Final settlement on the argument of seat vs venue
The Supreme Court’s decision in BGS Soma clarified the role of the ‘seat’ in arbitration and set out the tests for determining the ‘seat’. When parties have chosen a seat of arbitration, or if the arbitral tribunal has determined a seat, such a determination automatically confers jurisdiction on the courts at such seat of arbitration for interim orders and challenges to an award. Unless there are any contrary indications, the designation of a ‘venue’ in an arbitration clause can indicate the ‘seat’ of the arbitration.
Facts of the case
The petitioner was awarded a contract by the respondent for constructing a large hydropower project in Assam and Arunachal Pradesh. the contract provided for dispute resolution and the arbitration agreement stated, ‘Arbitration Proceedings shall be held at New Delhi/Faridabad, India and the language of the arbitration proceedings and that of all documents and communications between the parties shall be English.’ Disputes arose between the parties and an arbitral tribunal was constituted and 71 sittings of the arbitral tribunal took place at New Delhi. The arbitral tribunal delivered a unanimous award in favor of the petitioner in Delhi. Aggrieved by the award, the respondent applied section 34 of the Arbitration and Conciliation Act, 1996.
The petitioner filed an application seeking a return of the petition challenging the award for presentation before the appropriate court at New Delhi and the court allowed the application of the petitioner and returned the challenge petition before the courts in New Delhi. The Respondent filed an appeal under section 37 read with section 13(1) of the Commercial Courts Act, 2015, before the Punjab & Haryana High Court. The High Court passed a judgment in favor of the respondent, where it held that the appeal filed was maintainable and that Delhi was only a convenient venue where arbitral proceedings were held and not the seat of the arbitration proceedings.
What is the test to determine the ‘seat’ of arbitration?
Whether the designation of a ‘seat’ is akin to an exclusive jurisdiction clause?
The decision of the court
The Supreme Court held that when parties had selected the seat of arbitration, such a selection would confer an exclusive jurisdiction clause to the courts at the seat of arbitration for interim orders and challenges to the award. The Supreme Court observed that the Arbitration and Conciliation Act 1996, section 42 had been inserted to avoid conflicts in the jurisdiction of courts by placing the supervisory jurisdiction over all arbitral proceedings in one court exclusively. An application must be made to a court that had the jurisdiction to decide such an application. When a seat had been designated, the courts at the seat alone would have jurisdiction and all further applications must be made to the same court by operation of section 42. The Supreme Court further held that when there was a designation of a venue for ‘arbitration proceedings’, the expression ‘arbitration proceedings’ made it clear that the venue should be considered the ‘seat’ of arbitration proceedings. Further, the expression ‘shall be held’ at a particular venue would further anchor the arbitral proceedings to a particular place and signify that such a place was the seat of arbitral proceedings.
The Supreme Court held that since all the arbitral proceedings were held in New Delhi and the final award was also signed in New Delhi, the parties chose New Delhi and not Faridabad as the ‘seat’ of the arbitration under section 20. Therefore, the courts at New Delhi would have exclusive jurisdiction over the arbitral proceedings. Even if some part of the cause of action did arise in Faridabad, it was irrelevant as the ‘seat’ had been designated by the parties at New Delhi and exclusive jurisdiction vested in the courts of New Delhi. Accordingly, the judgment of the High Court was set aside and the Supreme Court ordered that section 34 petition be presented before the courts in New Delhi.