‘Seat’ of Arbitration & its relation with Jurisdiction of Courts.

Domestic arbitration, with which we are concerned, are regulated by Part I of the Arbitration and Conciliation Act, 1996 [“Act of 1996”]. Section 2(2) states that Part I applies where the ‘place’ of arbitration is in India1. Therefore, arbitration proceedings which takes place in India and where disputes are decided in accordance with the substantive laws of India is referred to as ‘domestic arbitration’. The Act of 1996 gives complete autonomy to the parties inter alia to decide where they want the arbitration proceedings to take place or where, it should be seated. In the absence thereof, the arbitral tribunal has the power to decide the place of arbitration2. The purpose of deciding on a place of arbitration is that the parties agree to confer jurisdiction on a Court, within whose territory the arbitration proceedings is to be held, so that any subsequent challenge to the arbitral award or enforcement of arbitral award can be made before that particular Court. It is a settled law that the High Court has supervisory jurisdiction or control over all tribunals and courts subordinate to it within its territorial limits3. However, the issue which is to be considered is whether, in a domestic arbitration, the parties by virtue of an arbitration agreement can confer jurisdiction on a Court where no part of cause of action has arisen? In other words, whether the principles of Code of Civil Procedure, 1908 [“CPC”] regarding conferment of jurisdiction on Courts (Section 16 to 20 of CPC) can be given a complete go-bye by the parties to the arbitration agreement and jurisdiction can be conferred on a Court located at a neutral place from where no parties belong or where no cause of action has arisen? When the provisions of the CPC are applicable, it is no longer res integra that for deciding which Court will have the jurisdiction to entertain a petition or application or suit, the principles as laid down therein have to be followed and the Hon’ble Supreme Court of India in catena of judgments have held that parties by consent, cannot confer jurisdiction on a Court where no part of cause of action has arisen. Therefore, if a Court inherently lacks jurisdiction, parties by consent cannot confer jurisdiction4. However, in cases where two or more Courts have jurisdiction that is, part of cause of action has arisen within the territorial limits of two or more Courts then, the parties, by agreement, can agree to confer jurisdiction on one of the courts5. Thus, for conferring jurisdiction upon a particular Court, it is important to see whether any cause of action has arisen within its jurisdiction or not. However, when it comes to domestic arbitration, Section 19(1) of the Act of 1996 specifically excludes the applicability of the provisions of the CPC in as much as it states that the arbitral tribunal shall not be bound by its provisions. Thus, exclusion of CPC is limited to the proceedings before the arbitral tribunal. Further, Section 20 (1) and (2) thereof, gives autonomy to the parties or the arbitral tribunal to decide on the ‘place’ of arbitration and Section 30(4) states that the arbitral award shall mention its date and place of arbitration. Therefore, what is important to be considered is when parties are given complete autonomy to decide on the place of arbitration and the provisions of the CPC are not applicable, then how jurisdiction is to be conferred upon a Court? For this, it is necessary to peruse the meaning of ‘Court’ as defined under Section 2(1)(e)(i) of the Act of 1996. Section 2(1)(e)(i) defines “Court” and the same reads as under: “(e) “Court” means -  (i) In the case of an arbitration other than international commercial arbitration, 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;”  (emphasis supplied)  The Constitution Bench of the Hon’ble Supreme Court of India in Bharat Aluminium Col. (BALCO) v. Kaiser Aluminium Technical Service, Inc.6, interpreted Section 2(1)(e)(i) of the Act of 1996 in context of domestic arbitration. Paragraphs 96 and 97 of the judgment are of great significance and hence, are reproduced as under: “96. …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…  (emphasis supplied)  While delivering the judgment in BALCO, the Hon’ble Supreme Court referred to the judgments laid down by the Court of Appeal, England in A v. B7, C v. D8 and Shashoua v. Sharma9, wherein it was held that an agreement as to the ‘seat/place’ of an arbitration was analogous to an exclusive jurisdiction clause and it follows from this that a choice of ‘seat/place’ for the arbitration must be a choice of forum for remedies seeking to attack the award. Though, these judgments were referred and used in the context of determining ‘juridical seat’ in case of international arbitration but, the ratio which can be culled from the judgments, above referred, is that parties to the arbitration agreement can choose a neutral ‘seat/place’ of arbitration even if no part of cause of action has arisen there. Therefore, under the Act of 1996, jurisdiction can be conferred on a Court within whose jurisdiction the subject matter of suit is situated i.e. where cause of action has arisen and also, upon a Court within whose jurisdiction the ‘seat/place’ of arbitration is located.  