• ILAPB

ARBITRATION IN INDIA: THE SEAT V. VENUE DEBATE

Updated: Jul 29

[Authored by Amruth Anand, a 4th year BBA LL.B (Hons.) student at School of Law, CHRIST (Deemed to be University), Bangalore.]

The Arbitration and Conciliation Act of 1996 brought arbitration to the forefront in India and made arbitration as a method of dispute settlement popular. The Act was based on the UNCITRAL model law on international arbitration.

The concept of international commercial arbitration has been defined under Section (1)(2)[1], and it is in this context that the concept of the “seat” and “venue” of an arbitration agreement come into play. In this context the contract between the parties is considered to be paramount. The parties still need to decide the law which governs the contract or the “applicable law”. In case of disputes arising, the Arbitral Tribunal applies the applicable law to determine the substantive dispute[2]. This law that is applicable in the proceedings is called the juridical seat or lex arbitri. the concept of the ‘seat’ has been best explained in the case of XL Insurance Ltd. v. Owens Corning[3]:


 The English Court held that the choice of law (proper law) being different from the lex arbitri would not invalidate the arbitration clause. Since the parties have chosen to seek refuge under the English Law for arbitration, the provisions of the English Arbitration Act would be applicable and English Law shall solely govern the matters falling within the scope of the arbitration agreement/clause, including formal validity of arbitration agreement and the jurisdiction of the arbitrators.


The 1996 Act has been especially vague about this particular aspect in arbitration with the closet attempt to any explanation being offered by Section 2(2) and Section 20 of the Act. When one reads Section 2, it provides for a “place of arbitration” which in the case of the 1996 Act is India. This in common parlance is supposed to mean “venue” or the physical location of the conduction of the proceedings.


Disputes began to arise due to this lack of clarity, in the case of Enercon Indian Ltd. and Ors. v. Enercon Gmbh [4] where the law was prescribed to be the Indian Arbitration and Conciliation Act, 1996 but the location or venue was to be London. This created a jurisdictional paradox as to where the appeals of such an arbitration was to lie. The Indian supreme court thus began its journey to clarify this position:


the express mention in the judgment that London was the venue of the arbitration does not lead to the conclusion that it was the seat of arbitration. Once the seat has been decided, Indian Courts will have supervisory jurisdiction and the English Court will not have jurisdiction. It is thus, not necessary for the seat and venue to be the same. The hearing even if it is taking place at a different place, the chosen seat of arbitration will remain unaffected

thus, bringing in the first level of clarity on the issue.


However, this jurisprudence was to be tested in a trilogy of judgements that came before the supreme court that slowly brought further clarity in the seat v. venue debate. In the case of Union of India v. Hardy Exploration and Production (India) Inc.,[5] the venue here was Kuala Lumpur and the proceedings were to be conducted under the UNCITRAL Model Law on International Commercial Arbitration of 1985. However, the Government of India challenged the award on the basis of the Arbitration and Conciliation Act, 1996 and it was argued that arbitration agreement did not specify the seat of arbitration and referred to the venue of arbitration only and Delhi was the ‘seat’ of the arbitration. The supreme court held that the seat of the arbitration was in fact not chosen the venue could not by itself assume the status of the seat; instead a venue could become the seat only if “something else is added to it as a concomitant” and therefore Indian courts had jurisdiction on the matter .


The above case however did not go a great deal in clearing the existing debate as it did not delineate the concepts of “place”, “seat” and “venue”. All the supreme court did in effect in the above case was that it provided for a specific situation where the venue could not be treated as the seat of the arbitration. This prompted a revisit by the court a year later.


