Gunjan
Implied Designation of Seat in a Domestic Arbitration
Gunjan Chhabra 28 Aug 2020

Implied Designation of Seat in a Domestic Arbitration

-Gunjan Chhabra[1]

Arbitration remains one of the preferred dispute resolution mechanisms for commercial disputes globally. It has been said that the reason behind Arbitrations’ global popularity is due to the bindingness of award passed by arbitral tribunal and autonomy which it provides to parties i.e., to select the laws applicable on the dispute, like law governing the arbitration agreement, substantive law, and curial law.

Generally, arbitration agreement consists of three types of laws which are-

1)  law governing the arbitration agreement and the performance of that agreement;

2)  law governing the existence and proceedings of the arbitral tribunal (the lex arbitri);

3)   law, or the relevant legal rules, governing the substantive issues in dispute (generally described as the ‘applicable law’, the ‘governing law’, ‘the proper law of the contract’, or ‘the substantive law’).[2]

Law governing the arbitration agreement decides the seat of arbitration. The courts located at seat would have supervisory jurisdiction over the arbitration. However, in the case of Aarka Sports Management Pvt. Ltd. Vs.  Kalsi Buildcon Pvt. Ltd[3](“Kalsi Buildcon”), arbitration agreement only provided for an exclusive jurisdiction clause, and that too a little ambiguously. It is pertinent to point out that in this case there was no mention of seat or law governing the arbitration.

 

IMPORTANT ASPECTS OF THE KALSI BUILDCON CASE

In the Kalsi Buildcon case, one party had approached the Delhi High Court for appointment of Arbitrator under Section 11 of the Arbitration & Conciliation Act, 1996. The other party had taken an objection that the Petition was not maintainable as Delhi was neither the seat of the arbitration, nor any cause of action had arisen in New Delhi, as the agreement was drawn at Ranchi and the Agreement was signed at Lucknow. Thus Delhi High Court was required to delve  into the  issue of, which Court would have jurisdiction to entertain the Petitioner under Section 11, considering the peculiar arbitration clause between the parties.

The parties entered into an operation, maintenance and management Agreement dated 16th March,2018 (“Agreement”). The Agreement between the parties was entered into at Lucknow and was to be performed at Patna. No party to the contract was located or carried on business within the territory of Delhi. The said contract provided for arbitration as the dispute resolution mechanism. We are reproducing the arbitration clause contained in the Agreement for ease of reference:

“

Arbitration clause

15. Governing Law, Jurisdiction & Dispute Resolution

 

15.1 This Agreement shall be governed by and construed in accordance with the laws of India and subject to clauses 15.2 and 15.3, the jurisdiction of this Agreement shall be exclusively in the courts of New Delhi, India.

 

15.2 Negotiation: The Parties shall negotiate in good faith and use reasonable efforts to settle any dispute, difference or claim raised, arising out of or in connection with this Agreement including the construction, validity, execution, performance, termination or breach hereof (hereinafter referred to as 'Dispute'). In the event that the Parties are unable to reach a resolution within 30 (thirty) days of the start of Dispute the same shall be settled by binding arbitration.

 

15.3 Arbitration: Any Dispute which is not settled by Mediation, shall be determined by Arbitration under the Arbitration and Conciliation Act, 1996, as amended by the Arbitration and Conciliation (Amendment) Act, 2015. The Arbitration shall be conducted before a sole arbitrator appointed with the mutual consent of both Parties. If the Parties are unable to reach an agreement on the choice of an arbitrator within 30 days of the Notice of Arbitration by either Party, the Parties shall approach the court of proper jurisdiction for appointment of arbitrator."

 

                                                                                                                        (emphasis supplied)

Thus, the question before Delhi High Court in this case was that whether Delhi High Court has power to appoint arbitrator in the present matter under Section 11 of the Indian Arbitration Act, 1996.

The Delhi High Court relied on Section 2(1) (e) of the Indian Arbitration Act, 1996 and held that in cases where parties failed to mention seat, as happened in this case, then only court of competent jurisdiction has authority to entertain the application under section 11 of the Indian Arbitration Act of 1996. Court of competent jurisdiction can be determined with the help of Section 16 to Section 20 of the code of civil procedure. Since Delhi High Court wasn’t court of competent jurisdiction according to Section 16 to Section 20 of the code of civil procedure, thus court dismissed the petition for appointment of arbitrator. In regard to specific jurisdiction clause, court held that the parties cannot confer jurisdiction on a Court which otherwise has no jurisdiction.

 

MUSINGS ON AN EXCLUSIVE JURISDICTION CLAUSE

As noticed above the clause in the contract mentioned a couple of things:-

(i)             No designation or seat or venue in the clause itself.

