Seat vs Venue | Arbitration

Two significant judgments of the Supreme Court govern the law in this field of arbitration viz.-

i. Bhatia International vs Bulk Trading ¹(2002) 4 SCC 105  [“Bhatia”]

A three judge bench of the Supreme Court held that the provisions of part 1 of the Arbitration and Conciliation Act [“the Act”] shall also apply to all arbitrations held out of India unless the parties by agreement, express or implied, exclude all or any of its provisions.

ii. Bharat Aluminum Co. vs Kaiser Aluminum Technical Service, Inc.²(2012) 9 SCC 552  [“BALCO”]

A decade later, a constitution bench of the Supreme Court reversed the findings given in Bhatia and strictly limited the application of part 1 of the Act to arbitrations which take place within the territory of India. However, keeping in view of the fact that the law laid down in Bhatia has been followed by all the High Courts and the Supreme Court as well in various judgments, thus, the Supreme Court deemed it appropriate in holding that the above ratio would apply prospectively to all the arbitration agreements executed after the date of the aforementioned judgment.

The Act does not define seat or venue. Section 20 of the Act merely defines place of arbitration which is often used synonymously with the terms “seat” or “venue” which often leads to controversy. The term “seat” is of vital importance as it connotes situs of arbitration. Whereas, the term “venue” though often confused with the term “seat” is more of a place chosen as convenient location by the parties to carry out the arbitration proceedings, but it ought not to be confused with seat. For example, the parties may choose Delhi as the seat of arbitration but are at liberty to conduct the arbitration proceedings in Mumbai or any place other than the Seat/Delhi. However, in case of dispute, it is only the courts in Delhi which shall have the supervisory jurisdiction over such arbitration proceedings as the Seat chosen by the parties is Delhi which is akin to an exclusive jurisdiction clause in the Agreement.

The Constitution bench in BALCO unequivocally clarified that the word “place” mentioned in Section 20(1) and 20(2) of the Act refers to the juridical seat of arbitration, whereas the word “place” as appearing in Clause 20(3) is equivalent to Venue. Apart from limiting the scope and application of part I of the Act to arbitrations taking place within India, the Constitution bench in BALCO laid down various guiding principles and the foundation upon which the controversy qua the Seat and venue is to be adjudicated. The same are hereby given below in brief-

1. The law of the Seat or place where the arbitration is held shall be the law to govern the Arbitration.
2. Part 1 of the Act applies when the seat of Arbitration is in India irrespective of the kind of arbitration.
3. The distinction between Seat and Venue is crucial when the arbitration agreement designates a foreign court as Seat/place of arbitration and also selects Arbitration and Conciliation Act 1996, as the law to govern the arbitration proceedings. In such an event, the part 1 of the Act would be inapplicable as the Seat is outside India even if the agreement purports to provide the applicability of the Arbitration and Conciliation Act 1996 to govern the proceedings.
4. The Court must undertake detailed examination in order to discern from the agreement and surrounding circumstances, the intention of the parties as to whether a particular place mentioned in the agreement refers to Seat or Venue.
5. Choice of another country as the seat of arbitration, inevitably imports an acceptance that law of that country relating to the conduct and supervision of arbitration will apply to such proceedings.

Upon the bedrock of the aforementioned principles laid down in BALCO, herein below is a case study of various arbitration clauses under consideration in matters adjudicated by the foreign courts and the Supreme Court, which resulted in landmark judgments and further development in understanding the controversy between Seat and Venue.

1. Roger Shashoua & Ors v Mukesh Sharma³[2009] EWHC 957 (Comm) 

Arbitration Clause

“The Venue of the Arbitration shall be London, United Kingdom. The Arbitration proceedings would be conducted in English in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris. The governing law of the Agreement would be the law of India.”

The aforementioned arbitration clause does not conspicuously confer the seat of arbitration as that of London, U.K., it only refers to Venue. It is exactly in the aforementioned fact situation that the Supreme Court, in BALCO held that the Courts must undertake a detailed examination as to whether the place mentioned in the agreement refers to Seat or Venue. In the aforementioned judgment, rendered by Justice Cook, the Court arrived at the conclusion that although the word venue is not synonymous with Seat in an arbitration clause, however, the venue designated as London is accompanied with the curial law of International Chamber of Commerce, Paris which is a supranational body of Rules. Therefore, in the aforesaid fact situation the Court held that the word Venue in the arbitration clause would have to be read as the seat of arbitration and only courts in U.K. shall have the supervisory jurisdiction over such arbitration proceedings as seat is akin to an exclusive jurisdiction clause. The aforementioned judgment became to be known and quoted in various judgments of the Indian Courts as the Shashoua principle [“Shashoua principle”] and was relied upon by the Supreme Court in BALCO for arriving at the conclusion.

