BALCO’s ‘Error’ Amplified: The Supreme Court in Indus Mobile – Part II

following post is contributed by Puneet
, who is a III year student at the National Law University, Delhi. He
can be reached at
[email protected].
first part in the series can be accessed here.]
In the earlier post, I had covered the First Idea that gets picked up in Indus Mobile and had argued that the Court gets the position of law
correct. In this post, I will analyze the Second
Idea to understand whether any
judicial coherence can be maintained.
Second Idea (aligning with Paramita Constructions)
In paragraph 20 of the judgment itself, the Court makes the following
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
.’ (emphasis added)
The Court enters muddled waters disturbing the
delicate balance arrived at by the combined reading of BALCO, Balaji Coke and A.B.C Laminart. The Court, while
proposing the Second Idea, aligns itself
to a series of decisions rendered by the Supreme Court in Balaji
and Andhra Pradesh High court in Paramita Constructions
and Salarjung Museum [2010] (1) ALT 435. These cases explore a position of law by conflating the
conceptual understanding of ‘arbitral seat’ in international and domestic
arbitration. The Second Idea,
therefore, links the ‘arbitral seat’ to the court at the place of the arbitral
In Paramita
the dispute resolution
clause indicated the following:
The place of
arbitration shall be: …Bangalore for all other Disputes including related
The clause mentions merely the place of arbitration as Bangalore. The Court
in Paramita Constructions draws the
link between the place of arbitration and the jurisdiction of the court at the
place of arbitration to hold that courts at Bangalore will be the competent
court to hear the disputes arising out of the agreement.
The Second idea
in Indus Mobile, therefore, aligns
with the Court’s philosophy in Paramita
, as it places exclusive jurisdiction upon the court at the
‘arbitral seat’ in domestic arbitration.
Can the Second Idea be rescued from judicial scrutiny?
While Paramita
and Balaji Coke
might hold a similar position, it is important to note some factual and
judicial observations in both these cases. In Paramita Constructions, Bangalore (the place of arbitration) was
the place of the defendant’s registered office, and payments and execution of
documents took place in Bangalore. Balaji
, on the other hand, confers jurisdiction to Kolkata (place of
arbitration) after evaluating the position of law developed in
Hakam Singh and
A.B.C Laminart. Both these cases stand for
the position that exclusive jurisdiction can be chosen by the parties, provided
those courts had jurisdiction to begin with. In Balaji Coke, Kolkata was not a neutral venue as the defendants had
their registered office in Kolkata. As we can see, Balaji Coke and Paramita
were not cases wherein the place of arbitration was ‘neutral’.
In such a case, Indus Mobile can be
differentiated on facts. Apart from the factual distinction, the highest
judicial value from this position happens to be a division bench of the Supreme
Court (Balaji Coke) which cannot
alter the position of BALCO
(five-judge bench decision). This brings to me to my final analysis in this
part, whether paragraphs 96/97 constitute the ratio of BALCO?
Recall that BALCO’s primary motivation was to further the argument that Parts I
and II of the Arbitration Act are mutually exclusive. Most of the observations
merely further this argument, and BALCO
is also in agreement with it. In paragraph 97 of the judgement, the court
observes (after deliberating on the meaning and the effect of Section 2(1)(e)) that:
‘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.’ (emphasis supplied)
This leaves us with a question: if BALCO was constituted to hear the applicability
of Part I, and Para 96/97 explanation has no relevance to the applicability of
Part I, does the observation on jurisdiction hold any relevance?
Moving away from BALCO: The conflict between the First
and the Second Idea
(combined reading of BALCO and A.B.C Laminart)
In this hypothetical, courts in Mumbai (place
of arbitration), Delhi and Chennai (place of cause of action) have competent
jurisdiction. The law provides the
option for the parties to choose one of the competent jurisdictions
and Paramita Constructions)
In this hypothetical, Mumbai by virtue of
being the place/seat of arbitration will have exclusive jurisdiction over all
the disputes arising from the agreement. The position of law here is
diametrically opposite to the one in the First
as it eliminates the choice
