Kei Rsos Petrolium And Energy Pvt ... vs M/S. R.A.K. Ceramics I Pvt Ltd.,
2021 Latest Caselaw 4008 AP

    IN THE HIGH COURT OF ANDHRA PRADESH : AMARAVATI


HON'BLE MR. JUSTICE ARUP KUMAR GOSWAMI, CHIEF JUSTICE


            ARBITRATION APPLICATION No.2 of 2019

                   (Taken up through video conferencing)


KEI-RSOS PETROLIUM & ENERGY PVT. LTD.,
a private limited company, registered under the
Companies Act, having its Regd. Office at 10-3-316/A,
Masab Tank, Hyderabad- 500 028 and Local office
at Aishwarya Enclave C-156, Walkers Road,
Venkateshwara Nagar, Rajamahendravaram - 533103,
Rep. by Mr. B. Chandra Sekhar S/o. B. Trimurthulu,
Manager of the company.

                                                     .. Applicant
       Versus

M/s. R.A.K. CERAMICS (I) PVT. LTD.,
P.B.No.11-IDA - Peddapuram, ADB Road,
Samalkot - E.G. DISTRICT, Pin:-533440,
Rep. by its Vice President.
                                                     .. Respondent


Counsel for the applicant         : Mr. Kakara Venkata Rao

Counsel for the respondent        : Mr. C.V. Mohan Reddy, Sr. Advocate
                                    Mr. A. Krishnam Raju


Dates of hearing                  : 09.04.2021, 09.07.2021, 06.08.2021,
                                    13.08.2021 & 04.09.2021


Date of order                     : 08.10.2021


                               ORDER

Heard Mr. Kakara Venkata Rao, learned counsel for the applicant.

Also heard Mr. C.V. Mohan Reddy, learned senior counsel, assisted by

Mr. A. Krishnam Raju, learned counsel for the respondent.

                                    2                                       HCJ
                                                         Arb.Appl.No.2 of 2019

2. This application is filed under Section 11(5) and (6) of the

Arbitration and Conciliation Act, 1996 (for short, 'the Act of 1996')

seeking appointment of a sole arbitrator to resolve the dispute between

the parties under the agreement dated 04.09.2015.

3. The case of the applicant company, in short, is that the applicant

company is a private limited company engaged in the business of

production of oil and natural gas and marketing of the same. The

respondent company, which is also a private limited company, is involved

in the business of manufacturing and sale of ceramic tiles and sanitary-

ware. The respondent company had approached the applicant for supply

of 40,000 standard cubic meters of natural gas per day to its factory at

Samalkot. Accordingly, the applicant company had entered into an

agreement with the respondent company on 04.09.2015 for supply of

natural gas at a daily contracted quantity of 40,000 standard cubic

meters. The period of the agreement is 36 months from the date of the

agreement or the date of commencement of production, whichever is

later. The production of natural gas by the applicant company had

commenced on 01.03.2016 and therefore, 36 months' period would

expire by 01.03.2019. The applicant company has been supplying gas to

the respondent from 01.03.2016 onwards as per the terms of the

agreement. But, the respondent has not been able to fulfil and comply

with the Minimum Guaranteed Off-take condition. While so, in the

meeting held on 05.03.2018, the respondent company had proposed to

stop taking gas supply from the applicant company with effect from

01.04.2018, on account of a better pricing option available to it. The

applicant company had conveyed its disagreement to the said proposal.

However, on 06.03.2018, the respondent company sent an e-mail dated 3 HCJ Arb.Appl.No.2 of 2019

01.03.2018 to the applicant company stating that in accordance with

Clause 6.1.5 of the agreement dated 04.09.2015, the respondent

company would be unable to take gas supply from the applicant company

with effect from 01.04.2018 due to operational reasons. The applicant

company had sent a reply to the said e-mail on 07.03.2018 refusing to

accept the same. As the respondent company had failed to adhere to the

conditions in the agreement and there was a shortfall in the minimum

guaranteed off-take of gas by the respondent company during the period

from November, 2016 to February, 2018, on 17.03.2018, the applicant

company had raised invoices for an amount of Rs.11,97,41,921/- towards

payment of charges for the said shortfall quantity, but the respondent

had not paid the said amount. In those circumstances, the applicant

company had filed a petition, being A.O.P.No.14 of 2018, before the X

Additional District Judge, East Godavari, Rajahmundry, on 28.03.2018,

under Section 9 of the Act of 1996, to grant interim injunction against the

respondent company from acting upon its e-mail dated 01.03.2018,

pending resolution of disputes arose between the parties through

arbitration. Though initially, an interim order was passed in the said AOP,

subsequently, the AOP was returned on the ground of jurisdiction and to

present it before proper Court. The applicant company had issued a

notice dated 31.05.2018 to the respondent company invoking arbitration

clause under the agreement and seeking appointment of Mr. Justice P.S.

