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Vexed Issue of Seat and Venue in Indian Context: A Critical Analysis - Part I

Updated: Jul 7





INTRODUCTION

Understanding the concept of ‘seat’ and ‘venue’ in arbitration is an important aspect. There is a vast difference between the seat of arbitration and a venue of arbitration. The hon’ble supreme court as well as the high courts of India have taken contrary positions of law in several judgements. An appropriate and uniform stance needs to be taken by the Indian courts for settling the conflict of ‘seat’ and ‘venue’. The uncertainty regarding the conflict of ‘seat’ and ‘venue’ has adversely affected the choice of having India as place for domestic as well as international arbitrations. The choice of seat of arbitration, venue of arbitration, super visionary power of the courts, enforcement of awards etc. are of paramount importance to the parties while deciding what shall be the governing law of arbitration proceedings. Therefore, it is important that hon’ble courts need to take a settled position, to avoid any confusion in the future.


DEVELOPMENT OF LAW IN INDIA

One of the basic problems with the Arbitration Act of 1996 was regarding the conflict of the juridical seat of arbitration and jurisdiction of the court, as there was no clarity on distinction between ‘seat’ and ‘venue’ of arbitration. Section 20[1] and Section 28[2] of Arbitration Act do not exactly mention ‘seat’ of arbitration but rather use the term ‘Place of Arbitration’. To elaborate further, Section 20 states that “parties are free to agree on the place of arbitration and 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 notwithstanding the fact that the hearings can take place at other than the agreed/determined place of arbitration.”[3] But, this definition was not clear enough to remove the confusion regarding ‘seat’ and ‘venue’. Therefore, the courts were left with the responsibility to interpret the terms ‘seat’ and ‘venue’.

In 2012, in the case of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc,[4] (BALCO case) the constitution bench dealt with the above-mentioned issue and stated: “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. 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.” In the BALCO case[5] it was observed that i) courts having jurisdiction over the subject-matter/cause of action and (ii) courts where the place/seat of arbitration was designated have authority to hear the matter leading to concurrent jurisdiction of the courts over the arbitration proceedings. Herein, the hon’ble supreme court failed to appreciate that in domestic arbitrations, there is no risk of conflict of judgments as all the courts in India shall follow the Indian law. But in the case of international arbitration, there is always a risk of conflict of judgment as different jurisdictions having different procedures of law.


In the case of Enercon Ltd and Ors. v. Enercon GMBH and Anr.,[6] a dispute between the parties related to non-delivery of certain supplies in accordance to the Intellectual Property License Agreement (IPLA). The important aspects are highlighted here: i) ILPA is governed by the Indian Law, ii) the venue for arbitration proceedings was London and iii) the applicable law for arbitration proceedings was Indian Arbitration Act. The question had been put before the hon’ble court whether the following phrase “venue shall be London”, in the arbitration agreement indicates that London must be seat of law or not? The hon’ble supreme court in this case applied the ‘closest and intimate connection test’ which was laid down in the case of Naviera Amazonica Peruana S.A. v. Compania Internacional De Seguros Del Peru,[7] to determine the seat of arbitration. The hon’ble supreme court reasoned that contract governing law, procedural law and the arbitration agreement were Indian laws. The hon’ble court presumed that by choosing Indian law for the conduct of the arbitration proceedings, the seat cannot be London. The court further put forth that mere choice of using the rules of arbitration could be sufficient to choose ‘venue’ as a ‘seat’. The court could not find any connecting factors which indicated that London is the seat of arbitration. Therefore, it was ruled by the hon’ble supreme court that ‘London’ was the ‘venue’ chosen by the parties merely for the conduct of arbitration proceedings and India was the ‘seat’.


Regarding issue of seat and jurisdiction in domestic arbitration, in the case of Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited,[8] the hon’ble supreme court stated that: “once seat of arbitration is designated it is akin to an exclusive jurisdiction clause 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. The neutral venue may not in the classical sense have jurisdiction — that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Sections 16 to 21 of CPC be attracted. 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 parties.” But in the case of Debdas Routh v. Hinduja Leyland Finance Ltd. & Anr..[9] the division bench of Calcutta high court differed with the ratio laid down in the Indus Mobile. In this case, the court observed that “laws applicable to the international arbitration cannot be applied directly to the domestic arbitration and with respect Indus Mobile may have failed to see the distinction between the two.”


