India: ‘Seat' of Arbitration When Seat Not Specified in Agreement – Supreme Court Larger Bench to Decide

SUPREME COURT OF INDIA

Union of India

v. Hardy Exploration and Production (India) Inc.

[(2018) 7 SCC 374]

FACTS

There was a contractual relationship between the parties, HEPI and Union of India ("UOI") which was governed through a production sharing contract ("PSC") entered in November, 1996 for the extraction, development and production of hydrocarbons in a geographic block in India ("Block").

Disputes arose between the parties, which were subsequently referred to arbitration pursuant to the clauses in PSC.

The arbitration clause in the PSC recorded the venue of arbitration as Kuala Lumpur, unless otherwise agreed. The arbitral tribunal rendered its final award in favour of HEPI, signed and delivered in Kuala Lumpur in February 2013.

The Award was challenged under Section 34 before the Delhi High Court in July 2013. Hardy Inc., on the other hand, sought enforcement of the Award in November 2013 before the Delhi High Court, the proceedings of which are pending.

The Appellant had filed an application under Section 34 challenging the legality, validity and correctness of the award made by the arbitrators in respondent's favour in an international commercial arbitration proceeding in 2016 betweenthe appellant (Union of India) and the respondent (foreign company).

The Respondents challenged the appellant's application by contending that the Indian Courts have no jurisdiction to entertain the appellant's application filed under Section 34 to challenge the legality and correctness of an award in question.

The Single Judge by order dated 09.07.2015 upheld the Respondent's preliminary objection and held that keeping in view the terms of the agreement in question coupled with the law laid down by this Court in several decisions governing the issues arising in the case, Indian Courts have no jurisdiction to entertain the application filed by the appellant under Section 34 of the Act to question the legality and correctness of the award in question.

Since the Appellant's application was dismissed on the ground of lack of jurisdiction of the Indian Courts, the Single Judge did not dwell in the case on the merits.

Subsequently, the Appellant under Section 37(2) of the Act, challenged the order passed by Division Bench of the Delhi High Court whereby the Court held that the Indian Courts have no jurisdiction to entertain the appellant's application under Section 34 of Arbitration and Conciliation Act, 1996 to question the legality of award rendered in international commercial arbitration proceedings.

The appellant, through this current appeal has challenged the final judgment and order dated 27.07.2016 passed by the High Court of Delhi whereby the Division Bench of the High Court dismissed the appeal filed by the Union of India (appellant herein) challenging the order dated 09.07.2015 passed by the Single Judge in OMP No.693 of 2013 and order dated 20.01.2016 in Review Petition No.400 of 2015 in OMP No.693 of 2013.

ISSUES BEFORE SC

The question in this case was –

"When the arbitration agreement specifies the "venue" for holding the arbitration sittings by the arbitrators but does not specify the "seat", then on what basis and by which principle, the parties have to decide the place of "seat"?

OBSERVATION & CONCLUSION

After considering the events that unfolded leading up to the current appeal, taking into consideration varied judgments on the subject matter by different benches of the Hon'ble Supreme Court and the High Courts and keeping in mind the contentions raised by both the parties regarding the UNCITRAL model law as well as the other principles governing the law, the Court observed and held as under:

"In our opinion, though, the question regarding the seat and venue for holding arbitration proceedings by the arbitrators arising under the Arbitration Agreement / International Commercial Arbitration Agreement is primarily required to be decided keeping in view the terms of the arbitration agreement itself, but having regard to the law laid down by this Court in several decisions by the Benches of variable strength as detailed above, and further taking into consideration the aforementioned submissions urged by the learned counsel for the parties and also keeping in view the issues involved in the appeal, which frequently arise in International Commercial Arbitration matters, we are of the considered view that this is a fit case to exercise our power under Order VI Rule 2 of the Supreme Court Rules, 2013 and refer this case (appeal ) to be dealt with by the larger Bench of this Court for its hearing.

It is for this reason, we refrain from recording our findings on any of the issues arising in the appeal and leave the questions/issues to be dealt with by the appropriate larger Bench."

AMLEGALS REMARKS

This issue has been under scrutiny and the limelight since several years and in spite of multiple judgments, the issue needs more clarity.

It is of prime importance to know that this ambiguity of seat and venue arises when the arbitration is ad-hoc arbitration.

In the case of Institutionalized Arbitrations, the seat of Arbitration is already determined and the venue as well as the procedures is those that are laid out by the respective institutions.

AMLEGALS believes that the decision by the larger bench would remove all the ambiguity once and for all and would serve as a milestone precedent for decades to come.

This judgment would also pave the way for encouraging institutionalized arbitration over ad-hoc arbitration and with major international institutions now having their presence in India, it is inevitable that all major arbitrations would be conducted in these institutions and this would also help put to rest the ambiguities of seat and venue.

This content is purely an academic analysis under "Legal intelligence series".

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