Shantanu Lakhotia and Jyoti Goyal[i]
Party autonomy has always held an exalted position in arbitration jurisprudence. However, the Supreme Court of India in the matter of BGS SGS Soma JV v. NHPC Ltd. (“BGS”) under the assumption of protecting party autonomy has conversely jettisoned it. The present article highlights that a 3-judge bench of the Supreme Court, by providing exclusive supervisory jurisdiction to the court under whose territorial jurisdiction arbitration takes place, has absurdly over-ruled a perspicuous position of law laid down by the constitution bench in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services (“BALCO”), providing concurrent supervisory jurisdiction. The article opines that the Supreme Court vide BGS has erroneously over-ruled the earlier position of law by not appreciating the historical background in which the concept of concurrent supervisory jurisdiction was propounded by the Constitutional Bench of the Supreme Court. Furthermore, the article focuses on how the decision of BGS violates the concept of party autonomy provided in Section 20 and the legislative intent behind Section 42 of the Arbitration and Conciliation Act, 1996. The article culminates with the prediction that such judgments that disturb established the position of law will lead to havoc in the arbitration jurisprudence of India.
Tracing the history
The Supreme Court as well as High Courts across the country, until 2012, were of the view that the arbitration law did not confer supervisory jurisdiction to a court under whose territory arbitration took place at all. The initial judgement expressing this view by the Apex Court was in the matter of Jatinder Nath v. Chopra Land Developers Pvt. Ltd. It is paramount to note that the judgment was pronounced corresponding to the Arbitration Act, 1940. The Court, in para 15, held that merely because arbitration takes place at a particular place not falling within the ambit of Section 20 of the Code of Civil Procedure (“CPC”), would not lead to supervisory jurisdiction being cloaked over the court having territorial jurisdiction over the place where the arbitration takes place. This position in law was overturned in 2012 by a 5-judge bench of the Supreme Court in the matter of BALCO. The Court, to protect party autonomy, categorically held in para 96 that “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.”
New Position of Law:
The Supreme Court vide BGS has enthroned the court under whose territorial jurisdiction the arbitration proceeding takes place with exclusive supervisory jurisdiction. The raison d’être behind this according to the Court is to maintain the supremacy of party autonomy. The Court opined that once the parties choose a neutral ‘venue’ to be designated as the ‘seat’ of arbitration, it is axiomatic that they have also chosen the court under whose territory the ‘seat’ is located as the supervisory court. The Court highlighted an anomaly present between the legal position proclaimed in BALCO and the example cited in support of the same. The Court noted that in the example given in para 96, wherein even though the parties belong to Mumbai and Kolkata, arbitration was held in Delhi, BALCO held that the courts of Delhi will have supervisory jurisdiction. Such an example in the opinion of the Court was contradictory to the legal position propounded by the constitution bench providing concurrent jurisdiction to the place where the arbitration took place and where any cause of action arose would arise. Thus, the Court concluded that the true intention of BALCO is that in a situation wherein a neutral place for arbitration is chosen, which in the example was Delhi, only the court in Delhi will have exclusive supervisory jurisdiction.
Has the Supreme Court been unappreciative of history?
The Supreme Court did not appreciate the example provided in BALCO while recognising the legal jurisprudence at the time. As mentioned above, prior to BALCO, the legal position was that the Court having territorial jurisdiction over the place of arbitration will not be cloaked with supervisory jurisdiction. Thus, litigants had to file an application only before the court endowed with jurisdiction in accordance with Section 20 of the Code of Civil Procedure (“CPC”) read with Section 2(1)(e) of the Arbitration & Conciliation Act, 1996 (“A&C Act”). In BALCO this position was changed by conferring supervisory jurisdiction to the court where the arbitration took place i.e. Delhi in addition to courts which would have had jurisdiction if the legal precedents of the time were followed i.e. Mumbai or Kolkata. Thus, in BALCO the Supreme Court added the option of one more court which would have supervisory jurisdiction and not restrict it. The Hon’ble Supreme Court erred in holding that there was an anomaly between the position of law laid down in BALCO and the example they provided to cement this position. In BALCO, the Court conferred jurisdiction to “two courts” which now in BGS has been reduced to ‘one court’. It is highly absurd that a 3-judge bench in the process of clarifying the intention in BALCO has essentially ‘overruled’ a perspicuous position laid down.
Did we just waive Party Autonomy a sweet goodbye?
It needs to be accentuated that in BGS has incorrectly relied upon the dicta of Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. & Ors., to speciously conclude that when a party provides for a neutral place for arbitration it automatically means that the parties have acceded to the courts having territorial jurisdiction over the place to have exclusive supervisory jurisdiction. A similar error was made in Brahmani River Pellets Ltd. v. Kamachi Industries Ltd. wherein the Supreme Court held that as the ‘venue’ of arbitration was Bhubaneswar it is a sequitur that the parties intended to provide the courts of Bhubaneswar with exclusive supervisory jurisdiction.
In Indus, the contract provided for arbitration to take place at Mumbai as well as explicitly provided that only Mumbai courts will have jurisdiction in the situation of a dispute. Thus, only in such a scenario, wherein an exclusive forum selection clause is provided in the contract, it is deduced that the parties intended for such a court to have exclusive jurisdiction.