The judgment rendered in BALCO (Supra), was relied upon by the Hon’ble Supreme Court of India in Enercon (India) Ltd. & Ors v. Enercon GmbH and Anr10 wherein, it extended the scope of ‘seat/place’ of arbitration and held that neutral place can be chosen by the parties where arbitration proceedings could be anchored to the place of arbitration. Further, in Reliance Industries Ltd. v. Union of India11, the law laid down in BALCO and Enercon case were again echoed and it was made clear that ‘juridical seat’ is nothing but ‘legal place’ of arbitration and is analogous to an exclusive jurisdiction clause. These rulings were again referred to in Indus Mobile Distribution Private Limited v. Datawind Innovations Pvt. Ltd. & Ors12. In the said case, there was an agreement between the parties whereunder certain goods were to be supplied to the appellants by Respondent No.1 at Chennai from New Delhi and the Head Office of the appellant was at Amritsar. However, in the arbitration agreement, the parties agreed that the place of arbitration shall be Mumbai and courts in Mumbai alone shall have exclusive jurisdiction. Disputes arose between the parties and Respondent No.1 filed applications before the Delhi High Court under Section 9 and Section 11 of the Act of 1996 seeking certain reliefs. Both the applications were disposed of by the Delhi High Court and it was specifically held that courts in Mumbai will not have jurisdiction since no part of cause of action has arisen within its territory and it is only the Courts in Delhi, Chennai and Amritsar which will have jurisdiction. However, relying upon the above precedents and the 246th Law Commission Report (August, 2014) which recognized the concept of ‘seat/place’ and ‘venue’ of arbitration in India, the Hon’ble Supreme Court specifically held that the moment the ‘seat/place’ of arbitration is designated, it is akin to an exclusive jurisdiction clause and only Courts in Mumbai will have the exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties. Therefore, unlike the CPC which applies to suits filed in courts, a reference to ‘seat/place’ is a concept by which a neutral venue can be chosen by the parties to an arbitration clause irrespective of whether cause of action has arisen or not at such neutral venue and, the provisions of Sections 16 to 20 of CPC will not be attracted. Hence, from the above precedents, it becomes amply clear that designation of ‘seat/place’ of arbitration in the arbitration agreement will over-ride the provisions of CPC for the purpose of conferring jurisdiction on Court. Further, in Brahmani River Pellets Ltd. v. Kamachi Industries Ltd.13 also, the Hon’ble Supreme Court was faced with an identical issue as to whether the Madras High Court will have the jurisdiction to entertain an application under Section 11 of the Act of 1996 when the parties, under the arbitration clause, agreed that the ‘venue’ of arbitration shall be Bhubaneswar. The arbitration clause did not mention anything regarding the ‘seat/place’ of arbitration. The High Court entertained the application on the ground that it will also have jurisdiction since the goods were to be delivered in Chennai/Ennore Ports. While setting aside the decision of the Hon’ble Madras High Court, the Hon’ble Supreme Court held that: “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, non-use of words like “exclusive jurisdiction”, “only”, “exclusive”, “alone” is not decisive and does not make any material difference.”  (emphasis supplied)  It is in BGS SGS Soma JV v. NHPC Ltd.14 (3J) that the Hon’ble Supreme Court finally settled the legal issue with respect to territorial jurisdiction of a Court to entertain a petition under Section 11 of the Act of 1996 when either ‘seat/place’ of arbitration is mentioned or, ‘venue’ of arbitration is mentioned or, both ‘seat/place’ and ‘venue’ of arbitration are mentioned in the arbitration clause. In this case, the Supreme Court analyzed the definition of ‘Court’ under Section 2(e) of the Act of 1996 as well as Section 20 relating to the place of arbitration by placing reliance on the judgments cited above and laid down the tests for determination of the seat. The arbitration clause for consideration stated that the arbitration proceedings shall be held at New Delhi/Faridabad. When the dispute arose between the parties, the arbitral tribunal held its proceedings in New Delhi and also, delivered the arbitral award in New Delhi. Aggrieved by the arbitral award, the Respondent filed an appeal under Section 34 of the Act of 1996 before the District and Sessions Judge, Faridabad Haryana and later, the said appeal was transferred to Gurugram Commercial Court after constitution of Special Commercial Court at Gurugram. Vide the impugned judgment, the Commercial Court held that since the agreement was executed at Faridabad, part of