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Participation In Arbitral Proceedings Without Protest, In Absence Of Agreement On Seat; Venue Is Also The Seat Of Arbitration: Allahabad High Court

Parina Katyal
13 Sep 2022 2:30 PM GMT
Allahabad High Court, Lucknow,
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The Allahabad High Court has ruled that where the parties have failed to specifically mention the seat of arbitration and have participated in the arbitral proceedings at a place without any protest, the parties shall be said to have determined, by their conduct, the said venue of arbitral proceedings as also the seat of arbitration. Hence, the courts at the said place would have exclusive jurisdiction to supervise the arbitral proceedings.

The Single Bench of Justice Sangeeta Chandra held that an order rejecting an application seeking return of the application filed under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) involves no adjudication under Section 34 and hence, the same is not appealable under Section 37 of the A&C Act; therefore, a petition under Article 227 of the Constitution of India is maintainable against the said order.

The respondent- Northern Railway, floated a Tender Notice and the bid submitted by the petitioner-M/s. Zapdor-Ubc-Abnjv, was accepted. A Letter of Acceptance was issued to the petitioner and the contract was awarded to it. After the contract was terminated by the respondents for delay in completion of work, the petitioner invoked the Arbitration Clause. The arbitral proceedings were held in New Delhi and an arbitral award was rendered in favour of the petitioner. Against this, the respondent filed an application under Section 34 of the A&C Act before the Commercial Court at Lucknow. The petitioner filed an application for return of the application filed by the respondent under Section 34 of the A&C Act, which was rejected by the Commercial Court.

The petitioner challenged the order passed by the Commercial Court by filing a petition under Article 227 of the Constitution of India before the Allahabad High Court.

The petitioner M/s. Zapdor-Ubc-Abnjv submitted before the High Court that as per the General Conditions of Contract, the place of Arbitration would be within the geographical limits of the Division of the Railways where the cause of action arose, or a place as determined by a written agreement between the parties.

The petitioner contended that since there was no written agreement between the parties, therefore, the conduct of the parties would be relevant for determining the seat of arbitration.

The petitioner averred that since the arbitral proceedings were held exclusively at New Delhi and the Arbitral Award was also signed and delivered at New Delhi; hence, the Commercial Court at Lucknow did not have the territorial jurisdiction to entertain the application under Section 34 of the A&C Act.

The petitioner added that the supervisory territorial jurisdiction of the Court for the purpose of Section 34 cannot be determined on the basis of the location of the cause of action, and that the seat of arbitration alone would be relevant for determining the place where an application under Section 34 of the A&C would lie.

Hence, the petitioner averred that even if a part of the cause of action did arise in Lucknow due to the execution of the project at Lucknow, that in itself was legally insufficient to confer any supervisory jurisdiction under Section 34 of the A&C Act upon the Commercial Court at Lucknow.

The respondent Union of India contended before the High Court that against the order passed by the Commercial Court under Section 34, the remedy of an appeal under Section 37 of the A&C Act is available and hence, the petition under Article 227 was not maintainable. Further, the respondent averred that no petition under Article 227 of the Constitution was maintainable against the interlocutory orders passed under the A&C Act, since the A&C Act is a special act and a complete code in itself.

The respondent added that there was no written agreement between the parties relating to the arbitration being held at New Delhi and that the Arbitral Tribunal held the proceedings at New Delhi only for convenience. Thus, the respondent averred that the geographical limits of the Division of the Railways where the cause of action arose, i.e., Lucknow, should be treated as the place of Arbitration.

Contending that there is a distinction between the seat of Arbitration and venue of Arbitration, the respondent argued that the venue of Arbitration may have been in New Delhi, however, the seat of Arbitration would only be determined on the basis of the relevant jurisdictional clause contained in the General Conditions of Contract.

Referring to the decision of the Apex Court in BGS SGS Soma JV versus NHPC Ltd. (2019), the High Court ruled that the order rejecting an application for return of the application filed under Section 34 of the A&C Act involves no adjudication under Section 34 and hence, the same is not appealable under Section 37 of the A&C Act. Thus, the High Court ruled that against the said order, a petition under Article 227 is maintainable.

Also, the High Court observed that as per the law laid down in BGS SGS Soma JV (2019), when a place is expressly designated as the venue of the arbitral proceedings and there is no designation of any other place as the seat of arbitration, the stated venue would be the juridical seat of the arbitral proceedings. Additionally, the Court noted that when there is no other significant contrary indicia that the stated venue is not the seat of the arbitral proceedings, it would conclusively show that such a venue was designated as the seat of the arbitral proceedings.

Further, the Bench referred to the decision of the Supreme Court in Inox Renewables Ltd versus Jayesh Electricals Ltd. (2021), where the Apex Court had held that where the parties had mutually agreed and shifted the venue/place of arbitration, then, irrespective of the venue designated in the arbitration clause and despite the absence of any written agreement between the parties, the venue/place as mutually agreed to and shifted by the parties would the place or the seat of arbitration.

The High Court observed that the Supreme Court in BBR (India) Private Limited versus SP Singla Constructions (Private) Limited (2022) upheld the decision in Inox Renewables Ltd. (2021). However, the Supreme Court in SP Singla (2022) ruled that once the Arbitrator fixes the seat of arbitration in terms of Section 20(2) of the A&C Act, it cannot change the seat, except when and if the parties mutually agree that the jurisdictional seat should be changed.

While holding that it was open for the parties, specifically the respondent Railways, to determine the place of arbitration by way of a written agreement, the Court noted that the Railways had failed to specify the seat of arbitration under a written agreement and that it had agreed to participate in the arbitral proceedings at New Delhi without any protest. Hence, the Court ruled that by its conduct, the respondent Railways determined the venue of arbitration at New Delhi as also the seat of the arbitral proceedings.

"… failure to specifically mention a Seat of Arbitration and participation in Arbitration proceedings at New Delhi by the Railways without any protest shall be considered as determination of the Venue of arbitration as also the Seat, giving exclusive jurisdiction to the Courts at New Delhi to supervise the Arbitral proceedings including any attack on the Award.", the Court said.

The Court thus ruled that the Commercial Court at Lucknow had no jurisdiction to entertain the application under Section 34. Hence, the Court allowed the petition and set aside the order passed by the Commercial Court.

Case Title: M/s. Zapdor-Ubc-Abnjv Delhi versus U.O.I.

Dated: 1.9.2022 (Allahabad High Court, Lucknow)

Counsel for Petitioner: Anil Srivastava, Divyam Krishna, Utkarsh Srivastava

Counsel for Respondent: Mrs. Suniti Sachan, Brijesh Kumar Shukla, Pratyush Chaube

Click Here To Read/Download Order

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