India: ‘Venue' Of Arbitration Can Be The ‘Seat' Of Arbitration – Supreme Court Larger Bench

SUPREME COURT OF INDIA – LARGER BENCH

Union of India
v.
Hardy Exploration and Production (India) Inc.
CIVIL APPEAL NO. 4628 OF 2018

FACTS

There was a contractual relationship between the parties, HEPI and Union of India ("UOI") which was governed through a production sharing contract ("PSC") entered in November, 1996 for the extraction, development and production of hydrocarbons in a geographic block in India ("Block").

Disputes arose between the parties, which were subsequently referred to arbitration pursuant to the clauses in PSC.

The arbitration clause in the PSC recorded the venue of arbitration as Kuala Lumpur, unless otherwise agreed. The arbitral tribunal rendered its final award in favour of HEPI, signed and delivered in Kuala Lumpur in February 2013.

The Award was challenged under Section 34 before the Delhi High Court in July 2013. Hardy Inc., on the other hand, sought enforcement of the Award in November 2013 before the Delhi High Court, the proceedings of which are pending.

The Appellant had filed an application under Section 34 challenging the legality, validity and correctness of the award made by the arbitrators in respondent's favour in an international commercial arbitration proceeding in 2016 between the appellant (Union of India) and the respondent (foreign company).

The Respondents challenged the appellant's application by contending that the Indian Courts have no jurisdiction to entertain the appellant's application filed under Section 34 to challenge the legality and correctness of an award in question.

The Single Judge by order dated 09.07.2015 upheld the Respondent's preliminary objection and held that keeping in view the terms of the agreement in question coupled with the law laid down by this Court in several decisions governing the issues arising in the case, Indian Courts have no jurisdiction to entertain the application filed by the appellant under Section 34 of the Act to question the legality and correctness of the award in question.

Since the Appellant's application was dismissed on the ground of lack of jurisdiction of the Indian Courts, the Single Judge did not dwell in the case on the merits.

Subsequently, the Appellant under Section 37(2) of the Act, challenged the order passed by Division Bench of the Delhi High Court whereby the Court held that the Indian Courts have no jurisdiction to entertain the appellant's application under Section 34 of Arbitration and Conciliation Act, 1996 to question the legality of award rendered in international commercial arbitration proceedings.

The appellant, through an appeal by special leave had challenged the final judgment and order dated 27.07.2016 passed by the High Court of Delhi. The Division Bench of the Delhi High Court had dismissed the appeal filed by the Union of India (appellant herein) challenging the order dated 09.07.2015 passed by the Single Judge in OMP No.693 of 2013 and order dated 20.01.2016 in Review Petition No.400 of 2015 in OMP No.693 of 2013.

The Division Bench of the Supreme Court referred the matter to a larger bench under Order VI Rule 2 of the Supreme Court Rules, 2013.

However, it was also pointed out that no reference was called for, and that the case ought to be heard on its own merits. While acknowledging the same, the Bench headed by the Honorable CJI Mr. Dipak Misra saw it fit to put the controversy to rest, since the two-judge Bench had expressed the need for it to go before a larger bench.

ISSUES BEFORE SC

The question in this reference was –

"When the arbitration agreement specifies the "venue" for holding the arbitration sittings by the arbitrators but does not specify the "seat", then on what basis and by which principle, the parties have to decide the place of "seat"?

OBSERVATION & CONCLUSION

The Court observed that the words "place" and "seat" cannot be used interchangeably. A venue may become a seat only if something is added to it as a natural accompaniment.

The conclusion as to whether an arbitration clause determines the seat or not can only be reached on a suitable reading of the arbitration clause.

The Apex Court discussed the judgments of BALCO, Sumitomo Heavy Industries Ltd and Reliance amongst several others and pointed out as follows:

"there is no confusion with regard to what the seat of arbitration and venue of arbitration mean. There is no shadow of doubt that the arbitration clause has to be read in a holistic manner so as to determine the jurisdiction of the Court. That apart, if there is mention of venue and something else is appended thereto, depending on the nature of the prescription, the Court can come to a conclusion that there is implied exclusion of Part I of the Act. The principle laid down in Sumitomo Heavy Industries Ltd. (supra) has been referred to in Reliance Industries Limited (II) and distinguished. In any case, it has no applicability to a controversy under the Act. The said controversy has to be governed by the BALCO principle or by the agreement or by the principle of implied exclusion as has been held in Bhatia International."

