India: Seat / Place/ Venue Of Arbitration: The Saga Continues

INTRODUCTION

The seat of arbitration is a critical aspect of any arbitration proceeding. Every arbitration must have a "seat" or "locus arbitri" or "forum" which not only determines the governing law for conduct of arbitration proceedings, but also which courts will have supervisory power over the arbitration and the scope of those powers, especially in relation to enforcement of awards.

On December 10, 2019, the Hon'ble Supreme Court of India, in its judgment titled BGS SGS Soma JV vs NHPC Ltd.¹ decided important issues regarding the interpretation of arbitration clauses in agreements vis-a-vis seat/venue of arbitration proceedings along with the scope of appealable orders under the Arbitration and Conciliation Act, 1996 ("Act "). The judgment was delivered by a three-judge bench comprising of Justices Rohinton Fali Nariman, Aniruddha Bose and V. Ramasubramanian, where the bench declared its earlier judgments in Union of India Vs. Hardy Exploration and Production (India) Inc.² ("Hardy Exploration ") and Antrix Corporation Ltd. Vs. Devas Multimedia Pvt. Ltd. ³ ("Antrix Corporation ") to be incorrect in law.

The Hon'ble Court delved into a plethora of cases to lay down the rules for determination of "seat" of arbitration, inter alia opining that the "venue" is really the "seat" of the arbitration proceedings in the absence of no other significant contrary indicia. In addition to this, the Court also dealt with the scope of appealable orders under Section 37 (1) (c) of the Act and held that an appeal against an order for transferring proceedings under Section 34 is not maintainable under Section 37 of the Act.

FACTUAL BACKGROUND

In terms of contract between NHPC Ltd. ("Respondent") and one BGS SGS SOMA JV ("Petitioner") for a hydroelectric project located in the lower Subansri districts of Assam and Arunachal Pradesh, Clause 67.3 of the agreement provided for dispute resolution which stated that "Arbitration Proceedings shall be held at New Delhi/Faridabad, India." Certain disputes arose between the parties and a three-member Arbitral Tribunal was constituted as per the contract. The arbitration proceedings were conducted in New Delhi and an award was also made there. In January 2017, the Respondent filed and application under Section 34 of the Act seeking setting aside of the award before the Court of the District and Sessions Judge, Faridabad, Haryana. In April 2017, the Petitioner filed an application under Section 151 read with Order VII Rule 10 of the Code of Civil Procedure, 1908 ("CPC,1908 ") and Section 2 (1) (e) (i) of the Act seeking return of the Section 34 petition for presentation before the appropriate court at New Delhi and /or the District Judge at Dhemaji, Assam. However, in November 2017, after constitution of Special Commercial Court at Gurugram, the Section 34 petition filed at Faridabad was transferred to the said Commercial Court, which allowed the aforementioned application of the Petitioner, and returned the Section 34 petition for presentation at the courts of New Delhi. Aggrieved by this, the Respondent filed an appeal under Section 37 of the Act read with Section 13 (1) of the Commercial Courts Act, 2015 (" CC Act " ) before the High Court of Punjab and Haryana at Chandigarh. The Hon'ble High Court held that the appeal filed under Section 37 was maintainable, and that Delhi being only a convenient venue where arbitral proceedings were held and not the seat of arbitration proceedings, the courts of Faridabad would have jurisdiction on the basis of cause of action having arisen there. As a result, the appeal was allowed and the judgment of the Special Commercial Court at Gurugram was set aside, to which the petition in question was filed before the Supreme Court.

ISSUES IN QUESTION

i. Whether an appeal under Section 37 of the Act is maintainable against an order transferring a Section 34 petition from one court to another?

ii. Whether designated place of arbitration confers exclusive jurisdiction upon the courts of the said place?

iii. What is the seat of arbitration in the present dispute?

ARGUMENTS ON BEHALF OF THE PARTIES

As per the counsel on behalf of the Petitioner, a combined reading of Section 13 of the CC Act and Section 37 of the Act made it clear that Section 13 of the CC Act only provides forum for challenge, whereas Section 37 of the Act circumscribes the right of appeal. Further, read with Section 5 of the Act, it was clear that only certain judgments and orders are appealable and no appeal would lie under any provision outside Section 37 of the Act. He further contended that an order allowing an application under Section 151 read with Order VII Rule 10 of the CPC, 1908 could in no stretch of imagination amount an order refusing to set aside an arbitral award under Section 34 of the Act.