Narayana (Retired) as the sole arbitrator to resolve the disputes between

them. The respondent company had issued reply notice dated 26.06.2018

disagreeing for appointment of the arbitrator. It is stated that the

applicant company has suffered loss to the tune of Rs.57.72 crores. In

these circumstances, this arbitration application came to be filed.

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                                                             Arb.Appl.No.2 of 2019

4. The respondent filed counter-affidavit putting forth its own

version of events and denying the allegations and contentions of the

applicant. The question of the maintainability of the arbitration

application was also raised.

5. Learned counsel for the parties have addressed their arguments

centering around only on the arbitration clause as incorporated in Clauses

9.1 and 9.3 of the agreement dated 04.09.2015 regarding maintainability

of this application and on no other aspects. It is, therefore, appropriate,

at the very outset, to quote Clause 9 in its entirety for better appreciation

of the arguments of the learned counsel for the parties.

"9. Governing Law and Dispute Resolution

9.1 This Agreement shall be governed by and

interpreted in accordance with the substantive

laws of India. The Courts of the State of

Andhra Pradesh alone shall have sole and

exclusive jurisdiction with respect to any

proceedings arising out of or in relation to this

Agreement.

9.2 Any claim, dispute or controversy arising out

of, or in relation to, this Agreement, including

any dispute with respect to the existence or

validity hereof, the interpretation hereof, the

activities performed hereunder, or the breach

hereof shall, after written notice by either Party

to the other Party, be referred for resolution to

a Sole Arbitrator to be appointed by mutual 5 HCJ Arb.Appl.No.2 of 2019

discussions and agreement between the

Parties under the provisions of the Arbitration

and Conciliation Act, 1996 or any statutory

modification or reenactment thereof.

9.3 The arbitration proceedings shall be conducted

in English and the place of arbitration shall be

Hyderabad or any place mutually agreed by

parties in Andhra Pradesh."

6. Mr. Kakara Venkata Rao, learned counsel for the applicant,

submits that Clause 9.1 of the Agreement entered into between the

parties clearly states that the Courts of State of Andhra Pradesh alone

shall have the sole and exclusive jurisdiction with respect to any

proceedings arising out of or in relation to the subject agreement. Thus,

the intention of the parties is clear that they have excluded all other

Courts in respect of such proceedings, including arbitration proceedings.

When Clause 9.1 in specific terms deals with the exclusive jurisdiction,

Clause 9.3 stating that the place of arbitration shall be Hyderabad or any

place mutually agreed by the parties in Andhra Pradesh, shall be

understood to mean that the parties have chosen Hyderabad as the

venue for holding arbitration hearings only and they did not intend the

same to be the seat of arbitration. He further submits that if the

arbitration clause contains any contrary indication, it would be a matter of

construction of individual agreement to ascertain the intention of the

parties in choosing the designated seat to be only a convenient

venue/place fixed for conducting arbitration proceedings/hearings. It is

further submitted by him that all the factors, such as, location of the 6 HCJ Arb.Appl.No.2 of 2019

factory of the respondent, supply of gas, delivery of gas (performance of

the contract), are connecting the dispute with East Godavari District of

the State of Andhra Pradesh and thus, by applying the closest connection

theory also, it can be said that the Courts in Andhra Pradesh will only

have sole and exclusive jurisdiction, as indicated in Clause 9.1 of the

Agreement, and Hyderabad or any place mutually agreed by parties in

Andhra Pradesh were intended to be convenient places for holding

arbitration hearings/meetings only. He relies on the judgments of the

Hon'ble Supreme Court in Brahmani River Pellets Limited v.

Kamachi Industries Limited, reported in (2020) 5 SCC 462, Bharat

Aluminium Company v. Kaiser Aluminium Technical Services

Inc., reported in (2012) 9 SCC 552, Enercon (India) Limited and

others v. Enercon GMBH and another, reported in (2014) 5 SCC 1

and Swastik Gases Private Limited v. Indian Oil Corporation

Limited, reported in (2013) 9 SCC 32.

7. Mr. C.V. Mohan Reddy, learned senior counsel appearing for the

respondent company, submits that Clause 9.3 of the agreement has to be

construed to mean that the seat of arbitration shall be Hyderabad for

arbitration proceedings and, therefore, the High Court of Andhra Pradesh

has no territorial jurisdiction to entertain the application filed by the

applicant under Section 11(5) and (6) of the Act of 1996 to appoint an

arbitrator and it is only the High Court of Telangana that has the

territorial jurisdiction to entertain such application. Clause 9.1 of the

agreement does not embrace disputes between the parties in relation to

arbitration proceedings and therefore, it cannot be understood to mean

that the seat of arbitration is in Andhra Pradesh. Once the place of

arbitration for conducting arbitration proceedings has been explicitly 7 HCJ Arb.Appl.No.2 of 2019

