Case BriefsHigh Courts

Uttaranchal High Court: Manoj K. Tiwari, J. decided the Appeal filed against the order of the District Judge in an Arbitration case.

The facts giving rise to the instant appeal are that, the appellant raised an objection under Section 34 of the Arbitration and Conciliation Act, 1996, which was duly rejected by the District Judge hence, the appeal is filed under Section 37 of the said Act.

The factual matrix of the case was that the appellant contracted with the respondent (contractor) for the construction of a pump house building. The tenure specified for the said construction was for 11 months, but due to some delay the in handing over the construction site to the said respondent; subsequently, the construction had to be stopped due to various reasons. But consequently, the work was allegedly completed.

Since dispute arose between the parties regarding payment for the work done by the respondent, therefore, the matter was referred for arbitration in terms of the contract executed between the parties. The Arbitrator passed an award where he partially allowed the claims made by the respondent. Therefore aggrieved by the award of the Arbitrator the respondent filed an appeal on the ground that misconduct was caused by the Arbitrator.

Eventually, the District Judge rejected the said application filed under Section 34 of the Act. The only ground raised in the instant Appeal was that learned Arbitrator overlooked the condition contained in Clause 11(C) of the contract, while passing the award. The said Clause (C) was that “no claim in respect of the compensation, howsoever arising as a result of the extension granted shall be admitted.”

Counsel for the appellant Virndra Kapurwan, submitted that the Arbitrator erred in allowing the claim made by the respondent, without appreciating the real controversy involved in the matter. He further submitted that the District Judge erred in rejecting the challenge thrown by the appellant by making an application under Section 34 of the Act.

The Court found that the Arbitrator had considered the alleged clause and then passed the award. A perusal of the award revealed that Arbitrator had held that appellant was equally responsible for the delay in completion of work. It was further held that the appellant could not the shelter behind the Clause for a long delay.

The Court observed that the District Judge had rightly held that the ground was not available under Section 34 of the Act of 1996. “Misconduct by the Arbitrator was no more a ground of challenge to an arbitration award.”

The Court relied on the judgment of Navodaya Mass Entertainment v. J.M. Combines, (2015) 5 SCC 698, where the Supreme Court had held that “Once the Arbitrator has applied his mind to the matter before him, the Court cannot reappraise the matter as if it were an appeal and even if two views are possible, the view taken by the Arbitrator would prevail.”

In view of the aforesaid legal position, the Court held that the learned District Judge was justified in holding that he cannot go into the question of the reasonableness of the reasons given by Arbitrator. Learned District Judge has rightly held that an award given by the Arbitrator cannot be challenged on the ground of misconduct on the part of the Arbitrator. Hence, the appeal was dismissed.[Union of India v. Allied Traders, 2019 SCC OnLine Utt 671, decided on 03-07-2019]

OP. ED.

Introduction

The Supreme Court of India in Union of India v. Hardy Exploration and Production (India) Inc.[1] (Hardy Exploration) held that Indian courts will have jurisdiction to set aside the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 in case the parties have not agreed for seat law and the Tribunal failed to determine it. The Court was faced with the question that when the arbitration agreement specify the venue of arbitration but does not specify the seat, then on what basis and by which principle, the parties have to decide the seat law. The disputed arbitration clause, in this case, provided Indian law as the governing law and arbitration to be conducted as per the Uncitral (United Nations Commission on International Trade Law) Model Law specifying the venue to be Kuala Lumpur. The Court determined India to be the seat law while deciding that it has jurisdiction for setting aside the arbitral award. In relation to this judgment, this article discusses the scope of the Court’s power to choose the law of the seat in absence of parties’ agreement and various approaches adopted by the Supreme Court of India to determine the seat law.

