THE SEAT OF INTERNATIONAL COMMERCIAL ARBITRATION IS TO BE ASCERTAINED FROM THE INTENTION OF THE PARTIES

International Commercial Arbitration

Section 2(1) (f) of the Arbitration and Conciliation Act, 1996 defines the expression ‘International Commercial Arbitration’ as arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is a foreign national, whether that party is an individual, a body corporate, an association or body of individuals or a foreign Government. 

Seat of arbitration

The seat of arbitration is the legal jurisdiction (like London, Singapore, or New York) that serves as the arbitration's ‘home base,’ determining which country's courts supervise the process, govern its procedures, and have the power to annul the award, distinct from the venue, which is just the physical meeting place for hearings. Choosing a seat is a crucial decision, as it sets the legal framework and affects enforcement, often influencing parties to pick a neutral, reputable location with robust legal support for arbitration.   The seat has a juridical significance in arbitration law: it determines the courts that exercise supervisory jurisdiction over the arbitral proceedings.

Mother contract

Where several contracts coexist, the arbitration clause of the mother agreement governs the dispute unless a later contract unequivocally replaces it and unless the petitioner has shown no such intention of substitution.

Case law

In Balaji Steel Trade Versus Fludor Benin S.A. & Ors. - 2025 (11) TMI 1429 - Supreme Court, the petitioner is a partnership firm engaged in the business of steel trading and various agricultural commodities.  The respondent No.1, Fludor Benin S.A. is a private Limited Company incorporated under the laws of Republic of Benin, the country situated in West Africa.  The respondent No. 1 approached the petitioner for the supply of cotton seed.  Both the parties entered into negotiations to explore a business arrangement for the manufacture and sale of cotton seed cakes.

The said parties executed a Collaboration and Buy Back Agreement on 10.12.2018.  In the said agreement, the petitioner agreed to provide the requisite machinery and establish a manufacturing unit at Bohicon,  a city in Benin for the manufacture of cotton seed cakes.  The respondent No.1 accepted to manufacture the said product and supply to the petitioner.  Clause 20 of the said agreement provides an arbitration provision stipulating that disputes between the parties would be referred to arbitration before CAMECCCIB (Centre d’Arbitrage, de Mediation et de Conciliation de la Chambre de Commerce et d’Industrie du Benin), in Benin. 

In supersession of the said agreement the petitioner and the respondent No. 1 entered into a ‘Buyer-Seller Agreement’ (‘BSA’ for short) on 06.06.2019 for a term of 5 years.  The said agreement incorporated the supply and sale of the cotton seed cakes.  The said agreement also contains an arbitration clause for providing ad-hoc arbitration to be conducted in Benin.  The decision of the arbitration Tribunal is binding on the parties and the fees to the Arbitrator shall be payable by the losing party.

The respondent No. 1 assigned its obligation for the supply of cotton seed cakes to the respondent No.2, Vink Corporation, DMCC, to give effect of the agreement and to facilitate the supply of the agreed product.  The petitioner and the respondent No. 2 entered into a series of sales contract providing for reference of dispute to sole arbitrator in accordance with the Arbitration and Conciliation Act, 1996 with the place of arbitration at New Delhi. The language of the proceedings shall be in English.  The arbitral award shall be final and binding on the parties and without right of appeal against the award. 

The terms of the BSA were modified by signing an addendum.  This addendum eliminated the rights of the petitioner’s exclusive rights of purchase of the product.  The addendum further allowed the respondent No.1 to sell the products to third parties.  The petitioner alleged that there was a short fall in the quality of the product.  To address the said shortfall the respondent No. 3, Tropical International Private Limited was introduced to the petitioner.  The petitioner and the respondent No. 3 entered into a series of High Sea Sales contract (‘HSSA’ for reference).  The said contract delineated the respective rights and obligations of the respondent No. 3 and the petitioner.  The said contract provides that dispute if any, between the parties arising in relation to this agreement of HIGH SEAS SALE shall be referred to the arbitration under the Indian Arbitration Act 1940.

Disputes arose between the parties with respect to quantity of supply and payments inter-se. The petitioner served a notice on 15.07.2022 to all of the three respondents. The respondent nos. 2 and 3 replied to said notice shrugging their responsibility on the ground of lack of privity and separateness from respondent no. 1. The petitioner then issued termination notice dated 06.09.2022 under which BSA and the Addendum were terminated.

The respondent No. 1 invoked the Benin Arbitration.  The Chamber of Commerce, Benin issued a notice to the petitioner informing for the settlement of disputes in terms of BSA in Benin.  The said notice requested the petitioner to appoint its arbitrator.  The petitioner objected the same and placed its objections vide letter dated 15.05.2023.  On 31.05.2023 the respondent invoked arbitration under the laws of Benin to the petitioner.  The petitioner filed reply to it on 30.06.2023 denying the contents of the notice and resisting to Benin, the seat of arbitration.  The petitioner further contended that the respondent No. 2 and the respondent No. 3 were not added as parties to arbitration as proper and necessary parties. 

