Madras High Court
The Board Of Trustees Of V O ... vs M/S. Psa Sical Terminals Limited on 9 June, 2015
Author: V.Ramasubramanian
Bench: V.Ramasubramanian
In the High Court of Judicature at Madras
Reserved on : 15.04.2015
Pronounced on : 09.06.2015
Coram:
THE HON'BLE MR.JUSTICE V.RAMASUBRAMANIAN
Original Petition No.389 of 2014
The Board of Trustees of V O Chidambaranar
Port Trust, through its Chairman,
Tuticorin - 628 004. ... Petitioner
Versus
1. M/s. PSA SICAL TERMINALS LIMITED,
South India House, 36-40, Armenian Street,
Chennai - 600 001.
2. Hon'ble Mr.Justice (Retd.) R.Balasubramanian
3. Hon'ble Dr.Justice AR Lakshmanan (Retd)
4. Hon'ble Mr.Justice S.Jagadeesan (Retd) ... Respondents
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Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 14.02.2014 passed by the Respondents 2 to 4 and for costs.
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For Petitioner .. Mr.G.Masilamani, Sr.Counsel
For Mr.S.Yashwanth
For Respondent-1 .. Mr.Vijay Narayan, Sr.Counsel
Asst. by Mr.Zerick Dastur
For M/s. Jagar Associates
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O R D E R
This is a petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an award passed by a Tribunal comprising of respondents 2 to 4.
2. I have heard Mr.G.Masilamani, learned senior counsel for the petitioner and Mr.Vijay Narayan, learned senior counsel for the first respondent.
3. The brief facts leading to the petition on hand are as follows:-
(i) After becoming successful in a Global Tender floated by the petitioner for the development of Seventh Berth as a Container Terminal and for the Operations and Maintenance of the same for 30 years on Build Operate and Transfer basis, the first respondent herein was granted a license by the petitioner under an agreement dated 15.7.1998. It is relevant to state here that the first respondent is a Joint Venture between the Port of Singapore Authority and two companies by name The South India Corporation (Agencies) Limited and Nur Investment and Trading Private Limited.
(ii) Under Appendix 12 to the agreement, the first respondent was obliged to pay a royalty to the petitioner every year, for a period of 30 years. The royalty was to increase gradually from year to year.
(iii) In the year 2002, the Tariff Authority for Major Ports issued an order reducing the tariff. Aggrieved by the reduction of tariff, the first respondent filed two writ petitions on the file of this court. The writ petitions ended in a compromise, on the basis of which they were disposed of on 17.8.2005.
(iv) Thereafter, the Ministry of Shipping issued a directive on 17.4.2006 under Section 111 of the Major Ports Act, holding that the first respondent is not entitled to claim royalty as a pass through. Consequently, the Tariff Authority passed a revised tariff order dated 23.8.2006. Once again the first respondent challenged the same by way of a writ petition on the file of this court.
(v) Even during the pendency of the writ petition, the first respondent submitted a representation on 6.10.2006 invoking Article 14 of the Licence Agreement dated 15.7.1998. It was claimed in the representation that in view of the change of law, adversely and substantially affecting the rights of the licensee, an amendment was necessary to the terms of the agreement. But the representation was rejected by the petitioner by an order dated 27.10.2006, on the ground that the issue is subjudice in the writ petition. This order was again challenged by the first respondent before this court in a writ petition in W.P.No.43461 of 2006. The said writ petition was disposed of on 21.8.2007 directing the petitioner to consider the representation afresh. On the very next day namely 22.8.2007, the previous writ petitions of the first respondent were also ordered directing the Ministry of Shipping and the Tariff Authority to consider the matter and pass orders afresh.
(vi) In pursuance of the orders passed in the writ petitions, the Tariff Authority issued revised orders on 30.12.2008. This order dated 30.12.2008 and another order of the Ministry of Shipping became the subject matter of two writ petitions filed by the first respondent in W.P.Nos. 1350 and 1351 of 2009. These writ petitions were allowed by a learned Judge, forcing the Tariff Authority to file an appeal in W.A.No.1845 of 2009. The first respondent also filed an appeal in W.A.No.1961 of 2010 challenging an observation made in the order of the learned Judge.
