2018 (9) TMI 1705 - SC - Indian Laws

Supreme Court Sets Aside Decision, Affirms Jurisdiction in Arbitration Dispute

Union of India Versus Hardy Exploration and Production (India) INC

The Supreme Court allowed the appeal, setting aside the High Court's decision and directing it to address the application under Section 34 of the ... Legal propriety and correctness of the award made by the Arbitrators in favour of the respondents - Section 34 of the Arbitration and Conciliation Act, 1996 - determination of seat/vanue of arbitration - Maintainability of the application under Section 34 of the Act - Whether Arbitration Clause ousts the jurisdiction of the courts in India? Held that:- The arbitration clause has to be appositely read to understand its intention so as to arrive at a conclusion on whether it determines the seat or not - there is no confusion with regard to what the seat of arbitration and venue of arbitration mean. There is no shadow of doubt that the arbitration clause has to be read in a holistic manner so as to determine the jurisdiction of the Court. That apart, if there is mention of venue and something else is appended thereto, depending on the nature of the prescription, the Court can come to a conclusion that there is implied exclusion of Part I of the Act. On a perusal of Articles 20 and 31(3) of the UNCITRAL Model Laws, we find that the parties are free to agree on the place of arbitration. Once the said consent is given in the arbitration clause or it is interpretably deduced from the clause and the other concomitant factors like about the venue and something in addition by which the seat of arbitration is determinable. The other mode, as Article 20 of the UNCITRAL Model Law provides, is that where the parties do not agree on the place of arbitration, the same shall be determined by the Arbitral Tribunal. Such a power of adjudication has been conferred on the Arbitral Tribunal. Article 31(3) clearly stipulates that the Award shall state the date and the place of arbitration as determined in accordance with Article 20(1). In the present case, the place of arbitration was to be agreed upon between the parties. It had not been agreed upon ; and in case of failure of agreement, the Arbitral Tribunal is required to determine the same taking into consideration the convenience of the parties. It is also incumbent on the Arbitral Tribunal that the determination shall be clearly stated in the “form and contents of award” that is postulated in Article 31. There has been no determination - the word “determination” requires a positive act to be done. In the case at hand, the only aspect that has been highlighted by Mr. C.U. Singh, learned senior counsel, is that the arbitrator held the meeting at Kuala Lumpur and signed the award. That, in our considered opinion, does not amount to determination. The word “determination” has to be contextually determined. When a “place” is agreed upon, it gets the status of seat which means the juridical seat. We have already noted that the terms “place” and “seat” are used interchangeably. When only the term “place” is stated or mentioned and no other condition is postulated, it is equivalent to “seat” and that finalises the facet of jurisdiction. But if a condition precedent is attached to the term “place”, the said condition has to be satisfied so that the place can become equivalent to seat. In the instant case, as there are two distinct and disjunct riders, either of them have to be satisfied to become a place. As is evident, there is no agreement. As far as determination is concerned, there has been no determination - Thus understood, Kuala Lumpur is not the seat or place of arbitration and the interchangeable use will not apply in stricto sensu. The irresistible conclusion is that the Courts in India have jurisdiction and, therefore, the order passed by the Delhi High Court is set aside - appeal is allowed - High Court is requested to deal with the application preferred under Section 34 of the Act as expeditiously as possible. Issues Involved:1. Jurisdiction of Indian courts under Section 34 of the Arbitration and Conciliation Act, 1996.2. Determination of the 'seat' of arbitration versus the 'venue.'3. Applicability of laws governing arbitration agreements and proceedings.Issue-wise Detailed Analysis:1. Jurisdiction of Indian courts under Section 34 of the Arbitration and Conciliation Act, 1996:The appeal originated from the High Court of Delhi's decision, which dismissed the Union of India's challenge against an arbitration award under Section 34 of the Arbitration and Conciliation Act, 1996. The primary contention was whether Indian courts had jurisdiction to entertain the application under Section 34. The learned Single Judge and the Division Bench of the High Court held that Indian courts lacked jurisdiction based on the terms of the agreement and prevailing precedents. The Supreme Court analyzed the jurisdictional aspect, considering the arbitration agreement and relevant precedents, ultimately concluding that Indian courts had jurisdiction.2. Determination of the 'seat' of arbitration versus the 'venue':The core issue was whether the arbitration agreement specified the 'seat' of arbitration or merely the 'venue.' The Supreme Court noted that the agreement mentioned Kuala Lumpur as the venue but did not explicitly determine it as the seat. The Court emphasized that the seat of arbitration is crucial for determining the applicability of laws and jurisdiction. The Court referred to various precedents, including Sumitomo Heavy Industries Ltd. v. ONGC Ltd., Bharat Aluminium Company v. Kaiser Aluminium Technical Services INC (BALCO), and others, to elucidate the distinction between 'seat' and 'venue.' The Court concluded that the arbitration clause did not determine Kuala Lumpur as the seat, thus allowing Indian courts to have jurisdiction.3. Applicability of laws governing arbitration agreements and proceedings:The Court examined whether the laws governing the arbitration agreement and proceedings were Indian laws or foreign laws. The arbitration agreement stipulated that the contract would be governed and interpreted according to Indian laws, and arbitration proceedings would follow the UNCITRAL Model Law. The Court analyzed Article 20 of the UNCITRAL Model Law, which distinguishes between the place of arbitration and the venue for specific arbitration activities. The Court concluded that the agreement did not exclude the applicability of Indian laws and courts, thereby affirming the jurisdiction of Indian courts.Conclusion:The Supreme Court set aside the Delhi High Court's order, allowing the appeal and directing the High Court to deal with the application under Section 34 of the Act expeditiously. The judgment clarified the distinction between the 'seat' and 'venue' of arbitration and affirmed the jurisdiction of Indian courts based on the arbitration agreement's terms and applicable laws.