In the year 2018, similar view was taken by the hon’ble supreme court in the case of Union of India v. Hardy Exploration and Production (India) Inc.[10] In this case, the parties had entered into a contract for sharing of production which included the follwing arbitration clause : “venue of conciliation or arbitration proceedings… unless the parties otherwise agree, shall be Kuala Lumpur…” and that “arbitration proceedings shall be conducted in accordance with the UNCITRAL Model Law on International Commercial Arbitration of 1985”. When dispute arose, the arbitration proceedings took place in Kuala Lumpur and the award was signed at the same place. But the award was challenged before high Delhi high court on the grounds that the arbitration agreement did not specifically mention about the seat \ and referred only to the venue. So, it was contended that, Kuala Lumpur was just the venue and New Delhi was the seat of arbitration. The supreme court ruled that: “The word determination has to be contextually determined. When a place is agreed upon, it gets the status of seat which means the juridical seat. We have already noted that the terms place and seat are used interchangeably. When only the term place is stated or mentioned, and no other condition is postulated, it is equivalent to seat and that finalises the facet of jurisdiction. But if a condition precedent is attached to the term place, the said condition has to be satisfied so that the place can become equivalent to seat.”[11] Therefore, the supreme court ruled that the selection of Kuala Lumpur as the venue of arbitration did not indicate that it had become the seat of arbitration. Though this judgment failed to clarify the concept of ‘place’, ‘seat’ and ‘venue’, it clarified one aspect that a venue could be considered as a seat if in the arbitration agreement something else is added to it as a concomitant.[12] In other words, there must be certain additional factors that indicate the same.


In the case of Brahmani River Pellets Limited v. Kamachi Industries Limited[13] wherein the parties had entered into an agreement for sale of pellets of iron ore. The loading port and the destination port were Odisha and Chennai respectively. Later, disputes arose regarding payment terms and delivery and the arbitration clause was invoked by the respondent. Arbitration agreement stated that : "Arbitration shall be under the Indian Arbitration and Conciliation Law 1996 and the venue of the arbitration shall be Bhubaneshwar". The petitioner filed an application under section 11(6)[14] of the Arbitration and Conciliation Act, 1996 in the Madras high court. The same was challenged by the respondent on the grounds that Madras high court did not have the jurisdiction to try the case, as the seat of arbitration was Bhubaneshwar; hence Orissa high court had the jurisdiction. But it was ruled by the Madras high court that there was no express provision for exclusive jurisdiction, hence both the courts had the power to try the case. Subsequently, the matter reached the apex court and it ruled that “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.” The court in this case seem to have equated ‘venue’ with ‘seat’ and impliedly allowed it to be used interchangeably. Thus, judgment passed in this case is totally disregarded the grounds laid down in Hardy case.[15]


Later, in the year 2019, the supreme court once again addressed the same issue in the case of BGS SGS Soma JV v. NHPC Ltd.[16] In this case, a contract was signed between the parties, stating that any dispute between parties shall be referred to arbitration under Indian Arbitration Act. The proceedings for the same shall either be held in New Delhi or Faridabad. After the dispute arose, the proceedings took place in New Delhi and the award was passed. Later, an application was filed by NHPC under section 34[17] of Indian Arbitration Act for setting aside the arbitral award in Faridabad district court. In the meantime, BGS filed an application under section 151[18] r/w Order VII Rule 10 CPC[19] in the district court of Delhi, wherein the special court of Gurugram ordered transfer of the case from Faridabad to New Delhi court. The hon’ble supreme court overruled the stand taken in Hardy Exploration[20] case after considering several factors. The Hon’ble supreme court relied upon the judgment of BALCO case in which reference was given to the English case of Roger Shashoua & Ors v. Mukesh Sharma.[21] In this case, it was held that the courts having ‘seat of arbitration’ have exclusive jurisdiction to try the cases irrespective of the fact that arbitration proceedings may have taken place at other jurisdictions due to ‘convenience’. The test applied for this case is the ‘significant contrary indica’ test. It has been stated by the hon’ble supreme court : “whenever there is the designation of a place of arbitration in an arbitration clause as being the venue of the arbitration proceedings, the expression arbitration proceedings would make it clear that the venue is really the seat of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an 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 the 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. In an International context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that the venue, so stated, would be the seat of the arbitral proceedings. In a national context, this would be replaced by the Arbitration Act, 1996 as applying to the stated venue, which then becomes the seat for the purposes of arbitration.” Therefore, the hon’ble supreme court ruled that as both final proceedings as well as signing of award took place in New Delhi, and not at Faridabad, would lead to the conclusion that both parties have chosen New Delhi as the ‘seat’ of arbitration under Section 20(1)[22] of the Arbitration Act, 1996. The court also acknowledged the stand taken in the BALCO[23] judgment that that the terms ‘seat’ and ‘place’ are used interchangeably.


