• Nyayshastram

Seat/Venue/Place of Arbitration: A Detailed Analysis

Updated: May 31

Chirag Bhatia, Advocate, Bombay High Court

Introduction:

In this article, we have presented an overview on the concept of ‘Seat of Arbitration’ in International Commercial Arbitrations, to discuss the eternal confusion underlying the principles of and difference between the seat, venue & place of arbitration under the arbitration disputes governed by the Arbitration & Conciliation Act, 1996 & Arbitration & Conciliation (Amendment) Act, 2015 of India.

Undoubtedly the seat of an arbitration is the most important aspects of an arbitration agreement as well the proceedings culminating out of the said agreement which not only determines the governing law for the conduct of arbitration proceedings but also which courts will have supervisory power over the arbitration and the scope of those powers, especially in relation to enforcement of awards. The Seat of Arbitration may well be quite independent of the place or the venue where the hearings or other parts of the arbitral process occur or take place. Although the distinction between the ‘venue’ and ‘seat’ of arbitration is well recognised in international commercial arbitration, imprecise drafting of arbitration agreements may obscure this difference.

The basic things which various courts have held in relation to issues of seat/venue/place of arbitration, in consonance with or in contrast to one another are as follows:

(i) The seat of arbitration will decide the law applicable to the proceedings and the courts having supervisory jurisdiction over the award delivered. Expressly defining the seat of arbitration proceedings will also automatically mean that choice of ‘seat’ amounts to a choice of the exclusive jurisdiction of the courts at which the ‘seat’ is located.

(ii) The venue/place is only the geographical location where the arbitration proceedings will be physically conducted, whereas the seat will be the decisive factor of curial law applicable to the proceedings.

(iii) In the absence of specific mention/agreement with regards to the seat of the arbitration, the venue/place shall be considered as the seat of arbitration subject to a combined reading of the entire agreement/clause and absence of any other significant contrary indicia.

(iv) The terms seat/venue/place of an arbitration can be interchangeably used.

(v) The terms seat/venue/place of arbitration cannot be interchangeably used.

Although the distinction between the ‘venue’ and ‘seat’ of arbitration is well recognised in international commercial arbitration, imprecise drafting of arbitration agreements may obscure this difference.

The main case laws that will be discussed in the present article & which will provide an entire understanding of the position as it stands today, are as follows:

(i) Roger Shashoua vs Mukesh Sharma, [2009] EWHIGH COURT 957 (Comm).

(ii) Bharat Aluminium Co vs Kaiser Aluminium Technical Service, Inc (2012) 9 SUPREME COURTC 552.

(iii) Indus Mobile Distribution Private Limited vs Datawind Innovations Private Limited (2017) 7 SUPREME COURTC 678.

(iv) Antrix Corporation Ltd vs Devas Multimedia Pvt Ltd, 2018 (4) ArbLR 66 (Delhi).

(v) Union of India vs Hardy Exploration and Production (India) Inc, AIR 2018 SUPREME COURT 4871.

(vi) BGS SGS SOMA JV vs. NHPC Ltd 2019 (6) Arb LR 393 (SUPREME COURT).

(vii) Mankastu Impex Private Limited vs Airvisual Limited - Arbitration Petition No. 32 of 2018 (Decided On 05.03.2020).


Judgments:


Roger Shashoua vs Mukesh Sharma, [2009] EWHIGH COURT 957 (Comm.):

In Roger Shashoua, the English Court held that wherever there is an express designation of a ‘venue’, and no designation of any alternative place as the ‘seat’, combined with a supranational body of rules governing the arbitration, and no other significant contrary indicia, the inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding.


Bharat Aluminium Co vs Kaiser Aluminium Technical Service Inc. (2012) 9 SUPREME COURTC 552:

The legal quandary between a “seat” and “venue” of arbitration was resolved by India’s Supreme Court (“Supreme Court”) for the first time in this judgment. This decision clarified that the seat of the arbitration, once chosen, attains a permanent character which decides the scope of the powers and determines the court that has the final supervisory jurisdiction over the arbitration. By contrast, the venue is described to be provisional in nature and is merely for administrative convenience.

