Rishabh Dheer
Advocate, High Court of Delhi
rishabhdheer@gmail.com
I) The Bottom Line
In a nutshell, the judgment of the Supreme Court (‘SC’) in BGS-SGS SOMA JV v. NHPC Limited - 2019 SCC OnLine SC 1585 (hereinafter referred to as ‘Judgment’)[1] reconciles various precedents and determines the weight ascribed to the ‘seat’ in determining territorial jurisdiction in arbitration matters. In doing so, the SC unambiguously prioritizes ‘seat’ over everything else. This means that the cause-of-action-based methodology which classically determines jurisdiction under the Code of Civil Procedure, 1908 (‘CPC’) is knocked out, and ‘venue’ and ‘seat’ are absolute factors when it comes to jurisdiction in arbitration matters.
II) Facts
The Petitioner and the Respondent entered into an Agreement in 2004 in respect of works pertaining to a hydropower project to be executed in the States of Assam and Arunachal Pradesh.
Disputes having arisen between the parties, the Petitioner invoked the arbitration clause contained in the Agreement against the Respondent in 2011. The relevant part of the arbitration clause for the purposes of the present article is reproduced below:
“Arbitration Proceedings shall be held at New Delhi/Faridabad, India and the language of the arbitration proceedings and that of all documents and communications between the parties shall be English.”
(emphasis supplied)
A three-member Arbitral Tribunal (‘AT’) was constituted in 2011. The AT held seventy-one sittings between 2011 and 2016. Accordingly, a unanimous arbitral award was delivered by the AT in 2016 in New Delhi allowing the claims of the Petitioner.
Aggrieved, the Respondent instituted award-challenge proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) before the District Court in Faridabad, Haryana. Owing to the constitution of a Special Commercial Court in Gurugram, the Respondent’s petition was transferred to the Gurugram Commercial Court. In the interim, the Petitioner raised an objection to the Respondent’s petition and sought its return for presentation before the appropriate Court in New Delhi or Assam. The Special Commercial Court in Gurugram held in favour of the Petitioner and returned the Respondent’s petition under Section 34 of the Act for presentation to the appropriate Court in New Delhi.
Aggrieved, the Respondent filed an appeal under Section 37 of the Act read with Section 13(1) of Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 before the Punjab and Haryana High Court (P&H High Court), in which the Court held that firstly, the appeal filed by the Respondent under Section 37 of the Act was maintainable under sub-clause (c) of sub-section (1); and secondly, Delhi was only a convenient venue for the arbitration proceedings and could not be construed to mean the ‘seat’ of the arbitration proceedings. The Court, accordingly, held that the Courts in Faridabad would have jurisdiction on the basis of the cause of action having arisen in part in Faridabad.
Aggrieved by the findings of the P&H High Court on both counts, the Petitioner approached the SC.
III) Scope of the present article
The focus of this article is not on the findings of the SC on the maintainability of the appeal preferred by the Respondent before the P&H High Court inasmuch as the SC’s decision on this count is clear and convincing. The SC held that the P&H High Court had, for the purposes of an appeal under Section 37 of the Act, erred in concluding that a case of a Section 34 petition being returned to an appropriate Court would amount to an order “refusing to set aside an arbitral award under Section 34”. In this regard, the SC held that “the refusal to set aside an arbitral award must be under Section 34”[2] [Ed: the word ‘under’ has been emphasized in original] i.e., firstly, after the grounds stipulated under Section 34 had been applied by the Court to the arbitral award; secondly, and after the Court had refused to interfere on the basis of such grounds. Therefore, the P&H High Court failed to consider the words “under Section 34” while reaching the conclusion that it did.
Accordingly, this article shall focus on the second, and more important, part of the Judgment which relates to the determination of the ‘seat’ of the arbitration proceedings. To that end, the SC in Paragraph No. 23 of the Judgment characterized the issue in the following terms:
23. [...] it is therefore important to lay down the law on 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.
