In the case of ISGEC Heavy Engineering Ltd. v. Indian Oil Corporation Ltd. (Arbitration Petition No. 164 of 2021), the High Court of Delhi discussed the difference between the ‘Venue’ and ‘Seat’ of Arbitration, and what would amount to the ‘Venue’ of Arbitration if no such Venue was stipulated by the Arbitration Clause.
FACTS
In the present petition, the Petitioner (Isgec Heavy Engineering Ltd.) filed an Arbitration Petition before the Delhi High Court (“the Court”) seeking appointment of Arbitrators according to terms of the General Condition of Contract (“GCC”), that was incorporated by reference under the Letter of Award dated 22.09.2016 (“LoA”) issued by the Respondent (Indian Oil Corporation Ltd.). Pursuant to the LoA, a ‘Formal Agreement for Work’ dated 26.09.2016 (“the Contract”) was executed at Guwahati.
The Arbitration Clause under the GCC, i.e., Clause 9.1, stated that “disputes arising out of … shall be referred to Arbitration by an Arbitral Tribunal comprised of 3 (three) Arbitrators selected in accordance with the provisions of the Arbitration & Conciliation Act, 1996.”
While the GCC did not specify the seat of Arbitration, Clause 9.1.2.0 of the GCC states that the ‘Venue’ of the Arbitration shall be New Delhi, provided that the Arbitrators may with the consent of the Parties agree upon any other venue.
Article 4 of the Contract, i.e., the Jurisdiction Clause, vests exclusive jurisdiction for “all actions and proceedings arising out of or relative to the contract (Including any arbitration In terms thereof) shall lie only in the Court of Competent Civil Jurisdiction in this behalf at GUWAHATI and the said Court(s) shall have jurisdiction to entertain and try such actions and/or proceeding(s) to the exclusion of all other courts.”
During the pendency of the Contract, the Respondent issued to the Petitioner a Suspension Order dated 06.08.2018, upon which the Petitioner exercised its right to terminate the Contract and later invoked Arbitration and nominated an Arbitrator. The Respondent, however, replied vide Letter dated 23.11.2020, that the invocation was premature and unsustainable. As a result, the present Petition was filed by the Petitioner.
ISSUES BEFORE THE COURT
Whether the Venue of the Arbitration is synonymous to the Seat of the Arbitration, and thereby whether the Petition is maintainable before the Hon’ble Delhi High Court?
CONTENTIONS OF THE PARTIES
The Petitioner contended that the Venue of Arbitration, as per Clause 9.1.2.0, is New Delhi and that the same is synonymous to the Seat of the Arbitration, as no express Seat was determined. Therefore, the Court at New Delhi has the jurisdiction to entertain the present petition.
In support of this argument, the Petitioner placed reliance on the Supreme Court’s decision in the noteworthy case of BGS SGS Soma JV v. NHPC Ltd [(2020) 4 SCC 234], which lays down the test for determining the Juridical Seat of Arbitration. It was held that when there is express designation of Venue, and no designation of an alternative place as the Seat, combined with a supranational body of rules governing the Arbitration, and no other significant contrary indicia, the Venue would ipso facto act as the Juridical Seat of the Arbitral proceedings.
Emphasis was also placed on the recent decision of the Supreme Court in the case of Inox Renewables Ltd. v. Jayesh Electricals Ltd. (2021 SCC OnLine SC 448), wherein it was held that when the terminology used is “Venue for the Arbitral proceedings”, it refers to the Arbitration Proceeding in whole and implies that the Venue is the Juridical Seat or place of the Arbitration under Section 20(1) of the Arbitration and Conciliation Act, 1996 (“the Act”).
The Respondent contended that the present Petition is not maintainable on the following four grounds. Firstly, the Respondent submitted that the Court lacks the territorial jurisdiction as Article 4 of the Contract stipulates that the competent and exclusive jurisdiction vests in the Civil Court at Guwahati.
Secondly, in terms of jurisdiction arising where the cause of action arose, all activities pertaining to the Contract were carried out in Guwahati and no cause of action arose in the territorial limits of Delhi, thereby not vesting territorial jurisdiction with the Delhi High Court.
The Respondent further pleaded that New Delhi was chosen merely as the geographical Venue and that Clause 9.1.2.0 allowed the parties to agree upon another Venue with prior consent, thus demonstrating that New Delhi was only a place of convenience for conducting Arbitration and not the Seat of the Arbitration.
Lastly, the Respondent relied upon the intention of the parties, that Section 20(3) of the Act itself allows for a change in Venue with consent of the parties. Therefore, it cannot be said that the parties have agreed to subject themselves to the exclusive jurisdiction of the Venue.
