2019 (12) TMI 626 - SC - Indian Laws

Appeals under Arbitration Act Section 37 not maintainable. New Delhi exclusive jurisdiction. Hardy Exploration judgment overturned.

The appeals under Section 37 of the Arbitration Act, 1996 were deemed not maintainable as the orders did not constitute refusals to set aside an arbitral ... Maintainability of appeals under Section 37 of the Arbitration and Conciliation Act, 1996 - territorial jurisdiction - HELD THAT:- Admittedly, on the facts of these cases, there was no adjudication under Section 34 of the Arbitration Act, 1996 - all that was done was that the Special Commercial Court at Gurugram allowed an application filed under Section 151 read with Order VII Rule 10 CPC, determining that the Special Commercial Court at Gurugram had no jurisdiction to proceed further with the Section 34 application, and therefore, such application would have to be returned to the competent court situate at New Delhi. Determination of the “seat” of the arbitral proceedings between the parties - HELD THAT:- The new provisions contained in Sections 20 and 31(4) of the Arbitration Act, 1996 are a replication of Articles 20 and 31(3) of the UNCITRAL Model Law, in which pride of place is given to the juridical seat of the arbitral proceedings. However, the definition of “court” in Section 2(1)(e) of the Arbitration Act, 1996 continues the definition contained in the Arbitration Act, 1940, but replaces any and every civil court by only the principal civil court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary civil jurisdiction. Section 42 of the Arbitration Act, 1996 also substantially follows the drill of Section 31(4) of the Arbitration Act, 1940 - given the new concept of “juridical seat” of the arbitral proceedings, and the importance given by the Arbitration Act, 1996 to this “seat”, the arbitral award is now not only to state its date, but also the place of arbitration as determined in accordance with Section 20. However, the definition of “Court” contained in Section 2(1)(c) of the Arbitration Act, 1940, continued as such in the Arbitration Act, 1996, though narrowed to mean only principal civil court and the High Court in exercise of their original ordinary civil jurisdiction. Thus, the concept of juridical seat of the arbitral proceedings and its relationship to the jurisdiction of courts which are then to look into matters relating to the arbitral proceedings - including challenges to arbitral awards - was unclear, and had to be developed in accordance with international practice on a case by case basis by this Court. Whenever there is the designation of a place of arbitration in an arbitration clause as being the “venue” of the arbitration proceedings, the expression “arbitration proceedings” would make it clear that the “venue” is really the “seat” of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. This language has to be contrasted with language such as “tribunals are to meet or have witnesses, experts or the parties” where only hearings are to take place in the “venue”, which may lead to the conclusion, other things being equal, that the venue so stated is not the “seat” of arbitral proceedings, but only a convenient place of meeting. Further, the fact that the arbitral proceedings “shall be held” at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. It is clear that the reasoning followed stems from the subject-matter test that flows from the definition of ‘court’ in Section 2(1)(e)(i) of the Act. According to the impugned judgment, since the agreement was executed at Faridabad, part of the cause of action would arise at Faridabad, clothing Faridabad courts with jurisdiction for the purposes of filing a Section 34 petition. The second part of the reasoning is that Faridabad is the place where the request for reference to arbitration was received, as a result of which part of the cause of action arose in Faridabad, which ousts the jurisdiction of Courts of New Delhi, in which no part of the cause of action arose. The Section 34 petition is ordered to be presented in the Courts in New Delhi, as was held by the learned Single Judge of the Special Commercial Court at Gurugram - Appeal allowed. Issues Involved:1. Maintainability of appeals under Section 37 of the Arbitration and Conciliation Act, 1996.2. Determination of the 'seat' of arbitration proceedings between New Delhi and Faridabad.Detailed Analysis:Maintainability of Appeals under Section 37 of the Arbitration and Conciliation Act, 1996Section 37(1) of the Arbitration Act, 1996 specifies the orders from which an appeal shall lie, namely:- Refusing to refer the parties to arbitration under Section 8.- Granting or refusing to grant any measure under Section 9.- Setting aside or refusing to set aside an arbitral award under Section 34.Section 13 of the Commercial Courts Act, 2015 provides the forum for appeals but does not independently grant a right of appeal. It states that appeals from the orders enumerated in Order XLIII of the CPC and Section 37 of the Arbitration Act, 1996 shall lie to the Commercial Appellate Division of the High Court.The Supreme Court in Kandla Export Corporation v. OCI Corporation clarified that Section 13(1) of the Commercial Courts Act does not provide an independent right of appeal but only specifies the forum for appeals that are maintainable under Section 37 of the Arbitration Act, 1996.The Court emphasized that an order refusing to set aside an arbitral award under Section 34 must be an adjudication of the grounds set out in Section 34, not merely a procedural order like returning a petition for lack of jurisdiction.In the present case, the Special Commercial Court at Gurugram returned the Section 34 petition for lack of jurisdiction, which does not amount to an order refusing to set aside an arbitral award under Section 34. Therefore, such an order is not appealable under Section 37.Determination of the 'Seat' of ArbitrationThe arbitration clause in question stated that 'Arbitration Proceedings shall be held at New Delhi/Faridabad, India.' The Supreme Court analyzed whether this clause designated New Delhi or Faridabad as the 'seat' of arbitration.The Court referred to the BALCO judgment which emphasized the importance of the 'seat' of arbitration, stating that the choice of the seat carries with it the choice of the courts at the seat having exclusive jurisdiction over the arbitration proceedings.Section 20 of the Arbitration Act, 1996 allows parties to agree on the place of arbitration, which is interpreted as the juridical seat of arbitration. The Court also referred to the Shashoua principle, which states that in the absence of any contrary indicia, the venue stated in the arbitration agreement is the juridical seat.The Court noted that all arbitration proceedings in the present case, including the signing of the award, took place in New Delhi. Therefore, New Delhi was determined to be the 'seat' of arbitration, giving exclusive jurisdiction to the courts in New Delhi.The Court also addressed the Hardy Exploration and Production (India) Inc. case, which had incorrectly determined the seat of arbitration by not applying the Shashoua principle. The Supreme Court declared that the judgment in Hardy Exploration was not good law as it conflicted with the Five Judge Bench decision in BALCO.Conclusion:1. Maintainability of Appeals: The appeals under Section 37 of the Arbitration Act, 1996 were not maintainable as the orders in question did not amount to orders refusing to set aside an arbitral award under Section 34.2. Seat of Arbitration: New Delhi was determined to be the 'seat' of arbitration based on the arbitration clause and the conduct of proceedings, giving exclusive jurisdiction to the courts in New Delhi. The judgment in Hardy Exploration was overruled for not following the correct legal principles regarding the determination of the seat of arbitration.