Seat v. Venue in Contemporary Arbitral Jurisprudence

Bhumika Indulia

4 years ago

Introduction

Indian arbitration jurisprudence has undoubtedly witnessed many controversies with regard to the various facets of the Arbitration and Conciliation Act, 1996 (the Act). Notable controversies include the applicability of Part 1 of the Act to internationally seated arbitration agreements which began from Bhatia International v. Bulk Trading SA[1] which was finally settled by the Supreme Court in 2012 in e Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.[2] (BALCO). Other notable controversies include subject-matter of arbitrability of disputes till the judgment of the Supreme Court in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.[3] and more particularly the arbitrability of fraud claims that lasted decades until it was finally settled by the Supreme Court in A. Ayyasamy v. A. Paramasivam[4] and more recently in the seminal judgment in Vidya Drolia v. Durga Trading Corpn.[5]. The latest controversy that has gained considerable importance in arbitral jurisprudence is the seat-venue conundrum or the uncertainty faced by courts in determining the seat of arbitration. Although the Supreme Court has on many occasions delivered seminal judgments onthese connotations (seat, venue, place of arbitration) there still appears to be room for uncertainty. This article will study the latest position of law propounded by the Supreme Court with regard to the determination of the seat of arbitration in relation to their duty to give effect to the sacrosanct principle of party autonomy.

The Significance of the Seat of the Arbitration

It is important to distinguish the term “seat” from “venue” and “place”. The term “seat” is of utmost importance as these terms determine many crucial aspects of the arbitration proceedings, the term “seat” connotes the situs of the arbitration or the center of gravity of the arbitration proceedings. The selection of a certain location as the seat of arbitration will come with consequences as such a selection of a geographical location as a seat will mean that the courts of that jurisdiction will have supervisory jurisdiction over the arbitral process and the procedural law or curial law of the arbitration proceedings will be law of that jurisdiction. Parties often select the seat in absence of a choice of governing law clause in the arbitration agreements and therefore often the law of the seat becomes the law governing the arbitration proceedings. Renowned scholars in the field of international arbitration often refer to the law of seat as the lex arbitri. Many leading arbitration jurisdictions often place emphasis on the seat of the arbitration to determine the lex arbitri and also propound a territorial link between the arbitration proceedings and the seat of the arbitration. The term “venue” may often be interlined with the term “seat”, but this may not necessarily be the correct approach. The term “place” often refers to a convenient location selected by the parties to carry out the arbitration proceedings and should not be confused with the seat or venue. It is without doubt that the term “seat” carries more weight than venue or place.

At this juncture it is also important to note that the Act does not define the term “seat” or “venue”. Section 20 of the Act merely defines the “place of arbitration” which is being used interchangeably with the terms “seat” and “venue”. It is also true that parties that often conclude arbitration agreements do not realise the repercussions of selecting a particular location as a seat and due to this there is often unnecessarily litigation between the parties. However, it appears that although Indian courts have laid extensive emphasis on the term “seat”, it has often associated seat with venue and used these terms interchangeably leading a controversy that is yet to be conclusively resolved by the Supreme Court.

The Seat-Venue Saga

To begin understanding the principle adopted by the Indian courts to divide the concepts of seat and venue in the context of international arbitration it is important to note the ratio laid down by the England and Wales High Court in Roger Shashoua v. Mukesh Sharma[6]commonly referred to as the Shashoua Principle by Indian courts. In this case the parties had selected London as the venue of arbitration but had not selected it as a seat. Cooke, J. employed a ratio that laid down that when parties had selected a venue of arbitration without designating a seat of arbitration, it is safe to conclude that the venue is the seat of arbitration provided that the parties have selected a supranational body of rules to govern the arbitration and there is no other indication to the contrary. It is pertinent to note here, that the Constitutional Bench in BALCO[7] had approved the Shashoua Principle[8]. The Shashoua Principle[9] was further followed in Enercon (India) Ltd. v. Enercon GmbH[10]. Therefore it appeared that this position in India is well settled.

