BBR (India) Private Limited v. S.P. Singla Constructions Private Limited, Civil Appeal Nos. 4130-4131 of 2022: Supreme Court (decided on 18 May 2022)
- The parties entered into a contract dated 30 June 2011, under which the Appellant was required to supply, install and undertake stressing of cable strays for a certain project.
- Letter of intent dated 30 June 2011 issued under the contract had an arbitration clause for resolution of disputes by a sole arbitrator. The arbitration clause did not stipulate the seat or venue of arbitration.
- The contract and letter of intent were executed at Panchkula in Haryana. As disputes arose between the parties, the matter was referred to arbitration, and Mr. Justice N.C. Jain (Retd.) was appointed as the sole arbitrator.
- In the first sitting held on 5 August 2014, the Arbitral Tribunal (“AT”) held that the venue of the proceedings would be Panchkula, Haryana. On 29May 2015, Mr. Justice N.C. Jain (Retd.) recused stating that he did not want to continue as the arbitrator for some personal reasons. Thereafter, Justice T.S. Doabia (Retd.) took over as the sole arbitrator consented in the first hearing in which it was stated that the ‘venue’ of the proceedings would be Delhi.
- All the substantive proceedings were conducted in Delhi and the award was signed and pronounced at Delhi on 29 January 2016, where under the Respondent was awarded a sum of Rs.3,35,86,577/- with interest at the rate of 15% per annum.
- Thereafter, two separate proceedings were initiated. The Respondent filed an application for interim orders under Section 9 of the Arbitration Act (“the Act”) before the Additional District Judge, Panchkula, whereas the Appellant filed a petition under Section 34 of the Act before the Delhi High Court.
- The application of the Respondent was dismissed by the District Court on the ground of lack of territorial jurisdiction, inter alia, recording that the jurisdiction to entertain the application vests solely with the Delhi High Court where a prior petition under Section 34 had been filed, and was pending.
- This order was set aside by the High Court of Punjab and Haryana observing that the agreement between the parties was silent as to the seat of the arbitration proceedings, and the second arbitrator Mr. Justice T.S. Doabia (Retd.), had not determined Delhi to be the ‘seat’ of arbitration.
The High Court held that the courts at Panchkula had exclusive jurisdiction to deal with the case. The Appellant challenged the High Court order before the Supreme Court.
Whether conducting the arbitration proceedings at Delhi, owing to the appointment of a new arbitrator, would shift the jurisdictional seat of arbitration from Panchkula in Haryana, the place fixed by the first arbitrator for the arbitration proceedings?
- Distinction between ‘Seat’ and ‘Venue’: The Supreme Court began its analysis by explaining the importance of the seat of arbitration as well as expounding the difference between the ‘seat’ and the ‘venue’ of the arbitration. In doing so, it referred to a number of important cases, such as Bhartiya Aluminium Company v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552 (“BALCO”); BGS SGS Soma JV v. NHPC Limited (2020) 4 SCC 224 (“BGS Soma”), etc. The Court observed that the seat of arbitration is the centre of gravity in arbitration. The courts at the seat alone will have exclusive jurisdiction to exercise the supervisory powers over the arbitration. However, this does not mean that all arbitration proceedings must take place at the seat. The arbitrators at times hold meetings at more convenient locations, which is the venue of the arbitration.
- Construction of Section 20 of the Act: Sub-section (1) to Section 20 gives primacy to the agreement of the parties by which they are entitled to fix and specify the seat of arbitration. In terms of sub-section (2) of Section 20, the arbitral tribunal determines the place of arbitration. The arbitral tribunal, while doing so, can take into regard the circumstances of the case, including the convenience of the parties. Sub-section (3) of Section 20 of the Act enables the arbitral tribunal, unless the parties have agreed to the contrary, to meet at any place to conduct hearing at a place of convenience in matters. Sub-section (3) of Section 20 refers to “venue” whereas the “place” mentioned in sub-section (1) and sub-section (2) refers to the ‘jurisdictional seat’.
- When does Venue become the Seat: The Apex Court also reiterated the law stated in BGS Soma to observe that situations may arise where the parties have not agreed on or have not fixed the seat of arbitration. In such situations, if there is an express designation of a ‘venue’, and no designation of any alternative place as the ‘seat’, combined with a supranational body of rules governing the arbitration, and no other significant contrary indicia, the inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding. Therefore, while exercising jurisdiction under sub-section (2) of Section 20 of the Act, an arbitrator is not to pass a detailed or a considered decision. The place where the arbitral tribunal holds the arbitration proceedings would, by default, be the venue of arbitration and consequently the ‘seat of arbitration’.
Using the above-mentioned points of analysis, the Court held that, “in the context of the present case and noticing the first order passed by the arbitral tribunal on 5th August 2014 stipulating that the place of the proceedings would be Panchkula in Haryana and in the absence of other significant indica on application of Section 20(2) of the Act, the city of Panchkula in Haryana would be the jurisdictional ‘seat’ of arbitration”. The Court further observed that once the arbitrator fixes the seat in terms of sub-section (2) of Section 20 of the Act, the arbitrator cannot change the seat of the arbitration, except when and if the parties mutually agree that the seat of arbitration should be changed to another location. Venue, on the other hand, is not stationary and can move and change in terms of sub-section (3) to Section 20 of the Act. The Court also explained as to why the above-mentioned principle is of immense important to arbitration proceedings in India, by observing that, “It is highly desirable in commercial matters, in fact in all cases, that there should be certainty as to the court that should exercise jurisdiction. We do not think the law of arbitration visualises repeated or constant shifting of the seat of arbitration”. Any other interpretation would create a recipe for litigation and (what is worse) confusion which was not intended by the Act.
The seat is effectively the home of arbitration proceedings as opposed to the venue of the arbitration proceedings, which is merely the geographical location of arbitration proceedings. As such, the venue of the arbitration proceedings may change from one place to another, depending upon the convenience of the parties or the arbitrator. The seat, however, brings with itself many important features such as the conferment of exclusive jurisdiction to the Courts at the seat, with respect to the arbitrator proceedings. Therefore, it is very important to avoid any kind uncertainty and confusion resulting in avoidable hermetic litigation as to the jurisdictional seat of arbitration.
The instant decision would go a long way in removing that uncertainty and is another welcome addition to the list of cases (such as BGS Soma; Mankastu Impex Private Limited vs Airvisual Limited (2020) 5 SCC 399, etc.) that have clarified some very important issues relating to seat-venue conundrum under the law of arbitration.
At the same time, an interesting point that could have been dealt with by the Supreme Court in the instant decision was whether the conduct of the parties in agreeing to the conduct of substantive proceedings in Delhi without any protest/objections could have been construed as consent to shift the seat to Delhi. This case is a classic example of litigation arising out of pathological arbitration clause, which the Parties must obviate at the time of signing the contract. It is important to draft a clear and effective dispute resolution clause/agreement. A round of litigation can be avoided if the dispute resolution clause provided in the agreement is comprehensive enough to include essential details such as the seat of the arbitration.