In BGS SGS SOMA JV v. NHPC Ltd, a three-judge bench of the Supreme Court of India de-mystified ‘paragraph 96'2 of Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, clarified the role of the ‘seat’ in an arbitration and established the tests for determining the ‘seat’ of arbitration.
As a result, the Delhi High Court's Division Bench decision in Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd was overturned, and the Supreme Court's decision in Union of India v. Hardy Exploration and Production, which took the opposite stance, was declared unsound.
FACTS OF THE CASE
The contract between NHPC and BgS SgS Soma stipulated that any disagreements would be resolved by arbitration under the Indian Arbitration Act, with proceedings in New Delhi or Faridabad. When the conflict emerged, an arbitration hearing was held in New Delhi, and the verdict was in favour of BGS. Following that, NHPC filed an action with the District Court of Faridabad to set aside the Arbitral Award under Section 34. BgS applied to the District Court of Delhi under Section 151 r/w Order VII Rule 10 of the CPC, 1908; the issue was transferred to a Special Court in Gurugram, which ordered the transfer of the NHPC's Section 34 application from the Faridabad Court to the New Delhi Court.
The Supreme Court had to consider the following issues:
(a) Whether the appeal before the High Court under Section 37 of the Arbitration Act was maintainable?
(b) Whether the designation of a “seat” is akin to an exclusive jurisdiction clause?
(c) What is the test to determine the “seat” of arbitration?
According to the Supreme Court, the court of the arbitrator's location has exclusive jurisdiction over the case. Furthermore, the court concluded that the seat of arbitration would be in Delhi, even though the contract stated that the seat of arbitration would be in Delhi/Faridabad. When the disagreement occurred, the side picked New Delhi as the venue, giving the New Delhi Court exclusive jurisdiction over the case.
Furthermore, the Supreme Court ruled that the seat of arbitration is the site of arbitration. The Supreme Court ruled that the Hardy Exploration case was improper because the terms seat and venue were not adequately separated. In the Hardy Exploration case, the agreement stated that the arbitration would occur in Kuala Lumpur, and nothing in the agreement contradicted that. Despite this, the Supreme Court applied Part 1 of the A&C Act (which only applies to domestic arbitration), and the foreign award was challenged under Section 34. As a result, the Supreme Court ruled in this instance that the Hardy Exploration Act was unconstitutional.
It is only to be hoped that this puts an end to any future legal wrangling over these issues before the different High Courts. At the same time, this decision emphasises the necessity of parties carefully deciding on an arbitration's "seat" from the start since they are essentially picking the courts that will have supervisory jurisdiction in the future.
As a result, it's always a good idea to have a well-drafted arbitration provision that sets out both parties' mutual agreement to prevent jurisdictional conflicts later on, which prolong the adjudication of the fundamental problems between the parties.
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