05 January 2020, Sunday

Which court has jurisdiction over the arbitral process? Et al. (Supreme Court of India)

BGS SGS Soma JV v. NHPC Ltd.

Court: Supreme Court of India | Case Number: CA No. 9307 of 2019 | Citation: SCC OnLine SC 1585 | Bench: RF Nariman, Aniruddha Bose & V Ramasubramanian JJ | Date: 10 December 2019

A. Preface–which court has jurisdiction over an arbitral process and, as a result, jurisdiction to set aside an award?

Courts in the arbitral seat can significantly affect arbitration proceedings when they are commenced or as they proceed. They are competent (usually exclusively competent) to entertain actions to annul or set aside the award.[1] [1] Gary B Born, International Commercial Arbitration (2nd ed., Kluwer Law International 2014). Show More

What was the Indian law position on court’s jurisdiction before BGS SGS Soma?

A 5-judge bench of the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 (“BALCO”), which declared the law on several key issues had considered the aspect of court’s jurisdiction too. It enunciated a theory of concurrent-jurisdiction. At paragraph 96, the court held that under the Arbitration and Conciliation Act, 1996 (“ACA”): -

         “The legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place.”

An example was also given at the same paragraph: –

        “For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, (Delhi having been chosen as a neutral place as between a party from Mumbai and the other from Kolkata) and the tribunal sitting in Delhi passes an interim order Under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order under Section 37 must lie to the Courts of Delhi being the Courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi. In such circumstances, both the Courts would have jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution, i.e., arbitration is located.”

Some latter cases (Enercon, Reliance and Indus–cited below) concluded that designation of the seat is akin to conferring exclusive jurisdiction on the seat-court.

A Delhi High Court judgment (Antrix, cited below) relying on a Bombay High Court judgment,[2] [2] Konkola Copper Mines v. Stewarts and Lloyds of India Limited, 2013 (4) ArbLR 19 (Bom). Show More struck “discordant notes.” It said that since BALCO “unmistakably” outlined the concurrent-jurisdiction principle both in the “substantive holding” of paragraph 96 “as well as the example …”, the ratio in Indus will have to be “restricted” considering BALCO.

Was there an internal conflict in the BALCO judgment? What was its true ratio? Was the Delhi High Court in Antrix right in its reading of BALCO? Again, which court has jurisdiction over the arbitral process?

B. The BGS v. NHPC case: conclusions summarized

This main issue of the court’s jurisdiction came to be considered and addressed in BGS by a 3-judge bench presided by RF Nariman J. An issue as to what orders are appealable, specifically under Section 37 ACA read with the Commercial Courts Act, 2015 (“Commercial Courts Act”) was also considered.

In sum, the BGS court concluded as follows: –

  1. Read properly, BALCO stands for the proposition that the seat-court has exclusive jurisdiction. Only when the parties do not choose the seat, or the seat has not been determined, the court where the cause of action arises will have jurisdiction.
  2. Wherever:
    1. there is an express designation of a “venue”, no designation of any alternative place as the “seat”, a supranational body of rules governs the arbitration (in an international context), and, there is no other significant contrary indicia—that venue is really the seat.
    2. the venue is designated with the words “arbitration proceedings” (that is, not just one or two hearings but proceedings as a whole), that venue is really the seat.
    3. a clause states that the arbitral proceedings “shall be held” at a particular venue, that venue is the seat in the absence of significant contrary indicia.
  3. Hardy (cited below), also a 3-judge bench decision of the Supreme Court, was decided contrary to BALCO.
  4. An order refusing to transfer a set-aside application to another court for lack of jurisdiction is not an order “refusing to set aside the award” so as to make it appealable under Section 37 ACA.

For the interested reader, this Update sets out below in a detailed fashion the various conclusions of the judgment and the reasoning processes deployed to reach those conclusions.

Let us first look at the facts.

C. The background facts and proceedings in BGS

    C1. An award is made in favour of BGS. Then, NHPC files a set-aside application, but the court sends the application to another court on the point of territorial jurisdiction.

The agreement between BGS and NHPC was signed in the State of Haryana at Faridabad.[3] [3] Construction contract relating to a hydropower project in Assam and Arunachal Pradesh. Show More It stipulated that the “arbitration proceedings shall be held at New Delhi / Faridabad.” Notices under the agreement were sent by the petitioner BGS to the respondent NHPC’s Faridabad office.

