Anchoring Arbitration Clause - The Multi Seat Dilemma
Author: LawSphereX
Category: Arbitration & ADR
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ANCHORING ARBITRATION CLAUSE: THE MULTI SEAT
DILEMMA
Rajri Patel, B.B.A., LL.B.(Hons.), Symbiosis Law School, Pune
ABSTRACT
In Arbitration, the coaction between party autonomy and procedural fairness frequently poses an intricate legal question. The issue of “seat” in arbitration has been subject to analysis and deliberations under the Indian Arbitration framework. A vital issue is the validity of an arbitration clause that provides “multiple seats of arbitration” to govern the dispute. The rationale is premised on a recent ruling by the “Hon'ble Delhi High Court” in “Vedanta Limited v. Shreeji Shipping”. The outcome reflects the foremost time when the Court has appraised the “validity of an arbitration clause” in which multiple local jurisdictions are designated as the seat of arbitration. The Court ruled that an arbitration agreement allowing multiple seats of arbitration is not void under “Section 29 of the Indian Contract Act of 1872”.
Keywords: Arbitration, Contract Law The Seat Paradox The Arbitration and Conciliation Act, 1996 (the “Arbitration Act”) established Arbitration as an alternative method for resolving disputes. Arbitration has become the preferred method of dispute settlement over many years since it saves time and provides ample autonomy to the parties. The parties to the arbitration agreement can decide on arbitrators, seat and venue of the arbitration, the procedural law that regulates arbitration, and so on. Greater autonomy imposes a burden of responsibility on the parties to ensure that proceedings are transparent from misunderstandings while practically applying the “terms and conditions” agreed upon by the parties to the arbitration agreement. Recently, the “Hon'ble Delhi High Court” in “Vedanta Limited v.
Shreeji Shipping1” decided the intricate question of the voidability of an arbitration clause having multiple seats of arbitration under “Section 29 of the Indian Contract Act, 18722”, which states, “Agreements, the meaning of which is not certain or capable of being made certain, are void. ” In a nutshell, agreements are void if the terms are unclear or uncertain, making it impossible to understand what the parties intended. The section underlines that for a contract to be valid, its terms must be concise and comprehensible so that the parties understand their respective rights and obligations. Factual Matrix Vedanta Limited and Shreeji Shipping executed a purchase order. The purchase order is intended to supervise coal transportation. Upon receiving the purchase order, Vedanta Limited observed that Shreeji Shipping had transported less coal than had been agreed upon.
Because of this deficiency and the ensuing disagreement, Vedanta Limited invoked the arbitration clause and applied to the “Hon'ble Delhi High Court” under Section 11 of the Arbitration Act3 for the appointment of an arbitrator to resolve the disagreement regarding the purchase order. Shreeji Shipping opposed the petition, arguing that “Section 29 of the Indian Contract Act, 1872”, violated Clause 10. 1(ii) of the Arbitration Clause, which provides parties multiple seats of arbitration. The Respondent contended that the jurisdiction shall be established under
1 Vedanta Limited v Shreeji Shipping, Arb.P. 342/2023, 08.02.2024.
2 The Indian Contract Act, 1872, § 29, No. 9, Acts of Parliament, 1872 (India).
3 Arbitration and Conciliation Act, 1996, § 11, No. 26, Acts of Parliament, 1996 (India).
Section 20 of the Civil Procedure Code, 19084. Shreeji Shipping further contended that the “cause of action” arose in Gujarat, so only Gujarat Courts have jurisdiction. Clause 10 of the Annexure B reads as: - “10. ARBITRATION
10.1 Any dispute or difference whatsoever arising between the parties out of or relating to the
interpretation, meaning, scope, operation or effect of this Agreement or the existence, validity, breach or anticipated breach thereof or determination and enforcement of respective rights, obligations and liabilities of the parties thereto shall be amicably settled by way of mediation. If the dispute is not conclusively settled within a period of twenty-one (21) days from the date of commencement of mediation or such further period as the parties shall agree in writing, the dispute shall be referred to and finally resolved by arbitration under the (Indian) Arbitration and Conciliation Act, 1996 (as amended from time to time), which are deemed to be incorporated by reference into this clause.
The arbitration shall be conducted as follows: (i) A sole arbitrator shall be appointed in case the value of claim under dispute is less than 5,000,000 (Rupees Five Million Only) / $ 100,000 (Hundred Thousand United States Dollars) and in any other event by a forum of three arbitrators with one arbitrator nominated by each Party and the presiding arbitrator selected by the nominated arbitrators. (ii) The language of the mediation and arbitration proceedings shall be English. The seat of arbitration shall be [Local Jurisdiction in Goa / Local Jurisdiction Karnataka /Delhi, India. " [Emphasis Supplied] Decision The Hon'ble Delhi High Court noted that “Clause 10. 1(ii) of the Arbitration Clause” was comprehensible and unambiguous and held that the clause empowers the parties the recourse to invoke either the jurisdiction of Delhi or, Karnataka, or Goa.
The judgement in “Indus Mobile Distribution Pvt. Ltd. vs. Datawind Innovations Pvt Ltd5. ” was referred by the “Hon’ble Court”, which held that once the local jurisdiction is designated as the “seat” under arbitration law, like to an exclusive jurisdiction clause, the parties are at liberty to file the
4 The Code of Civil procedure, 1908, § 20, No. 5, Acts of Parliament, 1908 (India).
5 Indus Mobile Distribution Pvt. Ltd. vs. Datawind Innovations Pvt Ltd., (2017) 7 SCC 678.
petition in the designated jurisdiction. Furthermore, it was held in “Swastik Gases Private Limited v. Indian Oil Corporation Limited6” and “B. E. Simoese Von Staraburg Niedenthal and Another v. Chhattisgarh Investment Limited7” that the parties may choose to exclude jurisdiction of other courts, when more than one court has the jurisdiction. The Hon’ble Supreme Court found no rationale to intercede with the decision of the “Hon'ble Delhi High Court” on the filing of a Special Leave Petition by Shreeji Shipping. Key Takeaways The ruling by the “Hon'ble Delhi High Court” upholds the legality of arbitration agreements that give parties the liberty to choose from a variety of jurisdictions without rendering the agreement ambiguous or unenforceable.
By giving parties choices for the arbitration seat, they can sustain control over the procedure and decide on the jurisdiction that works best for them in a disagreement. This decision upholds party autonomy in arbitration by highlighting that courts would respect such choices provided they are well-defined and structured, guaranteeing that agreements continue to be legally sound and customised to the interests of the parties. Conclusion The Judgement by the “Hon'ble Delhi High Court” in “Vedanta Limited v. Shreeji Shipping” failed to ascertain the “true intention” of the parties as to which jurisdiction the parties’ approach in case of disagreement, notwithstanding granting party autonomy the importance it deserves. The judgement overlooks the real-world challenges and intricacies that could occur if parties began to add multiple arbitration clauses.
It leads to ambiguity and impairment in predictability, which exacerbates problems like the adjudicatory procedure taking longer if the parties decide to approach courts in separate jurisdictions simultaneously. It would also make interpreting arbitration agreements much more challenging and lead to a multiplicity of proceedings. The same would work contrary to parties seeking arbitration since it would make the process more complicated and time-consuming. Therefore, it is crucial to determine the yardstick to ascertain the scope and extent of party autonomy.
6 Swastik Gases Private Limited v. Indian Oil Corporation Limited, (2013) 9 SCC 32.
7 B.E. Simoese Von Staraburg Niedenthal and Another v. Chhattisgarh Investment Limited, (2015) 12 SCC 225.