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A Rocking Chair: Seat Of Arbitration Under The Arbitration And Conciliation Act, 1996

Deciphering as to where shall be the seat of arbitration as per the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) has been a highly contested issue all along. The law pertaining to the same is far from stable, and by the time parties align their conduct with the latest legal position, a new judgement to its contrary surfaces up. The reason of seat' of arbitration being such a debated issue is the fact that it carries far reaching implications with it, capable of conferring/disentitling relevant judicial authorities of supervisory jurisdiction over the arbitral process.

Prior to the judgement given by the Hon'ble Supreme Court in Bharat Aluminum Co. V. Kaiser Technical (hereinafter referred to as BALCO), the court having supervisory jurisdiction over an arbitration was to be decided as per section 2(1)(e) of the Act, which opines that the court at the place of cause of action should have such supervisory jurisdiction.

Paradigms, however, shifted after the BALCO judgement; wherein the Supreme Court adopted a seat centric approach and conferred this supervisory jurisdiction onto the court in whose territorial jurisdiction the seat' of arbitration lies. After this landmark judgment, the law has failed to make a settled distinction between seat and venue, resulting in wavering interpretation of the terms seat' and venue' in an arbitration.

Importance Of Seat And Meaning Of Supervisory Jurisdiction

As ruled by the BALCO judgement that the seat of arbitration confers supervisory jurisdiction over the court in whose territorial jurisdiction the seat of arbitration lies, and hence the seat' in an arbitration has significance attached to it by way of application of such curial law' as is followed by such court.

Curial Law or lex fori refers to the law governing the procedure of application of the arbitration agreement. In an arbitration, it governs the conduct of the parties to it. As pointed out in in Yograj Infras.Ltd vs Ssang Yong Engineering, in addition to curial law, two more sets of law apply to an arbitral process, namely, Lex Arbitri or proper law of arbitration, which constitutes the substantive law for the arbitration agreement and governs the obligations of the parties to submit to arbitration and honour an arbitral award, and Lex Contractus or proper law of contract, which recognizes substantive rights of the parties in respect of the dispute referred to arbitration.

It is noteworthy that proper law for arbitration and proper law of contract are separate and distinct. This happens in furtherance of the Doctrine of Severability' laid down under Section 7 of the Act.

The Seat v/s Venue Debate

The quandary as to the interpretation and implication of the terms: seat' and venue' was resolved by the celebrated BALCO judgment in 2012, before being subject to turbulence in the subsequent years. The article puts forth a chronological account of the Seat V/S. Venue Debate'.
  1. Balco

    The judgement in the said case was rendered by a five-judge bench of Hon'ble Supreme Court, wherein it opined that the seat' of arbitration once chosen attains a permanent character and is distinct from the venue' of arbitration. It is the seat which bestows supervisory jurisdiction upon the relevant court in whose territorial jurisdiction such seat of arbitration is situated. In contradistinction to the seat' of arbitration, venue' is solely for administrative convenience and is of a provisional character. However, the terms: seat' and place' of arbitration are synonymous.
  2. Enercon Ltd. And Ors. v/s Enercon Gmbh And Anr

    Two years from the BALCO judgment, a division bench of the Apex Court, in 2014, in Enercon Ltd. And Ors. vs Enercon Gmbh And Anr., differentiated between seat and venue of arbitration by putting forth the closest connection test' and did not compartmentalize seat' and venue' ex-facie. In the said test, numerous determinative parameters are to be employed to impute the true meaning to terms used. Factors like the laws applicable to arbitration (curial law, proper law of arbitration agreement and proper law of contract) place of performance, and conditions in the contract are to be taken into account, which when evaluated collectively, would determine whether seat' and venue' could be used interchangeably in any case.
  3. Union Of India v/s Hardy Exploration And Production

    Following the Enercon case in the Seat V/S Venue debate, a three judge bench of The Supreme Court rephrased the closest connection test' in respect of the said debate; in the case of Union of India V/S. Hardy Exploration and Production, (hereinafter referred to as Hardy Exploration”) in 2018, wherein it laid down that seat and venue are distinct terms and do not imply the same meaning, subject to concomitant factors. It was held that if only the venue' is mentioned in an arbitration agreement, it could be considered the seat' of arbitration only if another factor(s) is appended to it as a concomitant. Such concomitant factors could be the venue and an additional factor. Regard must be made to the arbitration clause/agreement, as per which, if the seat is not mentioned and the venue read with concomitant factors leads to conclusion that the venue itself shall be the seat of arbitration, so shall be the case and not otherwise. The Arbitration clause/agreement must be read holistically to construe the true intention of the parties as to the seat of arbitration.
  4. Brahmani River Pellets v/s Kamachi Industries

    A far more liberal approach as to the interchangeability of terms: seat' and venue' was resorted to in the judgement rendered by a Division Bench of the Apex Court in the case of Brahmani River Pellets v. Kamachi Indusries on 25th July, 2019. The Court held that venue' can be considered seat' until explicitly stated otherwise. It did not set any standards or apply any test in accordance to which venue could be equated to seat, instead a blanket formula was applied, as per which venue' will automatically be treated as seat' in the event of the latter not being mentioned in the arbitration clause/agreement.