This article under ‘Part V’ covers the SC’s analysis of its previous judgments, reliance placed on judgments of the English Courts, and the principle, and the importance, attributed to territoriality and party autonomy in determining the ‘juridical seat’ of the arbitration proceedings.
IV) Arguments of the parties
Broadly, the Petitioner had four contentions – Firstly, the conclusion arrived at in the impugned judgment inasmuch as New Delhi was merely a ‘venue’ and not the ‘juridical seat’ was incorrect. The parties had chosen to hold the arbitration proceedings in New Delhi; for the AT, this meant that the arbitral award (being rendered in New Delhi) was being made at the ‘seat’ of the arbitration proceedings. Secondly, notwithstanding the fact that both New Delhi and Faridabad may have had jurisdiction, the conduct of the parties in choosing New Delhi made their choice qua the ‘seat’ of the arbitration proceedings obvious. Accordingly, the principle enunciated in Hakam Singh v. Gammon (India) Limited[3] would apply. Thirdly, the illustration cited in Paragraph No. 96 of the Constitution Bench’s judgment in Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc.[4] (‘BALCO’) was incorrect and contrary to the theory of concurrent jurisdiction propounded therein, and an overall reading of BALCO would clearly demonstrate that the Five-Judge Bench had, in fact, concluded that a clause in an agreement stating the ‘seat’ of arbitration would be akin to an exclusive jurisdiction clause. Lastly, the judgment delivered by the Three-Judge Bench in Union of India v. Hardy Exploration and Production (India) Inc. (‘Hardy Exploration’)[5] was contrary to BALCO and resulted in an incorrect understanding of the law inasmuch, in the facts of the present case, New Delhi ought to have been declared as not just the ‘venue’ but also the ‘seat’ for the arbitration proceedings in question.
The Respondent, on the other hand, made two submissions – Firstly, the arbitration clause did not expressly provide for either New Delhi or Faridabad as the ‘seat’ of the arbitration proceedings. Hence, only a convenient venue had been referred to, and the fact that the proceedings were held in New Delhi would not confer upon it the status of a ‘seat’; and secondly, Faridabad was rightly clothed with jurisdiction to entertain the petition under Section 34 of the Act as part cause of action had arisen in Faridabad as the Agreements had been executed there, and since notice had been issued by the Petitioner to the Respondent at its Faridabad address. It was further contended that in light of BALCO, both New Delhi and Faridabad would have concurrent jurisdiction – the former being a neutral forum, and the latter being the place where a part of the cause of action arose. However, since the Respondent first approached the Court in Faridabad, that Court alone would exercise jurisdiction pursuant to Section 42 of the Act.
What the Court held
The Court, at the outset, set out the relevant provisions of the Arbitration Act, 1940 (‘1940 Act’) to illustrate that the concept of ‘place’ found no mention in the erstwhile 1940 Act. It was only pursuant to the adoption of the provisions of the UNCITRAL Model Law on International Commercial Arbitration – which introduced the concept of ‘place’ and ‘seat’ of arbitration proceedings – in the 1996 Act that the word ‘place’ was introduced in Sections 2(1)(e), 2(2), 20, 31(4) and 42. The Court also highlighted that in light of the new provisions in the Act pertaining to the concept of ‘juridical seat’ in arbitration proceedings, and the importance accorded by the Act to such ‘juridical seat’, “the arbitral award is now not only to state its date, but also the place of arbitration as determined in accordance with Section 20.”[6] (emphasis supplied)
The SC while answering the point at issue under Paragraph No. 23 (supra) viz. “whether […] courts at the place of the seat would alone thereafter have exclusive jurisdiction over the arbitral proceedings” comprehensively analyzed Indian as well as English precedents and, in particular, stressed upon the Shashoua principle, and clarified the ostensible confusion in BALCO emanating from Paragraph No. 96 therein.