(ii)           Agreement said to be subject to exclusive jurisdiction of Courts at New Delhi, with no other part of cause of action arising in New Delhi.

(iii)         Arbitration also mentions a contradiction by saying Parties to approach the court of proper jurisdiction for appointment of arbitrator.

An interesting question which now arises in this case is, that if the third element was missing from the arbitration agreement, and only New Delhi Courts would have exclusive jurisdiction, could it then be said that the parties intended for New Delhi to be the seat of arbitration by conferring it exclusive supervisory jurisdiction?

In other words, although designation of a seat is sufficient to provide jurisdiction to a Court, is the vice versa true, that is, is an exclusive jurisdiction clause sufficient to designate a seat?

Reference can be made to Virgo Softech Ltd. v. National Institute of Electronics and Information Technology,[4](“Virgo”). In this case, arbitration agreement provides for New Delhi as venue and confer exclusive jurisdiction to courts of Chandigarh. Petitioner approached Delhi High Court under Section 11 of Indian Arbitration Act for the appointment of arbitrator. Court denied the application held that “In view of the above specific Clause, the stipulation that the arbitration proceedings shall be held at New Delhi, would make New Delhi only a 'venue' of the arbitration and not the 'seat' of the arbitration and also held that Chandigarh alone had the territorial jurisdiction as New Delhi was not the "seat" but only a "venue" of the arbitration.

Additionally, (emphasis) reference can be made to Hamdard Laboratories (India) Vs. Sterling Electro Enterprises[5] (Hamdard) where arbitration agreement confer compulsory jurisdiction of New Delhi’s court with no mention of seat in the agreement. One of the party to the case reached to Delhi High Court for appointment of arbitrator under Section 11 of the Indian Arbitration Act,1996. Respondent objected the said petition and contend that as agreement not provides Delhi as seat and no cause of action arose in Delhi, so Delhi High Court lacks territorial jurisdiction to decide the matter related to arbitration proceeding. Court denied the contention and relied upon the judgements of this case, Virgo and BALCO v. Kaiser Aluminium Technical Services Inc.,[6] and held that, “it is clear that the parties had envisaged conferment of exclusive jurisdiction upon the courts in Delhi to decide all disputes relating to arbitration, arising out of the Work Order in question. Thus, by necessary implication, the parties also agreed to make Delhi the seat of arbitration, which leaves no merit in the respondent's contention that this Court does not have territorial jurisdiction to adjudicate the present petition.”

It was also observed regarding Kalsi Buildcon, that, “A reading of Clause 15.3, which provided for arbitration in the aforesaid decision, makes it clear that the parties, in Aarka Sports (supra), did not provide for exclusive jurisdiction of the Courts at Delhi in respect of arbitration. Rather, the petitioner, in that case, had relied upon the jurisdiction conferred in clause 15.1 of the dispute resolution clause titled Governing Law, Jurisdiction & Dispute Resolution, which was in fact a general stipulation on dispute resolution, not a part of the arbitration clause like the present case. When the parties herein have specifically provided, within the arbitration clause itself, that the Courts at Delhi will have jurisdiction over all arbitration proceedings arising out of the Work Order dated 01.03.2018, I find that the facts of Aarka Sports (supra) cannot be equated to that of the present case in any respect. In view of the aforesaid, it is clear that the parties had envisaged conferment of exclusive jurisdiction upon the courts in Delhi to decide all disputes relating to arbitration, arising out of the Work Order in question. Thus, by necessary implication, the parties also agreed to make Delhi the seat of arbitration, which leaves no merit in the respondent’s contention that this Court does not have territorial jurisdiction to adjudicate the present petition.”

DENOUMENT

Thus, it can be concluded that if parties in their arbitration agreement confer exclusive jurisdiction on the particular court and failed to mention seat, then that court would be designated as court of seat and can supervise the parties in matter of arbitration. In effect it is possible to impliedly designate a seat of arbitration, by merely granting exclusive jurisdiction to a Court by agreement.

 


[1] Working with Adwitya Legal LLP, as their Partner, Arbitration & Dispute Resolution, email: gunjan@adwlegal.co.in, Grateful to Mr. Akash Kishore, who is currently interning with Adwitya Legal LLP for his research inputs.

[2] Nigel Blackaby et al., Redfern and Hunter on international arbitration 3 (Sixth edition ed. 2015).

[3] Delhi High Court (Single Judge), Arb. P. 662 of 2019, decided on 06.07.2020.

[4] Delhi High Court (Single Judge), Arb. P. 754-755/2018, decided on 30.11.2018.

[5] Delhi High Court (Division Bench), Arb. P. 218/2020, decided on 21.07.2020.

[6] (2012) 9 SCC 552

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