After arbitration commenced, the tribunal held seventy-one sittings at New Delhi. The award, in favour of BGS, was delivered at New Delhi.

NHPC filed in a Faridabad court an application under Section 34 ACA to set the award aside. In turn, BGS objected to the Faridabad court’s territorial jurisdiction by filing an application under Order VII Rule 10 of the Code of Civil Procedure, 1908 (“CPC”)[4] [4] This provision empowers the court to return a plaint to be presented to the court in which the suit should have been instituted. Show More seeking a return of the Section 34 application to an appropriate court at New Delhi and/or Assam. This application was allowed [5] [5] This application was considered by a commercial court at Gurgaon. The case was transferred intra-state from Faridabad to Gurgaon, where a commercial court had been set up. Show More returning the set-aside application for presentation before a court at New Delhi.

    C2. NHPC appeals the transfer order in the High Court. Was such an appeal maintainable under the ACA? If so, which court had jurisdiction?

NHPC filed an appeal under Section 37 ACA[6] [6] Section 37 Appealable orders. (1) Notwithstanding anything contained in any other law for the time being in force, an appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely: —
(a) refusing to refer the parties to arbitration under section 8;
(b) granting or refusing to grant any measure under section 9;
(b) setting aside or refusing to set aside an arbitral award under section 34
Show More
read with Section 13(1) of the Commercial Courts Act[7] [7] 13. Appeals from decrees of Commercial Courts and Commercial Divisions. — (1) Any person aggrieved by the judgment or order of a Commercial Court below the level of a District Judge may appeal to the Commercial Appellate Court within a period of sixty days from the date of judgment or order.
(1A) Any person aggrieved by the judgment or order of a Commercial Court at the level of District Judge exercising original civil jurisdiction or, as the case may be, Commercial Division of a High Court may appeal to the Commercial Appellate Division of that High Court within a period of sixty days from the date of the judgment or order:
Provided that an appeal shall lie from such orders passed by a Commercial Division or a Commercial Court that are specifically enumerated under Order XLIII of the Code of Civil Procedure, 1908 (5 of 1908) as amended by this Act and section 37 of the Arbitration and Conciliation Act, 1996 (26 of 1996).
(2) Notwithstanding anything contained in any other law for the time being in force or Letters Patent of a High Court, no appeal shall lie from any order or decree of a Commercial Division or Commercial Court otherwise than in accordance with the provisions of this Act.
Show More
before the High Court of Punjab and Haryana.

The High Court had to consider two questions: –

  1. which court had jurisdiction to decide the set-aside application; and
  2. a question on maintainability–whether Section 37 of the ACA permitted to appeal against an order, made in a Section 34 proceedings, deciding territorial jurisdiction?

Let us first see what the High Court said on maintainability. It examined the provisions of the ACA, referred to several authorities which had discussed the scope of Section 37 ACA[8] [8] Including Kandla case (cited below) Show More and concluded that:

  1. No doubt there is a statutory bar under Section 37 to hear appeals arising out of an arbitral award except when the court has ‘set aside’ or ‘refused to set aside’ such award under Section 34.
  2. However, a refusal to enter the merits of the set-aside grounds (by not entertaining the petition on jurisdictional grounds) would amount to ‘refusing to set aside’ the award.
  3. The argument that a party cannot complain of being remediless if the statute does not provide an appeal is untenable in view of the maxim ‘ubi jus ibi remedium’ (where there is a right there must be a remedy).

On the question of court’s jurisdiction vis-a-vis the seat, the High Court (in the words of the Supreme Court) concluded that the arbitration agreement does not refer to the “seat” of arbitration, but only to the “venue”. It then held that since part of the cause of action arose in Faridabad, and the Faridabad court was approached first, it alone and not the Delhi court would have jurisdiction over the arbitral process.

D. The Supreme Court’s decision in BGS v. NHPC

BGS went to the Supreme Court in September 2018 some days before the judgment in Hardy (cited below) came out (on 25 September 2018).[9] [9] On 28 November 2018, the 2-judge bench (RF Nariman & Indu Malhotra JJ) granted a stay on the judgment of the High Court. The hearing concluded on 27-28 November 2019, and the judgment was reserved on 28 November 2019. It was pronounced on 10 December 2019. Show More

Again, the two questions that were before the High Court were before the Supreme Court too—maintainability of appeal and jurisdiction of the court.

    D1. On maintainability—what appeals are permitted under the ACA, specifically Section 37?

The court held that an order passed in a set-aside proceeding by which a court concludes it does not have jurisdiction and returns the set-aside application to an appropriate court does not amount to refusing to set aside, and hence is not appealable. Closely looked, this conclusion was reached via a five-pronged reasoning process: –

  1. Firstly, the court discussed the scope of Section 37. It referred to a 2-judge bench decision in Kandla Export Corporation and another v. OCI Corporation and another, (2018) 14 SCC 715 (RF Nariman & Navin Sinha JJ) and reiterated that: –
    1. there is no independent right of appeal under Section 13(1) of the Commercial Courts Act. It merely provides the forum for filing appeals.
    2. Section 37, which alone must be looked at to determine whether the appeal is maintainable, makes it clear that appeals shall only lie from the orders set out in sub-clauses (a), (b), and (c) and from no others.
  2. Secondly, the court specifically examined if the order in question amounts to “refusing to set aside an arbitral award under Section 34”.[10] [10] The High Court had recognized that an appeal was maintainable only under Section 37 but held that this appeal came within the purview of Section 37 (1) (c) of the ACA. Show More Concluding that it is not, the court reasoned: –
    1. An order under Order VII CPC returning a plaint to be presented to a proper court is appealable under Order XLIII CPC. A provision like this is conspicuous by its absence under Section 37 ACA, which alone can be looked at.
    2. The High Court missed the words “under section 34”. This expression means that the refusal to set aside an arbitral award must be under Section 34, that is, after the grounds set out in Section 34 have been applied to the arbitral award and turned down.
  3. Thirdly, the court cited with approval the Delhi High Court’s judgment in Hamanprit Singh Sidhu v. Arcadia Shares & Stock Brokers Pvt. Ltd., 2016 234 DLT 30 (DB)[11] [11] See the India Kanoon link to this judgment here. Show More (Badar Durrez Ahmed & Ashutosh Kumar JJ) where the High Court had concluded that an appeal against an order condoning delay (in filing the set-aside proceedings) was not maintainable because such an order is neither setting aside nor refusing to set aside. This reasoning of the High Court, the Supreme Court said, “commends itself to us.”
  4. Fourthly, the court noted those judgments where a “well-settled proposition was elucidated, i.e. that an appeal is a creature of statute, and must either be found within the four corners of the statute or not be there be at all.[12] [12] Municipal Corporation of Delhi v. International Security & Intelligence Agency Ltd., (2004) 3 SCC 250; Arcot Textile Mills Ltd. v. Regional Provident Fund Commissioner, (2013) 16 SCC 1. Show More The Delhi High Court’s judgment in South Delhi Municipal Corporation v. Tech Mahindra, EFA (OS) (Comm.) 3 of 2019 was particularly noted in which the Delhi High Court had concluded that an order directing deposit of 50% of the awarded amount was not appealable.[13] [13] S Ravindra Bhat & Prateek Jalan JJ. On the concept of the right to appeal, the Delhi High Court in Tech Mahindra cited Supreme Court’s Ganga Bai v. Vijay Kumar, (1974) 2 SCC 393 in which the court had “explained pithily” that right to sue is inherent. Anyone can sue anyone unless the statute bars it. But the right to appeal inheres in no one, it is a creature of statute. Show More
  5. Fifthly, the court disagreed with the division bench judgment of the Delhi High Court in Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd., 2018 SCC OnLine Del 9338,[14] [14] S Ravindra Bhat & Yogesh Khanna JJ decided on 30 May 2018 (reserved on 06 December 2017). Show More which was cited by the respondent NHPC, and said it “would have no application”[15] [15] In a Section 9 ACA proceedings for grant interim measure, Antrix was directed to disclose its financials so that the court could make consequential orders. The Supreme Court noted that the High Court (in appeal) considered this order itself as an order granting a measure under Section 9 (that is, an appealable order). The further reasoning of the High Court’s appellate bench was that this order also was in aid of an interim order. The BGS court disagreed with this reasoning and held that a step towards an interim order would not amount to granting, or refusing to grant, any measure under Section 9. Show More and is “also distinguishable.”[16] [16] One effect of the order of the single judge was that another court in which proceedings were filed under the ACA could not proceed further. This was a final order (thus presumably, “granting, or refusing to grant, any measure under Section 9”). Show More

    D2. Which court has jurisdiction? What did BALCO really hold?

