The act governing arbitration in India, i.e., Arbitration and Conciliation Act, 1996 (“Arbitration Act”) have gone through many much-needed amendments from time to time. Also, the judiciary has played a key role in interpreting the important provisions of the Act, be it the issue related to applicability of Part – I of the Act to foreign seated arbitration or the arbitrability of fraud claims, the judiciary has through its timely interventions guided the growing jurisprudence of arbitration in India. The one issue which is still a topic of debate is the determination of Seat and Venue in arbitration. The judiciary has tried to resolve the confusion and contradiction but there still appears room for uncertainty.
This article will provide a comprehensive overview of the judgments on this issue and look into the difference between Seat and Venue with regards to the approach taken by the judiciary. Further, the article will delve deeper into the concept of the jurisdiction of the Courts concerning the Seat of arbitration, principles defined by courts to determine the Seat of arbitration and lastly will conclude in terms of the confusion created by different judgments and the way ahead to deal with this issue.
The concepts of Seat and Venue under the regime of Indian arbitration law are different. There is no exclusive mention of “Seat” and “Venue” under the Arbitration Act however, both these terms are governed under the same provision of the Arbitration Act. The concept of Seat and Venue in Arbitration is of utmost importance, where “Seat” defines the jurisdiction of the Court and laws applicable to the Arbitration proceedings and “Venue” defines the place, the location where the Arbitration proceedings are conducted.
The significance of the Seat of arbitration can be determined by referring to the provision of the Act, which distinguishes both the terms by referring to a Seat as a place of arbitration and a Venue as a place of meeting. The selection of a Seat will have some consequence as such selection of the Seat of arbitration will determine the supervisory jurisdiction of the court over the arbitral process, which means any issue pertaining to that arbitration proceedings will be taken care of by that court only. The Seat also determines what laws are applicable upon arbitral proceedings and which in turn will govern jurisdiction selected as the Seat, but this will be the case when the parties didn’t select the governing law while selecting the Seat of arbitration and therefore, the law of the Seat becomes the law governing the arbitration proceedings.
Seat and Venue: Distinguished
The concept and context will not be clear if we go simply by reading the bare provision of the Act. The term Seat and Venue might be sound synonymous but the Supreme Court has demarcated the line between these two concepts. In the case of Bharat Aluminum Co. v. Kaiser Aluminum Technical Service Inc. (“BALCO”), the Supreme Court observed that choosing the Seat of arbitration reflects the intentions of the parties to accept the law of that country relating to conduct and supervisory jurisdiction of the courts over the arbitration.
Similarly, in the case of Enercon (India) Ltd. v. Enercon GmBH, the Supreme Court expressed its view regarding the Seat and Venue and held that seat of arbitration is a crucial aspect and to be decided carefully as it decides the applicable law and arbitration procedure for deciding the disputes between the parties. Similarly, the Supreme Court in the case of Mankastu Impex Pvt. Ltd. v. Airvisual Ltd., observed that,
“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.”
Hence, it is important to note that to reduce the confusion and contradiction while adjudicating the matter between the parties, the Seat should be selected with due caution and deliberation. Through the Seat of arbitration parties impliedly choose the curial or applicable law and arbitration procedure while the Venue of arbitration is merely a geographical location for conducting the meeting/ arbitration.
Complicated position of Law with regards to Jurisdiction of Courts
Considering the importance of these two terms in arbitration proceedings, the first judgment was the BALCO judgment, where the Supreme Court resolved the issue and confusion revolving around the concept of Seat and Venue. The Hon’ble Supreme Court in this judgment distinguished between the two terms and clarified that the term “place of arbitration” u/s 20 can be used interchangeably as a Seat under sub-section (1) and Venue under sub-section (3). Further while demarcating the line between the two crucial concepts, the Hon’ble Supreme Court held that when the Seat of arbitration is decided then that attains the permanent status and the Courts of such Seat will have the exclusive jurisdiction over the arbitration proceedings and the issues arising in connection with that Arbitration.
In an interesting turn of events the Supreme Court upheld the concept of party autonomy and held that the two courts have concurrent jurisdiction under the Act, i.e., the courts having the supervisory jurisdiction over the arbitration and the courts within whose jurisdiction the cause of action arises. The confusion created in the BALCO judgment was later stretched forward in some judgments of the High Courts and Supreme Court. In the case of Enercon (India), the Supreme Court held that,
“Once the Seat of arbitration has been fixed in India, it would be in the nature of exclusive jurisdiction to exercise the supervisory powers over the arbitration”
A similar instance was taken by the Supreme Court in the case of Reliance Industries Ltd. v. Union of India, where the Supreme Court pressed the exclusive jurisdiction principle and deviated from the concept of concurrent jurisdiction as laid down in the BALCO judgment.
