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Deciphering Counter-indica and Parties’ Intent in Arbitration Clause Designation

The conundrum of determination amongst seat, venue, and jurisdiction in arbitration disputes has been the subject of discussion for a long time. Indian courts have attempted to answer it by applying the Shashoua principle, as per which the “venue” of the arbitration is in actuality its “seat”, unless there is a contrary indication or counter-indica. While much has been deliberated upon this issue, what amounts to “contrary indication” remains debated. This piece portrays how the Courts have interpreted “counter-indica” while applying the Shashoua principle. Additionally, it also highlights the significance of the intent and conduct of the parties while establishing the seat of arbitration and the jurisdiction of the court in a given circumstance.


Distinguishing Seat from Venue: Jurisdictional Complexity


The seat of arbitration specifies the curial law or procedural law that governs the arbitration and decides which court(s) will have supervisory authority over it. In contrast, the “venue” of arbitration only describes the geographical location where such arbitration is to be held and is unrelated to either curial law or court jurisdiction. The term “place of arbitration” is used in Section 20 of the Arbitration and Conciliation Act, 1996 (the “Act”) and is used interchangeably for both seat and venue. This would not render the seat of arbitration unlawful, and the relevant court having territorial jurisdiction over the “seat” would have exclusive supervisory jurisdiction over the arbitration proceedings in question.

The first instance to differentiate between the concepts of seat and venue of the arbitration arose in the case of Bharat Aluminium Company (BALCO) v. Kaiser Aluminium Technical Service Inc. ("BALCO"), where the Supreme Court examined the notions of seat and venue and determined that they are distinct. While emphasising party autonomy, the Apex Court provided concurrent supervisory authority to two separate courts, namely the court having jurisdiction over the place of arbitration and the court in whose jurisdiction the cause of action originated. This caused confusion and resulted in inconsistent judgements by different High Courts.


Resolving the Debate: Determining contrary indica the parties’ intent


The Supreme Court eventually put an end to this discrepancy in BGS SGS SOMA JV v. NHPC Ltd. (“BGS SGS SOMA”). The Court noted that once the parties have designated the seat of arbitration, only the courts governing the seat could have exclusive jurisdiction to govern such arbitration proceedings, and the jurisdiction of all other courts stood ousted.


The Court in the same case also examined the concept established in Roger Shashoua v. Mukesh Sharma (Shashoua), upholding the reasoning of the England and Wales High Court on this matter, now known as the Shashoua principle. In Shahoua, the parties chose London as the place of arbitration but not as the seat. Cooke, J. propounded that when parties opt for a venue for arbitration without designating a seat of arbitration, it is safe to assume that the venue is the seat of arbitration if the parties chose a supranational body of rules to govern the arbitration and there is no other indication to the contrary.


It is apposite to note that the Constitutional Bench in BALCO had also impliedly adopted the Shashoua principle. Consequently, it looked like this viewpoint was firmly established throughout India. According to the Shashoua principle, when an agreement specifically identifies the venue without any express reference to the seat, in conjunction with a supranational body of laws and no major opposing indica, the inevitable inference is that the venue is actually the seat of arbitration. In the case of BGS SGS SOMA, the Apex Court found that when a clause specifies an arbitration venue and says that the arbitration would take place there, it suggests that the place is indeed the seat. This, together with the absence of any robust contradictory indications that the "venue" is only a place of arbitration and not a seat, further proves that such a place is in fact the seat. As a result, unless otherwise specified, the "venue" of arbitration is the actual seat.


The idea has not been accepted by all courts in its absolute sense. In Hardy Exploration, a three-judge bench of the Hon'ble Supreme Court decided that a place may become a seat of arbitration only if something else is added to it as a concomitant. As a result, the Apex Court explicitly said that in order for a venue in an arbitration agreement to become a seat, an additional indicator must be included. It is worth noting that the court's decision contradicts the Shashoua Principle, which was recognised by the same court in BALCO.