(vii) But in the year 2012, the first respondent invoked the Arbitration Clause contained in Article 15.3.1 of the licence agreement, by a letter dated 19.11.2012. The first respondent nominated the third respondent herein as their arbitrator. The petitioner nominated the fourth respondent as their arbitrator and both of them nominated the second respondent as the Presiding Arbitrator.
(viii) The sum and substance of the claim of the first respondent before the Arbitral Tribunal was that in terms of Article 14.3 of the licence agreement, the first respondent is entitled to seek a modification of the terms of the licence agreement in accordance with the change in law and that the petitioner herein should be directed to convert from royalty module to revenue sharing module. In other words, the prayer of the first respondent was virtually for a direction to the petitioner herein to rewrite the whole contract, as required by the first respondent on the specious plea that there was a change in law, enabling the first respondent to invoke Article 14.3.
(ix) Though Article 15.3.3 of the licence agreement mandated that the arbitration shall take place in Tuticorin, the arbitrators, in the first meeting held on 6.3.2013 agreed, with the consent of both parties that the Tribunal's sitting shall be at Chennai. Consequently, the entire Arbitral proceedings were conducted at Chennai.
(x) Eventually, the Arbitral Tribunal passed an award on 14.2.2014. By the said award, the Tribunal virtually rewrote the contract between the petitioner and the first respondent and directed the petitioner to switch over from royalty payment module to revenue sharing module. Aggrieved by the award, the petitioner which is a Major Port, has come up with the above petition under Section 34 of the Act.
4. In the meantime something interesting happened. After filing the above petition under Section 34, the petitioner made a claim upon the first respondent as per the existing terms. By a demand made on 11.7.2014, the petitioner demanded from the first respondent a Performance Guarantee for an amount of Rs.84,92,30,679/- for the period from 15.7.2014 to 14.7.2015 apart from payment of an outstanding royalty amount including interest and penalty to the extent of Rs.90,43,14,141/-.
5. Challenging the notice of demand dated 11.7.2014 issued by the petitioner, the first respondent filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 before the Principal District Judge, Tuticorin. But the Principal District Judge returned the application without even numbering it by an order dated 18.7.2014, on the ground that since the petition under Section 34 is pending on the file of this Court, he had no jurisdiction to entertain a petition under Section 9.
6. Challenging the said order of the Principal District Court returning the application of the first respondent filed under Section 9, the first respondent filed an appeal in C.M.A.(MD) No.856 of 2014 on the file of the Madurai Bench of this Court. The appeal was admitted and it is now pending. However, by a detailed order passed on 19.9.2014, the Division Bench of this Court (sitting at Madurai), granted an interim stay of the original demand made by the petitioner on 11.7.2014 with a direction to the first respondent to keep the bank guarantee alive.
7. As against the interim order passed by the Division Bench at Madurai, the petitioner filed a Special Leave Petition in S.L.P.(Civil) No.1526 of 2014. After granting leave, the appeal in C.A.No.3282 of 2015 was disposed of by the Supreme Court by an order dated 31.3.2015, requesting this court to dispose of the objection to the award filed under Section 34, at least by the end of July 2015. But as an interim measure the first respondent was directed to deposit a sum of Rs.10.00 Crores.
8. In its order dated 31.3.2015, the Supreme Court has directed this Court to consider all issues including the jurisdictional facet. Therefore, the learned senior counsel for the first respondent raised the question of maintainability of the above Original Petition on the file of this court and advanced arguments only on the issue of jurisdiction. Since the issue of jurisdiction is raised on the basis of a statutory mandate under section 42 of the Act, I have taken up that alone for a decision now, keeping aside all other grounds of challenge to the award for the present.
9. The issue of jurisdiction is raised by the first respondent on a very simple ground namely that the earliest application arising out of the arbitration agreement, was filed in the Principal District Court, Tuticorin and that therefore by virtue of Section 42 of the Act, even a petition under Section 34 of the Act had to be filed only before the said court and not anywhere else.
10. It is an admitted fact that the first application arising out of the arbitration agreement was filed under Section 9 of the Act before the Principal District Court, Tuticorin in Arbitration O.P.No.191 of 2011. The said application was allowed by the Principal District Court by an order dated 30.4.2012, granting an injunction in favour of the first respondent herein. The said order has become the subject matter of appeal in C.M.A.(MD) No.1131 of 2012 before the Madurai Bench of this court. It is now pending. However, we are not concerned with the same.