On the similar lines of interpretation, the Supreme Court in the case of Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. (Indus Mobile), analyzed the entire legal concept of Seat and Venue and held that only the courts within whose jurisdiction the Seat lies will have jurisdiction over the arbitration to exercise its powers and no other court will have the jurisdiction including the courts within whose jurisdiction the cause of action arose. In the case of Brahmani River Pellets Ltd. v. Kamachi Industries Ltd., the issue revolved around the dispute and difference between the concepts of “Seat” and “Venue”. The case has many folds where the Madras High Court assumed jurisdiction according to the arbitration clause in the agreement and held accordingly. However, in an appeal filed before the Supreme Court against the impugned judgment of Madras High Court. The Hon’ble Supreme Court reversing the judgment held that,
“Where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter and parties intended to exclude all other courts.”
Similarly, in the case of Union of India v. Hardy Exploration and Production (India) Inc., the Supreme Court held that a Venue can be considered as a Seat of arbitration if the alone Venue is mentioned in the arbitration clause and some associated factors are added to it. However, the Court in the same case didn’t mention the preconditions according to which the place of arbitration can be considered as the seat of arbitration and that will be done on case to case basis. The same can be done by the holistic reading of the arbitral clause in light of the surrounding circumstances.
Ultimately in Brahmani, the Supreme Court held that a Venue can be considered as a Seat until otherwise is mentioned in the Agreement. Unfortunately, the precedent settled, in this case, was not in line with the previous ruling of the Supreme Court on the same issue. Brahmani followed the exclusive jurisdiction principle but deviated from the ultimate conclusion.
The Supreme Court in the above-noted cases deferred from the “Concurrent Jurisdiction principle” evolved in the BALCO judgment and concluded the confusion according to the “Exclusive Jurisdiction principle” but High Courts did follow the same principle as set out in BALCO and as according to exclusive jurisdiction principle.
The Delhi High Court in the Case of Antrix Corp. Ltd. v. Devas Multimedia Pvt. Ltd., applied the BALCO judgment and its interpretation concerning supervisory jurisdiction over the arbitration and held that even the courts where the cause of action arose will have the supervisory jurisdiction over the arbitration. Similarly, in the case of Konkola Copper Mines v. Stewarts and Lloyds of India Ltd., the Bombay High Court held that,
“The judgment of the Supreme Court is declaratory of the position of law that the Court having jurisdiction over the place of arbitration can entertain a proceeding in the exercise of its supervisory jurisdiction as indeed the Court where the cause of action arises.”
Also, in the case of Hinduja Leyland Finance Ltd. v. Debdas Routh, the Calcutta High Court while interpreting the “Exclusive Jurisdiction” principle propounded in Indus Mobile and exclusive forum selection clause relied on BALCO judgment and Section 2(1)(e) which gave jurisdiction to two courts held that,
“…nomination of a Seat does not oust the courts in other places where part of the cause of action has arisen, of their jurisdiction, as such a proposition would be contrary to the five-judge bench decision of the Supreme Court in BALCO. Hence, in choosing a Court under Section 2(1)(e)(i) we have now an additional forum, that is, the courts at the Seat of arbitration.”
With regards to these judgments heavily relying on BALCO and terming Concurrent jurisdiction as the principle applying to govern the jurisdiction of the Courts. However, the Supreme Court in the case of BGS SGS SOMA JV v. NHPC Ltd. (BGS SOMA) has relied upon the judgments of Indus Mobile, Reliance Industries, Enercon, and Brahmani River Pellets and held that the operative part of the BALCO judgment relied on Roger Shashoua v. Mukesh Sharma should be read constructively which devised the exclusive jurisdiction principle. Also, the Supreme Court in the same case overruled the judgments of Antrix Corp. and Hardy Exploration and held these judgments and their interpretation as bad in law.
Exclusive Jurisdiction of the Courts will also change with the change of place of Seat
As already discussed above the concept of exclusive jurisdiction of Courts with regards to the Seat of Arbitration, the Supreme Court has categorically held that the Seat of Arbitration will be the determining factor for deciding the jurisdiction of the Court. But the question here arises is whether changing the Seat of arbitration will affect the jurisdiction of the courts? The Supreme Court in 2021 got the opportunity to settle this issue in the case of Inox Renewables v. Jayesh Electricals.
