APPLICABILITY OF INDIAN LAW IN CASES WHERE CONTRACTS

PROVIDE FOR THE APPLICABILITY OF A FOREIGN LAW TO

ADJUDICATION OR ARBITRATION IN DISPUTES UNDER CONTRACT

With the steady rise of global commerce, there is an ever increasing
number of instances where Indian commercial entities enter into
agreements with foreign companies (including companies based
abroad). The agreements, executed on such occasions, usually carry
clauses pertaining to the jurisdiction of courts of the designated
country to which the parties shall submit in the event of a dispute or the
law of the specific country which shall apply in the event of such
disputes. There are occasions when a contract may specify non-
exclusive jurisdiction as to courts of either country to which executants
of the agreement belong but limit the application to the laws of just one
of the two countries. This can raise all kinds of piquant situations which
need to be understood in the light of judgments handed down by courts
in India.

For instance, let us take a hypothetical case where:

The contract, between and Indian and a Singapore entity, is designated in
Singapore Dollars (SGD),

The contract has been made governable by Singapore laws but the
jurisdiction of the courts has been specified to be non-exclusive i.e.
Arbitration can be conducted by tribunals or disputes adjudicated by courts
either in India or Singapore.

In this kind of a situation, assuming that a dispute has arisen and one of the
parties wishes to pursue the remedy in an Indian court of appropriate
jurisdiction, the following queries arise:

1. Since the claim is in SGD, how should the prayer clause be worded with
regard to the equivalent claim in INR?

2. What will be the applicable court fee?

3. As the contract is governed by Singapore Laws, how can Indian courts
apply foreign law and how would they proceed in matters of such nature.

We have to address each of the above queries in the light of the legal position
and judicial pronouncements in India, as follows:-



1. Since the claim is in SGD, how should the prayer clause be
worded with regard to the equivalent claim in INR?
In keeping with the normal practice in suits pertaining to international
contracts, where sums involved are designated in foreign currency only
(e.g. hard currency invoices under Letters of Credit), the prayer should
be for grant of the claim in Singapore Dollars. However, for purposes of
calculating court fee, the exchange rate SGD to INR, as notified by the
RBI on the date of depositing the court fee may be applied to arrive at
the notional value of the claim in INR and payment of court fee
accordingly.

2. What will be the applicable court fee?

This figure should be ascertained from the court of competent
jurisdiction where relief/ orders are sought.

3. As the contract is governed by Singapore Laws, how can Indian
courts apply foreign law and how would they proceed in matters of such
nature.

It is correct that Indian courts would apply either our laws or such
international laws (public or private) to which the State has
subscribed by virtue of ratifying international treaties, conventions,
protocols etc. Meaning thereby that Indian courts cannot yield their
sovereignty to foreign municipal law. However, the High Court of
Delhi, in a recent judgment, in Union of India vs Reliance Industries
Limited & Anr, delivered on 22 March 2013, applied the principles
enunciated by the Supreme Court in the case of Venture Global
Engineering vs Satyam Computer Services Ltd. (2008) 4 SCC 190.
and observed the agreement be read meaningfully in order to
discern the intention of the parties whether the parties actually
intended to exclude the applicability of Indian law. In the aforesaid
case, the Supreme Court relied upon a non obstante clause in the
Agreement which provided that parties shall respect the company
law guidelines under the Indian Act and other public policy in India.
This clause was taken to mean that the parties, in effect, submitted
to the jurisdiction of Indian courts, with the governing law being the
law of India. The presence of clauses such as this, in terms of the
Delhi High Court judgment, would lead to the inference that the
parties did not intend to exclude the Indian law altogether. By way of
example, clause of this kind could be stated in the following terms:

The entry into, exercise of the rights and/ or performance of or
compliance with the obligations under this contract, by a party or
parties do not and will not violate (as the case may be) any Indian


law, regulation, directive, judgment or order to which the part or
parties are subject.

All actions, conditions, approvals, including, but all governmental and
other official consents, licences, approvals and authorisations, and
things required under the laws of the Republic of India to be taken,
fulfilled and done in order to enable the parties to perform and/ or
enable the contract to be admissible in evidence.

To reiterate, no Indian court would administer foreign municipal law because
that would tantamount to derogating from the sovereignty of this country.
However, the aforesaid judgments clearly lay down that Indian law shall apply
to contracts in dispute that permit Indian jurisdiction in case of a dispute even
if they prescribe the applicability of foreign law provided the contracts have
keystone provisions that bind a party or parties to observe and comply with
one or more Indian laws and regulations.