SHIBU VARGHESE v. UAE EXCHANGE CENTRE WLL

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT** **THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR** **&** **THE HONOURABLE MRS. JUSTICE C.S. SUDHA MONDAY, THE 17[TH] DAY OF JANUARY 2022 / 27TH POUSHA, 1943 ARB.A NO. 73 OF 2017** **AGAINST THE ORDER IN OP(ARB) 69/2016 OF II ADDITIONAL DISTRICT COURT,ERNAKULAM** ## **APPELLANT/PETITIONER/RESPONDENT:** **SHIBU VARGHESE AGED 47 YEARS S/O.VARGHESE, PULLIATTEL,POOTRIKA P.O, AIKARANAD VILLAGE,WARD NO.11, POOTRIKA PANCHAYATH, ERNAKULAM DISTRICT.** **BY ADVS.SRI.P.VISWANATHAN SRI.ASHWIN ANTONY SMT.NIMITHA SALIM SRI.V.G.RAJAN SRI.SHIBU JOSEPH SRI.SUNIL N.SHENOI** ## **RESPONDENT/RESPONDENT/CLAIM PETITIONER:** **UAE EXCHANGE CENTRE WLL HAVING ITS REGISTERED OFFICE AT AL RABIYA BUILDING,BOX NO.26155, SAFAC 13122, OPPOSITE TO SAFAC POST OFFICE-4, KUWAIT,HAVING ITS LIAISON OFFICE AT GROUND FLOOR,POULOSE TOWERS, T.D.ROAD, KOCHI-11,REPRESENTED BY ITS AUTHORIZED OFFICER SRI.MAHESH K.GEORGE.** **SRI.RANJITH VARGHESE, AMICUS CURIAE** **THIS ARBITRATION APPEALS HAVING COME UP FOR ADMISSION ON 05.01.2022, THE COURT ON 17.01.2022 DELIVERED THE FOLLOWING:** 2 Arb.Appeal No.73 of 2017 ## P.B.SURESH KUMAR & C.S.SUDHA, JJ. -------------------------------------------------Arb.Appeal No.73 of 2017 ------------------------------------------- Dated this the 17[th] day of January, 2022 ## J U D G M E N T ## C.S.Sudha, J. This is an appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (the Act) against the judgment dated 24.05.2017 in O.P. (Arb) No.69/2016 on the file of Additional District Court-II, Ernakulam, from the Award in Arbitration Reference No.04/2013. The appellant herein is the respondent in the arbitration reference before the sole Arbitrator, Ms.Kavery S.Thampi and the respondent herein, a Company, is the claimant therein. 2. The Arbitration Reference was initiated by the 3 Arb.Appeal No.73 of 2017 respondent herein on the basis of a compromise agreement alleged to have been executed on 18.05.2011 between the parties by which the appellant herein agreed to pay Kuwait Dinar (KD) 23,177/with interest at the rate of 20% from the date on which it was due or its equivalent in Indian Currency as per the rate given by the Nationalised Banks on the date of payment and cost from the appellant herein and his assets. The parties herein shall be referred to as described to in the Arbitration Reference. 3. In the claim petition, the claimant alleged that the respondent had been working with them as Marketing Executive, during which period he had access to the funds of its customers. On 29.07.2005, the respondent received an amount of KD 23,177/from Al Tamimi International Services and Maintenance Company. However, he dishonestly misappropriated the said amount and left Kuwait. A prosecution was launched against the respondent in Kuwait. The plenary court in Kuwait found the respondent guilty of 4 Arb.Appeal No.73 of 2017 breach of trust and misappropriation and sentenced him in absentia to imprisonment for three years. The aforesaid maintenance company also initiated civil proceeding against the claimant and respondent before the court of first instance in Kuwait. The said court vide its judgment held the claimant Company vicariously liable to pay compensation of KD 1,23,377/- to Al Tamimi International Services and Maintenance Company. In the claim statement it was further alleged that when attempts to find out the respondent failed, the claimant with the help of a private investigator tracked down the whereabouts of the respondent and legal action was initiated against him. The respondent then came forward to settle the matter on the basis of which a compromise agreement was executed on 18.05.2011 between the parties. However, the respondent failed to comply with the terms of the compromise and hence the arbitral reference was initiated as per the terms of the compromise agreement entered into between the 5 Arb.Appeal No.73 of 2017 parties. 4. Before the Arbitrator, the respondent denied the case of misappropriation alleged by the claimant. According to him, the amount collected from Al Tamimi International Services and Maintenance Company had been handed over to the claimant Company before he left Kuwait on medical grounds. He had left for his native place after informing the Human Resources Manager of the claimant Company. According to the respondent, the compromise agreement had been executed under threat and coercion. Apart from that, three signed cheque leaves were also forcibly taken away from him by the officials of the claimant Company. The respondent challenged the jurisdiction of the Arbitrator and also contended that the claim was barred by limitation. 