With respect to the second and third issue, the Counsel contended that the conclusion drawn by the High Court as to New Delhi being the venue and not the seat of arbitration was incorrect as the parties chose to have sittings at New Delhi and the award was made in New Delhi, thereby making New Delhi the seat of arbitral proceedings. He relied on many judgments, including the Five Judge Bench in Bharat Aluminum Co. Vs. Kaiser Aluminum Technical Service Inc. ⁴ ("BALCO") and contended that Hardy Exploration was not correctly decided.

Per contra, Smt. Maninder Acharya, learned Additional Solicitor General, supported the impugned judgment and contended that the reasoning of the High Court was correct when it held that an order passed under Section 151 read with Order VII Rule 10 of the CPC, 1908 would amount to refusal to set aside an arbitral award and relied heavily upon Antrix Corporation. On the second issue, she argued that the arbitration clause did not expressly state that either New Delhi or Faridabad was to be the seat of the arbitral proceedings. The arbitration clause only mentioned a convenient venue and the fact that sittings were held at New Delhi would not make New Delhi the seat of arbitration under Section 20 (1) of the Act. Furthermore, since the contract was signed in Faridabad, notices were sent to the Respondent's Faridabad office, courts in Faridabad would have jurisdiction to decide a Section 34 petition.

WHAT THE SUPREME COURT HELD

i. Whether an appeal under Section 37 of the Act is maintainable against an order transferring a Section 34 petition from one court to another?

The Hon'ble Supreme Court relied upon the judgments of Kandla Export Corporation Vs. M/s OCI Corporation & Anr.⁵ and South Delhi Municipal Corporation Vs. Tech Mahindra⁶ to hold that since there was no independent right of appeal under Section 13(1) of the CC Act which merely provides forum for appeals, it is the parameters of Section 37 of the Act alone which had to be looked into in order to determine whether the appeal was maintainable. Furthermore, the Court observed that the High Court missed the words "under Section 34" in Section 37 (1) (c) of the Act which implied that refusal to set aside an award must be under Section 34 i.e. after the grounds set out there have been turned down. Hence, an order transferring Section 34 proceedings from one court to the other would not amount to a refusal to set aside the award. It was held that the appeal filed by the Respondent did not fall within the ambit of Section 37 of the Act and accordingly, the appeal was not maintainable.

ii. Whether designated place of arbitration confers exclusive jurisdiction upon the courts of the said place?

ANTRIX CORPORATION⁷ BAD IN LAW?

The Hon'ble Court at first examined the historical background of the juridical seat of the arbitral proceedings in terms of provisions under the Arbitration Act, 1940, the UNCITRAL Model Law on International Commercial Arbitration and the Arbitration & Conciliation Act, 1996. It then went on to discuss some of the earlier judgments of the Court on the concept of "seat" and "venue" of an arbitral proceeding such as BALCO⁸ and Roger Shashoua and Ors. Vs. Mukesh Sharma⁹and concluded that where parties have selected the seat of arbitration in their agreement, such selection would then amount to an exclusive jurisdiction clause and that Section 2(1)(e) of the Act has to be construed keeping in mind the Section 20 of the Act. The Court then went on to discuss other judgements ¹⁰ to observe that the moment the seat is designated by agreement between the parties, it is akin to an exclusive jurisdiction clause, which would then vest the Courts at the "seat" with jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement.

While discussing the discordant notes struck by some High Courts, the Supreme Court held that the view taken by the Delhi High Court in Antrix Corporation was incorrect as it looked at paragraph 96 of the BALCO judgment in isolation and failed to consider the subsequent paragraphs and the findings in Enercon (India) Ltd. and Ors. Vs. Enercon GmBH and Anr.¹¹ and Reliance Industries Ltd Vs. Union of India¹².

TEST FOR DETERMINATION OF "SEAT"

The Supreme Court at paragraph 63 of the judgement¹³ observed: "It will thus be seen that wherever there is an express designation of a "venue" and no designation of any alternative place as the "seat", combines with a supranational body of Rules governing the arbitration, and no other significant contrary indicia, the inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding."

