Place, Venue and Seat of Arbitration: Revisiting the Distinctions.

PLACE, VENUE AND SEAT OF ARBITRATION: REVISITING THE DISTINCTIONS

The Seat of arbitration is a legal concept, not a geographical one . It has a legal significance in domestic and majorly in international commercial arbitration. In the absence of parties’ agreement, the arbitration procedure shall be governed by the law of the seat of such proceeding, and supervised by the court of such seat, and receive relevant judicial support.

The seat of arbitration plays a vital role in the development of arbitration practice in many aspects including:

(1)Validity. The respect to parties’ autonomy in choosing arbitration as their dispute resolution means the validity of the arbitration agreement may not be easily negated.

(2)Efficiency. Under a specific legal framework, the assistance or support that a court or an institution can provide to the arbitration procedure determine the efficiency of arbitration proceedings;

(3)Predictable enforcement. In the proceeding of challenging an arbitral award or non-enforcement, the court at the seat will carry out judicial review over the arbitration award.

Venue which is not the same as seat of arbitration is merely a geographical location of the arbitration proceedings chosen on the basis of convenience

LEGISLATIVE CHANGES OVER THE YEARS

The provisions of the 1996 Act themselves did not incorporate the concepts of seat and venue and the same have largely been developed by judicial precedent. Indian courts have understood the practical difficulties while dealing with faulty arbitration clauses having two different places as seat and venue(at which hearings may be held). Despite the Law Commission  recommending changes, very few suggested amendments were actually enacted by the Arbitration and Conciliation (Amendment) Act, 2015

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Section 2(2)[1] and Section 20[2] majorly dealt with the concept of place of arbitration.

Firstly the Section 2(2)was left to judicial interpretation whether the place meant the seat of arbitration or the venue of arbitral proceedings. Secondly, it seems that the law was applicable to Arbitrations which were taking place in India.

Moreover, the word “place” in Section 20 necessarily should connote different meanings in the sub-sections. A bare perusal of the section would imply that the parties are at liberty to choose only the “place” (meaning venue) of arbitration hindering the autonomy of parties to choose the convenient legal systems and the manner in which arbitrations can be conducted.

The Supreme Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc.[3] (BALCO) provided conceptual clarity to the legislation interpreting the word “place” to mean “seat” or “venue” depending on the section in which the word was used.

Expressly overruling the previous interpretations, the Court observed that the section has to be interpreted to mean that only when the seat/place of arbitration is in India, will Part I apply, restoring the distinction between seat and venue. Further consolidating the doctrine of seat and venue under the 1996 Act, the court clarified that the term “place” used in Sections 20(1) and (2) would connote “seat” and the term “place” used in Section 20(3) would connote “venue”.

Subsequently in a judgment, which may be significant for any cross-border dispute, delivered by the Supreme Court in the case of Enercon India vs Enercon GmBh[4], the problem was discussed and the court ultimately sided with the seat of the arbitration for resolving any dispute in an appropriate court rather than the venue. Venue which is not the same as seat of arbitration is merely a geographical location of the arbitration proceedings chosen on the basis of convenience. However, it is the seat that actually decides the appropriate court which will have exclusive jurisdiction to support the arbitration proceedings. The only exception is when the agreement is completely silent on the seat. In such situations, it is the venue which will emerge as a crucial factor in deciding the appropriate court.

The Amendment Act of 2015 has, however, incorporated the proviso to Section 2(2) suggested by the amendment. Inclusion of the proviso does not fundamentally alter the nature of the 1996 Act, which, as per BALCO[5] is a seat-centric legislation. Having granted the parties the autonomy to choose to retain the jurisdiction of Indian courts, the amendment has redressed the lacuna that existed in the 1996 Act. The parties involved in foreign seated international commercial arbitrations can file proceedings under Section 9 in order to secure the assets which may be necessary to realise their claims.

THE JURISPRUDENCE, AS SHAPED BY THE SUPREME COURT

the Apex Court in Union of India Vs Hardy Exploration and Production India Inc. dwelled upon the legal issue regarding the specification of a “place” or “venue” for arbitration in an arbitration agreement, and if the agreement is silent with respect to the “seat”, then, on what basis and by which principle should it determine the place of seat”, which governs the applicability of laws of a particular country for deciding post-award arbitration proceedings. A full bench of the Supreme Court, while clarifying the distinction between the place and seat of arbitration, was pleased to hold that a contractual clause stipulating Kuala Lumpur as the “venue” of arbitration, in the absence of any additional factors, would not amount to a choice of juridical seat[6] .The Supreme Court examined all the relevant clauses of UNCITRAL Model Laws and International Chamber of Commerce Rules of Arbitration, and concluded that the parties were free to agree on the place of arbitration, and if that was not specified, the arbitral tribunal will decide the question. Most, importantly, the Apex Court gave a relevant finding that venue, could in no manner, be interpreted to be a seat of arbitration, however, "place", could be equated with "seat" of arbitration, if there are conditions precedent to it.

