Arbitrator Can't Assume Arbitral Seat Without Clear Agreement From Parties: Delhi High Court
The Delhi High Court bench of Justice C. Hari Shankar has held that that parties in arbitration can agree to an arbitral seat at a neutral location, different from where the contract was executed, the work was carried out, or the arbitration proceedings were conducted. However, such a decision must first reflect mutual agreement and, secondly, must be documented, either...
The Delhi High Court bench of Justice C. Hari Shankar has held that that parties in arbitration can agree to an arbitral seat at a neutral location, different from where the contract was executed, the work was carried out, or the arbitration proceedings were conducted. However, such a decision must first reflect mutual agreement and, secondly, must be documented, either explicitly in writing or recorded by the Arbitrator or the Court in an order.
The High Court held that, without such an agreement, the Arbitrator cannot assume there was a mutual understanding between the parties regarding a particular location as the arbitral seat, unless there are written or oral submissions explicitly indicating an agreement to the location as the arbitral seat.
Brief Facts:
The Petitioner, Union of India, filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 seeking to challenge an arbitral award. The petition is currently at a stage where notice has yet to be issued by the High Court. The central issue before the High Court arose from a preliminary objection raised by Mr. Sahil Garg, counsel for Arsh Constructions (Respondent) regarding the maintainability of the petition before the High Court.
The objection advanced by Mr. Garg was based on a critical aspect of the arbitral award itself. In paragraph 4 of the impugned award, the Arbitrator expressly observed that Gurgaon was the undisputed seat of arbitration which conferred supervisory jurisdiction over the arbitral proceedings to the High Court of Punjab and Haryana. Mr. Garg contended that in light of this determination, the petition should have been filed before the High Court having jurisdiction over Gurgaon, rather than before the Delhi High Court.
Mr. Garg further argued that the Petitioner has not specifically challenged or traversed the Arbitrator's finding that Gurgaon was the agreed seat of arbitration. According to him, this omission signifies that the finding has been accepted by the petitioner and as such, the jurisdiction of the High Court is ousted.
Observations by the High Court:
The High Court noted that if Gurgaon was indeed the arbitral seat, the court would have no territorial jurisdiction over the matter. This stems from clear rulings of the Supreme Court in cases such as BGS SGS Soma JV v NHPC Ltd and BBR (India) Pvt Ltd v S P Singla Constructions Pvt Ltd where it was held that petition under Section 34 of the Arbitration Act must be filed in the court that has territorial jurisdiction over the arbitral seat.
The High Court acknowledged that the Arbitrator, in the impugned award, recorded that it went "undisputed" between the parties that Gurgaon was the arbitral seat. This finding, however, was contested by the Petitioner's counsel, Ms. Dwivedi, who vehemently argued that this finding was incorrect. The Petitioner maintained that there had never been an undisputed agreement between the parties regarding Gurgaon as the arbitral seat.
The High Court then addressed the ancillary issue of whether it is bound by the Arbitrator's finding that Gurgaon was the undisputed arbitral seat as recorded in the arbitral award. On this, the High Court turned to the arguments made by Ms. Dwivedi, who presented orders from the arbitral proceedings, contending that nowhere did the Petitioner agree to Gurgaon as the arbitral seat. The High Court found merit in this submission, as there was no documented evidence of such an agreement in the pleadings, proceedings, or any order recorded by the Arbitrator.
Further, the High Court examined paragraph 4 of the impugned arbitral award, where the Arbitrator noted that Gurgaon had gone "undisputed" as the arbitral seat. The High Court observed that for a matter to be undisputed, it must have been raised at some point during the proceedings, and then allowed to pass without objection. However, there was no record in the proceedings that such an issue had been discussed or agreed upon by the parties. The High Court noted that the agreement between the parties did not specify Gurgaon as the arbitral seat, and in fact, the High Court of Punjab and Haryana previously designated Delhi as the venue of arbitration.
Given the lack of any written or oral submissions indicating an agreement to Gurgaon as the arbitral seat, the High Court held that the Arbitrator's finding in paragraph 4 was based on an erroneous assumption. The Arbitrator mistakenly believed that the issue of the arbitral seat had been settled when, in fact, it had not even arisen during the proceedings.
