India: Seat Is Not The Centre Of Gravity- Arbitration And Conciliation Act, 1996

The term "subject matter of arbitration" cannot be confused with "subject matter of suit". The term "subject matter" in Section 2(1) (e) is confined to Part-I of the Arbitration and Conciliation Act, 1996 (herein after referred to as "Indian Arbitration Act"). 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.

Section 2(1) (e) of the Indian Arbitration Act provides for the definition of the term "Court"-

(e) "Court" means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;

The definition of Section 2(1) (e) includes "subject matter of the arbitration" to give jurisdiction to the courts where the arbitration takes places, which otherwise would not exist. On the other hand, Section 47 which is in Part-II of the Indian Arbitration Act dealing with enforcement of certain foreign award has denied the term "court" as a court having jurisdiction over the subject-matter of the award. This has clear reference to a court within whose jurisdiction the asset/ person is located, against which/whom the enforcement of the international arbitral award is sought. Therefore, the provisions contained in Section 2(1) (e) being purely jurisdictional in nature can have no relevance to the question whether Part-I applies to arbitrations which take place outside India.

The provision in Section 2(1) (e) has to be construed keeping in view the provisions in Section 20 of the Indian Arbitration Act, which gives recognition to party autonomy.

Section 20 of the Indian Arbitration Act, 1908 defines "Place of Arbitration" which is as under-

"SECTION 20: PLACE OF ARBITRATION

(1) The parties are free to agree on the place of arbitration.

(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.

(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property."

A plain reading of Section 20 leaves no room for doubt that where the place of arbitration is in India, the parties are free to agree to any "place" or "seat" within India, be it Delhi, Mumbai, etc. In the absence of the parties agreement thereto, Section 20(2) authorizes the arbitration tribunal to determine the place/seat of such arbitration. Section 20(3) enables the arbitration tribunal to meet at any place for conducting hearings at a place of convenience in matters such as consultations among its members for hearing witnesses, experts or the parties.

In light of the BALCO1 judgment passed by Hon'ble Supreme Court of India it is no more res integra that Part-I of the Indian Arbitration Act is applicable only to all the arbitrations which take place within the territory of India and hence will have no application to International Commercial Arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to enforced in India in accordance with the provisions contained in Part-II of the Indian Arbitration Act.

The Hon'ble Supreme Court India in BALCO judgment (supra) has taken the view that the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Hence, the courts where the arbitration takes place would be required to exercise the supervisory control over the arbitral process.

For instance, if the arbitration is held in Mumbai, where neither of the parties from Mumbai and Mumbai having been chosen as a neutral place as between a party from Bengaluru and the other from Kolkata and the tribunal sitting in Mumbai passes an interim order under Section 17 of the Indian Arbitration Act, the appeal against interim order under Section 37 must lie to the Courts of Mumbai being the Courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Bengaluru or at Kolkata, and only arbitration is to take place at Mumbai. In such circumstances, both the Courts would have jurisdiction i.e. the Court within whose jurisdiction the subject matter of the suit is situated and the courts within the jurisdiction of which dispute resolution i.e. arbitration is located.

The Hon'ble Delhi High Court in M/s Sai Consulting Engineers Pvt. Ltd. Vs. Rail Vikas Nigam Ltd. & Ors.2 decided one of the issue raised by the Respondents as to the territorial jurisdiction of the Hon'ble Delhi High Court wherein the contract was awarded by the Respondent to the Petitioner from its Mumbai office and the work was to be executed in the State of Chhattisgarh and the same was managed from the office of Chhattisgarh. Thereby the Respondent alleged that since no cause of action has arisen in Delhi and also earlier the Petitioner had withdrawn the writ petition filed in Delhi High Court on the ground of no territorial jurisdiction and thereafter filed writ petition in the High court of Chhattisgarh. The Hon'ble High Court of Delhi on taking into consideration the averments in the petition more particularly the arbitration proceedings having been held in Delhi pursuant to Clause 16.01 of the contract followed the BALCO judgment and did not find any merit in the submission of the Respondent with regard to territorial jurisdiction of Hon'ble Delhi High court and proceeded further in deciding the case.

