Seat v. Venue Debate: The Saga Continues



[This article is authored by Raghav Bhatia, an alumnus of JGLS, Sonipat, and Aryaman Kapoor, a second-year law student of JGLS, Sonipat.]


Keywords: seat, venue, domestic arbitration, jurisdiction


Introduction

Recently, the Supreme Court of India (“Supreme Court”) in M/s Ravi Ranjan Developers Pvt. Ltd. v. Aditya Kumar Chatterjee held that a High Court cannot decide an application under Section 11(6) of the Arbitration and Conciliation, 1996 (“Arbitration Act”) if no cause of action arose within its territorial jurisdiction. In deciding this, the Supreme Court also attempted to settle the debate between seat and venue. This article seeks to critically examine this decision of the Supreme Court and understand its possible impact on continuing the seat v. venue saga.


Facts

M/s Ravi Ranjan Developers Pvt. Ltd. (“Appellant”) and Aditya Kumar Chatterjee (“Respondent”) had entered into a Development Agreement (“contract”) dated June 15, 2015, to develop a property located in Muzaffarpur, Bihar. The contract contained an arbitration clause which provided that “the sitting of the said Arbitral Tribunal shall be at Kolkata”.


When disputes arose between the parties, the Respondent terminated the contract on April 24, 2019. In response to the termination of the contract, the Appellant filed a Petition before the Real Estate Regulatory Authority on May 15, 2019. Following this, the Respondent filed an Application for interim protection under Section 9 of the Arbitration Act at the District Court of Muzaffarpur, and sent a notice to the Appellant invoking the arbitration clause contained in their contract. Thereafter, the Respondent also approached the Calcutta High Court under Section 11(6) of the Arbitration Act for appointment of an Arbitrator. In response, the Appellant challenged the territorial jurisdiction of the High Court to decide the Petition under Section 11(6) in the present case.


Proceedings before the High Court

By an order dated August 13, 2021, the High Court allowed the Petition under Section 11(6) of the Arbitration Act and appointed a retired High Court judge as the sole arbitrator. The said order of the High Court was challenged in review by the Appellant. However, the High Court rejected the same by an order dated October 4, 2021. Aggrieved by the same, the Appellant approached the Supreme Court.


Issue before the Supreme Court

Whether the High Court had jurisdiction to decide the Application filed by the Respondent under Section 11(6)?


Decision of the Supreme Court

The Respondent submitted that the judgement of the Calcutta High Court was passed with the consent of the parties. Furthermore, the Respondent also contended that the Appellant had acquiesced to the same by appearing in the arbitration proceedings.


At the outset, the Supreme Court noted that the Appellant did not accept the order of the Calcutta High Court. In fact, the Appellant had filed a Review Petition which was dismissed on October 4, 2021. Even during the arbitration proceedings, there was nothing in the opinion of the Supreme Court which showed that the Appellant willingly submitted to arbitration. Rather, the Appellant had only agreed to the fees of the arbitrator, which would not prove anything.


The Supreme Court agreed with the Appellant that an order passed without jurisdiction can be questioned at any stage. In the opinion of the Supreme Court, the Calcutta High Court did not have territorial jurisdiction to appoint an arbitrator. Placing reliance on Section 2(1)(e) of the Arbitration Act, the Supreme Court noted that in the present case, no proceedings could have been initiated “in any Court over which the Calcutta High Court exercises jurisdiction”, because the dispute pertains to an immovable property situated outside the territorial jurisdiction of the Calcutta High Court. Further, the contract between the parties was executed and registered in Muzaffarpur and, no cause of action had arisen within the territorial jurisdiction of the Calcutta High Court. Finally, the Appellant “neither resides nor carries on any business within the jurisdiction of the Calcutta High Court”.


The Supreme Court observed that Sections 2(1)(e) and 11(6) of the Arbitration Act cannot be read in isolation. Thus, an application for the appointment of an arbitrator under Section 11(6) of the Arbitration Act cannot be moved in any High Court, and only the High Court which has territorial jurisdiction can appoint an arbitrator. Harmoniously reading Section 11(6) with Section 2(1)(e), the Supreme Court observed that it is the High Court having supervisory jurisdiction over the jurisdictional civil court under Section 2(1)(e), which would also be the jurisdictional High Court under Section 11(6).


Placing reliance on Section 42 of the Arbitration Act, the Appellant submitted that since an Application under Section 9 was filed at the District Court of Muzaffarpur, the Respondent cannot invoke the jurisdiction of the Calcutta High Court. Rejecting this argument, the Supreme Court noted that the said provision cannot have any bearing to an application made under Section 11(6) as an application under Section 11(6) can only be made before a High Court. Therefore, Section 42 is inapplicable to an application under Section 11(6), except where the previous proceedings were also instituted in a High Court.


