Keywords: International Commercial Arbitration, Party autonomy, Place of arbitration, lex fori, Contractual agreement
The essence of arbitration stems from the ideology that intends to make the settlement of disputes more convenient and efficient, thereby allowing the parties to contractually choose a tribunal for dispute resolution. The principle of Party Autonomy is one of the key features of arbitration. Due to the rapid globalization and accompanied competition, an increased level of internationalisation of business has given effect to the growth of international contracts with clauses incorporating international arbitration over court settlement mainly due to the speedy decision-making process. The Indian Arbitration and Conciliation Act, 1996 (“the Act”) defines International Commercial Arbitration in Section 2(1)(f).
The term ‘Venue’ in arbitration simply states the geographical location as to where such arbitration proceeding is conducted, per the satisfaction of the parties. Whereas ‘seat’ of arbitration determines not only the governing law of the arbitration procedure but also the rights relating to the enforcement of the arbitration awards. The choice of seat determines the extent to which the local court will involve itself in the arbitral process when a dispute arises. Even so, the Arbitration and Conciliation (Amendment) Act, 2015, failed to incorporate the suggestions given by the 246th Law commission report as well as clarity in terms of seat, venue and place, brought in by the BALCO case.
The first attempt by the judiciary to wrangle the predicament was witnessed in Bhatia International v. Bulk Trading SA wherein a three-judge bench of the Supreme Court declared an application of interim relief under Part I of the Act maintainable. The Court held that the provisions of Part I of the Act applied not only to domestic arbitration but also international commercial arbitration unless the parties impliedly or expressly exempted it. Section (2) of Part I of the Act sets out “this Part shall apply where the place of arbitration is in India.” The judgement was primarily based on the absence of the word “only” under this section. This omission was evidence of the intent of the Indian legislature to permit Part I of the Act to apply to arbitrations that take place outside India.
Nearly a decade later the judgement passed in Bharat Aluminium v Kaiser Aluminium (BALCO) attempted to put a lid on the chaos and uncertainty encountered post-Bhatia judgement. The BALCO case unequivocally overruled the interpretation of Section 2(2) in Bhatia stating that Part I of the 1996 Act does not apply to foreign seated arbitrations. The Court determined that the term ‘place of arbitration’ stated in Section 20 (3) ought to be constructed as ‘venue’ whereas the term ‘place’ in Section 20(1) and (2) indicates ‘seat’ of arbitration. The New York Convention, 1958 and the UNICITRAL Model Law, 1985 establishes the territorial link between place of arbitration and the law governing the arbitration.
In Eitzen Bulk A/S v. Ashapura Minechem Limited and Another, the Supreme Court held the same findings of BALCO, stating that when the parties to the arbitration have chosen the seat of arbitration, courts of that country would have supervisory jurisdiction over that arbitration. The Supreme Court quoted the principle relating to the relationship between lex arbitri and lex fori explained by Redfern and Hunter in International Arbitration wherein "Parties may well choose a particular place of arbitration precisely because its lex arbitri is one which they find attractive. Nevertheless, once a place of arbitration has been chosen, it brings with it its own law. If that law contains provisions that are mandatory so far as arbitration are concerned, those provisions must be obeyed. It is not a matter of choice any more than the notional motorist is free to choose which local traffic laws to obey and which to disregard.”[i]
Further, the English judgement in Roger Shashoua and Ors. v. Mukesh Sharma formed part of the ratio decidindi for BALCO. The Shashoua principle states that when a contract explicitly designates the venue without any express reference to the seat, joint with a supranational body of laws and no contrary clause, the conclusion is that the venue is in concrete, the seat of arbitration. Here, the Court adopted a seat-centric approach. However, unlike the English Shashoua Judgement, the Indian Shashoua Judgement caused a state of quandary when the Supreme Court in the judgement stated that ‘venue’ with ‘something else’ would allow the courts to consider ‘venue’ and the ‘seat’ as synonyms. This, in turn, created a burden of proof on the parties to arbitration, leaving the air of uncertainty alive.
Closest and Most Real Connection Principle
According to the decision of the Supreme Court in National Thermal Power Corporation v. Singer Company when the Curial law (law of the arbitration agreement) is undefined, the substantive law (proper law of the contract) is normally the Curial law. However, in cases where the substantive law is not defined, the law of seat will be deemed to be the curial law as the law bearing the closet connection in context with the dispute.
More than a decade after the above judgement, the Court in Enercon Case tried to apply the CMRC test inversely. The issue, in this case, involved a lack of clarity on the curial law, calling into question whether the term ‘venue’ could be used interchangeably with the term ‘place or seat.’ The Supreme Court ruled that the ‘venue’ of arbitration is merely a geographical location chosen based on convenience of both parties and is not the same as ‘seat’ of arbitration, which decides the appropriate jurisdiction. [ii] This not only highlighted the seat centric approach but also made it evident that lex fori would gain precedence over lex contractus.
