[Seat vs Venue] Bombay High Court Upholds Arbitrator's Discretion To Change Venue Of Arbitral Proceedings

Background Facts:

The petitioner filed the writ petition against the impugned order passed by the Arbitrator on 16.06.2024, which fixed the venue of arbitration at Aurangabad. The agreed venue between the parties in terms of the agreement dated 02.09.2013 was at 'Regional headquarter Commissioner D.M.C., Dhule'.

Contentions of the Parties:

The counsel for Petitioner contended that:

• The venue cannot be fixed anywhere other than as provided in the agreement.
• The parties had agreed that the place of arbitration would serve as both the seat and venue for all purposes of the arbitration proceedings.
• The arbitrator had no jurisdiction to change the venue once the agreement provided for the same unless the parties later agreed to a different venue. Section 20(2) of the Arbitration and Conciliation Act gives power to the arbitral tribunal to determine the place of arbitration in the absence of any agreement as contemplated under Section 20(1). As per Section 20 (3), the Tribunal can meet at any place it considers appropriate for hearing witnesses, experts, parties etc. The impugned order is in violation of section 20.
• The seat and venue are the same and the arbitration proceedings are required to be conducted at a place of arbitration i.e. Dhule.
• The High Court in exercise of its power under Articles 226 and 227 of the Constitution of India can intervene in the arbitration proceedings in exceptional circumstances.

Per contra, the counsel for Respondent contended that:

• The place of arbitration, as provided in the agreement, refers to the seat of arbitration under section 20(1).
• The arbitrator has the discretion to choose a different venue. As there was no agreement regarding the venue, the Arbitrator decided on Aurangabad as the venue of arbitration, considering the submissions and convenience of the parties.
• The Court should refrain from exercising its powers under Articles 226 and 227 of the Constitution, which should be used sparingly in cases of grave illegality.
• The change of venue does not alter the seat of arbitration.

Observations:

The court noted that the Arbitrator had taken into account the following facts while fixing the venue of Arbitration and decided to hold the proceedings in Aurangabad:

• There was no agreement on the venue; although there was an agreement on the seat, the venue could be shifted to a more convenient location without changing the seat of arbitration.
• The earlier arbitrators faced difficulties while conducting proceedings at the designated seat.
• On nine occasions, the proceedings were held in Nashik, which is far from the stated venue.

The court referred to BBR (India) Private Limited vs. S. P. Singla Constructions Private Limited [AIR 2022 SC 2673], which held that section 20(3) empowers the arbitral tribunal to conduct hearings at any place of convenience unless the parties have agreed otherwise. This can be for consultation among its members, recording witness statements, examination of experts or parties, and inspection of documents, goods, or property. The court further observed that the 'seat of arbitration' may be different from the place where contractual obligations are/were to be performed.

The court also referred to BGS SGS Soma JV vs. NHPC Limited, where the Supreme Court had held that the 'seat of arbitration' can be determined by the following test:

“... wherever there is an express designation of a “venue”, and no designation of any alternative place as the “seat”, combined with a supranational body of rules governing the arbitration, and no other significant contrary indicia, the inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding.”

In BGS SGS Soma JV, it was observed that section 20 leaves no room for doubt that where the place of arbitration is in India, the parties are free to agree to any "place" or "seat" within India. In the absence of the parties' agreement thereto, Section 20(2) authorizes the tribunal to determine the place/seat of such arbitration. The Supreme Court had also observed that the fixation of the most convenient "venue" is taken care of by Section 20(3). in certain cases, the “venue” mentioned in the arbitration agreement may be the “seat” of arbitration.

The court noted the case of Jagson Airlines Ltd. and Anr. vs. Bannari Amman Exports (P) Ltd. [2003 (69) DRJ 490], where the Delhi High Court observed that when there is express agreement on the venue of arbitration, the arbitrator cannot change it without the consent of the parties. Further, in U.P.Ban Nigam, Almora and another vs. Bishan Nath Goswami, (Deceased by L.Rs.) [AIR 1985 Allahabad 351], it was held that when there is no agreement on venue between the parties, an arbitrator cannot fix the venue of the arbitration without considering the convenience of the parties.

In Surendra Kumar Singhal and Others vs. Arun Kumar Bhalotia and Others [(2021) 279 DLT 636], the Delhi High Court laid down the following principles governing the exercise of jurisdiction under Articles 226 and 227 of the Constitution in relation to arbitral orders:

• Petitions under Articles 226/227 are maintainable against arbitral tribunals;
• The non-obstante clause in section 5 of the Act does not apply in respect of the exercise of powers under Article 227;
• Interference is allowed only in 'exceptional circumstances';
• Courts should not intervene unless the arbitral order is 'perverse' and lacking inherent jurisdiction;
• High courts should discourage excessive interference in the arbitral process; and
• Jurisdiction under Articles 226/227 should be exercised in 'exceptional rarity' or if 'bad faith' is shown.

The court reiterated that Section 20(1) relates to the seat of arbitration, not the venue, and Section 20(3) pertains to the venue of arbitration. The court observed that if the venue is stipulated in the agreement and the arbitrator concludes that conducting arbitration proceedings at the specified venue would be detrimental to the arbitration process, he may shift the venue to an alternate, conveniently located place. This exercise should be permitted because the arbitrator performs quasi-judicial functions. However, where the agreement specifies the exclusive seat of arbitration, the arbitrator cannot change it.

The court also observed that section 20(3) of the Act does not completely bar the change of venue without the consent of the parties, even when the venue is agreed upon in the contract.

The court relied upon Lombard Engineering Limited vs. Uttarakhand Jal Vidyut Nigam Limited, in which the Supreme Court allowed deviation from the agreement when one of the parties lacked the bargaining power to modify the contract.

The court refrained from exercising its jurisdiction under articles 226 and 227. Consequently, it dismissed the writ petition.

Case Title: Dhule Municipal Commissioner vs. M/s Borse Borthers Engineers and Contractors Pvt. Ltd.

Case Number: WRIT PETITION NO.7735 OF 2024

Counsel for Petitioner: Mr. S. B.Yawalkar h/f Mr. N. N. Desale

Counsel for Respondent: Mr. Amol K. Gawali

Date of Judgment: 15.10.2024