Case Commentaries

LAW OF ARBITRATION

BGS SGS SOMA V. NHPC

(2020) 4 SCC 234

Ms Anushka Nigam, Mr Yasharth Tripathi

BACKGROUND


The confusion relating to seat and venue has been quite persistent in the Indian arbitration scenario. There have been numerous attempts by the Judiciary to clear the air regarding the confusion. In this regard, the Supreme Court of India in BGS SGS Soma v. NHPC [1](hereinafter BGS Soma) has tried to ameliorate the various precedential authorities till date to provide a harmonious construction in the ascertainment of the ‘seat’ in arbitration.


In the 2009, English case of Shashoua & Ors v. Mukesh Sharma[2], the English courts laid down the contrary indicia principle. Accordingly, when the venue for arbitration has been decided by the two parties and there is absence of any other information, then with the combined reading of such information along with supranational laws leads to the inexorable conclusion that such a venue is the seat of arbitration.


The 2012 case of Bharat Aluminium Co v. Kaiser Aluminium Technical[3](hereinafter BALCO judgement) upheld the applicability of the principle laid down in Shashoua Case in Indian domestic arbitration. It allows for determination of seat by a combined reading of Section 20 with Section 2(1) (e) of the Indian Arbitration and Conciliation Act, 1996.( herein the Act) However, paragraph 96 of the judgement provides for ‘concurrent jurisdiction’ that can arise between Courts: one being where arbitral proceedings take place and the other Court having jurisdiction where cause of action arises.


This has led to two further conflicting judgements in the case of Indus Mobile Distribution (P).Ltd. v. Datawind Innovations (P) Ltd[4](hereinafter Indus Mobile) and Union of India v. Hardy Exploration and Production (India) Ltd [5](hereinafter Hardy Exploration) The Apex Court in Indus Mobile ruled that paragraph 96 should be kept aside while interpreting the seat of an arbitration. It ruled that agreement of parties pertaining to seat accords the courts of that jurisdiction the exclusive jurisdiction to try the case of arbitration. Whereas the Apex Court in case of Hardy Exploration provided a very narrow interpretation of the BALCO Judgement. The Court ruled that there being no other significant information, Kuala Lumpur (where arbitration proceedings were held) was merely the venue of arbitration and the seat of arbitration therefore resided in India.


BSG SOMA v. NHPC


Facts of the case:

BGS SGS Soma and NHPC had entered into a contract for construction projects in the State of Assam and Arunachal Pradesh. Clause 67.3 of the agreement outlined the provision for arbitration as a method of dispute resolution. Clause 67.3 provided that “Arbitration proceedings shall be held at New Delhi/ Faridabad.” A dispute arose between the parties and a three member tribunal was constituted. The proceedings took place in Delhi for seventy one sittings of the Tribunal. The award was passed in favour of the Petitioner. Aggrieved by the order, the Respondent filed a petition to set aside the arbitral award passed as under Section 34 of the Act before the Faridabad District and Sessions Court at Faridabad, Haryana. The petitioner thereafter filed an application under Section 151 read with Order 7 Rule 10 of the Civil Procedure Code, 1908 and Section 2 (1)(e)(i) of the Arbitration and Conciliation Act, 1996 seeking to set aside the application. The Petitioner filed to request presentation of application before the appropriate court either in New Delhi or in Dhemaji, Assam.


Subsequently the Special Commercial Court, Gurugram allowed the Petitioners application and returned the Section 34 petition before an appropriate Court having jurisdiction to try the case. Aggrieved by the decision of the Special Commercial Court, Gurugram the Respondent filed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 read with Section 13(1) of the Commercial Courts Act, 2015 before the High Court of Punjab and Haryana at Chandigarh. The High Court of Punjab and Haryana passed the judgement that since the agreement was executed at Faridabad and Faridabad was the place where request for arbitration was received, Special Commercial Court at Gurugram had jurisdiction to try the case and the jurisdiction of New Delhi was effectively ousted.


Upon reaching the Supreme Court, the Supreme Court had to decide on two issues:


(i) Whether appeal under Section 37 had been maintainable before the High Court?

(ii) Whether a Court would exercise jurisdiction over a dispute that arose within its territorial jurisdiction where the seat of such an award was not situated in the jurisdiction of such Court?