cause of action arose at Faridabad and that was the place where the request for reference to arbitration was received, the courts at Faridabad would have jurisdiction and this would, thus, oust the jurisdiction of the courts at Delhi, in which no part of the cause of action arose. However, the Hon’ble Supreme Court interpreted the arbitration clause to find out the real intent of the parties as to whether the expression “shall be held” indicated a ‘venue’ or a ‘seat’ and held that the parties had chosen Delhi as the ‘seat’ of arbitration under Section 20(1) and therefore, even though the cause of action arose at Faridabad, it would be of no relevance and the courts at Delhi would have exclusive jurisdiction. It inter alia held as under: The parties are free to decide a ‘seat/place’ of arbitration irrespective of the place where cause of action has arisen. If in a contract, the parties have decided or mentioned the ‘juridical seat/place’ of arbitration, the court where juridical seat/place of arbitration is alone will have exclusive jurisdiction for the purpose of regulating arbitration proceedings arising out of agreement between the parties that is, to exercise supervisory powers over the arbitration. There is no need to expressly mention the words alone, exclusive, ouster etc. to confer jurisdiction. Section 20(1) and 20(2) of the Act of 1996 refers to ‘seat/place’ of arbitration and Section 20(3) refers to ‘venue’ of arbitration. Further, ‘venue’ of arbitration and ‘seat/place’ of arbitration are different. ‘Venue’ may be a place where arbitration meetings can be held since witnesses are there or it is convenient to parties and/or arbitrators. But, the ‘seat/place’ of arbitration can be a neutral place or any place where cause of action has arisen. It entirely depends on the parties and jurisdiction of the ‘Court’ will be dependent upon ‘seat/place’ of arbitration and not, ‘venue’ of arbitration. However, where only ‘venue’ of arbitration is mentioned and no ‘seat/place’ of arbitration is mentioned, the expression ‘arbitration proceedings’ would make it clear that the ‘venue’ is really the ‘seat’ of arbitral proceedings as it does not include one or more individual or particular hearing, but includes arbitral proceedings as a whole, including the making of 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, 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, 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. It was on the basis of the above observations and precedents that the Hon’ble Supreme Court also over-ruled the judgment laid down by another three judge Bench in Union of India v. Hardy Exploration and Production (India) Inc15. In the said case, the arbitration clause specifically provided that the ‘venue’ of arbitration shall be Kuala Lumpur and the arbitration shall be conducted in accordance with the UNCITRAL Model Law on International Commercial Arbitration of 1985. The Court examined the UNCITRAL Model Law and observed that (a) under the Model Law, either the juridical seat of the arbitral proceedings is indicated in the agreement between the parties, or if it is not, must be determined by the Arbitral Tribunal, (b) there is no confusion with regard to what the seat of arbitration and venue of arbitration mean. The arbitration Clause has to be read in a holistic manner so as to determine the jurisdiction of the Court. However, while making these observations, it also held that the word ‘place’ cannot be used as seat and a ‘venue’ can become a ‘seat’ if something else is added to it as a concomitant and thus, came to a conclusion that Kuala Lumpur is not the ‘seat/place’ of arbitration. It was this criteria added by the Court to determine the ‘venue’ as a ‘place’ of arbitration which was specifically rejected by Hon’ble Supreme Court in BGS SGS Soma JV case (Supra) by following the above precedents as well as the principle laid down in Shashoua case (Supra) and it held that Kuala Lumpur, which was stated to be the ‘venue’ of arbitration proceedings, being governed by the UNCITRAL Model Law, would be governed by a supranational set of rules, and there being no other contrary indicator, Kuala Lumpur would be the juridical ‘seat’ of the arbitration. Hence, it is now well settled that it is the ‘seat/place’ or the ‘juridical seat’ of arbitration which will be the guiding factor for a Court to determine its jurisdiction while examining a petition under Section 11 or for that matter, an appeal under Section 34 of the Act of 1996.  