agreed upon between the parties preceded by the word "shall", such

agreed place would serve as the seat of arbitration and that the Courts

having territorial jurisdiction over such place would have sole jurisdiction

to adjudicate any application under the Act of 1996. It is further

submitted that Clause 9.1 of the agreement for all intents and purposes

mean that the Courts of the State of Andhra Pradesh shall have sole and

exclusive jurisdiction with respect to any proceeding arising out of or in

relation to the agreement i.e., subject matter of a "suit", but the same

does not take within its fold disputes between the parties in relation to

"arbitration proceedings", and as such, Clause 9.1 of the agreement

cannot be said to be providing seat of arbitration, more so, when Clause

9.3 of the agreement provides that the seat of arbitration shall be

Hyderabad. He further submits that even if a part of cause of action had

arisen within the territorial jurisdiction of the State of Andhra Pradesh, yet

in view of Clause 9.3 of the agreement, the High Court of Andhra Pradesh

will have no jurisdiction to entertain the application filed by the applicant

under the Act of 1996. Once the parties agreed that the seat of

arbitration is Hyderabad, by applying the principle that party autonomy

should be given precedence, the present application is liable to be

dismissed. He relies on the decisions of the Hon'ble Supreme Court in

Bharat Aluminium Company (supra), Indus Mobile Distribution

Pvt. Ltd. vs. Datawind Innovations Pvt. Ltd., reported in (2017) 7

SCC 678, BGS SGS SOMA JV v. NHPC Limited, reported in (2020) 4

SCC 234, Mankastu Impex Private Limited v. Airvisual Limited,

reported in (2020) 5 SCC 399.

8. In reply, learned counsel for the applicant submits that the ratio

laid down by the Hon'ble Supreme Court in BGS SGS SOMA JV (supra) 8 HCJ Arb.Appl.No.2 of 2019

cannot be applied to the present case as in the said case it was explicitly

expressed that arbitration proceeding shall be held in a particular place,

which expression is conspicuously absent in Clause 9.3 of the agreement,

which only indicates "the place of arbitration". Referring to the judgment

of the Hon'ble Supreme Court in Mankastu Impex Pvt. Ltd. (supra),

on which the learned senior counsel for the respondent placed reliance,

he submits that the place of arbitration, as contained in Clause 9.3 of the

agreement, cannot be the basis to determine the intention of the parties

that they have intended that place to be the seat of arbitration, and it

should be construed that the parties intended Hyderabad to be a

convenient place for holding arbitration meetings/hearings, and not for

resolution of arbitration of disputes in Hyderabad, in view of the contrary

indicia provided in Clause 9.1 of the agreement.

9. I have considered the submissions of the learned counsel for the

parties and have perused the materials on record.

10. At the outset, it will be relevant to take note of the judgments

cited at the Bar.

11. In Bharat Aluminium Company (supra), the Hon'ble Supreme

Court observed that arbitrations are anchored to the seat/place/situs of

arbitration and that the seat of arbitration is intended to be the centre of

gravity. It, however, does not mean that all the proceedings of the

arbitration have to take place at the seat of the arbitration. The

arbitrators at times hold meetings at more convenient locations. It was

also observed that the terms "seat" and "place" are often used

interchangeably. Paragraph 75 of the said judgment reads as under:

                            9                                                HCJ
                                                          Arb.Appl.No.2 of 2019

"75. We are also unable to accept the submission of

the learned counsel for the appellants that the Arbitration

Act, 1996 does not make seat of the arbitration as the

centre of gravity of the arbitration. On the contrary, it is

accepted by most of the experts that in most of the

national laws, arbitrations are anchored to the

seat/place/situs of arbitration. Redfern in Paragraph 3.54

concludes that "the seat of the arbitration is thus

intended to be its centre of gravity." This, however, does

not mean that all the proceedings of the arbitration have

to take place at the seat of the arbitration. The

arbitrators at times hold meetings at more convenient

locations. This is necessary as arbitrators often come

from different countries. It may, therefore, on occasions

be convenient to hold some of the meetings in a location

which may be convenient to all. Such a situation was

examined by the Court of appeal in England in Naviera

Amazonica Peruana S.A. Vs. Compania International de

Seguros del Peru [(1988) 1 Lloyd's Rep 116 (CA)],

wherein at p.121 it is observed as follows:

"The preceding discussion has been on

the basis that there is only one 'place' of

arbitration. This will be the place chosen by or

on behalf of the parties; and it will be

designated in the arbitration agreement or the

terms of reference or the minutes of

proceedings or in some other way as the place 10 HCJ Arb.Appl.No.2 of 2019

or 'seat' of the arbitration. This does not mean,

however, that the Arbitral Tribunal must hold

all its meetings or hearings at the place

of arbitration. International commercial

arbitration often involves people of many

different nationalities, from many different

countries. In these circumstances, it is by no

means unusual for an Arbitral Tribunal to hold

meetings-or even hearings- in a place other

than the designated place of arbitration, either

for its own convenience or for the convenience

of the parties or their witnesses...... It may be

more convenient for an Arbitral Tribunal sitting

in one country to conduct a hearing in another

country - for instance, for the purpose of

taking evidence..... In such circumstances each

move of the Arbitral Tribunal does not of itself

mean that the seat of arbitration changes. The

seat of arbitration remains the place initially

agreed by or on behalf of the parties."

