Rules of Arbitration comes into play only after the arbitration commences before the appropriate jurisdiction of law at the Seat of Arbitration: Justice S. K. Kait

In the case of S. P. Singla Constructions Private Limited v. Construction and Design Services, Uttar Pradesh Jal Nigam (2021) ARB.P. 450/2021, the respondent had invited Qualification cum Request for Proposal dated April 06, 2016, for the design, engineering, procurement and construction of a dedicated four-lane corridor across the River Ganges for use by the old and differentially-able individuals coming to the Kumbh and Magh Mela in Sangam, Uttar Pradesh. The lowest bid was placed by the petitioner; consequently, a Letter of Award was issued by the respondent in favour of the petitioner on January 03, 2017, with a formal contract being executed between them on February 08 of a valued consideration of Rs. 984,53,75,000. The contract was executed for a period of thirty months, wherein the petitioner provided a Defect Liability Period of forty-eight months from the date of a provisional certificate of completion.

The contract tasked the petitioner to mobilize resources, appoint third-party consultants, submit drawings for bridge, viaduct approaches, create geotechnical reports, place work orders; additionally, the respondent was tasked with certain responsibilities to be completed within fifteen days of the date of the agreement (January 03, 2017); however, the respondent allegedly did not uphold its part of the contractual obligations within thirty days of the date of the agreement. The petitioner allegedly sent communications to the respondent on June 27, July 17, September 12 and March 03, 2020. The respondent allegedly did not compensate the petitioner for the costs incurred by it for fulfilling its contractual obligations in the way of overhead costs, construction costs. The respondent wrote a letter on June 09, 2020, asking the project and the contract to be considered as “terminated.”

The petitioner sent a letter dated June 24, 2020, to the respondent, wherein the petitioner acknowledged the termination of the contract at the respondent’s convenience while raising an invoice of Rs.174,36,50,777 towards Termination Payment in accordance with the provisions of the contract to be paid within thirty days of terminating the contract. The respondent allegedly failed to honour the aforementioned payment. The petitioner filed a writ petition before the Allahabad High Court against the arbitrary, irrational and unreasonable action of the respondent; subsequently, the respondent issued a letter dated October 14, 2020, to communicate to the petitioner to terminate the said contract; additionally, the respondent released the bank securities furnished by the petitioner as performance security via a letter dated November 20, 2020. The petitioner invoked the Dispute Resolution Clause of the contract via a letter dated November 25, 2020, owing to the non-payment of the Termination Payment amounting to Rs.174,36,50,777 by the respondent and as a pre-requisite of the contract, the petitioner referred the dispute to the Chairman of the respondent. The respondent sent a communication to the petitioner on January 14, 2021, wherein the respondent denied the claim of the petitioner over the Termination Payment. The efforts of the petitioner to settle the dispute had allegedly failed; hence, the petitioner invoked Clause 26.3 of the contract to initiate an arbitration against the respondent with Hon’ble Justice (Retd.) S. J. Mukhopadhyay as a nominee arbitrator. The respondent sent a letter to the petitioner dated March 01, 2021, wherein it stated that the contract with the petitioner was allegedly revoked via communication on October 14, 2020, wherein the dispute was untenable because no work had allegedly begun on part with the petitioner per the respondent and the respondent had allegedly returned the bank guarantees to the petitioner.

The petitioner claimed that the respondent failed to appoint its nominee arbitrator within 30 days of issuance of notice dated February 02, 2021; consequently, the petitioner approached the court of law seeking the appointment of an arbitrator. It is worth noting that Clause 26.3.2. of the contract detailed the arbitration to be held in accordance with the Rules of Arbitration of the International Centre for Alternative Dispute Resolution (ICADR), wherein Article 17 of ICADR submits the place of arbitration to be New Delhi, provided that failing any agreement between the parties, the place of arbitration shall be determined by the arbitral tribunal with the convenience of the parties.

It is worth noting that the contract incorporates the rules of an arbitral institute into its arbitration clause without agreeing on a seat of arbitration, wherein the parties to the contract have voluntarily agreed and relied on the seat selection clause of ICADR. The crux of the case is the distinction between the words seat and venue in the view of arbitration proceedings. The petitioner held that there is no distinction between venue and seat of arbitration and since the arbitration proceedings have to be conducted in terms of ICADR, the seat of arbitration in New Delhi. It is worth noting that Clause 26.3.1. of the contract designates the venue of arbitration as Lucknow and the language of arbitration proceedings as English, wherein the arbitration proceedings shall be conducted in adherence to the ICADR (or as may be mutually agreed by the parties) where Article 17 of ICADR submits the place of arbitration to be New Delhi. The conflict in the venue of arbitration was presented before Justice S. K. Kait. The judge held that the venue of arbitration is the geographical location where arbitration meetings are held and the seat of arbitration is the centre of gravity of the arbitration, wherein the seat of arbitration would be neutral to both the parties, as mutually agreed upon by the parties (ex: a party in Mumbai and another party in Kolkata can affix their seat of arbitration as an arbitral tribunal in New Delhi as mutually decided by them), within the territory of India for Indian parties with the venue of the arbitration being anywhere in the world.

Justice S. K. Kait held that the affixing of a seat of arbitration empowers the courts at the seat to have exclusive jurisdiction for the purpose of regulating arbitral proceedings, wherein the contract between the parties must exclusively outline the seat of arbitration, irrespective of where the cause of action had arisen or where the contract between the parties had been executed. In a nutshell, Justice S.K. Kait held that if the arbitration clause in an agreement provides for a particular venue as a location to conduct arbitration proceedings, then the said arbitration shall be anchored to that venue, such that the venue of arbitration translates as the seat of arbitration in such cases and the courts governing the seat have exclusive jurisdiction to govern such arbitration proceedings whilst the jurisdiction of all other courts stand mulled.

In this case, the parties to the agreement have decided Lucknow be their venue of arbitration, such that the courts in Lucknow have exclusive jurisdiction to entertain the disputes arising out of the agreement. Justice S. K. Kait held that the rules of arbitration come into play only after the said arbitration commences before the appropriate jurisdiction of law, which herein is Lucknow. The judge asked the petitioner to approach the court of law in Lucknow to seek relief regarding the appointment of arbitration because the Delhi High Court has no jurisdiction to entertain the present case under the Arbitration & Conciliation Act, 1996.

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