11. Therefore, the contention of the first respondent is that once the first application under the Act is taken out before a particular court, it is only that court which will have exclusive jurisdiction to entertain all further petitions under the Act, by virtue of Section 42.
12. However, the above objection of the first respondent is sought to be repelled by the petitioner on two short grounds :
(a) that at the time of first sitting of the Arbitral Tribunal at Chennai, the parties agreed to change the place as stipulated in Article 15.3.3. from Tuticorin to Chennai, thereby creating a novation of contract; and
(b) that once a novation takes place, any application filed thereafter will be the first application of its kind under the amended agreement, making Section 42 inapplicable.
13. Therefore, two issues arise for consideration with regard to the jurisdiction of this court to entertain the above main petition and they are:-
(i) Whether what transpired in the first sitting of the Arbitral Tribunal could be taken to be a novation; and
(ii) What is the effect of Section 42 irrespective of whether there was novation or not.
ISSUE (i) (NOVATION) :
14. A plea of novation is taken by the petitioner, on the basis of something that transpired in the first sitting of the Arbitral Tribunal. Therefore, to see whether there was any novation or not, we must look into what transpired before the Tribunal.
15. In the meeting of the Arbitrators held on 6.3.2013, a decision was taken to hold the sittings of the Arbitral Tribunal at Chennai. The relevant portion of the record of proceedings made by the Arbitral Tribunal on 6.3.2013 is as follows:-
"3. None of the parties expressed any objection to the constitution of the present Arbitral Tribunal or objections as to the Arbitration clause or the Arbitrability of the matter by this Tribunal. By consent of the respective parties and their counsel it is agreed that the venue of the Arbitral Tribunal's sitting at 'Chennai' though contract provides at 'Tuticorin'."
16. To see whether what is recorded above would constitute novation or not, we must first understand what is novation and when it takes place. Section 62 of the Indian Contracts Act speaks of novation. It reads as follows:-
"62. Effect of novation rescission and alteration of contract.
If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed."
17. In Ram Dayal v. Maji Devdiji [AIR 1956 Raj. 12], the Rajasthan High Court interpreted Section 62 of the Contract Act to mean that in order to have a novation, the parties must agree to the extinguishment or discharge of the old debt or obligation. A novation may take place by the introduction of new parties or new terms into the contract. Therefore, the test is as to what was the intention of the parties and whether they intended to bring about a new and altered contract between themselves.
18. In Godan Namboothiripad v. Kerala Financial Corporation [AIR 1998 Kerala 31], the Kerala High Court quoted the following passage from Pollack & Mullah in their Indian Contract and Specific Reliefs Act 10th Edition "meaning of novation".
"The meaning of "novation", the term used in the marginal note to the Section, and now the accepted catchword for its subject matter, has been thus defined in the House of Lord: "that, there being a contract in existence, some new contract substituted for it either between the same parties (for that might be) or between different parties, the consideration mutually being the discharge of the old contract. Novation of a contract comprises two elements: the discharge of one debt or the debtor or substitution of a new debt or debtor, the discharge is governed by the proper law of the contract. A substituted contract should rescind or extinguished the previous contract. The terms of the two contracts should be so inconsistent that they cannot stand together. Novation under Section 62 is brought about by (a) introduction of new parties; or (b) by alteration between the same parties by introduction of new terms. It is not inconsistent with the original debtors remaining liable on the old contract. Substitution of a new contract is the core of novation. Its essential feature is that a right under the original contract is relinquished or replaced by a new contract. Where these essentials are missing there is no novation."
19. In P.Velumani v. K.A.Noorjahan [(2009) 8 MLJ 161], this Court pointed out that novation is a new promise which is accepted in satisfaction of a previously existing claim while an accord and satisfaction itself is not a new promise but the performance of the new promise that is accepted as satisfaction. This Court further pointed out that in common law novation is brought about by the introduction of new parties or alteration between the same parties by an introduction of new covenants.
20. In Lata Construction v. Rameshchandra Ramniklal [(2000) 1 SCC 586], the Supreme Court pointed out that one of the essential requirements of novation, as contemplated by Section 62, is that there should be complete substitution of a new contract in place of the old.
21. In BSNL v. BPL Mobile Cellular Limited [(2008) 13 SCC 597], the Supreme Court pointed out that any novation in the contract was required to be done on the same terms as are required for entering into a valid and concluded contract.