Court’s Authority to Select Arbitral Seat in Absence of Parties’ Agreement

Agreement on the choice of the law of the seat is essential as it clarifies that which court will have supervisory jurisdiction over the arbitration proceedings. Principally, parties are required to reach an agreement with regard to the choice of the seat law. In absence of such agreement, the Arbitral Tribunal has the power to decide the place of arbitration as per Section 20(2) of the Arbitration and Conciliation Act, 1996. Moreover, the Uncitral Model Law of 1985, on which the arbitration law of India is based upon, also state that the Tribunal will determine the place of arbitration in case the parties fail to do so.

The Arbitration and Conciliation Act, 1996 does not grant the local courts the power to select the arbitral seat. No such express power is granted under the Model Law. The arbitration statutes across the globe either allow the Arbitral Tribunal or the arbitral institution to decide the law of the seat in case there is no agreement between the parties regarding choice of the seat law. However, in few legislations like Swedish Arbitration Act and Japanese Arbitration Law, the local courts can select the arbitral seats in circumstances where the parties have neither agreed upon a seat nor a means for selecting a seat.

In India, Part I of the Arbitration and Conciliation Act, 1996 only applies when the seat of arbitration is India as stated in Section 2(2) of the Act. The Court while deciding the application made under the provisions of Part I has to determine whether the place of arbitration is in India or not. Therefore, in deciding such application the courts decide the seat law in case the parties’ agreement is silent on it.

Court’s Approach in Determination of Law of the Seat

The dispute regarding the choice of the seat law arises as the parties have been using the term “place”, “venue” and “seat” interchangeably in their contracts. The Indian courts in various cases have interpreted the agreement of the parties in order to determine the law of the seat. In Enercon (India) Ltd. v. Enercon GmbH,[2] the question before the Court was whether the phrase “venue shall be London” as used in the arbitration agreement imply that London was the seat law. The Supreme Court in this case, while recognising the test of the closest and most intimate connection held by expressly making Indian law as the governing law of the arbitration agreement and the underlying contract, the parties have designated India to be the seat of arbitration.

The Court in Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd.[3] applied the test of presumed intention and held that London will be the seat law. The Court came to such conclusion by stating that parties intended to make London as the seat law and for this there is ample indication through various phrases used in the arbitration clause like “arbitration in London to apply”, arbitrators are to be the members of the “London Arbitration Association” and the contract “to be governed and construed according to the English law”.

The Supreme Court’s judgment in Roger Shashoua v. Mukesh Sharma[4] (Roger Shashoua) sheds further light on the court’s approach to interpreting arbitration agreements, particularly regarding the parties’ implied choice of seat. The Court found that the designation of London as the “venue” of the arbitration in the absence of any express designation of a seat would suggest that the parties agreed that London would be the seat of the arbitration (in the absence of anything to the contrary).

The Supreme Court in Eitzen Bulk A/S v. Ashapura Minechem Ltd.,[5] held that since the arbitration clause stipulates that the dispute shall be settled in London and English law would apply to the arbitration, the intention of the parties is manifestly clear to exclude the applicability of Part I of the 1996 Act and thus, the conduct of the arbitration, as well as any objections relating thereto including the award, shall be governed by English law.

In other jurisdictions, courts have applied various approaches in order to determine the seat law in case of parties’ failure to do so. In one case, a court held that such an agreement could be inferred from the parties’ contractual relationship. In another case, the court identified what it considered to be the effective place of arbitration i.e. the place where all relevant actions in the arbitration have taken place; another court held that, the place of the last oral hearing should be deemed the place of arbitration.

Below is the table of the abovementioned cases where the Supreme Court determined the law of the seat.

Case Date Relevant part of the Arbitration Clause Seat law
Enercon (India) Ltd. v. Enercon GmbH[6] 14-2-2014 The proceedings in such arbitration shall be conducted in English. The venue of the arbitration proceedings shall be in London. The arbitrators (…) merit. The provisions of the Arbitration and Conciliation Act, 1996 shall apply. India
Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd.[7] 10-3-2015 If any dispute or difference should arise under this charter, general average/arbitration in London to apply, one to be appointed by each of the parties hereto, the third by the two so chosen, and their decision or that of any two of them, shall be final and binding, and this agreement may, for enforcing the same, be made a rule of court. Said three parties to be commercial men who are the members of the London Arbitrators Association. This contract is to be governed and construed according to the English law. London
Eitzen Bulk A/S v. Ashapura Minechem Ltd.[8] 13-5-2016 Any dispute arising under this Council of Architecture (CoA) is to be settled and referred to arbitration in London. One arbitrator to be employed (…) to be commercial shipping men. English law to apply. London
Roger Shashoua v. Mukesh Sharma[9] 4-7-2017 The arbitration proceedings shall be in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris.

