Appointment Of A New Arbitrator Who Holds Proceedings At A Different Location Would Not Change Jurisdictional 'Seat' Already Fixed By Earlier Arbitrator : Supreme Court

The Supreme Court observed that 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 place of arbitration in such an event should be treated as a venue where arbitration proceedings are held, the bench of Justices Ajay Rastogi and Sanjiv Khanna observed.

Background

In this case, the the arbitration clause in the agreement between parties does not stipulate the seat or venue of arbitration. As disputes 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 held on 5th August 2014, the arbitral tribunal held that the venue of the proceedings would be H.No. 292, Sector-6, Panchkula, Haryana. On 29th May 2015, Mr. Justice (Retd.) N.C. Jain recused recording that he did not want to continue as the arbitrator for personal reasons. Thereafter,  Justice (Retd.) T.S. Doabia took over as the sole arbitrator and recorded his consent in this regard in the first procedural order in which it was stated that the venue of the proceedings would be Delhi.

Later, a petition filed by one of the parties under Section 9 of the Act before the Additional District Judge, Panchkula, was dismissed on the ground of lack of territorial jurisdiction, inter alia, recording that the jurisdiction to entertain the application vests solely with the Delhi High Court. This order was set aside by the High Court of Punjab and Haryana observing that the agreement between the parties was silent as to 'the seat' of the arbitration proceedings, and the second arbitrator Mr. Justice (Retd.) T.S. Doabia, had not determined Delhi to be the 'seat of arbitration'. Challenging this order, the other party approached the Apex Court.

Issue/Contentions

The issue raised in the appeal was whether conducting the arbitration proceedings at Delhi, owing to the appointment of a new arbitrator,1 would shift the 'jurisdictional seat of arbitration' from Panchkula in Haryana, the place fixed by the first arbitrator for the arbitration proceedings? According to the appellant, the appointment of new arbitrator would shift the seat to Delhi. The respondent contended otherwise.

Section 20 Arbitration Act

The Section 20 of Arbitration Act reads as follows

(1) The parties are free to agree on the place of arbitration.

(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.

(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.

The court noted that in BGS SGS Soma (supra), it has been held that subsection (3) of Section 20 refers to 'venue' whereas the 'place' mentioned in sub-section (1) and sub-section (2) refers to the 'jurisdictional seat'.

The court observed that once the arbitrator fixes 'the seat' in terms of subsection (2) of Section 20 of the Act, the arbitrator cannot change 'the seat' of the arbitration, except when and if the parties mutually agree and state that the 'seat of arbitration' should be changed to another location. The court made the following observations:

 Change of venue does not result in change or relocation of the 'seat of arbitration'

"There are good reasons why we feel that 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'. 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'."

Place of jurisdiction or 'the seat' must be certain and static and not vague or changeable

It is highly desirable in commercial matters, in fact in all cases, that there should be certainty as to the court that should exercise jurisdiction. We do not think the law of arbitration visualises repeated or constant shifting of the 'seat of arbitration'. In fact, sub-section (3) of Section 20 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. If we accept this contention of the appellant, we would, as observed in the case of C v. D (supra), create a recipe for litigation and (what is worse) confusion which was not intended by the Act. 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. Further, there would be a risk of parties rushing to the courts to get first hearing or conflicting decisions that the law does not contemplate and is to be avoided.

Exercise of supervisory jurisdiction by the courts

The court also observed that the exercise of supervisory jurisdiction by the courts where the arbitration proceedings are being conducted is a relevant consideration, but not a conclusive and determinative factor when the venue is not 'the seat'.

The seat' determines the jurisdiction of the courts. There would be situations where the venue of arbitration in terms of sub-section  (3) of Section 20 would be different from the place of the jurisdictional 'seat', and it is equally possible majority or most of the hearing may have taken place at a venue which is different from the 'seat of arbitration'. Further, on balance, we find that the aspect of certainty as to the court's jurisdiction must be given and accorded priority over the contention that the supervisory courts located at the place akin to the venue where the arbitration proceedings were conducted or substantially conducted should be preferred.

The bench also rejected the contention that as substantive proceedings were held in Delhi and, therefore, it would be the 'seat of arbitration'. It said:

"There could be cases where the arbitration proceedings are held at different locations, but the 'seat of arbitration', as agreed by the parties or as determined by the arbitrator, may be different, and at that place – 'the seat', only a few hearings or initial proceedings may have been held. This would not matter and would not result in shifting of the jurisdictional 'seat'. Arbitrators can fix the place of residence, place of work, or in case of recusal, arbitration proceedings may be held at two different places, as in the present case. For clarity and certainty, which is required when the question of territorial jurisdiction arises, we would hold that the place or the venue fixed for arbitration proceedings, when sub-section (2) of Section 20 applies, will be the jurisdictional 'seat' and the courts having jurisdiction over the jurisdictional 'seat' would have exclusive jurisdiction. This principle would have exception that would apply when by mutual consent the parties agree that the jurisdictional 'seat' should be changed, and such consent must be express and clearly understood and agreed by the parties."

While dismissing the appeal, the bench held:

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 place of arbitration in such an event should be treated as a venue where arbitration proceedings are held.

Case details

BBR (India) Private Limited vs S.P. Singla Constructions Private Limited | 2022 LiveLaw (SC) 493 | CA 4130-4131 OF 2022 | 18 May 2022

Coram: Justices Ajay Rastogi and Sanjiv Khanna

Counsel: Sr. Adv Jayant Bhushan, AOR Kunaal Verma, for appellant, Sr Adv Ritin Rai assisted by Advocates Anirudh Wadhwa, Bhargav Thali, Anushka Pandey, Ritika Sinha and Shivam Singh for respondents.

Headnotes

Arbitration and Conciliation Act, 1996 ; Section 20 - 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 place of arbitration in such an event should be treated as a venue where arbitration proceedings are held - 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. (Para 29)

Click Here To Read/Download Judgment