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Seat V/S Venue Debate: Supreme Court Reiterates The BALCO Position

Vasanth Rajasekaran & Reshma Ravipati
11 Feb 2020 8:15 AM GMT
Seat V/S Venue Debate: Supreme Court Reiterates The BALCO Position

There have been several sweeping developments in the law of arbitration in India, through judicial pronouncements in 2019. Indian courts have moved back and forth; at times even reviving old legal positions to restore and reiterate the core objectives of arbitration. We have seen one such instance in the recent past.

The Hon'ble Supreme Court passed a remarkable judgment in the case of BGS SGS Soma JV v. NHPC Ltd.
[1] [BSS JV] which will bear a significant impact on the law of arbitration in India. The bench comprising of Justice R.F. Nariman, Justice Aniruddha Bose and Justice V. Ramasubramanian held on 10th December 2019 that venue of the arbitration will be the juridical seat as well, and courts at such seat would have exclusive jurisdiction over the arbitration unless a contrary intention is expressed by the parties involved. The BSS JV dictum has presented a contrasting view from the one expressed by a coordinate bench of the Supreme Court in the case of Hardy Exploration
[2]
, in 2018.

The Apex Court in Hardy Exploration had observed that the place of arbitration does not ipso facto become the seat of arbitration and that a venue can become a seat "if something else is added to it as a concomitant." In the instant case, however, the Court disagreed with this view and held that wherever there is an express designation of a "venue", 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 that the stated venue is actually the juridical seat of the arbitral proceeding.

Factual Matrix

The Petitioner (contractor) was awarded a contract for construction of certain elements of the Subansri Lower Hydroelectric Project on the river Subansri. The contract was governed by an arbitration clause, the instrumental portion of which reads as follows–

"(vi) 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."

When disputes arose between NHPC and the Petitioner, arbitration proceedings were commenced in New Delhi. The arbitral tribunal then passed a unanimous award, in New Delhi, in favour of the Petitioner. NHPC, being aggrieved by this award and certain rectifications thereto, filed an application under Section 34 [Section 34 Application] of the Arbitration and Conciliation Act, 1996 [Arbitration Act] before the District Court at Faridabad [Faridabad District Court]. The Petitioner contested this by way of 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, highlighting the lack of jurisdiction of the court and sought the return of the Section 34 Application to the appropriate court of jurisdiction in New Delhi or Assam. This application was allowed, and the Section 34 Application was consequently transferred from the Faridabad District Court to the appropriate court in New Delhi.

Aggrieved by this transfer order, NHPC filed an appeal under Section 37 of the Arbitration Act, read with Section 13(1) of the Commercial Courts Act, 2015 [Commercial Courts Act] before the Punjab and Haryana High Court. The Hon'ble High Court held that appeal against the transfer order was maintainable under Section 37. Furthermore, it was held that New Delhi had no exclusive jurisdiction as it was not the "seat" of the arbitration and was a mere "venue of convenience". Faridabad was held to have jurisdiction since the cause of action arose in part in Faridabad. Thereafter, the Petitioner approached the Supreme Court against this order of the HC [HC Order].

Supreme Court's Reasoning and Findings:

On maintainability of the appeal under Section 37.

The Supreme Court observed that since there is no independent right of appeal under Section 13(1) of the Commercial Courts Act, which merely provides the forum for filing appeals, it is the parameters of Section 37 of the Arbitration Act alone which are to be looked at in order to determine whether the appeals are maintainable or not.

Admittedly, in the present case, there was no adjudication under Section 34 of the Arbitration Act. The court merely allowed an application filed under Section 151 read with Order VII Rule 10 of the Civil Procedure Code. Therefore, the appeal under Section 37 was not maintainable, since it did not arise out of an order setting aside or refusing to set aside an arbitral award under Section 34 of the Arbitration Act.

On the question of "seat" of arbitration

The Hon'ble Supreme Court was of the opinion that its earlier decisions did not properly distinguish between "seat" and "venue" of arbitral proceedings. This question has been addressed earlier by the five-judge bench in Bharat Aluminum Co. v. Kaiser Aluminum Technical Service, Inc [BALCO].[3]

The Supreme Court in BALCO held that where parties have selected the seat of arbitration in their agreement, such selection would amount to an exclusive jurisdiction clause. The BALCO judgment also accepts the position in English law, as laid down in Roger Shashoua v. Mukesh Sharma,[4] [Roger Shashoua], that the court at the seat of arbitration will have exclusive jurisdiction.