The Supreme Court in its decision given in this case held that the choice of another country as the Seat of Arbitration inevitably imports an acceptance that the law of that country relating to the conduct and supervision of Arbitrations will apply to the proceedings. If the Arbitration Agreement is found or held to provide for a Seat/place of Arbitration outside India, then even if the contract specifies that the Indian Arbitration Act shall govern the arbitration proceedings, Indian courts cannot exercise supervisory jurisdiction over the Arbitration or the award.[1]


Brief Facts:

An agreement dated 22 April 1993 (“Agreement”) was executed between BALCO and Kaiser, under which Kaiser was to supply and install a computer-based system at BALCO’s premises.

1. As per the arbitration clause in the Agreement, any dispute under the Agreement would be settled in accordance with the English Arbitration Law and the venue of the proceedings would be London. The Agreement further stated that the governing law with respect to the Agreement was Indian law; however, arbitration proceedings were to be governed and conducted in accordance with English Law.

2. Disputes arose and were duly referred to arbitration in England. The arbitral tribunal passed two awards in England which were sought to be challenged in India u/s. 34 of the Act in the district court at Bilaspur. Successive orders of the district court and the High Court of Chhattisgarh rejected the appeals. Therefore, BALCO appealed to the Supreme Court (“Court”).

3. Another significant issue to be adjudged, in the case of Bharti Shipyard Ltd. v/s Ferrostaal AG & Anr. (clubbed together with the above petition for hearing), was the applicability of section 9 (interim measures) of the Act. The parties had initially agreed to get their disputes settled through the arbitral process under the Rules of Arbitration of the International Chamber of Commerce, at Paris, subsequently, mutually agreed on 29 November 2010 to arbitration under the Rules of London Maritime Arbitrators Association, in London.

4. During the pendency of arbitration proceedings in London, an injunction application was made by appellants, Bharti Shipyard Ltd., before the District Judge at Mangalore, against the encashment of refund bank guarantees issued under the contract (u/s 9 of the Act). The applications were allowed and were consequently challenged in High Court of Bangalore. The Bangalore High Court set aside the application so allowed on the grounds that the appellants had an alternative remedy (u/s 44 of the Act, being interim reliefs for international arbitration) in the courts of London and further since the substantive law governing the contract, as well as the arbitration agreement, is English law, the English courts should be approached. This was also challenged in this petition to the Supreme Court.

5. The appeal filed by Bharat Aluminum Co. before the Division Bench of the Supreme Court was placed for hearing before a three-Judge Bench, as one of the judges in the Division Bench found that judgment in Bhatia International and Venture Global was unsound and the other judge disagreed with that observation.


Held:

The judgment in detail analyses, the provisions of various sections in the Act and applicability of Part I of the Act to international commercial arbitrations. Some significant issues dealt with in this judgment are as follows:

1. It was observed that the object of section 2(7) of the Act is to distinguish the domestic award (Part I of the Act) from the ‘foreign award’ (Part II of the Act), and not to distinguish the ‘domestic award’ from an ‘international award’ rendered in India. The term ‘domestic award’ means an award made in India whether in a purely domestic context, (i.e., domestically rendered award in a domestic arbitration or in the international arbitration which awards are liable to be challenged u/s 34 and are enforceable u/s 36 of the Act). October 2012

2. It was held that there is a clear distinction between Part I and Part II as being applicable in completely different fields and with no overlapping provisions.

