National Thermal Power Corporation (NTPC) v. Singer Company (1992)

Facts of the Case

The case centers on a dispute over the governing law of an arbitration award resulting from two contracts between National Thermal Power Corporation (NTPC) (an Indian company) and Singer Company (a foreign company).

• The Contracts: Involved the supply, erection, and commissioning of equipment in India.

• Governing Law Clause: The contracts expressly stipulated that Indian law would govern the contract and that the courts of Delhi would have exclusive jurisdiction.

• Arbitration Clause: Disputes were to be resolved through arbitration under the International Chamber of Commerce (ICC) rules.

• Venue: The ICC arbitrators chose London as the venue, where an interim award was subsequently made.

• Challenge: NTPC filed an application under the Arbitration Act, 1940, before the Delhi High Court to set aside the London-made interim award.

• High Court Decision: The Delhi High Court dismissed the application, holding that the award was governed by the Foreign Awards (Recognition and Enforcement) Act, 1961, and therefore only the 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 Indian Arbitration Act, 1940, or the Foreign Awards (Recognition and Enforcement) Act, 1961, and consequently, whether the Indian courts had jurisdiction over the award.

Rule

The proper law of a contract is the law chosen by the parties or the law with which the contract is most closely connected.

The Supreme Court established a crucial distinction: an arbitration agreement governed by Indian law results in a domestic award, even if the arbitration proceedings physically take place in a foreign country. Such a domestic award is subject to the jurisdiction of the Indian courts under the Arbitration Act, 1940.

Held

The Supreme Court:

• Distinguished Laws: Differentiated between the substantive law governing the arbitration agreement (and the contract) and the procedural law (or lex fori) governing the conduct of the arbitration proceedings.

• Substantive Law: Found that the substantive law governing the contract was Indian law, based on the clear choice of the parties in the contract. This intention was reinforced by factors like the agreement's execution in Delhi, performance in India, and specific reference to Indian enactments.

• Procedural Law: Acknowledged that the procedural aspects of the arbitration proceedings were governed by English law because the venue was London.

• Domestic vs. Foreign Award: Held that an award is considered foreign only if it is made under an arbitration agreement not governed by Indian law. Since the arbitration agreement itself was governed by Indian law (the proper law), the award made under it was not a foreign award, regardless of its foreign venue.

• Jurisdiction: Concluded that because the substantive law governing the agreement was Indian law, the Delhi High Court did have jurisdiction to entertain the application under the Arbitration Act, 1940.

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

Determining the Proper Law of Contract

This judgment is seminal in clarifying the relationship between the governing law of the contract and the venue of arbitration. It prioritizes the express or inferred intention of the parties when determining the Proper Law of the Contract.

As previously established in Dhanrajmal Gobindram v. Shamji Kalidas and Co, where the parties' intention is not express, the court must infer the intention from the terms, nature, and general circumstances of the case, applying “sound ideas of business, convenience and sense.”

Significance of the Chosen Court

The choice of court jurisdiction is a strong indicator of the intended proper law:

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.

In NTPC v. Singer, the express choice of Indian law and Delhi Courts for jurisdiction ultimately overrode the physical location (London) of the arbitration proceedings, firmly placing the award under Indian domestic law.