Articles
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Never ending Saga of “Seat” v/s “Venue” specially in relation to Challenge Proceedings u/s 34 of Arbitration and Conciliation Act, 1996 “the Act”(Commercial Arbitration)
The word "place" appearing under section 20 of the Act assumes significance as it connotes the 'seat of arbitration' or ‘venue’ depending upon circumstances in which it has been chosen/determined and used. Thus, if initially a particular place (venue) is unconditionally and unequivocally selected by the parties for conducting the arbitral proceedings for any reason, said place would become 'juridical seat' of arbitration' unless such place is chosen conditionally purely for temporary purpose of convenience of parties.
The Apex Court in Indus Mobile Distribution Pvt. Ltd. v/s Datawind Innovations Pvt. Ltd. and Ors reported in (2017)7 SCC 678 in a case wherein dispute arose as regards the place/seat of arbitration mentioned in the agreement as having “exclusive jurisdiction”; without any cause of action having occurred at that place. The Apex Court relying upon 'Balco' case held and observed thus;
"9….. We are of the opinion, the term "subject-matter" of the arbitration cannot be confused with "subject-matter" of the suit. The term "subject matter" in section 2(1)(e) is confined to part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the Courts having supervisory control over the arbitration proceedings. Hence, it refers to a Court which would essentially be a Court of the seat of the arbitration process. In our opinion, the provision in section 2(1)(e) has to be construed keeping in view the provisions in section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the learned counsel for the appellants would, in fact, render section 20 nugatory.……"
It is settled law now, that once the seat has been agreed upon the said place would have exclusive territorial jurisdiction for the purpose of Court. The difficulty arises when the seat is not determined either by agreement or by the arbitrator or the same is not clearly defined / worded under the contract.
Apex Court in case of Union of India V/S Hardy Exploration and Production (India), AIR 2018 SC 4871 has held and observed thus;
"6…... In the absence of express agreement, there is a strong prima facie presumption that the parties intend the curial law to be the law of the seat of arbitration, i.e., the place at which the arbitration is to be conducted, on the ground that that is the country most closely connected with the proceedings….."
"33….. When a 'place' is agreed upon, it gets the status of seat which means the juridical seat. We have already noted that the term 'place' and 'seat' are used interchangeably. When only the term 'place' is stated for mentioned and no other condition is postulated, it is equivalent to 'seat' and that finalizes the facet of jurisdiction. But if a condition precedent is attached to the term place, the said condition has to be satisfied so that the place can become equivalent seat…"
The Apex Court of India again addressed this ongoing uncertainty, in the case of BgS SGS Soma J.V. v. NHPC Ltd., 2019 (6) ARB LR 393(SC) declared the previous judgment, Hardy Exploration, AIR 2018 SC 4871, (on the similar issue) as incorrect. The Apex Court held that the place of arbitration is seat of arbitration as ‘Lex Fori’ and declared the “Hardy Exploration” case to be incorrect as the term seat and venue were distinguished wrongly, observing thus;
“As we have seen hereinabove, the judgement of Cooke, J. in Roger Shashoua and Ors. v. Mukesh Sharma [2009] EWHC 957 (Comm) , was expressly approved by the 5-Judge Bench in BALCO (supra), as was stated by the Supreme Court of India in Roger Shashoua and Ors. v. Mukesh Sharma and Ors. (2017) 14 SCC 722 By failing to apply the Shashoua principle to the arbitration clause in question, the Three Judge Bench in Hardy Exploration and Production (India) Inc (supra) has not followed the law as to determination of a “juridical seat”, laid down by a Five Judge Bench of this Court in BALCO (supra). The result in Hardy Exploration and Production (India) Inc (supra) 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 Part I of the Arbitration Act, 1996”
Thus Apex Court in BGS SGS Soma J.V. v. NHPC Ltd case declared that the Hardy Exploration was a bad law. It is curious to note that both the above judgments were passed by three-judge benches of Apex Court. Though we agree that ‘Hardy Exploration' did not lay down correct law, as mentioned in BGS SGS Soma case; however the ‘Hardy Exploration' being earlier judgement was binding; hence matter ought to have been referred to the larger bench to maintain judicial comity and discipline. The later judgment’s declaration of the earlier one being "no longer good law" may not lead to an overruling of said earlier judgement of Hardy Exploration ; albeit it may still be referred to a larger bench in some other matter by some other bench.