The petitioner issued notices to all the three respondents invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996, referring the disputes arised out of BSA, sales contract and HSSA.   However, the respondent No. 1 continued to proceed with Benin arbitration.  The respondent No. 1 filed an application before the Commercial Court, Cotonou, Benin, seeking the appointment of arbitrator.  The Benin Court allowed the application and appointed Dr. Gilbert Ahouandjinou as the sole arbitrator for determination of disputes between the petitioner and respondent no. 1.

In the meanwhile, the petitioner filed an Anti-Arbitration Injunction Suit before the High Court of Delhi on 10.08.2023, inter alia praying for a decree of permanent injunction restraining the respondent no. 1 from proceeding/continuing with the Benin Arbitration.  The petitioner also filed the present application under Section 11(6) of the Act for the appointment of sole arbitrator for adjudication of the disputes.  The High Court dismissed the anti-arbitration injunction suit on 08.11.2024.  The High Court, after a detailed examination of the contractual framework, arrived at a categorical finding that the BSA and its Addendum form the principal and operative contractual matrix between the petitioner and respondent no. 1, and that the arbitration clause contained therein represents the parties deliberate and binding choice of dispute resolution. It held that the Sales Contracts and HSSAs, being independent and self-contained arrangements with respondent nos. 2 and 3 respectively, do not, and cannot, supersede, modify, or dilute the arbitration agreement in the BSA, nor do they create a composite dispute capable of attracting a unified arbitral mechanism under Indian law.

Pending the said petitions the ad hoc arbitration got concluded and the sole arbitrator tendered its award on 21.05.2024.   

The petitioner submitted the following before the Supreme Court-

• The present disputes arised from a composite transaction as the series of agreements are interlinked and founded on a common commercial objective under the TGI Group.
• The disputes are inseparable and requires a composite reference under the group of company doctrine.
• The dispute resolution clause in the BSA stands novated by the arbitration clauses contained in the subsequent Sales Contracts and HSSAs executed with respondent nos. 2 and 3.
• The arbitration clauses in Sales contracts and HSSA executed between the petitioner and respondent nos. 2 and 3 provide that appointment of such sole arbitrator shall take place as per the provisions of the Indian Arbitration and Conciliation Act, 1996.
• Even if the BSA clause is given effect, Benin was indicated only as the venue, not the juridical seat, since Article 11 merely states that arbitration ‘will take place in Benin.’ But the later contracts evince a clear intention to adopt Indian law as the governing law of arbitration.
• Arbitral proceedings in Benin and the consequent award are non-est in law, having been unilaterally invoked by respondent no. 1 to pre-empt petitioner’s claims under Indian law.
• Benin is not a reciprocating territory under Section 44(b)6 of the Act, 1996, and any award rendered there would be unenforceable in India.
• The limited scrutiny is only to enquire about the existence of a valid arbitration agreement, and all other questions can be raised and contested before the arbitral tribunal itself.

The respondent No. 1 submitted the following before the Supreme Court-

• The Arbitration and Conciliation Act, 1996 has no bearing since the dispute solely arised under the BSA which indicated that the arbitration shall take place in Benin and the governing laws are that of Benin.  Hence the arbitration clause under BSA is an international commercial arbitration under Benin Arbitration Act.
• The dispute arises out of rights and obligations under BSA, for which the governing law is that of Republic of Benin, the Benin Arbitration Act being the curial law.
• The respondent no. 1 is not bound by the arbitration clauses in the Sales Contracts or HSSAs, which were executed independently between the petitioner and respondent nos. 2 and 3 as the BSA neither refers nor incorporates these subsequent contracts.
• The principles of group of companies’ doctrine have no application to the facts of the present case.
• The BSA is the principal or ‘mother’ agreement, and therefore its arbitration clause prevails over those in any ancillary or subsequent contracts.
• Since the petitioner accepted Benin as the seat of arbitration, the petitioner cannot now resile from its contractual commitment or seek parallel proceedings in India.
• The contention that the BSA stood novated or assigned through the Sales Contracts and HSSAs is denied. Even if such assignment were assumed, respondent nos. 2 and 3 would merely step into respondent 1’s contractual position, leaving no ground for a separate or parallel arbitration.

The respondent No. 2 submitted the following before the Supreme Court-

• The multiple Sales Contracts that they have entered into with the petitioner were standalone limited term contracts concluding with the delivery of the goods.
• The arbitration clause is limited to, ‘any dispute arising out of or relating to this Agreement’.

The respondent No. 3 submitted the following before the Supreme Court-

• The petitioner and respondent No. 3 entered into 4 HSSAs in which it is provided that to resolve any dispute the same shall be referred to arbitration under the Arbitration and Conciliation Act, 1996.
• The disputes raised by the petitioner are limited to BSA and the addendum and not to sales contracts and HSSAs. 

