Case Title: Priya Malay Sheth versus VLCC Health Care Ltd.
According to the Bombay High Court, if a location is specified as the "venue" of the arbitration proceedings in their totality in an arbitration clause, the location is also required to serve as the "seat" of the arbitral proceedings.
The Arbitration Agreement's provision stating the location of the arbitration proceedings, according to the Single Bench of Justice G.S. Kulkarni, must be interpreted as separate from and independent of the arbitral procedure the parties agreed upon.
The arbitration provision was used by the applicant Priya Malay Sheth after a few disagreements emerged between her and the respondent VLCC Health Care Ltd. The petitioner applied to the Bombay High Court for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act). Before the High Court, the respondent VLCC made the argument that the arbitral proceedings must take place in Delhi in accordance with the parties' Arbitration Agreement. The respondent said that since Delhi serves as the arbitration seat, the Bombay High Court lacked jurisdiction to hear the application.
According to the first clause of the arbitration agreement, if the parties are unable to resolve their differences amicably, either party may give written notice of its intention to refer the matter to arbitration. Should either party do so, the respondent VLCC will then appoint a sole arbitrator, according to the applicant Priya Malay Sheth. The applicant continued by referencing the second clause of the arbitration agreement, which said that in this situation, the arbitration would be held in Delhi and would follow the ICC Rules.
The applicant argued that the second clause of the arbitration agreement was rendered irrelevant since the applicant had triggered the arbitration agreement by sending a notice to the respondent and because the respondent had refused to consent to the appointment of an arbitrator. The petitioner claimed that the procedure envisioned by the second Clause could only be carried out in the event that an arbitral tribunal was established as agreed upon under the first Clause. The petitioner further stated that the respondent had been granted unilateral authority to name an arbitral tribunal under the first Clause. In light of the established legal principle by the Supreme Court, according to which a party to a contract cannot have the ability to unilaterally choose an arbitral tribunal, the applicant claimed that the aforementioned Clause was irrelevant.
The applicant claimed that because the respondent did not comply with the arbitration agreement, he or she was unable to use the second clause. The petitioner further said that under Section 2(1)(e) of the A&C Act's definition of "Court," the Bombay High Court might exercise its power under Section 11 of the A&C Act and appoint an Arbitral Tribunal.
The Supreme Court concluded that a party interested in the result of the arbitral proceedings does not have any unilateral authority to nominate an arbitrator in the case of Perkins Eastman Architects DPC. Vs. HSCC (India) Ltd. (2019). However, the Arbitration Agreement would still be valid, the Supreme Court had noted. As a result, the Supreme Court chose an impartial arbiter. Consequently, the Court recognised that the first Clause was unconstitutional under the legislation since it gave the respondent the power to select an arbitrator on their own. The Respondent could not have any unilateral authority to appoint an Arbitral Tribunal, the Court said.
The Court noted that the parties had consented to the procedures for selecting an Arbitral Tribunal consisting of a single arbitrator under the first clause of the Arbitration Agreement. The Court stated that the parties had consented to the arbitration proceeding being conducted in accordance with the ICC Rules under the second Clause. The Court also stated that Delhi was chosen as the arbitration's site under the second Clause. Thus, the Court rejected the applicant's argument that the first and second clauses of the arbitration agreement were related. The Court ruled that the aforementioned Clauses were separate and had a separate purpose. The Court determined that because the parties had expressly stipulated in the second Clause that Delhi would be the arbitration's venue, it was evident from their language that Delhi would be the arbitration's seat. The Court found that the portion of the arbitration agreement where the parties agreed that Delhi would be the arbitration location must be interpreted separately and independently from the parties' mutually agreed upon arbitration process. The court further said that the Delhi courts would have supervisory jurisdiction over the arbitral proceedings after the parties had agreed that Delhi would serve as the arbitration location.
The Court pointed out that the Supreme Court had ruled in the 2012 case of Bharat Aluminium Company & Ors. v. Kaiser Aluminium Technical Service, Inc. & Ors. that the "subject matter of the arbitration" should not be confused with the "subject matter of the suit," and that the term "Court," as defined in Section 2(1)(e) of the A&C Act, should be understood to refer to the "Court" exercising supervisory control over the arbitration proceedings. The "Court," as defined in Section 2(1)(e), would basically be a Court of the seat of the arbitration procedure, the Supreme Court had ruled. The Supreme Court had determined that Section 20 of the A&C Act, which recognises party autonomy, must be taken into consideration while construing the concept of "Court."
The Court also noted that the Supreme Court had decided whenever a location is listed as the "venue" of the arbitration proceedings in an arbitration clause, the phrase "arbitration proceedings" would make it clear that the "venue" is actually the "seat" of the arbitral proceedings. This decision was made in the case of BGS SGS Soma JV versus NHPC Ltd. (2019). The Supreme Court had ruled that this was the case since "arbitration procedures" refers to the whole arbitration process, including the making of an award there, not merely one or more specific sessions.
As a result, the Court decided that since the parties had already agreed that Delhi would serve as the sole venue of arbitration, Delhi would also serve as the arbitration seat. The Court concluded that only the Delhi courts would have the authority to hear the arbitration tribunal appointment processes. The Court denied the application on the grounds that it lacked jurisdiction to consider it.