The court considered this central issue in four parts: –

  1. Firstly, the court considered the existing Indian law position. It examined BALCO, subsequent decisions, the Antrix case and concluded that BALCO had an internal inconsistency and properly read the court of the arbitral seat (if specified or determined) has exclusive jurisdiction.
  2. Secondly, the court considered the test for the determination of the seat.
  3. Thirdly, the court considered the decision in Hardy and concluded it was decided contrary to BALCO.
  4. Fourthly, the court then determined that in the facts of the BGS case, New Delhi was the arbitral seat.

    D3. BALCO and its concurrent jurisdiction theory

The court concluded that the concurrent jurisdiction theory of BALCO is not its real ratio because if the seat is designated or determined (even as per the dominant BALCO principle) only the seat court has exclusive jurisdiction. The court arrived at this conclusion via seven-pronged reasoning: –

  1. Firstly, the court noted the provisions of the Arbitration Act, 1940, the UNCITRAL Model Law, and of the ACA to set a background noting that: –
    1. The 1940 Act did not refer to the “juridical seat” of arbitral proceedings at all. The UNCITRAL Model Law introduced the concept of “place” or “seat” of the arbitral proceedings. The ACA adopted the UNCITRAL Model Law.
    2. Different provisions in Part 1 of the ACA refer to the “place” of arbitration and indicate which court would have jurisdiction in relation to arbitral proceedings. For example, “Court” is defined in Section 2 (1) (e); Section 20 (1) and (2) refers to the “place” (or seat) of arbitration.
    3. Though the ACA gives importance to the new concept of the juridical seat, the relationship of “seat” with the jurisdiction of courts was unclear and had to be developed in accordance with international practice on a case by case basis by the Supreme Court.
  2. Secondly, the BGS court then referred to the BALCO judgment, and how it made a proper distinction between the concept of “seat”. But, on the point of court’s jurisdiction, the BGS court said, there were internal contradictions in BALCO: –
    1. There is a contradiction in the BALCO judgment in paragraph 96 (SCC version).
    2. A reading of paragraphs 75, 76, 96, 110, 116, 123, and 194 of BALCO (SCC version) would show that where parties have selected the seat of arbitration, the selection would amount to an exclusive jurisdiction clause (that is, only the court where the seat is, would have jurisdiction). The example given in paragraph 96 buttresses this proposition. Read as a whole, BALCO applies the concept of “seat” (following English judgments) by harmoniously construing Section 20 with Section 2(1)(e), so as to broaden the definition of “court” and bring within its ken courts of the “seat” of the arbitration.
    3. However, this proposition is contradicted when paragraph 96 speaks of the concurrent jurisdiction of courts.
  3. Thirdly, after having noted that there was a contradiction in the judgment, the BGS court referred to the principles as to how a court’s judgment and/or its ratio discerned/interpreted: –
    1. Judgments of courts are not to be construed as statutes, neither are they to be read as Euclid’s theorems. All observations made must be read in the context in which they appear. [citing Amar Nath v. Om Prakash State of Punjab, (1985) 1 SCC 345, Union of India v. Amrit Lal Manchanda, (2004) 3 SCC 75 and several English authorities].
    2. In any case, a judgment must be read as a whole, so that conflicting parts may be harmonised to reveal the true ratio of the judgment. However, if this is not possible, and it is found that the internal conflicts within the judgment cannot be resolved, then the first endeavour that must be made is to see whether a ratio decidendi can be culled out without the conflicting portion. If not, then the binding nature of the precedent on the point on which there is a conflict in a judgment comes under a cloud [citing Lord Denning’s opinion in Harper v. National Coal Board, (1974) 2 All ER 441. The quite interesting facts of Harper and Lord Denning’s relevant remarks are footnoted in the BGS judgment].
  4. Fourthly, then, the BGS court held that, if paragraphs 75, 76, 96, 110, 116, 123, and 194 of BALCO are to be read together, it will be clear that the definition of “Court” in Section 2(1)(e) has to be construed keeping in view Section 20 ACA.[17] [17] Which the court noted gives recognition to party autonomy having accepted the territoriality principle in Section 2(2), following the UNCITRAL Model Law. Show More As to the approach to such construction, the court added a preface that a narrow construction of Section 2(1)(e) was expressly rejected by BALCO (that is, the construction should be broad).
  5. Fifthly, then, the court’s analysis segued into “the effect Section 20 would have on Section 2 (1) (e) of the [ACA].” In this course, the court referred to Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited, (2017) 7 SCC 678, the Law Commission’s Report of 2014, amendments made to the ACA in 2015, and concluded that if “the conflicting portion of the judgment of BALCO in paragraph 96 is kept aside for a moment, the very fact that parties have chosen a place to be the seat would necessarily carry with it the decision of both parties that the Courts at the seat would exclusively have jurisdiction over the entire arbitral process.” (emphasis added)
  6. Sixthly, the BGS court then noted that “subsequent Division Benches of this Court (that is subsequent to Indus) have understood the law to be that once the seat of arbitration is chosen, it amounts to an exclusive jurisdiction clause for courts at that seat. The following judgments were referred (in addition to referring to Indus again): –
    1. Enercon (India) Ltd. v. Enercon GmbH, (2014) 5 SCC 1: “once the seat of arbitration has been fixed in India, it would be in the nature of exclusive jurisdiction to exercise the supervisory powers over the arbitration.”
    2. Reliance Industries Ltd. v. Union of India, (2014) 7 SCC 603: “it is too late in the day to contend that the seat of arbitration is not analogous to an exclusive jurisdiction clause.”
  7. Seventhly, the BGS court overruled the judgment of a 2-judge bench of the Delhi High Court in Antrix.[18] [18] S Ravindra Bhat & Yogesh Khanna JJ. Show More Antrix had distinguished Justice Nariman’s authored judgment in Indus. Its reasoning was that under the BALCO principle two courts have concurrent jurisdiction: the seat court and the court within whose jurisdiction the cause of action arises. Antrix then gave “a restricted meaning to Indus by stating that in Indus parties had designated seat and also specified that seat court would have exclusive jurisdiction (therefore, excluding by agreement jurisdiction of the cause-of-action court, which otherwise had jurisdiction). Lastly, Antrix also held that Section 42 of the ACA would be ineffective and useless if the seat were equal to the exclusive jurisdiction clause, as that section presupposes there is more than one court of competent jurisdiction.[19] [19] Antrix also noted that “only those few situations where parties do not actually designate any seat (and thus no exclusive competence is conferred on one forum) would Section 42 have any role.” Show More
  8. The BGS court held that the view taken in Antrix, which followed the Bombay High Court judgment, “does not commend itself to us.” It overruled Antrix and the Bombay High Court judgment for the following reasons: –
    1. First and foremost, it is incorrect to state that the example given in paragraph 96 of BALCO reinforces the concurrent jurisdiction aspect of the said paragraph. The conclusion that the Delhi, as well as the Mumbai or Kolkata courts, would have jurisdiction in the example given in the said paragraph is wholly incorrect, given the sentence: -