However, in 2018, there appeared room for uncertainty as it was noticed that the Supreme Court had deviated from the Shashoua Principle[11] approved by the same court in BALCO[12]. In Union of India v. Hardy Exploration and Production (India) Inc.[13] (Hardy Exploration) the parties had selected that Kuala Lumpur was the venue of arbitration but were silent on the seat. After disputes arose, the arbitration proceedings commenced and the award was signed at Kuala Lumpur. Thereafter the appellant sought to challenge the award under the Act before the Delhi High Court contending that Delhi was the seat of arbitration. On appeal the Supreme Court delivered a judgment deviating from the Shashoua Principle[14]. The Court held that the parties had not chosen the seat of arbitration and noted that the Tribunal also had not made any findings with respect to the same. It was observed that Kuala Lumpur was designated by the parties as the venue of arbitration and thus it did not mean that Kuala Lumpur had become the seat of arbitration. The Court concluded that a venue could become a seat of arbitration only if something else is added to it as a concomitant. It is evident that the opinion of the Court is not in consonance with the Shashoua Principle[15] approved by the same court in BALCO[16].

Thereafter in 2019, the Supreme Court had another occasion to revisit this topic in BGS SGS Soma JV v. NHPC Ltd.[17] (Soma JV). It is interesting to note that in this case, the coordinate Bench (3 Judges) had reiterated the Shashoua Principle[18] contrary to the observations made in Hardy Exploration[19]. The Court propounded a test and laid down that when a particular place is designated as the venue of arbitration the same should be considered to be the seat of arbitration. It noted that this should be coupled with the fact that the parties have not made any other contrary indication that the venue is not the seat of arbitration. The Court observed that the decision in Hardy Exploration[20] is per incuriam as it did not follow ratio laid down by the Constitutional Bench in BALCO[21] that wholeheartedly adopted the Shashoua Principle[22] in Indian law. It appears that there is uncertainty whether the decision of the Court in Hardy Exploration[23] or Soma JV[24] holds the field, as a concurrent Bench could not have overruled the judgment in Hardy Exploration[25].

In March 2020, another conundrum had arisen before the Supreme Court in Mankastu Impex (P) Ltd. v. Airvisual Ltd.[26] In this case the arbitration agreement was unique as it did not use the words “seat” or “venue”. The arbitration agreement laid down that the arbitration would be administered in Hong Kong and the place of arbitration was Hong Kong. It also stated that the governing law was Indian law and that the courts of New Delhi shall have jurisdiction. Accordingly when disputes arose, Mankastu approached the Supreme Court of India for appointment of arbitrator contending that as Indian law was the governing law and the courts at New Delhi had jurisdiction therefore that New Delhi was the seat of arbitration. Mankastu relied on Hardy Exploration[27]. Airvisual contended as Hong Kong was designated as the place of arbitration, and therefore Hong Kong was also the seat of arbitration. Airvisual relied on Soma JV[28] for this purpose.

It is interesting to note the method of inquiry adopted by the Supreme Court in arriving at its conclusion that Hong Kong was the seat of arbitration. The Court instead of applying the ratio in Hardy Exploration[29] or Soma JV[30], employed a different method of inquiry altogether. Although, the Court did not expressly follow Hardy Exploration[31] it appears to have arrived at a similar conclusion on a different line of reasoning. The Court held that it would not be safe to conclude that the place of arbitration would automatically become the seat of arbitration without examining other pertinent indications in the contract to discern the true intention of the parties. The Court observed since it was agreed that the arbitration proceedings should be administered in Hong Kong that the seat of arbitration was Hong Kong.

Conclusion

From the above analysis, it appears that the Indian Supreme Court has shown a reluctance to affirm Hardy Exploration[32] or Soma JV[33], although it is pertinent to note that the Court has come to the conclusion that it would have come to had it applied the ratio laid down in Hardy Exploration[34]. This has definitely led to uncertainty regarding the precedential value of Soma JV[35] and the Shashoua Principle[36] adopted by the Constitutional Bench in BALCO[37]. It is needless to say, that this controversy should be settled by a larger |Bench of the Supreme Court at the next opportunity. It is undoubted that the seat of arbitration is of much higher significance than the place or venue of the arbitration and it is also true that the uncertainty in this regard could be used by recalcitrant parties to derail the arbitral process by adopting dilatory tactics, thereby trying to oust the jurisdiction of the courts of the seat.