3. The Court has also drawn a distinction between a ‘seat’ and ‘venue’ which would be quite crucial in the event, the arbitration agreement designates a foreign country as the ‘seat’/ ‘place’ of the arbitration and also select the Act as the curial law/ law governing the arbitration proceedings. The Court further clarified that the choice of another country as the seat of arbitration inevitably imports an acceptance that the law of that country relating to the conduct and supervision of arbitrations will apply to the proceedings. It would, therefore, follow that if the arbitration agreement is found or held to provide for a seat/place of arbitration outside India, then even if the contract specifies that the Act shall govern the arbitration proceedings, Part I of the Act would not be applicable or shall not enable Indian courts to exercise supervisory jurisdiction over the arbitration or the award. It would only mean that the parties have contractually imported from the Act, those provisions which are concerned with the internal conduct of their arbitration and which are not inconsistent with the mandatory provisions of the English procedural law or curial law. Therefore, it can be inferred that Part I applies only to arbitrations having their seat/place in India.

4. The Court further held that in foreign-related international commercial arbitration, no application for interim relief would be maintainable in India, either by arbitration or by filing a suit.

However, ever since then, some of the High Courts have incorrectly interpreted the decision of BALCO to mean that it allows concurrent jurisdiction, i.e., the seat court and the court within whose jurisdiction the cause of action arises. This is because the High Courts have missed the main finding in BALCO that the choice of a ‘seat’ amounts to a choice of the exclusive jurisdiction of the courts at which the ‘seat’ is located.


Indus Mobile Distribution Private Limited vs Datawind Innovations Private Limited (2017) 7 SUPREME COURTC 678:


Relevant Facts & Background:

An agreement was entered into between the Appellant and the first Respondent on 25 October 2014 (“Agreement”), under which the latter would conduct business with the former as its retail chain partner. The Appellant’s registered office is in Chennai, and as per the commercial arrangement between the parties, goods were to be shipped from Amritsar to New Delhi. Subsequently, disputes arose between the parties and a dispute notice was sent by the 1st Respondent to the Appellant under Clause 18 of the Agreement, alleging that the Appellant had defaulted in making payments worth INR 5 crores.

Clause 18 of the Agreement provided for a tiered dispute resolution mechanism, whereby on the failure of the parties to amicably resolve disputes or differences arising out of or in relation to the agreement, disputes would be resolved by arbitration conducted under the provisions of the Arbitration and Conciliation Act, 1996 (“Act”) at Mumbai, in the English language. Further, Clause 19 of the Agreement vested exclusive jurisdiction on courts of Mumbai for all disputes and differences arising out of or in connection with the Agreement.

The relevant extracts of these clauses are as below:

“18. …such Dispute shall be finally settled by arbitration conducted under the provisions of the Arbitration & Conciliation Act 1996 by reference to a sole Arbitrator which shall be mutually agreed by the parties. Such arbitration shall be conducted at Mumbai, in the English language…

19. All disputes & differences of any kind whatever arising out of or in connection with this Agreement shall be subject to the exclusive jurisdiction of courts of Mumbai only.”

The 1st Respondent inter-alia filed an application before the Delhi High Court (“High Court”) for interim relief under Section 9 of the Act, in order to prevent the Appellant from alienating or creating a charge on the property which was the subject matter of dispute.


DECISION OF THE HIGH COURT:

The High Court assumed jurisdiction, vide its order dated June 13, 2016. It reasoned that since no part of the subject matter jurisdiction arose in Mumbai, the courts of Mumbai would not be able to assert jurisdiction and decide the Section 9 petition. On facts, there were only three courts which had jurisdiction, i.e., the relevant courts at New Delhi, Chennai and Amritsar. Since the High Court at Delhi was first approached, it would have jurisdiction, and no other court, especially the courts of Mumbai could exercise jurisdiction over the Section 9 petition. Accordingly, the High Court allowed the interim relief prayed for in the Section 9 Petition.


