Place where cause of action arises is irrelevant once the parties have chosen “seat” for Arbitration

Facts of the case

In present case of BGS SGS SOMA JV v NHPC ltd., the parties entered into an agreement; one of the clauses in an agreement provided for dispute resolution through Arbitration. With respect to place of Arbitration, clause provided that, Arbitration proceedings shall be held at New Delhi/Faridabad.

One of the issues before three Judge bench of Supreme Court comprising of Justice R.F Nariman, Justice Aniruddha Bose and Justice V. Ramasubramanian was whether the “seat” of arbitration proceedings is New Delhi or Faridabad.

On 16 May 2011, due to loss suffered by petitioner - notice of Arbitration was issued to the Respondent seeking compensation. A three-member Arbitral Tribunal was constituted; between August 2011 and August 2016, seventy-one sittings took place at New Delhi.

Learned Additional Solicitor General, Smt. Maninder Acharya argued that clause did not expressly state that either New Delhi or Faridabad was to be the seat of the Arbitral Tribunal.

The fact that sittings were held at New Delhi would not make New Delhi the seat of the arbitration under Section 20(1) of the Arbitration Act, 1996. Agreement between parties were signed in Faridabad; notice which was issued by Petitioner was also sent to Respondent’s Faridabad office. Therefore, it means that part of the cause of action clearly arose in Faridabad and court in Faridabad in that case will have jurisdiction to adjudicate upon issue.

She contended that even if New Delhi is assumed to be the seat of arbitration, both New Delhi and Faridabad would have concurrent jurisdiction – New Delhi being a neutral forum in which no part of the cause of action arose, and Faridabad being a chosen forum where a part of the cause of action has arisen. In the present case, the Court in Faridabad was first approached by filing an application under Section 34 of the Arbitration Act, 1996, and therefore, Faridabad Court alone would have jurisdiction.