BGS v. NHPC - Implications Beyond the 'Seat' & 'Venue' Debate
It has previously been argued[i] that the determination of the “venue” of arbitration proceedings is an apt indicator of the intent of the parties for the purposes of determining the “seat.” On December 10, 2019, the three-judge bench of the Supreme Court in the case of BGS SGS Soma JV v. NHPC (“BGS”),[ii] has endorsed a similar view. Therefore, the position of law, as it stands today, is that the designation of ‘venue’ would result in an implied indication of the choice of ‘seat.’
However, the decision in BGS is important for various other reasons, apart from reaffirming the view that the designation of ‘venue’ would also mean the choice of ‘seat.’ This decision – (i) settles the conflicting views on whether the designation of seat amounts to an exclusive jurisdiction clause for the purposes of Section 2 (1) (e) read with Section 42 of the Arbitration and Conciliation Act, 1996 (“Act”); (ii) prima facie it disagrees with the view in Hardy Exploration case,[iii] but does not overrule it; (iii) it reaffirms the supremacy of party autonomy; and (iv) it clarifies the scope of Section 20 of the Act.
In BGS, the Supreme Court has finally put to rest the controversy of the exclusive jurisdiction of the courts at the designated seat. Firstly the Supreme Court at the outset rejected the ‘separate designation theory’ promulgated by the court in the Antrix case,[iv] to ascertain the exclusive jurisdiction of the Courts, which required the parties to have a separate express forum selection clause along with the designation of the ‘seat.’ Secondly, the present view of the Supreme Court that the courts of the ‘seat’ only shall have exclusive jurisdiction fixes the loose ends left by the court in Data Wind case,[v] which permitted parties to choose between courts when there is more than one court that could exercise jurisdiction.
Furthermore, the Supreme Court also reaffirmed its earlier decision in Brahmani River case,[vi] which was criticized for vesting the exclusive jurisdiction to the court of the ‘venue’ in the absence of designated ‘seat’ of arbitration. Thus, the court settled the debate over the jurisdiction of two or more courts and reaffirmed the international position of the designation of “seat” being akin to an exclusive jurisdiction clause.
Applicability of BGS to International Arbitrations
Despite the present case pertaining to domestic arbitration, the Supreme Court addressed the implication of ‘seat’ and ‘venue’ with respect to international and domestic arbitrations. Unfortunately, the Supreme Court stopped short of clarifying which precedent will apply in such cases, i.e., whether the decision in Hardy Exploration will apply to cases of international commercial arbitration or whether BGS will apply irrespective of the arbitration proceedings being domestic or international. The better approach would have been to clarify, once and for all, that this decision would apply to both domestic and international arbitrations.
The Supremacy of ‘Party Autonomy’
The decision in BGS is important, as the court once again impliedly reaffirmed the importance of party autonomy. The court’s decision, similar to the lines of Brahmani River, in effect, upholds the international view that in the absence of a designation of the seat, unless there appears a contrary intention, the designation of venue should be considered an expression of the autonomy of parties and should be given credence. The courts should refrain from substituting its own view about what the parties ought to have intended when there is a clear indication of the intent of the parties in favor of a particular place such as ‘venue.’
Scope of Section 20
Another important implication of the decision in BGS is that the Supreme Court, by considering the designated place of arbitration as the ‘seat’ of arbitration, has filled a long-standing lacuna in Section 20(1)[vii] of the Act. The 246th Law Commission Report had clearly suggested removing the words ‘place’ in favor of ‘seat’ or ‘venue.’ However, the same was never statutorily changed. Nonetheless, the decision in BGS clarifies to a certain extent that the phrase “place of arbitration” in Section 20 (1) of the Act would also, in effect, mean the seat of arbitration.
After BGS, the designation of the seat can either be expressly done under Section 20(1) of the Act, or in the alternative, by the tribunal under Section 20(2)[viii] of the Act, or the choosing of ‘venue’ under Section 20(3)[ix] of the Act may also amount to designation of the seat. Hence, an arbitral tribunal will have to adopt a more cautious approach while determining ‘venue’ under section 20 (3) of the Act. In the absence of an express choice of the parties, the arbitral tribunal would have to expressly choose the seat for the purposes of 20 (2) and the venue for the purposes of 20 (3) of the Act. Simply choosing the venue under 20 (3) of the Act may result in an implied choice of seat for the purposes of Section 20 (2), which may in a certain sense, completely defeat the purpose of the non-obstante clause contained in Section 20 (3) of the Act. Thus, the present decision and its implications will have to be carefully weighed by arbitral tribunals while determining the ‘seat’ and ‘venue’ in the absence of prior agreements between the parties.
Another interpretation by the tribunal could be to completely reject the application of BGS with respect to Section 20 (2) and Section 20 (3) as in the present case parties had chosen the ‘venue’ whereas in the absence of any choice with respect to ‘seat’ or ‘venue,’ the tribunal is at liberty to determine the ‘seat’ and ‘venue’ in accordance with Section 20(2) and Section 20 (3) of the Act.
Though this decision should be welcomed for all of the above reasons and not just for the position that the designation of ‘venue’ is equivalent to the designation of a ‘seat,’ it will be interesting to see how tribunals grapple with issue when it comes to interpreting and applying Section 20(2) and Section 20(3) of the Act.
[i] Ankit Singh , ‘Seat and Venue:Why Brahmani river is Good Law’ (2019), India Corp Law , available at https://indiacorplaw.in/2019/10/seat-venue-brahmani-river-good-law.html
[ii] BGS SGS Soma JV v. NHPC, Civil Appeal NO. 9307 OF 2019.
[iii] Union of India v. Hardy Exploration and Production (India) Inc. (2018) 7 SCC 374 (“Hardy Exploration”).
[iv] Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd., 2018 SCC OnLine Del 9338, (“Antrix”).
[v] Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., (2017) 7 SCC 678, (“Data Wind”).
[vi] Brahmani River Pellets Ltd v. Kamachi Industries Ltd, AIR 2019 SC 3658, (“Brahmani River”).
This blog is a part of the RSRR Rolling Blog Series. By Ajar Rab, Partner at Rab & Rab Associates LLP and Ankit Singh, Trainee Associate, Rab & Rab Associates LLP.