DECISION OF THE SUPREME COURT:

Admitting a Special Leave Petition filed by the Appellant, the Supreme Court set aside the decision of the High Court. It came to a finding that once the seat of arbitration has been fixed, courts of such seat will exercise exclusive jurisdiction on the proceedings arising out of or in connection with the arbitration, including proceedings initiated under Section 9 of the Act. The Supreme Court observed that the courts in Mumbai, otherwise would not have had jurisdiction since no cause of action had arisen there and neither had any of the provisions of Section 16 to 21 of the CPC been attracted. However, on reference to Clause 18, the Supreme Court held that the seat of arbitration is Mumbai and Clause 19 (being the exclusive jurisdiction clause) further makes it clear that the courts in Mumbai, for all purposes in relation to the Agreement, would have exclusive jurisdiction. The Supreme Court relied on Bharat Aluminium Co. vs Kaiser Aluminium Technical Services Inc. (“BALCO”), and subsequent judgments such as Reliance Industries Ltd. vs Union of India, Harmony Innovation Shipping Limited vs Gupta Coal India Limited and Another, Union of India v. Reliance Industries Limited and Others and Eitzen Bulk A/S vs Ashapura Minechem Limited & Anr. Where the Supreme Court has given a consistent finding that when a seat of arbitration is chosen, by necessary implication, courts of that country would have supervisory jurisdiction over that arbitration.


Antrix Corporation Ltd vs Devas Multimedia Pvt Ltd, 2018 (4) ArbLR 66 (Delhi):


Brief facts:

A Division Bench of the Delhi High Court (“Delhi High Court”) in Antrix Corporation Ltd. (“Antrix”) v. Devas Multimedia Pvt. Ltd. (“Devas”) has set aside the decision passed by the single judge. In particular, the single judge of the Delhi High Court had allowed Devas, a Bangalore based media company to secure USD 562.5 million awarded in an ICC arbitration against Antrix, the commercial arm of the Indian Space Research Organization (“ISRO”). This is despite the fact that Antrix had already filed a petition under Section 9 of the Arbitration & Conciliation Act, 1996 (“Act”) before the Bangalore City Civil Court (“Bangalore Court”) seeking interim protection. The single judge adopted a purposive interpretation of Section 42 of the Act, and held that the petition must be ‘valid’, and the court which is approached in the first instance must be ‘competent’ to entertain and grant the reliefs prayed for in order to become the ‘one-stop’ court for all the subsequent proceedings. The Single judge allowed interim protection to Devas on the premise that the Section 9 petition filed by Devas was not maintainable.

Antrix appealed against the decision of the single judge before the Division Bench of the Delhi High Court under Section 13(1) of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Court’s Act, 2015 (“CC Act”).


Issue:

There were totally three issues before the Hon’ble Delhi High Court in this case. However, in this article, we will restrict ourselves to the only relevant issues in this context viz. Whether the appeal is maintainable, whether Delhi High Court had the exclusive jurisdiction to adjudicate any applications arising out of the arbitration agreement between Antrix and Devas?


Held:

The Delhi High Court relied on the decision of the Supreme Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Service (“Balco”) to note that Section 2(1) (e) of the Act confers jurisdiction upon two courts over the arbitral process, i.e., the courts having subject matter jurisdiction and the courts of the seat. It distinguished the judgment in Datawind as in that case the parties had particularly mentioned that a particular court was to have exclusive jurisdiction in addition to the designation of the seat. Delhi High Court, therefore, went on to hold that, if the findings in Datawind are to be seen in the background of the larger bench decision in Balco, then only if the parties had designated the seat as New Delhi and also provided an exclusive forum selection clause in favour of the courts at New Delhi, then only could it be said that Delhi High Court would have exclusive jurisdiction. Holding otherwise would in effect render Section 42 of the Act ineffective and useless, it held.

Overturned in BGS SGS vs NHPC Judgment:

However, over here it is pertinent to mention that this judgment and the view held herein, later on, has been overturned by specific reliance and the Supreme Court in the judgment of Hon’ble Supreme Court of India in BGS SGS SOMA JV vs NHPC Ltd 2019 (6) Arb LR 393 (Supreme Court). The same will be discussed as we delve further into this issue in the present article.


Union of India vs Hardy Exploration and Production (India) Inc. AIR 2018 SUPREME COURT 4871:

In this case, the Hon’ble Supreme Court of India was faced with the question of which laws would be applicable to post-award arbitration proceedings when the parties have agreed upon only the "venue" of arbitration and not the "seat" of arbitration.


