[Muskan Arora is a student at West Bengal National University of Juridical Sciences, Kolkata.]
The choice of a seat of arbitration and venue of hearings are quite important considerations amongst the various choices parties to arbitration agreements have to make. In fact, many major jurisdictions, including India, are competing to be chosen as the seat as for them is a step ahead in placing them on the map of being an arbitration friendly jurisdiction.
The juridical seat of arbitration, as a concept, did not find a place in the much-criticized Arbitration Act of 1940. Significant importance was afforded to the juridical seat of arbitration under the Arbitration and Conciliation Act 1996 (1996 Act); however, the jurisdiction of the courts over such arbitral proceedings remained with the court exercising original jurisdiction as per Section 2(1)e of the 1996 Act. While Section 20 of the 1996 Act granted parties the autonomy to choose the ‘place’ of arbitration, it did so in an ambiguous manner without distinguishing between ‘seat’ and ‘venue’. Addressing the ambiguity, 246th Law Commission Report had suggested replacing the words ‘place’ for ‘seat’ or ‘venue.’ However, these amendments were not enacted. As a result, the conflict between the juridical seat and jurisdiction of the court persisted along with the confusion pertaining to the distinction between seat and venue. In an essential move, the Supreme Court in BGS SGS SOMA JV v. NHPC Ltd. (BGS Soma) clarified the role of a ‘seat’ in arbitration and set out the tests for determining the same.
In 2009, the English judgment of Shashoua & Ors. v. Mukesh Sharma (Shashoua) held that the seat of arbitration is to have an exclusive jurisdiction over all proceedings that arise out of the arbitration. It laid the significant contrary indicia test as per which a place of arbitration is a stipulation that such place shall be the seat of the arbitration and consequently determine the lex fori in the absence of any significant contrary indicia. The position was further confirmed by the Indian leg of the case Roger Shashoua & Ors v Mukesh Sharma & Ors in 2017.
The Bharat Aluminium Co v. Kaiser Aluminium Technical (BALCO) judgment, rendered by the Supreme Court in 2012, relied on the principle laid in Shashoua and acknowledged that the terms ‘seat’ and ‘place’ can be used interchangeably. This the court held while laying the principle of ‘concurrent jurisdiction’ in paragraph 96 of the judgment. As per this, two courts can have jurisdiction over arbitration applications viz. (i) courts possessing the subject-matter/cause of action jurisdiction and (ii) courts where the place/seat of arbitration was designated. However, the principle of concurrent jurisdiction was not intended to replace the principle of ‘significant contrary indicia.’ The existence of multiple venues was only perceived to be a matter of convenience.
Nonetheless, what followed post BALCO was a conflict between the territoriality principle (under Section 20 of the 1996 Act), and the cause of action/subject-matter jurisdiction of the courts, (under Section 2(1)(e) of the 1996 Act). In 2017 (in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited & Ors) and in 2018 (in Antrix Corporation Ltd v Devas Multimedia Pvt Ltd), while heavily relying on paragraph 96, the courts concluded that place does not necessarily mean ‘seat’ capable of rendering jurisdiction. It used the principle of ‘concurrent jurisdiction’ to accord jurisdiction to courts where part of the cause of action had arisen. The persistent confusion led to another problematic judgment in Union of India v. Hardy Exploration and Production (Hardy Exploration) wherein the court treated a ‘venue’ as merely a convenient geographical location. The court ruled that the ‘venue’ of arbitration could not ipso facto be considered to be its ‘seat’ and that the ‘place’ could be equated with ‘seat’ only if it had no conditions precedent attached to it. In Hardy Exploration, in the absence of a stipulated seat, the arbitral tribunal went ahead to determine the seat, which would determine which court would have jurisdiction.