On the issue of the seat of arbitration, the Respondent submitted that the seat as contemplated in the arbitration agreement was Kolkata, and therefore the Calcutta High Court had jurisdiction to decide the Section 11(6) Application. To buttress this submission, the Respondent relied on Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited (“Indus Mobile”), Hindustan Construction Company Limited v. NHPC Limited (“Hindustan Construction”) and BGS SGS Soma JV v. NHPC Limited (“BGS SGS Soma”).


In Hindustan Construction, the Supreme Court observed that once a seat of arbitration has been designated, the same is equivalent to an exclusive jurisdiction clause and only the Courts “within whose jurisdiction the seat was located, would have jurisdiction to the exclusion of all other courts”. However, the Supreme Court in the present case distinguished the ruling in Hindustan Construction, observing that the judgement therein was rendered in light of its peculiar facts and circumstances. The Supreme Court also distinguished the judgement in BGS SGS Soma, observing that it was in the context of an international arbitration seated outside India. In contrast, on a perusal of the contract in the present dispute, the Supreme Court held that Kolkata was only “the venue for holding the sittings of the Arbitral Tribunal” and not the seat of arbitration.


The Supreme Court placed reliance on Union of India v. Hardy Exploration and Production (India) INC (“Hardy Exploration”) andMankastu Impex Private Limited v. Airvisual Limited (“Mankastu”), which laid down that the seat of arbitration and venue of arbitration are not interchangeable concepts, and the seat of arbitration can be determined only by looking at the other clauses of the agreement and the parties conduct.


The Supreme Court observed that in the present contract, the parties did not choose Kolkata as the seat of arbitration. Rather, Kolkata was only opted as a venue of arbitration. This was also evident from the fact that the Respondent themselves approached the Muzaffarpur District Court under Section 9 of the Arbitration Act. In the opinion of the Supreme Court, as neither any cause of action arose in Kolkata, nor was it the seat of Arbitration, the Calcutta High Court lacked jurisdiction to decide the application under Section 11(6).


Therefore, the Supreme Court allowed the appeal and set aside the order of the High Court appointing an arbitrator.


Analysis

At the outset, it must be submitted that to answer the issue, the Supreme Court in the present case was not required to consider the jurisdiction where the cause of action had arisen, where the agreement was executed, or where the property was located. In Indus Mobile, it was observed that once the seat is determined, the courts of that jurisdiction alone would have jurisdiction “for purposes of regulating arbitral proceedings arising out of the agreement between the parties”. Thus, the Supreme Court in the present case should have straightaway determined the seat of the arbitration to decide whether the Calcutta High Court had jurisdiction to decide the application under Section 11(6).


Further, and more importantly, this judgement adds to the confusion surrounding the seat v. venue debate in India. In BGS SGS Soma, the Supreme Court had said that where the seat has not been designated in the arbitration clause and only the venue has been stated, then subject to “no other significant contrary indicia”, it is the venue which becomes the seat of arbitration.


However, without discussing these two judgements in detail, the Supreme Court observed that Kolkata was only the venue of the arbitration. In the authors’ opinion, there were no ‘significant contrary indicia’ in this case which suggested that the parties never intended to make Kolkata the seat of arbitration.


In the Supreme Court’s opinion, the parties never had an intention to designate Kolkata as the seat of arbitration merely because the respondent had “himself approached the District Court at Muzaffarpur, and not a Court in Kolkata for interim protection under Section 9 of the A&C Act”. Therefore, the Supreme Court has looked at the conduct of a party (the Respondent) to observe that Kolkata was never intended to be the seat of arbitration. The authors respectfully submit that merely because a party has approached a court of another jurisdiction under Section 9 of the Arbitration Act, it cannot be said that the parties did not agree to designate the seat of arbitration as Kolkata.


The Supreme Court’s reasoning in the present case is in line with its earlier rulings in Hardy Exploration and Mankastu, which have opined that “seat of arbitration and venue of arbitration cannot be used interchangeably”, and merely stating the place or venue of arbitration is not determinative of the seat of arbitration. Therefore, in both these judgements, the Supreme Court had emphasised the need to consider additional factors, such as the conduct of parties in determining the seat of arbitration.


Hardy and Mankastu, in the authors’ opinion, do not explain objectively how a seat can be determined where the arbitration agreement does not specify one. Looking at ‘other clauses of the contract and/or the conduct of parties’ leaves a lot of room for subjectivity. On the other hand, the test to determine the seat as laid down in BGS SGS Soma is more objective.


Interestingly all the three judgements (Hardy, BGS SGS Soma and Mankastu) have been rendered by three-judge benches. The ratio in BGS SGS Soma is completely opposite to what has been opined in Hardy and Mankastu. Another issue is whether the Supreme Court could have commented on the correctness of Hardy in BGS SGS Soma. Therefore, until a larger Bench settles the debate on seat v. venue, the Indian position on this point of law will continue to remain muddled and confusing.

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