22. In H.R.Basavaraj v. Canara Bank [(2010) 12 SCC 458], the Supreme Court pointed out that the basic principle behind the concept of novation is the substitution of a contract by a new one, only through the consent of both the parties to the same. The court also indicated that Section 62 gives a statutory form to the common law principle. In para 18 of the decision, the Supreme Court quoted with approval, the definition of the expression, as given by the House of Lords in Scarf v. Jardine, which reads as follows:-
"...... that there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties; the consideration being the discharge of the old contract."
23. In H.R.Basavaraj, the Supreme Court cited with approval the ratio in Lata Construction to the effect that "if the rights under the old contract were kept alive even after the second agreement and rights under the first agreement had not been rescinded, then there was no substitution of contracts and hence no novation."
24. Keeping the above fundamental principles relating to novation in mind, if we have a look at the agreement entered into between the parties, it is seen that the arbitration agreement entered into between the parties forms part of a composite contract known as "Build, Operate and Transfer License Agreement". It was dated 15.7.1998. The entire agreement was divided into six Parts, apart from 21 Appendices. Part I of the License Agreement dealt with "The License", Part II dealt with "The construction of the Container Terminal, Part III dealt with "Operation, Maintenance, Repair and Replacement", Part IV dealt with "Transfer of the Container Terminal", Part V dealt with "General Obligations of the Parties" and Part VI dealt with "Dispute Resolution". In other words, the arbitration agreement between the parties is incorporated in Part VI of the License Agreement dated 15.7.1998. There are two Articles in this Part, namely Articles 15 and 16, each of which contains some Sub-articles. The terms and conditions of the arbitration agreement, are found in Article 15.3. While Article 15.3.1 deals with the procedure for appointment of Arbitrators, Article 15.3.2 indicates the language of arbitration, Article 15.3.3 indicates the place of arbitration, Article 15.3.4 deals with fees and expenses and Article 15.3.5 deals with performance during arbitration. Article 15.3, in entirety, is re-produced as follows:
"15.3. Arbitration 15.3.1 Arbitrators Failing Amicable Settlement, the dispute or differences or claim as the case may be, except the matters covered under Article 15.2 of this Agreement and/or where the Licensor's decision is final and binding under the provisions of this Agreement, shall be referred to the Chairman of The Port for his/her decision who shall on receipt of notice of any dispute, difference or claim give his/her decision within 60 Days after receipt thereof by him. If the Chairman does not give any decision within 60 Days, and/or if either Party is not satisfied with the decisions of the Chairman, the dispute may be referred to arbitration within 90 Days after the expiry of 60 Days as referred to above to two arbitrators, one to be appointed by each Party and a third Arbitrator to be appointed by the two arbitrators appointed by the Parties. Arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (India) or any statutory amendments or modifications thereof. A Party requiring arbitration shall appoint an Arbitrator in writing and inform the other Party about the said appointment calling upon such other Party to appoint its Arbitrator within 30 days from the receipt of letter. If the Other Party fails to appoint its Arbitrator, the Party appointing Arbitrator shall take steps in accordance with Arbitration and Conciliation Act, 1996.
15.3.2 Language of Arbitration The arbitration proceedings shall be conducted in the English language.
15.3.3 Place of Arbitration The arbitration shall take place in Tuticorin, India.
15.3.4 Fees and Expenses The fees and expenses of the arbitrators and all other expenses of the arbitration shall be initially borne and paid by respective Parties subject to determination by the arbitrators. The arbitrators may provide in the arbitral award for the reimbursement to the prevailing party of its costs and expenses in bringing or defending the arbitration claim, including legal fees and expenses incurred by Party.
15.3.5 Performance during Arbitration Pending the submission of and/or decision on a dispute, difference or claim or during the pendency of the arbitration until the arbitral award is published, the Parties shall continue to perform all of their obligations under this Agreement without prejudice to a final adjustment in accordance with such award."
25. Before proceeding further, it is also necessary to take note of Article 16.6, which deals with non waiver. It states that no waiver of any term or condition or breach of this agreement shall be valid except by an instrument in writing expressly waiving such term or condition signed by the waiving party. Unless otherwise specifically provided in writing, a waiver by any party of any term or condition of this agreement, in a given case, shall not be deemed or construed as a general waiver of such term or condition in the future.