1) The Shashoua Principle
When can a ‘venue’ tantamount to a ‘seat’? Let’s consider the following –
i. Does the arbitration clause provide for a venue or place for the arbitration proceedings, without specifically naming the ‘seat’?
If the answer to (i) above if yes, then:
ii (a) Is there sufficient evidence that the parties to the contract intended to choose another seat for the arbitration proceedings?
OR
ii (b) Is there any significant indication to the contrary to demonstrate that the ‘venue’ stated in the arbitration clause was merely a convenient geographical location, or fixed for a few particular hearings, for instance, for the purposes of recording evidence?
If the answer to (ii) above is no, it would axiomatically follow that the place designated in the arbitration clause would be read as the ‘juridical seat’ where the parties intended to anchor the entire arbitration process right up to, and including, the making of the arbitral award.
In Roger Shashoua & Ors. v. Mukesh Sharma (‘Shashoua’),[7] the English Court held that when an arbitration clause had expressly designated London as the ‘venue’ for the arbitration proceedings without designating any alternate place as the ‘seat’, the inevitable conclusion was that London would be the ‘juridical seat’ of the arbitration proceedings. Judge Cooke in Shashoua observed as follows:
34. London Arbitration is a well known phenomenon which is often chosen by foreign nationals with a different law, such as the law of New York, governing the substantive rights of the parties. This is because of the legislative framework and supervisory powers of the courts here which many parties are keen to adopt. When therefore there is an express designation of the arbitration venue as London and no designation of any alternative place as the seat, combined with a supranational body of rules governing the arbitration and no other significant contrary indicia, the inexorable conclusion is, to my mind, that London is the juridical seat and English law the curial law. In my judgment it is clear that either London has been designated by the parties to the arbitration agreement as the seat of the arbitration, or, having regard to the parties’ agreement and all the relevant circumstances, it is the seat to be determined in accordance with the final fall back provision of section 3 of the arbitration act.
(emphasis supplied)
Not only has Shashoua been referred to by the SC in several previous judgments including BALCO, where the Court approvingly quoted Shashoua at Paragraph Nos. 108 and 109, and Enercon (India) Limited v. Enercon GmbH & Anr.,[8] the emphasis upon Shashoua by the SC in the Judgment itself confirms the importance of same inasmuch the Court has cited, referred to, or relied upon it at several places in the Judgment viz. Paragraph Nos. 36, 52, 62, 65, 69, 79, 85, 86, 87, 93, 94, 96 and 98.
2) Addressing the Elephant in the Room (Paragraph No. 96): How to read BALCO
Reading BALCO as a Whole: The SC in the Judgment emphasized that BALCO was clear inasmuch as if an agreement executed between the parties specified the ‘seat’ of arbitration, the same would amount to an exclusive jurisdiction clause, and that Paragraph No. 96 read with the previous and subsequent paragraphs in BALCO clearly evinced that the Courts at the ‘seat’ would alone exercise jurisdiction in relation to such arbitration proceedings. At the same time, the Court was in recognition of the fact that Paragraph No. 96 in BALCO left room for possible contradiction by purportedly providing for concurrent jurisdiction. The oft-quoted Paragraph No. 96 of BALCO is reproduced hereunder:
96. Section 2(1)(e) of the Arbitration Act, 1996 reads as under:
“2. Definitions
(1) In this Part, unless the context otherwise requires
(e) "Court" means 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.”
We are of the opinion, the term "subject matter of the arbitration" cannot be confused with "subject matter of the suit". The term "subject matter" in Section 2(1)(e) is confined to Part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. In our opinion, the provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the Learned Counsel for the Appellants would, in fact, render Section 20 nugatory. In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process. For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, (Delhi having been chosen as a neutral place as between a party from Mumbai and the other from Kolkata) and the tribunal sitting in Delhi passes an interim order Under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order under Section 37 must lie to the Courts of Delhi being the Courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi. In such circumstances, both the Courts would have jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution, i.e., arbitration is located.
