International Commercial Arbitration — Jurisdiction of Indian Court — Arbitration and Conciliation Act 1996 section 9.

A production sharing contract was executed between the 5 parties in regards to exploration of natural resources. As per the contract, the seat of arbitration was Kuala Lumpur (Malaysia). In 2000, disputes arose between the respondents and the contractor with respect to correctness of certain cost recoveries and profit. Since the parties could not resolve their disputes amicably, the same were referred to the Arbitral Tribunal as per the contract. The Arbitral Tribunal fixed the date of hearing at Kuala Lumpur (Malaysia), but due to outbreak of epidemic SARS, the Arbitral Tribunal shifted the venue of its sittings to Amsterdam in the first instance and, thereafter to London where on 31-3-2005 partial award was passed. The respondent No. 1 (Govt. of India) challenged the partial award by filing a petition in the High Court of Malaysia at Kuala Lumpur. The appellant questioned the maintainability of the case before the High Court of Malaysia by contending that in view of the contract, only the English Courts have the jurisdiction to entertain any challenge to the award. At that stage, the respondents filed a petition u/s. 9 of the Arbitration and Conciliation Act, 1996 in the Delhi High Court for stay of the arbitral proceedings. The High Court held that it had jurisdiction to entertain the petition filed u/s. 9 of the Act. The said order was challenged before the Supreme Court.

The first issue which arose for consideration was whether Kuala Lumpur was the designated seat or juridical seat of arbitration and the same had been shifted to London. The issue was important as the procedure for the conduct of arbitral proceeding would depend upon the procedural law of the country where the seat of arbitration is seated. The Court observed that as per the terms of the contract entered into by five parties, the seat of arbitration was Kuala Lumpur, Malaysia. However, due to outbreak of epidemic SARS, the Arbitral Tribunal decided to hold its sittings first at Amsterdam and then at London and the parties did not object to this. In the proceedings held at London, the Arbitral Tribunal recorded the consent of the parties for shifting the juridical seat of arbitration to London. Whether this amounted to shifting of the physical or juridical seat of arbitration from Kuala Lumpur to London?

As per the terms of agreement, the seat of arbitration was Kuala Lumpur. If the parties wanted to amend clauses of the contract they could have done so only by written instrument which was required to be signed by all of them. Admittedly, neither any agreement was there between the parties to the contract to shift the juridical seat of arbitration from Kuala Lumpur to London, nor was any written instrument signed by them for amending clause of the contract. Therefore, the mere fact that the parties to the particular arbitration had agreed for shifting of the seat of arbitration to London cannot be interpreted as anything except physical change of the venue of arbitration from Kuala Lumpur to London. Under the English law the seat of arbitration means juridical seat of arbitration, which can be designated by the parties to the arbitration agreement or by any arbitral or other institution or person empowered by the parties to do so or by the Arbitral Tribunal, if so authorised by the parties. In contrast, there is no provision in the Act under which the Arbitral Tribunal could change the juridical seat of arbitration which, as per the agreement of the parties, was Kuala Lumpur. Therefore, mere change in the physical venue of the hearing from Kuala Lumpur to Amsterdam and London did not amount to change in the juridical seat of arbitration.

The next issue for consideration was whether the Delhi High Court could entertain the petition filed by the respondents u/s. 9 of the Act. It was held that once the parties had agreed to be governed by any law other than Indian law in cases of international commercial arbitration, then that law would prevail and the provisions of the Act cannot be invoked questioning the arbitration proceedings or the award. The parties had agreed that the arbitration shall be governed by the laws of England. This necessarily implies that the parties had agreed to exclude the provisions of Part I of the Act. It was held that the Delhi High Court did not have the jurisdiction to entertain the petition filed by the respondents u/s. 9 of the Act and the mere fact that the appellant had earlier filed similar petitions was not sufficient to clothe that the High Court had the jurisdiction to entertain the petition filed by the respondents. The appeal was allowed.