“Venue” of arbitration to be “Seat”of arbitration
A 3 member bench of SC comprising of Justice Rohinton Fali Nariman, Aniruddha Bose, V. Ramasubramanian in the matter of BGS SGS SOMA JV Vs NHPC LTD held that “Venue” of arbitration to be “Seat”of arbitration.
Provided contrary intention of the parties are not apparent. It differed from the view of a 3 member bench of SC in Hardy Exploration and declared it to be inconsistent with the decision of 5 member bench of SC in BALCO.
Justice Nariman categorically held as under:
“Further, the fact that the arbitral proceedings “shall be held” at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a “venue” and not the “seat” of the arbitral proceedings, would then conclusively show that such a clause designates a “seat” of the arbitral proceedings “.
The Court in the concluding order while descending with the decision on Hardy Exploration as given by a co-ordinate bench of same strength held as under:
96.The decision in Hardy Exploration and Production (India) Inc. (supra) is therefore contrary to the Five Judge Bench in BALCO (supra), in that it failed to apply the Shashoua principle to the arbitration clause in question. The Hardy Exploration and Production (India) Inc. (supra) decision would lead to the result that a foreign award would not only be subject to challenge in the country in which it was made, but also subject to challenge under Section 34 of Part I of the Arbitration Act, 1996, which would lead to the chaos spoken of in paragraph 143 of BALCO (supra), with the concomitant risk of conflicting decisions, as held in Venture Global Engineering (supra) [overruled in BALCO (supra)], which would add to problems relating to enforcement, and undermine the policy underlying the New York Convention and the UNCITRAL Model Law. We, therefore, declare that the judgment in Hardy Exploration and Production (India) Inc. (supra), being contrary to the Five Judge Bench in BALCO (supra), cannot be considered to be good law.
The Court emphasised on the 5 member bench decision of SC in BALCO and while discussing about the Shashoua principle decided as below:
97. Coming to the impugned judgment in the present appeals, it is clear that the reasoning followed stems from the subject-matter test that flows from the definition of ‘court’ in Section 2(1)(e)(i) of the Act.
According to the impugned judgment, since the agreement was executed at Faridabad, part of the cause of action would arise at Faridabad, clothing Faridabad courts with jurisdiction for the purposes of filing a Section 34 petition. The second part of the reasoning is that Faridabad is the place where the request for reference to arbitration was received, as a result of which part of the cause of action arose in Faridabad, which ousts the jurisdiction of Courts of New Delhi, in which no part of the cause of action arose.
98. We have extracted the arbitration agreement in the present case (as contained in Clause 67.3 of the agreement between the parties) in paragraph 3 of this judgment. As per the arbitration agreement, in case a dispute was to arise with a foreign contractor, clause 67.3(ii) would apply. Under this sub-clause, a dispute which would amount to an ‘international commercial arbitration’ within the meaning of Section 2(1)(f) of the Arbitration Act, 1996, would have to be finally settled in accordance with the Arbitration Act, 1996 read with the UNCITRAL Arbitration Rules, and in case of any conflict, the Arbitration Act, 1996 is to prevail (as an award made under Part I is considered a domestic award under Section 2(7) of the Arbitration Act, 1996 notwithstanding the fact that it is an award made in an international commercial arbitration). Applying the Shashoua principle delineated above, it is clear that if the dispute was with a foreign contractor under Clause 67.3 of the agreement, the fact that arbitration proceedings shall be held at New Delhi/Faridabad, India in sub-clause (vi) of Clause 67.3, would amount to the designation of either of these places as the “seat” of arbitration, as a supranational body of law is to be applied, namely, the UNCITRAL Arbitration Rules, in conjunction with the Arbitration Act, 1996. As such arbitration would be an international commercial arbitration which would be decided in India, the Arbitration Act, 1996 is to apply as well. There being no other contra indication in such a situation, either New Delhi or Faridabad, India is the designated “seat” under the agreement, and it is thereafter for the parties to choose as to in which of the two places the arbitration is finally to be held.