(emphasis supplied)
The SC proceeded to dissect the Five-Judge Bench’s findings in the aforementioned paragraph as follows – firstly, the definition of ‘Court’ under Section 2(1)(e) must be construed in accordance with Section 20 of the Act, which recognizes party autonomy in choosing the ‘seat’ for arbitration proceedings; secondly, jurisdiction shall be exercised by Courts where the cause of action is located as also where the arbitration take place; thirdly, notwithstanding any obligations under an agreement, an appeal under Section 37 against an interim order passed by the AT under Section 17 of the Act would only lie in the Court in Delhi (following from the example mentioned therein) on account of such Courts exercising supervisory control over the arbitration proceedings; fourthly, both sets of Courts may exercise jurisdiction over a dispute.
Having already done so earlier in Paragraph No. 40, the SC in Paragraph No. 46 of the Judgment again adverted to Paragraph Nos. 75, 76, 96, 110, 116, 123 and 194 of BALCO and noted that a conjoint reading of the said paragraphs made it apparent that the 1996 Act accepted the territoriality principle and gave recognition to party autonomy (i.e., exclusivity based on the parties’ selection of the ‘seat’). Paragraph Nos. 40 and 46 of the Judgment are reproduced below:
40. A reading of paragraphs 75, 76, 96, 110, 116, 123 and 194 of BALCO (supra) would show that where parties have selected the seat of arbitration in their agreement, such selection would then amount to an exclusive jurisdiction clause, as the parties have now indicated that the Courts at the “seat” would alone have jurisdiction to entertain challenges against the arbitral award which have been made at the seat. The example given in paragraph 96 buttresses this proposition, and is supported by the previous and subsequent paragraphs pointed out hereinabove. The BALCO judgment (supra), when read as a whole, applies the concept of “seat” as laid down by the English judgments (and which is in Section 20 of the Arbitration Act, 1996), by harmoniously construing Section 20 with Section 2(1)(e), so as to broaden the definition of “court”, and bring within its ken courts of the “seat” of the arbitration.
xxx
46. If paragraphs 75, 76, 96, 110, 116, 123 and 194 of BALCO (supra) are to be read together, what becomes clear is that Section 2(1)(e) has to be construed keeping in view Section 20 of the Arbitration Act, 1996, which gives recognition to party autonomy - the Arbitration Act, 1996 having accepted the territoriality principle in Section 2(2), following the UNCITRAL Model Law. The narrow construction of Section 2(1)(e) was expressly rejected by the Five Judge bench in BALCO (supra). This being so, what has then to be seen is what is the effect Section 20 would have on Section 2(1)(e) of the Arbitration Act, 1996.
(emphasis supplied)
Interestingly, the SC tested the aforementioned proposition of exclusivity based on ‘seat’ selection to conclusively demonstrate that BALCO in no uncertain terms supported territorial jurisdiction and party autonomy; and why BALCO could not have contemplated the provision of concurrent jurisdiction as alleged by the Respondent. Paragraph No. 51 states as follows:
51. Take the consequence of the opposite conclusion, in the light of the facts of a given example, as follows. New Delhi is specifically designated to be the seat of the arbitration in the arbitration clause between the parties. Part of the cause of action, however, arises in several places, including where the contract is partially to be performed, let us say, in a remote part of Uttarakhand. If concurrent jurisdiction were to be the order of the day, despite the seat having been located and specifically chosen by the parties, party autonomy would suffer, which BALCO (supra) specifically states cannot be the case. Thus, if an application is made to a District Court in a remote corner of the Uttarakhand hills, which then becomes the Court for the purposes of Section 42 of the Arbitration Act, 1996 where even Section 34 applications have then to be made, the result would be contrary to the stated intention of the parties - as even though the parties have contemplated that a neutral place be chosen as the seat so that the Courts of that place alone would have jurisdiction, yet, any one of five other Courts in which a part of the cause of action arises, including Courts in remote corners of the country, would also be clothed with jurisdiction. This obviously cannot be the case. If, therefore, the conflicting portion of the judgment of BALCO (supra) in paragraph 96 is kept aside for a moment, the very fact that 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.