Article 20 of the UNCITRAL Model Law provides that parties have to agree on the place/seat of arbitration, failing which an arbitral tribunal shall determine the same.

The Court pointed out that in the present case, there was no determination of 'place' in the agreement and the Arbitral Tribunal is required to determine the same taking into consideration the convenience of the parties.

This Court observed as follows:

"32. Be it noted, the word "determination" requires a positive act to be done. In the case at hand, the only aspect that has been highlighted by Mr. C.U. Singh, learned senior counsel, is that the arbitrator held the meeting at Kuala Lumpur and signed the award. That, in our considered opinion, does not amount to determination. The clause is categorical. The sittings at various places are relatable to venue. It cannot be equated with the seat of arbitration or place of arbitration which has a different connotation as has been held in Reliance Industries Ltd. (I), (II) (supra), Harmony Innovation Shipping Limited (supra) and in Roger Shashoua (supra).

33. The word "determination‟ has to be contextually determined. When a "place‟ is agreed upon, it gets the status of seat which means the juridical seat. We have already noted that the terms "place‟ and "seat‟ are used interchangeably. When only the term "place‟ is stated or mentioned and no other condition is postulated, it is equivalent to "seat‟ and that finalises 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 to seat. In the instant case, as there are two distinct and disjunct riders, either of them have to be satisfied to become a place. As is evident, there is no agreement. As far as determination is concerned, there has been no determination. In Ashok Leyland Limited and State of T.N. and another, the Court has reproduced the definition of "determination‟ from Law Lexicon, 2nd Edition by Aiyar, P. Ramanatha and Black‟s Law Dictionary, 6th Edition. The relevant paragraphs read thus:-

The said test clearly means that the expression of determination signifies an expressive opinion. In the instant case, there has been no adjudication and expression of an opinion. Thus, the word 'place' cannot be used as seat. To elaborate, a venue can become a seat if something else is added to it as a concomitant. But a place unlike seat, at least as is seen in the contract, can become a seat if one of the conditions precedent is satisfied. It does not ipso facto assume the status of seat. Thus understood, Kuala Lumpur is not the seat or place of arbitration and the interchangeable use will not apply in stricto sensu."

When just the term "place" is specified, and no other condition is attached to it, it is equivalent to "seat" and that finalizes the issue of jurisdiction. However if a condition is attached to the term "place", the same has to be satisfied for the place to become equivalent to seat.

After considering the events that unfolded leading up to the current reference, taking into consideration varied judgments on the subject matter by different benches of the Hon'ble Supreme Court and the High Courts and keeping in mind the contentions raised by both the parties regarding the UNCITRAL model law as well as the other principles governing the law, the Three-Judge Bench of this Court held as follows:

"34. In view of the aforesaid analysis, the irresistible conclusion is that the Courts in India have jurisdiction and, therefore, the order passed by the Delhi High Court is set aside. Resultantly, the appeal stands allowed and the High Court is requested to deal with the application preferred under Section 34 of the Act as expeditiously as possible. There shall be no order as to costs."

Thus in the current case, since there was neither an agreement on the place of arbitration, nor was there any determination made to that effect, it was held that the word "place" cannot be used as "seat".

AMLEGALS REMARKS

This issue had been under scrutiny and the limelight since several years and in spite of multiple judgments, the issue needed more clarity.

It is of prime importance to know that this ambiguity of seat and venue arises when the arbitration is ad-hoc arbitration.

In the case of Institutionalized Arbitrations, the seat of Arbitration is already determined and the venue as well as the procedures is those that are laid out by the respective institutions.

AMLEGALS believes that the decision by this larger bench has indeed removed all the ambiguity once and for all and it serves as a milestone precedent for decades to come. It has categorically laid down the requirements that need to be fulfilled and accordingly considered before a "place" can be considered as a "seat".

This content is purely an academic analysis under "Legal intelligence series".

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