5. The Arbitrator after considering the oral and documentary evidence let in by either side and after hearing both 6 Arb.Appeal No.73 of 2017 sides, passed an Award by which the respondent was directed to pay an amount of KD 34,676/- (₹76,22,420.29/-) with interest at the rate of 18% p.a. from 18.11.2013 till realisation and costs. The respondent aggrieved by the Award, moved the District Court, Ernakulam, under Section 34 of the Act. The court below considered the issue of jurisdiction as a preliminary point and vide judgment dated 24.05.2017 dismissed O.P. (Arb) No.69/2016 holding that it lacked jurisdiction to entertain the matter. Aggrieved, the respondent is before this Court. 6. Heard Sri. Shibu Joseph, the learned counsel for the appellant. The respondent Company did not appear though notice was served on it. As the respondent failed to appear, Sri.Ranjith Varghese was appointed as Amicus Curiae to assist the court. 7. A preliminary objection was raised before the court below touching on its jurisdiction. The court below held thus- 7 ## Arb.Appeal No.73 of 2017 “6. The preliminary objection alone is being decided here. Under the provisions of the Arbitration and Conciliation Act, a dispute under Section 34 of the Arbitration and Conciliation Act cannot be decided by a District Court under Section 2(1)(e)(ii) of the Act. Section goes like this; (ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court; As to what is commercial arbitration, Section 2(1)(f)(ii) defines that a body corporate which is incorporated in any country other than India, must be understood to be sufficient for the concept of International Commercial Arbitration. Even admittedly, the arbitration impugned in this petition relates to disputes arising out of legal relationship, which is considered as an international commercial arbitration under the Indian Law and one of the parties is a body corporate incorporated in a foreign country. 7. Obviously this court lacks jurisdiction to determine any question under Section 34 of the Arbitration and Conciliation Act. The preliminary objection is thus found in favour of the respondent. Therefore the original petition is dismissed with costs.” 8 Arb.Appeal No.73 of 2017 ## 8. Section 2(1)(f) of the Act reads - “2(1)(f) “international commercial arbitration” means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is— (i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or (iv) the Government of a foreign country;” 9. Therefore for an arbitration to be international commercial arbitration, it should be an arbitration relating to disputes which are considered as commercial under the law in force in India and where at least one of the parties is a body corporate which is incorporated in any country other than India or an individual association or a Government as contemplated under sub- 9 Arb.Appeal No.73 of 2017 clauses (i), (iii) and (iv) to clause (f) of sub-section (1) to Section 2 of the Act. Admittedly, sub-clause (ii) to clause (f), i.e., one of the parties being a body corporate which is incorporated in any country other than India, is satisfied in this case as the claimant is a Company incorporated in Kuwait. But now the question is, is the arbitration in this case an international commercial arbitration? 10. The term 'commercial' has not been defined in the Act. According to the learned counsel for the respondent (the appellant herein), the term 'commercial' has to be understood with reference to the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, as the present Act has been enacted on the basis of the same. Reference was made to two decisions in support of this argument, namely, R.M. Investments & Trading Co. Pvt. Ltd. vs Boeing Co. [ (1994)4 SCC 541] and Sundaram Finance Ltd vs NEPC India Ltd [(1999) 2 SCC 479] . In R.M.Investment supra, 10 Arb.Appeal No.73 of 2017 it has been held by the Apex Court relying on Renusagar Power Co. Ltd. vs. General Electric Co. [1994 SCC Supl.(1) 644] and M/s.Koch Navigation Inc. vs. M/s.Hindustan Petroleum Corp. Ltd. [ AIR 1989 (SC) 2198], that while construing the expression 'commercial' in Section 2 of the Foreign Awards (Recognition and Enforcement) Act, 1961, ('the Foreign Awards Act') it has to be borne in mind that the Act is calculated and designed to sub-serve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration and any expression or phrase occurring therein should receive, consistent with its literal and grammatical sense, a liberal construction. The expression 'commercial' should, therefore, be construed broadly having regard to the manifold activities which are integral part of international trade. 