduct of arbitration.
In compliance with their agreed terms the parties submitted themselves for arbitration
conducted by ICC in London, having been chosen by the ICC arbitrators as the venue. The award
was made in London as an interim award in respect ofcontracts entered into between NTPC and
Singer Company. The contract was governed by Indian Law, entered into in India for its
performance solely in India. The only meaningful foreign element present in the facts is the venue
of arbitration.
NTPC had filed an application under the provisions of the Arbitration Act., 1940 before the
Delhi High Court to set asidethe interim award made in London by a tribunalconstitutedby ICC.
The same was dismissed by riding that:
“The award was not governed by the Arbitration Act. 1940. The arbitration agreementon
which the award was made was not governed by the law of India, the award fell within the
ambit of the Foreign Awards(Recognitionand Enforcement) Act., 196l. Londonbeingthe seat
of arbitration, English Courts alone had jurisdiction to set aside the award, and the Delhi High
Courthadno jurisdictionto entertaintheapplicationfiledunderthe ArbitrationAct”.
As against this ruling NTPC appealed to the Supreme Court.
The point for considerationwas whether the award in questionwas governed by the provisions
of the Arbitration Act, and as such became relevant for the courts in India only for the purposes of
recognitionandenforcement as thestatuteindicated.
The court discussedthe whole concept of proper law of contract. This court alsoconsideredat
length the proper law of arbitration. After a thorough analysis of the doctrine of proper law of
contract on the basis of the leading case law and juristic writing. the court summarised thecurrent
legal positionthus:-
“Proper law is thus the law which the parties have expresslyor impliedlychosen, or which
is imputed to them by reason of its closest and most intimate connection with the contract It
must, however. be clarified that the expression’proper law’ refers to the substantiveprinciplesof
the domesticlaw of the chosen system and not to its conflictof laws rules. The law of contract
is not affectedbythedoctrineof renvoi.”
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According to the court, in the present cast the parties have satisfied the above stated rule in as
much as they have clearly and categorically stipulated that their contract, made in India to be
performedin India, was to be governedby the laws in forcein Indiaand the courts in India were to
haveexclusivejurisdictionin allmattersarisingundertheircontract.
The Supreme Court thereafter, examined the law of arbitration in two aspects namely, (i) the
law governing the arbitration agreement i.e. its proper law and (ii) the court has clearly
distinguishedthe law of arbitration in termof substantiveand proceduralaspects. For the purposeof
the present case such an approach was essentialsince the parties had never expressed their intention
to choose London as the arbitral tribunal: but at the time they had stipulated that the arbitration
would be conducted in accordance with ICC rules and accordingly London was chosen by the
arbitral tribunal constituted by the International Court of Arbitration of ICC as the place of
arbitration.
The court pointed out that the partieswere freeunder ICC rulesto determinethe law whichthe
arbitrator shallapplyto the merits of the dispute and in the absence of anystipulationby the parties
to the applicable law; the arbitratorsmayapplythe law designated as the proper law by the rules of
conflict. However, the court expressed the view, that these self contained and self regulating ICC
rulesaresubjectto theoverridingpowersoftheappropriatenationalcourts.
In the context of the two propositions pertainingto arbitration, stated earlier, the court observed
thattheproperlawof arbitrationagreement is normallythesame as theproperlawof thecontract. ..
The parties have the freedom to choose the law governing an international commercial arbitration
agreement.Theymaychoosethe substantive law governingthe arbitrationagreement as well as the
procedural law governing the conduct of the arbitration the arbitration proceedings are conducted,
in the absenceof anyagreementto the contraryin accordancewith the law of countryin which the
arbitration isheld.
In theopinionof the court an award is foreignnot merelybecause it is madein the territoryof a
foreign state, but because it is made in such territory on an arbitration agreement not governed by
the law of India. Accordingly it said that an award made in pursuance of an arbitration agreement
governed by the law of India though rendered outside India, was not treated in India as a foreign
award.
In the final analysis, the Supreme Court agreed with the tribunals ruling that the substantive
law of the contract is Indian law and the laws of England governed procedural matters in the
arbitration. On the facts of the case the apex court ruled that the award in question is an Indian
award or a domestic award under the Indian Arbitration Act, although the dispute as with a
foreigner and the arbitration itself was conducted and the award was made in a foreign state.
The other relevant factors that the court took into consideration were parties had expressly
chosen the Indian law as the applicable law to the contract, courts of Delhi to have exclusive
jurisdiction “in all matters arising under this contract”, agreement was executed in Delhi. the
contract to be performed in India, the form of agreement closely related to the system of law in
India, various Indian enactmentswere specificallymentioned in the agreement as applicableand the
arbitration agreement was contained in one of the clauses of the contract and not in a separate
agreement. The governing rule of the contract being Indian law, arbitration agreement also would
necessarily be governed by Indian law excepting the procedural aspects of the arbitration which,
due to the fact of being conducted in a foreign country would be governed by the law of that
countryi.e. thelawof Englandintheinstantcase.
In the result, the Supreme Court set aside the impugned judgement of the Delhi High Court
and allowed the present appeal.