"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, September 11, 2018

Change of Seat Should not be Easily Presumed on the Basis of Change of Venue

Recently, the Delhi High Court in the case of Ashiana Infrahomes Pvt. Ltd. v. Adani Power Ltd. had to decide on whether the parties agreed to transfer the seat.

The agreement provided:

10. Dispute Resolution Any dispute or differences relating to or in connection with the MoA shall be referred to the sole Arbitrator Mr. Puneet Saran son of Prem Vallabh Saran r/o F 22 Indraprastha CGHS Plot 114, Patparganj New Delhi, whose decision shall be final and binding on the Parties. The proceedings of Arbitration shall be in Gurgaon in accordance with the provisions of the Arbitration & Conciliation Act 1996 as amended up-to date.”

Disputes arose and the matter had to be referred to arbitration by the chosen arbitrator. Ashiana Infohomes challenged the arbitrator on the ground that the arbitrator was a consultant and an employee of Adani. The Delhi High Court, correctly, decided the petition on merits in favour of Ashiana Infohomes. However, the reasoning as regards jurisdiction appears to be erroneous.

As is apparent, the arbitration clause states that the “proceedings of Arbitration shall be in Gurgaon”. The first question is whether this is a choice of seat or place? The parties did not use the term “seat” or “place”. Although this uncertainty did not play a part in the outcome of the case on the jurisdicitonal aspect, it is advised to use the term "seat" or "place" in making the choice. 

Coming back to the facts, it appears that Adani had approached the Additional District Court, Gurgaon (as it was then) and the court held that since the 2015 amendments, the parties had to approach the arbitral tribunal for interim relief when the tribunal was already in place.

Later, the arbitrator commenced his proceedings and in a decision to decide the modalities of how to proceed with the arbitration, he is said to have stated that the venue of arbitration would be a particular address in New Delhi till the parties agree on some other venue. Later, in another decision, the arbitrator declared that the venue of the arbitration would be mutually decided.  These decisions were consented to by the parties. About 40 hearings were held in New Delhi.  

In the petition before the Delhi High Court, the question was whether in view of the decisions of the arbitrator and the hearings conducted, whether parties had agreed to transfer the seat from Gurgaon to Delhi? The Delhi High Court held:

20. In the facts of this case in my opinion, in view of the consent of the parties as recorded in the proceedings before the learned arbitrator dated 09.12.2014 and 19.12.2014 and the subsequent conduct of the parties i.e. that the proceedings that have all taken place in Delhi, the original agreement stating that the proceedings be held at Gurgaon have been given a go bye. In view of the agreement/conduct of the parties it is the courts in Delhi which would have jurisdiction. Delhi is now the seat of arbitration.”

On a perusal of the aforesaid Para, it appears that the court has decided that the parties had agreed to transfer the seat from Gurgaon to Delhi. With respect, this conclusion is wrong for the following reasons:

  • Once the arbitration clause is interpreted to mean that Gurgaon was the seat, the parties should be deemed to be bound by it.
  • The arbitrator did not state anything in his decisions regarding the change of seat. The decisions only refer to venue. This means that the parties and the arbitrator left the choice of seat in the agreement undisturbed.
  • Adani approached the Addl. District Court, Gurgaon for interim relief. But the details of the case are not given in the judgement of the Delhi High Court. On some digging out, it appears that Adani has filed Arb Petition No. 50/2014 for interim relief. The Petition was disposed of on 20.10.2016 (see order). The following conclusions can be drawn from the order:
    • Asiana did not raise any ground regarding the ADJ Gugaon not having jurisdiction.
    • Asiana did not raise any contention that Delhi was the seat
    • Most importantly, as on the date of the order of the ADJ Gurgaon (20.10.2016) several hearings were conducted before the arbitrator (as example there were two orders dt. 09.12.2014 and 19.12.2014 pursuant to hearings). Even then, Asiana did not raise jurisdiction at the end of the proceedings. It never did raise any arguments that the place of arbitration was transferred. Theoretically, nothings stopped Asiana from questioning jurisdiction even on the last day of the hearings before the ADJ that the seat was transferred.
  • The High Court stated that Gurgaon court was not the appropriate court and therefore Section 42 did not apply. This is clearly wrong. Section 42 applied and this exception did not apply because:
    • Even as on the date of the order of the ADJ, Gurgaon, there was no transfer of seat.
    • If the transfer had taken place vide the decisions in 2014, nothing stopped Ashiana from moving a petition for dismissal on the ground of lack of jurisdiction sicne the parties had changed the seat.
  • It is settled law that proceedings need not take place in the seat. In fact, there are several arbitrations were only some or at times none of the hearings take place in the seat.  The Delhi High Court had in fact quoted BALCO (which quoted Redfern & hunter) recognizing this aspects(See, Para 21 of the Delhi High Court’s decision). Despite this the Delhi High Court held that the seat was transferred.

As discussed above, the decision on jurisdiction is clearly wrong. While the decision was probably right on the eventual outcome that the named person could not act as arbitrator, the court has overlooked the ex post implications of this judgement. What this judgement does is to hold that if the arbitrator decides as a matter of procedure on a venue different from the seat and a substantial number of hearings are held in the venue, that would amount to a transfer of seat to the place of the venue. This is a dangerous conclusion and would result only in unsettling the distinction between seat and venue.  Transfer of seat cannot be so easily presumed merely on the basis of the discussions between the parties and the arbitrator in the hearings on the venue of arbitration. 

It is tempting to do justice to a party. But in a legal regime that follows the doctrine of precedents, doing justice by doing violence to the statute and settled principles will do more harm in the long run. Bhatia International was a clear example of such an outcome. 

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