Express Designation of Place In Arbitration Agreement Valid For Determining Seat Of Arbitration: Supreme Court

Express Designation of Place in Arbitration Agreement Valid for Determining Seat of Arbitration: Supreme Court

In a significant ruling concerning the Arbitration and Conciliation Act, 1996, a 3-Judge Bench of the Supreme Court, consisting of CJI Dr. DY Chandrachud, Justices JB Pardiwala, and Manoj Misra, addressed key issues regarding the seat of arbitration and the applicability of Part I of the Act in international commercial arbitration.

The petition was filed under Section 11(6)(a) and Section 11(12)(a) of the Arbitration and Conciliation Act, seeking a referral of disputes between the parties to arbitration and the consequent appointment of an arbitrator by the Court. The case arose from a consumer distributorship agreement executed on November 9, 2010, between the petitioner and the respondent for the distribution of mobile handsets. The agreement, executed in Kabul, Afghanistan, stipulated that the contract would be governed by the laws of the UAE, with the Dubai Courts holding non-exclusive jurisdiction. It also contained an arbitration clause specifying Dubai as the venue of arbitration, subject to the UAE's Arbitration & Conciliation Rules.

Key Issues

The Court was tasked with deciding the following:

 Whether the petition under Section 11 of the Arbitration & Conciliation Act is maintainable?
 Whether Part I of the A&C Act applies to the arbitration clause in the distributorship agreement?
 What is the seat of arbitration under the distributorship agreement?

The Supreme Court delved into the history of arbitration law in India, noting that before the enactment of the Arbitration and Conciliation Act, 1996, arbitration in India was governed by multiple laws: the Arbitration (Protocol and Convention) Act, 1937, the Arbitration Act, 1940, and the Foreign Awards (Recognition and Enforcement) Act, 1961. The 1996 Act consolidated these provisions, incorporating the UNCITRAL Model Law on International

Commercial Arbitration, which introduced the concept of the "seat" or "situs" of arbitration, central to resolving jurisdictional issues in arbitration proceedings. Doctrine of concurrent jurisdiction The Court examined the evolution of the doctrine of concurrent jurisdiction in Indian arbitration law. Initially, in NTPC v. Singer Company (1992), the Supreme Court recognized the notion of concurrent jurisdiction, where courts at the seat of arbitration and courts in India could both exercise jurisdiction over certain procedural matters. This was further expanded in Bhatia International v. Bulk Trading S.A. (2002), where it was held that Part I of the Arbitration and Conciliation Act applied to international commercial arbitrations even if the seat was outside India.

However, in the landmark Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO) case (2012), the Supreme Court overruled the doctrine of concurrent jurisdiction, ruling that Part I of the A&C Act applies only to arbitrations seated in India and not to those seated abroad. This principle was further clarified in Union of India v. Reliance Industries Ltd. (2015).

The Shashoua Principle and Seat of Arbitration The Court reaffirmed the Shashoua Principle, stating that when parties explicitly choose the curial law (i.e., the law governing the arbitration process), that jurisdiction should be regarded as the seat of arbitration. In this case, Clause 26 of the Distributorship Agreement specified that the UAE Arbitration & Conciliation Rules would govern the arbitration, reinforcing the conclusion that Dubai is the juridical seat of the arbitration. The Court emphasized that the seat of arbitration is akin to an exclusive jurisdiction clause, meaning only the courts in Dubai, UAE, have jurisdiction over the arbitral process.

Further, the Court rejected the argument that Dubai was designated merely as a "venue" for arbitration. The stipulation of the UAE Arbitration & Conciliation Rules as the curial law was seen as an unequivocal indication that Dubai is the seat of arbitration. As such, the Court ruled that the jurisdiction over the arbitration belongs solely to the courts in Dubai, not India. Rejecting the Closest Connection Test The Court also addressed the "Closest Connection Test"—a method previously used to determine the seat of arbitration when the place was not explicitly chosen by the parties. The Court clarified that this test is no longer a viable criterion for determining the seat of arbitration, particularly in light of the Shashoua Principle. Instead, the explicit designation of a place of arbitration in the agreement should take precedence. The Court stressed that the law governing the arbitration agreement and the seat of arbitration are often aligned, and the place designated as the seat in the arbitration agreement should be respected.

Conclusion

Ultimately, the Supreme Court concluded that the petition was not maintainable as the seat of arbitration, as expressly agreed by the parties in the distributorship agreement, is Dubai, UAE, and not India. As the parties had already agreed upon Dubai as the seat of arbitration, the Court held that it was not open for the petitioner to invoke the jurisdiction of Indian courts to resolve the dispute.

The Court also made several other important observations:

- Curial Law and Seat of Arbitration: Where the curial law of a place or a supranational body is stipulated, it serves as a positive indicator of the seat of arbitration.

- Deference to Party Choices: Courts should respect the choices made by parties in the arbitration agreement, including the designation of the seat, and not alter them based on perceived inadvertence.

- Applicability of the Closest Connection Test: While the test may still be relevant in cases where the seat is not expressly designated, its application is limited where the seat is clearly stipulated by the parties.

- Doctrine of Forum Non Conveniens: In cases where multiple places could be considered as the seat of arbitration, the doctrine of forum non conveniens can be used to determine the most appropriate forum based on the nature of the dispute and the interests of the parties.

In conclusion, the Court's judgment reinforces the importance of respecting the parties’  choice of seat in international arbitration agreements and clarifies the role of the Indian courts in such proceedings. The decision provides much-needed clarity on the criteria for determining the seat of arbitration and the applicability of Indian law to international arbitration agreements.