Brief Facts:

The parties had entered a production-sharing contract in November 2016 (Supreme Court) for the extraction, development and production of hydrocarbons in a geographic block in India. Disputes arose between the parties as the Union of India allegedly relinquished the rights of Hardy Exploration and Production (India) Inc (HEPI) to the geographic block prematurely. HEPI initiated arbitration proceedings against the Union of India for re-entry to the geographic block and payment of interest on its investment. The arbitral tribunal rendered its award in favour of HEPI in February 2013. The award was signed and declared in Kuala Lumpur.

The clauses related to applicable laws and arbitration under the Supreme Court read as:

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

Nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and powers conferred upon it by this Contract in a manner which will contravene the laws of India.

Arbitration proceedings shall be conducted in accordance with the UNCITRAL Model Law on International Commercial Arbitration of 1985 except that in the event of any conflict between the rules and the provisions of this Article 33, the provisions of this Article 33 shall govern.

The venue of conciliation or arbitration proceedings pursuant to this Article unless the parties otherwise agree shall be Kuala Lumpur and shall be conducted in the English language. Insofar as practicable, the parties shall continue to implement the terms of this contract notwithstanding the initiation of arbitration proceedings and any pending claim or dispute.”

The Union of India approached the Delhi High Court for setting aside of the arbitral award under s.34 of the Arbitration and Conciliation Act 1996 (the Act). The said application was opposed by Hardy Exploration on the ground that the award in question is a ‘foreign award’ as the seat of the arbitration was Kuala Lumpur, and hence Part – I (specifically section 34) would not apply. The Delhi High Court held in favour of this argument and Union of India had to appeal before the Hon’ble Supreme Court of India.


SUPREME COURT HELD:

The Supreme Court noted that an arbitration clause must be read holistically to understand its intentions to determine the seat of arbitration. The Supreme Court clarified that there is no confusion with regard to the difference between the venue and the seat of arbitration. However, if the "venue" of arbitration alone is mentioned in the arbitration clause, it can be considered the "seat" of arbitration only if another/additional factor(s) is/are added to it as a concomitant(s). If the intention of the arbitration clause through a choice of venue and appended factors leads to the conclusion that the seat is outside India, Part I of the Act will be excluded. The court notably goes on to assert that the terms “seat” & “place” of arbitration can be interchangeably used. The court held that Kuala Lumpur could not be considered as seat or place of the arbitration since it was not expressly mentioned as the place of arbitration in the relevant arbitration clause and hence set aside the impugned order of Delhi High Court stating that Part – I of the Arbitration & Conciliation Act, 1996 shall be applicable to the award in question as the same is not a ‘foreign award’.


Overturned in BGS SGS vs NHPC Judgment:

However, over here it is pertinent to mention that this judgment along with Antrix[2] judgment of Hon’ble Delhi High Court, later on, has been said to be “not good law” by the Hon’ble Supreme Court of India in BGS SGS SOMA JV vs NHPC Ltd. 2019 (6) Arb LR 393 (SUPREME COURT). However, there are certain technical discrepancies regarding this observation of the Supreme Court in BGS SGS judgment which is discussed later in this article.


BGS SGS SOMA JV vs NHPC Ltd 2019 (6) Arb LR 393 (SUPREME COURT):

On 10 December 2019, the Supreme Court, in a three-judge bench judgment in BGS SGS Soma JV v. NHPC Ltd., held that the cases of Union of India v. Hardy Exploration and Production (India) Inc. and Antrix Corporation Ltd. vs Devas Multimedia Pvt. Ltd. have incorrectly interpreted Bharat Aluminium Co. (BALCO) vs Kaiser Aluminium Technical Service, Inc.

In this case, the Supreme Court has analysed the law on what constitutes the ‘juridical seat’ of arbitral proceedings and whether, once the seat is delineated by the arbitration agreement, courts at the place of the seat would alone thereafter have exclusive jurisdiction over the arbitral proceedings. In the course of its analysis, the primary focus was on the important tests in order to determine whether the ‘seat’ of the arbitral proceedings has, in fact, been indicated in the agreement between the parties.


