INTRODUCTION
Any arbitration proceeding starts with an arbitration agreement, the arbitral tribunal is formed and arbitration proceedings commences. However, an important and one of the most vital point in between these is to designate an arbitral seat. An arbitral seat is the place where the arbitration proceedings will be conducted. It is provided by the consent of the parties in the arbitrational agreement. The problem arises when express provision for arbitral seat is not inculcated in the agreement by the parties. A three judged bench of Supreme Court, in BGS SGS SOMA JV vs. NHPC Ltd. Explained the long disputed issue in the Arbitration laws regarding the relation in seat of arbitration and jurisdiction of court as well as the test to determine the seat of arbitration.
In BGS SGS SOMA JV vs. NHPC Ltd, Supreme Court overruled Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd and a three judge bench case of Union of India vs. Hardy Exploration and Production (India) Inc, on the view as being contrary to the judgment laid down by five judge bench in the BALCO case. Court stated that the judgment of Hardy Exploration Case cannot be regarded as “good law”
BACKGROUND OF THE CASE
Petitioner filed a SLP in 2018, the outset of facts of which are as follows; petitioner signed a contract with respondent from construction of various tunnels, dams and a hydroelectricity project on river Subansri, India. Dispute arose between the petitioner and the respondent with regard to the compensation for the losses incurred by the petitioner due to the actions of respondent. Clause 67.3 in the agreement signed by the parties provided for resorting to arbitration in case any dispute arises. An Arbitral tribunal constituting three members was constituted under Arbitration Act, 1996 in accordance with Clause 67.3 of the agreement of the parties. In five years of arbitral proceedings from August 2011 to August 2016, 71 arbitral proceedings took place at New Delhi. Finally the tribunal unanimously gave award in favor of the petitioner. Respondent filed an application under section 34 of the Arbitration Act, for setting aside of the arbitral award before the Civil Court, at Faridabad, Haryana. Petitioner filed application seeking return of the application and to be filed before the court having appropriated jurisdiction over the matter which is either Civil Court New Delhi, where seat of arbitration was located or before the Civil Court, Dhemji, Assam, where the cause of action arose. In 2017, the application was transferred from Faridabad court to Special Commercial Court, Gurugram. The Special Commercial court allowed the application of petitioner and returned the petition to court having jurisdiction to try the case, New Delhi Civil Court. Respondent filed an appeal under section 37 of the Act, before the High Court of Punjab and Haryana. The High Court allowed the appeal and held that, the New Delhi court did not have jurisdiction over the matter, as Delhi was only a “Venue” and not “Seat”. The Civil Court of Faridabad has jurisdiction over the matter as a part of cause of action arose there. The Judgment of the Special Commercial Court, Gurugram was set aside. Therefore the SLP was filed by aggrieved petitioner.
ISSUES BEFORE SUPREME COURT
1. Whether the appeal under section 37, before High Court of Punjab and Haryana maintainable?
2. Whether the designation of a “seat” is akin to an exclusive jurisdiction clause?
3. Whether the arbitration clause contained “Venue” or “seat” for arbitration?
SUPREME COURT HELD
1. Whether the appeal under section 37, before High Court of Punjab and Haryana maintainable? Under section 37 of the Arbitration Act, 1996 appeal may lie to the court which is designated in law, to hear appeals from original decrees passed by such lower courts in the following cases and in no other:
a. Refusing to refer the parties to arbitration under section 8;
b. Granting or refusing to grant any measure under section 9;
c. Setting aside or refusing to set aside an arbitral award under section 34. It was stated by the High Court of Punjab and Haryana that the appeal could lay before it as, it was against refusal to set aside an arbitral award under section 34, from the order of Special Commercial court, Gurugram. Supreme Court held that, section 37 of the Act, specifically provided that appeal may lie only in the provided sub-clauses and in no other. The judgment of Special Commercial court was not an order of refusal to set aside an arbitral award, rather it stated that the court did not have jurisdiction to try the case and should same be transferred before court having jurisdiction to hear the case. Therefore the Supreme Court held that, the appeal was not maintainable.