of parties to access other competent jurisdictions
. While BALCO, in clear terms, held that two
types of courts have jurisdiction (courts at place of arbitration and
cause of action), Indus Mobile
eliminates one type and holds that court at the place of arbitration has exclusive jurisdiction.
, therefore commits an error in holding that ‘…the moment “seat” is determined,
(it)…would vest Mumbai courts with exclusive jurisdiction for purposes of
regulating arbitral proceedings.
’ In effect, it alters paragraphs
96/97 of BALCO’s logic and therefore,
stands to be nullified.
Observation on the role of CPC, 1908
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
.’ (emphasis added)
The Court attempts to distinguish between the
law of arbitration and the CPC. As noted in the earlier post, it is precisely
this distinction that lies at the heart of most cases adopting the BALCO logic. Indus Mobile happens to be the first case that expresses this implication
of BALCO’s logic. There are certainly
arguments that can be advanced to deviate from CPC rules. Clues can be taken
from Adhunik Steels and Arvind Constructions on their discussion on providing ‘special
procedure or set of rules’ to a court
following ordinary rules. There has
been some tendency to depart from the CPC rules in matters concerning the
jurisdiction of the ‘court’. The Supreme Court’s approach in
is a case
in point. The
Court was called upon to determine the conflicting
jurisdiction of a District Court in Thane and the High Court of Mumbai. It
conferred jurisdiction on the Mumbai High Court, departing from section 15 CPC.
recommendation and ‘intention’ of the legislature
The court lastly adopts a convoluted (and, in my
opinion, unnecessary) reasoning to further justify the importance of arbitral
seat. It extracts the recommendation of the Law Commission of India (LCI) in
its 246th
as far as it concerns the emphasis on ‘arbitral seat’ and notes that
the legislature has intentionally omitted to include the recommendations as ‘BALCOin no uncertain terms has referred to “place” as “juridical seat” for
the purpose of Section 2(2) of the Act
.’ It is certainly surprising that
the Court notes the recommendations of the LCI and then proceeds to take
support in those recommendations despite them not being incorporated in the
amendment. On this note, it is interesting to examine the arguments adopting
the counter-logic to further arguments hypothesizing the same ‘intention’ of
the legislature. I make specific reference to the amended version of section 2(2)
of the Arbitration Act which adopted the language suggested in the LCI report
except for the word ‘express
preceding the word ‘agreement’. There is another academic debate (hopefully,
not a judicial one) on whether non-inclusion (of a single word) of LCI’s
recommendation in the amendment reflects a clear intention of the legislature
to derogate from the recommendation? (academic research on this query can be
accessed here
and here).
Intention’ of the legislature must
certainly top the list as one of the most abused interpretative tools!
In conclusion, (a) Indus Mobile continues to commit BALCO’s error as far as conferment of
jurisdiction in domestic arbitration is concerned; (b) Indus Mobile conflates two distinct conceptual theories on arbitral
seat and in that process alters BALCO’s
logic; and (c) reliance on LCI recommendations does not assist the court in
making the case for exclusive jurisdiction to the court at the arbitral seat in
domestic arbitrations.

– Puneet Dinesh

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • READ , – “…LCI recommendation and ‘intention’ of the legislature…..”
    The writer’s high sounding rebuff that, – “ ‘Intention’ of the legislature must certainly top the list as one of the most abused interpretative tools!”, in a matter of intimate viewing, stops short of touching even the proverbial ‘tip of the ice berg’. As is commonly known, and widely acknowledged, in eminent legal circles, credit has to go to the law making men and machinery in place, for ages now. The root cause lies in inept and most often impulsive drafting; in that, no care having been taken by the men on the job / in the hierarchy, to draft in a manner leaving the least scope for mostly lawyer stimulated disputes and inconclusive court litigation.
    Being tired of sharing at great length, again and again, the surrounding unsavoury realities, may confine self, to simply draw attention to the random selected material:

    For MORE:…

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