Brief Facts:

A contract was signed between NHPC Limited and its contractor, BGS SGS SOMA JV, for India's largest hydroelectric project on the Subransi River in Assam and Arunachal Pradesh. The contract provided that:

  • disputes with Indian contractors would be settled under the Arbitration Act; and

  • disputes with foreign contractors would be settled under the Arbitration Act read with the United Nations Commission on International Trade Law Arbitration Rules, with the Arbitration Act to prevail in the case of inconsistencies.

The arbitration clause in the contract further stated that the "arbitration proceedings should be held at New Delhi / Faridabad".

Disputes arose between NHPC and JV, and arbitration proceedings were commenced. The arbitration proceedings were conducted in New Delhi, and the consequent award was also signed there. Since the award was in JV's favour, NHPC filed an application under Section 34 of the Arbitration Act challenging the award before the Faridabad District Court.

On the opposition, the court held that the courts at New Delhi would have exclusive jurisdiction in the present case. Hence, the case was transferred to an appropriate court in New Delhi. On an appeal filed against this order by NHPC, the Punjab & Haryana High Court held that New Delhi was not the seat of arbitration and only a convenient venue. Hence, the district court at Faridabad will have jurisdiction since the cause of action arose there.

BGS SGS JV subsequently approached the Hon’ble Supreme Court of India.


Issues:

(i) Is a Section 37 appeal maintainable against an order that transfers Section 34 proceedings from one court to another?

(ii) Does the designation of a place of arbitration confer exclusive jurisdiction on the courts of said place to decide disputes arising out of the arbitration agreement?

(iii) What was the seat of arbitration in the present dispute?

Keeping in mind our area of focus, we will restrict ourselves only the latter two issues hereinabove.


SUPREME COURT HELD:

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.

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 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. 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".

Ultimately, in this case, the emphasis was placed on a holistic or combined reading of the entire contract along with the arbitration agreement/clause to determine the intention of the parties with regards to the seat of the arbitration.

Analysis:

However, it is a matter of argument on whether or not this judgment of a three-judge bench of the Hon’ble Supreme Court (Justice R. F. Nariman, Justice Aniruddha Bose & Justice vs Ramasubramanian) is a pitch-perfect judgment on the lines of the topic it discusses due to the following main points:


(i) Holding that another judgment of a bench of co-equal strength viz. Hardy Exploration is not good law –

In BGS judgement, the Supreme Court held that:

We, therefore, declare that the judgment in Hardy Exploration and Production (India) Inc. (supra), being contrary to the Five Judge Bench in BALCO cannot be considered to be good law.”

However, it is not to be forgotten here that both the above judgment, viz. Hardy Exploration, as well as BGS SGS, have been passed by a three-judge bench of the Hon’ble Supreme Court and hence one bench cannot over-rule a judgment of another bench of co-equal strength of the same court. Whenever such a situation arises, that the latter bench of co-equal strength has a view contrary to one held by the former bench, it has to refer the same to a larger bench and cannot by itself declare the previous judgment to be not good in law or per incuriam.


(ii) Laying down the law determining seat in International Commercial Arbitration in spite of the fact that the case at hand was purely a Domestic Arbitration-

In this case, both the litigating parties were Indian parties, and the arbitration held between them and the award delivered were purely domestic in nature. A foreign element of any kind was absolutely absent in the present case at hand. Despite this, the court in BGS meticulously delved into English & Indian case laws wherein the parties were from different countries. Such an approach by the court, though may be seen to be clearing certain confusion, was totally unnecessary and suffering from a technical glitch as explained in point (i) above and hence the same would not amount to a binding ratio decidendi as international commercial arbitration was not something that the court was confronted with and hence could not be said to be binding.