On 10 December 2019 a three-judge bench of the Supreme Court passed a judgment in BGS SGS SOMA JV v NHPC Ltd,[7] deciding key issues relating to the interpretation of arbitration clauses and the scope of appealable orders under the Arbitration and Conciliation Act 1996.

In particular, the Supreme Court held that:

• an appeal against an order transferring proceedings under Section 34 of the Arbitration Act is not maintainable under Section 37 of the act;
• the designation of a seat confers exclusive jurisdiction on the courts of said seat; and
• a place of arbitration – regardless of its designation as a seat, venue or place – is the juridical seat of arbitration unless there is an indication to the contrary.

Through its decision, the Supreme Court has specifically declared that its earlier judgment in Hardy Exploration[8] and the Delhi High Court's decision in Antrix[9] are incorrect.

In the present case, the Supreme Court held that the decision in Hardy Exploration was incorrect because it ignored Roger Shashoua, BALCO's reliance thereon and the Indian leg of the Roger Shashoua case,[10] all of which upheld that the venue of an arbitration is the juridical seat in the absence of any significant contrary indicia. The venue in Hardy Exploration was Kuala Lumpur, and only a supranational legal system was involved. There were no indicators contradicting the parties' intent to designate Kuala Lumpur as the juridical seat. Despite this, the Supreme Court held that the Arbitration Act would apply to the arbitration proceedings. The effect that Hardy Exploration would have would be to allow a foreign award to be challenged under Section 34 of the act, undoing any progress made post-BALCO. Thus, the Supreme Court declared that "the judgment in Hardy Exploration and Production (India) Inc. (supra), being contrary to the Five Judge Bench in BALCO (supra), cannot be considered to be good law"..Is New Delhi or Faridabad juridical seat in present case? Applying the Roger Shashoua principle, New Delhi/Faridabad was the juridical seat because there were no significant contrary indicia. Therefore, the question remained as to which courts had jurisdiction to hear the Section 34 application: the courts of Faridabad or New Delhi?

The Supreme Court considered the fact that the parties had elected for all the arbitration proceedings to take place in New Delhi and that the award had been signed in New Delhi. Accordingly, the Supreme Court overruled the impugned order and concluded that New Delhi was the final juridical seat of the arbitration and that the New Delhi courts had jurisdiction to hear the Section 34 application.

THE IRRESISTIBLE CONCLUSION

This judgment does an admirable job of resolving residual ambiguities regarding the issue of exclusive jurisdiction where the seat of an arbitration is situated. It addresses the dichotomy created by Antrix relying on BALCO. The judgment has clarified the issue and will, in some manner, affect ongoing challenges post-Hardy Exploration where Section 34 proceedings have been commenced in other jurisdictions.In view of the aforesaid, a summary of the position under Indian law is as follows:

o    The seat of arbitration determines the courts which would exercise jurisdiction over the arbitration proceeding.

o    Parties may by consent make Section 9 applicable even when the arbitration is not held in India. But, in absence of such an agreement, the 1996 Act solely operates within the territory of India.

o    The substantive law applicable to the contract is distinguishable from the law applicable to the arbitration agreement.The parties may choose the law applicable to the arbitration agreement, which may be different from the substantive law applicable to the contract itself.

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[1] This Part shall apply where place of arbitration is in India.

[2] 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. 

[3] ( 2012) 9 SCC 552.

[4] (2014) 5 SCC 1.

[5] (2012) 9 SCC 552.

[6] AIR 2020 SC (Civil) 133.                                

[7] Civil Appeal 9307/9308/9309 of 2019.

[8] Union of India v Hardy Exploration and Production (India) Inc, AIR 2018 SC 4871.

[9] Antrix Corporation Ltd v Devas Multimedia Pvt Ltd, 2018 (4) ArbLR 66 (Delhi).

[10] Roger Shashoua v Mukesh Sharma (2017) 14 SCC 722.