Seat Of Arbitration Is Decided As Per Arbitration Agreement, Rules To Be Applied Only After Commencement Of Arbitration: Delhi High Court

The Delhi High Court has observed that the seat of arbitration is to be decided according to the arbitration agreement between the parties and that the Rules of Arbitration of the International Centre for Alternative Dispute Resolution shall come into play only after the arbitration commences before appropriate jurisdiction.

In other words, the seat of arbitration, in cases where parties expressly choose the rules of an arbitral institution into their arbitration clause and fail to specifically agree on a "seat" of arbitration, cannot be considered to have knowingly chosen the seat selection clause of the said institutional rules.

Justice Suresh Kumar Kait observed thus:

"No doubt the aforesaid Clause-26.3.1 of Article- 26 of the Agreement dated 08.02.2017 stipulates that the arbitration shall be held in accordance with the Rules of ICADR but soon thereafter it follows the condition that the venue of arbitration shall be "Lucknow‟. Accordingly, in the considered opinion of this Court, the role of ICADR Rules shall come into play with regard to procedure to be followed, only after the arbitration commences before the appropriate jurisdiction of law, which in this case is "Lucknow"."

The Court was dealing with a petition concerning agreement between a construction company and the respondent namely Construction and Design Services, an undertaking of Government of Uttar Pradesh, providing construction and design services.

The respondent had invited proposal for undertaking design, engineering, procurement and construction of a dedicated 4 lane corridor for old and differently-abled persons during Kumbh and Magh Mela in Allahabad across Ganga River.

After the petitioner company emerged as the successful bidder with the lowest bid, a Letter of Award was issued in favour of the petitioner and a formal contract dated February 8, 2017 was executed between the parties.

It was the case of the petitioner that the respondent did not compensate it for the cost incurred towards fulfilling its part of obligations. The respondent had then intimated that the project as well as the contract ought to be considered as "terminated" while referring to a letter issued by Prayagraj Mela Board.

According to petitioner, Clause 23.6.4 of the Contract provided that the Termination Payment shall constitute a full and final payment and respondent shall make the payment within 30 days under Clause- 23.6.3 and shall discharge the bank guarantees.

It was also the petitioner's case that a writ petition was preferred by it in the Allahabad High Court which is pending.

When all efforts to amicably resolve the dispute failed, petitioner in terms of Article 26.3 of the Contact invoked the arbitration and proposed name of Justice (Retd.) S.J. Mukhopadhyay as its nominee Arbitrator.

However, the Respondent took a stand that once the Contract itself has been revoked without commencement of work and bank guarantees have been returned, no dispute between the parties survived and that the arbitration was untenable.

Since the respondent failed to appoint its nominee Arbitrator within 30 days of issuance of Notice invoking arbitration, petitioner approached the Delhi High Court seeking appointment of Arbitrator.

During the course of hearing, it was argued by the petitioner that arbitration shall be held in accordance with the Rules of Arbitration of the International Centre for Alternative Dispute Resolution, New Delhi (ICADR) or such other rules as may be mutually agreed by the parties, and shall be subject to the provisions of the Arbitration Act.

It was also submitted that by incorporating the Rules of ICADR, New Delhi into the Contract in question, the parties had expressly chosen the seat or place of arbitration at New Delhi.

On the other hand, challenging the maintainability of the petition, the respondent contended that since the agreement between the parties was executed at Lucknow for the work to be performed at Allahabad and that respondent was having its registered office at Lucknow, no cause of action arose within the jurisdiction of Delhi High Court.

Moreover, it was submitted that the ICADR Rules shall come into play only after arbitral tribunal is constituted.

Relying on Clause 27.1 of the Agreement, it was submitted that the Courts at Lucknow shall have the exclusive jurisdiction over matters arising out of the Agreement.

It was also contended that the place where the Agreement has been executed shall have the jurisdiction, which in the case was Lucknow.

The question before the Court was that whether the seat of arbitration shall be New Delhi in the light that the arbitration has to be conducted in accordance with the Rules of Arbitration of the International Centre for Alternative Dispute Resolution, New Delhi or whether the same has to be Lucknow, in the light of agreement that the venue of such arbitration shall be Lucknow?

Relying on a plethora of judgments distinguishing between "seat" and "venue", the Court was finally of the opinion that the seat of arbitration in the case shall be Lucknow. Accordingly the plea was dismissed.

"In view of above discussion and legal position, this Court has no jurisdiction to entertain the present petition seeking appointment of Arbitrator under the provisions of Section 11(6) of Arbitration and Conciliation Act, 1996 and it is accordingly dismissed, with liberty to petitioner to approach the Court at Lucknow for the relief sought herein," the Court added.

In reaching its conclusion, the reliance was placed on BALCO and BGS SGS SOMA JV wherein it was held that choice of venue is also a choice of the seat of arbitration. The High Court held that the parties had agreed that the venue of arbitration shall be Lucknow and thus, only the Courts at Lucknow shall have the jurisdiction to entertain disputes arising out of the agreement.

It was concluded that the arbitration agreement expressly provides the arbitration shall be conducted in accordance with the ICADR Rules and also states that the venue of arbitration shall be Lucknow and the ICADR Rules will be applicable with respect to the procedure to be followed only after the constitution of arbitral tribunal. 

Advocate Anirudh Wadhwa appeared for the petitioner whereas Advocates Rishabh Kapoor, Naman Tandon and Mayank Punia appeared for Respondent.

Case Title: S.P. SINGLA CONSTRUCTIONS PRIVATE LIMITED v. CONSTRUCTION AND DESIGN SERVICES, UTTAR PRADESH JAL NIGAM

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