2. Whether the designation of a “seat” is akin to an exclusive jurisdiction clause? Supreme Court took into consideration various previous judgments on the subject matter and carefully scrutinized the application of law regard the relation of arbitral seat and exclusive jurisdiction clause. One of the major case, which was referred on the topic was the landmark case, BALCO case; Bharat Aluminium Company vs. Kaiser Aluminium Technical Services INC which overruled the Bhatia International vs. Bulk Trading SA,.. Para 96 of the case BALCO case was major the point of dispute, which states that, “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……. 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 locate.” The case of, Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd. Was also referred by the Supreme Court in which a division bench of Delhi High Court, setting out Para 96 of BALCO, stated that the case laid down, that the court of “seat” and the court where cause of action arose would have concurrent jurisdiction, even when the parties have decided seat of arbitration in agreement. On the same issue, Indus Mobile Distribution Pvt. Ltd. vs Datawind Innovations Pvt. Ltd was also referred which holds a contrary decision to Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd. It was held in the case that, the when the seat is decided by the parties in the arbitration agreement, it is akin to an exclusive jurisdiction clause, which then provided the court where “seat” is designated with exclusive jurisdiction over the subject matter of the case to regulated the arbitral proceeding between the parties. Supreme Court after evaluation of the issue and noting the precedents, demystified the Para 96 of BALCO case, and stated that, this Para is to be read along with the whole judgment. Para 96 on the face of it appears to reinforce the concurrent jurisdiction clause, however when read with the whole judgment, which clearly sets out that the choosing of a “seat” amounts to the choosing of the exclusive jurisdiction of the Courts at which the “seat” is located. Therefore BALCO case does not hold two courts to have concurrent jurisdiction. The Supreme Court asserted concurrence with the judgment of Indus Mobile Distribution Pvt. Ltd. vs Datawind Innovations Pvt. Ltd and overruled the Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd through this judgment. 3. Whether the arbitration clause contained “Venue” or “seat” for arbitration? The Supreme Court in deciding the test for “seat” of arbitration took reliance on the English case of Roger Shashoua & Ors. v. Mukesh Sharma, which laid down the Shashoua Principle. In the case, London was expressly agreed by the parties as the venue for arbitration, and no other place was designated as the seat. Court held that, together with the supranational body of rules governing the arbitration and no other contrary indication, provided that London is arbitral seat and not just venue, and arbitration will be subject to English Laws. Court reason the decision by stating that, although terms “venue” and “seat” are not synonymous, however on a holistic view of the facts of the case it is apparent that London is not just a venue rather the seat of arbitration. As London was a neutral place to both the parties, where neither of them worked for gain, resided and any cause of action arose there. The court designated it as a neutral place where the arbitral proceedings could be “anchored”. This was called as “Shashoua Principle”. Further reference was made to case of Union of India v. Hardy Exploration and Production (India) Inc., where a three judge bench held, that when there is mention of venue in arbitration agreement or something else is appended thereto, is cannot be rendered as seat of arbitration and therefore there is implied exclusion of Part I of the Act. The Supreme Court held that, Hardy Exploration and Production (India) Inc. case failed to apply the Shashoua Principle to the arbitration clause in question. Had they applied the principle, Kuala Lumpur would have been not just venue but arbitral seat. Supreme Court in reliance to case of Roger Shashoua and Ors. v. Mukesh Sharma1 , which was expressly accepted in the BALCO case, held that when parties to an arbitration agreement provided for the “arbitration proceedings” to be conducted at a venue and no express provision for seat of arbitration, then the venue should be considered as the seat. It also stated that inclusion of expression such as “shall be held” in agreement along with venue would provide further more anchor to consider venue as seat of arbitration. The court held that the arbitration agreement in the present case stated that, “Arbitration Proceedings shall be held at New Delhi/Faridabad, India…” signified that parties intended that all arbitral proceeding to take place at one place. The expression “shall be held” also indicated that the venue is actually seat of arbitration. The parties were free to choose between New Delhi and Faridabad as the seat for arbitration. It is clear that parties choose New Delhi and not Faridabad as seat, from the fact that, all the 71 arbitral proceedings were conducted in New Delhi and award was signed in New Delhi and not in Faridabad. Therefore the seat of arbitration is New Delhi, and the court of New Delhi would have exclusive jurisdiction over the subject matter of case.