The Supreme Court considered the submissions of the petitioner, the respondent Nos.1, 2 and 3.  The Supreme Court framed the question to be decided in this petition is as to whether the Supreme Court is having jurisdiction to entertain this petition at the threshold.  The agreements constitute the principal arrangements between the two contracting entities. The arbitration clause contained in Article 11 of the BSA explicitly provides that in the event of disputes, arbitration shall ‘take place in Benin,’ while Article 5 of the Addendum makes it further explicit that the BSA shall be construed, governed and interpreted in accordance with the laws of Benin.

The Supreme Court is of the view that the seat of arbitration is to be ascertained from the intention of the parties as gathered from the agreement as a whole.  Article 11 of BSA read with Article 5 of the Addendum unequivocally shows that the parties not only indicated the geographical location of arbitration but also selected the governing law.  The petitioner argued that BSA stood novated or superseded by the Sales Contracts and HSSAs which provide for arbitration in India.  It is well settled that novation of a contract must be established by clear and unequivocal intention of the parties to substitute the earlier agreement with a new one. The BSA dated 06.06.2019 constituted the principal or “mother” contract between the petitioner and respondent no. 1, defining their long-term commercial relationship, specifying supply obligations, pricing structure, risk allocation, and a self-contained dispute resolution clause providing for arbitration ‘to take place in Benin’ under Benin law.

The Supreme Court further observed that the sales contract and HSSAs were entered into only to facilitate execution of individual shipments once respondent no. 1 assigned part of its performance to other group entities.  These contracts had separate arbitration clauses incorporate or refer to the BSA or its arbitration clause, nor did they expressly substitute, novate, or supersede the BSA.  The absence of cross-references or language of substitution makes it impossible to infer novation under Section 62 of the Indian Contract Act, 1872.  the arbitration agreements in the Sales Contracts or HSSAs cannot displace or override the arbitration clause in the BSA, and disputes rooted in the BSA must be resolved exclusively through the arbitration agreed therein, namely, arbitration seated in Benin and governed by Benin law.

The Supreme Court was of the view that the very nature of the present dispute is that of an ‘international commercial arbitration’ as defined under Section 2(1)(f) of the 1996 Act, respondent no. 1 being a corporation incorporated under the laws of Benin.  The BSA and its Addendum constitute the mother agreement, containing a clear and deliberate choice of Benin as the juridical seat of arbitration and Benin law as the governing and curial law.  The disputes raised by the petitioner arise squarely from the BSA, and the parties’ chosen forum for their adjudication is arbitration in Benin.

The Supreme Court observed that the respondent No.1 had already invoked arbitration in terms of Article 11 of the BSA in Benin. The Benin Commercial Court, vide order dated 26.07.2023, appointed a sole arbitrator.  The Arbitral tribunal after considering the objections, ruled affirmatively on its own jurisdiction in accordance with the doctrine of kompetenz–kompetenz and proceeded to adjudicate the substantive disputes arising out of the BSA.

The Supreme Court found that the arbitral process agreed to by the parties in the BSA has already culminated in an adjudication on the very disputes which the petitioner now seeks to re-agitate through the present Section 11 proceedings.   Once the tribunal has asserted and exercised its jurisdiction and delivered a final award, the petitioner cannot seek to initiate a parallel arbitral process in India in respect of the same subject matter.

The Supreme Court further observed that when the proceedings have attained finality, parties are bound by the judgment and are estopped from questioning it. They cannot litigate again on the same cause of action nor can they

litigate any issue which was necessary for decision in the earlier litigation. These two aspects are cause of action estoppel and ‘issue estoppel’. These two terms are of common law origin.

The Supreme Court arrived at the following legal position, after having a detailed analysis of the case and precedents-

• the BSA constitutes the mother agreement;
• the juridical seat of arbitration is Benin;
• the governing and curial law is the law of Benin;
• Part I of the Act stands excluded by operation of law;
• Indian courts lack jurisdiction to appoint an arbitrator for a foreign-seated arbitration;
• after the commencement and during the subsistence of international commercial arbitration at Benin, the petitioner filed the anti-arbitration injunction suit, but failed to obtain any order or direction,
• in the meanwhile, international commercial arbitral proceedings culminated in the final award dated 21.05.2024, and finally
• the Delhi High Court dismissed the anti-arbitration injunction suit considering the very same issues raised herein and as such the petitioner will be estopped from raising the same issues.

The Supreme Court, in regard to the doctrine of ‘Group companies’ held that this doctrine is as recognised in Indian law, is not an automatic talisman for impleading every corporate entity of a group into arbitral proceedings.  The Supreme Court held that the reliance placed by the petitioner on this doctrine is misplaced.

The Supreme Court dismissed the petition.

Reference:

1. www.google.com.