The reason for this lies in the drastic change made in the arbitration law in India. The Arbitration Act, 1940 [“the Old Arbitration Act”] did not refer to the ‘juridical seat’ of the arbitral proceedings at all. Section 14 of the old Arbitration Act specifically stated that the arbitral award has to be signed and filed in a Court and that Court shall then issue notice to the parties of filing of award. Further, Section 17 thereof provided that if Courts do not see any cause to remit the mater back to arbitrator or to set aside, it shall proceed to pronounce judgment and thereafter, decree shall follow. The ‘Court’ referred to in the aforesaid provisions was the Court having jurisdiction in the matter to which the reference relates16. Therefore, the Court under the old Arbitration Act was defined as any Civil Court having jurisdiction to decide questions forming the subject matter of the reference to arbitration if the same had been the subject matter of a suit. Thus, under the old Arbitration Act, jurisdiction could have been conferred on a Court only if cause of action arose within its territorial limit. However, a sharp departure was made in the Act of 1996 which was implemented by adopting the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21.06.1985). For the first time, the UNCITRAL Model Law introduced the concept of ‘place of arbitration’, gave the parties autonomy to decide the place of arbitration and provided that the arbitral award shall state its date and place of arbitration and the award shall be deemed to have been made at the place of arbitration17. The Act of 1996 incorporated Article 20 and 31(3) of the UNCITRAL Model Law verbatim and the same is reflected as Sections 20 and 31(4) respectively. Hence, Part I of the Act of 1996 refers to ‘the place’ of arbitration that is, the juridical seat of arbitration. The definition of ‘Court’ remains unchanged but, replaces any and every civil court by only the principal civil court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary civil jurisdiction. Thus, since the juridical seat of arbitration and its relationship to the jurisdiction of the Courts in matters relating to the arbitration proceedings was new and unclear, therefore, the Hon’ble Supreme Court in the above judgments interpreted Section 2(1)(e)(i) along with Section 20 of the Act of 1996 so as to give broad meaning to the definition of ‘Court’ and included within its ambit courts where ‘seat/place’ of arbitration is situated. Therefore, the law, as it stands today is that, the parties by way of arbitration agreement, can confer exclusive jurisdiction on a Court irrespective of whether cause of action has arisen within its territorial limit or not. Thus, parties can decide a neutral ‘seat/place’ of arbitration and consequently, come under the jurisdiction of the Court having supervisory control over the arbitral proceedings. Though, the legal proposition has been settled by the Hon’ble Supreme Court in the abovementioned cases but, the principles cannot be applied in a straight jacket formula. It would depend on the facts and circumstances of each case as well as on the interpretation of the arbitration clauses. For instance, the difference between the ‘seat/place’ and ‘venue’ of arbitration was recently considered by the Hon’ble Delhi High Court in Dwarika Projects Ltd v. Superintending Engineer, Karnal, PWD (B&R) Haryana18. In this case, an agreement was executed between the parties at Karnal, Haryana for construction of Road Over Bridge (ROB). As per the agreement, inter alia, (a) the place of execution of the work was Karnal, (b) the Courts at Karnal have jurisdiction in the matter and, (c) the Courts would be the District Court of concerned headquarter of electrical division. Some disputes arose between the parties which resulted in initiation of arbitration proceedings. Majority of the arbitration proceedings took place in Delhi and some in Chandigarh as per the convenience of the parties. The arbitral award was delivered in Delhi. Both the parties were aggrieved by the arbitral award and the Appellant filed an appeal under Section 34 of the Act of 1996 before the Delhi High Court prior to the appeal filed by the Respondent before the District Court at Karnal. Before the Delhi High Court, an objection was raised by the Respondent as regard territorial jurisdiction of the Court to entertain such appeal. The Appellant contended that since its appeal is filed prior in time, therefore, by virtue of Section 42 of the Act of 1996, the appeal filed by Respondent before District Court at Karnal is not maintainable and, further, the arbitration proceedings were held in Delhi and award was also delivered in Delhi, therefore, Courts in Delhi has the territorial jurisdiction. However, the High Court held that the appeal filed by the Appellant is not maintainable for the following reasons: There was no procedure agreed to between the parties stating that Delhi would be the jurisdictional place/seat of arbitration. The agreement executed between the parties specifically conferred jurisdiction on Courts at Karnal and further, agreement was also executed at Karnal and work was also executed there. Therefore, there are many indicators that parties never intended Delhi to be the place/seat of arbitration. Delhi and Chandigarh were merely ‘venue’ of arbitration chosen by the parties and arbitral tribunal for their convenience. They are not the same thing as fixing jurisdictional place/seat of arbitration. Choosing jurisdictional place/seat of arbitration is a deliberate act and a party cannot be taken by surprise and be told that venue fixed for