Seat of the Arbitration Vs Venue of the Arbitration - Divergence Continues

This Article aims to explain the position of law as on date with respect to 'Seat of the Arbitration Vs Venue of the Arbitration under the aegis of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") (amended from time to time). The instant Article is bifurcated into the following parts:

(a) The concept of the Seat and Venue in an Arbitration;
(b) Legal Consequences of Seat of the Arbitration;
(c) Judicial Interpretation on the aforesaid concept; and
(d) Conclusion

A. Concept of the Seat & Venue of the Arbitration

2. The "Seat" of arbitration is a juridical concept. It has been said that an arbitration finds its juridical 'home' in the seat of arbitration and the jurisdiction of the seat over the arbitral process is primary. The courts at the seat of the arbitration exercise exclusive supervisory jurisdiction with respect to curial/procedural law/lex arbitri i.e. law which governs the conduct/proceedings of individual arbitration references. In other words the curial law is the law which determines the following:-

(i) Crucial issues such as the appointment of the arbitrator(s);
(ii) Validity of the arbitration agreement;
(iii) Arbitrability of the disputes;
(iv) Procedure of conducting the arbitration; and
(v) The form of the arbitral award.

2.1 On the other hand, the concept of "Venue" of the Arbitration is not the same as the "Seat" of the Arbitration as the term "Venue" is nothing but a:-

(i) Geographical location for conducting arbitral proceedings;
(ii) Chosen on the basis of the convenience of the parties to the arbitration;
(iii) Varies from time to time; and
(iv) Most importantly does not affect the outcome of the case.

2.2 Drawing reference from the above, simply put the meaning of the term "Seat" is nothing but a link between an arbitration and the court which will supervise the arbitration proceedings. In other words, the court having supervisory role over the arbitral proceedings will entertain all the applications and appeals during the pendency of the arbitral proceedings. On the other hand, the meaning of the term "Venue" means the convenient place for holding the meetings of the arbitration.

2.3 However, interestingly, neither the Arbitration Act nor the UNCITRAL Model Law on International Commercial ("Model Law") specifically use the words "seat or "venue".

2.4 A comparison of the provisions of the Arbitration Act and the Model Law, would reveal that Section 20 and Section 31(4) [1] of the Arbitration Act which inter-alia provides the place of the arbitration and form and contents of the arbitral award respectively, are a complete reproduction of Article 20 and 31(3) of the Model Law with minor modifications.

2.5 Therefore, form the conspectus of above-said paragraphs it is clear that since there is no legislative backing till date to the aforesaid terms, the conflict between the juridical seat and jurisdiction of the court remained intact and as a result the distinction between seat and venue of the arbitration is not properly distinguished.

B. Judicial Interpretation on the concept of Seat Vs. Venue

4. In this particular category, the instant article primarily deals with the recent judgments delivered by the Hon'ble Supreme Court i.e. from the period commencing from 2018, to the year, 2020, which in turn would show that how the observations in the judgments mentioned below are directly contrary to each other.

I. Union of India Vs. Hardy Exploration & Production India Inc. (2019) 13 SCC 472

In the said aforesaid case, the Apex Court attempted to provide clarity on the cases where an arbitration agreement fails to specify the 'Seat' of an arbitration but does specify a 'venue. Before adverting on the finding of the Apex Court in the said case, it is necessary to highlight the brief facts of the case, which are enumerated here under:-

Brief Facts:

Hardy Exploration and Production (India) Inc. ("Hardy Exploration") entered into a production-sharing contract with the Indian Government for the extraction, development and production of hydrocarbons in a geographic block in India. Disputes arose between the parties, which were referred to arbitration. The arbitration clause[2] specified Kuala Lumpur as the 'venue' of the arbitration. Arbitration was conducted in Kuala Lumpur and a final award was rendered in favour of Hardy Exploration. The award was challenged by the Indian Government under Section 34 before the Delhi High Court. Hardy Exploration resisted the Section 34 Challenge on the basis that Indian courts could not have jurisdiction to entertain the Section 34 Challenge because the seat of the arbitration was Kuala Lumpur and Part I of the Arbitration Act would not be applicable. The Delhi High Court ruled in favour of Hardy Exploration. The Indian Government appealed the Delhi High Court decision before the Supreme Court.

Apex Court's finding:

(i) It was held that since there was no 'determination' (which signifies an expressive opinion) of the seat by the Arbitral Tribunal. Venue can only become a seat if something else is added to it as concomitant.

(ii) In the absence of such determination, it was categorically held that Kuala Lumpur was merely a venue and not the Seat.

II. BGS SGS Soma JV Vs. NHPC Ltd. (2019) SCC Online SC 1585

The aforesaid Judgment delivered by the Apex Court was rendered in the context of maintainability of the appeals under Section 37 of the Arbitration Act along with most contentious/debatable issues viz. the designation of a place of arbitration confers exclusive jurisdiction upon the courts of the said place and the seat of the arbitration. Before adverting on the finding of the Apex Court in the said case, it is necessary to highlight the brief facts of the case, which are enumerated here under:-

Brief Facts:

A contract was signed between NHPC Limited ("NHPC") and its contractor, BGS SGS SOMA JV ("JV"), for India's largest hydroelectric project in Assam and Arunachal Pradesh respectively.