(iii) Holding Delhi to be the seat of arbitration upon the mere fact that the arbitration hearings had taken place in Delhi -

In BGS, the agreement provided that "arbitration proceedings shall be held at New Delhi/Faridabad". On the basis of this observation the court rather absurdly held that since all the arbitration hearings had been held in Delhi and also the award had been pronounced in Delhi, the parties had chosen Delhi as the seat of the arbitration.

In fact, in a number of judgments, it has been held that the venue chosen by the parties for conducting the arbitration hearings is a matter of mere convenience and it is immaterial in deciding that which place the parties intended to be the seat of the arbitration.[3]

Hence, it is still a matter of debate as to whether this judgment of BGS can be said to be over-turning the judgment of Hardy Exploration. In the view of the author, due to the above-mentioned explanations, it cannot be said to over-turning the view held by a bench of co-equal strength in Hardy Exploration and the same needs to be referred to a larger bench of the Hon’ble Supreme Court.


Mankastu Impex Private Limited Vs. Airvisual Limited - Arbitration Petition No. 32 of 2018 (Decided On 05.03.2020)


Relevant Facts:

A Memorandum of Understanding (hereinafter referred to as “MOU”) dated 12.09.2016 was entered into between Petitioner-Company incorporated in India and Respondent-incorporated under the laws of Hong Kong.

A petition u/s 11 (6) of the Arbitration and Conciliation Act, 1996 read with Arbitration and Conciliation (Amendment) Act, 2015 read with the Appointment of Arbitrator by the Chief Justice of India Scheme, 1996 seeking appointment of a sole arbitrator under Clause 17.2 of the above said MOU.

The Respondent also sent its reply dated 05.01.2018 to the notice dated 08.12.2017 stating that Clause 17 of the MoU provides for arbitration administered and seated in Hong Kong. The Respondent averred that should the Petitioner wish to resolve the dispute by arbitration; they should refer the dispute to an arbitration institution in Hong Kong. Further, it was stated that the Respondent did not agree to ad hoc arbitration but clearly agreed to administered arbitration in Hong Kong. It was in this backdrop; the Petitioner filed the present petition u/s 11 (6) of the Arbitration and Conciliation Act seeking appointment of Sole Arbitrator under Clause 17 of the MOU.

Before moving forward, it is important to note that as per Clause 17.1 of the MOU it was mentioned that the courts at New Delhi should have jurisdiction with respect to the present disputes arising out of the said MOU and the laws of India shall apply. As per Clause 17.2, it was mentioned that “….any 13 dispute, controversy, the difference arising out of or relating to the MoU “shall be referred to and finally resolved by arbitration administered in Hong Kong…..”.

The factual matrix in which the question of “venue” versus “seat” arose is almost identical to the one in Hardy Exploration. The applicable law clause stated that the governing law for the purpose of the agreement is the Indian law, whereas the arbitration clause mentions Hong Kong as the venue for the arbitral proceedings. Coordinate bench decisions of BGS SGS and Hardy Exploration were relied on by the Petitioner and Respondent, respectively. While agreeing with the reasoning in BALCO, the Supreme Court reiterated that the difference between the terms “venue” and “seat” are crucial and that they cannot be used interchangeably. The judgement also re-affirms the reasoning of Hardy Exploration in that surrounding factors, and holistic reading of the arbitration clause in the agreement must be taken into consideration to determine what the “seat” of arbitration is. The bench went one step ahead to hold that the intention of the parties with regards to the applicable law (seat) is to be determined from their conduct as well as the other clauses of the agreement

In the present case, the court considered and held the following:

19. 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. The situs is not just about where an institution is based or where the hearings will be held. But it is all 12 about which court would have the supervisory power over the arbitration proceedings. In Enercon (India) Limited and others v. Enercon GMBH and another (2014) 5 SUPREME COURTC 1, the Supreme Court held that “the location of the Seat will determine the courts that will have exclusive jurisdiction to oversee the arbitration proceedings. It was further held that the Seat normally carries with it the choice of that country’s arbitration/curial law”.