2. Enercon (India) Pvt. Ltd. & Ors. Vs Enercon GMBH & Anr.⁴(2014) 5 SCC 1

 Arbitration Clause

“18.3. A proceedings in such arbitration shall be conducted in English. The Venue of the arbitration proceedings shall be in London. The Arbitrators may (but shall not be obliged to) award costs and reasonable expenses (including reasonable fees of counsel) to the party (ies) that substantially prevail on merit. The provisions of the Indian Arbitration and Conciliation Act, 1996 shall apply.”

Notably, London has been designated Venue of Arbitration proceedings between the parties and the provisions of the Arbitration and Conciliation Act, 1996 have been made applicable to such proceedings. Faced with the aforementioned unworkability of the arbitration clause, the Supreme Court observed that in such fact situation, a commonsense approach must be adopted to give effect to the intention of the parties. The fact that London has been designated as Venue coupled with the fact that Indian Arbitration Act has been made applicable to the said proceedings, the Supreme Court concluded that the Seat of such arbitration proceedings shall be India and only Indian courts shall have supervisory jurisdiction over such proceedings. Distinguishing the aforementioned ratio with the law laid down in in Shashoua, the Supreme Court held that unlike in Shashoua where the Venue was accompanied with supranational body of rules i.e. ICC, Pairs, in the present fact situation the Venue is accompanied with the Indian Arbitration Act, therefore parties intended that the seat of Arbitration would be in India and London would be the venue for convenience of the parties.

3. Union of India vs Reliance Industries Ltd. & Ors.⁵(2015) 10 SCC 213

Arbitration Clause

“33.9. Arbitration proceedings shall be conducted in accordance with the arbitration rules of United Nations Commission on International Trade Law (UNCITRAL) of 1985….

33.12. The Venue of Conciliation or arbitration proceedings pursuant to this Article, unless the parties otherwise agree, shall be London, England and shall be conducted in English language.”

Two distinct features which appear in the aforesaid clause is that the Venue has been designated in London and law applicable to the arbitration proceedings is that of UNCITRAL. The aforesaid agreement dated prior to ratio laid down in BALCO therefore, the ratio laid down in Bhatia would have to be applied which held that part 1 of the Act would be applicable to the arbitration proceedings unless expressly or impliedly excluded by the parties. In aforementioned clause the parties have impliedly excluded with application of Indian Arbitration Act by choosing UNCITRAL arbitration rules to conduct the proceedings, therefore, part 1 of the Act shall not be applicable following the ratio laid down in Bhatia and coupled with the fact that Venue has been designated as London, the Supreme Court concluded that the word “Venue” would have to be construed as “Seat” of arbitration as the parties intended Courts in London to have supervisory jurisdiction over the proceedings.

4. Eitezen Bulk vs Ashapura Minechem⁶(2017) 14 SCC 722 

Arbitration Clause

“Any dispute arising under this C.O.A. is to be settled and referred to Arbitration in London. One Arbitrator to be employed by the Charters and one by the Owners and in case they shall not agree then shall appoint an Umpire whose decision shall be final and binding, the Arbitrators and Umpire to be Commercial Shipping Men. English law to apply. Notwithstanding anything to the contrary agreed in the C.O.A., all disputes where the amount involved is less then USD 50,000/- (fifty thousand) the Arbitration shall be conducted in accordance with the Small Claims Procedure of the L.M.A.A.”

The aforementioned is an agreement executed prior to BALCO, therefore the Supreme Court was to decide whether the provisions of Part 1 of the Act have been expressly or impliedly excluded by the parties. The Supreme Court held that the Seat of the Arbitration is London coupled with the fact that the parties have chosen only English law to apply to such proceedings which is an expressive intention of the parties to exclude part 1 of the Act. Therefore, an award rendered by the English court is not amenable to a challenge u/s 34 of the Act, falling in part 1 of the Act. The Supreme Court further clarified that mere choosing of the juridical seat of Arbitration attracts the law applicable to such location and it is not necessary to specify which law would apply to the arbitration proceedings, since the law of the particular country would apply ipso jure.

5. Roger Shashoua & Ors. Vs Mukesh Sharma⁷(2017) 14 SCC 722

Arbitration Clause

“14.1. …The Arbitration proceedings shall be in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris.

14.4. The Venue of the Arbitration shall be London, United Kingdom.

17.6. This Agreement shall be governed by and construed in accordance with the laws of India.”

Notably, the aforementioned clause is similar to the one under consideration before the English Court in Shashoua viz. Venue- London and governed by a supranational body of rules viz ICC, Paris. Therefore, the Supreme Court applied the Shashoua principle and held that the parties have intended the seat to be of London and only courts in U.K. shall have supervisory jurisdiction over such arbitration proceedings as seat is akin to an exclusive jurisdiction clause.