(emphasis supplied)

These observations were subsequently followed in

Union of India v. McDonnell Douglas Corpn. [(1993) 2

Lloyd's Rep 48.]"

12. In Brahmani River Pellets Limited (supra), Clause 18 of the

agreement, which contained the arbitration clause, reads as under:

                                       11                                        HCJ
                                                              Arb.Appl.No.2 of 2019

"18. Arbitration shall be under Indian Arbitration

and Conciliation Law, 1996 and the Venue of Arbitration

shall be Bhubaneswar."

13. In the aforesaid case, the Hon'ble Supreme Court observed that

where the contract specifies the jurisdiction of the Court at a particular

place, only such court will have the jurisdiction to deal with the matter

and parties intended to exclude all other courts. Having regard to the

arbitration clause, the Hon'ble Supreme Court held that as the parties had

agreed that 'venue' of arbitration shall be at Bhubaneswar, the intention

of the parties is to exclude all other courts and that non-use of the words

like "exclusive jurisdiction", "only", "exclusive", "alone" is not decisive and

does not make any material difference. Paragraph 18 of the said

judgment reads as under:

"18. Where the contract specifies the jurisdiction of

the court at a particular place, only such court will have

the jurisdiction to deal with the matter and parties

intended to exclude all other courts. In the present case,

the parties have agreed that the "venue" of arbitration

shall be at Bhubaneswar. Considering the agreement of

the parties having Bhubaneswar as the venue of

arbitration, the intention of the parties is to exclude all

other courts. As held in Swastik Gases (P) Ltd. V. Indian

Oil Corporation Limited, non-use of words like "exclusive

jurisdiction", "only", "exclusive", "alone" is not decisive

and does not make any material difference."

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                                                            Arb.Appl.No.2 of 2019

14. In Swastik Gases Private Limited (supra), the jurisdiction

Clause 18 in the agreement reads as follows:

"18. Jurisdiction

The agreement shall be subject to jurisdiction of the

courts at Kolkata."

15. The question that had arisen in the aforesaid case was as to

whether parties by virtue of Clause 18 of the agreement have agreed to

exclude the jurisdiction of the Courts at Jaipur where part of cause of

action had arisen. The Hon'ble Supreme Court answered the question in

the following manner.

"32. For answer to the above question, we have to

see the effect of the jurisdiction clause in the agreement

which provides that the agreement shall be subject to

jurisdiction of the courts at Kolkata. It is a fact that

whilst providing for jurisdiction clause in the agreement

the words like "alone", "only", "exclusive" or "exclusive

jurisdiction" have not been used but this, in our view, is

not decisive and does not make any material difference.

The intention of the parties - by having clause 18 in the

agreement - is clear and unambiguous that the courts at

Kolkata shall have jurisdiction which means that the

courts at Kolkata alone shall have jurisdiction. It is so

because for construction of jurisdiction clause, like clause

18 in the agreement, the maxim expressio unius est

exclusio alterius comes into play as there is nothing to

indicate to the contrary. This legal maxim means that 13 HCJ Arb.Appl.No.2 of 2019

expression of one is the exclusion of another. By making

a provision that the agreement is subject to the

jurisdiction of the courts at Kolkata, the parties have

impliedly excluded the jurisdiction of other courts. Where

the contract specifies the jurisdiction of the courts at a

particular place and such courts have jurisdiction to deal

with the matter, we think that an inference may be

drawn that parties intended to exclude all other courts. A

clause like this is not hit by Section 23 of the Contract

Act at all. Such clause is neither forbidden by law nor it is

against the public policy. It does not offend Section 28 of

the Contract Act in any manner."

16. In Enercon (India) Limited (supra), the relevant clause of

arbitration is 18.3, which reads as under:

"18.3 The proceedings in such arbitration shall be

conducted in English. The venue of the arbitration

proceedings shall be in London. The arbitrators may (but

shall not be obliged to) award costs and reasonable

expenses (including reasonable fees of counsel) to the

party(ies) that substantially prevail on merit. The

provisions of the Indian Arbitration and Conciliation Act,

1996 shall apply.

The reference of any matter, dispute or claim or

arbitration pursuant to this Section 18 or the continuance

of any arbitration proceedings consequent thereto or

both will in no way operate as a waiver of the obligations 14 HCJ Arb.Appl.No.2 of 2019

of the parties to perform their respective obligations

under this agreement."

17. In the aforesaid case, i.e., Enercon (India) Limited (supra), the

Hon'ble Supreme Court, at paragraph 98, held as under:

"98. We find much substance in the submissions of

Mr. Nariman that there are very strong indicators to

suggest that the parties always understood that the seat

of arbitration would be in India and London would only

be the "venue" to hold the proceedings of arbitration. We

find force in the submission made by learned Senior

Counsel for the appellants that the facts of the present

case would make the ratio of law laid down in Naviera

Amazonica Peruana S.A. applicable in the present case.