    It is submitted that the law settling at this stance could confuse the arbitral process as the venue of arbitration is kept flexible and hence, keeps changing, thus, if seat would also keep changing correspondingly, the court having supervisory jurisdiction would remain indeterminate.
  5. BGS SGS Soma JV v/s NHPC LTD.

    Later in the same year, on December 10, 2019, a three-judge bench of the Apex Court, in the case of BGS SGS Soma JV v. NHPC Ltd. (hereinafter referred to as BGS'), disapproved of the premise for differentiating between seat and venue laid down by it in the Hardy Exploration case. The judgment laid down that the venue is to be regarded as the juridical seat of arbitration where no other condition is appended to it.

    It led to an air of controversy where the said judgement overruled the judgement rendered in the Hardy Exploration case, stating it to be against the BALCO judgement which was delivered by a bigger (five-judge) bench. This, prima facie, appears to be in conformity with the way in which precedents function, but the point of contention here is that though the judgement in the Hardy Exploration case was overruled by the judgement of the BGS case on the premise of it being against the judgement of a larger bench in the BALCO case; a coordinate bench could not have overruled the judgement of a bench of equal strength. (The Hardy Exploration case and the BGS case, both were adjudged by a three-judge bench of the Apex Court)

    It is humbly submitted that the BALCO case equated the terms seat' and place' of interpretation and the venue' of arbitration was considered a separate entity, distinct from place' or seat' of arbitration. The Hon'ble Supreme Court here misconstrued the essence of the terms: seat', place' and venue' with reference to the landmark BALCO judgement.
  6. Mankatsu Impex Pvt. Ltd. v/s Airvisual Limited

    The latest judgement as regards the Seat V/S Venue debate; was rendered by a division bench of the apex court in the case of Mankastu Impex Private Limited vs Airvisual Limited on 5 March, 2020. The court spoke on the contrary to what was opined in its precursor (BGS case). However, it did not attempt to overrule the BGS judgment, as it had a smaller bench adjudicating the case than the one in the BGS case.

    The Hon'ble Supreme Court opined that seat and venue of arbitration cannot be used inter-changeably. The judgement did not even conform to the standards laid down in the BALCO judgment, as it laid down that place' of arbitration cannot be used to determine the intention of the parties as to the seat' of arbitration. The seat of arbitration has to be determined from the conduct of the parties, in addition to the arbitration clause/agreement. The seat' of arbitration attaches great significance with it, as the seat decides the procedure of the arbitration and also judicial review over the arbitral award, because which, it is unsafe and imprudent to construe it from what might merely be the physical site of arbitral proceedings, i.e the venue.

Conclusion
The current legal position under as to seat' and venue' of arbitration under the act is the stance taken by the three judge bench of the Apex Court in the BGS case, and whether or not the said judgement overruling the one in Hardy Exploration Case on the premise of the latter contravening the principles set by the BALCO judgment, delivered by a five-judge bench, is valid, is a matter under contention as the benches adjudicating the Hardy Exploration case and the BGS case were of equal strength and a co-ordinate bench is not to overrule the judgement rendered by another bench of equal strength.

Thus, as of now, under the act, the seat of arbitration is also the venue of it where no condition is appended to it. It is submitted for the sake of clarity that the phrase place of arbitration' ought to be substituted by seat of arbitration' under section 20 of the act. The word place' entails ambiguity and could be interpreted as both seat' and venue' in different situations, resulting in confusion as to the application of curial law in such arbitral proceeding.

References:
  1. The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), S.2
  2. The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), S.7
  3. The Arbitration and Conciliation Act, 1996 (Act 26 of 1996), S.20
  4. Seat of Arbitration and its communion to lex – larger bench to decide: Part I, available at: https://www.barandbench.com/columns/seat-arbitration-communion-to-lex-larger-bench-part-i (Visited on April 24, 2020)
  5. Bharat Aluminum Co. V. Kaiser Aluminum Technical Services Inc., (2012) 9 SCC 552
  6. Enercon India Ltd. And Ors. V. Enercon Gmbh, (2014) 5 SCC 1
  7. Union of India V. Hardy Exploration And Production, (2018) 7 SCC 374
  8. Brahmani River Pellets Ltd. vs Kamachi Industries Ltd., Civil Appeal No. 5850 / 2019
  9. BGS SGS Soma JV V. NHPC Ltd., (2019 SCC Online SC 1585)
  10. Mankatsu Impex Pvt. Ltd. V. Air Visual Ltd.

    Written By:Mr.Veddant Majumdar

    Awarded certificate of Excellence
    Authentication No: AG30924877512-27-820

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