The case of BGS SGS Soma JV v. NHPC Ltd.,[6] was a case where the agreement stipulated that Arbitration Proceedings shall be held at New Delhi/Faridabad, India…”. The court here largely relied on the Shashoua principle that was laid down in the England and Wales High Court in Roger Shashoua and Ors. v. Mukesh Sharma[7] where it was held that the ‘venue of the arbitration was the same as the seat’ owing to four specification of the agreement : (a) chosen London as the venue of arbitration; (b) not designated any other place as the seat of arbitration; (c) chosen a supranational body of rules to govern the arbitration, and (d) there were no contrary indicia[8], with the England and Wales Hight Court holding that since arbitration in London was “a well-known phenomenon which is often chosen by foreign nationals with a different law[9]. The Shashoua Principle was first affirmed in the five-judge bench of the Bharat Aluminium Co. v. Kaiser Aluminium Technical Services.[10]


The Supreme Court of India, holding the above premise came up with a bright-line test to ease the seat v. venue debate:


  1. If a named place is identified in the arbitration agreement as the “venue” of “arbitration proceedings”, the use of the expression “arbitration proceedings” signifies that the entire arbitration proceedings (including the making of the award) is to be conducted at such place, as opposed to certain hearings. In such a case, the choice of venue is Actually a choice of the seat of arbitration.

  2. In contrast, if the arbitration agreement contains language such as “tribunals are to meet or have witnesses, experts or the parties” at a particular venue, this suggests that only hearings are to be conducted at such venue. In this case, with other factors remaining consistent, the chosen venue cannot be treated as the seat of arbitration.

  3. If the arbitration agreement provides that arbitration proceedings “shall be held” at a particular venue, then that indicates arbitration proceedings would be anchored at such venue, and therefore, the choice of venue is also a choice of the seat of arbitration.

  4. The above tests remain subject to there being no other “significant contrary indicia” which suggest that the named place would be merely the venue for certain proceedings and not the seat of arbitration.

  5. In the context of international arbitration, the choice of a supranational body of rules to govern the arbitration (for example, the ICC Rules) would further indicate that the chosen venue is actually the seat of arbitration. In the context of domestic arbitration, the choice of the Indian Arbitration and Conciliation Act, 1996 would provide such indication.[11]


The major criticism of the above was that the E&WHC test was unsuitable for application in India and this further nullified the hardy explorations case.


The final case in this trilogy (until now XD) came on the Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.[12], where the agreement read, “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…”. The governing law clause in the MoU provided that “this MoU is governed by the laws of India… and courts at New Delhi shall have the jurisdiction.” a dispute arose and the Indian supreme court was approached to appoint the sole arbitrator. it was argued that the supreme court could appoint the arbitrator as the governing law was Indian law and Hong Kong was merely a ‘venue’. On the other hand, the respondents contended that since the place of arbitration was Hong Kong, the arbitration was to happen under Hong Kong law and the Supreme Court did not have the powers to appoint the arbitrator.


The Supreme Court, noting the use of the expression “place of arbitration”, held that it could not decide the intention of the parties to designate a seat. The mere mention of Hong Kong as a place, according to the court did not affirm the fact that it was also chosen as the seat. It was however held that since both the parties had agreed that the arbitration would be administered on Hong Kong. It was held that Hong Kong was in fact the “seat”.

The Supreme Court has created further confusion in the Mankastu case as it could have settled the matter easily by affirming Soma JV. This move has now cast doubt on soma judgement while not entirely upholding the hardy exploration case. Therefore, the dispute of the “seat v, venue “will go on until the courts can come up with a decisive answer as to the true nature of their character in international arbitration.


[1]  S. 2(1)(f) “international commercial arbitration” means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is— (i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) an association or a body of individuals whose central management and control is exercised in any country other than India; or (iv) the Government of a foreign country; [2] Arbitration of Commercial Disputes: International and English Law and Practice, Andrew Tweeddale, Keren Tweeddale, pp. 180-181. [3]  (2000) 2 Lloyd’s Rep 500 : (2001) 1 All ER (Comm) 530. [4] (2014) 5 SCC 1. [5] (2019)13 SCC 472. [6] 2019 SCC OnLine SC 1585. [7] [2009] EWHC 957 (Comm). [8] Anjali Anchayil , Choice of Seat or Venue: Supreme Court of India Dithers, Kluwer Arbitration Blog, may 13, 2020. [9] Supra 7. [10] (2012) 9 SCC 552. [11] Supra 8. [12] 2020 SCC OnLine SC 301.

75 views

INDIA LAW AND POLICY BLOG

  • LinkedIn
  • Instagram

© 2020 INDIA LAW AND POLICY BLOG. All Rights Reserved.