Seat of Arbitration is Decided as per Arbitration Agreement, Rules to be Applied Only After Commencement of Arbitration : Delhi High Court [READ JUDGMENT]

The Delhi High Court recently stated that the seat of arbitration is to be determined according to the arbitration agreement between the parties and that the Rules of Arbitration of the International Centre for Alternative Dispute Resolution will be applied only after the arbitration has begun before appropriate jurisdiction.

In other words, in cases where parties expressly choose the rules of an arbitral institution into their arbitration clause but fail to expressly agree on a "seat" of arbitration, the seat selection clause of the said institutional rules cannot be considered to have been knowingly chosen.

According to Justice Suresh Kumar Kait, 

"No doubt, the aforementioned Clause-26.3.1 of Article-26 of the Agreement dated 08.02.2017 stipulates that the arbitration shall be held in accordance with the Rules of ICADR, but shortly thereafter it follows the condition that the venue of arbitration shall be Lucknow. As a result, in the Court's considered opinion, the role of the ICADR Rules in terms of procedure shall come into play only after the arbitration begins before the appropriate jurisdiction of law, which in this case is Lucknow."

The Court was hearing a petition concerning an agreement between a construction company and the respondent, Construction and Design Services, a government undertaking that provides construction and design services.

The respondent had requested proposals for the design, engineering, procurement, and construction of a dedicated four-lane corridor for elderly and differently-abled people during the Kumbh and Magh Melas in Allahabad.

After the petitioner company was chosen as the successful bidder with the lowest bid, a Letter of Award was issued in its favour, and the parties signed a formal contract on February 8, 2017.

The petitioner claimed that the respondent failed to compensate it for the costs incurred in carrying out its obligations. The respondent then stated that the project and contract should be considered "terminated," citing a letter from the Prayagraj Mela Board.

According to the petitioner, Clause 23.6.4 of the Contract stated that the Termination Payment shall constitute a full and final payment, and respondent shall make the payment within 30 days under Clause-23.6.3 and shall discharge the bank guarantees.

It was also the petitioner's case that it filed a writ petition in the Allahabad High Court, which is currently pending.

When all efforts to resolve the dispute amicably failed, the petitioner invoked arbitration under Article 26.3 of the Contact and proposed the name of Justice (Retd.) S.J. Mukhopadhyay as its nominee Arbitrator.

However, the Respondent asserted that once the Contract was revoked without the commencement of work and the bank guarantees were returned, no dispute between the parties remained and the arbitration was rendered ineffective.

Because the respondent failed to appoint its nominee Arbitrator within 30 days of the issuance of the Notice invoking arbitration, the petitioner filed an application with the Delhi High Court for the appointment of an Arbitrator.

During the hearing, the petitioner argued that arbitration shall be conducted in accordance with the Rules of Arbitration of the International Centre for Alternative Dispute Resolution, New Delhi (ICADR), or such other rules as the parties may mutually agree upon, and shall be subject to the provisions of the Arbitration Act.

It was also argued that by incorporating the Rules of ICADR, New Delhi into the Contract in question, the parties had expressly chosen New Delhi as the seat or location of arbitration.

The respondent, on the other hand, contended that no cause of action arose within the jurisdiction of the Delhi High Court because the agreement between the parties was executed in Lucknow for the work to be performed in Allahabad and the respondent had its registered office in Lucknow.

Furthermore, it was argued that the ICADR Rules should not be applied until an arbitral tribunal has been formed.

It was claimed that the Courts in Lucknow would have exclusive jurisdiction over matters arising from the Agreement under Clause 27.1 of the Agreement.

It was also argued that the place where the Agreement was executed, which in this case was Lucknow, should have jurisdiction.

The Court was asked whether the seat of arbitration should be New Delhi, given that the arbitration must be conducted in accordance with the Rules of Arbitration of the International Centre for Alternative Dispute Resolution, New Delhi, or Lucknow, given that the venue of such arbitration is Lucknow.

Based on a slew of decisions distinguishing between "seat" and "venue," the Court ultimately decided that the seat of arbitration in the case would be Lucknow. As a result, the plea was dismissed.

"In light of the foregoing discussion and legal position, this Court has no jurisdiction to entertain the present petition seeking appointment of Arbitrator under the provisions of Section 11(6) of the Arbitration and Conciliation Act, 1996, and it is accordingly dismissed," the Court added.

In reaching its conclusion, the court relied on BALCO and BGS SGS SOMA JV, which held that the choice of venue includes the choice of the seat of arbitration. The High Court ruled that because the parties agreed that the venue of arbitration would be Lucknow, only the courts in Lucknow would have jurisdiction to hear disputes arising from the agreement.

It was determined that the arbitration agreement expressly states that the arbitration will be conducted in accordance with the ICADR Rules and that the venue of arbitration will be Lucknow, and that the ICADR Rules will be applicable with respect to the procedure to be followed only after the formation of the arbitral tribunal.

Advocate Anirudh Wadhwa represented the petitioner, and Advocates Rishabh Kapoor, Naman Tandon, and Mayank Punia represented the respondent.

[READ JUDGMENT]