BGS Soma- the saga continues
Recently, the debate was stirred again in the BGS Soma case. In this case, a contract was signed between NHPC Limited (NHPC) and its contractor, BGS SGS SOMA JV (Joint Venture) for India’s largest hydroelectric power plant. The contract incorporated an arbitration clause which stated that “arbitration proceedings shall be held at New Delhi/Faridabad.” Disputes arose between the parties, and an arbitral tribunal was constituted. Between August 2011 and August 2016, 71 sittings of the arbitral tribunal took place at New Delhi, wherein the award was rendered in favor of the joint venture. NHPC sought to set aside the award under Section 34 of the 1996 Act before the court at Faridabad. In turn, the contractor filed an application with the Faridabad district court under Section 151 read with Order VII - Rule 10 of the Civil Procedure Code 1908 seeking the return of Section 34 application to the appropriate court in New Delhi (since the arbitration had taken place in New Delhi) or Assam, (since the cause of action arose in Assam). Accordingly, the application of the contractor was allowed, and the court returned the challenge petition before the New Delhi courts.
Thereafter, NHPC appealed under Section 37 of the 1996 Act at Punjab and Haryana High Court where the application of the respondent was accepted. The high court concluded that Delhi is not the seat but merely a convenient venue for the proceedings, and since the cause of action arose in Faridabad, it would have jurisdiction over the matter. The Joint Venture challenged this order before the Supreme Court.
In deciding the case, the Supreme Court laid a three-stage inquiry for determining a court’s jurisdiction in an arbitration proceeding. First, where there is an unqualified nomination of a seat, courts at the seat would have exclusive jurisdiction. Second, based on the reasoning in Shoushua, it posited that when there is a designation of a venue of arbitral proceedings, such a venue could be seat unless there is no contrary indicium classifying such a place merely as the venue, a meeting place of convenience, and not the seat. Third, in case no venue/place/seat is specified, or if the named place is just chosen as a convenient place, jurisdiction may be determined by taking into account any other consideration such as the cause of action principle.
On the basis of the stipulated tests, the Supreme Court noted that since the arbitration agreement only specified the venue to be New Delhi/ Faridabad and in light of no other contrary indication, the parties intended either New Delhi or Faridabad to be the seat. Given the facts of the case, the court held that it is clear that the parties chose New Delhi and not Faridabad as the ‘seat’ of the arbitration under Section 20 of the 1996 Act as the arbitral proceedings were held in New Delhi and the award was also rendered in New Delhi. Therefore, it is irrelevant that part of the cause of action arose in Faridabad as courts of New Delhi have exclusive jurisdiction.
BGS Soma settles various contrasting precedents and unambiguously prioritizes ‘seat’ over everything else in ascertaining jurisdiction of a court. It has clarified the position that the designation of ‘venue’ would result in an implied indication of the choice of ‘seat’, meaning that the place of arbitration, regardless of its designation as a venue/ seat/ place, is the juridical seat of arbitration, unless there are significant indicators for the contrary. Consequently, the classic cause-of-action-based methodology under the Code of Civil Procedure 1908 for determining the jurisdiction of a court is discredited, and ‘venue’ and ‘seat’ are regarded as the concluding and absolute factors in determining the jurisdiction of a court.
Essentially, the court in BGS Soma demystifies paragraph 96 of the BALCO while prima facie disagreeing with the view in Hardy Exploration. Both BGS Soma and Hardy Exploration are judgments passed by a three-judge bench of the Supreme Court. Therefore, until a larger bench of the Supreme Court or the legislature clarifies the stance, it is unclear if the conundrum is resolved. However, a positive side to it is that various courts have been following the position as laid in BGS Soma after the judgment. In fact, on 4 March 2020, the judgment found further support as another bench of the Supreme Court relied on BGS Soma while deciding Hindustan Construction Company Ltd. v. NHPC Ltd. & Anr and clarified that once the seat of arbitration is designated, such clause then becomes the exclusive jurisdiction clause. The Bombay High Court, too, in its judgment L&T Finance Limited v. Manoj Pathak and Anr relied on the position laid by BGS Soma and clarified the steps to determine the jurisdiction of the court based on the seat.
In light of India’s long-term goal of becoming an arbitration hub, the clarity afforded by the Supreme Court in BGS Soma on determination and the weight ascribed to the seat and venue in an arbitration case is a laudable effort. It attempts to put to rest a long run debate and is finally in consonance with the international position of the seat being equivalent to an exclusive jurisdiction clause in an arbitration agreement.