The question of what amounts to a counter-indication has been deliberated by the Apex Court in Mankastu. The court, deviating from what was held in the BGS SOMA SGS and agreeing to the reasoning as laid in Hardy, observed that it is the intent of the parties that determines whether the venue of arbitration is in actuality its seat. It was further held that the intention of the parties as to the seat should be determined from other clauses in the agreement and the conduct of the parties. Therefore, if the other clauses of the agreement or the conduct of the parties showcase that it is not the intention of the parties to consider the venue in the agreement to be the seat of the party, the same would be considered a counter indicator.


In one of the instances before the Apex Court, the respondent contended that Kolkata, being the venue of the arbitration, should also be the seat of the arbitration. The Apex Court held that the parties did not intend for Kolkata to serve as the arbitration's location. The Hon’ble Court observed that the respondent himself sought temporary relief under Section 9 of the A&C Act at the District Court in Muzaffarpur, not a court in Kolkata. Thus, the conduct of the respondent itself showcases that there was no intention to make the venue of the arbitration, i.e., Kolkata, the "seat" of the arbitration.


In another case where the arbitration agreement conferred exclusive jurisdiction on the courts in Gurugram, Haryana, and also incorporated New Delhi as the venue of the arbitration, the Court held that the parties' decision to provide the Courts in Gurugram, Haryana, exclusive jurisdiction is a sign that they did not intend for New Delhi to serve as the place of arbitration. Therefore, it was concluded that the conferment of exclusive jurisdiction may act as a counter indica in order to distinguish between the venue and the seat of the arbitration. Similarly, in another instance, where the arbitration agreement conferred exclusive jurisdiction upon the civil courts of Guwahati and considered New Delhi to be the venue of the arbitration, it was observed that the inclusion of the exclusive jurisdiction clause made it clear that the intent of the parties was clear that the seat would be in Guwahati and the civil court(s) at Guwahati would have jurisdiction.


Precision in Arbitration Agreements: Navigating the Complexities of Jurisdictional Determination


The wording of an arbitration agreement is imperative to conclusively determine the seat of the arbitration proceedings, which would further establish the jurisdiction. There exist various possibilities, subject to the wording of the arbitration agreement, that contemplate the determination of specific jurisdiction, and the same have been reflected below.


In the case where both jurisdiction and seat are given in the agreement, the rule as established in the BGS SGS would apply. Therefore, the jurisdiction of the Court with respect to the agreement concerning the seat of the arbitration would prevail over other courts.


In cases where both jurisdiction and venue are given in the agreement, the jurisdiction would be contingent on the fact that whether the agreement related to the venue is in actuality an agreement related to the "seat" of the arbitration, the same can be evaluated as per an external indicator that may imply the intent and conduct of the parties.


Lastly, in cases where both seat and venue are included in the agreement, the principle stated in the BALCO case that the "seat" of arbitration is the centre of gravity of the arbitration would apply and therefore, the jurisdiction of the Court with respect to the agreement concerning the seat of the arbitration would prevail.


Conclusion

In the context of arbitration, a counter-indica is any indication towards parties’ intention for not keeping "venue" of the arbitration to be its "seat." While this indication doesn't automatically negate the venue's designation as the seat, it does trigger questions and may ultimately affect whether or not this is upheld. It should be noted that how much weight a counter-indica carries in determining whether a venue operates double-duty as a seat remains unsettled in case law. Essentially, this means courts may have different outcomes despite similar circumstances. Nonetheless, recognizing what constitutes a counter-indica is important for any party utilizing an arbitration agreement. By understanding the factors that are being considered by the courts, parties can make informed decisions about how to draft their arbitration agreements and conduct the same in a harmonious manner.

 

[1] 3rd Year Student at Gujarat National Law University, BSW LL.B Hons. [2] 3rd Year Student at Gujarat National Law University B.A LL.B Hons.


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