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Determination of The Seat and Venue of Arbitration - A Never Ending Saga

Alternative Dispute Resolution (ADR) mechanism has been providing for a methodical platform to Indian legal system, for resolving a plethora of matters reducing the burden of abundance of pending matters in the courts. The technicalities of the proceedings as haven been laid down in the coded statute guides the process of carrying out arbitration.

Over the years there have been quite some debate on the implications and true meaning of the word’s venue and seat, which seemed to be a completely unsolvable conundrum, however with time these two have been determined to be quite different in meaning as to their context in arbitration and cannot be interchangeable.

The seat of an arbitration determines the law that shall be applicable in conducting the arbitration proceedings whether the court has jurisdiction in case there is a nullity claim of an award, Venue on the other hand is the physical location where the arbitration hearings are to be held.

The seat of arbitration is of paramount importance, for that as it is the courts of the Seat that have the supervisory jurisdiction over the entire arbitral process. The selection of the seat of arbitration, implies selecting the law that will be applicable in the arbitration procedure[1]. It is not necessary for the seat of arbitration and venue of arbitration to be same, the seat and venue might be different, and the chosen seat of Arbitration will remain unaffected by the choice of venue or the geographical place where the hearings are taking place. To further understand the concept the following precedents are of great importance.

The Court of Appeal in England in the case of Naviera Amazonica Peruana SA v. Compania International de Seguros del Peru[2] enlisted the relevant laws that will be applicable to a contract of an arbitration agreement:
  • the law that governs the substantive contract;
  • the law that governs the agreement to facilitate the arbitration, and the performance of the arbitration agreement: this is the juridical seat or lex arbitri; and
  • the law that governs the procedure of arbitration, popularly the curial law.
In the case of Bharat Aluminium Company Ltd. v. Kaiser Aluminium Technical Services Inc.[3] a constitutional bench settled that the conflicting position in arbitration proceedings that were held in foreign countries, with the seat of arbitration being outside of India where Indian parties agreed to intervention of Indian Court to set aside foreign awards and make them unenforceable in India and thus making the arbitration proceedings futile.

It also held that choice of the seat of arbitration per se implies the consent and acceptance of the party to the law of such seat country in International matters and that no parties can avoid the substantive Indian Law; i.e. will not have an overriding effect than to what is mentioned in the contract.
Also, with the recent amendment, Part I is made applicable. Section 9 enshrining to interim relief, Section 37(1) (a) providing appeal to orders and Section 27 (Court assistance for evidence) is applicable in International seated matters.

In this case the court also over ruled the interpretation of this court in the case of Bhatia International v. Bulk Trading SA[4] observed that the section of Section 2(2) must be interpreted to mean that only when the seat/place of an arbitration is in India, Part I will apply, thus restoring the distinction between the terms of seat and venue. The court then clarified that the term “place” in Sections 20(1) and (2) will connote “seat” and “place” in Section 20(3) will connote “venue”. Section 2(2) r/w Section 20 was mentioned to have no extraterritorial application.

In the case of Enercon (India) Limited and Ors. v. Enercon GMBH and Anr.[5] , the Apex Court held that "the location of the seat will determine the courts that will have exclusive jurisdiction to oversee the arbitration proceedings”. The court further emphasized that the seat normally implies with it the choice of that concerned country's arbitration law and that it is well-settled that "seat” of arbitration and “venue” of arbitration cannot be used inter-changeably as “seat” determines the applicable law for the arbitration proceedings.

Lastly, in the case where the parties have not mentioned the law that shall be applicable to the arbitration agreement, the test of “the closest and most intimate connection” is to be adopted as provided for in the judgment of Enercon India[6] is to be applied. The jurisdiction in which that the arbitration is conducted and the intention of the parties are to be the determining factors in the application of the closest connection test.

In the case of Union of India vs. Hardy Exploration & Production India Inc.[7] the Supreme Court adjudged on the question of law that which law will be applicable for declaring award in arbitration proceedings when the parties have only agreed upon the "venue" of the arbitration and not the "seat" of the arbitration. In this case the Hardy Exploration went into a production sharing contract with the Government of India for extraction, development and production of hydrocarbons in a geographic block.

There was a dispute regarding the same which was brough up for arbitration. Now, the arbitration clauses specified the venue as Kuala Lumpur, and there the arbitration was carried out and award passed in favour of Hardy Exploration; this was challenged by the Indian Government under Section 34 in the Delhi High Court.

It was contended that the court did not have jurisdiction to hear a case under Section 34 since the seat of the arbitration was Kuala Lumpur and thus Part 1 of the Arbitration Act was not applicable, and again the court rule in favour of Hardy Exploration, which was further challenged in the Supreme Court. The court held that since there was no determination as to the seat, by the arbitral tribunal, venue can only act as a seat if something else was added to it as a concomitant. In the absence of the same Kuala Lumpur was merely a venue and could not have been regarded a seat.

Also, in the case of BGS SGS Soma JV v. NHPC Ltd.[8]; the Supreme Court dealt with the clause that gave rise to jurisdictional issues as to which is competent to supervise the arbitration proceedings. The Apex Court pronounced that the rules that determine the 'seat' of the arbitration proceedings, also opining that designating a 'venue' of the arbitration proceedings with supranational body of rules without any contradictions and ambiguity; it indicates and amounts to designating the venue as the seat. It further clarified that designating a seat of arbitration amounts to granting exclusive jurisdiction of the courts situated at such a seat. This case thereby overruled the law passed in the Hardy Exploration case.

In addition, the court also dealt with the scope of appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996, and held that it is available only when a court has heard and dismissed Section 34 case on merits.

In the case of Mankatsu Impex Pvt. Limited vs. Airvisual Ltd.[9], the Supreme Court in this case held that the expression "place of arbitration" only cannot be the foundation to determine the intention of the parties that their intention was to consider the place as the "seat" of the arbitration. Such intention should be derived from other clauses in the agreement and the conduct of the parties.

Also, the significance of the seat of arbitration is that it is the determining factor about the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award. The Apex Court has taken a different standpoint to that what was held in the BGS Soma case, and stated that the facts and circumstances of the instant case were different.

From what it appears after analysis, the various stand points of the aforementioned case laws that the decision of a larger bench if constituted by the Supreme Court of India, that shall play a great role in putting an end to the varying views and interpretations with regard to this debatable issue. This view is also in conformation with the doctrine of binding precedent to be of utmost importance for the promotion of certainty and consistency which was also upheld in the case of Chandra Prakash and Ors. Vs. State of UP[10].

End-Notes:
  1. Mankastu Impex Private Limited Vs. Airvisual Limited No. 32 of 2018 dated 05.03.2020
  2. (1988) 1 Lloyd’s Rep 116 (CA)
  3. (2012) 9 SCC 552
  4. (2002) 4 SCC 105
  5. (2014) 5 SCC 1
  6. ibid.
  7. (2019) 13 SCC 472
  8. (2019) SCC Online SC 1585
  9. Arbitration Petition No. 32 of 2018
  10. (2002) 4 SCC 234

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