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Browse Law School Education ADR: Arbitration Important Arbitration Cases

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Now let’s discuss the last case for us in this series which is BGS SGS SOMA JV v. NHPC Ltd., (2019) SCC OnLine SC 1585—citation of which is provided here.

BRIEF FACTS:

A contract was signed between the parties (i.e., NHPC Limited and BGS SGS SOMA JV), for India's largest hydroelectric project on the Subransi River in Assam and Arunachal Pradesh. The contract contained an arbitration clause, which stated the following:

  • Disputes with foreign contractors would be settled under the Arbitration Act read with the United Nations Commission on International Trade Law Arbitration Rules, with the Arbitration Act to prevail in the case of inconsistencies.
  • Arbitration proceedings would either be held in New Delhi or Faridabad.

A dispute arose with regard to payment of compensation for losses suffered due to abnormal delays and additional costs. A three-member Arbitral Tribunal was constituted in accordance with the Arbitration agreement under the Arbitration Act, 1996. The Tribunal delivered its unanimous award at New Delhi, by which the claims of the Petitioner were allowed, together with simple interest at 14 percent per annum till the date of actual payment. In view of certain computational and typographical errors in the arbitral award, a rectification award was also made.

Being aggrieved by the arbitral award and the rectification thereto, the respondent filed an application under Section 34 of the Arbitration Act, 1996 seeking to set-aside these awards before the Court of the District and Sessions Judge at Faridabad, Haryana. The Petitioner filed an application under Section 151 read with Order VII Rule 10 of the CPC (Code of Civil Procedure), 1908 and Section 2(1)(e)(i) of the Arbitration & Conciliation Act, 1996, seeking a return of the petition filed under Section 34 for presentation before the appropriate Court at New Delhi and/or the District Judge at Dhemaji, Assam. The Special Commercial Court returned the Section 34 petition for presentation to the proper court having jurisdiction in New Delhi. The Respondent filed an appeal under Section 37 of the Arbitration Act, 1996 read with Section 13(1) of the Commercial Courts Act, 2015 before the High Court of Punjab and Haryana at Chandigarh. The High Court held that the appeal filed under Section 37 of the Arbitration Act, 1996 was maintainable, and that Delhi being only a convenient venue where arbitral proceedings were held and not the seat of the arbitration proceedings, Faridabad would have jurisdiction on the basis of the cause of action having arisen in part in Faridabad.

The Petitioner subsequently filed a special leave petition before the Supreme Court challenging the impugned order.

ISSUES:

Now let’s look up the issues one by one:

  1. Is an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 maintainable against an order that transfers Section 34 proceedings from one court to another?
  2. Given the arbitration clause in the present case, whether the “seat” of the arbitration proceedings is New Delhi or Faridabad, consequent upon which a petition under Section 34 of the Arbitration Act, 1996 may be filed dependent on where the seat of arbitration is located?

 HELD:

Now, what was held in this case will be taken up according to the issues. The Supreme Court observed that Section 37 appeals are maintainable only against orders which:

  • refuse reference to arbitration under Section 8 of the Arbitration Act;
  • grant or refuse to grant interim relief under Section 9 of the Arbitration Act; or
  • are made under Section 34 of the Arbitration Act and set-aside or refuse to set-aside an arbitral award.

The Supreme Court held that the appeals filed in the present case do not fall within Section 37 of the Arbitration Act,1996 and are not maintainable. The court explained that an order transferring Section 34 proceedings from one court to the other would not amount to a refusal to set-aside the award.

Relying on the judgements in cases ofKandla Export Corporation, (2018) 14 SCC 715—which is a 2018 case, and South Delhi Municipal Corporation v. Tech Mahindra, EFA (OS) (Comm) 3/2019—which is again of 2019, the Court concluded that the respondent’s appeal under Section 37 of the Arbitration & Conciliation Act in the Punjab and Haryana High Court was not maintainable.

Now let’s take up the second issue—Whether the seat of the arbitration proceedings would be New Delhi or Faridabad.

The Supreme Court inter alia opined that designation of a “venue” of the arbitration proceedings amounts to designating a seat, in the absence of indicators to the contrary. The SC further clarified that designating a seat of arbitration amounts to granting exclusive jurisdiction of the courts situated near such seat.

The Court applied the “significant contrary indicia” rule which was discussed in earlier cases (Roger Shashoua & Ors v. Mukesh Sharma), which propounded that the venue of arbitration is the juridical seat provided there is no indicator that the parties intended otherwise. The Supreme Court also supported its holding by referring to Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited, (2017) 7 SCC 678—which again, I have already discussed with you earlier.

RATIO

Now, concluding the findings of the SC in this case. Transferring Section 34 proceedings from one court to the other would not amount to a refusal to set-aside such award. Hence, such appeals do not fall under Section 37 of the Arbitration and Conciliation Act, 1996.

Designating a seat of arbitration amounts to granting exclusive jurisdiction of the courts situated at such a seat.

Therefore, in this case you’ve seen—what is the dispute that can arise when there is a confusion regarding the “seat of arbitration”.

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