Applying the closest and the intimate connection to

arbitration, it would be seen that the parties had agreed

that the provisions of Indian Arbitration Act, 1996 would

apply to the arbitration proceedings. By making such a

choice, the parties have made the curial law provisions

contained in Chapters III, IV, V and VI of the Indian

Arbitration Act, 1996 applicable. Even Dr. Singhvi had

submitted that Chapters III, IV, V and VI would apply if

the seat of arbitration is in India. By choosing that Part I

of the Indian Arbitration Act, 1996 would apply, the

parties have made a choice that the seat of arbitration

would be in India. Section 2(2) of the Indian Arbitration

Act, 1996 provides that Part I "shall apply where the 15 HCJ Arb.Appl.No.2 of 2019

place of arbitration is in India". In BALCO, it has been

categorically held that Part I of the Indian Arbitration Act,

1996, will have no application, if the seat of arbitration is

not in India. In the present case, London is mentioned

only as a "venue" of arbitration which, in our opinion, in

the facts of this case can not be read as the "seat" of

arbitration."

18. Further, on the issue of factors intimately connecting the

arbitration to a particular place, the Hon'ble Supreme Court, at paragraph

115 of the aforesaid judgment, held as under:

"115. The learned Senior Counsel has rightly

submitted that in fixing the seat in India, the Court would

not be faced with the complications which were faced by

the English High Court in Braes of Doune. In that case,

the Court understood the designation of the seat to be in

Glasgow as venue, on the strength of the other factors

intimately connecting the arbitration to England. If one

has regard to the factors connecting the dispute to India

and the absence of any factors connecting it to England,

the only reasonable conclusion is that the parties have

chosen London, only as the venue of the arbitration. All

the other connecting factors would place the seat firmly

in India."

19. At paragraph 135 of Enercon (India) Ltd. (supra), it was further

observed as under:

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                                                          Arb.Appl.No.2 of 2019

"In the present case, even though the venue of

arbitration proceedings has been fixed in London, it cannot

be presumed that the parties have intended the seat to be

also in London. In an international commercial arbitration,

venue can often be different from the seat of arbitration.

In such circumstances, the hearing of the arbitration will

be conducted at the venue fixed by the parties, but this

would not bring about a change in the seat of the

arbitration. This is precisely the ratio in Braes of Doune.

Therefore, in the present case, the seat would remain in

India."

20. The interplay between "seat" and "place of arbitration" came up

for consideration in Indus Mobile Distribution Pvt. Ltd (supra), relied

upon by the respondent. The Delhi High Court, on an application filed

under Section 11 of the Act of 1996, held that as no part of cause of

action arose in Mumbai, only the Courts of Delhi, Chennai and Amritsar,

where part of cause of action had arisen, could have jurisdiction and held

that exclusive jurisdiction clause would not apply on facts, as the Courts

of Mumbai would have no jurisdiction at all. The arbitration clause 19

read as follows:

"19. All disputes and differences of any kind

whatever arising out of or in connection with this

agreement shall be subject to the exclusive jurisdiction of

courts of Mumbai only."

21. While setting aside the judgment of the Delhi High Court, the

Hon'ble Supreme Court, at paragraphs 19 and 20, held as follows:

                            17                                        HCJ
                                                   Arb.Appl.No.2 of 2019

"19. A conspectus of all the aforesaid provisions

shows that the moment the seat is designated, it is akin

to an exclusive jurisdiction clause. On the facts of the

present case, it is clear that the seat of arbitration is

Mumbai and Clause 19 further makes it clear that

jurisdiction exclusively vests in the Mumbai courts. Under

the Law of Arbitration, unlike the Code of Civil Procedure

which applies to suits filed in courts, a reference to "seat"

is a concept by which a neutral venue can be chosen by

the parties to an arbitration clause. The neutral venue

may not in the classical sense have jurisdiction - that is,

no part of the cause of action may have arisen at the

neutral venue and neither would any of the provisions of

Sections 16 to 21 CPC be attracted. In arbitration law

however, as has been held above, the moment "seat" is

determined, the fact that the seat is at Mumbai would

vest Mumbai courts with exclusive jurisdiction for

purposes of regulating arbitral proceedings arising out of

the agreement between the parties.

20. It is well settled that where more than one

court has jurisdiction, it is open for parties to exclude all

other courts. For an exhaustive analysis of the case law,

see Swastik Gases (P) Limited v. Indian Oil Corporation

Limited, (2013) 9 SCC 32. This was followed in a recent

judgment in B.E. Simoese Von Staraburg Niedenthal v.

Chhattisgarh Investment Limited, (2015) 12 SCC 225.

Having regard to the above, it is clear that Mumbai 18 HCJ Arb.Appl.No.2 of 2019

courts alone have jurisdiction to the exclusion of all other

courts in the country, as the juridical seat of arbitration is

at Mumbai. This being the case, the impugned judgment

is set aside. The injunction confirmed by the impugned

judgment will continue for a period of four weeks from

the date of pronouncement of this judgment, so that the

respondents may take necessary steps under Section 9 in

the Mumbai Court. The appeals are disposed of

accordingly."