26. Keeping Article 15.3 in mind, if we now go back to what happened in the first sitting of the Arbitral Tribunal, it can be found that by consent of parties, it was agreed that the venue of the Arbitral Tribunal's sitting was fixed at Chennai though the contract provided the same as Tuticorin. In other words, whatever had happened on 06.3.2013 can only be stated to be a modification of Article 15.3.3. As a matter of fact, the parties did not specifically agree to completely amend Article 15.3.3. The Arbitral Tribunal did not record that Article 15.3.3 shall be replaced by a new clause. The Arbitral Tribunal did not also state that the word "Tuticorin" appearing in Article 15.3.3 should stand deleted and substituted by the word "Chennai". What was agreed was only to have the venue as Chennai though the contract provided the venue as Tuticorin. Therefore, the decision taken by consent on 06.3.2013 will not by any stretch of imagination fall under the category of novation. To be a novation, many more things should have happened than the mere change of venue in Article 15.3.3. This change of venue has also taken place not by way of any amendment.
27. Take for instance Article 15.3.2. It says that the arbitration proceedings shall be conducted in the English language. In case in one of the meetings of the Arbitral Tribunal, the parties consent to have proceedings in a language other than English, would it tantamount to a novation of the contract. Certainly not. Similarly, Article 15.3.4 lays down the manner in which the fees and expenses of the arbitrators and all other expenses of arbitration should be borne and paid. If, for instance, the parties agree by mutual consent in one of the sittings that the fees and expenses will be borne by one party and that it would be shared by the other party in an unequal manner, can it be said that there was a novation. We may even take a case of Article 15.3.5 which obliges both parties to continue to perform all of their obligations without prejudice to a final adjustment in accordance with the award. In case the parties decide by mutual consent, that both would cease to perform their obligations pending arbitration, then would it become a case of novation.
28. Therefore, it is clear that every change brought forth by mutual consent to an arbitration agreement, cannot be said to be a novation of the arbitration agreement. As a matter of fact, Article 15.3.1 mandates a reference of the dispute first to the Chairman of the Port. A time limit is fixed for the Chairman to give his decision. Suppose these time limits are modified by consent, such modification would not also qualify for being called a novation.
29. As rightly contended by Mr.Vijay Narayan, learned senior counsel for the first respondent, there is a difference between situs of arbitration and the place of sitting of the Tribunal. Section 20(1) of the Arbitration and Conciliation Act, 1996, enables the parties to agree on the place of arbitration. If the parties cannot agree, the Arbitral Tribunal itself is empowered under Sub-section (2) of Section 20 to determine the place of arbitration, depending upon two things, namely (a) the circumstances of the case, and (b) the convenience of the parties. Interestingly, the Arbitral Tribunal is not directed by Section 20(2) of the Act to take note of any principle of law that would govern the question of territorial jurisdiction, such as the cause of action or the situs of the subject matter, etc. The Arbitral Tribunal is free to decide the place of arbitration, only on the basis of the circumstances of the case, including the convenience of the parties.
30. Having given a free hand to the parties under Sub-section (1) and having given a free hand to the Arbitral Tribunal under Sub-section (2) to fix the venue, the Legislature has gone a step further under Sub-section (3), empowering the Tribunal to meet at any place it considers appropriate for consultation among its members, for hearing the witnesses, experts or parties or for inspection of documents, goods or other property. But, this power of the Tribunal is restricted by the phrase "unless otherwise agreed by the parties". In other words, the parties, by mutual agreement, restrict the power of the Arbitral Tribunal to decide the place of arbitration. This is due to the fact that the very jurisdiction of the Arbitral Tribunal stems out of contract and hence, the Tribunal cannot act beyond the scope of the contract.
31. In Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., [(2012) 9 SCC 552], the Supreme Court considered in elaborate detail the scope of Section 20 and the distinction between situs and venue. The relevant portion of the decision in Bharat Aluminium is as follows:
"96. Section 2(1)(e) of the Arbitration Act, 1996 reads as under:
2. Definitions.(1) In this Part, unless the context otherwise requires
(a)-(d) * * *
(e) Court means the Principal Civil Court of Original Jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such Principal Civil Court, or any Court of Small Causes; We are of the opinion, the term subject-matter of the arbitration cannot be confused with subject-matter of the suit. The term subject-matter in Section 2(1)(e) is confined to Part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. In our opinion, the provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the learned counsel for the appellants would, in fact, render Section 20 nugatory. In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process. For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, (Delhi having been chosen as a neutral place as between a party from Mumbai and the other from Kolkata) and the tribunal sitting in Delhi passes an interim order under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order under Section 37 must lie to the courts of Delhi being the courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi. In such circumstances, both the courts would have jurisdiction i.e. the court within whose jurisdiction the subject-matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution i.e. arbitration is located.