This issue of determining the jurisdiction of the Court with respect to the Seat of Arbitration has already been dealt with by the Supreme Court in BALCO and Indus Mobile by relying on the principle enshrined u/s 20 of the Act where the Supreme Court has held that irrespective of the fact that the part of the cause has arisen in the jurisdiction of some other court, it will not affect the jurisdiction of the Court where the Seat of the arbitration is placed. However, the present case has differed on grounds of facts as the Seat of the arbitration was mutually changed by the parties and the question proposed was “whether the change of the Seat of arbitration will also change the jurisdiction of the court?”
The Hon’ble Supreme Court after relying on BGS SOMA and the judgment of Videocon Industries Ltd. v. Union of India observed that the courts at the Seat of Arbitration specifically designated in the Arbitration Clause between the parties would have exclusive jurisdiction to resolve the disputes arising out of the arbitration and upheld the mutual agreement of changing the Seat of arbitration that too without writing. The Supreme Court concluded and settled the proposition and held that in the case where the parties have mutually agreed to change the Seat of the arbitration the exclusive jurisdiction of the court will also shift and would accordingly vest with the Courts at the replaced Seat of Arbitration agreed by the parties. This judgment upheld the party autonomy which is the ultimate objective of the Arbitration Act.
The Principles for Determining a Seat
As stated above, the concept of Seat and Venue is governed by the same provision of the Act, while the Supreme Court has iterated its intention that the term “place” of arbitration can be used interchangeably as Seat and Venue of arbitration as per the intention reflected out of the arbitration clause of the agreement. The principle for determining a Seat for arbitration has been evolved through many cases and taking reference to foreign judgments. However, the principles set out in different judgments found out to be contradictory in other judgments which fire up the confusion and controversy related to the concept.
In the first instance, the Shashoua principle was discussed in the BALCO judgment where the Supreme Court relied on Roger Shashoua v. Mukesh Sharma and re-iterated the principle of determining the Seat of arbitration. The Shashoua principle states that if the parties have only clarified the Venue, combined with a supranational body of laws, and no other contrary provision available then that Venue can be considered as the Seat of arbitration. However, with regards to the jurisdiction of the courts, the Shashoua principle clarified that the courts having a Seat of arbitration will have exclusive jurisdiction with regards to any dispute that arose.
The same Shashoua principle was re-iterated in the case of Enercon India, but in the agreement, there was a certain contrary provision available which fall under the garb of “contrary indicia” as set out in the Shashoua principle. Hence, according to this principle, a Venue can be considered as a Seat if it does not go against any of the provisions of the agreement.
The “Closest Connection” Test
When the arbitration clause lacks specificity with regards to the Seat of arbitration then courts turn down to check the intention of the parties through that agreement. In these cases, Courts apply the closest connection test to determine the Seat in cases where there is no intent is shown or specified in the agreement.
The Court of appeal in Sulamerica Cia National De Seguros S.A. v. Enesa Engenharia S.A. suggests and pointed out a three-stage enquiry to cull out the Seat of arbitration, first is the express choice, second is the implied choice, and third is by applying the closest and most real connection test. Same in the case of C v. D, where the Court of appeal states that,
“…an arbitration agreement will have the closest connection with the place where parties have chosen to arbitrate than with the place of the underlying contract, in cases where the parties have deliberately chosen to arbitrate, in one place, disputes which have arisen under a contract governed by the law of another place.”
Recently the UK Supreme Court in the case of Enka Insaat v. OOO “Insurance Company Chubb” tried to simplify the Sulamerica ruling wherein the UKSC observed that in absence of any express choice of governing law, the general rule will be to consider the law governing the underlying contract. However, the SC was of the view that the choice of a different country as the seat of arbitration cannot be ignored which was considered/ intended to apply to the arbitration agreement. Even the closest connection test is established, the law of the Seat (intention of the parties) will be preferred to govern the arbitration agreement.
In the Indian context the Supreme Court the case of Enercon (India) Ltd. v. Enercon GmBH discussed the cases of Sulamerica and C v. D and by ultimately relying on the principle set out in Naviera Amazonica Peruana S.A. v. Compania Internacional De Seguros Del Peru held that since the parties have not decided the Seat of arbitration hence court should apply closest and most real connection to determine the Seat.
The principle laid down in Hardy Exploration and deviation from Shashoua principle.
Supreme Court earlier clarified there is no confusion with regards to the concept of Seat and Venue of arbitration as they can be used interchangeably as per the intent shown in the agreement. The Supreme Court in Hardy Exploration, went on to clarify the doubt regarding the consideration of Venue as a Seat of arbitration. Supreme Court relied on the UNCITRAL Model law to determine the Seat of arbitration in the case where parties have agreed for the Venue but not for the Seat and held that the courts should look for other factors that can be included to determine the Seat of arbitration and for that purpose the arbitration agreement should be read holistically. Supreme Court clarified that Venue cannot be considered as a Seat until some other factors have been adduced to it and some condition precedent is satisfied.