Now, juxtapose the case of Indus with the Supreme Court case of Emkay Global Financial Services Ltd. v. Girdhar Sondhi. In Emkay, the contract stated that arbitration will take place at Delhi and that the courts of Mumbai will have exclusive jurisdiction for dispute resolution. In such a scenario if the ratio of BGS is applied, only Delhi will have supervisory jurisdiction. This would run counter to the intent of the parties to endow the court of Mumbai with jurisdiction for all forms of dispute resolution and thus would violate the principle of party autonomy. However, the court in Emkay whilst rightfully respecting the exalted position of party autonomy in arbitration jurisprudence conferred exclusive supervisory jurisdiction to the court in Mumbai.
However, it needs to be highlighted that in Emkay Global, the Court had held that Delhi was only the ‘venue’ and not the ‘seat’ of arbitration. The pivotal difference between a ‘venue’ and ‘seat’ in the arbitration is that while the designation of the former is merely a convenient location for arbitration to take place, the designation of the latter is accompanied with a bundle of underlying legal rules such as the procedural and substantive law governing the arbitration. Thus, the question arises that if the contract had provided for a ‘seat’ of arbitration to be Delhi would the dicta have changed? We would answer the question in the negative by relying upon the reasoning as highlighted by the Calcutta High Court in the matter of Debdas Routh v. Hinduja Leyland Finance Ltd.
In Debdas, the High Court read down the dicta of Indus Mobile Distribution which stated that the moment ‘seat’ is determined it would automatically vest the Court having territorial jurisdiction over the ‘seat’ with exclusive supervisory jurisdiction. This was done to keep it in line with the dicta of Hakam Singh v. M/s Gammon (India) Ltd. The High Court stated that in the context of domestic arbitration wherein the parties chose a ‘seat’ of arbitral reference and have an exclusive forum selection clause for dispute resolution, such court as provided in the forum selection clause will have jurisdiction and not the court exercising territorial jurisdiction over the location of arbitration. The reasoning by Kolkata High Court behind this opinion is that the concept of juridical seat of arbitration is irrelevant in any domestic arbitration since the lex arbitri does not change from one place to another within the country.
Thus, it needs to be appreciated that there are two types of contracts;
Wherein an exclusive forum selection clause for dispute resolution is provided; and
Where no exclusive forum selection clause is provided
It is in the former type of contract that the intention of the parties to give jurisdiction to a particular court can be said to be inferred and not the latter. If in the former scenario the BGS ratio is applied it would lead to violation of party autonomy.
Has there been a breach of legislative intent?
In the latter type of contracts, if the principles culled out in the BGS judgement is applied, it will essentially read down the legislative intent behind Section 42 of the A&C Act. The judgment of BGS depicts an instance in which the hon’ble apex court has taken to amend the laws to an extent where it creates a further loophole instead of clarifying. Since BALCO was pronounced in the context of ICA, the crucial role that a designation of ‘seat’ plays in ICA cannot ipso facto be applied to domestic arbitration as has been held in Quippo Construction Equipment Ltd. v. Janardan Nirman Pvt. Ltd. Hence, the Court erred in overruling the observation made by the Delhi High Court in Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd (“Antrix”) concerning the violation of Section 42 by providing to one court exclusive supervisory jurisdiction in the absence of an exclusive selection forum clause. In Antrix it was correctly held that the legislature recognised that there can be multiple forums where an application arising out of arbitration proceeding can be filed. Thus, in order to curb proceedings arising from the same arbitration from taking place in multiple courts, the legislature vide Section 42 restricted the parties to file all applications in the very first court approached by either party having proper jurisdiction. However, BGS has violated the intention of the legislature by only recognising one court that will have proper jurisdiction for the sole reason that ‘seat’ falls within the court’s territory.
Conclusion
Justice Rohinton Nariman had once observed that arbitration law in India, “has taken a zig-zag crab-like course, it has moved forward, it has moved backwards, sometimes it has moved sideways”. The ruling laid down in BGS has definitely let to the arbitration jurisprudence of India to take a step backwards by paradoxical to its intention to simplify the supervisory jurisdiction dilemma, has queered the pitch in regard to arbitration jurisprudence concerning the jurisdiction of courts. The judgment is the antithesis of party autonomy as contradictory to the actual intentions of the parties, it shrouds exclusive jurisdiction to a specific court. Since BGS clarifies the dicta of a larger bench, it will form part of a group of ‘suggestive precedent’ for lawyers to either support or assail according to the side of the dais they find themselves at. This system of ‘suggestive precedents’ is already plaguing the arbitration jurisprudence concerning ‘seat’ v. ‘venue’ debate by the presence of contradictory opinion of co-ordinate benches of the Supreme Court and has now spread towards the jurisdictional issue. The Supreme Court must form a constitution bench at the earliest to clarify the correct position of law concerning the importance of the designation of ‘seat’ in domestic arbitration and its effect on supervisory jurisdiction of the territorial court and imped the approaching chaos.
[i] Shantanu Lakhotia and Jyoti Goyal are graduates of the 2019 batch of Jindal Global Law School and are practicing across multifarious judicial forums in New Delhi. For any discussion related to the article, he can be contacted via mail adv.shantanulakhotia@gmail.com. Preferred Citation: Shantanu Lakhotia and Jyoti Goyal, Concurrent supervisory jurisdiction in Arbitration: is BGS another eclipse in the Indian Arbitration jurisprudence?, Arbitration & Corporate Law Review, Published on 31st July, 2020.
This article was reviewed by Arnav Maru and Utsav Saxena.
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