22. In BGS SGS SOMA JV (supra), having referred to various

decisions including Enercon (India) Ltd. (supra), Brahmani River

Pellets (supra), it was held by the Hon'ble Supreme Court at

paragraphs 82, 97 and 98, as under:

"82. On a conspectus of the aforesaid judgments, it

may be concluded that whenever there is the designation

of a place of arbitration in an arbitration clause as being

the "venue" of the arbitration proceedings, the expression

"arbitration proceedings" would make it clear that the

"venue" is really the "seat" of the arbitral proceedings, as

the aforesaid expression does not include just one or more

individual or particular hearing, but the arbitration

proceedings as a whole, including the making of an award

at that place. This language has to be contrasted with

language such as "tribunals are to meet or have witnesses,

experts or the parties" where only hearings are to take

place in the "venue", which may lead to the conclusion, 19 HCJ Arb.Appl.No.2 of 2019

other things being equal, that the venue so stated is not

the "seat" of arbitral proceedings, but only a convenient

place of meeting. Further, the fact that the arbitral

proceedings "shall be held" at a particular venue would

also indicate that the parties intended to anchor arbitral

proceedings to a particular place, signifying thereby, that

that place is the seat of the arbitral proceedings. This,

coupled with there being no other significant contrary

indicia that the stated venue is merely a "venue" and not

the "seat" of the arbitral proceedings, would then

conclusively show that such a clause designates a "seat" of

the arbitral proceedings. In an International context, if a

supranational body of rules is to govern the arbitration,

this would further be an indicia that "the venue", so stated,

would be the seat of the arbitral proceedings. In a national

context, this would be replaced by the Arbitration Act,

1996 as applying to the "stated venue", which then

becomes the "seat" for the purposes of arbitration.

97. Given the fact that if there were a dispute

between NHPC Ltd. and a foreign contractor, Clause

67.3(vi) would have to be read as a clause designating the

"seat" of arbitration, the same must follow even when sub-

clause (vi) is to be read with sub-clause (i) of Clause 67.3,

where the dispute between NHPC Ltd. would be with an

Indian contractor. The arbitration clause in the present

case states that "Arbitration proceedings shall be held at

New Delhi/Faridabad, India...", thereby signifying that all 20 HCJ Arb.Appl.No.2 of 2019

the hearings, including the making of the award, are to

take place at one of the stated places. Negatively

speaking, the clause does not state that the venue is so

that some, or all, of the hearings take place at the venue;

neither does it use language such as "the Tribunal may

meet", or "may hear witnesses, experts or parties". The

expression "shall be held" also indicates that the so-called

"venue" is really the "seat" of the arbitral proceedings. The

dispute is to be settled in accordance with the Arbitration

Act, 1996 which, therefore, applies a national body of rules

to the arbitration that is to be held either at New Delhi or

Faridabad, given the fact that the present arbitration would

be Indian and not international. It is clear, therefore, that

even in such a scenario, New Delhi/Faridabad, India has

been designated as the "seat" of the arbitration

proceedings.

98. However, the fact that in all the three appeals

before us the proceedings were finally held at New Delhi,

and the awards were signed in New Delhi, and not at

Faridabad, would lead to the conclusion that both parties

have chosen New Delhi as the "seat" of arbitration under

Section 20(1) of the Arbitration Act, 1996. This being the

case, both parties have, therefore, chosen that the courts

at New Delhi alone would have exclusive jurisdiction over

the arbitral proceedings. Therefore, the fact that a part of

the cause of action may have arisen at Faridabad would

not be relevant once the "seat" has been chosen, which 21 HCJ Arb.Appl.No.2 of 2019

would then amount to an exclusive jurisdiction clause so

far as courts of the "seat" are concerned."

23. In Mankastu Impex Pvt. Ltd. (supra), clause 17 of the

Memorandum of Understanding (MoU) is the relevant clause governing

the law and dispute resolution. The same reads as under:

"17. Governing law and dispute resolution

17.1. This MoU is governed by the laws of India,

without regard to its conflicts of laws provisions and courts

at New Delhi shall have the jurisdiction.

17.2. Any dispute, controversy, difference or claim

arising out of or relating to this MoU, including the

existence, validity, interpretation, performance, breach or

termination thereof or any dispute regarding non-

contractual obligations arising out of or relating to it shall

be referred to and finally resolved by arbitration

administered in Hong Kong.

The place of arbitration shall be Hong Kong.

The number of arbitrators shall be one. The

arbitration proceedings shall be conducted in English

language.

17.3. It is agreed that a party may seek provisional,

injunctive, or equitable remedies, including but not limited

to preliminary injunctive relief, from a court having

jurisdiction, before, during or after the pendency of any

arbitration proceeding."