The reasoning and principle in hardy exploration are considered to be a deviation from the Shashoua principle as it sets out some more considerable factors to lead the confusion while selecting a Seat of arbitration.
The principle set out in BGS SOMA
After the setback in Hardy Exploration judgment which deviates from the Shashoua principle, Supreme Court was faced with the same question that whether the Venue or place can be considered as the juridical Seat of arbitration. The Hon’ble Supreme Court in the case of BGS SGS SOMA JV v. NHPC Ltd., while dealing with the same question held that a place of arbitration regardless of its designation as Seat or Venue can be considered as juridical Seat of arbitration until something contrary is specified in the agreement by the parties. The judgment went ahead to reaffirm the Shashoua principle and record that “contrary indicia” shown in the agreement is the only factor to determine whether a Venue can be considered as a Seat or not.
The Supreme Court through this judgment overruled the interpretation given by the Courts in Hardy Exploration and Antrix judgment and held these judgments as contrary to BALCO judgment and bad in law.
Mankastu Impex Principle
In the recent development regarding the issue about Seat and Venue, Supreme Court got the opportunity to decide and revisit the issue in the case of Mankastu Impex Pvt. Ltd. v. Airvisual Ltd. and held that,
“It has also been established that mere expression “place of arbitration” cannot be the basis to determine the intention of the parties that they have intended that place as the “Seat” of arbitration. The intention of the parties as to the “Seat” should be determined from other clauses in the agreement and the conduct of the parties.”
“…..The agreement between the parties that the dispute “shall be referred to and finally resolved by arbitration administered in Hong Kong” clearly suggests that the parties have agreed that the arbitration is seated at Hong Kong and that laws of Hong Kong shall govern the arbitration proceedings as well as have the power of judicial review over the arbitration award.”
The finding in Mankastu seems contrary to that of BALCO and Shashoua principles as it deviates from the territoriality principle to determine the seat of arbitration. Also, Mankastu concluded that Seat and Venue u/s 20 cannot be used interchangeably. If the court would have considered the test laid down in Hardy Exploration and BGS SOMA JV, the result would be the same, i.e., Hong Kong to be the juridical Seat of arbitration. However, the view taken by the Supreme Court with regards to the place and Venue of arbitration seems to have confused the concepts and in the end deferred from that of BALCO.
Concluding Remarks and the Way Ahead
The Seat of arbitration may well be quite independent of the Venue where the proceedings of arbitration or other parts of the arbitral process take place. The Seat of arbitration is vital, as it will decide the applicable law and procedure for conducting the arbitration process. Also, the courts having the Seat in their jurisdiction will have supervisory jurisdiction over the arbitral process. Identification of the Seat of arbitration post BALCO judgment has become one of the most important features of an arbitration clause. The selection of the Seat determines the law governing the Arbitration procedure and often, more importantly, the process and rights relating to the enforcement of the arbitration award.
In an attempt to make the wording of the Act consistent with the international usage of the concept of a “Seat” of arbitration, and for that purpose the 246th Law Commission Report inter alia proposed an amendment to Section 20(1) of the Act. In its recommendation, the law commission focuses on substitution of the word “place” with “Seat and Venue” in Section 20. However, the suggestion was not implemented and did not see the light of the day. In this context, the Court in Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. & Ors., succinctly observed that “… the BALCO judgment in no uncertain terms has referred to ‘place’ as ‘juridical Seat’ for the purpose of Section 2(2)of the Act. It further made it clear that Section 20(1) and 20(2) where the word ‘place’ is used, refers to ‘juridical Seat’, whereas, in Section 20(3), the word ‘place’ is equivalent to ‘Venue’. This being the settled law, it was found unnecessary to expressly incorporate what the Constitution Bench of the Supreme Court has already done by way of construction of the Act.”
As in the judgments stated above, the Supreme Court tried to resolve the confusion revolving around the concept of Seat and Venue by demarcating a line between them but in doing so in some of the judgments the concept of party autonomy has been given a go by. However, the Supreme Court has given the much-needed clarity on the aspect of Seat, Venue, place, and jurisdiction of courts. The link that was missing between the Seat, Venue, and place of arbitration was founded in BALCO and other judgments delivered by the Supreme Court. However, the different stance taken by different constitutional courts has added more confusion to the concepts. While one of the reasons for the problem and contradiction is poor drafting of arbitration clauses in the agreement, the lack of an express provision in the Act cannot be overlooked. Hope the recent judgment of Mankatsu will serve the purpose as of now and the recent ruling of the Supreme Court in Inox Renewables will be considered as a set-out principle until a new confusion is raised in this conundrum.
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