Disputes arose between NHPC and the JV, and arbitration proceedings were commenced. The arbitration clause in the contract stated that the "arbitration proceedings shall be held at New Delhi /Faridabad". The arbitration proceedings were conducted in New Delhi and the award ("Award") in respect of the said proceedings was also signed there. Since the Award was in favour of the JV, NHPC filed an application under Section 34 of the Arbitration Act challenging the Award before the District Court in Faridabad.

The JV filed an application under Order VII Rule 10 of the Code of Civil Procedure 1908 and Section 2(1) (e) (i) of the Arbitration Act, seeking return of the Section 34 application to the appropriate court in New Delhi (since the arbitration had taken place in New Delhi) or Assam, (since the cause of action had arisen in Assam). Accordingly, the Section 34 application was transferred from Faridabad to New Delhi ("Transfer Order").

Aggrieved by this Transfer Order, NHPC filed an appeal under Section 37 of the Arbitration Act before the Hon'ble Punjab and Haryana High Court. The said High Court by way of its judgment held the following:-

(a) Appeal under Section 37 of the Arbitration Act was maintainable;

(b) Court with relevant jurisdiction was the Faridabad court because the cause of action had arisen there; and

(c) New Delhi was not the seat of arbitration and only a convenient venue.

Aggrieved by the aforesaid judgment, JV filed an SLP being SLP (C) No. 25618 of 2018 appealed before the Apex Court.

Apex Court's finding:

(i) Maintainability of Appeal under Section 37 of the Arbitration Act:

Insofar as the question of maintainability of Section 37 of the Arbitration Act is concerned, it was categorically held that an order merely transferring the Section 34 proceedings from one court to another, as stipulated in the Transfer Order, is not tantamount to an outright refusal to set aside the Award. Therefore, NHPC's appeal filed under Section 37 of the Arbitration Act before the Punjab and Haryana High Court was not maintainable.

(ii) Designation of a place of arbitration confers exclusive jurisdiction upon the courts of the said place:

Apex Court followed paragraph 96 of the BALCO Vs Kaiser Aluminium Technical Services[3] judgment in a domestic arbitration, which was further followed in Indus Mobile Distribution Vs Data Wind Innovations Pvt. Ltd. & Ors[4], and held that where the parties have designated a seat by agreement, it would akin to an exclusive jurisdiction clause, which would vest such court with exclusive jurisdiction for the purpose of governing the arbitral proceedings. Accordingly, the Apex Court overruled the view taken by the Bombay High Court and the Delhi High Court in Konkana Copper Mines and Antrix Corporation Ltd.

In view of the above, it was held that the courts of the place of arbitration have the exclusive jurisdiction to hear the Section 34 application.

(iii) Seat of the arbitration:

Apex Court held that whenever there is an express designation of a "Venue" combine with supranational body of rules governing the arbitration without any significant contrary indicia, would strongly indicate that the venue was in fact the seat of the Arbitration. Therefore, with such view the Apex Court declared the law laid down by the coordinate three judge's bench in Union of India Vs Hardy Exploration & Production India Inc. bad in law and held that in the case in hand New Delhi will be seat of the arbitration.

III. Mankatsu Impex Pvt. Ltd.Vs. Airvisual Ltd. – Arbitration Petition No. 32 of 2018

The aforesaid Judgment delivered by the Apex Court was rendered in the context of Section 11 (6) of the Arbitration Act. Before adverting on the finding of the Apex Court in the said case, it is necessary to highlight the brief facts of the case, which are enumerated here under:-

Brief facts:

On September, 2016 Mankatsu Impex Pvt. Ltd. ("MIPL") and Airvisual Ltd. ("AVL") was entered into Memorandum of Understanding ("MoU") under which MIPL was appointed as an exclusive distributor for the sale of AVL's products within India for a period of five years.

However, on 14.09.2017 MIPL received an email wherein MIPL was apprised that AVL was acquired by an entity namely, IQAir, which in turn acquired all the technology and the associated assets of AVL.

In pursuance of the above, IQAir further apprised MIPL that it would not assume any contracts or legal obligations of AVL, and would work on case to case basis with resellers to negotiate new contracts.

Aggrieved by the actions of IQAir, MIPL invoked the terms of the MoU and stated that MIPL held exclusive rights of sale of AVL for five years within the territory of India. However, IQAir rejected this assertion, thus leading to a dispute.

Pursuant thereto, on 08.12.2017, MIPL invoked the clause 17[5] i.e. arbitration clause proposed the name of the Sole Arbitrator.

IQAir responded to the aforesaid Notice issued by MIPL, wherein it stated that IQAir has not assumed any contractual obligations and in such scenario the terms of MoU were not enforceable against it. In addition thereto, AVL also responded to the aforesaid Notice issued by MIPL and stated that in terms of Clause 17 of the MoU an arbitration must be administered and seated in Hong-Kong.

