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Revisiting the 'exclusivity' conundrum: Can the importance given to seat be a hurdle in Arbitration?

Updated: Jan 1, 2023



- Utkarsh Srivastava & Gaurav Choudhary*


Introduction


The intersectionality between the jurisprudence governing the area of Arbitration & Indian legal framework has been a point of debate from the time when the earliest legislation on this subject was enacted in India.[1] The credit for the same can be ascribed to the dependency of the Indian procedural laws on the set guidelines which have been prescribed in the statutes as against the will of the parties involved. To this effect, the central idea of party autonomy in Arbitration serves as a direct clash and as a result, it is restricted by the restrictions placed by the public policy of the country.


The Seat is one of the core principles on which the law of Arbitration is based and entirely emerges out of the concept of party autonomy. Hence, it becomes obvious that there will be circumstances in the Indian legal framework where this concept will find restrictions. One such situation, in this furtherance, occurs in terms of a Section 9 application to the courts when a neutral Seat of Arbitration exists in the contract. The courts have been posed with the question of whether Seat courts will override the jurisdiction of the courts which have jurisdiction to entertain such applications as per the provisions of CPC. This has primarily resulted in two parallel reasoning being given by the courts which cater to each of the ends of this debate respectively. However, with the decision of BGS SGS Soma JV vs NHPC Ltd., (hereinafter ‘BGS SGS Soma’) the Seat courts have been granted an ‘exclusive’ jurisdiction in respect of the adjudication of these applications. This exclusivity in entertaining Section 9 applications can result in a situation where parties are at a deadlock and cannot derive from the law, the appropriate forum for filing their claims.


Importance of Seat in granting an interim relief under Section 9


Ordinarily, the Code of Civil Procedure, 1908 (‘CPC’) confers territorial jurisdiction upon the courts based on three limbs, namely: 1) where the subject matter of the suit is situated; 2) where the cause of action arises; 3) where the defendant resides or has its assets located. Further, the courts also have specific pecuniary jurisdiction to entertain the petitions. Indian Arbitration law forming its interplay with the judicial system of the country permits the intervention of courts at designated intervals of the arbitral proceeding. In this respect, the area concerning interim relief holds an interest.


The power to grant interim relief in an arbitration proceeding is conferred to the courts under Section 9 of the Arbitration Act. Interestingly, while the provision comments upon the power of the courts to entertain such applications and grant interim relief, it does not comment upon which courts will have the jurisdiction to grant this relief in a dispute. Naturally, we subscribe to the meaning which has been provided under the definition clause of the Act. According to this definition, the court in respect of Section 9, in case of domestic arbitration, should not be inferior to the Principal Civil Court including the High Court in the exercise of the original jurisdiction. However, this definition still does not portray a clear picture of the applicable jurisdiction of the courts, particularly as to whether it will be conferred with the seat courts or the courts under the Civil Procedure Code, 1908 (‘CPC’).


The Calcutta High Court, while answering the question on this aspect of jurisdiction had very eloquently put that the nomination of a Seat does not deprive courts in other areas where part of the cause of action has arisen of jurisdiction since such a notion would be contradictory to the Supreme Court's five-judge bench ruling in BALCO. As a result, when selecting a Court under Section 2(1)(e)(i), we now have an extra forum, namely the courts in the site of arbitration.


Courts under the Civil Procedure Code vs the Seat of Arbitration


Generally, in arbitration agreements, parties assign the seat as a place where the course of action of the dispute arises. Conflict occurs when a neutral seat is assigned. Here, the question of preference lies between the seat courts and the courts under the CPC. The judiciary has tried to answer this question in many instances. The earliest decision being Indus Mobile Distribution Pvt. Ltd. vs. Datawind Innovations Pvt. Ltd. (Hereinafter ‘Indus’) wherein the Delhi High Court interpreted the decision of BALCO to mean that the legislature has intentionally given jurisdiction to two kinds of courts and here both the forums would have a ‘concurrent’ jurisdiction to entertain the application. This decision got overruled in Supreme Court wherein it interpreted the same BALCO judgement to mean that the provisions relating to the seat of Arbitration suggest that it has exclusive and supervisory jurisdiction in respect of the interim relief applications.



However, recently the Supreme Court in BGS SGS Soma has once again maintained that although in terms of Section 2(1)(e), jurisdiction has been conferred to two types of courts; one where the arbitration takes place and another where the course of action arises, but if there has been a neutral seat then the jurisdiction will solely lie with the courts of the seat. According to the judgement, with concurrent jurisdiction, despite the seat being specifically chosen by the parties, party autonomy would suffer.


Clearly, the determination of which court would have a superior claim exist between the seat courts and the courts having statutory jurisdiction under the CPC and other connected statutes is largely dependent upon whether a private contract between the parties is capable of ousting the jurisdiction of courts in an event of subscribing to a law which would govern the arbitration. To effectuate this determination, the judiciary has primarily relied on the interpretation of the BALCO judgement. Interestingly, a perusal of paragraph 96 of the judgement, which is relevant for this determination, suggests two possible interpretations. For a better understanding, the exact wording of the paragraph is produced herein:


“…In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place……… Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process……….. In such circumstances, both the Courts would have jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution, i.e., arbitration is located.


The highlighted portion of the paragraph clearly shows that on a literal interpretation it can be concluded that on one hand, it suggests for the Seat to have supervisory control over the arbitral process, and on the other, it also confers jurisdiction upon other courts as well.