In pronouncing the judgement, the Apex Court painstakingly clarified the much caused commotion on the debate of seat and venue of arbitration. The Court upheld the judgement of BALCO Case .With an application of Section 20 with Section 2(1)(e), the Court interpreted the Balco case in case of domestic arbitrations. The Court upheld the party autonomy to decide ‘seat’ of arbitration proceedings. Further a fruitful interpretation of Section 42 was provided that the said Section is in the nature of non-obstante clause and is meant to avoid conflict of jurisdiction of Courts. The Supreme Court held that Union of India v. Hardy Exploration and Productions (India) was an incorrect judgement. The judgement was passed in favour of the Petitioner and ‘seat’ was held to be located at New Delhi.


ANALYSIS AND CONCLUSION


The BGS Soma can be analysed under several heads, such as pertinent issues dealt here in the due course of adjudication, the case as an authority in the prospective judgements and where does the Indian Arbitration regime stand post the BGS Soma case.


MAINTAINABILITY


The Supreme Court while addressing the maintainability of the appeal filed, under Section 13(1) of Commercials Courts Act, 2015 read in consonance with Section 37(1)(c) of the Arbitration and Conciliation Act,1996 by the Respondent at the Punjab and Haryana High Court, relied on the analysis of the concerned Sections and the case of Kandla Export Corporation and Anr. v. M/s. OCI Corporation and Anr[6] and South Delhi Municipal Corporation v. Tech Mahindra EFA. [7]

The Apex Court in doing so stated that the right to appeal is a statutory right and is subject to certain restrictions. It was stated that the right to appeal under Section 37 of the Act arose from the pigeonholes provided under the Section. The court heavily relied on Kandla Export judgement, wherein it held that appeal which is not maintainable under Section 50 of the Arbitration is also not maintainable under Section 13(1) of the Commercial Courts Act, 2015. In the case of South Delhi Municipal Corporation v. Tech Mahindra EFA, the Delhi Highcourt held that the direction of deposit of half the amount of award is not maintainable as an appeal under Section 37 of the Act.


The Apex Court also took into consideration the proviso given under Section 13(1) that specified the appealable orders as listed under order 43 of the Civil Procedure Code, 1908 and Section 37 of the Arbitration Act. The court also relied on Balco judgement and Indus Mobile along with factual matrix in affirming that the seat of arbitration was New Delhi. The Court, after taking the above mentioned authorities into consideration and concluding that rejecting a Section 34 petition on the grounds of lack of jurisdiction will not amount to a refusal of setting aside an award under Section 34. Thus, the Apex Court held that the appeal is not maintainable under Section 37 as it does not fit into the pigeonholes that arise thereof in the Section.


EFFECT OF DESIGNATION OF SEAT AND TEST FOR DETERMINATION


The Supreme Court, while addressing the effect designation of a seat and the test for determination of seat has relied on precedents from English as well as Indian Courts. The Supreme Court analysed the Balco judgement as an authority for determination of the effect of the designation of a seat to a place, wherein it observed that the courts at the seat have the supervisory and administrative jurisdiction over the Arbitral Tribunal. Moreover, it cleared the cloud over the concurrent jurisdiction as stated in paragraph 96 of the concerned judgement. The court stated that when the parties fail to agree on the seat of arbitration then the first court at the place of cause of action can be made a seat under Section 42 of the Act.


The BALCO judgement, as well as the concerned case, has relied on the English judgement of Roger Shashoua v. Mukesh Sharma[8], wherein it was vehemently stated that the agreement on the seat of arbitration will bring the Arbitral proceedings under the exclusive jurisdiction of the courts at the seat. The court has also upheld the autonomy of the party in selecting a neutral venue as the seat of arbitration. The court in doing so has taken the ratio of Indus Mobile, stating that parties are free to choose a neutral seat contrary to the CPC, where the courts of the place of cause of action have jurisdiction, thus upholding the party autonomy and bestowing the courts at the seat with exclusive jurisdiction over the Arbitral proceedings. The Court after considering the cited authorities concluded that designation of the seat provides the courts at the seat to have exclusive jurisdiction. This has to be done, to prevent the parties from filing suits at different places to harass the other party and prevent the parties from having the second bite at the cherry when it comes to challenging the award.


