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BALCO’s ‘Error’ Amplified: The Supreme Court in Indus Mobile – Part II

[The following post is contributed by Puneet Dinesh, who is a III year student at the National Law University, Delhi. He can be reached at puneetdin@gmail.com.The first part in the series can be accessed here.]In the earlier post, I had covered the First Idea that gets picked up in Indus Mobile and had argued that the Court gets the position of law correct. In this post, I will analyze the SecondIdea to understand whether any judicial coherence can be maintained. Second Idea (aligning with Paramita Constructions)In paragraph 20 of the judgment itself, the Court makes the following observation: ‘In arbitration law however, as has been held above, the moment “seat” is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.’ (emphasis added)The Court enters muddled waters disturbing the delicate balance arrived at by the combined reading of BALCO, Balaji Coke and A.B.C Laminart. The Court, while proposing the Second Idea, aligns itself to a series of decisions rendered by the Supreme Court in Balaji Coke and Andhra Pradesh High court in Paramita Constructions and Salarjung Museum [2010] (1) ALT 435. These cases explore a position of law by conflating the conceptual understanding of ‘arbitral seat’ in international and domestic arbitration. The Second Idea, therefore, links the ‘arbitral seat’ to the court at the place of the arbitral seat. In Paramita Constructions, the dispute resolution clause indicated the following: ‘The place of arbitration shall be: …Bangalore for all other Disputes including related disputes.’The clause mentions merely the place of arbitration as Bangalore. The Court in Paramita Constructions draws the link between the place of arbitration and the jurisdiction of the court at the place of arbitration to hold that courts at Bangalore will be the competent court to hear the disputes arising out of the agreement. The Second ideain Indus Mobile, therefore, aligns with the Court’s philosophy in Paramita Constructions, as it places exclusive jurisdiction upon the court at the ‘arbitral seat’ in domestic arbitration. Can the Second Idea be rescued from judicial scrutiny? While Paramita Constructions and Balaji Cokemight hold a similar position, it is important to note some factual and judicial observations in both these cases. In Paramita Constructions, Bangalore (the place of arbitration) was the place of the defendant’s registered office, and payments and execution of documents took place in Bangalore. Balaji Coke, on the other hand, confers jurisdiction to Kolkata (place of arbitration) after evaluating the position of law developed in Hakam Singh and A.B.C Laminart. Both these cases stand for the position that exclusive jurisdiction can be chosen by the parties, provided those courts had jurisdiction to begin with. In Balaji Coke, Kolkata was not a neutral venue as the defendants had their registered office in Kolkata. As we can see, Balaji Coke and Paramita Constructions were not cases wherein the place of arbitration was ‘neutral’. In such a case, Indus Mobile can be differentiated on facts. Apart from the factual distinction, the highest judicial value from this position happens to be a division bench of the Supreme Court (Balaji Coke) which cannot alter the position of BALCO(five-judge bench decision). This brings to me to my final analysis in this part, whether paragraphs 96/97 constitute the ratio of BALCO? Recall that BALCO’s primary motivation was to further the argument that Parts I and II of the Arbitration Act are mutually exclusive. Most of the observations merely further this argument, and BALCOis also in agreement with it. In paragraph 97 of the judgement, the court observes (after deliberating on the meaning and the effect of Section 2(1)(e)) that: ‘The provisions contained in Section 2(1)(e) being purely jurisdictional in nature can have no relevance to the question whether Part I applies to arbitrations which take place outside India.’ (emphasis supplied)This leaves us with a question: if BALCO was constituted to hear the applicability of Part I, and Para 96/97 explanation has no relevance to the applicability of Part I, does the observation on jurisdiction hold any relevance? Moving away from BALCO: The conflict between the First and the Second Idea First Idea (combined reading of BALCO and A.B.C Laminart)In this hypothetical, courts in Mumbai (place of arbitration), Delhi and Chennai (place of cause of action) have competent jurisdiction. The law provides the option for the parties to choose one of the competent jurisdictions. Second Idea (Indus Mobile and Paramita Constructions) In this hypothetical, Mumbai by virtue of being the place/seat of arbitration will have exclusive jurisdiction over all the disputes arising from the agreement. The position of law here is diametrically opposite to the one in the First Idea as it eliminates the choice of parties to access other competent jurisdictions. While BALCO, in clear terms, held that two types of courts have jurisdiction (courts at place of arbitration andcause of action), Indus Mobileeliminates one type and holds that court at the place of arbitration has exclusive jurisdiction. Indus Mobile, therefore commits an error in holding that ‘…the moment “seat” is determined, (it)…would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings.’ In effect, it alters paragraphs 96/97 of BALCO’s logic and therefore, stands to be nullified. Observation on the role of CPC, 1908‘Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to “seat” is a concept by which a neutral venue can be chosen by the parties to an arbitration clause.’ (emphasis added)The Court attempts to distinguish between the law of arbitration and the CPC. As noted in the earlier post, it is precisely this distinction that lies at the heart of most cases adopting the BALCO logic. Indus Mobile happens to be the first case that expresses this implication of BALCO’s logic. There are certainly arguments that can be advanced to deviate from CPC rules. Clues can be taken from Adhunik Steels and Arvind Constructions on their discussion on providing ‘special procedure or set of rules’ to a court following ordinary rules. There has been some tendency to depart from the CPC rules in matters concerning the jurisdiction of the ‘court’. The Supreme Court’s approach in Executive Engineering is a case in point. The Court was called upon to determine the conflicting jurisdiction of a District Court in Thane and the High Court of Mumbai. It conferred jurisdiction on the Mumbai High Court, departing from section 15 CPC.LCI recommendation and ‘intention’ of the legislatureThe court lastly adopts a convoluted (and, in my opinion, unnecessary) reasoning to further justify the importance of arbitral seat. It extracts the recommendation of the Law Commission of India (LCI) in its 246threport as far as it concerns the emphasis on ‘arbitral seat’ and notes that the legislature has intentionally omitted to include the recommendations as ‘BALCO …in no uncertain terms has referred to “place” as “juridical seat” for the purpose of Section 2(2) of the Act.’ It is certainly surprising that the Court notes the recommendations of the LCI and then proceeds to take support in those recommendations despite them not being incorporated in the amendment. On this note, it is interesting to examine the arguments adopting the counter-logic to further arguments hypothesizing the same ‘intention’ of the legislature. I make specific reference to the amended version of section 2(2) of the Arbitration Act which adopted the language suggested in the LCI report except for the word ‘express’ preceding the word ‘agreement’. There is another academic debate (hopefully, not a judicial one) on whether non-inclusion (of a single word) of LCI’s recommendation in the amendment reflects a clear intention of the legislature to derogate from the recommendation? (academic research on this query can be accessed hereand here). ‘Intention’ of the legislature must certainly top the list as one of the most abused interpretative tools! In conclusion, (a) Indus Mobile continues to commit BALCO’s error as far as conferment of jurisdiction in domestic arbitration is concerned; (b) Indus Mobile conflates two distinct conceptual theories on arbitral seat and in that process alters BALCO’s logic; and (c) reliance on LCI recommendations does not assist the court in making the case for exclusive jurisdiction to the court at the arbitral seat in domestic arbitrations. – Puneet Dinesh

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