The existing lacunae in following both the judicial views


Undoubtedly, the concern of limiting party autonomy while granting a concurrent jurisdiction to both the types of courts which has been primarily mentioned in BGS SGS Soma is a reality. Suppose the seat of the Arbitration is New Delhi and the subject matter of the proceeding is situated in Bangalore, whereas the parties reside and have their assets in Hyderabad. In this case, since the law applied to the Arbitration is of New Delhi therefore the courts of that place would naturally have a supervisory role over other courts to adjudicate the dispute by applying those laws. Therefore, a logical extension to choosing a law governing Arbitration would be that the parties want the courts which have a supervisory role over the law governing Arbitration to adjudicate on the dispute wherever warranted by law. In this scenario, if Bangalore and Hyderabad courts, which ordinarily do not have this supervisory role, are conferred with the jurisdiction of entertaining the application, it would be a restriction on party autonomy as the moment the application is admitted by these courts, there is a limitation on the jurisdiction of the courts which the parties have specifically chosen.


On the other hand, it is a settled position of law as per Section 28 and Section 23 of the Indian Contract Act that private agreements cannot absolutely restrict the parties to enforce v their legal rights. Although, Section 28 permits the reference of a dispute to Arbitration, however, it nowhere amounts to a complete ouster of the jurisdiction of the courts. Therefore, to say that choosing the law governing Arbitration ousts the jurisdiction of other courts which ordinarily would have jurisdiction to entertain the application would be wrong. Exclusive jurisdiction to a particular set of courts further can result in a deadlock where parties would have no recourse to file the application in any of the courts. To explain this situation, let's take the same example as was taken above. If an exclusive jurisdiction to New Delhi courts is conferred for entertaining Section 9 applications then all the parties to the arbitral proceeding will be barred from approaching Hyderabad and Bangalore courts. Now, the Delhi High Court has a specific pecuniary jurisdiction to entertain the suits. If the value of the dispute is not covered within this pecuniary jurisdiction, then according to Section 2 (e)(i) of the Arbitration Act, the Principal Civil Court of the district would have the jurisdiction. The deadlock would arise when there are multiple districts within the seat. Being a neutral seat, neither the assets of the parties are located in the seat, nor the subject matter situated there. In essence, no course of action can be ascribed to any of the districts of the seat. In this scenario, the selection of a civil court to file the Section 9 application cannot be determined from the present law.


Replacing the ‘exclusivity’ with the ‘preferential’ treatment


Undoubtedly, the current mechanism with which the issues involved in the area concerning the jurisprudence between the supersedence of the seat and the jurisdiction of the courts under the Indian civil law are being resolved is not efficient enough to cater the resolution of the issues exhaustively. Concurrent jurisdiction to the courts other than the seat courts defeats the purpose of party autonomy and further would open gates for a multiplicity of proceedings. Whereas, the current stance of granting ‘exclusive’ jurisdiction to the seat courts is not comprehensive and does not take into account the jurisdiction issues which do persist. Whenever a bench interprets the legislature's intent in delivering a decision, it assumes that the legislature while making a law takes into account every possible circumstance which is associated with the subject matter. Therefore, if a law is made by the judiciary, it should as far as possible be efficient enough to cover every possible situation associated with a subject matter.


When an ‘exclusive’ jurisdiction to entertain Section 9 applications is granted to a set of courts, it results in the ouster of jurisdiction of other courts which otherwise would be eligible to entertain such applications. In this scenario, if there is a neutral seat and the value of the dispute is not covered by the pecuniary jurisdiction of the High Court, it becomes impossible for the parties to choose a Principal Civil Court in case there are more than one district in the seat.


To cater to the resolution of this issue, we suggest a ‘preferential’ jurisdiction in place of ‘exclusive’ jurisdiction of the seat courts. This would mean that primarily the parties are mandated to file for interim relief in the seat courts only, however, if there exists a scenario wherein selection of the relevant court within the seat courts is not possible, then the parties can approach the courts which would otherwise have jurisdiction as per the provisions of CPC. This would ensure that the party autonomy is also maintained, and the applicable law exhaustively covers, as far as possible, every possible circumstance which is associated with the subject matter.


Conclusion


The role of the seat is integral to Arbitration being an alternate dispute redressal process. However, an ideal manifestation of this concept is not possible in a legal system which has been dominated by judicial activism. To this effect, a direct clash is seen in the area concerning interim reliefs. While there is a clear demarcation on the existence of the power of courts to grant interim relief, there exists an ambiguity on the selection of courts for such applications. There are several cases which have delved into developing a concrete jurisprudence on this issue; however, the current status of the law in this respect needs to be revised to holistically address all the circumstances which can occur in this segment. An exclusive jurisdiction to the seat courts undoubtedly restricts a party within the seat’s jurisdiction, thereby closing doors for other courts which ordinarily will have the power to entertain the application. This becomes problematic when the parties choose a neutral seat, where there are several courts within the jurisdiction, and no cause of action has arisen in the seat. In order to overcome this issue, it is imperative that the grant of this ‘exclusive jurisdiction’ be diluted, keeping regard to party autonomy. For this reason, the concept of ‘preferential’ jurisdiction in the place of ‘exclusive jurisdiction’ is suggested, which would not only fill the existing gaps which have been described in this article but would also cater to the basic tenet of party autonomy, making sure of its presence in the process.





* The Authors are B.A. LL.B. (Hons.) students of Dr. Ram Manohar Lohiya National Law University, Lucknow


Author 1: Utkarsh Srivastava

Instagram: https://instagram.com/utkarsh_srivastava16?igshid=ZmRlMzRkMDU= (Username: utkarsh_srivastava16)


Author 2: Gaurav Choudhary

Instagram: https://instagram.com/_gaurav_choudhary_?igshid=YmMyMTA2M2Y= (Username: _gaurav_choudhary_)


[1] Dr PC Markanda, Law relating to Arbitration & Conciliation (10th edn, LexisNexis 2020) 12.



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