BGS SGS SOMA JV v. NHPC Ltd. 2019 SCC Online SC 1585 (Decided on 10 December 2019)
In a contact between NHPC Limited (“NHPC”) and BGS SGS SOMA JV(“BGS”), the arbitration clause provided that the “arbitration proceedings shall be held at New Delhi / Faridabad”. The disputes arose between the parties and arbitration proceedings commenced. The arbitration was conducted in New Delhi and the consequent award was also passed there for over Rs. 424 crores with interest in favour of BGS.
NHPC challenged the award under Section 34 of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”) before the District and Sessions Judge, Faridabad, Haryana. Thereafter, BGS filed an application (u/s. 151 r/w. Or. VII R. 10, CPC and Section 2(1)(e)(i) of the Arbitration Act) seeking return of the Section 34 Petition to the appropriate Court in New Delhi since the arbitration took place in New Delhi. After the constitution of a Special Commercial Court at Gurugram, the Section 34 Petition filed at Faridabad was transferred to the said Gurugram Commercial Court.
The above transfer application was allowed and Section 34 Petition was transferred from Faridabad to New Delhi by the Special Commercial Court, Gurugram. Aggrieved by the transfer, NHPC filed an appeal under Section 37 of the Act before the High Court of Punjab and Haryana at Chandigarh. The High Court held that:
- Appeal under Section 37 of the Arbitration Act was maintainable;
- Faridabad Court had jurisdiction because the cause of action arose there in part and;
- New Delhi was not the seat of arbitration but only a convenient venue.
Therefore, BGS filed an appeal before the Supreme Court challenging the High Court order.
1. Whether a Section 37 appeal is maintainable against an order that transfers Section 34 proceedings from one court to another?
2. Whether the mention of Delhi as ‘venue’ mentioned in the arbitration clause shall be treated as the ‘seat’ of arbitration?
The Court relied on its earlier decision in Kandla Export Corporation & Anr. v. M/s OCI Corporation & Anr. (2018) 14 SCC 715. In Kandla the question was whether an appeal, which was not maintain able under Section 50 of the Arbitration Act, is nonetheless maintainable under Section 13(1) of the Commercial Courts Act, 2015. The Court decided in negative and held that Section 13(1) of the Commercial Courts Act, being a general provision vis-à-vis arbitration relating to appeals arising out of commercial disputes, would obviously not apply to cases covered by Section 50 of the Arbitration Act.
The Court held that given the fact that there is no independent right of appeal under Section 13(1) of the Commercial Courts Act, 2015, which merely provides the forum of filing appeals, it is the parameters of Section 37 of the Arbitration Act alone which have to be looked at in order to determine whether the appeal was maintainable. Section 37(1) makes it clear that appeals shall only lie from the orders set out in sub-clauses (a), (b) and (c) and from no others. The pigeonhole that the High Court in the impugned judgement has chosen to say that the appeals in the present cases were maintainable is sub-clause (c) (i.e. the orders under Section 34 of the Arbitration Act, which set aside or refuse to set aside an arbitral award). According to the High Court, even where a Section 34 Petition/Application is ordered to be returned to the appropriate Court, such order would amount to an order “refusing to set aside an arbitral award under Section 34”.
The refusal to set aside an arbitral award must be under Section 34, i.e., after the grounds set out in Section 34 have been applied to the arbitral award in question, and after the Court has turned down such grounds. The Supreme Court held that the High Court did not apply the grounds of setting aside an award under Section 34 but merely redirected the Petition to the Faridabad Court. Accordingly, an order merely transferring the Section 34 application from one court to another, is not tantamount to an outright refusal to set aside the award. Therefore, NHPC’s appeal under Section 37 of the Act was not maintainable.
The High Court had held that since a part of the cause of action had arisen in Faridabad, and the Faridabad Commercial Court was approached first, the Faridabad Court alone would have jurisdiction over the arbitral proceedings, and the courts at New Delhi would have no such jurisdiction.
While setting aside the High Court judgement, the Supreme Court went ahead to lay down the law on what constitutes the “juridical seat” of arbitral proceedings, and whether, once the seat is delineated by the arbitration agreement, courts at the place of the seat would alone thereafter have exclusive jurisdiction over the arbitral proceedings.
□ Clarity on BALCO:
Since Para 96 of Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc., (2012) 9 SCC 552 (“BALCO”) speaks of the concurrent jurisdiction of Courts within whose jurisdiction the cause of action arises wholly or in part, and Courts within the jurisdiction of which the dispute resolution i.e. arbitration, is located. This created confusion and many High Courts have relied on this part of BALCO to give different interpretation on determination of ‘seat’. Therefore, the Supreme Court observed that a judgment must be read as a whole, so that conflicting parts may be harmonised to reveal the true ratio of the judgment. Reading the relevant paras together in BALCO, the Supreme Court held that it becomes clear that Section 2(1)(e) has to be construed keeping in view Section 20 of the Arbitration Act which gives recognition to party autonomy having accepted the territoriality principle in Section 2(2).