                “[t]his would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi.”

    2. Thus, BALCO does not “unmistakably” hold that two courts have concurrent jurisdiction.
    3. What is missed by these High Court judgments is the subsequent paragraphs in BALCO, which clearly and unmistakably state that the choosing of a “seat” amounts to the choosing of the exclusive jurisdiction of the courts at which the “seat” is located.
    4. What is also missed are the judgments of the Supreme Court in Enercon (India) Ltd. v. Enercon GmbH,[20] [20] SS Nijjar & FM Ibrahim Kalifulla JJ. Decided on 14 February 2014. Show More (2014) 5 SCC 1, and Reliance Industries Ltd. v. Union of India,[21] [21] SS Nijjar & Dr. AK Sikri JJ. Decided on 28 May 2014. Show More (2014) 7 SCC 603.
    5. Equally, the ratio in Indus is contained in paragraphs 19 and 20. Two separate and distinct reasons are given for concluding that courts at Mumbai alone would have jurisdiction. The first reason was that the seat was designated as Mumbai. The second was that in any case where more than one court can be said to have jurisdiction, parties can choose one over the other, and in this case, parties made the choice by saying Mumbai has exclusive jurisdiction. Both are independent reasons and it is wholly incorrect to say that Indus has a limited ratio decidendi contained in paragraph 20 alone, and paragraph 19, if read by itself, would run contrary to BALCO.
    6. Equally incorrect is the finding in Antrix that Section 42 of the ACA would be rendered ineffective and useless. Where a seat is designated in an agreement, it would require that all applications under Part I be made only in the court where the seat is located. So read, Section 42 is not rendered ineffective or useless.
    7. Also, where either no “seat” is designated, or the so-called “seat” is only a convenient “venue”, or before the tribunal determines seat, there may be several courts where a part of the cause of action arises that may have jurisdiction. In both these situations, the earliest application having been made to a court in which a part of the cause of action arises would then be the exclusive court under Section 42, which would have control over the arbitral proceedings.

