India: Delhi High Court Reiterates That Choice Of Venue Is Also A Choice Of An Arbitral Seat

The High Court of Delhi (High Court) in its recent decision in S.P. Singla Constructions Pvt. Ltd. v. Construction and Design Services, Uttar Pradesh Jal Nigam¹ reiterated that the choice of a venue in an arbitration agreement is also a choice of the arbitral seat in absence of a contrary indication. In this article, we navigate through the facts and findings of the High Court in the aforementioned judgment.

Brief facts

The petitioner, S.P. Singla Constructions Pvt. Ltd. (Petitioner) was awarded a works contract (Contract) on 8 February 2017 by the respondent which is a fully owned undertaking of the government of Uttar Pradesh (Respondent). The value of the Contract was of INR 9,845,375,000 (Rupees nine billion eight hundred forty-five million and three hundred seventy-five thousand). The project under the Contract was supposed to be completed in 30 (thirty) months of signing of Contract, followed by a defect liability period of 48 (forty-eight) months from the date of provisional certificate of completion. The Petitioner claimed that it had taken several steps under the Contract such as mobilization of resources, appointment of various third-party consultants, submission of general arrangement drawings, etc. However, the Respondent failed miserably in fulfilling its part of obligations by not providing the right of way to be provided in 15 (fifteen) days from the signing of Contract even after expiry of entire 30 (thirty) months. The Petitioner contended that the Respondent had not even compensated the Petitioner for the cost incurred by it towards fulfilling its part of the obligations. Due to non-performance of Respondent's obligations, the Petitioner claimed to have incurred a huge loss of productivity, turnover, overhead costs, contractor's profits, and earning capacity besides the cost of construction under the Contract. Accordingly, the Petitioner raised an invoice of INR 1,743,650,777 (Rupees one billion seven hundred forty-three million six hundred fifty thousand and seven hundred seventy-seven).

The parties exchanged multiple communications with respect to the status of the Contract. Eventually, the Petitioner invoked dispute resolution clause under the Contract towards the denial of the termination payments and nominated an arbitrator. Owing to the Respondent's reluctance to decide upon the arbitrator, the Petitioner approached the High Court for appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act).

Contentions of Petitioner

The Petitioner submitted that the Contract stipulated that any unresolved disputes would be referred to arbitration in accordance with the International Centre for Alternative Dispute Resolution, New Delhi (ICADR). ICADR Rules state that the place of arbitration shall be New Delhi or such other place where any of the regional offices of ICADR was situated. The Petitioner submitted that by incorporating the rules of ICADR, the parties had expressly chosen the seat/ place of arbitration to be at New Delhi. The Petitioner relied upon the decision in Imax Corporation v. M/s E-City Entertainment Pvt. Ltd.² to contend that the parties are deemed to have knowingly chosen and relied on the seat selection clause of the institutional rules in absence of a specific agreement.

The Petitioner with regard to the dispute resolution clause under the Contract providing for Lucknow as the venue of arbitration contended that seat and venue were to be treated differently. The Petitioner relied upon a catena of decisions to distinguish between the seat and the venue of arbitration.³

Contentions of Respondent

The Respondent opposed the petition filed by the Petitioner on grounds of maintainability and lack of jurisdiction. The Respondent submitted that the agreement was signed amongst the parties at Lucknow for the work to be performed at Allahabad and that the Respondent's registered office was located at Lucknow. Therefore, the present petition was not maintainable at the High Court.

Further, the Respondent argued that the disputes under the Contract had to be decided in terms of the Arbitration and Conciliation Act, 1996. The Respondent contended that the ICADR Rules were incorporated only for the purpose of determining the procedure of arbitration proceedings and not the seat of arbitral proceedings. Hence, the reliance placed by the Petitioner upon the ICADR Rules for want of jurisdiction was erroneous and unwarranted as ICADR Rules would come into play only after the arbitral tribunal was constituted.

Lastly, the Respondent submitted that the venue in the instant matter was Lucknow. In absence of any other indicator, the Respondent argued that Lucknow was the seat of arbitration. In support of this submission, reliance was placed upon by the Respondent on the decision in BGS SGS SOMA JV v. NHPC⁴.

Held

The High Court observed that the moot question in the instant matter was whether the seat of arbitration would be New Delhi or Lucknow?

The High Court referred to the decision of the Hon'ble Supreme Court in Bharat Aluminum Company Ltd. (BALCO) case⁵ wherein it was held that the seat was the center of gravity of an arbitration whereas the venue was the geographic location where such an arbitration was conducted. The High Court reiterated the observation of the Apex Court in the BALCO dictum that the courts are required to adopt a pragmatic approach and not a pedantic or technical approach while interpreting or construing an arbitration clause.

The High Court then referred to the decision in BGS SGS SOMA JV⁶ to observe that if the arbitration agreement provides that the arbitral proceedings "shall be held" at a particular venue, then the arbitration proceedings would be anchored at such venue. Therefore, the choice of venue is also a choice of seat of arbitration. In view of the law laid in BGS SGS SOMA JV, that choice of venue is also a choice of seat of arbitration, the High Court held that the seat of the arbitration was at Lucknow. Therefore, the courts at Lucknow had the exclusive jurisdiction to entertain the disputes arising out of the Contract.

Inasmuch as the Petitioners arguments in relation to the ICADR rules were concerned, it was held that the rules provided that the place of arbitration shall be New Delhi or any of its regional office "as the parties may agree". Therefore, the High Court was of the considered opinion that the role of ICADR rule would come into play only after the arbitration commenced. Accordingly, the High Court held that it had no jurisdiction to entertain the instant petition seeking appointment of arbitrator. The petition was dismissed with liberty to the Petitioner to approach the court at Lucknow.

Comments

The instant decision has rightly followed the law laid in the BGS SGS SOMA JV case which held that the designation of the "venue" is really the designation of the "seat" of arbitration in absence of any indication to the contrary. The selection of a venue must not be viewed as an empty formality for the law generally presumes that the venue shall be the seat of arbitration. Thus, the parties must structure their arbitration agreement properly if they intend to convey that a venue is merely a place of convenience as under Section 20(3) of the Arbitration Act. A properly worded arbitration agreement would aid in preventing any disputes that may crop up with regard to the seat of arbitration.

Footnotes

1. S.P. Singla Constructions Pvt. Ltd. v. Construction and Design Services, Uttar Pradesh Jal Nigam, Arb. P. 450/2021.

2. Imax Corporation v. M/s E-City Entertainment Pvt. Ltd., 2017 5 SCC 331.

3. Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Ors., 2017 7 SCC 678; Bharat Aluminum Company v. Kaiser Aluminium Technical Services Inc., 2012 9 SCC 552.

4. BGS SGS SOMA JV v. NHPC, 2020 4 SCC 234.

5. Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc., 2012 9 SCC 552.

6. BGS SGS SOMA JV v. NHPC, 2020 4 SCC 234.

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