NTPC v. Singer Company (1992) 3 SCC 551.

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 shall have exclusive jurisdiction in all matters arising artier this contract”.

The terms of the contracts include also a clause for submission of disputes for
arbitration wherein 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)
for conduct 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 of contracts 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 aside the interim award made in London by a tribunal
constituted by ICC.

The same was dismissed by riding that:

“The award was not governed by the Arbitration Act. 1940. The arbitration
agreement on which the award was made was not governed by the law of
India, the award fell within the ambit of the Foreign Awards (Recognition and
Enforcement) Act., 196l. London being the seat of arbitration, English Courts
alone had jurisdiction to set aside the award, and the Delhi High Court had
no jurisdiction to entertain the application filed under the Arbitration Act”.

As against this ruling NTPC appealed to the Supreme Court.

The point for consideration was whether the award in question was governed by the
provisions of the Arbitration Act, and as such became relevant for the courts in India
only for the purposes of recognition and enforcement as the statute indicated.

The court discussed the whole concept of proper law of contract. This court also
considered at 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 the current legal position thus: –

“Proper law is thus the law which the parties have expressly or impliedly
chosen, 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 substantive principles of the domestic
law of the chosen system and not to its conflict of laws rules. The law of
contract is not affected by the doctrine of renvoi.”
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 performed in India, was to be governed by the laws in force in India
and the courts in India were to have exclusive jurisdiction in all matters arising under
their contract.

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 distinguished the law of arbitration in term of substantive and procedural
aspects. For the purpose of the present case such an approach was essential since 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 parties were free under ICC rules to determine the law
which the arbitrator shall apply to the merits of the dispute and in the absence of any
stipulation by the parties to the applicable law; the arbitrators may apply the 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 rules are subject to the overriding
powers of the appropriate national courts.

In the context of the two propositions pertaining to arbitration, stated earlier, the court
observed that the proper law of arbitration agreement is normally the same as the
proper law of the contract.

The parties have the freedom to choose the law governing an international commercial
arbitration agreement. They may choose the substantive law governing the arbitration
agreement as well as the procedural law governing the conduct of the arbitration… the
arbitration proceedings are conducted, in the absence of any agreement to the contrary
in accordance with the law of country in which the arbitration is held.

In the opinion of the court an award is foreign not merely because it is made in the
territory of 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 enactments were specifically
mentioned in the agreement as applicable and 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
country i.e. the law of England in the instant case.

In the result, the Supreme Court set aside the impugned judgement of the Delhi High
Court and allowed the present appeal.