On September 25, 2018, a three Judge Bench of the Hon’ble Supreme Court of India in the matter of Union of India v. Hardy Exploration and Production (India) INC (Civil Appeal No. 4628 of 2018) decided a reference placed for their consideration by the Division Bench in Union of India v. Hardy Exploration and Production (India) INC, (2018) 7 SCC 374. 

Facts:

Hardy Exploration and Production (India) INC (“HEPI”) and the Union of India ("UOI") entered into a production sharing contract ("PSC") in November, 1996 for the extraction, development and production of hydrocarbons in a geographic block in India ("Block").

Disputes arose between the Parties, which were subsequently referred to arbitration pursuant to the Articles 32 and 33 of the PSC. The relevant clauses of the arbitration agreement were: 

“32.1  This contract shall be governed and interpreted in accordance with the laws of India.

32.2    Nothing in this contract shall entitle the contractor to exercise the rights, privileges and powers conferred upon it by this contract in a manner which will contravene the laws of India.

33.9    Arbitration proceedings shall be conducted in accordance with the UNCITRAL Model Law on International Commercial Arbitration of 1985 except that in the event of any conflict between the rules and the provisions of this Article 33, the provisions of this Article 33 shall govern.

33.12 The venue of conciliation or arbitration proceedings pursuant to this Article unless the parties otherwise agree, shall be Kuala Lumpur and shall be conducted in English language.”

The venue of the arbitration was Kuala Lumpur. The Arbitral Tribunal rendered its final award (“Award”) in favour of HEPI in February 2013, which was signed and delivered in Kuala Lumpur.

UOI challenged the Award under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) before the Delhi High Court in July 2013. HEPI challenged the application by contending that Indian Courts have no jurisdiction to entertain the application filed under Section 34 of the Act.

The Single Judge of the Delhi High Court vide order dated July 9, 2015, held that in view of the terms of the agreement in question coupled with the law laid down by various Courts governing the issues arising in the case, Indian Courts did not have jurisdiction to entertain the application. A review was filed against this order which was also dismissed. Subsequently, UOI challenged the order under Section 37(2) of the Act before the Division Bench of the Delhi High Court, wherein by an order dated July 27, 2016, the Hon’ble Division Bench concurred with the opinion expressed by the Single Judge and dismissed the Appeal.

The UOI challenged the aforesaid order dated July 27, 2016 before the Hon’ble Supreme Court of India through a Special Leave Petition. The Hon’ble Supreme Court vide an order dated May 01, 2018 referred the following issue arising in the matter for consideration by a larger bench.

Issue:

When the arbitration agreement specifies the "venue" for holding the arbitration proceedings by the arbitrator(s) but does not specify the "seat", then on what basis and by which principle, the parties need to decide the place of "seat" which has a material bearing for determining the applicability of laws of a particular country for deciding the post award arbitration proceedings?

Held:

The Hon’ble Supreme Court after referring to a host of judicial pronouncements and concurring with the law laid down in BALCO v. Kaiser Aluminum (2012) 9 SCC 552, Reliance Industries v. Union of India (2014) 7 SCC 603, Union of India v. Reliance Industries (2015) 10 SCC 213,   Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd. (2015) 9 SCC 172 and Roger Shashoua v. Mukesh Sharma (2017) 14 SCC 722 observed, “there is no confusion with regard to what the seat of arbitration and venue of arbitration mean. There is no shadow of doubt that the arbitration clause has to be read in a holistic manner so as to determine the jurisdiction of the Court. That apart, if there is mention of venue and something else is appended thereto, depending on the nature of the prescription, the Court can come to a conclusion that there is implied exclusion of Part I of the Act. The principle laid down in Sumitomo Heavy Industries Ltd. (supra) has been referred to in Reliance Industries Limited (II) and distinguished. In any case, it has no applicability to a controversy under the Act. The said controversy has to be governed by the BALCO principle or by the agreement or by the principle of implied exclusion as has been held in Bhatia International. (emphasis supplied)”

On the specific facts of the case, the Hon’ble Court after referring to the clauses of the arbitration agreement and Articles 20 & 31 of the UNCITRAL Model Law (para materia to Sections 20 and 31 of the Act) observed, “The word ‘determination’ has to be contextually determined. When a ‘place’ is agreed upon, it gets the status of seat which means the juridical seat. We have already noted that the terms ‘place’ and ‘seat’ are used interchangeably. When only the term ‘place’ is stated or mentioned and no other condition is postulated, it is equivalent to ‘seat’ and that finalises the facet of jurisdiction. But if a condition precedent is attached to the term ‘place’, the said condition has to be satisfied so that the place can become equivalent to seat. In the instant case, as there are two distinct and disjunct riders, either of them have to be satisfied to become a place. As is evident, there is no agreement. As far as determination is concerned, there has been no determination.”   

On facts of the case, the Hon’ble Supreme Court held that Kuala Lumpur was not the “seat” or “place” of the arbitration.