(emphasis supplied)
3) Indus Mobile: The meaning of ‘place’ under Section 20 of the Act
The 246th Report of the Law Commission of India proposed an amendment to Section 20, in that, the word “place” was sought to be replaced by the words “seat and venue” in Section 20(1), and by the word “venue” in Section 20(3) “to make the wording of the Act consistent with the international usage of the concept of a “seat” of arbitration, to denote the legal home of the arbitration.”[9]
The SC in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited & Ors.[10] (‘Indus Mobile’) cleared the air surrounding Section 20 of the Act and ruled that when the parties had agreed upon a ‘seat’ or, upon failure of the parties to so agree, when the AT had determined a ‘place’ in accordance with Section 31(4) of the Act, it would follow that a ‘seat’ had been determined by the parties or the AT, as the case may be, and that the Courts at the ‘seat’ had been endowed with jurisdiction for the purposes of regulating the arbitration proceedings.
In Indus Mobile, the SC held in relevant part as follows:
18. The amended Act, does not, however, contain the aforesaid amendments, presumably because the BALCO judgment in no uncertain terms has referred to "place" as "juridical seat" for the purpose of Section 2(2) of the Act. It further made it clear that Section 20(1) and 20 (2) where the word "place" is used, refers to "juridical seat", whereas in Section 20 (3), the word "place" is equivalent to "venue". This being the settled law, it was found unnecessary to expressly incorporate what the Constitution Bench of the Supreme Court has already done by way of construction of the Act.
19. A conspectus of all the aforesaid provisions shows that the moment the seat is designated, it is akin to an exclusive jurisdiction clause. On the facts of the present case, it is clear that the seat of arbitration is Mumbai and Clause 19 further makes it clear that jurisdiction exclusively vests in the Mumbai courts. Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to "seat" is a concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have jurisdiction - that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Section 16 to 21 of the Code of Civil Procedure be attracted. In arbitration law however, as has been held above, the moment "seat" is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.
20. It is well settled that where more than one court has jurisdiction, it is open for parties to exclude all other courts. For an exhaustive analysis of the case law, see Swastik Gases Private Limited v. Indian Oil Corporation Limited (2013) 9 SCC 32. This was followed in a recent judgment in B.E. Simoese Von Staraburg Niedenthal and Anr. v. Chhattisgarh Investment Limited: (2015) 12 SCC 225. Having regard to the above, it is clear that Mumbai courts alone have jurisdiction to the exclusion of all other courts in the country, as the juridical seat of arbitration is at Mumbai. […]
(emphasis supplied)
4) ‘Seat’ is the centre of gravity: The legislative intent behind the change in definition of ‘Court’ under Section 2(1)(e) of the Act vide the Arbitration and Conciliation (Amendment) Act, 2015
By taking the example of the incorporation of “international commercial arbitration[s]” under Section 2(1)(e)(ii) pursuant to the 2015 Arbitration Amendment where the High Courts alone were given jurisdiction, the SC expanded further on how the designation of a ‘seat’ conferred exclusion jurisdiction to the Courts at the ‘seat’ despite the fact that such Courts may otherwise not have exercised jurisdiction under the classical tenets of jurisdiction contemplated under the CPC. To that end, the SC categorically stated “that in international commercial arbitrations held in India, the High Court alone is to exercise jurisdiction over such proceedings, even where no part of the cause of action may have arisen within the jurisdiction of such High Court, [and] such High Court not having ordinary original jurisdiction.” (emphasis supplied)
5) Test for the ‘seat’
The SC has sought to read arbitration clauses in a manner such that where a ‘venue’ was specified in an arbitration clause, the same would inexorably amount to a ‘seat’ in the absence of an indication to the contrary.[11] In this regard, the SC examined the law laid down by the English Courts and culled out their relevant parts –
i. In Enercon GmbH v. Enercon (India) Limited,[12] the arbitration clause stated that “[t]he venue of the arbitration proceedings shall be London.” The clause further stated that “[t]he provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply.” In concluding that London was, in fact, the designated ‘juridical seat’ of arbitration, the Court reconciled the reference to the 1996 Act and noted as follows:
Moreover, as Cooke J. noted, this conclusion is consistent with the views expressed in The Conflict of Laws, Dicey, Morris & Collins, 14th Edition at ¶16–035 where the authors state that the seat “is in most cases sufficiently indicated by the country chosen as the place of the arbitration. For such a choice of place not to be given effect as a choice of seat, there will need to be clear evidence that the parties … agreed to choose another seat for the arbitration and that such a choice will be effective to endow the courts of that country with jurisdiction to supervise and support the arbitration”.