The High Court then held that any decision regarding the arbitral seat must be based on consensus between the parties and should be documented either in the contract, the arbitration record, or an order by the Arbitrator. In the absence of such documentation, the Arbitrator's conclusion that Gurgaon was the arbitral seat was held to be erroneous.
Further, the High Court noted that the issue of territorial jurisdiction had been raised by the Respondent in opposition to the petition. As a result, the Petitioner had every right to contest the finding recorded in the arbitral award regarding the arbitral seat. In doing so, the Petitioner was entitled to refer to the arbitral record, which, as pointed out by Ms. Dwivedi, did not contain any agreement to Gurgaon being the arbitral seat.
Therefore, the High Court was compelled to set aside the Arbitrator's finding that Gurgaon was the arbitral seat. Mr. Garg, on behalf of the Respondent, attempted to argue that the arbitration clause in the agreement empowered the Arbitrator to fix the venue of arbitration at his sole discretion.
However, the High Court rejected this argument on two grounds. First, the Arbitrator didn't independently exercised his discretion to fix Gurgaon as the arbitral seat but relied on an erroneous premise that the parties had agreed to Gurgaon. Second, the High Court clarified that there is a legal distinction between the venue and the seat of arbitration, as emphasized by the Supreme Court in both BGS SGS Soma and BBR India. The arbitration agreement in the case only granted the Arbitrator discretion to fix the venue, not the seat.
The High Court held that the contract did not specify a venue for arbitration, nor did it mention Gurgaon or any other location outside Delhi. It merely granted the Arbitrator the discretion to determine the venue. Despite this, the Arbitrator did not fix any venue different from the one set by the High Court of Punjab & Haryana. Thus, the venue remained fixed at Delhi, as per the High Court's order, and there was no authority to shift it.
Mr. Garg also attempted to support his position by citing the judgment of the Supreme Court in Inox Renewables Ltd v. Jayesh Electricals Ltd. In this case, the venue had been mutually shifted by the parties from Jaipur to Ahmedabad, a fact that was never disputed. However, the High Court found that this reliance was misplaced as there was no evidence in the present case of a similar mutual agreement to shift the venue to Gurgaon.
The High Court also addressed the reference made by Mr. Garg to the decision in Delhi Tourism and Transportation Development Corporation Ltd v. Sunehari Bagh Construction Pvt Ltd. In this case, the Arbitrator fixed the seat of arbitration in Ghaziabad, but the Division Bench noted that the parties subsequently agreed to shift the seat to Delhi. The High Court clarified that the present case was different because no such procedural order or agreement existed. There was no procedural order indicating any change in the arbitral seat from Delhi to Gurgaon, and the Arbitrator's observation that Gurgaon was the seat of arbitration appeared for the first time in the impugned award.
The High Court held that the Arbitrator proceeded on a factually erroneous assumption, unsupported by any evidence, that Gurgaon was the undisputed arbitral seat. There was no material on record to suggest that such an agreement existed, and therefore, the Arbitrator's finding could not stand. Since the issue was purely factual and could be resolved based on the existing record, the High Court held that the absence of specific pleadings on this point in the petition was immaterial.
Therefore, the High Court found that it had the territorial jurisdiction to hear the matter. The objection concerning the maintainability of the petition was dismissed and the High Court issued notice to the Respondent setting the case for a subsequent hearing.
Case Title: Union Of India Vs Arsh Constructions
Citation: 2024 LiveLaw (Del) 994
Case Number: O.M.P. (COMM) 15/2023 and I.A. 643/2023, 644/2023 and 35297/2024
Advocate for the Petitioner: Ms. Arunima Dwivedi, CGSC with Mr. Amit Dutta, Ms. Swati Jhunjhunwala, Ms. Pinky Pawar, Mr. Aakash Pathak and Mr. Akash Banerjee, Advocates
Advocate for the Respondent: Mr. Sahil Garg, Advocate
Date of Judgment: 06.09.2024