This case is a part of our Annual Arbitration Review 2019.
Judgement Name: BGS SGS SOMA JV v. NHPC Ltd.
Citation: (2020) 4 SCC 234
Court: Supreme Court of India
Coram: Rohinton Fali Nariman, J.
Date: 10th December 2019
Keywords: Seat, Venue, BALCO, Section 37.
Overview and Ratio
The Supreme Court used the infamous BALCO case to rule that when parties have chosen a seat of arbitration or a tribunal has determined a seat, it means that the courts at such seat have the jurisdiction for the purposes of interim orders and challenges to an award. In the absence to the contrary, the designation of ‘venue’ can indicate ‘seat’.
The Petitioners and Respondents entered into a contract concerning the construction of hydropower projects in the state of Assam and Arunachal Pradesh. The said contracts contained an arbitration clause for settlement of disputes that stated that proceedings will take place in Delhi/Faridabad in case of disputes. From 2011 to 2016, an arbitral tribunal consisting of three arbitrators was set up and had passed an award in favour of the petitioners in Delhi. Aggrieved by the award, the Respondents challenged it under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) before the District Court of Faridabad, Haryana. Due to the constitution of Special Commercial Court in Haryana, the matter was transferred to the commercial court of Gurgaon, Haryana. In the interim, the petitioners challenged the same so as to change the jurisdiction to an appropriate court i.e., New Delhi or Assam. In furtherance of the same, the Gurgaon Commercial Court held in the favour of the Petitioners.
The Respondents then filed an appeal under Section 37 of the Act read with Section 13(1) of Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, at the Punjab and Haryana High Court. The Court held that the Court of Faridabad had the appropriate jurisdiction and that the respondents appeal was maintainable under Section 37, as Delhi was only a convenient forum. Aggrieved, the Petitioners approached the Supreme Court.
Whether the High Court of Punjab and Haryana erred in Law to grant an appeal under Section 37?
What is the effect of designating “Seat” in an arbitration?
Whether Delhi was the seat of the Arbitration?
The Supreme Court observed that Section 13(1) of the Commercial Courts Act did not give rise to an independent right to an appeal but provided an alternative forum for appeal. As Section 37 contains certain appeal, they are appealable under Section 13(1) Section 37 clearly sets that appeals should lie within sub-clauses (a), (b) and (c) only . The apex court observed that the impugned judgement had missed the words “under [S]ection 34” which meant that refusal to set aside arbitral award must be after the grounds set out in Section 34 have been adhered to the award in question and only then can the appeal fall under the ambit of Section 37(c).
The Supreme Court further referred to the infamous BALCO International case which set the precedence and stated that when a party selects a particular seat of arbitration, it confers an exclusive jurisdiction clause to all courts at the seat of arbitration for the purposes of interim orders and challenges to award. This would mean that choosing a seat gives the courts exclusive jurisdiction over the entire arbitration process. Secondly, it was held that the ratio of BALCO does not hold that two courts have concurrent jurisdiction and it is quite clear that choosing a seat amounts to choosing the exclusive jurisdiction of the courts at which the seat is located. Further, The Supreme Court observed that Section 42 of the Act has been inserted so as to avoid conflicts in jurisdiction of courts by placing the supervisory jurisdiction over all arbitral proceedings in one court exclusively. An application must be made to a court which has the jurisdiction to decide such an application. If a seat is not designated, the courts at the seat alone would have jurisdiction and in furtherance of the same, applications are to be made under Section 42. Lastly, a seat is not designated by the arbitration agreement alone; a convenient venue can be designated, giving several other courts the power to have a part in the cause of action. Section 9 allows interim relief before the commencement of arbitration (if the seat has not been determined by then) which can then be preferred in any court where a part of the cause of action has arisen. Such a case, allows the earliest court which has been approached, to have exclusive jurisdiction as per Section 42.
The Court also held that whenever there is no explicit designation given to the venue, the expression “arbitration proceeding” would imply automatic jurisdiction to the seat of arbitration. Further, the expression “shall be held” at a particular venue would anchor the arbitral proceedings to a particular place and signify that such a place is the seat of the proceeding.
After applying the facts of the case, the Court finally noted that the venue of the arbitration had been designated to be Faridabad. However, there is no contrary indication, that either Delhi or Faridabad is the designated seat under the arbitration agreement. It is therefore up to the party to select which of the two places would have jurisdiction.
The Court in this case set aside the award of the High Court and finally stated that - designating a seat amounts to exclusive jurisdiction of the courts at the seat and designating a ‘venue’ of the arbitration proceedings amounts to designating a seat, in absence of indicators to the contrary.