                                         22                                      HCJ
                                                              Arb.Appl.No.2 of 2019

24. The question that had fallen for consideration was in view of

clause 17.2 of MoU, whether the parties have agreed that the seat of

arbitration is at Hong Kong and whether the Courts in India will have

jurisdiction to entertain the petition filed under Section 11 of the Act.

25. The Hon'ble Supreme Court answered the question in the following

manner:

"19. The seat of arbitration is a vital aspect of any

arbitration proceedings. Significance of the seat of

arbitration is that it determines the applicable law when

deciding the arbitration proceedings and arbitration

procedure as well as judicial review over the arbitration

award. The situs is not just about where an institution is

based or where the hearings will be held. But it is all

about which court would have the supervisory power

over the arbitration proceedings. In Enercon (India)

Ltd. v. Enercon GMBH , (2014) 5 SCC 1, the Supreme

Court held that:

"The location of the seat will determine the courts

that will have exclusive jurisdiction to oversee the

arbitration proceedings. It was further held that

the seat normally carries with it the choice of that

country's arbitration/curial law." (emphasis

supplied)

20. It is well settled that "seat of arbitration" and

"venue of arbitration" cannot be used interchangeably. It

has also been established that mere expression "place of 23 HCJ Arb.Appl.No.2 of 2019

arbitration" cannot be the basis to determine the

intention of the parties that they have intended that

place as the "seat" of arbitration. The intention of the

parties as to the "seat" should be determined from other

clauses in the agreement and the conduct of the parties.

21. In the present case, the arbitration agreement

entered into between the parties provides Hong Kong as

the place of arbitration. The agreement between the

parties choosing "Hong Kong" as the place of arbitration

by itself will not lead to the conclusion that the parties

have chosen Hong Kong as the seat of arbitration. The

words, "the place of arbitration" shall be "Hong Kong",

have to be read along with Clause 17.2. Clause 17.2

provides that "... any dispute, controversy, difference

arising out of or relating to MoU shall be referred to and

finally resolved by arbitration administered in Hong

Kong....". On a plain reading of the arbitration

agreement, it is clear that the reference to Hong Kong as

"place of arbitration" is not a simple reference as the

"venue" for the arbitral proceedings; but a reference to

Hong Kong is for final resolution by arbitration

administered in Hong Kong. The agreement between the

parties that the dispute "shall be referred to and finally

resolved by arbitration administered in Hong Kong"

clearly suggests that the parties have agreed that the

arbitration be seated at Hong Kong and that laws of

Hong Kong shall govern the arbitration proceedings as 24 HCJ Arb.Appl.No.2 of 2019

well as have power of judicial review over the arbitration

award.

22. As pointed out earlier, Clause 17.2 of MoU

stipulates that the dispute arising out of or relating to

MoU including the existence, validity, interpretation,

breach or termination thereof or any dispute arising out

of or relating to it shall be referred to and finally resolved

by the arbitration administered in Hong Kong. The words

in Clause 17.2 that "arbitration administered in Hong

Kong" is an indicia that the seat of arbitration is at Hong

Kong. Once the parties have chosen "Hong Kong" as the

place of arbitration to be administered in Hong Kong, the

laws of Hong Kong would govern the arbitration. The

Indian courts have no jurisdiction for appointment of the

arbitrator.

27. The words in Clause 17.1, "without regard to its

conflicts of laws provisions and courts at New Delhi shall

have the jurisdiction" do not take away or dilute the

intention of the parties in Clause 17.2 that the arbitration

be administered in Hong Kong. The words in Clause 17.1

do not suggest that the seat of arbitration is in New

Delhi. Since Part I is not applicable to "international

commercial arbitrations", in order to enable the parties to

avail the interim relief, Clause 17.3 appears to have been

added. The words, "without regard to its conflicts of laws

provisions and courts at New Delhi shall have the 25 HCJ Arb.Appl.No.2 of 2019

jurisdiction" in Clause 17.1 is to be read in conjunction

with Clause 17.3. Since the arbitration is seated at Hong

Kong, the petition filed by the petitioner under Section

11(6) of the Act is not maintainable and the petition is

liable to be dismissed."

26. In the instant case, Clause 9.1 of the agreement confers sole and

exclusive jurisdiction to the Courts of the State of Andhra Pradesh with

respect to any proceedings arising out of or in relation to the agreement.

The intention of the parties is clear that the Courts of State of Andhra

Pradesh shall have sole and exclusive jurisdiction and the same is fortified

by the expression "alone" used in Clause 9.1. Clause 9.2 provides that

any claim, disputes or controversy arising out of or in relation to the

agreement, including any dispute with regard to the existence, validity,

interpretation or breach of the agreement and activities performed

thereunder shall, after written notice by either party to the other party,

be referred for resolution to a sole Arbitrator to be appointed by mutual

discussions and an agreement between the parties under the provisions

of the Act of 1996 or any statutory modification or re-enactment thereof.

27. If there is any contrary indicia, the distinction between "seat of

arbitration" and "venue of arbitration" assumes utmost importance and

on the basis of the subject agreement, by way of construction, it is to be

decided whether parties have intended to designate the place or venue

mentioned in the agreement as a seat of arbitration or as a mere

convenient place for holding arbitration meetings. "Venue" in all

circumstances is not synonymous with the "seat" of arbitration. In the

instant case, the expression used in Clause 9.3 of the agreement is "place 26 HCJ Arb.Appl.No.2 of 2019

of arbitration". While the seat of arbitration is fixed, the place of

arbitration can be at the convenience of the parties and in such

circumstances, the place is merely a "venue" for holding arbitration

hearings/meetings, as would be evident from Clause 9.3 of the subject

agreement, where place of arbitration is not confined to Hyderabad

alone. Though the expression used in Clause 9.3 is "the place of

arbitration shall be Hyderabad", it is followed by another expression "or

any place mutually agreed by parties in Andhra Pradesh". While

Hyderabad is in the State of Telangana, the parties agreed that the place

of arbitration, as may be mutually agreed upon, may also be at any other

place in the State of Andhra Pradesh. In such circumstances, the word

"shall" in the expression "the place of arbitration shall be Hyderabad"

have to be construed as "may".

28. The argument of Mr. C.V. Mohan Reddy, learned senior counsel,

that the words "arbitration proceedings" in Clause 9.3 coupled with the

expression "the place of arbitration shall be Hyderabad" will exclusively

and unambiguously mean that the seat of arbitration is Hyderabad,

cannot be accepted, because the place of arbitration is not restricted to

Hyderabad alone and as may be resolved by the parties, it could be also

in any other places in another State, namely, in the State of Andhra

Pradesh. It is difficult to subscribe to the argument that the expression

"place of arbitration" so far as it relates to Hyderabad should be

construed as seat of arbitration and "any place mutually agreed by the

parties in Andhra Pradesh" should be construed as a venue. A uniform

interpretation has to be given with regard to an expression used in the

same sentence. That apart, the words "arbitration proceedings" in Clause

9.3 are relatable to only in which language the proceedings will be 27 HCJ Arb.Appl.No.2 of 2019

conducted and nothing beyond that. It is difficult to accept that, Clause

9.1, having regard to the expression used in Clause 9.3, will not bring

within its fold arbitration proceedings and, therefore, it cannot be

understood to mean that the seat of arbitration is in Andhra Pradesh.

29. Having regard to the expression used in Clause 9.1, which ousted

the jurisdiction of all courts other than the courts of the State of Andhra

Pradesh, Clause 9.3 must be construed to mean that the parties intended

Hyderabad or any other place in the State of Andhra Pradesh, as may be

found convenient, as a venue for holding arbitration hearings and

meetings. Clause 9.3 does not contain an expression, such as,

"arbitration proceedings shall be held" and all that it says is that the place

of arbitration shall be at Hyderabad or any other place mutually agreed

by the parties in Andhra Pradesh and as such, the expression "place of

arbitration" cannot be taken as a basis to determine that the parties had

intended Hyderabad to be the seat of arbitration. The intention of the

parties has to be gathered from relevant clauses in the agreement.

Clause 9.3, in the understanding of the Court, does not suggest that the

parties intended to anchor arbitral proceedings at Hyderabad, signifying

thereby that Hyderabad is the seat of arbitral proceedings.

30. The argument advanced that Clause 9.1 relates to the subject

matter of the suit between the parties and not to arbitration proceedings

has no merit and no such restriction, limiting application of Clause 9.1 to

only suits and not arbitration proceedings can be inferred. Clause 9.1

makes it clear that the State of Andhra Pradesh alone shall have sole and

exclusive jurisdiction with respect to "any proceedings" arising out of or in

relation to the subject agreement. Clause 9.2 also makes it clear that 28 HCJ Arb.Appl.No.2 of 2019

any claim, dispute or controversy arising out of or in relation to the

agreement, including any dispute with respect to the existence or the

validity of the agreement shall be referred to a sole arbitrator. An

application for appointment of arbitrator is a "proceeding" arising out of

or in relation to the agreement in question and, therefore, in my opinion,

the same would fall under the purview of Clause 9.1 of the agreement.

Thus, the plea set up by the respondent company that this Court has no

jurisdiction to entertain this application is not tenable.

31. In view of the discussions above, I am of the considered opinion

that this is a fit case where the request of the applicant for appointment

of sole arbitrator by this Court for resolution of the disputes arising out of

the agreement dated 04.09.2015 between the parties, has to be allowed.

32. Accordingly, the Arbitration Application is allowed. Hon'ble Justice

Challa Kodandaram (Retired) is appointed as the sole arbitrator. The fee

of the arbitrator as well as the other terms and conditions shall be settled

by the parties in consultation with the arbitrator so appointed.

33. Registry will send a copy of this order to Hon'ble Justice Challa

Kodandaram in his proper address.

34. No costs. Pending miscellaneous applications, if any, shall stand

closed.

ARUP KUMAR GOSWAMI, CJ

IBL