The Court went on saying that if para 96 of BALCO is kept aside for a moment, the very fact that parties have chosen a place to be the seat would necessarily carry with it the decision of both parties that the Courts at the seat would exclusively have jurisdiction over the entire arbitral process.
Thus, the Court clarified that (with reference to para 96 therein) BALCO does not “unmistakably” hold that two Courts have concurrent jurisdiction, i.e., the seat Court and the Court within whose jurisdiction the cause of action arises.
□ BALCO position was rightly followed subsequently:
The subsequent Division Benches of the Supreme Court have understood the law to be that once the seat of arbitration is chosen, it amounts to an exclusive jurisdiction clause, insofar as the Courts at that seat are concerned. (Enercon (India) Ltd. and Ors. v. Enercon GmbH and Anr. (2014) 5 SCC 1; Reliance Industries Ltd. v. Union of India (2014) 7 SCC 603); Indus Mobile Distribution Private Limited and Ors. v. Datawind Innovations Private Limited & Ors. (2017) 7 SCC 678).
□ Discordant notes by the Delhi and Bombay High Courts set right:
In Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd. 2018 SCC Online Del 9338, following Bombay High Court decision in Konkola Copper Mines v. Stewarts and Lloyds of India Limited, 2013 (4) ArbLR 19 (Bom), the Division Bench of the Delhi High Court, after setting out paragraph 96 of BALCO stated that the ratio decidendi of BALCO is that Courts would have concurrent jurisdiction, notwithstanding the designation of the seat of arbitration by agreement between the parties.
The Supreme Court observed that what is missed by the High Courts is the subsequent paragraphs in BALCO which clearly and unmistakably state that the choosing of a “seat” amounts to the choosing of the exclusive jurisdiction of the Courts at which the “seat” is located. The High Courts also missed Enercon and Reliance Industries.
Resultantly, the Supreme Court overruled the Delhi High Court decision in Antrix Corporation Ltd.
□ The real test for “seat”:
Examining various precedents (both domestic and international), the Court held that whenever there is the designation of a “place” of arbitration in an arbitration clause as being the “venue” of the arbitration proceedings, the expression “arbitration proceedings” would make it clear that the “venue” is really the “seat” of the arbitral proceedings. This is because the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place.
The fact that the arbitral proceedings “shall be held” at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a “venue” and not the “seat” of the arbitral proceedings, would then conclusively show that such a clause designates a “seat” of the arbitral proceedings. In an International context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that “the venue”, so stated, would be the seat of the arbitral proceedings.
□ Hurdles for Hardy:
The Three Judge Bench in Union of India v. Hardy Exploration and Production (India) Inc., 2018 SCC Online SC 1640 failed to apply Roger Shashoua & Ors. v. Mukesh Sharma & Ors., (2017) 14 SCC 722 (“Roger Shashoua”) principle to the arbitration clause in question. By failing to apply the Roger Shashoua principle to the arbitration clause in question, the Three Judge Bench in Hardy has not followed the law as to determination of a “juridical seat”, laid down by a Five Judge Bench in BALCO. The result in Hardy is that a foreign award that would be delivered in Kuala Lumpur, would now be liable to be challenged in the Courts at Kuala Lumpur, and also be challenged in the courts in India, under Section 34 of the Arbitration Act.
The decision in Hardy is therefore contrary to the Five Judge Bench in BALCO, in that it failed to apply the Roger Shashoua principle to the arbitration clause in question. Therefore, the Supreme Court declared that the judgment in Hardy cannot be considered to be good law.
□ New Delhi or Faridabad? What is the juridical seat in the present case?
The Court considered that the parties had elected New Delhi as the place for all the arbitration proceedings, and that the award was also signed in New Delhi. Accordingly, the Court overruled the Impugned Order and concluded that New Delhi was the final juridical seat of the arbitration and the courts of New Delhi would have the jurisdiction to hear the Section 34 Petition.
It goes without saying that Hardy had created confusion and possible interpretations helping both sides arguing on “seat”. The discord played by Hardy has been set right in this judgement. Hardy being a Three Judges Bench decision, the coordinate Bench in the present case could not overrule the same, but declared it as contrary to Five Judges Bench in BALCO and hence not a good law.
Other important takeaways:
- This judgement reinforces the parameters for determining “seat”;
- Given the new concept of “juridical seat” of the arbitral proceedings, and the importance given by the Arbitration Act to this “seat”, the arbitral award is now not only to state its date, but also the place of arbitration as determined in accordance with Section 20;
- A Section 9 Application may be preferred before a court in which part of the cause of action arises in a case where parties have not agreed on the “seat” of arbitration, and before such “seat” may have been determined by the Arbitral Tribunal under Section 20(2) of the Arbitration Act. In both these situations, the earliest application having been made to a Court in which a part of the cause of action arises would then be the exclusive Court under Section 42, which would have control over the arbitral proceedings.