[…] the main issue is whether this last sentence [i.e., the “provisions of the Indian Arbitration and Conciliation Act 1996 shall apply] is to be regarded as “significant contrary indicia” (using the language of Cooke J.) so as to place the “seat” of the arbitration in India.
xxx
Second, the language in [arbitration] clause […] refers to the “arbitration proceedings”. That is an expression which includes not just one or more individual or particular hearings but the arbitration proceedings as a whole including the making of an award. In other words the parties were anchoring the whole arbitration process in London right up to and including the making of an award. The place designated for the making of an award is a designation of seat. Moreover the language in [arbitration] clause […] does not refer to the venue of all hearings “taking place” in London. [The arbitration c]lause […] instead provides that the venue of the arbitration proceedings “shall be” London. This again suggests the parties intended to anchor the arbitration proceedings to and in London rather than simply physically locating the arbitration hearings in London. Indeed in a case where evidence might need to be taken or perhaps more likely inspected in India it would make no commercial sense to construe the provision as mandating all hearings to take place in a physical place as opposed to anchoring the arbitral process to and in a designated place. […]
(emphasis supplied)
ii. In Shagang South-Asia (Hong Kong) Trading Company Limited v. Daewoo Logistics,[13] the arbitration clause provided for arbitration to be held in Hong Kong where English Law would apply. The Court applied the Shashoua principle and ruled that the arbitration clause providing for arbitration in Hong Kong “would ordinarily carry with it an implied choice of Hong Kong as the seat of the arbitration and of the application of Hong Kong as the curial law.” The Court further noted that a significant contrary indicia was imperative to demonstrate that the parties had agreed to a different ‘seat’ or curial law.
iii. In Process and Industrial Developments Limited v. Nigeria,[14] the arbitration clause provided for the notice of arbitration to be served in accordance with the rules of the Nigerian Arbitration and Conciliation Act, 2004 and that the venue of the arbitration to be London. The Court held ‘seat’ of the arbitration designated by the parties to be London for the following reasons:
It is significant that clause 20 refers to the venue "of the arbitration" as being London. The arbitration would continue up to and including the final award. Clause 20 does not refer to London as being the venue for some or all of the hearings. It does not use the language used in s. 16(2) ACA of where the tribunal may "meet" or may "hear witnesses, experts or the parties". I consider that the provision represented an anchoring of the entire arbitration to London rather than providing that the hearings should take place there.
Clause 20 provides that the venue of the arbitration "shall be" London "or otherwise as agreed between the parties". If the reference to venue was simply to where the hearings should take place, this would be an inconvenient provision and one which the parties are unlikely to have intended. It would mean that hearings had to take place in London, however inconvenient that might be for a particular hearing, unless the parties agreed otherwise. […] Accordingly, the reference to the "venue" as being London or otherwise as agreed between the parties, is better read as providing that the seat of the arbitration is to be England, unless the parties agree to change it. This would still allow the arbitrators to decide where particular hearings should take place, while providing for an anchor to England for supervisory purposes, unless changed.