20. It is well-settled that “seat of arbitration” and “venue of arbitration” cannot be used interchangeably. 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.

21. In the present case, the arbitration agreement entered into between the parties provides Hong Kong as the place of arbitration. The agreement between the parties choosing “Hong Kong” as the place of arbitration by itself will not lead to the conclusion that parties have chosen Hong Kong as the seat of arbitration. The words, “the place of arbitration” shall be “Hong Kong”, have to be read along with Clause 17.2. Clause 17.2 provides that “….any dispute, controversy, the difference arising out of or relating to the MoU “shall be referred to and finally resolved by arbitration administered in Hong Kong…..”. 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. 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 court further went on to hold that:

22. As pointed out earlier, Clause 17.2 of the MoU stipulates that the dispute arising out of or relating to MoU including the existence, validity, interpretation, breach or termination thereof or any dispute arising out of or relating to it shall be referred to and finally resolved by the arbitration administered in Hong Kong. The words in Clause 17.2 that “arbitration administered in Hong Kong” is an indicia that the seat of arbitration is in Hong Kong. Once the parties have chosen “Hong Kong” as the place of arbitration to be administered in Hong Kong, laws of Hong Kong would govern the arbitration. The Indian courts have no jurisdiction for the appointment of the arbitrator.

The court in the present case while observing that when the parties have chosen a place of arbitration in a particular country, that choice brings with it submission to the laws of that country, relied upon the judgement of Eitzen Bulk A/S v. Ashapura Minechem Ltd. and another (2016) 11 C 508.

The court in the said case finally held that:

The words in Clause 17.1 “without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction” do not take away or dilute the intention of the parties in Clause 17.2 that the arbitration be administered in Hong Kong. The words in Clause 17.1 do not suggest that the seat of arbitration is in New Delhi. Since Part-I is not applicable to “International Commercial Arbitrations”, in order to enable the parties to avail the interim relief, Clause 17.3 appears to have been added. The words “without 18 regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction” in Clause 17.1 is to be read in conjunction with Clause 17.3. Since the arbitration is seated at Hong Kong, the petition filed by the Petitioner under Section 11(6) of the Act is not maintainable, and the petition is liable to be dismissed.


Conclusion:

While concluding this article, all that author has to say about the present topic is that the eternal confusion between the place, seat & venue of the arbitration proceedings still remains at large. One of the obvious reasons for the same, as can be clearly seen from the above-mentioned cases is lack of proper drafting of arbitration agreements/clauses. With huge amounts of money and commercial transactions and the efficiency of ongoing trade and business at stake, it must be made sure that the arbitration agreements/clauses are airtight and there is no scope for any interpretational loopholes left in the same. The seat, place, venue and the applicable laws to the proceedings must be clearly stated in the arbitration agreements/clauses, and each of the terms must be unequivocally defined so as to have absolute clarity on the terms of the agreement/clause in case a dispute arises between the parties to the same.

Absence of definition of any of these terms from the Arbitration and Conciliation Act, 1996, Arbitration and Conciliation (Amendment) Act, 2015 as well as Arbitration and Conciliation (Amendment) Act, 2019 only adds to the nightmare already prevailing in the arbitration industry. Perhaps if the any of said terms were unequivocally defined by the legislation in the 1996 act or at least in the 2015 act, a lot of the confusion surrounding this rather wild debate would have been saved, and a lot of cases/disputes would have been prevented from falling into the limbo which has haunted the arbitration industry for years together now.

[1] However, this position now stands altered by the insertion of Section 2 (2) by the Arbitration & Conciliation (Amendment) Act, 2015 which provides that Part I of the Act, such as Section 9 (interim relief), Section 27 (court assistance for evidence), Section 37(1)(a) (appealable orders) & Section 37 (3) will be applicable even in cases of foreign seated arbitration.

[1] Supra

[1] Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc. 2012(9) SCC 552; Enercon (India) Limited v Enercon GmbH 2014 (5) SCC 1; Naviera Amazon.

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