97. The definition of Section 2(1)(e) includes subject-matter of the arbitration to give jurisdiction to the courts where the arbitration takes place, which otherwise would not exist. On the other hand, Section 47 which is in Part II of the Arbitration Act, 1996 dealing with enforcement of certain foreign awards has defined the term court as a court having jurisdiction over the subject-matter of the award. This has a clear reference to a court within whose jurisdiction the asset/person is located, against which/whom the enforcement of the international arbitral award is sought. The provisions contained in Section 2(1)(e) being purely jurisdictional in nature can have no relevance to the question whether Part I applies to arbitrations which take place outside India.
98. We now come to Section 20, which is as under:
20. Place of arbitration.(1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the Arbitral Tribunal having regard to the circumstances of the case, including the convenience of the parties.
(3) Notwithstanding sub-section (1) or sub-section (2), the Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property. A plain reading of Section 20 leaves no room for doubt that where the place of arbitration is in India, the parties are free to agree to any place or seat within India, be it Delhi, Mumbai, etc. In the absence of the parties agreement thereto, Section 20(2) authorises the tribunal to determine the place/seat of such arbitration. Section 20(3) enables the tribunal to meet at any place for conducting hearings at a place of convenience in matters such as consultations among its members for hearing witnesses, experts or the parties.
99. The fixation of the most convenient venue is taken care of by Section 20(3). Section 20, has to be read in the context of Section 2(2), which places a threshold limitation on the applicability of Part I, where the place of arbitration is in India. Therefore, Section 20 would also not support the submission of the extra-territorial applicability of Part I, as canvassed by the learned counsel for the appellants, so far as purely domestic arbitration is concerned.
100. True, that in an international commercial arbitration, having a seat in India, hearings may be necessitated outside India. In such circumstances, the hearing of the arbitration will be conducted at the venue fixed by the parties, but it would not have the effect of changing the seat of arbitration which would remain in India. The legal position in this regard is summed up by Redfern and Hunter, The Law and Practice of International Commercial Arbitration (1986) at p. 69 in the following passage under the heading The Place of Arbitration:
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 the reference or the minutes of proceedings or in some other way as the place 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 meetingsor even hearingsin 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 countryfor 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 the arbitration remains the place initially agreed by or on behalf of the parties. This, in our view, is the correct depiction of the practical considerations and the distinction between seat [Sections 20(1) and 20(2)] and venue [Section 20(3)]. We may point out here that the distinction between seat and venue would be quite crucial in the event, the arbitration agreement designates a foreign country as the seat/place of the arbitration and also selects the Arbitration Act, 1996 as the curial law/law governing the arbitration proceedings. It would be a matter of construction of the individual agreement to decide whether:
(i) the designated foreign seat would be read as in fact only providing for a venue/place where the hearings would be held, in view of the choice of the Arbitration Act, 1996 as being the curial law, OR
(ii) the specific designation of a foreign seat, necessarily carrying with it the choice of that countrys arbitration/curial law, would prevail over and subsume the conflicting selection choice by the parties of the Arbitration Act, 1996.
Only if the agreement of the parties is construed to provide for the seat/place of arbitration being in India would Part I of the Arbitration Act, 1996 be applicable. If the agreement is held to provide for a seat/place outside India, Part I would be inapplicable to the extent inconsistent with the arbitration law of the seat, even if the agreement purports to provide that the Arbitration Act, 1996 shall govern the arbitration proceedings."
Therefore, it is clear that merely because the parties agreed to have the sitting of the Arbitral Tribunal only at Chennai, it cannot be said that the arbitration agreement itself underwent a complete change and a novation took place.