11. This decision cannot be relied on as argued by the 11 Arb.Appeal No.73 of 2017 learned counsel for the respondent because the Foreign Awards Act has been repealed by Section 85 of the present Act of 1996. Therefore, the term 'commercial' in Section 2(1)(f) cannot be interpreted with reference to the interpretation given in Section 2 of the Foreign Awards Act, because as per said Section it must be an arbitration considered commercial “under the law in force in India”. ## 12. In Sundaram Finance supra, the Apex Court held thus- “8. Prior to the promulgation of the 1996 Act, the law on arbitration in India was substantially contained in three enactments, namely, The Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. In the Statement of Objects and Reasons appended to the Bill, it was stated that the 1940 Act, which contained the general law of arbitration, had become outdated. The said Objects and Reasons noticed that the United Nations Commission on International Trade Law 12 Arb.Appeal No.73 of 2017 (UNCITRAL) adopted in 1985 the Model Law on International Commercial Arbitration. The General Assembly had recommended that all countries give due consideration to the said Model Law which, along with the rules, was stated to have harmonised concepts on arbitration and conciliation of different legal systems of the world and thus contained provisions which were designed for universal application. The above said Statement of Objects and Reasons in para 3 states that "3. Though the said UNCITRAL Model Law and Rules are intended to deal with international commercial arbitration and conciliation, they could, with appropriate modifications, serve as a model for legislation on domestic arbitration and conciliation. The present Bill seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules." 9. The 1996 Act is very different from the Arbitration Act, 1940. The provisions of this Act have, therefore, to be interpreted and construed independently and in fact reference to 1940 Act may actually lead to misconstruction. In other words, the provisions 13 Arb.Appeal No.73 of 2017 of the 1996 Act have to be interpreted being uninfluenced by the principles underlying the 1940 Act. In order to get help in construing these provisions, it is more relevant to refer to the UNCITRAL Model Law rather than the 1940 Act.” 13. Therefore, we refer to the UNCITRAL Model Law to comprehend the meaning of 'commercial' found in Section 2(1) (f) of the Act. Article 1(1) of the UNCITRAL Model Law on International Commercial Arbitration reads - “This Law applies to international commercial arbitration, subject to any agreement in force between this State and any other State or States.” The footnote to the term 'commercial' in Article 1 (1) reads - “The term “commercial” should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; 14 Arb.Appeal No.73 of 2017 distribution agreement; commercial representation or agency; factoring ; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.” 14. In the light of the aforesaid interpretation, the transaction alleged in the instant case, cannot be termed 'commercial'. If the case of the claimant is to be believed, the compromise agreement was executed relating to the amount of money which the respondent had misappropriated from the claimant Company and which the latter is alleged to have agreed to repay in instalments. The compromise agreement is indeed a strange one which is supposed to contain an arbitration clause also. There appears to be no commercial element in it and the compromise agreement apparently relates to a personal liability of 15 Arb.Appeal No.73 of 2017 the respondent to the claimant. 15. Here we refer to Bharat Aluminium Co vs Kaiser Aluminium Technical Service, Inc. [(2012) 9 SCC 552] submitted by the learned counsel for the respondent, from which we quote paragraph 88 which reads thus - “88. In our opinion, the aforesaid provision does not, in any manner, relax the territorial principal adopted by Arbitration Act, 1996. It certainly does not introduce the concept of a delocalized arbitration into the Arbitration Act, 1996. It must be remembered that Part I of the Arbitration Act, 1996 applies not only to purely domestic arbitrations, i.e., where none of the parties are in any way “foreign” but also to “international commercial arbitrations” covered within Section 2(1) (f) held in India. The term “domestic award” can be used in two senses: one to distinguish it from “international award”, and the other to distinguish it from a “foreign award”. It must also be remembered that “foreign award” may well be a domestic award in the country in which it is rendered. As the whole of the Arbitration Act, 1996 is designed to give different treatments to the awards made in India and those made outside India, the distinction is necessarily to be made between the terms “domestic awards” and “foreign awards”. The Scheme of the 16 Arb.Appeal No.73 of 2017 Arbitration Act, 1996 provides that Part I shall apply to both “international arbitrations” which take place in India as well as “domestic arbitrations” which would normally take place in India. This is clear from a number of provisions contained in the Arbitration Act, 1996 viz. the Preamble of the said Act; proviso and the explanation to Section 1(2); Sections 2(1)(f); 11(9), 11(12); 28(1)(a) and 28(1)(b). All the aforesaid provisions, which incorporate the term “international”, deal with pre-award situation. The term “international award” does not occur in Part I at all. Therefore, it would appear that the term “domestic award” means an award made in India whether in a purely domestic context, i.e., domestically rendered award in a domestic arbitration or in the international context, i.e., domestically rendered award in an international arbitration. Both the types of awards are liable to be challenged under Section 34and are enforceable under Section 36of the Arbitration Act, 1996. Therefore, it seems clear that the object ofSection 2(7)is to distinguish the domestic award covered under Part I of the Arbitration Act, 1996 from the “foreign award” covered under Part II of the aforesaid Act; and not to distinguish the “domestic award” from an “international award” rendered in India. In other words, the provision highlights, if anything, a clear distinction between Part I and Part II as being applicable in completely different fields and with no overlapping provisions.” 17 Arb.Appeal No.73 of 2017 (Emphasis supplied) 16. Therefore, the Award in this case is a domestic Award rendered in an international arbitration, to which Part I of the Act applies. As it is not an international commercial arbitration, it is the court as defined under Section 2(1)(e)(i) that has jurisdiction, which provision reads – “Court” means – in the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes” (Emphasis . supplied) 17. Therefore, it is the District Court which has jurisdiction in the matter and so the finding of the court below to the contrary is apparently and obviously incorrect. 18 Arb.Appeal No.73 of 2017 18. It was further argued by the learned counsel for the respondent that when the court below concluded that it had no jurisdiction to decide the matter, it ought not to have dismissed the appeal, on the other hand it ought to have returned the appeal as provided under Order VII Rule 10 CPC, for presentation before the proper court. When we expressed doubts as to whether the provisions of the Code are applicable in a proceeding under Section 34 of the Act, reference was made by the learned counsel to I.T.I. Ltd. vs Siemens Public Communications Network Ltd. [(2002)5 SCC 510] in which the Hon'ble Supreme Court held that, though the application of Code in the Act is not specifically provided for, there is no express prohibition against the application of the same in a proceeding arising out of the Act before a Civil Court. Hence there cannot be an inference that the Code is not applicable. The learned Amicus Curiae referred to the case of Board of Trustees of Port of Cochin vs. Jaisu Shipping 19 Arb.Appeal No.73 of 2017 Company Private Ltd. [2011(4) KHC 881) and also Rule 11 of the Kerala Arbitration and Conciliation (Court) Rules, 1997 to say that the Code is applicable to proceedings under Section 34. However, the learned counsel for the respondent also drew our attention to Mahanagar Telephone Nigam Limited. Vs. Applied Electronics Limited [(2017) 2 SCC 37] in which the dictum in Board of Trustees supraregarding the application of the Code to proceedings under Section 34 has been doubted and the matter has been referred to a larger Bench. According to the learned counsel for the respondent as long as the larger Bench has not answered the reference, the dictum in Board of Trustees suprawill have to be followed by this Court. We are not going into the question whether the Code is applicable to proceedings under Section 34 of the Act as it is unnecessary in this case. 19. Reference has also been made to two decisions of the Highs Court of Rajasthan and Delhi, viz., S.B. Civil Misc. 20 Arb.Appeal No.73 of 2017 Appeal No.2780/2016 and FAO No.355/2016 respectively, in support of the argument that this Court can remand the matter to the court below for a fresh consideration. It is true that this Court under Section 37 or the Court below under Section 34 has no jurisdiction to remand the matter to the Arbitrator for a fresh decision ( Radha Chemicals vs. Union of India (MANU/SC/1630/2018). 20. Here we refer to the Dakshin Haryana Bijli Vitaran Nigam Ltd. vs. M/s.Navigant Technologies Pvt. Ltd. [AIR 2021 (SC) 2493] and also to Radha Chemicals (supra)in which cases the Court under Section 34 had dismissed the application on the ground of Limitation. The Hon'ble Supreme Court set aside the said preliminary finding of the Court below and remanded the matter for a fresh consideration on merits. Applying the said principle, we remand the matter to the District Court which shall decide the matter afresh on merits. 21 Arb.Appeal No.73 of 2017 In the result, the appeal is allowed. No costs. The matter is remanded to the court below for a fresh consideration on merits. As the arbitration proceedings is of the year 2013, the court below shall make every endeavour to dispose of the matter at the earliest. Pending applications, if any, shall stand disposed of. Sd/- ## **P.B.SURESH KUMAR JUDGE** Sd/- **C.S.SUDHA JUDGE** ami/