ICADR Rules regarding procedure come into play only after arbitration commences before appropriate jurisdiction of law: Del HC summarises law on seat, venue of arbitration

Delhi High Court: While observing that the role of ICADR Rules shall come into play with regard to the procedure to be followed, only after the arbitration commences before the appropriate jurisdiction of law, Suresh Kumar Kait, J., reiterated the observation of BGS SGS SOMA JV v. NHPC, (2020) 4 SCC 234, wherein it was stated that if the arbitration agreement provides that arbitration proceedings “shall be held” at a particular venue, then that indicates arbitration proceedings would be anchored at such venue, and therefore, the choice of venue is also a choice of the seat of arbitration.

Background

Petitioner claimed to be one of the most reputed construction company specialized in construction of bridges and other projects across the country.

Respondent – Construction and Design Services, was a 100% undertaking of Government of Uttar Pradesh, which claimed to be providing construction and design Services.

Respondent had invited proposals for Qualification cum Request for Proposal to undertake design, engineering, procurement and construction of a dedicated corridor for old and differently-abled persons during Kumbh and Magh Mela at Sangam, Allahabad, Uttar Pradesh.

In the bidding process, the petitioner was stated to be the successful bidder with lowest bid. Therefore, respondent had issued a Letter of Award in favour of the petitioner and a formal contract was executed between the parties.

Petitioner had immediately taken steps like mobilization of resources, the appointment of various third-party Consultants.

However, respondent utterly failed in fulfilling its part of obligations, as in terms of Clause- 4.1.3 of the said Contract, the “Right of Way” in respect to the said works was to be provided by the respondent to the petitioner within 15 days of the date of the agreement, but even after expiry of the entire period of 30 months, respondent did not do so

Respondent did not even compensate the petitioner for the cost incurred by it towards fulfilling its part of obligations. Further, due to non-performance of obligations, the petitioner claimed to have incurred huge loss of productivity, turnover, overhead costs, contractor’s profits and earning capacity besides cost of construction under the Contract in question.

Vide a letter, the respondent intimated that the project as well as the contract ought to be terminated.

Further, petitioner raised an invoice towards “Termination of Payment”, which shall constitute full and final payment and respondent shall make the payment within 30 days and shall discharge the bank guarantees.

Adding to the above, petitioner also demanded extension of bank guarantees for a further period in an attempt to disown the termination notice which was already acknowledged by the petitioner.

Though the respondent communicated to the petitioner that the decision of termination of Contract was taken by Prayagraj Mela Board and till the time the said decision is under consideration and finalized by the Government of Uttar Pradesh, the Contract in question is “valid” and subsists and there is no liability towards “Termination Payment” except for refund of performance security in case the project is withdrawn by the State of Uttar Pradesh.

When efforts to amicably resolve the dispute failed, petitioner invoked the arbitration, to which the respondent communicated the petitioner that once the Contract itself has been revoked without commencement of work and bank guarantees have been returned, no dispute between the parties survives and so, the invocation of arbitration clause 26.03 was untenable.

Analysis, Law and Decision

High Court on considering the above, stated that the disputes between the parties have to be referred to an Arbitrator.

As per Clause 26.3.1, upon invocation of arbitration by either party, the proceedings shall be conducted in accordance with the Rules of Arbitration of the International Centre for Alternative Dispute Resolution, New delhi and the venue of such Arbitration shall be Lucknow.

Question for Consideration:

Whether the seat of arbitration shall be New Delhi in the light that the arbitration has to be conducted in accordance with the Rules of Arbitration of the International Centre for Alternative Dispute Resolution, New Delhi

OR

Lucknow, in the light of agreement that the venue of such arbitration shall be Lucknow?

Primary Argument:

Counsel for both sides laid emphasis upon the distinction between the “venue” and “seat” of arbitration and several decisions in this regard were cited before this Court. According to learned counsel for the petitioner, “venue” of arbitration does not include the “seat” of the arbitration and since the arbitration has to be conducted in terms of Rules of Arbitration of the International Centre for Alternative Dispute Resolution, New Delhi, therefore, seat of the Arbitrator has to be New Delhi. On the contrary, learned counsel for respondent strenuously argued that in terms of clause 26.3.1, the venue of arbitration has to be Lucknow only.

In the Supreme Court decision of Bharat Aluminum Company Ltd. v. Kaiser Aluminum Technical Services Inc, (2012) 9 SCC 552, recognized that “Seat” and “Venue” are different and observed that the “Seat” of arbitration is the center of gravity of the arbitration and the “Venue” is the geographical location where such arbitration meetings are conducted. The Court held that under sub- Section (2), (2) and (3) of Section 20 of the Arbitration and Conciliation Act, 1996, “Place of Arbitration” is used interchangeably.

In Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., (2017) 7 SCC 678, the Supreme Court had dealt with the issue whether the seat of arbitration suggests the jurisdiction and held that once a seat is determined, the courts at seat shall have the exclusive jurisdiction for the purpose of regulating arbitral proceedings. However, in the said case, the parties had not only agreed to the seat of arbitration but also had an exclusive jurisdiction clause, which ousted other jurisdictions.

Further, in Mankastu Impex (P) Ltd. v. Airvisual Ltd., (2020) 5 SCC 399,  while dealing with the issue of whether the seat of arbitration shall be New Delhi or Hongkong, observed that mere expression of place of arbitration will not entail that the parties intended it to be the seat. The intention of the parties to the seat has to be determined from other clauses of the Agreement and the conduct of the parties.

In the decision of BGS SGS SOMA JV v. NHPC, (2020) 4 SCC 234, it was held that the Court observed that if the arbitration agreement provides that arbitration proceedings “shall be held” at a particular venue, then that indicates arbitration proceedings would be anchored at such venue, and therefore, the choice of venue is also a choice of the seat of arbitration. Court reiterated that once the parties designate the seat of arbitration, only the courts governing the seat have exclusive jurisdiction to govern such arbitration proceeding and jurisdiction of all other courts stand ousted.

Hence in view of the Supreme Court decision in BGS SGS SOMA JV v. NHPC, (2020) 4 SCC 234 the observation of the Court that “choice of venue is also a choice of the seat of arbitration”, High Court in the present matter found that in Clause-26.3.1 of Article-26 of the Agreement, the parties had agreed that the venue of arbitration shall be “Lucknow‟ and therefore, the courts at Lucknow shall have the exclusive jurisdiction to entertain the disputes arising out of Agreement in question.

Bench opined that the role of ICADR Rules shall come into play with regard to procedure to be followed, only after the arbitration commences before the appropriate jurisdiction of law, which was in the present matter “Lucknow”.

Therefore, it was held that Court had no jurisdiction to entertain the present petition seeing appointment of an arbitrator and hence was dismissed, with liberty to the petitioner to approach the Court at Lucknow.[S.P. Singla Constructions (P) Ltd. v. Construction and Design Services, Uttar Pradesh Jal Nigam; 2021 SCC OnLine Del 4454, decided on 23-09-2021]


Advocates before the Court:

For the Petitioner: Anirudh Wadhwa, Advocate

For the Respondent: Rishabh Kapoor, Naman Tandon, Mayank Punia, Advocates

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