Sharad Bansal, Counsel, Bombay High Court
The significance of ‘seat’ and ‘venue’ of arbitration has been a much-debated issue under Indian law and in the past decade, the Supreme Court has had multiple occasions to propound the significance of these two concepts. Much of the discussion has been in the context of international commercial arbitrations. The most recent in this line of decisions is the decision in BGS SGS SOMA JV v. NHPC Ltd., where the issue arose in the context of a domestic arbitration. A three-Judge Bench of the Supreme Court conducted an exhaustive analysis of the precedent and the legislative mandate on this issue and held, inter alia, that a choice of seat of arbitration confers exclusive jurisdiction on courts at the seat of arbitration in relation to arbitral proceedings under Part I of the Arbitration and Conciliation Act, 1996 (“1996 Act”).
There cannot be much quarrel about this proposition of law in the context of an international commercial arbitration where parties have a choice between multiple national legal regimes/supranational rules of arbitration. The fallacy of NHPC lies in the fact that it has borrowed this proposition from international commercial arbitrations and applied it to domestic (or non-international commercial) arbitrations governed by Part I of the 1996 Act.
Definition of ‘court’ under the 1996 Act the ruling in BALCO
The 1996 Act contains an express definition of ‘court’ in Section 2(1)(e), which would exercise jurisdiction in respect of an arbitral proceeding. According to Section 2(1)(e) (as it stood prior to the 2015 amendment), the court having jurisdiction in relation to arbitration proceedings is the principal civil court of original jurisdiction in a district (and includes a High Court in exercise of its ordinary original civil jurisdiction) which would have jurisdiction over the subject-matter of arbitration if the same had been the subject-matter of a suit. In other words, it relegates us to the bases of jurisdiction under the Code of Civil Procedure. The 2015 amendment to the 1996 Act prescribes that in international commercial arbitrations, it is only the High Court (hearing appeals from the pre-amendment S.2(1)(e) court) which will have jurisdiction in relation to arbitral proceedings.
Till the decision in Bharat Aluminium Co. v. Kaiser Technical Services (“BALCO”), the 1996 Act was interpreted not to have any link between the designation of seat and the competent court which would have jurisdiction in relation to arbitral proceedings. It was the Supreme Court in BALCO which laid down (in paragraph 96, which has been the subject of much discussion in NHPC) that two classes of courts will have jurisdiction: a) courts having jurisdiction as per the Code of Civil Procedure (“CPC courts”); b) the court at the seat of arbitration. The language of paragraph 96 leaves no doubt that it is both these categories of courts which will have jurisdiction.
The decisions in Indus Mobile and NHPC
Despite the clear language of paragraph 96, a two-Judge Bench of the Supreme Court in Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. (2017) 7 SCC 678 held that choice of Mumbai as the seat of arbitration was equivalent to the choice of exclusive jurisdiction of courts in Mumbai and the jurisdiction of CPC courts in such instances is ousted. However, in Indus Mobile, the contract between the parties also contained a separate clause which conferred exclusive jurisdiction on Mumbai courts. Relying on this clause, the Delhi High Court in Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd. 2018 SCC Online Del 9338 held that the ratio of Indus Mobile must be limited to cases where an exclusive jurisdiction clause existed in the contract, else the ruling in Indus Mobile would be contrary to paragraph 96 of BALCO.
NHPC (incidentally authored by the same Judge as Indus Mobile) has emphatically reinforced the ruling (and the error) in Indus Mobile and overruled Antrix Corporation. The Court in NHPC held that mere designation of seat of arbitration amounts to a choice of exclusive jurisdiction of the court at the seat of arbitration. This finding is plainly contrary to paragraph 96 of BALCO. Paragraph 96 of BALCO contains a clear stipulation and an illustration according to which the CPC Courts and the court at the seat of arbitration would have jurisdiction in a Part I arbitration. In such circumstances, how did NHPC overcome the hurdle of paragraph 96 of BALCO, which was rendered by a five-Judge Bench? NHPC found that paragraph 96 was contrary to the rest of the discussion in BALCO where choice of seat was held to constitute a choice of exclusive supervisory jurisdiction of courts at the seat of arbitration. NHPC also drew support from the decisions following BALCO where this principle – the equivalence of choice of seat with choice of exclusive supervisory jurisdiction – was upheld.
The fallacy of NHPC
It is submitted that NHPC’s reading of BALCO, specifically paragraph 96, is plainly incorrect. The fundamental flaw in NHPC, which leads the Court to incorrectly construe the ratio of BALCO, is its failure to recognize the distinction between an international commercial arbitration and a domestic arbitration. It is, therefore, necessary to examine this distinction.
In international commercial arbitration, there is no quarrel with the proposition that a choice of seat amounts to conferral of exclusive jurisdiction on courts at the seat of arbitration insofar as the supervisory role over arbitration proceedings is concerned. Thus, for matters such as constitution of the arbitral tribunal and setting aside an arbitral award, courts at the seat of arbitration have exclusive jurisdiction. It is important to note that the choice of a seat in the context of an international commercial arbitration is significant because the choice is between two or more distinct national legal regimes, with different arbitration laws and different municipal court systems. Since international commercial arbitration has to be rooted in a national legal regime and ought to derive its legitimacy from a municipal law (this is contested by French scholars, but that debate is outside the scope of this post), the choice of seat of arbitration by the parties is seen as a choice of the curial law of arbitration and the municipal court regime which would have supervisory jurisdiction over arbitration proceedings. Choice of seat also means that the award must comply with the public policy of the seat of arbitration, lest it run the risk of being set aside.
The seat of arbitration does not have the same level of significance in a domestic arbitration, where no party is from outside India. The legitimacy of the arbitral process is derived from the existing municipal law on the subject, i.e. the 1996 Act. It is only the Indian courts which will have supervisory jurisdiction over arbitral proceedings. The choice of substantive law also remains unaffected. Therefore, the choice of seat of arbitration has little bearing on the applicable laws or the municipal court regime which has the power to adjudicate upon challenges to an award. Indeed, the 1996 Act does not indicate any material consequence of seat of arbitration in the context of a domestic award. Indeed, till the decision in BALCO, Section 2(1)(e) was construed to mean that only the CPC courts have supervisory jurisdiction over arbitral proceedings. It is only after the Supreme Court’s interpretation of Section 2(1)(e) in BALCO that courts at the seat of arbitration were held to have jurisdiction over arbitral proceedings. Paragraph 96 of BALCO makes it unequivocally clear that the jurisdiction of courts at the seat of arbitration is concurrent, and not exclusive, in nature; parties have the choice to approach courts at the seat of arbitration or the CPC courts. In view of the distinction between an international commercial arbitration and a domestic arbitration discussed above, NHPC’s reliance on the significance of seat in international commercial arbitration to negate the rule of concurrent jurisdiction of CPC courts and courts at the seat of arbitration laid down in paragraph 96 of BALCO is incorrect.
Sharad Bansal is a practising Counsel, Bombay High Court.
This article was first published on Sharad’s blog.
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