In March 2020, the hon’ble supreme court again dealt with the conundrum of ‘seat’ and ‘venue’ in Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.[24] The two companies had entered into a Memorandum of Understanding (MOU) which also contained an arbitration agreement. The MOU stated the following: “any dispute, controversy… shall be referred to and finally resolved by arbitration administered in Hong Kong” and “the place of arbitration shall be Hong Kong”. Further it was also mentioned that “this MoU is governed by the laws of India… and courts at New Delhi shall have the jurisdiction.” When the dispute arose, the petitioner filed an application before the hon’ble supreme court regarding the appointment of sole arbitrator. The hon’ble supreme court stated that by merely stating the “place of arbitration” it cannot be concluded that the parties intended to designate such place as the seat of arbitration. It also has to be derived from other clauses and the conduct of the parties. Therefore, the supreme court stated that as per the MOU, the arbitration was to be administered in Honk Kong, and not merely because it was selected as the place of arbitration. The hon’ble supreme court followed the ratio passed in the case of BGS Soma JV.[25] Further, the court relied on the following paragraph from Redfern and Hunter on International Arbitration wherein it was stated that : “It is also sometimes said that parties have selected the procedural law that will govern their arbitration, by providing for arbitration in a particular country. This is too elliptical and, as an English court itself held more recently in Breas of Doune Wind Farm it does not always hold true. What the parties have done is to choose a place of arbitration in a particular country. That choice brings with its submission to the laws of that country, including any mandatory provisions of its law on arbitration. Parties may well choose a particular place of arbitration precisely because its lex arbitri is one which they find attractive. Nevertheless, once a place of arbitration has been chosen, it brings with it its own law. If that law contains provisions that are mandatory so far as arbitration are concerned, those provisions must be obeyed.”


The hon’ble Supreme Court has given verdict in two important cases that deal with the issue of seat and venue in the year 2021. In the case of Inox Renewables Ltd. vs. Jayesh Electricals Ltd.,[26] the two parties named Gujarat Fluorochemicals Ltd and Jayesh Electricals Ltd had an agreement for manufacture and supply of power transformers. The agreement also had an arbitration clause which provided for Jaipur as the venue and gave the exclusive jurisdiction to Rajasthan High Court. Later, Gujarat Fluorochemicals Ltd sold its entire business to Inox Renewables Ltd. The transfer agreement’s arbitration clause mentioned that the venue of arbitration shall be Vadodara and the courts in Vadodara shall have the exclusive jurisdiction. When disputes arose, the respondent filed an application under arbitration and conciliation act in the Gujarat High Court, which then appointed an arbitrator. Even though the arbitration agreement provided for Jaipur as the venue, but the parties mutually agreed to conduct the proceedings in Ahmedabad and the same was recorded by the arbitrator. After the award was passed in favour of the respondent, the appellant challenged the award on the grounds that the venue should have been Vadodara under section 34[27] of the Arbitration and Conciliation Act. The hon’ble Supreme Court in this case ruled that “the parties may mutually arrive at a seat of arbitration and may change the seat of arbitration by mutual agreement which is recorded by the arbitrator.” While referring to the case of BGS Soma,[28] it was further stated that “This case would show that the moment the seat is chosen as Ahmedabad, it is akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with the arbitration.... ...it is clear that the parties have, by mutual agreement, entered into an agreement to substitute the venue at Jaipur with Ahmedabad as the place/seat of arbitration under Section 20(1) of the Arbitration and Conciliation Act, 1996". In the end while referring to the case of Indus Mobile,[29] it was observed that "the venue being shifted from Jaipur to Ahmedabad is really a shifting of the venue/place of arbitration with reference to Section 20(1), and not with reference to Section 20(3) of the Arbitration and Conciliation Act, 1996, as it has been made clear that Jaipur does not continue to be the seat of arbitration and Ahmedabad is now the seat designated by the parties, and not a venue to hold meetings.” Therefore, it can be observed that the hon’ble Supreme Court gave importance to one of the most integral aspect of arbitration i.e. party autonomy and allowed shifting of seat of arbitration after there is a mutual consent between the parties, even if the arbitration proceedings have already been initiated.


