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Seat and Venue of Arbitration-Key Consideration

Alternative Dispute Resolution (ADR) mechanism provides scientifically developed techniques to Indian judiciary which helps in reducing the burden on the courts. ADR offers to resolve all type of matters including civil, commercial, industrial and family etc., where people are not being able to start any type of negotiation and reach the settlement. In this article we tried to attract readers' attention on how the seat of arbitration is significantly diverge from venue of arbitration, accordingly, both shall not be used inter-changeably.

Further, we have listed down some of the important points which need to be considered before drafting an arbitration clause under an agreement.

Introduction
It is important to understand the difference between the term venue and seat as agreed under the contract between parties. The distinction between venue and seat may be read as that the seat of arbitration is what determines the court having jurisdiction over the nullity claim of an award, while the venue is the physical location where the arbitration hearings or deliberations are held.

Supreme Court in the matter of Bharat Aluminium Co vs Kaiser Aluminium Technical ... on 6 September,2012 held:
The legal position that emerges from a conspectus of all the decisions, seems to be, that the choice of another country as the seat of arbitration inevitably imports an acceptance that the law of that country relating to the conduct and supervision of arbitrations will apply to the proceedings.

It implies that when parties chose another country as a seat of arbitration, then parties deliberately accepted that the law of that country relating to the conduct and supervision of Arbitrations will apply to the proceedings.

Accordingly, even if the contract state that the Indian Arbitration Act shall govern the arbitration proceedings, Indian courts cannot exercise supervisory jurisdiction over the Arbitration or the award. However, section 9 (interim relief), Section 27 (court assistance for evidence), Section 37(1)(a) (appeal able orders) of the Arbitration and Conciliation Act 1996 will remain available to parties in a foreign Seated Arbitration.

Also, in the matter of Mankastu Impex Private Limited Vs Airvisual Limited No. 32 of 2018 dated 05.03.2020, the hon'ble Supreme Court held as follow:

The seat of arbitration is a vital aspect of any arbitration proceedings. Significance of the seat of arbitration is that it determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award.

In Enercon (India) Limited and Ors. v. Enercon GMBH and Anr. MANU/SC/0102/2014: (2014) 5 SCC 1, the Supreme Court held that "the location of the Seat will determine the courts that will have exclusive jurisdiction to oversee the arbitration proceedings. It was further held that the Seat normally carries with it the choice of that country's arbitration/curial law". It is well-settled that "seat of arbitration" and "venue of arbitration" cannot be used inter-changeably.

Accordingly, the Supreme Court made the distinction between the seat of arbitration and venue of arbitration ample clear by stating that the seat of arbitration is crucial to be decided carefully as it determines the applicable law when the arbitration proceedings and arbitration procedure for deciding the dispute between the parties.

Some of the important points to be considered before drafting an arbitration clause in an agreement:

  • The Seat of Arbitration it is of vital importance, for it is the courts of the Seat that have the supervisory jurisdiction over the arbitral process.
  • Selection of seat of arbitration, implied selecting the law applicable on arbitration i.e. appointment of arbitrator, procedure, awards etc.
  • It is not necessary that the seat of arbitration and venue of arbitration should be same, the seat and venue may be different, and the chosen Seat of Arbitration will remain unaffected independent of the geographical place where the hearings take place.

Important points to be considered while drafting arbitration clause:

  • Contract shall unambiguously define the composition of the arbitral tribunal, time for appointment and the language of the proceedings.
     
  • Parties must decide on law governing the arbitration agreement and also the procedural rules if any for conducting arbitration which, in addition to the arbitration law of the seat of the arbitration, will govern the arbitration procedure;
     
  • In the event, if the seat of arbitration and venue are different, the contract should clearly provide that the seat of Seat of Arbitration would be the governing law of arbitration and the same will remain impervious even if the hearings happen at various places/locations.
     
  • Parties should specify the language of the arbitration, particularly if the parties and their respective witnesses speak different languages, or if the law of the country governing the arbitration specifies that in the absence of any agreement between the parties, the arbitration should be conducted in the national language of that country. Failure to specify the language of the arbitration may ultimately result in parties having to incur expensive and unnecessary costs for translating documents and witness evidence.

For readers' insight

Parties who are considering India as a seat of arbitration should think carefully about the implications of Arbitration and Conciliation Act, 1996 including amendment vide Amendment Act, 2015 and 2019. In particular, the increasing role of government in arbitration and the limits on who may sit as an arbitrator in Indian seated arbitrations may mean that an Indian seated arbitration would be chosen after complete deliberation.

Disclaimer
The contents of this article should not be construed as legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article.

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