Seat v Venue of Arbitration: A Quest for Clarity (Part I)

This guest post is authored by Disha Lohiya. She is currently studying in the third year at National Law University, Jodhpur.

Seat v Venue of Arbitration: A Quest for Clarity (Part I)

The Arbitration and Conciliation Act, 1996 [“the Act”] does not refer to a seat or venue.  It only refers to the place of arbitration. Section 20(1) of the Act provides parties are free to choose the place of arbitration. Subsection (2) provides that failing the parties’ agreement, the Tribunal can decide the place of arbitration.

Notwithstanding any of the aforesaid, but subject to the parties’ agreement to the contrary, subsection (3) empowers the tribunal to 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.

In this post, the author has discussed key judicial decisions to try and decipher the true meaning of the place, seat, and venue of arbitration.

Varied interpretations

The word place has different connotations in the sub-sections of Section 20. This was first highlighted in the decision of the five-judge bench of the Supreme Court [“SC”] in Bharat Aluminum Co. v. Kaiser Aluminum Technical Services, Inc. [“BALCO”]. In BALCO, the court maintained that ‘place’ in sub-section (2) the word place signifies seat whereas in sub-section (3) it signifies the geographical location – or venue. Following this, the Law Commission of India in its 246th Report, discussed in great detail the need to amend Sections 2(2) and 20. The changes suggested replacing the word place with the words seat and venue in subsections (2) and (3), respectively. However, for reasons best known to the Legislature, the Law Commission’s recommendations were not introduced in the Act.

A tumultuous judicial path

The seat of arbitration can be best described as its juridical domicile. The law of the seat, also described as the curial law, will govern the arbitration proceedings. Courts at the seat will exercise supervisory powers over the proceedings. In the absence of a clear reference to the seat, courts in India and other jurisdictions have developed tests to determine the seat of arbitration.

                Closest and intimate connection

One such test, explained below, is that of finding the ‘closest and intimate connection’ to the dispute.

In Naviera Amazonica Peruana v Compania Internacional De Seguros Del Perul, the closest and intimate connection principle was originally used to settle the conflict over the applicable governing law in the absence of an explicit or indirect reference to the same. Under such circumstances, there are two options for the determination of the governing law. Where parties have expressly agreed to be governed by a substantive law of a country, that law will govern the parties’ contractual and other substantial obligations. If the parties have not agreed so, it was held that the governing law will be decided on the basis of the seat of arbitration.

The Supreme Court in Enercon (India) Ltd and Ors. v. Enercon Gmbh and Anr., [“Enercon”], therefore, applied the closest and intimate principle (as set down in Naviera Amazonica (supra) to the arbitration agreement to decide the seat of arbitration. In Enercon, Indian law was chosen as the substantive law as well as the law governing arbitration agreement. There was no specific reference to the seat of arbitration. London was chosen as the venue.

It was found that other than its designation as the venue, there was no other factor connecting the dispute with London. India had a closer and more intimate connection with the parties’ underlying contract. Accordingly, even though London was chosen as the venue, the Supreme Court held that India will be the seat of arbitration since the parties had explicitly selected Indian law as the governing law of contract.

                The Shashoua principle

In Shashoua v. Sharma, the High Court of England and Wales was dealing with a case where the parties had agreed to (i) Indian law as the governing law; (i) London as the venue of arbitration; and (iii) the arbitration rules of the International Chamber of Commerce (ICC). There was no express choice on the seat. In these circumstances, the High Court held as follows:

wherever there is an express designation of a venue combined with a supranational body of rules governing the arbitration, and no designation of any alternative place as the seat, and no other significant contrary indicia, the inescapable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding”.

This view was affirmed by the Supreme Court of India in Roger Shashoua & Ors v. Mukesh Sharma, [“Roger Shashoua”].

Exclusive jurisdiction and neutrality

                Relevance of the cause of action in an India-seated arbitration

Even where parties have agreed to a specific place of arbitration in India, parties often attempt to seek relief from courts other than those in the seat in India. This is especially when the cause of action arises in a territory outside the parties’ seat of arbitration.

This issue was discussed in Indus Mobile Distribution Private Ltd v. Datawind Innovations Private & Ors [“Indus Mobile”], where the Supreme Court tried to transpose the international concept of ‘juridical seat’, as held in BALCO, to domestic arbitrations in India. The parties had agreed to Mumbai as the venue of arbitration, and that courts of Mumbai exclusive jurisdiction over their agreement. However, no cause of action had arisen in Mumbai. Indus Mobile thus filed a petition under section 11 of the Act, for appointment of an arbitrator, before the Delhi High Court.

Since no cause of action arose in Mumbai, the Delhi High Court found that courts in Mumbai cannot exercise jurisdiction over the dispute. Pursuant to Section 20 of the Code of Civil Procedure, 1908 [“CPC”], it was clarified that only three courts can have the jurisdiction i.e. Delhi and Chennai (from and to where goods were supplied) and Amritsar (where the registered office of the Appellant is located). 

On appeal, the Supreme Court set aside the Delhi HC’s decision. It was held that the idea of a seat isto allow parties to choose a neutral location for conducting arbitral proceedings. No cause of action needs to have arisen at such location. The parties were therefore permitted to confer exclusive jurisdiction no Mumbai courts because Mumbai was also the seat of arbitration. As such, no other court could exercise jurisdiction over the case, regardless of whether it would otherwise have had territorial jurisdiction over the dispute.

Ouster of other courts

The Supreme Court’s decision in Indus Mobile was taken a step further in Brahmani River Pellets v. Kamachi Industries, [“Brahmani”]. Here, the parties had agreed to Bhubaneshwar as the venue. There was no clause for exclusive jurisdiction of any court. Nevertheless, the Supreme Court held that the parties’ agreement on Bhubaneshwar as the venue was also an ipso facto indication of the parties’ intention to agree on Bhubaneshwar as the seat of arbitration. Accordingly, it was held that the parties could only approach courts at Bhubaneswar to seek reliefs under Section 11 of the Arbitration Act.   

In Part II

In Part II, the author will analyse the Supreme Court’s recent decisions in (i) Union of India v. Hardy Exploration and Production (India) Inc., [Hardy Exploration] (ii) BGS SGS SOMA JV v. NHPC Ltd., [BGS Soma](iii) Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.The author will, among other things, examine if Hardy Exploration remains applicable after the Supreme Court’s decision in BGS Soma. She will also highlight the apparent contradictions between the three aforesaid decisions.

Based on the decisions analysed in the post, the author will also summarise the factors to be considered while determining the seat of arbitration. 

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