Is it the end of conflict of views? Supreme Court’s another judgment on "seat" of arbitration and "exclusive" jurisdiction of Court

Introduction

The Hon’ble Supreme Court (“SC”) had recently in Brahmani River Pellets vs. Kamachi Industries Ltd.ⁱ , while dealing with the issue of determining the "seat" and which Court would have jurisdiction over the arbitration, had held that where the contract specifies the jurisdiction of the Court at a particular place, then only that Court will have the jurisdiction to deal with the matter as parties intended to exclude all other Courts. Yet again, the SC had to deal with the issue of "seat" of arbitration and which Court would have "exclusive" jurisdiction over the arbitration in the case of BGS SGS SOMA JV vs. NHPC Ltdⁱⁱ (“Case”) due to wrong interpretation of law by the Hon’ble Punjab and Haryana High Court (“HC”). The SC vide its judgment dated December 10, 2019 not only unsettled what was presumed to be a settled law relating to "seat" and "venue" of arbitration passed in Union of India vs. Hardy Exploration and Productionⁱⁱⁱ (“Hardy Exploration”) but overruled the same, citing it to be bad in law with a possibility of creating a litigation chaos, concomitant risk of conflicting decisions and adding problems relating to enforcement as well as undermining the policy underlying the New York Convention and the UNCITRAL Model Law,and also contrary to the judgment passed by the five (5) judge constitution bench in Bharat Aluminium Co. vs. Kaiser Aluminium Technical Service, Inc.^iv (“BALCO”). The SC seemingly has attempted settle the law in respect of aforesaid issue while discussing catena of its own as well as foreign Courts judgments.

Facts of the Case

In the Case BGS SGS SOMA JV (“Petitioner”) was awarded a contract for construction of Diversion Tunnels, Coffer Dams, etc. of Subansri Lower Hydroelectric Project on river Subansri by NHPC Ltd. (“Respondent”). Later on, some dispute arose between the parties, and as per the agreement entered between the parties, the disputes had to be resolved through arbitration which stated that for any dispute, arbitration proceedings shall be held at New Delhi/Faridabad.

The arbitration proceedings took place at New Delhi and a unanimous arbitral award (“Award”) was passed in favour of the Petitioner at New Delhi itself. The Respondent aggrieved by the Award, filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) (“Petition’) before the District and Session Judge, Faridabad seeking to set aside the Award. Subsequently, objecting to the application of the Respondent, the Petitioner filed an application under Section 151 read with Order VII Rule 10 of the Code of Civil Procedure, 1908 ("CPC") and Section 2(1) (e) (i) of the Arbitration Act seeking return of the Petition for presentation before the appropriate Court at New Delhi and/or Assam (place where contract was performed). Agreeing to the submission of the Petitioner, the lower Court^v vide Order dated December 21, 2017 allowed the said application and return the said Petition to be presented at appropriate Court at New Delhi.

Aggrieved by the return/transfer of the Petition, the Respondent filed an appeal under Section 37 of the Arbitration Act before the HC. The HC vide its judgment dated September 12, 2018 (“Impugned Judgment”) held that Delhi being only a convenient venue for the parties where arbitral proceedings were held and not the actual "seat" of the arbitration, so Faridabad Court would also have jurisdiction on the basis of the cause of action having being partly arisen at Faridabad. Resultantly, the appeal was allowed by the HC and lower Court’s order for return/transfer of Petition was set aside. Subsequently, the Petitioner aggrieved by the Impugned Judgment filed an appeal before the SC.

Issues in question

One of issue in question that arose before the SC was Whether the "seat" of the arbitration proceedings is New Delhi or Faridabad, consequent upon which a petition under Section 34 of the Arbitration Act may be filed dependent on where the seat of arbitration is located?