In the case of PASL Wind Solutions Pvt. Ltd. v. GE Power Conversion India Pvt. Ltd,[30] two Indian parties had entered into a contract wherein the appellant had given three purchase orders to respondent who was responsible to supply the converters. When dispute arose regarding the expiry of warranty period of the converters, to resolve their disputes, the parties entered into a settlement agreement on December 2014. Clause 6 of the agreement is the dispute resolution clause which states that any disputes shall be referred to arbitration in Zurich and shall be governed by rules of International Chamber of Commerce. One of the parties filed a preliminary application where it challenged the jurisdiction of arbitrator as two Indian parties cannot choose a foreign seat of arbitration. But this objection was rejected by the arbitrator against which an appeal was made under section 47[31] and 49[32] of the Indian Arbitration Act in the Gujarat High Court wherein the appellant completely changed its stance and stated that Mumbai is the seat of arbitration. The appellant then filed an appeal to hon’ble Supreme Court under section 34[33] of the Indian Arbitration Act. The hon’ble Supreme Court in this case initially clarified that Part I and Part II of the Indian Arbitration Act are mutually exclusive while referring to the decision of BALCO.[34] It was further observed that “It can be seen that section 28(1)(a) of the Arbitration Act makes no reference to an arbitration being conducted between two Indian parties in a country other than India, and cannot be held, by some tortuous process of reasoning, to interdict two Indian parties from resolving their disputes at a neutral forum in a country other than India. Take the case of an Indian national who is habitually resident in a country outside India. Any dispute between such Indian national and an Indian national who is habitually resident in India would attract the provisions of section 2(1)(f)(i) and, consequently, section 28(1)(b) of the Arbitration Act, in which case two Indian nationals would be entitled to have their dispute decided in India in accordance with the rules of law designated by the parties as applicable to the substance of the dispute, which need not be Indian law. This, by itself, is a strong indicator that section 28 of the Arbitration Act cannot be read in the manner suggested by Mr. Himani." The hon’ble court in this case has concurred with the findings of the judgement passed in the case of Sasan Power Limited v. North American Coal Corporation (India) Pvt. Ltd.,[35] wherein it was stated that Indian companies or parties are allowed to have its arbitration seat outside India. Therefore, when the Indian parties choose their seat outside India, then Part II of the Indian Arbitration Act shall be applicable. The judgements passed in Inox Renewables[36] and PSAL[37] are landmark judgements as they give importance to party autonomy. These judgements are in line with modern jurisprudence of arbitration and integrates the Indian arbitration regime with other popular arbitration hubs.[38]


Part- II of this article can be accessed here.


Endnotes

[1] Arbitration Act, No. 26 of 1996, § 20 (India).

[2] Arbitration Act, No. 26 of 1996, §28 (India).

[3] Supra note 1.

[4] Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc, (2010) 8 SCC 660.

[5] Ibid.

[6] Enercon Ltd and Ors. v. Enercon GMBH and Anr., (2014) 5 SCC 1.

[7] Naviera Amazonica Peruana S.A. v. Compania Internacional De Seguros Del Peru, (1988) 1 Lloyd's Rep 116 (CA) (England).

[8] Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited, (2017) 7 SCC 678.

[9] Debdas Routh v. Hinduja Leyland Finance Ltd. and Another., AIR 2018 Cal 322.

[10] Union of India v. Hardy Exploration and Production (India) Inc., (2018) 7 SCC 374.

[11] Ibid.

[12] Ibid.

[13] Brahmani River Pellets Limited v. Kamachi Industries Limited, (2019) SCC OnLine SC 929.

[14] Arbitration Act, No. 26 of 1996, §11 (6) (India).

[15] Supra note 10.

[16] BGS SGS Soma JV v. NHPC Ltd, (2019) SCC OnLine SC 1585.

[17] Arbitration Act, No. 26 of 1996, §34 (India).

[18] Civil Procedure Code, No. 5 of 1908, § 151 (India).

[19] Civil Procedure Code, No. 5 of 1908, Order VII r 10.

[20] Supra note 10.

[21] Roger Shashoua & Ors v. Mukesh Sharma, (2009) EWHC 957 (Comm) (England).

[22] Arbitration Act, No. 26 of 1996, §20 (1) (India).

[23] Supra note 4.

[24] Mankastu Impex Pvt. Ltd. v. Airvisual Ltd, AIR 2020 SC 1297.

[25] Ibid.

[26] M/s Inox Renewables Ltd v Jayesh Electricals Ltd, LL 2021 SC 219.

[27] Supra note 17.

[28] Supra note 16.

[29] Supra note 8.

[30] PASL Wind Solutions Pvt. Ltd. v. GE Power Conversion India Pvt. Ltd, LL 2021 SC 226.

[31] Arbitration Act, No. 26 of 1996, § 47 (India).

[32] Arbitration Act, No. 26 of 1996, § 49 (India).

[33] Supra note 17.

[34] Supra note 4.

[35] Sasan Power Limited v. North American Coal Corporation (India) Pvt. Ltd., 2015 SCC OnLine MP 7417.

[36] Supra note 26.

[37] Supra note 30.

[38] Abhishek Kumar and Siddhart Pandey, India: Shifting Of Seat Of Arbitration, Mondaq (29 Apr, 2021) https://www.mondaq.com/india/arbitration-dispute-resolution/1064258/indian-parties-can-elect-a-foreign-seat-of-arbitration-supreme-court-of-india#_ftn1.

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