What the Supreme Court held on ‘Place’ and ‘Seat’ of Arbitration [Read Judgment]

What the Supreme Court held on ‘Place’ and ‘Seat’ of Arbitration [Read Judgment]

Aditya AK

Addressing a reference by a smaller bench, a three-judge Bench of the Supreme Court has held that an arbitration clause has to be read in a holistic manner so as to determine jurisdiction.

The ‘place’ mentioned in an arbitration clause does not assume the status of ‘seat of arbitration’ unless the condition attached to the former is satisfied, the Court held.

The Bench of Chief Justice of India Dipak Misra and Justices AM Khanwilkar and DY Chandrachud determined the same in the case of Union of India v. Hardy Exploration and Production (India) Inc.

The Central government had challenged the correctness of an award made by the arbitrators in favour of the respondents before the Delhi High Court. In July 2015, a Single Judge of the High Court had held that Indian courts have no jurisdiction to entertain the application filed by the Centre under Section 34 of the Arbitration and Conciliation Act. On appeal, a Division Bench of the High Court concurred with the Single Judge.

The Centre thus approached the Supreme Court, after which a two-judge Bench referred the matter to a larger Bench. This is how the matter came to heard by the Bench headed by CJI Misra. Additional Solicitor General Tushar Mehta appeared for the Union of India, while Senior Advocate Dr. Abhishek Manu Singhvi appeared for the respondent company.

At the outset, it was 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 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.

The Court also noted that one of the submissions made before the two-judge Bench of the Apex Court was that in the Bharat Aluminium Company case, the decision in Sumitomo Heavy Industries Ltd. had not been examined.

By way of background, in 2012, a Constitution Bench of the Supreme Court had delivered the judgment of Bharat Aluminium Co. v. Kaiser Aluminium Technical Service. Post Balco v. Kaiser, ‘seat’ or the ‘locus arbitri’ became determinative for deciding whether India had supervisory jurisdiction over an arbitration or not, with respect to international arbitrations.

After analyzing a number of judgments that hold the field, the Bench headed by CJI Misra held that Sumitomo is in no way applicable to the concept of determination of jurisdiction.

With that question out of the way, the Bench went on to deal with the matter at hand. Reference was made to Article 32 of the arbitration agreement, which reads:

“32.1 This Contract shall be governed and interpreted in accordance with the laws of India.

32.2 Nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and powers conferred upon it by this Contract in a manner which will contravene the laws of India.”

It was further provided in the agreement that arbitration proceedings shall be conducted in accordance with the UNICITRAL Model Law on International Commercial Arbitration of 1985, and that the venue of arbitration proceedings shall be Kuala Lumpur.

As pointed out by ASG Tushar Mehta, there was no mention of ‘seat’ of arbitration, which is distinct from ‘venue’. The attention of the Bench was then drawn to Article 20 of the UNCITRAL Model Law, which provides that parties have to agree on the place/seat of arbitration, failing which an arbitral tribunal shall determine the same.

“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…”

On the distinction between ‘place’ where hearings take place and ‘place/seat of arbitration’, the Court held,

“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.”

It was held that in the present case, there was neither agreement on the place of arbitration, nor was there any determination made to that effect. Therefore, the Bench held, 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.”

In light of its findings, the Bench set aside the Delhi High Court judgment and held that the courts in India have jurisdiction to entertain the application made under Section 34. The High Court was also requested to deal with the Section 34 application as expeditiously as possible.

Read the judgment:

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