The Supreme Court has laid down the test for determination of the seat. Reliance has been placed on the English case of Shagang South-Asia (Hong Kong) Trading Co. Ltd. v. Daewoo Logistics[9], where the arbitration clause stated that the arbitration is to be held in Hongkong and the English law is to be applied. The court here, after relying on Shashoua principles, held that Hong Kong is the implied seat of arbitration as there is the absence of contrary indicia.


Similarly, the Supreme Court concluded that a venue which is stated in the arbitration agreement where the Arbitral proceedings are to take place then such a venue becomes the seat of the arbitration unless a contrary indication is present with respect to the seat. These contrary indicators could be “the tribunal is to meet here for convenience", " the tribunal shall examine the witness here" etc.


AUTHORITY AND WAY HEAD


The authority of BGS SGS Soma can be analysed in the light of several judgements. However, it is of sheer importance to address the precedents that have been overruled and stated incorrectly in the concerned case.


The case of Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd.[10] has been stated incorrect and overruled by the bench of BGS SGS Soma because the interpretation to paragraph 96 of the BALCO judgment by the Delhi High Court is contrary to the intention of the constitutional bench and the Shashoua principles. The Antrix judgement interpreted the paragraph 96 of Balco judgement and upheld the concurrent jurisdiction; stating that Section 42 of the Act would be rendered useless if exclusive jurisdiction provided to the courts at the seat of arbitration and jurisdiction at the place of cause of action is absent. Therefore, the Delhi High Court gave limited consideration to the Indus Mobile Case and held that the exclusive jurisdiction to a neutral seat is contrary to Section 42 of the Arbitration and Conciliation Act, 1996. The bench of BGS SGS Soma overruled the judgement stating that the interpretation given by Delhi High Court is contrary to the legislative intent of statute and goes against party autonomy that is granted to parties under the Arbitration and Conciliation Act, 1996. In the year 2020, the Supreme Court has upheld the same view in the case of HCC v. NHPC.[11]


The Supreme Court, in BGS SGS Soma, has also questioned the correctness of the Union of India v. Hardy Exploration where a three-judge bench of the Supreme Court based its ratio on the reading of Article 20 and 31 of the UNCITRAL Model Law, where it concluded that the parties by agreement decided the seat of arbitration and if they fail to do so then the Tribunal has the duty to assess the seat of Arbitration. The Supreme Court held that Kuala Lumpur is the venue and the courts of India had jurisdiction, this being contrary to the clause stated in the agreement. Therefore, according to the grounds set by Shashoua principles and the governance of super national set of rules as upheld in the BGS SGS Soma. The bench held that Hardy Exploration is incorrect in upholding that Kuala Lumpur is not the seat but the venue of arbitration.


In the recent judgement of Mankastu Impex Private Limited v. Airvisual Limited[12], it was held that the mere presence of expression that 'the Arbitral proceedings will take place here' is not an indication of the seat of arbitration and the intention of the party has to be considered as well. In the Mankastu Impex, the Supreme Court in paragraph 22 has partially upheld the case of Hardy Exploration as it upholds that there should be the presence of positive indications in an agreement to designate a place as the seat of Arbitration. The Supreme Court did not go into the correctness of BGS SGS Soma as the clause in consideration was well detailed. However, this puts forth the contention regarding the struggle and lack of clarity between BGS SGS Soma and Hardy Exploration in the seat and venue debate.



References:


[1]BGS SGS Soma v. NHPC, (2020) 4 SCC 234

[2]Shashoua & Ors v. MukeshSharma [2009] EWHC 957

[3] Bharat Aluminium Co v. Kaiser Aluminium Technica (2012) 9 SCC 552

[4]Indus Mobile Distribution (P).Ltd. v. Datawind Innovations (P) Ltd, (2011) 6 SCC 161

[5]Union of India v. Hardy Exploration and Production (India) Ltd, (2019) 13 SCC 472

[6] Kandla Export Corporation and Anr. v. M/s. OCI Corporation and Anr., (2018) 14 SCC 715

[7] South Delhi Municipal Corporation v. Tech Mahindra, 2019 SCC Online Del 11863

[8] Supra. 2

[9] Shagang South-Asia (Hong Kong) Trading Co. Ltd. v. Daewoo Logistics, [2015] EWHC 194

[10] Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd, 2018 SCCOnLine Del N338

[11] HCC v. NHPC, Supreme Court Transfer Petition (c) No. 3053 of 2029

[12] Mankastu Impex Private Limited v. Airvisual Limited, 2020 SCC OnLine SC 301

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