Supreme Court of India: Whether The Concept Of Juridical Seat Or Lex Arbitri Is Irrelevant In Domestic Arbitrations?

Supreme-Court-of-India-1_85138_730x419

Consider a situation wherein under the arbitration clause, the parties have agreed that the seat/venue of arbitration is ‘X’ and at the same time under the governing law clause it is agreed that all disputes arising out of or in connection with the underlying agreement will be subject to the jurisdiction of courts at ‘Y’. In addition, it happens to be the case that X & Y are in same country. Then, can we say that lex arbitri will have no meaning in such a scenario considering the fact that the law applicable in both X and Y is same? In light of a recent judgement of the Supreme Court of India in Quippo Construction Equipment Limited vs. Janardan Nirman Pvt. Limited Civ. Appeal no. 2378/2020, the answer appears to be in affirmative. Let us examine the judgement below:-

Legal Framework governing the ‘place of arbitration’ and ‘Court’ under Arbitration & Conciliation Act, 1996

In Arbitration & Conciliation Act, 1996(‘Act’), Section 20 which is pari materia with Article 20 of UNCITRAL Model Law (‘Model Law’) deals with ‘seat’ and ‘venue’ of arbitration. Section 20(1) & (2) inter alia confers party autonomy in respect of choosing the juridical seat of arbitration failing which the tribunal is empowered to choose it for the parties. Section 20(3) confers the power on the arbitral tribunal to fix any convenient place (‘venue’) to hold arbitration proceedings. Pertinently none of the aforesaid sub-sections deals with the appropriate forum, the ‘Court’ which will have jurisdiction to govern the proceedings under domestic arbitration.

For the definition of ‘Court’, emphasis may be laid on Section 2(1)(e)(i) of the Act which indicates that the court or courts to which a matter under Part-I (dealing with Domestic Arbitrations) of the Act may be carried in the case of an arbitration other than international commercial arbitration.

Section 2(1)(e)(i) provides a qualification that the court to which a matter under Part-I of the Act may be carried must not be a civil court of a grade inferior to the principal civil court of original jurisdiction in a district or any Court of Small Causes. Further, a High Court exercising ordinary original civil jurisdiction is included within the folds of a principal civil court of original jurisdiction in a district. Thus, such definition points to the place of suing under sections 15 to 20 of the Civil Procedure Code, 1908 (‘CPC’).

Further, Section 42 of the Act provides that notwithstanding anything contained elsewhere in Part I or in any other law for the time being in force, where with respect to an arbitrator agreement any application under Part I has been made in a court, that court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that court and in no other court.[1]

By a long series of decisions it has been held that where two courts or more have jurisdiction under CPC to try a suit or proceeding, an agreement between the parties that the dispute between them shall be tried in any one of such courts is not contrary to public policy of India. Therefore, if on the facts of a given case more than one court has jurisdiction, parties by their consent may limit the jurisdiction to one of the two courts. But by an agreement parties cannot confer jurisdiction on a court which otherwise does not have jurisdiction to deal with a matter.  Thus, the choice of the Court is governed by section 2(1)(e)(i) of the Act read with section 42 thereof and, subject to the parameters under such provisions being adhered to, it is governed by any agreement between the parties.[2] (‘the Hakam Singh Principle’)

The Troublesome Para 96 of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc (‘BALCO’)

In BALCO, the Constitutional Bench at Para 96 had explained the jurisdiction of two courts in the aforesaid scenarios i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. In the example stated in the opening paragraph, if the arbitration is held in X, and the tribunal sitting in X passes an interim, the appeal against such an interim order under Section 37 must lie to the Courts of X 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 Y, and only arbitration is to take place in X. So far, the example was in realm of settled principles of international commercial arbitration i.e. jurisdiction seat anchors the exclusive jurisdiction to the courts of place of arbitration. However, the preceding line followed a contrary stand in following words

In such circumstances, both the Courts would have jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the suit is situated (Y in the above example) and the courts within the jurisdiction of which the dispute resolution, i.e., arbitration is located (X in the above example).

Prima facie the above example infers that in the scenario under analysis, two courts will have concurrent jurisdiction on arbitration proceedings. However, this has been recently clarified by Justice Nariman in his famous judgement of Bgs Sgs Soma Jv vs Nhpc Ltd.(2019) SCC OnLine SC 1585  that Para 96 of BALCO does not provide such ratio and one has to read the last lines of Para 96 (italicized above) harmoniously with other paragraphs of the judgement to cull out the real intention of Lords i.e. 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.

But the question then remains as to whether it will have any bearing on lex arbitri i.e. whether it will change the law of seat of arbitration considering the fact that applicable law at X & Y are the same. The simple answer is No it won’t. Then how to decide which court amongst X & Y will have jurisdiction over the arbitration proceedings in this scenario?

Appropriate Supervisory Court of Domestic Arbitration in case of conflict between Seat Court and Proper Court of the underlying contract

The choice of the court is governed by section 2(1)(e)(i) of the Act read with section 42 thereof and, subject to the parameters under such provisions being adhered to, it is governed by any agreement between the parties. In other words, if corporate entities, ‘A’ and ‘B’, both having their only places of business in X, enter into a contract the performance whereof is only in X, and such agreement contains an arbitration clause, then all petitions and applications pertaining to such arbitration agreement (except under sections 8 and 11 of the 1996 Act), have per force to be carried to the appropriate court in X and nowhere else following the definition of court provided under Section 2(1)(e)(i) of the Act.

Further, once a particular court in X is approached and such court is found to have jurisdiction to entertain the matter or the jurisdiction of such court is not objected to, it is only such court which will be authorised to entertain all future petitions and applications under Part-I of the Act pertaining to the arbitration agreement pursuant to Section 42 of the Act.

