Reconciling Conflicts In Arbitration Jurisdiction: Seat, Venue, And Exclusive Jurisdiction In Cross-Border Transactions

Summary:

[1]The Hon’ble Supreme Court of India, in a key ruling on international commercial arbitration, reaffirmed the BALCO principle in reference to determining the seat of arbitration abroad. The instant petition was filed under Section 11(6)(a) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996. The Court observed a shift in stance from the ‘Closest Connection Test’ in view of the Shashoua Principle, holding that the express designation of place trumps the aforementioned practice. The three-judge bench decided that the more appropriate criterion for determining the seat of arbitration is that where there is an express designation of a place of arbitration in the agreement, with there being no other significant contrary indicia to show otherwise, such place would be the ‘seat’ of arbitration even if it is designated in the nomenclature of ‘venue’ in the arbitration agreement.

Facts:

• The petitioner and respondent no. 1 signed a distributorship agreement dated 09.11.2010 for distributing handsets in Afghanistan, with payments via letters of credit.
• The agreement specified arbitration in Dubai under UAE Arbitration and Conciliation Rules, governed by UAE laws without exclusive jurisdiction for specific courts.
• In 2012, discrepancies arose when respondent no. 2 delivered fewer number of handsets than the order quantity, but raised an invoice for the full sum amounting to $109,500. The petitioner claimed a credit balance of $190,625 with respondent no. 1, which was not adjusted against the invoice raised by respondent no. 2.
• Despite repeated communications, including account statements and reconciliation requests, respondents failed to resolve the credit balance.
• In September 2022, the petitioner invoked arbitration, claiming $88,425 with 24% interest.
• With respondents failing to appoint an arbitrator, the petitioner filed the present petition under Section 11(6)(a) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996.

Issues:

1. Whether, the present petition under Section 11 of the Act of 1996 is maintainable?
2. Whether, Part I of the Act of 1996 is applicable to the arbitration clause contained in the Distributorship Agreement dated 09.11.2010?
3. What is the seat of the arbitration in terms of the Distributorship Agreement dated 09.11.2010?

Judgment:

1. Applicability of Part I of the Arbitration Act:

The court noted that Part I of the Act of 1996 automatically applies to both domestic and international arbitrations when the seat of arbitration is in India. However, it does not extend to arbitrations seated outside India.

2. Legal Precedents:

The court referred to several Supreme Court judgments to support its decision:

• Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc reported in (2012) 9 SCC 552.

The constitution bench in the “BALCO” case held that the applicability of Part I of the Act, 1996 is limited only to arbitrations that take place in India, whereby this law will apply prospectively to all arbitration agreements that have been executed on or after September 06, 2012. The case also deliberated upon the aspect of notional doctrine of concurrent jurisdiction, which was expressly rejected and prospectively overruled by this court.

• Union of India v. Reliance Industries Ltd. & Ors. (2015) 10 SCC 213

This case further implicated that upon a conjoint reading of the BALCO case and Bhatia International v. Bulk Trading S.A. (2002) 4 SCC 105, is that when the juridical seat of arbitration is outside India, or when the arbitration agreement is governed by a law other than Indian law, Part I of the Arbitration Act is excluded by necessary implication. Consequently, the doctrine of concurrent jurisdiction does not apply, regardless of whether the arbitration agreement was entered into before or after the BALCO ruling.

Thereafter, the settled position of law is that Part I of the Arbitration Act applies to arbitration agreements executed prior to the BALCO decision only if: (i) the seat of arbitration is in India, or (ii) the arbitration agreement is governed by Indian law. In this case, the Court found that the explicit choice of Dubai as the venue and the application of UAE laws clearly established Dubai as the juridical seat of arbitration, thereby excluding the jurisdiction of Indian courts.

3. Determination of the Seat of Arbitration:

In Enercon (India) Ltd. v. Enercon GMBH (2014) 5 SCC 1, the Hon’ble Supreme Court erroneously held that the place with the ‘closest connection’ with the law governing the arbitration agreement would be the seat of arbitration. However, the position of law was countered in Roger Shashoua v. Sharma [2009] EWHC 957 (Comm), which advanced the Shashoua Principle, stating that a designated venue is presumed to be the seat unless the agreement indicates otherwise. In BGS SGS SOMA JV v. NHPC Ltd. (2020) 4 SCC 234, the Supreme Court propounded a three-condition test as to when a ‘venue’ can be construed as the ‘seat’ of arbitration: (i) the arbitration agreement must designate only one place as the arbitration location; (ii) the arbitral proceedings must be fixed to that place alone, with no scope for change; and (iii) there must be no significant contrary indications suggesting that the designated place is merely a venue and not the seat.

Given that Clause 26 of the Distributorship Agreement explicitly stipulated that the subject law would be the UAE Arbitration and Conciliation Rules, with there being no other contrary indications, Dubai is not only designated as the venue, but also as the juridical seat of arbitration.

4. Non-Exclusive Jurisdiction and Doctrine of “Forum non Conveniens”

Reliance was placed on the following judgements by the Hon’ble Supreme Court:

In Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. (2017) 7 SCC 678, the SC held that once the ‘seat’ of arbitration is determined, it operates as an exclusive jurisdiction clause, conferring jurisdiction solely on the courts of that seat to oversee and regulate the arbitral proceedings.

Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. (2013) 9 SCC 32, further ruled that in a jurisdiction clause, the absence of words like “alone,” “only,” or “exclusive” does not dilute the exclusive nature of jurisdiction conferred by such a clause.

When two or more venues equally appear to be the seat of arbitration, the conflict can be resolved using the doctrine of Forum Non Conveniens, which allows a court that otherwise has jurisdiction, to decline hearing a case if a more appropriate forum is available that has competent jurisdiction and better serves the interests of the parties and the ends of justice. The applicability of this principle is usually seen in cross-border disputes where multiple jurisdictions are involved.

5. Maintainability of Petition under Section 11:

Based on the abovementioned reasoning, the apex court reached the conclusion that the present petition under Section 11 of the Act of 1996 is not maintainable, in view of the fact that neither the seat of arbitration is India, nor is the arbitration agreement governed by Indian laws.

Analysis:

The Supreme Court’s decision highlighted the application of Part I of the 1996 Act, with regards to the determination of seat of arbitration as well as the effective dates of application. The Court further shifted its stance from endorsing the ‘Close Connection Test’ for determining seat of arbitration, to upholding express designation of the place of arbitration for deciding the seat, in continuation of the Shashoua principle. The decision has precedential impact, underscoring the importance of application of Part I of the 1996 Act and the doctrine of Forum Non Conveniens when it comes to cross-jurisdictional commercial transactions.

[1] BEFORE THE HON’BLE SUPREME COURT

M/s Arif Azim Co. Ltd. v. M/s Micromax Informatics Fze 

Arbitration Petition No. 31 OF 2023

2024 LiveLaw (SC) 871

Judgment dated 7th November 2024