(emphasis supplied)
6. The error in Hardy Exploration – Contrary to BALCO
The SC observed that the Three-Judge Bench in Hardy Exploration failed to apply the Shashoua principle and consequently held contrary to the law laid down by the Constitution Bench in BALCO. The SC in Hardy Exploration held that the reference made to Kuala Lumpur in the arbitration clause referred to the ‘venue’ and that the ‘juridical seat’ was to be determined by the AT as the agreement failed to stipulate for the same. Under Paragraph No. 40, the Court in Hardy Exploration had noted that “the word 'place' cannot be used as seat. To elaborate, a venue can become a seat if something else is added to it as a concomitant. But a place unlike seat, at least as is seen in the contract, can become a seat if one of the conditions precedent is satisfied. It does not ipso facto assume the status of seat. Thus understood, Kuala Lumpur is not the seat or place of arbitration and the interchangeable use will not apply in strict sensu.” The SC in the Judgment noted that had the Court applied the Shashoua principle, “the answer would have been that Kuala Lumpur, which was stated to be the “venue” of arbitration proceedings […] would therefore be the juridical “seat” of the arbitration.”[15]
The SC also overruled the judgment delivered by a Division Bench of the High Court of Delhi in Antrix Corporation Limited v. Devas Multimedia Pvt. Ltd.[16] (which the Respondent had relied upon) as it incorrectly interpreted Paragraph No. 96 of BALCO to infer that both Courts i.e., the court where the cause of action arose as also the court at the ‘seat’ would exercise concurrent jurisdiction.
7. Finding on facts: New Delhi had exclusive jurisdiction
The SC concluded that as the arbitration proceedings were held in New Delhi – and not in Faridabad – it would follow that the parties had chosen New Delhi as the ‘seat’ of arbitration under Section 20(1) of the Act, thereby conferring it with exclusive jurisdiction insofar as Courts at the ‘seat’ were concerned. Upon such a determination being made, the fact that a part of the cause of action may have arisen at Faridabad was considered irrelevant.
VI. Analysis
The SC has, undoubtedly, cleared the haze enveloping the ‘seat’ jurisprudence in Indian arbitration. To that extent, the Judgment is indeed a step towards an arbitration-friendly regime. However, the Judgment presents the following concerns:
i. Was it apposite for the SC to declare that Hardy Exploration “cannot be considered to be good law”[17] in light of the fact that it was a decision rendered by a coordinate Three-Judge Bench?
It is respectfully submitted that the SC was seemingly conscious in the usage of the phrase “cannot be considered to be good law” in the context of Hardy Exploration. This is on account of the fact that the SC, while expressing its disagreement with findings in Antrix, was categorical in holding that “the law stated by the Bombay and Delhi High Courts […] is incorrect and is overruled.”[18] (emphasis supplied) Therefore, much like the recent events involving two contrary Three-Judge Bench judgments on the Land Acquisition law issue, will this question, too, be referred to a larger Bench? This begs the question – is the law really settled qua ‘venue’ and ‘seat’?
ii. While party autonomy has been considered foremost by placing the parties’ selection of a ‘juridical seat’ at the highest pedestal, doubts as to the correctness of this approach, especially in a domestic setting where there are no ambiguities as to the choice of law etc., remain.