Recently, the Division Bench of Hon'ble High Court of Delhi in NHPC Vs. Hindustan Construction Company Ltd.3 has overruled the decision passed by one of the Ld. Single Judge in Apparel Export Promotion Council Vs. Prabhati Patni, Proprietor Comfort Furnishers4 wherein view was taken that the situs or seat of arbitration or the fact that the award was made at a particular place, would not be relevant for conferring jurisdiction. But, that decision was rendered prior to the Supreme Court decision in BALCO (supra). So, after BALCO (supra), the AEPC (supra) decision, even for persuasive value, would not come to the aid of the appellant. In fact, after the BALCO (supra) decision, this question of jurisdiction has been considered by a division bench in Ion Exchange (India) Ltd. Vs. Panasonic Electic Works Co.5 This court, inter alia, held as under:-

"12. We are unable to agree with the view taken by the learned single Judge in his order dated 04.02.2014. Section2(1)(e) of the Act defines the meaning of "Court" as, inter alia, the High Court exercising original civil jurisdiction to decide questions forming the subject matter of arbitration if the same had been the subject matter of a suit. As per Section 2(2) of the said Act, Part I is applicable where the arbitration is held in India. Further, Section 9 of the said Act, which falls in Part I of the said Act, sets out the various interim measures that the "Court" may direct either before, during or at any time after the making of the arbitral award. Section 20 of the Act gives the parties to the arbitration, the freedom to choose not only the seat of arbitration but also gives the parties the right to choose the venue of the arbitration. Section 42 of the said Act, which starts with a non obstante clause, states that where any application under Part I has been made to a Court, that Court alone will have jurisdiction over the arbitration proceedings and subsequent applications arising out of the Agreement.

13. In this backdrop, let us take an example where the cause of action has arisen in place 'A' and the place of arbitration is place 'B'. If a party to the arbitration agreement were to move an application under Section 9 of the said Act, he could not file it in place 'B', if the view of the learned single Judge were to be accepted as, according to him, an application under Section 9 does not invoke the 'supervisory jurisdiction'. And, because of Section 42, no other application under the said Act could ever be filed in place 'B' (i.e. the place of arbitration). So, the occasion to exercise supervisory jurisdiction would never accrue to the Courts at place 'B'. This would run counter to the decision of the Supreme Court in Bharat Aluminium (supra) where, at the cost of repetition, it was observed that-

"The legislature has intentionally given jurisdiction to two courts, i.e., the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place."

14. In these circumstances, we find ourselves unable to agree with the view of the learned single Judge expressed in his order dated 04.02.2014. We agree with the view taken in Sai Consulting (supra) and hold that the Courts at the seat or place of arbitration would have territorial jurisdiction to entertain an application under the said Act subject to the provisions of Section 42 thereof irrespective of the fact that the cause of action arose elsewhere and/or the respondent resides elsewhere.

In Hon'ble Supreme Court of India view, the correct depiction of the practical consideration and the distinction between "seat" (Section 20(1) and 20(2)) and "venue" (Section 20(3)) would be quite crucial in the event, the arbitration agreement designates a foreign country as the "seat"/ "place" of the arbitration and also select the Indian Arbitration Act as the curial law/ law governing the arbitration proceedings.

CONCLUSION:

The fixation of the most convenient "venue" is taken care by Section 20(3) of the Indian Arbitration Act. Section 20, has to be read in the context of Section 2(2) of the Indian Arbitration Act, which places a threshold limitation on the applicability of Part-I, where the place of arbitration is in India. Therefore, Section 20 would also not support the extra-territorial applicability of Part-I, as far as domestic arbitration is concerned and only if the agreement of the parties is construed to provide for the seat /place of arbitration being in India the Part-I of the Indian Arbitration Act would be applicable.

Footnotes

1. (2012) 9 SCC 552

2. 198 (2013) DLT 507

3. 2015 (4) ABLR 297 (Delhi)

4. (2006) 86 DRJ 48

5. (2014) 208 DLT 597

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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