The Hardy Exploration Conundrum
The issue in the case of Union of India v Hardy Exploration and Production Inc. (“Hardy Exploration”) was whether the 'seat’ of arbitration and ‘venue’ of arbitration are taken to be the same if the contractual agreement mentioned ‘venue’ with no specification to ‘seat’ of arbitration. The three-judge bench of the Supreme Court, deviating from the Shashoua principle held that the issue is governed by the earlier judgement of the Court in BALCO. The arbitration seat and venue are poles apart, the venue could not ipso facto assume the standing of the seat. Instead, a venue could become the seat only if something else is added to it as a concomitant. Therefore, the judgement was seen to be ironical considering that the case was governed by the BALCO judgement, yet it chose to ignore the significant Shashoua principle.
Revival of the Shashoua Principle
In Brahmani River Pellets Limited v. Kamachi Industries Limited, the Supreme Court uprooted the previously established distinction between seat and venue. The court, in this case, rendered that “if 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.”[iii]In simple terms, the mere designation of a venue in the agreement without any concomitant element is sufficient evidence of the party’s indication of that venue being the seat of arbitration.
However, in the landmark case BGS SGS Soma JV v. NHPC Limited, predominantly an extension of Brahmani River Principle, an issue was raised on the designation of the seat of the arbitration under arbitration clause, for the umpteenth time. The Apex Court relied on the BALCO judgement, holding up the Shashoua Principle. The Court held that where there is an express designation of ‘venue’ and there exist no other significant opposing indicia, then the ‘venue’ ipso facto becomes ‘seat.’ While many perceived this judgement to be the defining moment for the decades’ struggle between venue and seat, others assessed it to be contrary to the Hardy Exploration verdict. Thereby, pinning the future of arbitration disputes between a rock and a hard place.
Current Scenario: Mankastu Impex Private Limited v. Airvisual Limited
On 5 March 2020, a full bench of Supreme Court encountered yet another case Mankashu Impex Private Limited v. Airvisual Limited reopening the issue of whether the ‘venue of arbitration’ is the ‘seat of arbitration.’
Facts: An MOU containing an arbitration agreement was entered by the petitioner (Mankastu Implex Private Limited), an Indian Company, and the respondent (Airvisual limited), a Hong Kong Company. A clause in the arbitration agreement specified that any future dispute would be resolved by arbitration administered in Hong Kong whereas the clause stating the governing law deemed the courts of New Delhi to have jurisdiction. After a dispute arose, a petition was filed by the petitioner before the Delhi High Court under section 9 of the Act subsequently approached the Apex Court under Section 11(6) of the same Act.
Issue: Whether the Indian Court has the jurisdiction to appoint a sole arbitrator under Section 11(6) of the Indian Arbitration and Conciliation Act?
Held: The matter after being adjudicated by the three-judge bench of the Supreme Court stated that the mere mention of ‘place of arbitration’ cannot be forecasted as an intention of the parties to entail the ‘place’ to be the ‘seat’ of arbitration. Thereby, the Apex Court dismissed the petition under section 11(6) of the act stating that the parties to the agreement chose Hong Kong as the seat of arbitration instantly when they agreed to any dispute arising out of the contract to be administered in Hong Kong, therefore taking into consideration the conduct of the parties for ascertaining the parties intention in determining the ‘seat’ of arbitration. Hence, the Delhi High Court had no jurisdiction in the matter.
The Mankashu Judgement not only brought the ratio expounded in Hardy Exploration back into the limelight but also upheld the principle of territoriality as held in the BALCO case thereby fortifying the BGS Soma principle. Even so, the judiciary chose to rest the burden of proof on the intention of the parties rather than merely amending the Indian Arbitration and Conciliation Act to shed some clarity and define terms like ‘seat’ and ‘venue’ of arbitration. Hence, judicial consistency with respect to interpretation of an arbitration clause is in dire need to ensure pro arbitration. Until then, the only resort the parties have is to express their intentions crystal clear regarding the seat of arbitration to steer clear from unnecessary litigation.
*Juanita Vanga is a penultimate law student studying at ICFAI Law School, Hyderabad. Her passions lie in the fields of IPR law, Corporate Law, Arbitration and Aviation Law. Any discussion related to the article can be made via mail to email@example.com .
[i] Kunal Kumar and Ruchika Darira, Relationship between Lex Fori and Lex Arbitri (July 4, 2017), https://www.mondaq.com/india/arbitration-dispute-resolution/607536/relationship-between-lex-fori-lex-arbitri
[ii] Abhinav Bhushan and Niyati Gandhi, The Ghost of the Governing law returns: Lex Arbitri v. Curial Law in India (February 14, 2914), http://arbitrationblog.kluwerarbitration.com/2014/02/26/the-ghost-of-the-governing-law-returns-lex-arbitri-v-curial-law-in-india/?doing_wp_cron=1594441474.4230930805206298828125
[iii] Promod Nair and Bhavya Mohan, Conflating Seat and Venue: A Review of the Supreme Court’s Decision in Brahmani River Pellets (July 3, 2019), https://www.barandbench.com/columns/conflating-seat-and-venue-a-review-of-the-supreme-courts-decision-in-brahmani-river-pellets
Preferred Citation: Juanita Vanga, "Exegesis on 'Seat', 'Place' and 'Venue' in an Arbitration Clause: Cutting the Gordian Knot?", Arbitration and Corporate Law Review, Published on 13th July 2020.