arbitration had morphed into the jurisdictional place/seat of arbitration. Thus, fixing of geographical location for conducting arbitration cannot be equated with an arbitral tribunal fixing a jurisdictional place/seat. Further, the legal question regarding the maintainability of appeal under Section 34 of the Act of 1996 was decided by the Hon’ble Delhi High Court in Raj Kumar Brothers v. Life Essentials Personal Care Private Ltd.19. In this case, the arbitration clause between the parties specifically provided that the venue of arbitration shall be Gurgaon and all disputes related to the agreement shall be subject to Gurgaon jurisdiction. It was the contention of the Appellant in this case that the petition is maintainable because Respondent had earlier filed an application under Section 11(6) of the Act of 1996 seeking appointment of arbitrator before the Hon’ble Punjab and Haryana High Court. The High Court, vide Order, had referred the dispute for adjudication to Delhi International Arbitration Centre, Delhi (DIAC). Accordingly, the arbitration was held in Delhi and as such, Delhi is the jurisdictional place/seat of arbitration. However, the Delhi High Court held the appeal to be not maintainable for the reasons that (a) Delhi was only the ‘venue’ of arbitration. The fee of the arbitrator was regulated by Chandigarh Arbitration Centre Rules, 2014 and not, by DIAC rules, (b) the agreement executed between the parties show that parties decided to hold arbitration proceedings in Gurgaon as the contract was executed in Gurgaon and the Respondent is also based in Gurgaon. This is the reason why the Respondent had filed an application under Section 11(6) before High Court of Punjab and Haryana and, (c) under the agreement also, the parties have limited all their disputes to jurisdiction of Gurgaon. Therefore, ‘place’ of arbitration as referred to in the Order of High Court of Punjab and Haryana referring dispute to DIAC is a ‘place’ equivalent to ‘venue’ under Section 20(3) of the Act of 1996. The most recent judgment of the Hon’ble Supreme Court on this very issue is Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.20 wherein, it had to decide on the maintainability of an application filed under Section 11(6) of the Act of 1996 read with the Appointment of Arbitrator by the Chief Justice of India Scheme, 1996 seeking appointment of a sole arbitrator. In this case, a dispute had arisen between the parties and the relevant part from the arbitration clause, as contained in the MoU, specifically stated that (a) MoU is governed by the laws of India and Courts at New Delhi shall have the jurisdiction, (b) any dispute under the MoU shall be referred to and finally resolved by arbitration administered in Hong Kong and, (c) the place of arbitration shall be Hong Kong. It was the contention of the Petitioner that the application filed under Section 11(6) is maintainable as Hong Kong is only the ‘venue’ of arbitration as MoU stipulates that it will be governed by laws of India and Courts at New Delhi have the jurisdiction. On the other hand, the Respondent contended that the application is not maintainable as (i) place of arbitration is outside India and hence, Part I of the Act of 1996 is not applicable, (ii) the word ‘administered’ used in the arbitration clause indicate that the parties have agreed to arbitration to be seated in Hong Kong. The Hon’ble Supreme Court observed that mere expression ‘place of arbitration’ cannot be the basis to determine the intention of the parties that they have intended that place is 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. Therefore, after perusing the arbitration agreement, it held that the reference to Hong Kong is for final resolution by arbitration administered in Hong Kong which indicates that the parties have agreed that the arbitration will be seated at Hong Kong and that laws of Hong Kong shall govern the arbitration proceedings as well as shall have power of judicial review over the arbitration award. The words “arbitration administered in Hong Kong” is an indicia that the seat of arbitration is at Hong Kong and thus, Indian courts will not have jurisdiction for appointment of the arbitrator. Hence, it dismissed the application filed by the Petitioner and gave them liberty to approach Hong Kong International Arbitration Centre for appointment of the arbitrator. Thus, in domestic arbitration and by arbitration agreement, parties can confer jurisdiction on a Court even where no cause of action has arisen by designating a ‘seat/place’ of arbitration and the arbitral proceedings shall be anchored to that place and the Court within whose territorial jurisdiction, the arbitration proceedings is being conducted, will have exclusive jurisdiction to interfere with the arbitral award or for its enforcement. Such a clause designating ‘seat/place’ of arbitration will also over-ride the provisions of the CPC for conferring jurisdiction upon a Court.

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Author Name: Vaibhav Niti, Advocate-on-Record, Supreme Court of India