The corollary to such rule as applicable in the example is that in such a given situation the parties could not have chosen any court anywhere else to have been the forum of choice. Even if the parties had chosen a court, such court would not have had any authority to receive the action and the agreement between the parties would have been to no avail and void in view of the Hakam Singh Principle.

Thus, the extent of party autonomy in the choice of court is limited. The extent of party autonomy, however, in the choice of seat for the arbitral reference is unrestricted. Continuing with the example, the parties could have agreed the seat of arbitration to be anywhere and such choice would be binding on them; but an agreement as to the seat of the arbitral reference would not have any bearing on the court which could receive any action under Part-I of the Act.

Does the seat of arbitration is a relevant variable in deciding the proper court of arbitration proceedings in domestic arbitrations?

Section 2(1)(e)(i) of the Act do not take the seat of the arbitral reference, whether agreed or accidental, as a relevant consideration to identify the court to which a matter under Part-I of the Act may be carried. There is good reason for ignoring the seat of the arbitral reference. Conceptually, the seat of an arbitral reference cannot be equated with the place of performance of a contract for any cause of action based on the situs thereof to be founded as a ground to invoke the jurisdiction of a court. More importantly, when the parties can agree to a seat of arbitral reference, they can, at any stage, alter their choice by further agreement. Since the choice of court becomes relevant even before the commencement of arbitral proceedings, if a court were to be approached at such stage, the future seat, agreed or accidental, of the arbitral reference can have no manner of relevance at such stage.

It is, thus, that, in case of a domestic arbitration when parties to an arbitration agreement choose a seat for the arbitral reference and also choose the courts or a particular court at the same place as the seat of the arbitral reference as the exclusive court to which petitions and applications under Part-I of Act can be carried, such court would have exclusive jurisdiction in such regard as long as such court is otherwise clothed with the authority under section 2(1)(e)(i) of the Act read with sections 15 to 20 of CPC.

Quippo Construction Equipment Limited

The above reasoning as adopted by the Calcutta High Court in Debdas Routh and Ors. vs. Hinduja Leyland Finance Limited and Ors.[3] appears to be fortified in the recent dictum of the Supreme Court in Quippo Construction Equipment Limited. In this case, the parties had entered into four contracts for supply of equipment for construction projects. The dispute resolution clauses in all the contracts stipulated different venue/seats of arbitration. Once the dispute arose, the Appellant triggered arbitration in Delhi and appointed the arbitrator. The Respondent on the other hand filed a civil suit in Kolkata praying for an ad-interim relief to restrain Appellant from pursuing arbitration in Delhi which was granted by the Kolkata Court.

However, the Appellant in response filed an application under Section 8 of the Act seeking mandatory stay of court proceedings in favour of arbitration relying on the arbitration clauses in the underlying contracts. The application was allowed, and the matter was referred back to the arbitrator. In the meantime, the arbitrator passed an award in favour of the Appellant. Thereafter, the Respondent unsuccessfully assailed the award before the Kolkata Court inter alia contending that the venue of arbitration is Kolkata and therefore Delhi Court courts will not have jurisdiction over arbitration proceedings.

After several rounds of litigation before the Kolkata Courts, the award was assailed before the Supreme Court inter alia on the ground that in one of the agreements the venue was stated to be Kolkata and yet the proceedings were conducted at Delhi. Since the issue as to whether the proper seat/venue of arbitration is Delhi or Kolkata was never raised by the Respondent during the entire arbitration proceedings, the question before the Supreme Court was whether the Respondent has waived its right to challenge the award on the aforesaid ground.

To decide this issue, the Supreme Court placed reliance on Section 4 (Waiver of right to object), Section 16 (Competence of arbitral tribunal to rule on its jurisdiction) and Section 20 (Place of arbitration) of the Act and observed as under:-

22. In the present case the arbitration in question is a domestic and an institutional arbitration where CIAA was empowered to and did nominate the Arbitrator. It is not as if there were completely different mechanisms for appointment of Arbitrator in each of the agreements. The only distinction is that according to one of the agreements the venue was to be at Kolkata. The specification of “place of arbitration” may have special significance in an International Commercial Arbitration, where the “place of arbitration” may determine which curial law would apply. However, in the present case, the applicable substantive as well as curial law would be the same.

Albeit the Court ultimately held that the Respondent has waived it right to object the award on the aforesaid ground as the same was never raised before the Arbitral Tribunal which was competent to decide this issue, the underlined observations of the Supreme Court indicates that place of arbitration under Section 20, be it in the form of seat or venue or in a manner like ‘arbitration will be held/arbitration will take place’, will not be determinative of applicable law of arbitration since law being same throughout the country (State) when it comes to domestic arbitrations.

Thus, it is reasonable to infer that in domestic context, lex arbitri is not a variable which determines the applicable law of arbitration as both places X & Y in the above example will apply the laws of India. When two Indian parties enter into an arbitration agreement where the seat of the arbitral reference is in India, the choice of such seat has no impact on the lex arbitri since the arbitration law is uniform all over the country.[4]

[1] Shivnath Rai Harnarain (India) Ltd.  vs. Abdul Ghaffar Abdul Rehman (Dead) by L.Rs.  (2008)5SCC135

[2] Hakam Sing vs. Gammon (India) Ltd. (1971) 1 SCC 286

[3] (2018)4CALLT57(HC)

[4] Debdas Routh and Ors. vs. Hinduja Leyland Finance Limited and Ors. (2018)4CALLT57(HC)

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s