32. Mr.G.Masilamani, learned senior counsel for the petitioner submitted that the decision in Bharat Aluminium Co. cannot be applied in view of the direction contained in the last paragraph of the judgment to the effect that the law declared therein would apply prospectively. Paragraph 197 of the report in Bharat Aluminium Co. relied upon by the learned senior counsel for the petitioner reads as follows:
"197. The judgment in Bhatia International was rendered by this Court on 13-3-2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by this Court on numerous occasions. In fact, the judgment in Venture Global Engg. has been rendered on 10-1-2008 in terms of the ratio of the decision in Bhatia International. Thus, in order to do complete justice, we hereby order, that the law now declared by this Court shall apply prospectively, to all the arbitration agreements executed hereafter."
33. But, I do not think that the principle of prospective overruling adopted in Bharat Aluminium Co. is of any consequence to the case on hand. I have extracted paragraphs 96 to 100 of the decision in Bharat Aluminium Co. only for the limited purpose of showing how Section 20 has come to be interpreted. I am not deciding the fate of this case on the basis of the decision in Bharat Aluminium Co.. Hence, the first issue is answered against the petitioner.
ISSUE (ii) - EFFECT OF SECTION 42:
34. Coming to the second issue, it is contended by Mr.Vijay Narayan, learned senior counsel for the first respondent that the mandate of Section 42 of the Arbitration and Conciliation Act would apply even if there was a novation. Section 42 reads as follows:
"42.Jurisdiction:- Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court."
35. The scope of Section 42 indicated by the Supreme Court in State of West Bengal v. Associated Contractors [(2015) 1 SCC 32] reads as follows:
"11. It will be noticed that Section 42 is in almost the same terms as its predecessor section except that the words "in any reference" are substituted with the wider expression "with respect to an arbitration agreement". It will also be noticed that the expression "has been made in a court competent to entertain it", is no longer there in Section 42. These two changes are of some significance as will be pointed out later. Section 42 starts with a non obstante clause which does away with anything which may be inconsistent with the section either in Part I of the Arbitration Act, 1996 or in any other law for the time being in force. The expression "with respect to an arbitration agreement"widens the scope of Section 42 to include all matters which directly or indirectly pertain to an arbitration agreement. Applications made to courts which are before, during or after arbitral proceedings made under Part I of the Act are all covered by Section 42. But an essential ingredient of the section is that an application under Part I must be made in a court."
36. Therefore, it is contended by Mr.Vijay Narayan, learned senior counsel for the second respondent that even if a novation did in fact take place, the statutory mandate would hold good. But, I think that it will be an extreme proposition. As rightly pointed out by Mr.G.Masilamani, learned senior counsel for the petitioner, the word "agreement" appears twice in Section 42. In the first place, it appears by way of reference, in relation to an application under Part I of the Act. In the second place, the word "agreement" appears with particular reference to an agreement referred to in the first place.
37. To put it differently, Section 42 states that if an application under Part I had been made in a Court with respect to "an arbitration agreement", then, it is that Court alone which will have jurisdiction over the arbitral proceedings as well as of subsequent applications arising out of "that agreement". The expression "that agreement" connotes the agreement out of which the earliest application arose. Therefore, if the original arbitration agreement had really undergone a complete change leading to novation, Section 42 will have application only to the proceedings that take place after such novation. Let us take for instance a case where an application under Section 9 is filed in a Court and arbitral proceedings are initiated. During the course of the arbitral proceedings, a settlement is reached and the parties enter into a fresh contract which contains an arbitration agreement. If such a fresh contract containing an arbitration agreement leads to a fresh dispute, Section 42 will have no application to the first application filed in relation to a fresh dispute. This is for the reason that this will be the first application in relation to a new dispute. Therefore, it is clear that if and when a novation actually takes place, Section 42 cannot be invoked. But, this question has become one of mere academic importance in this case in view of my finding on the first issue.
38. Therefore, in view of my finding on the first issue that there was no novation, the petitioner ought not to have filed this petition under Section 34 before this Court. The petitioner ought to have filed this original petition only before the Principal District Court, Tuticorin. Therefore, office is directed to return this original petition to the petitioner, so as to enable them to present the original petition before the Principal District Court, Tuticorin. The petitioner is granted time till 30.6.2015 (in view of the ensuing summer vacation) to take back the original petition and re-present the same before the Principal District Court.
Index : Yes 09.6.2015. Internet : Yes gr/kpl V.RAMASUBRAMANIAN,J. gr/kpl Order in O.P.No.389 of 2014. 09.6.2015.