Our Comments:
The words "seat" or "venue" do not find place in Arbitration and Conciliation Act, 1996 (the Act) but have been coined in the decided cases, specially relating to International Arbitration. As far as definition of "Court" under section 2(1)(e) is concerned; it stipulates a ‘Court’ having jurisdiction to decide the ‘questions forming the subject matter of the arbitration’ as if subject matter of the suit. The words "subject matter of the arbitration" is of utmost importance and certainly should not be taken as ‘superfluous’. In other words it simply means that the Court which is competent to try particular subject/type of suit as Court and in case of monetary claim; having necessary pecuniary jurisdiction. The said definition does not include the aspect of "territorial jurisdiction"; because it would otherwise be in conflict with 20(1) of the Act. Similarly the provisions of section 16 to 20 of civil Procedure Code cannot be and ought not be imported and read into sub-section (2) of section 20 of the Act; for it is self-contained code and refers only to ‘circumstances of the case’ including convenience of the parties for the purpose of determining the place of arbitration. In aforesaid context observations of Apex Court in case of 'Indus mobile distribution' supra would be relevant as under;
"Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to “seat” is a concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have jurisdiction – that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Section 16 to 21 of the CPC be attracted. In arbitration law however, as has been held above, the moment “seat” is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties..."
Taking a case that seat was not agreed upon or determined prior to impugned award; the question would be whether the 'Court' would have supervisory (Revisional) jurisdiction u/s 34 r/w sec.2 (1) (e) of the Act over the award passed and arbitral proceedings conducted by the learned arbitrator within its territorial jurisdiction; though no part of cause of action arose within its territorial jurisdiction.
1. In our considered view the ‘Court’ would have supervisory jurisdiction u/34 r/w sec.2(1)(e); for (a) at the place where arbitration was conducted; fixed consensually and also that the award has been passed at such place, (b) Section2(1)(e) unambiguously defines ‘Court’ as Civil Court having 'subject matter jurisdiction' giving very wider meaning albeit excluding the concept of “territorial jurisdiction” of a civil Court or else it would infringe section 20(1) of the Act, as clearly held by Apex court in “Indus Mobile” case . (c) Thus in case where "seat" has not been agreed upon/determined; there could be two supervisory concurrent jurisdictions ; one having territorial jurisdiction contemplated under section 15 to 20 of CPC, and second, the ‘court’ where arbitration takes place on the principles analogous to "Lex fori" as clearly held in 'Balco'/ ‘ BGS SGE Soma’ cases and it is not necessary for the court to itself determine the ‘seat’ first for determining the supervisory/Revisional jurisdiction u/s 34. In case of Application u/s 8 or 11(6), the considerations would be different while deciding the issue of “seat” and the classic principles of territorial jurisdiction/cause of action may apply unlike u/s 34 of the Act. As section 2(1)(e) does not contemplate ‘territorial jurisdiction’; it would be perversion to import such concept in said provision to determine supervisory jurisdiction u/s 34; which is undoubtedly akin to “Appellate/‘Revisional” jurisdiction.
Even assuming for the sake of argument that the concept of territorial jurisdiction as understood u/s 15 to 20 of CPC could be read into section 2 (1)(e); still while deciding the “supervisory(Revisional) jurisdiction” u/s 34; the court must consider whether any case of "failure of justice" has been made out u/s 21 of CPC to oust the Revisional jurisdiction u/s 34 when it admittedly has "subject matter" jurisdiction. Unfortunately the Higher Courts in the county have adopted wrong way of reading the ‘case laws’ i.e. in the exercise of analysing, there is tendency to interpret the judgements as if it were piece of statute at expense of ignoring the statutory laws; giving rise to such a confused state of affairs. The case laws are appreciated and not interpreted. One has to confine to basic and fundamental aspects of Jurisdictions i.e. (i) ‘Subject jurisdiction’ which empowers the court to try matters of specific nature viz. Rent Act, Motor Accident, Industrial, Commercial disputes etc.,& (ii) pecuniary jurisdiction to exclusion of (iii) territorial jurisdiction/cause of action; when ‘seat’ has not been agreed upon or determined prior to impugned award. Thus one would be concerned with the “subject Jurisdiction” u/s 20 r/w 2(1) (e) of the Act, and not territorial jurisdiction u/s 20 CPC.Therefore exclusivity of jurisdiction would not apply u/s 34 of the Act; since seat has not been determined.