The Respondent also argued that it is well evident from the text of Article 4 of the Contract that the intention of parties was to submit to the exclusive jurisdiction of the competent Court at Guwahati.
DECISION AND FINDINGS
The Court noted that, although ‘Venue’ and ‘Seat’ have been used interchangeably in several agreements, they do not hold the same connotations. Since the words Venue and Seat have not been defined under the Act per se, reliance has to be placed on multiple pronouncements of the Supreme Court on the meaning of the said terms.
In BALCO v. Kaiser Aluminium Technical Services Inc. [(2012) 9 SCC 552], the Supreme Court held that under Section 20 of the Act, for the purposes of Sub-Sections (1) and (2), ‘place’ refers to the Juridical Seat; and for the purpose of Sub-Section (3), ‘place’ is synonymous to Venue of the Arbitration.
The Court stated that, for the purpose of Section 20(3) of the Act, Venue refers to the geographic location of the Arbitration; and where the Seat of Arbitration has been determined beforehand, it is implied that the parties have agreed to subject themselves to the exclusive jurisdiction of the Courts situated in such jurisdiction as the Seat.
Placing emphasis on the judgement in the BGS SGS Soma Case (supra), the Court held that when the Clause designates a place as ‘Venue for the Arbitration proceedings’, the expression ‘Arbitration Proceedings’ makes it evident that the Venue is actually the Seat of Arbitration Proceeding.
The Court also held that to determine whether the Venue is actually the Seat or merely the geographical location for the Arbitration Proceedings, the intention of the parties is of paramount importance.
The Arbitration Clause in the GCC determines Delhi as the Venue of the Arbitration, which can be subject to change upon the consent of the parties. However, it is Article 4 of the Contract which stipulates that the jurisdiction of disputes arising between the parties is to be exclusively vested with the competent court of jurisdiction at Guwahati.
Thus, the aforesaid provision serves as a ‘contrary indica’ which unambiguously declares that the jurisdiction shall be vested with the Civil Court at Guwahati only, and that Clause 9.1.2.0 of the GCC only indicates the Venue as a physical place of meeting under Section 20(3) of the Act. Based on this reasoning, the Court held that it does not have the jurisdiction to entertain the Petition and thereby dismissed the same.
AMLEGALS REMARKS
The debate of Venue versus Seat of the Arbitral Proceedings has been a prominent question of law ever since Arbitration has gained prominence as a flexible as well as reliable means of Alternative Dispute Resolution.
Although there are no specific definitions of the terms ‘Venue’ and ‘Seat’ provided under the Act, the Venue of the Arbitration generally refers to the geographical location of the proceedings whereas the Seat refers to the place where the Courts have supervisory and governing powers over the proceedings.
The confusion arises when parties have determined the Venue but not the Seat. A standard test to determine whether Venue in the Arbitration Clause refers to the Seat was laid down in the English case of Roger Shashoua & Ors. v. Mukesh Sharma [2009 EWHC 957 (Comm): (2009) 2 Lloyd’s Rep 376]. The “Shashoua Principle”, as it is referred to, states that when Venue is designated without determining the Seat, Venue is the Juridical Seat, provided that the Venue is for the Arbitral Proceedings and not for hearings or inspections.
The test was assimilated into the Indian law through the judgement in the BGS SGS Soma Case (supra) where Venue was held to be the Seat of Arbitration when:
- The Venue of Arbitration is designated in the Arbitration Clause but the Seat is not;
- There must be no contrary indication by the parties that the Venue is not the Seat of Arbitration (“Contrary Indica”).
This decision was reiterated in the case of M/s Inox Renewables Ltd (supra).
The decision of the Court with respect to the present Petition was justified on two grounds: Firstly, the Arbitration Clause states that the Venue is subject to change upon consent of the parties. This demonstrates that the Venue under Clause 9.1.2.0 of the GCC is simply the geographical location of meeting under Section 20(3) of the Act.
Secondly, the parties have, under Article 4 of the Contract, conferred exclusive jurisdiction to the Civil Court at Guwahati. This serves as the “Contrary Indica” mentioned above. Therefore, the test of Venue being the Juridical Seat of the Arbitral proceedings has not been fulfilled in the given case, as rightly observed by the Court.
Based on these grounds, the Court’s decision to dismiss the Petition is in consonance with Section 20 of the Act as well as the previous Supreme Court pronouncements on the same point of law.
For any queries or feedback, feel free to get in touch with rohit.lalwani@amlegals.com or riddhi.dutta@amlegals.com.
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