Despite certain inconsistencies in the BALCO judgment, the finding of the Court in this regard becomes exceedingly clear when the decision is read as a whole. It seems that the very fact that parties have chosen a place to be the seat would necessarily indicate agreement of both parties that the courts at the seat would have exclusive jurisdiction over the entire arbitral process.

Having revisited the previously rendered judgments on this issue, the Court in BSS JV finally concluded that whenever a place is designated as the "venue" of the "arbitration proceedings", use of the expression "arbitration proceedings" would make it clear that the "venue" is really the "seat" of the proceedings. The expression "arbitration proceedings" does not include just one or more individual or particular hearings, but the arbitration proceedings as a whole, including the making of an award at that place.

Further, when the contract says that the arbitration proceedings "shall be held" at a particular place, it signifies the intention to make the place a "seat", and anchor the arbitral proceedings to a particular place. This, coupled with the fact that there is no other significant contrary indication that the stated place is merely a "venue" and not the "seat" of the arbitral proceedings, would then conclusively show that such a clause designates the "seat" of the arbitral proceedings. The Court also made a reference to the judgment in
Brahmani River Pellets Ltd. v. Kamachi Industries Ltd.
,
[5] to state that where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter, to the exclusion of all other courts.

On the correctness of the judgment in Hardy Exploration

The Supreme Court observed that the three-judge bench in Hardy Exploration failed to apply the Roger Shashoua principle to the arbitration clause in question. Had the Roger Shashoua principle been applied, it would have been obvious that Kuala Lumpur, which was stated to be the "venue" of arbitration proceedings, being governed by a supranational set of rules, and there being no other contrary indicator, was the juridical "seat" of the arbitration.

The Apex Court therefore declared that the decision in Hardy Exploration is contrary to the five-judge bench decision in BALCO, in that it failed to apply the Roger Shashoua principle to the arbitration clause in question, and can therefore not be considered to be good law. Likewise, the Delhi High Court decision in Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd.[6] which followed the same principle, was also held to be incorrect.

Finally, on the facts of the present case, the Court noted that the parties had opted for all the arbitral proceedings to be conducted in New Delhi (passing up on the option of conducting them at Faridabad), and the arbitral award was also passed in New Delhi. Therefore, the conclusion that follows from the above reasoning, is that New Delhi is the seat of arbitration and the courts of New Delhi have exclusive jurisdiction to hear the Section 34 Application. Consequently, the HC Order was set aside, and the Section 34 Application was directed to be presented before the courts in New Delhi.

Conclusion

The judgment in the present case is a welcome move taken by the Supreme Court. It emphasises the importance of party autonomy in shaping the various facets of arbitration procedure. The Apex Court has painstakingly explained how the ruling in Hardy Exploration is erroneous in law, thereby giving sufficient reasons to depart from the Hardy Exploration dictum. Having said that, the present judgment, as well as the Hardy Exploration judgment were rendered by three-judge benches. It may therefore now be up to a larger bench to finally put this issue to rest. However, an important factor which helps the present case gain some precedence, is the fact that the Court in Hardy Exploration had failed to appreciate and follow the position laid down by a five-judge bench in the BALCO judgment. Therefore, the present judgment while pointing out this error has drastically weakened the influence of the Hardy Exploration ruling.

Vasanth Rajasekaran is a partner at Phoenix Legal, a full-service law firm having its offices at New Delhi and Mumbai. Vasanth is based out of New Delhi and his practice areas include Dispute Resolution (Litigation & Arbitration) & Projects.


[1] Decided on: 10 December 2019.

[2] Union of India v. Hardy Exploration and Production (India) Inc., AIR 2018 SC 4871.

[3] (2012) 9 SCC 552.

[4] [2009] EWHC 957 (Comm); This position was reiterated in Roger Shashoua & Ors. v. Mukesh Sharma & Ors., (2017) 14 SCC 722.

[5] AIR 2019 SC 3658.

[6] 2018 (4) ArbLR 66 (Delhi).

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