Appointment Of New Arbitrator At Different Location Would Not Change Jurisdictional Seat Fixed By First Arbitrator - SC
A Supreme Court Bench of Justice Ajay Rastogi and Justice Sanjiv Khanna dismissed an appeal that dealt with the issue of whether conducting the arbitration proceedings at Delhi, owing to the appointment of a new arbitrator, would shift the "jurisdictional seat of arbitration" from Panchkula in Haryana, the place fixed by the first arbitrator for the arbitration proceedings.
To that end, the Court opined that "once the jurisdictional 'seat' of arbitration is fixed in terms of sub-section (2) of Section 20 of the Act, then, without the express mutual consent of the parties to the arbitration, 'the seat' cannot be changed. Therefore, the appointment of a new arbitrator who holds the arbitration proceedings at a different location would not change the jurisdictional 'seat' already fixed by the earlier or first arbitrator."
The Appellant and Respondent had entered into a contract. The letter of intent had an arbitration clause for the resolution of disputes by a sole arbitrator, which did not stipulate the seat or venue of arbitration. The contract and letter of intent were executed at Panchkula in Haryana. However, the registered office of the Appellant is in Bengaluru, Karnataka.
When a dispute arose between the parties, the matter was referred to arbitration, and Mr. Justice (Retd.) N.C. Jain was appointed as the sole arbitrator. In the first sitting, the arbitral tribunal held that the venue of the proceedings would be in Panchkula, Haryana. Neither party had objected to the place of arbitration proceedings as fixed by the arbitral tribunal. Arbitral proceedings began, but Mr. Justice (Retd.) N.C. Jain recused himself stating that he did not want to continue as the arbitrator for personal reasons, and the records received so far would be handed over to the new arbitrator.
Thereupon, Mr. Justice (Retd.) T.S. Doabia took over as the sole arbitrator. The order stated that the venue of the proceedings would be Delhi.
After the hearings, the award was signed and pronounced, and the respondent was awarded a large sum of money with interest. Following the same, the Appellant filed a petition under Section 34 of the Act before the Delhi High Court, following which the Respondent filed an application for interim orders under Section 9 of the Arbitration and Conciliation Act, 1996 before the Additional District Judge, Panchkula. Therefore, the Appellant and Respondent invoked the jurisdiction of two different courts, leading to the emergence of the question of the jurisdictional seat of arbitration.
The Petition filed by the Respondent was dismissed on the ground of lack of territorial jurisdiction. It was recorded that the jurisdiction to entertain the application vests solely with the Delhi High Court. However, this order was set aside by the Punjab and Haryana High Court, with the finding that the courts of Delhi do not have the jurisdiction, and that the Courts at Panchkula had the jurisdiction.
The review application filed by the Appellant was dismissed, following which the Appellant approached the Supreme Court.
The Supreme Court opined subsequent hearings or proceedings at a different location other than the place fixed by the arbitrator as the "seat of arbitration" should not be regarded and treated as a change or relocation of jurisdictional "seat".
To that end, the Court said that "This would, in our opinion, lead to uncertainty and confusion resulting in avoidable esoteric and hermetic litigation as to the jurisdictional 'seat of arbitration'. 'The seat' once fixed by the arbitral tribunal under Section 20(2), should remain static and fixed, whereas the 'venue' of arbitration can change and move from 'the seat' to a new location. Venue is not constant and stationary and can move and change in terms of sub-section (3) to Section 20 of the Act. Change of venue does not result in change or relocation of the 'seat of arbitration'."
The Court also noted that the law of arbitration does not visualize the repeated or constant shifting of the "seat of arbitration", while also noting that Section 20(3) specifically states and draws a distinction between the venue of arbitration and the "seat of arbitration" by stating that for convenience and other reasons, the arbitration proceedings may be held at a place different than the "seat of arbitration", which location is referred to the venue of arbitration.
To that end, the Court opined that the place of jurisdiction or "the seat" must be certain and static and not vague or changeable, as the parties should not be in doubt as to the jurisdiction of the courts for availing of judicial remedies. The Court also opined that there would be a risk of parties rushing to the courts to get a first hearing or conflicting decisions that the law does not contemplate and is to be avoided.
Further, the Court opined that that legal question regarding the jurisdictional seat of arbitration must be answered with objectivity, instead of answered subjectively with reference to facts of the case, as it would lead to a lack of clarity and cause mix-ups.
The Court referred to the case of BGS SGS Soma JV v. NHPC Limited at length. It noted the non-obstante effect as incorporated in Section 42 to hold that it is evident that the application made under Part-I must be to a court which has a jurisdiction to decide such application and that where "the seat" is designated in the agreement, the courts of "the seat" alone will have the jurisdiction. Further, the Court opined that an application under Section 9 of the Act may be preferred before the Court in which a part of cause of action arises in the case where parties had not agreed on the "seat of arbitration".
To that end, the Court opined that Section 42 of the Act was of no avail to the Appellant as the arbitrator had fixed the jurisdictional "seat" under Section 20(2) of the Act before any party had moved the court under the Act, being a court where a part or whole of the cause of action had arisen. To that end, the Court opined "The appellant had moved the Delhi High Court under Section 34 of the Act after the arbitral tribunal vide the order dated 5 August 2014 had fixed the jurisdictional 'seat' at Panchkula in Haryana. Consequently, the appellant cannot, based on fastest finger first principle, claim that the courts in Delhi get exclusive jurisdiction in view of Section 42 of the Act. The reason is simple that before the application under Section 34 was filed, the jurisdictional 'seat' of arbitration had been determined and fixed under sub-section (2) to Section 20 and thereby, the courts having jurisdiction over Panchkula in Haryana, have exclusive jurisdiction. The courts in Delhi would not get jurisdiction as the jurisdictional 'seat of arbitration' is Panchkula and not Delhi."
Therefore, the Supreme Court did not find any merit in the appeals and dismissed the same.