SC’s analysis and inference

The SC took this opportunity to settle and lay down as to “what constitutes the "juridical seat" of arbitral proceedings and whether, once the seat is delineated by the arbitration agreement, Courts at the place of the seat would alone thereafter have exclusive jurisdiction over the arbitral proceedings”. SC analysed the BALCO judgement and found that while interpreting Section 2(1) (e) of the Arbitration Act in order to determine "juridical seat", the SC has created an unnoticed ambiguity stating that if the parties choose a neutral place only for arbitration, then Court of that neutral place will have supervisory jurisdiction over the arbitration proceedings, irrespective of the fact where the contract was performed or signed. However, contradicting its own stand, the SC further held that where the subject matter is situated/cause of action arose and Courts within jurisdiction arbitration takes place, both those Courts shall also have concurrent jurisdiction over the arbitration proceedings.

However, providing clarity to the BALCO’s judgment, the SC in Indus Mobile Distribution Pvt. Ltd. vs.Datawind Innovation Pvt. Ltd. & Ors^vi. (“Indus Mobile”) held that the moment parties designate a "seat" by an agreement, it is akin to an exclusive jurisdiction clause. The neutral venue in classical sense may not have the jurisdiction as no cause of action arose at the neutral venue and neither would any of the provisions of Section 16 to 21 of CPC be attracted. In the context of arbitration law, the moment "seat" is determined, the Courts of the place where in the seat is located would be vested with the exclusive jurisdiction for the purposes of regulating arbitral proceedings arising out of the agreement between the parties and the very fact that the parties have chosen a "place" to be the "seat" would necessarily carry with it the decision of both parties that the Courts at the seat would exclusively have jurisdiction over the entire arbitral process.

After analysing and discussingcatenas of both Indian and foreign Court judgments such as Enercon (India) Ltd. v. Enercon GmbH^vii; Shagang South-Asia (Hong Kong) Trading Co. Ltd. v. Daewoo Logistics^viii , Roger Shashoua v. Mukesh Verma^ix ; Reliance Industries Ltd. v. UOI^x and many more, the SC in NHPCL concluded that whenever there is the designation of a place of arbitration in an arbitration clause as being the "venue" of the arbitration proceedings, the expression "arbitration proceedings" would make it clear that the "venue" is really the "seat" of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. Further, the fact that the arbitral proceedings "shall be held" at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. The stated venue is merely a "venue" and not the "seat" of the arbitral proceedings, would then conclusively show that such a clause designates a "seat" of the arbitral proceeding, if the same carries no concomitant with it.

The SC also clarified that although there seems to be an ambiguity in BALCO’s judgment however, the reading the subsequent paras of the judgment, it clearly held that choosing of a "seat" amounts to the choosing of the exclusive jurisdiction of the Courts at which the "seat" is located. The SC stated that a judgment must be read as a whole, so that conflicts part may be harmonised to reveal the true ratio of the judgment.

Conclusion

The SC vide its judgment dated December 10, 2019 held that as the arbitral proceedings were finally held at New Delhi, and the awards were signed in New Delhi, and not at Faridabad, would lead to the conclusion that both parties have chosen New Delhi as the "seat" of arbitration under Section 20(1) of the Arbitration Act^xi and as such the Courts at New Delhi alone would have exclusive jurisdiction over the arbitral proceedings. Therefore, the fact that a part of the cause of action may have arisen at Faridabad would not be relevant once the "seat" has been chosen, which would then amount to an exclusive jurisdiction Clause so far as Courts of the "seat" are concerned. Accordingly, the SC set aside the impugned judgement

(i) AIR (2019) SC 3658

(ii) 2019 (6) ArbLR 393 (SC)

(iii) AIR 2018 SC 4871

(iv) (2012) 9 SCC 552

(v) The Case was transferred to Special Commercial Court, Gurugram after its constitution in November, 2017

(vi) AIR 2017 SC 2105

(vii) (2014) 5 SCC 1

(viii) (2015) EWHC 194

(ix) (2009) EWHC 957 (Comm.)

(x) (2014) 7 SCC 603

(xi) Arbitration and Conciliation Act, 1996: Section 20 - Place of arbitration:-
      1. The parties are free to agree on the place of arbitration.
      2. Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the
          circumstances of the case, including the convenience of the parties.
      3. Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers
          appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.

This article has been authored by Abhishek Naik, Advocate at Agarwal Jetley & Co., Advocates & Solicitors. Contact: Email: abhisheknaik@agarwaljetley.com or Mob: (+91) – 97766 12121