2024 (11) TMI 393 - SC - Indian Laws

Supreme Court rejects arbitrator appointment petition as arbitration seat outside India under Section 11 of Arbitration Act 1996

SC dismissed petition under Section 11 of Arbitration and Conciliation Act, 1996 for appointment of arbitrator. Court held petition not maintainable as ... Doctrine of Forum Non Conveniens - Maintainability of the petition under Section 11 of the Arbitration and Conciliation Act, 1996 - Applicability of Part I of the Act, 1996 to the arbitration clause contained in the Distributorship Agreement - seat of the arbitration in terms of the Distributorship Agreement - Seeking a referral of the disputes that have arisen between the parties to arbitration and consequent appointment of an arbitrator by this Court in terms of clauses 26 and 27 of the Consumer Distributorship Agreement respectively dated 09.11.2010 - Section 11 sub-section (6)(a) read with Section 11 sub-section (12)(a) of the Arbitration and Conciliation Act, 1996. HELD THAT:- The following position of law emerges:- (i) Part I of the Act, 1996 and the provisions thereunder only applies where the arbitration takes place in India i.e., where either (I) the seat of arbitration is in India OR (II) the law governing the arbitration agreement are the laws of India. (ii) Arbitration agreements executed after 06.09.2012 where the seat of arbitration is outside India, Part I of the Act, 1996 and the provisions thereunder will not be applicable and would fall beyond the jurisdiction of Indian courts. (iii) Even those arbitration agreements that have been executed prior to 06.09.2012 Part I of the Act, 1996 will not be applicable, if its application has been excluded by the parties in the arbitration agreement either explicitly by designating the seat of arbitration outside India or implicitly by choosing the law governing the agreement to be any other law other than Indian law. (iv) The moment ‘seat’ is determined, it would be akin to an exclusive jurisdiction clause whereby only the jurisdictional courts of that seat alone will have the jurisdiction to regulate the arbitral proceedings. The notional doctrine of concurrent jurisdiction has been expressly rejected and overruled by this Court in its subsequent decisions. (v) The ‘Closest Connection Test’ for determining the seat of arbitration by identifying the law with which the agreement to arbitrate has its closest and most real connection is no longer a viable criterion for determination of the seat or situs of arbitration in view of the Shashoua Principle. The seat of arbitration cannot be determined by formulaic and unpredictable application of choice of law rules based on abstract connecting factors to the underlying contract. Even if the law governing the contract has been expressly stipulated, it does not mean that the law governing the arbitration agreement and by extension the seat of arbitration will be the same as the lex contractus. (vi) The more appropriate criterion for determining the seat of arbitration in view of the subsequent decisions of this Court is that where in an arbitration agreement there is an express designation of a place of arbitration anchoring the arbitral proceedings to such place, and there being no other significant contrary indicia to show otherwise, such place would be the ‘seat’ of arbitration even if it is designated in the nomenclature of ‘venue’ in the arbitration agreement. (vii) Where the curial law of a particular place or supranational body of rules has been stipulated in an arbitration agreement or clause, such stipulation is a positive indicium that the place so designated is actually the ‘seat’, as more often than not the law governing the arbitration agreement and by extension the seat of the arbitration tends to coincide with the curial law. (viii) Merely because the parties have stipulated a venue without any express choice of a seat, the courts cannot sideline the specific choices made by the parties in the arbitration agreement by imputing these stipulations as inadvertence at the behest of the parties as regards the seat of arbitration. Deference has to be shown to each and every choice and stipulations made by the parties, afterall the courts are only a conduit or means to arbitration, and the sum and substance of the arbitration is derived from the choices of the parties and their intentions contained in the arbitration agreement. It is the duty of the court to give weight and due consideration to each choice made by the parties and to construe the arbitration agreement in a manner that aligns the most with such stipulations and intentions. (ix) We do not for a moment say that, the Closest Connection Test has no application whatsoever, where there is no express or implied designation of a place of arbitration in the agreement either in the form of ‘venue’ or ‘curial law’, there the closest connection test may be more suitable for determining the seat of arbitration. (x) Where two or more possible places that have been designated in the arbitration agreement either expressly or impliedly, equally appear to be the seat of arbitration, then in such cases the conflict may be resolved through recourse to the Doctrine of Forum Non Conveniens, and the seat be then determined based on which one of the possible places may be the most appropriate forum keeping in mind the nature of the agreement, the dispute at hand, the parties themselves and their intentions. The place most suited for the interests of all the parties and the ends of justice may be determined as the ‘seat’ of arbitration. The present petition under Section 11 of the Act, 1996 is not maintainable as neither the seat of arbitration is India nor is the arbitration agreement governed by laws of India. The present petition filed by the petitioner fails and is hereby dismissed. Issues Involved:1. Maintainability of the petition under Section 11 of the Arbitration and Conciliation Act, 1996.2. Applicability of Part I of the Arbitration & Conciliation Act, 1996 to the arbitration clause in the Distributorship Agreement.3. Determination of the seat of arbitration under the Distributorship Agreement.Detailed Analysis:I. Maintainability of the Petition under Section 11 of the Act, 1996:The court examined whether the petition for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 is maintainable. The petitioner argued that since the Distributorship Agreement was executed before the BALCO decision, Part I of the Act should apply. However, the court clarified that Part I applies only when the seat of arbitration is in India or the arbitration agreement is governed by Indian law. The court found that the seat of arbitration is Dubai, UAE, and the governing law is not Indian, thus rendering the petition under Section 11 not maintainable.II. Applicability of Part I of the Arbitration & Conciliation Act, 1996:The court analyzed the applicability of Part I of the Act, 1996, which is contingent upon the arbitration taking place in India. The court referenced the BALCO decision, which clarified that Part I is limited to arbitrations with a seat in India. The court further noted that even agreements prior to BALCO would not necessarily apply Part I if the seat is outside India or if the governing law is not Indian, as per Reliance Industries. Since the seat of arbitration in this case is Dubai, UAE, and the governing law is UAE law, Part I is inapplicable.III. Determination of the Seat of Arbitration:The court discussed the criteria for determining the seat of arbitration, distinguishing between 'venue' and 'seat.' It applied the Shashoua Principle, which states that when a venue is designated without an alternative seat, and a supranational body of rules is specified, the venue is the juridical seat. The court found that the arbitration clause in the Distributorship Agreement designated Dubai, UAE, as the venue and applied UAE Arbitration and Conciliation rules, indicating that Dubai is the seat of arbitration. The court rejected the petitioner's argument that the non-exclusive jurisdiction clause allowed for Indian jurisdiction, emphasizing that the seat determines jurisdiction, not vice-versa.Conclusion:The court concluded that the petition under Section 11 of the Act, 1996 is not maintainable as neither the seat of arbitration is in India nor is the arbitration agreement governed by Indian law. The court dismissed the petition, emphasizing the importance of the seat in determining jurisdiction and the inapplicability of Part I of the Act to arbitrations seated outside India.