The Court then examined various judgments across different jurisdictions such as Roger Shashoua ¹⁴Enercon GmBH¹⁵, Shagang South Asia (Hong Kong) Trading Co. Ltd. vs. Daewoo Logistics¹⁶, Process and industrial Developments Ltd. Vs. Nigeria¹⁷, Dozco India (P) Ltd. Vs. Doosan Infracore Co. Ltd.18etc. and concluded at paragraph 84 that whenever there is a 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 proceedings as a whole, including making of award at that place. Further, the Clause does not state that the venue is so that some, or all, of the hearings take place at the venue; neither does it use language such as "the Tribunal may meet", or "may hear witnesses, experts or parties". The expression "shall be held" also indicates that the so-called "venue" is really the "seat" of the arbitral proceedings. This coupled with there being no other significant contrary indicia that the stated venue is merely a "venue" and not a "seat", would then conclusively show that such a clause designates the "seat" of arbitration.

CORRECTNESS OF JUDGMENT IN HARDY EXPLORATION¹⁹

The Supreme Court at paragraph 93 of the judgment opined that the Three Judge Bench in Hardy Exploration failed to apply the Shashoua²⁰ principle to the arbitration clause in question according to which the answer would have been that Kuala Lumpur, which was stated to be the 'venue' of arbitration proceedings, being governed by the UNCITRAL Model Law, would be governed by a supranational set of rules, and there being no other contrary indicator, it would be clear that Kuala Lumpur would therefore be the juridical 'seat' of the arbitration and thereby, the Bench did not follow the law as to determination of juridical seat laid down in BALCO. Therefore, the Court held, "Hardy Exploration and Production (India) Inc. (supra), being contrary to the Five Judge Bench in BALCO (supra), cannot be considered to be good law."

WHAT IS THE SEAT OF ARBITRATION IN THE PRESENT DISPUTE?

Applying the Shashoua principle to the matter in question, the Supreme Court held that the arbitration clause in the appeal in question signified that all the hearings, including making of the award, were to take place at one of the stated places i.e. New Delhi/Faridabad. The expression "shall be held" also indicated that the so-called "venue "was really the "seat" of arbitration proceedings. However, since all the three appeals were finally held at New Delhi, the conclusion that was made was that the parties chose New Delhi as the seat of arbitration under Section 20 (1) of the Act. Hence, courts at New Delhi alone had the jurisdiction over the arbitration proceedings and the fact that a part of the cause of action arose in Faridabad was irrelevant once the seat was chosen. Hence, the judgment of the High Court was set aside and Section 34 petition was ordered to be presented in the Courts of New Delhi.

CONCLUSION AND ANALYSIS

The Supreme Court has inarguably held that a place or venue is effectively the juridical seat unless there is any indicator of a contrary intention of the parties. Not only has the Court provided the much needed clarity on the issue of juridical seat of arbitration proceeding, it has also laid down tests for determination of the same. Consequently, the judgment also clarifies certain grey aspects pertaining to the issue of seat/ venue/place of arbitration and also throws light on the importance of choosing a seat at the very beginning of the arbitration as the same would also be relevant in determining the jurisdiction of courts having supervisory jurisdiction over the proceedings. However, it is to be kept in mind that the judgment has been pronounced by a Three Judge Bench, which is the same as in the case of Hardy Exploration. Hence, there is quite a possibility that the judgment would not have an overruling effect on Hardy Exploration and the matter would be referred to a larger bench for determination.

Footnotes

1 Civil Appeal No. 9307 of 2019 (Arising out of SLP (Civil) No. 25618 of 2018), Civil Appeal No. 9308 of 2019 (Arising out of SLP (Civil) No. 25848 of 2018) and Civil Appeal No. 9309 of 2019 (Arising out of SLP (Civil) No. 28062 of 2018), decided on 10.12.2019

2 AIR 2018 SC 4871

3 2018 (4) Arb LR 66 (Delhi)

4 (2012) 9 SCC 552

5 (2018) 14 SCC 715

6 EFA (OS) (Comm.) 3 of 2019

7 Supra, Note 3.

8 Supra, Note 4.

9 (2009) EWHC 957 (Comm.)

10 Indus Mobile Distribution Private Limited (2017) 7 SCC 678, Enercon (India) Ltd. and Ors. Vs. Enercon GmBH and Anr (2014) 5 SCC 1

11 (2014) 5 SCC 1

12 (2014) 7 SCC 603

13 Supra, Note 1.

14 Supra, Note 8.

15 Supra, Note 10.

16 (2015) EWHC 194

17 (2019) EWHC 2241

18 (2011) 6 SCC 179

19 Supra, Note 2.

20 Supra, Note 9

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