Determination of Seat of Arbitration: Larger Bench of SC to decide

An arbitration case which raised questions about venue and seat of arbitration and the jurisdiction of Indian courts in international commercial arbitration has been referred to a larger Bench..A Bench comprising Justices RK Agrawal and Abhay Manohar Sapre was hearing a Civil Appeal in the case Union of India v. Hardy Exploration and Production (India)..The primary and fundamental issue raised in this case was regarding the “seat” of arbitration when the two parties are bound by an arbitration agreement..The appeal arose out of the proceedings filed by the Central government (appellant) against the respondent-Company under Section 34 of the Arbitration and Conciliation Act, 1996 (Act). The appellant had challenged the legality, validity and correctness of the award made by the arbitrators in respondent’s favour in one international commercial arbitration proceeding between the appellant and the respondent, a foreign company..The single judge Bench of Delhi High Court upheld the validity of the challenged arbitration award and the Union government appealed before a Division Bench. The Division Bench upheld the decision of the single judge prompting the Central government to appeal to Supreme Court..The Central government was represented by ASG Tushar Mehta while the respondent company was represented by Senior Advocate Abhishek Manu Singhvi..The respondent’s argument was that since both the parties were bound by an arbitration agreement, the appellant’s application which challenged the arbitration award does not attract the jurisdiction of Indian courts. This argument was upheld by the single judge and later by the Delhi High Court. Since the courts found that the Indian courts did not have jurisdiction to entertain the Union government’s application filed under section 34 of the Arbitration and Conciliation Act, the merits of the application were not even considered..During the course of the arguments before the Supreme Court, counsel for both the parties cited several cases. The fundamental question – which courts have jurisdiction in an arbitration case when the venue of arbitration is decided but the “seat” is not, remained unanswered. A “seat” of arbitration essentially determines laws of which country shall be applicable in the arbitration proceedings. Venue of arbitration merely decides the location where the proceedings will be held..“The argument of both the learned senior counsel mainly centered around to one question which, in our opinion, does arise in the appeal, namely, when the arbitration agreement specify the “venue” for holding the arbitration sittings by the arbitrators but does not specify the “seat”, then on what basis and by which principle, the parties have to decide the place of “seat” which has a material bearing for determining the applicability of laws of a particular country for deciding the post award arbitration proceedings.”.The SC bench found that this case and the issues it raised was a “fit case to exercise Court’s power under Order VI Rule 2 of the Supreme Court rules, 2013” and referred the case to be heard by a larger bench..“In our opinion, though, the question regarding the “seat” and “venue” for holding arbitration proceedings by the arbitrators arising under the Arbitration Agreement/International Commercial Arbitration Agreement is primarily required to be decided keeping in view the terms of the arbitration agreement itself, but having regard to the law laid down by this Court in several decisions by the Benches of variable strength as detailed above, and further taking into consideration the aforementioned submissions urged by the learned counsel for the parties and also keeping in view the issues involved in the appeal, which frequently arise in International Commercial Arbitration matters, we are of the considered view that this is a fit case to exercise our power under Order VI Rule 2 of the Supreme Court Rules, 2013 and refer this case (appeal ) to be dealt with by the larger Bench of this Court for its hearing.”.Read Judgement: