Matter of jurisdiction

Beginning this month, CW will be examining legal issues related to the construction and infrastructure sector through recent case studies. In the first, AJAY THOMAS emphasises the need for Indian projects involving international parties to rightly decide on the place of arbitration.

In a recent decision arising out of a contract relating to the construction of a national highway, a two-judge bench of the Madhya Pradesh High Court has held that an award passed by an arbitral tribunal seated in Singapore could not be challenged in an Indian court. The court clarified that such a challenge would necessarily have to be filed before the courts at the seat of arbitration.

Fact check

The National Highways Authority of India (NHAI) entered into a construction contract with Korea-based Ssangyong Engineering and Construction Company Ltd (Ssangyong) for the rehabilitation and four-laning of the Jhansi-Lakhanadon section of NH-26. Following this, Ssangyong in turn entered into a sub-contract for carrying out the construction work with an Indian company, Yograj Infrastructure Ltd (Yograj). The contract between Ssangyong and Yograj provided that disputes would be resolved by arbitration in Singapore and that the contract would be governed by the Indian law.

In dispute

In due course, disputes arose between Ssangyong and Yograj with regard to the performance of the contract. Ssangyong terminated the contract on the ground of delay by Yograj in performing the work under the contract. Thereafter, both companies filed applications for interim relief before the District Court at Narsinghpur, Madhya Pradesh. The District Court dismissed the applications and directed the parties to refer the matter to arbitration. Accordingly, the disputes were referred to arbitration in Singapore.

During the course of the arbitration, both parties filed applications for interim relief before the arbitrator.

In his interim order, the arbitrator dismissed Yograj's application for interim relief, but allowed Ssangyong's application. This order of the arbitrator was challenged by Yograj before the Madhya Pradesh High Court and also before the Supreme Court of India. Both challenge applications came to be dismissed.

In the meantime, the arbitration proceedings between the parties continued in Singapore and the arbitrator passed an interim award. This award was challenged by Yograj before the District Court in Narsingpur, which dismissed the application, leading to Yograj filing an appeal before the Madhya Pradesh High Court. The main issue before the High Court was whether the District Court had the jurisdiction to set aside the interim award passed by the arbitrator in the proceedings held in Singapore.

No Say

Courts in India would have no jurisdiction to set aside the award, because the contractual seat of arbitration chosen by the parties was Singapore, and that the arbitration proceedings were consequently governed by the arbitration law of Singapore.

Comment

This decision reaffirms the position taken by courts in India that where the arbitration is seated outside India, and the proceedings are governed by foreign law, Part I of the Indian Arbitration and Conciliation Act stands impliedly excluded. Consequently, courts in India would not have the jurisdiction to set aside awards in such foreign-seated arbitrations. Finally, the decision also highlights the importance of making a choice of a seat/legal place of arbitration, especially where a project is located in India, and involves international parties. The choice of the seat of arbitration is important because it is determinative of not only the courts where the arbitral tribunal's award could be challenged, but, also in most jurisdictions, it determines the nature of interim relief, and identifies the courts that could grant such relief.

The choice of seat by parties assumes greater significance in light of the 2012 decision of the Supreme Court of India in Bharat Aluminium Co vs Kaiser Aluminium Technical Services Inc, where it was held that Indian courts would not have the jurisdiction to grant interim relief in arbitrations where the seat was outside India, and notwithstanding that the assets against which interim relief was sought, is located in India.

About the Author:

Ajay Thomas is Registrar at the London Court of International Arbitration (India). Prior to joining LCIA India, Thomas was Counsel and Head of the South-Asia desk of the Singapore International Arbitration Centre. He has also served as Assistant Counsel with the Singapore Chamber of Maritime Arbitration.