    D4. Tests for determination of seat

The court then addressed the issue of tests of determination of seat. It started by noting that “the judgments of the English Courts have examined the concept of the “juridical seat” of the arbitral proceedings, and have laid down several important tests in order to determine whether the “seat” of the arbitral proceedings has, in fact, been indicated in the agreement between the parties.”

It relied on a host of authorities, primary among them being the English judgment in Roger Shashoua and others v. Mukesh Sharma [2009] EWHC 957 (Comm). It repeated the English Shashoua principle and said “it will thus be seen that wherever there is an express designation of a “venue”, and no designation of any alternative place as the “seat”, combined with a supranational body of rules governing the arbitration, and no other significant contrary indicia, the inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding.”

The court then indicated the presence or absence of what language in the arbitration agreement would determine the issue one way or the other:

  1. Whenever there is the designation of a place of arbitration in an arbitration clause as being the “venue” of the arbitration proceedings, the expression “arbitration proceedings” would make it clear that the “venue” is really the “seat” of the arbitral proceedings. This is so because the expression “arbitration proceedings” does not include just one or more individual or particular hearings, but the arbitration proceedings as a whole, including the making of an award at that place.
  2. The aforesaid language has to be contrasted with language such as “tribunals are to meet or have witnesses, experts or the parties” where only hearings are to take place in the “venue”, which may lead to the conclusion, other things being equal, that the venue so stated is not the “seat” of arbitral proceedings, but only a convenient place of meeting.
  3. 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.
  4. In an international context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that “the venue”, so stated, would be the seat of the arbitral proceedings. In a national context, this would be replaced by the Arbitration Act, 1996 as applying to the “stated venue”, which then becomes the “seat” for the purposes of arbitration.

    D5. The judgment in Hardy Exploration was incorrect

The petitioner BGS had argued that the 3-judge bench decision in Union of India v. Hardy Exploration, 2018 SCC Online 1640 was contrary to BALCO and because of the confusion created by Hardy, the High Court arrived at the conclusion that New Delhi was not the “seat”, but the venue.
The court, therefore, was “exhorted” to consider the “correctness of the judgment in Hardy Exploration …”. In Hardy, the arbitration clause had provided that the “arbitration proceedings shall be conducted in accordance with the UNCITRAL Model Law …”. Further, the venue of arbitration proceedings shall be Kuala Lumpur. The Hardy court had concluded that Kuala Lumpur was not the seat or place of arbitration.

The BGS court accepted the argument that Hardy was contrary to BALCO and held:

  1. The fact that BALCO had expressly approved the principle laid down in the English Shashoua was stated in (the Indian case) Roger Shashoua v. Mukesh Sharma, (2017) 14 SCC 722.
  2. The Hardy court did not apply the English Shashoua. By failing to do so, Hardy did not follow the law as to the determination of seat of arbitration, as laid down in BALCO.
  3. Therefore, the decision in Hardy was incorrect in its conclusion that the stated venue of arbitration need not be the juridical seat unless there are concomitant factors that indicate that the parties intended for the venue to also be the seat. Had the English Shashoua principle been applied, the answer in Hardy would have been that Kuala Lumpur, which was stated to be the “venue” of arbitration proceedings, was the juridical “seat” of the arbitration.
  4. Instead, by allowing Indian law to apply, the result in Hardy is that a foreign award delivered in Kuala Lumpur, would now be liable to be challenged both in the courts at Kuala Lumpur, and also the courts in India under Section 34 of Part I of the ACA. This is exactly the chaos contemplated in paragraph 143 of BALCO because of which Venture Global Engineering case was overruled.

    D6. The seat in the BGS case and the court’s jurisdiction

The court concluded that New Delhi / Faridabad had been designated as the seat of the arbitration under the contract. However, given the fact that the proceedings were finally held at New Delhi, and the awards were signed in New Delhi, and not at Faridabad, both parties had chosen New Delhi as the “seat” of arbitration under Section 20(1) ACA.

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