The venue of the arbitration shall be London, United Kingdom.

This agreement shall be governed by and construed in accordance with the laws of India.

London
Union of India v. Hardy Exploration[10] 25-9-2018

 

Arbitration proceedings shall be conducted in accordance with the Uncitral Model Law on International Commercial Arbitration of 1985.

The venue of conciliation or arbitration proceedings pursuant to this article unless the parties otherwise agree, shall be Kuala Lumpur and shall be conducted in English language.

India

Comments

The above table clearly shows the different approach adopted by the Supreme Court in similar arbitration clauses. At one instance, the Court in Roger Shashoua[11] ruled London to be the seat law on the basis that it was the venue and there is nothing contrary to it whereas in Hardy Exploration[12], the court made India as the seat law as there was nothing contrary to it.

This decision illustrates the importance of clear drafting of arbitration clauses in order to avoid uncertainty and delays. A clear contractual choice of “seat” rather than “venue” would be better. Further, in cases where there is no express choice of seat and no institutional power to designate the seat law, such as in ad hoc arbitrations, it is important for the parties to apply to the Tribunal to determine a juridical seat so that such issues are not raised at the enforcement stage.


†  Associate, Singhania and Co.

[1]  2018 SCC OnLine SC 1640

[2]  (2014) 5 SCC 1

[3]  (2015) 9 SCC 172

[4]  (2017) 14 SCC 722

[5]  (2016) 11 SCC 508

[6]  (2014) 5 SCC 1

[7]  (2015) 9 SCC 172

[8]  (2016) 11 SCC 508

[9]  (2017) 14 SCC 722

[10]  2018 SCC OnLine SC 1640

[11]  (2017) 14 SCC 722

[12]  2018 SCC OnLine SC 1640

Case BriefsHigh Courts

Kerala High Court: The Division Bench of V. Chitambaresh and R. Narayana Pisharadi, JJ. dismissed an appeal filed against the order of District Judge refusing to entertain a petition challenging arbitral award.

Appellant was a guarantor to the loan availed of by a company named Anugraha Wood Products Limited from the respondent company. Upon non-payment of the loan by ‘Anugraha’, arbitration clause of the loan agreement was invoked and arbitrator passed an award regarding recovery of the loan amount from the appellant. The said award was challenged by the appellant in a District Court at Thiruvananthapuram under Section 34 of the Arbitration and Conciliation Act, 1996. Learned District Judge dismissed this petition on the ground of maintainability. Aggrieved thereby, the instant appeal was filed.

The contention of the appellant was that since he permanently resides at Thiruvananthapuram, therefore, the District Court at Thiruvananthapuram had territorial jurisdiction to entertain his petition.

The Court noted that the arbitration clause in the loan agreement was worded as: “The Arbitrator shall hold the enquiry at Udupi only. However, the Arbitrator may change the place of enquiry if he desires so.” Thus, it was evident that the seat of arbitration was at Udupi. Even the entire arbitration proceedings were conducted at Udupi.

Appellant’s contention was dismissed holding that once the seat of arbitration is designated, it is akin to an exclusive jurisdiction clause. Reliance in this regard was placed on the Apex Court’s decision in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., (2017) 7 SCC 678. It was concluded that the Court concerned at Udupi alone had territorial jurisdiction to entertain the application filed by the appellant under Section 34 of the Act. [S. Balu v. ICDS Ltd., 2019 SCC OnLine Ker 502, Order dated 08-02-2019]