CONSTITUTIONALITY OF THE JUDGEMENT
In the case of Shanker Raju vs. Union of India, divisional bench of Supreme Court explained the Doctrine of Stare Decisis as, “It is a settled principle of law that a judgment, which has held the field for a long time, should not be unsettled. The doctrine of stare decisis is expressed in the maxim “stare decisis et non quieta movere”, which means “to stand by decisions and not to disturb what is settled.” The guiding philosophy is that a view which has held the field for a long time should not be disturbed only because another view is possible.” The doctrine of Stare Decisis in simple terms mean that the judgments of higher court are binding on lower courts or the judgment of a higher bench is binding of lower bench of same court. In the case of BGS SGS SOMA JV vs. NHPC Ltd, the doctrine of Stare decisis was not followed. The case overruled an earlier case of Supreme Court, of a co-ordinate bench, Union of India vs. Hardy Exploration and Production (India) Inc., which enumerated that, if in an arbitration agreement parties have not expressly designated any arbitral “seat”, the “venue” provided in agreement would not automatically be considered as the seat of arbitration. Supreme Court held that, the Judgment could not be considered as good law as it was contrary to the position laid down in the BALCO case by the five judge bench of Supreme Court. The issues decided in BGS judgment are of crucial importance in diversifying the scope of arbitration laws in India and a smooth arbitration mechanism, however, it is also of pivotal importance to consider the validity and constitutionality of BGS judgment viewing through the lens of the mainspring of jurisprudence, doctrine of stare decisis. It has been established rule of Stare decisis, which has also been stated time and again in various judgments that, the re-consideration of a decision of a co-ordinate bench can only be done by a higher bench. In the case of, Central Board of Dawoodi Bohra Community and Ors. vs. State of Maharashtra and Ors. The question placed before the constitutional bench was, whether a re-consideration of a judgment of a constitutional bench, shall necessarily placed before a higher bench. The court held that the case should be first placed before a coordinate bench that is five judge bench, which shall then further decide whether the matter should be place before higher bench. The co-ordinate bench shall not by itself decide the validity of the judgment which came for re-consideration, but shall decide whether it is to be place to a higher bench or not.
1. The court laid down two exceptions to the principle:
2. That if in the discretion of chief justice, a particular matter is placed before a court of any strength, it shall be considered by that court it itself, regardless of its bench. Where the matter had already come up for hearing before a Bench of larger quorum and that Bench was of the view that the law laid down by a Bench of lesser quorum needed correction or reconsideration, then by way of exception (and not as a rule) and for reasons given by it, it could dispense with the need for a specific reference and decide the case. In case of, Pradip Chandra Parija and Ors. v. Pramod Chandra Patnaik and Ors. A two judge bench dissent from a decision of a three judgment and placed it for re-consideration before a five judge bench. The court held that, the correctness of the decision can only be questioned by a co-ordinate bench and be placed before a higher bench, it cannot be done by a lower bench, then the bench of judgment which is for re-consideration. In the BGS judgement, none of the two aforesaid exceptions, as provided in Dawoodi case were present. In BGS judgment, the three judge bench of Supreme Court overruled by itself a judgment of another three judge bench (Hardy Exploration case). The constitutional procedure should have been to, consider whether the judgment is to be placed before a higher bench or not, and when the court would have been satisfied that the judgment of co-ordinate bench needs re-consideration, it should have placed it before a higher bench.