Per Contra, MIPL not accepted the interpretation of AVL and reiterated its earlier stand i.e. that the arbitration was seated in India. Thereafter, MIPL filed a Petition under Section 11(6) of the Arbitration Act before the Apex Court for the appointment of an arbitrator.

Apex Court's finding:

(i) The Apex court began its analysis by noting the significance of the seat of arbitration as the same determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award. In addition, it was further observed that the situs is not just about where an institution is based or where the hearings will be held. But it is all about which court would have the supervisory power over the arbitration proceedings.

(ii) In addition to the above, Apex Court observed 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. In this regard, the Apex held that on a plain reading of the arbitration agreement, it is clear that the reference to Hong Kong as "place of arbitration" is not a simple reference as the "venue" for the arbitral proceedings but a reference to Hong Kong is for final resolution by arbitration administered in Hong Kong.

(iii) Therefore, if the arbitration agreement is found to have seat of arbitration outside India, then the Indian Courts cannot exercise supervisory jurisdiction over the award or pass interim orders. In such scenario, Section 11 of the Arbitration Act, 1996 has no application to "International Commercial Arbitrations" seated outside India.

D. Conclusion

5. From a conspectus of the aforesaid judgments, in my opinion the law pertaining to the issue of Seat Vs Venue is still blurred because of the manifold reasons:-

(i) The Apex Court in BGS Soma's case (Three Judge's bench headed by HMJ. R.F. Nariman) declared the law laid down in Union of India Vs Hardy Exploration's which is again rendered by a coordinate Three Judge's bench bad in law. Thus, in my view this flies in the face of the judgment rendered by the Apex Court itself in the case of Chandra Prakash & Ors. Vs. State of U.P. (2002) 4 SCC 234, wherein it was categorically held that the doctrine of binding precedent is of utmost importance in the administration of judicial system as it promotes certainty and consistency in judicial decisions. In such scenario, the said issue must be referred to a larger bench in order to have greater clarity on this debatable issue.

(ii) Apart from the above, in Mankatsu judgment, the Apex Court categorically held that mere expression place of arbitration could not be the basis to determine the seat and the Courts must look at other clause in the Agreement. With great humility, this view of the apex court again appears to be contrary to the BALCO's and BGS' Soma judgment wherein it was held that designation of a venue, along with supranational body of rules, would also amount to designation of seat unless there were contrary indicia.

(iii) Lastly, while incorporating the dispute resolution clauses in the contracts, the parties must resort to choose "seat" carefully and "venue" conveniently. In other words, parties must expressly agree upon the seat of the arbitration and not to use any other words like venue or place interchangeably.

By: Suhael Buttan

About the author:

Suhael Buttan is currently working as an associate at SKV Law Offices. He has obtained his B.B.A.LL.B (Hons.) degree from Symbiosis Law School, Noida (affiliated with the Symbiosis International University, Pune).

Over the years, he has successfully handled an array of litigations and legal matters representing the interests of corporate as well as individual clients before the Supreme Court of India, High Court of Delhi, District Courts of Delhi, Appellate Tribunal for Electricity and various other Commissions and fora across the country.

He has also advised clients in matters pertaining to Civil laws, Electricity Laws, Contractual Disputes, Consumer matters and Arbitration Laws in particular.

Vikas Maini, Co-Author

VIkas is currently working as an associate at SKV Law Offices. He has obtained his B.A. LL.B. (Hons.) degree from Guru Gobind Singh Indraprastha University ("GGSIPU"), New Delhi .

He is currently practicing in the area of commercial litigation and arbitration with special focus in the area of Infrastructure & Energy. Vikas’s expertise also extends to other branches of law including but not limited to competition law, the Insolvency and Bankruptcy Code, Consumer Protection Act, Civil Suits and Criminal Law.

[1] 20. Place of arbitration.—

(1) The parties are free to agree on the place of arbitration.

(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.

(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.

31. Form and contents of arbitral award.—

……..

(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place.

[2] Article 32

32.1 This Contract shall be governed and interpreted in accordance with the laws of India.

Article 33

33.9 Arbitration proceedings shall be conducted in accordance with the UNICITRAL Model Law on International Commercial Arbitration of 1985…in the event of any conflict between the Rules and the provisions of this Article 33, the provisions of this Article 33 shall govern.

33.12 The venue of conciliation or arbitration proceedings pursuant to this Article unless the parties otherwise agreed, shall be Kuala Lumpur…

[3] (2012) 9 SCC 552

[4] (2017) 7 SCC 678

[5] 17. Governing Law and Dispute Resolution

17.1 This MoU is governed by the laws of India, without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction.

17.2 Any dispute, controversy, difference or claim arising out of or relating to this MoU, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered in Hong Kong. The place of arbitration shall be Hong Kong. The number of arbitrators shall be one. The arbitration proceedings shall be conducted in English language.