A perusal of the cases relied upon by the SC would demonstrate that, in most instances, the question concerning the ‘juridical seat’ of arbitration was with respect to the parties’ intention to have chosen Country A or Country B as the ‘seat’ of the arbitration proceedings as opposed to jurisdiction being ascribed to a particular city, such as Mumbai or Kolkata, within the same country. Other literature referred to in the Judgment such as ‘Redfern and Hunter on International Arbitration’ and ‘The Conflict of Laws: Dicey, Morris & Collins’ also analyse the choice of seat in an international context. It is respectfully submitted that it is perhaps for this reason that the example mentioned in Paragraph No. 96 of BALCO as also the phrase, “both the Courts would have jurisdiction” contained therein raised doubts.
iii. The Three-Judge Bench explained that if “the conflicting portion […] in paragraph 96 [were to be] kept aside for a moment”,[19] BALCO “when read as a whole”[20] clearly and unmistakably ruled that the selection of a ‘seat’ amounted to choosing the exclusive jurisdiction of the Courts where the ‘seat’ was located. While the Judgment may seem to suggest a simpliciter reiteration of the position adopted in BALCO, it is respectfully submitted that the tone and tenor of the Three-Judge Bench in clarifying the Constitution Bench’s judgment may set an improper example in respect of the construction and interpretation of judicial precedents.
[1] BGS-SGS SOMA JV v. NHPC Limited, 2019 SCC OnLine SC 1585. The original text of the Judgment is freely available at https://main.sci.gov.in/supremecourt/2018/34840/34840_2018_4_1501_19002_Judgement_10-Dec-2019.pdf
[2] BGS-SGS SOMA JV v. NHPC Limited, ¶ 16.
[3] Hakam Singh v. Gammon (India) Limited, (1971) 1 SCC 286. The Supreme Court in Hakam Singh held that if two or more Courts could have assumed jurisdiction in accordance with the Code of Civil Procedure, 1908 then an agreement between the parties referring their disputes to the exclusive jurisdiction one of such Courts to try the arbitration-related proceedings would not be contrary to public policy.
[4] Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc., (2012) 9 SCC 552.
[5] Union of India v. Hardy Exploration and Production (India) Inc., 2018 SCC OnLine SC 1640.
[6] BGS-SGS SOMA JV v. NHPC Limited, ¶ 34.
[7] Roger Shashoua & Ors. v. Mukesh Sharma, [2009] EWHC 957 (Comm).
[8] Enercon (India) Limited v. Enercon GmbH & Anr., (2014) 5 SCC 1.
[9] Report No. 46, Law Commission of India, Amendments to the Arbitration and Conciliation Act 1996, August 2014, p. 52.
[10] Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited & Ors., (2017) 7 SCC 678.
[11] In Enercon (India) Limited v. Enercon GmbH & Anr., (2014) 5 SCC 1, the SC held that even though the arbitration clause mentioned London as the ‘venue’, the same would not be amount to being the ‘juridical seat’ as there were strong indicators to suggest that the parties had understood the seat of arbitration to be India. This was on account of the fact that the substantive law, curial law, and the law governing the arbitration agreement were all in India. The SC also expressed its disagreement with the proposition that Courts in India and England could have exercised concurrent jurisdiction. Such conferment of jurisdiction may have ensued intricate complexities and would inter alia give rise to the possibility of conflicting judgments.
[12] Enercon GmbH v. Enercon (India) Limited, [2012] EWHC 689.
[13] Shagang South-Asia (Hong Kong) Trading Company Limited v. Daewoo Logistics, [2015] EWHC 194.
[14] Process and Industrial Developments Limited v. Nigeria, [2019] EWHC 2241.
[15] BGS-SGS SOMA JV v. NHPC Limited, ¶ 93.
[16] Antrix Corporation Limited v. Devas Multimedia Pvt. Ltd., 2012 SCC OnLine Del 9338.
[17] BGS-SGS SOMA JV v. NHPC Limited, ¶ 96.
[18] BGS-SGS SOMA JV v. NHPC Limited, ¶ 61.
[19] BGS-SGS SOMA JV v. NHPC Limited, ¶ 51.
[20] BGS-SGS SOMA JV v. NHPC Limited, ¶ 40. The Court also mentions that a “reading of paragraphs 75, 76, 96, 110, 116, 123 and 194 of BALCO” would show that the parties’ selection of the ‘seat’ would amount to an exclusive jurisdiction clause.