6. Indus Mobile Distribution Pvt. Ltd. vs Datawind Innovations Pvt. Ltd.⁸(2017) 14 SCC 722

Arbitration Clause

“18..If the dispute cannot be amicably resolved by such officers within 30 days form the date of referral or within such longer time as mutually agreed, such dispute shall be finally settled by arbitration conducted under the provisions of the Arbitration and 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 English language.

All disputes and 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.”

Notably, the seat of arbitration is in India with exclusive jurisdiction of Courts at Mumbai. The Respondent in the above matter filed an application u/s 9 of the Act for interim reliefs before the Delhi High Court. The Delhi High Court allowed the said application stating that since no part of cause of action arose in Mumbai, therefore Delhi would have jurisdiction. The said judgment was challenged before the Supreme Court which reversed the findings given by the Delhi High Court in the impugned judgment. The Supreme Court reiterated the principle that once the seat of arbitration has been fixed (in above matter, Mumbai), it would be in the nature of exclusive jurisdiction clause and only courts at the place of seat shall have the supervisory control and jurisdiction to adjudicate dispute arising out of such proceedings. It is immaterial where the cause of action has arisen. The Court further held that the provisions of Section 16 to 20 of the Civil Procedure Code, 1908 would not be attracted. Therefore, the  Supreme Court set aside the judgement rendered by the Delhi High Court, observing that only courts at Mumbai shall have jurisdiction.

 

7. Mankastu Impex Pvt. Ltd. vs Airvisual Ltd.⁹(2020) 5 SCC 399

Arbitration Clause

“17.1. This MoU is governed by the laws of India, without regard to its conflicts of law 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 three-judge bench of the Supreme Court observed that 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. The Court held that 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 arbitration be seated at Hong Kong and that the laws of Hong Kong shall govern the arbitration proceedings as well as the power of judicial review over the arbitration award. Clause 17.1 of the agreement stating that New Delhi shall have jurisdiction does not alone confer jurisdiction upon courts in New Delhi. Clause 17.1 is to be read in conjunction with clause 17.3.

The Conundrum of two jurisdictions 

The Constitution Bench in BALCO (supra) at paragraph 96 inter alia observed that the legislature has conferred jurisdiction upon two courts i.e. the court where the cause of action has arisen and the court where the seat of the arbitration is situated. This observation of the Supreme Court is inconsistent with the subsequent paragraphs of the judgment and a well recognised principle of law in the field of arbitration that once the seat of the arbitration has been fixed, it would be in the nature of an exclusive jurisdiction clause ousting the jurisdiction of other Courts. The Supreme Court in the matter of Indus Mobile Distribution Pvt. Ltd. (supra), after going through the conspectus of the judgments discussed above, categorically held that the moment the seat is designated, it is akin to an exclusive jurisdiction clause and a plea that the cause of action did not arise within the jurisdiction of the “Seat” court cannot be countenanced.  Despite settling the law in the aforesaid terms, various High Courts draw sustenance from the observations made by the Constitution Bench in BALCO (supra). For example in Antrix Corporation Ltd. vs Devas Multimedia Pvt. Ltd.¹⁰2018 SCC Online Del 9338 a division bench of the Delhi High Court held that courts would have concurrent jurisdiction notwithstanding the designation of the seat of arbitration by agreement between the parties. Recently, the Punjab and Haryana High Court in the matter of M/s I care Consultancy vs L & T Finance Ltd & Ors.¹¹ARB- 57 of 2023 held that the Punjab and Haryana High Court would have jurisdiction to appoint the arbitrator as the cause of action has arisen within its jurisdiction notwithstanding the fact that the arbitration clause categorically conferred jurisdiction upon courts situated at Mumbai.

A three judge bench of the Supreme Court in BGS SGS SOMA JV vs NHPC Ltd. finally put a quietus to the aforesaid conundrum by echoing the principle that “seat” is akin to an exclusive jurisdiction clause and the observation of the Constitution Bench in BALCO (supra) does not ‘unmistakably’ hold that two courts have concurring jurisdiction. The arbitration clause and the facts and circumstances of the said case are discussed herein below-

 BSG SGS SOMA JV vs NHPC Ltd.¹²2019 (17) SCALE 369  

Arbitration Clause

“(i)…A dispute with an Indian Contractor shall be finally settled in accordance with the Indian Arbitration and Conciliation Act, 1996 or any statutory amendment thereof.

(ii) Arbitration proceedings shall be held at New Delhi/Faridabad, India and the language of the arbitration proceedings and that of all documents and communications between the parties shall be English”

In the aforementioned matter, the arbitration proceedings were held at New Delhi and the award was also passed at New Delhi. However, a valiant attempt was made by the Respondents to persuade the Court that since the cause of action has arisen in Faridabad, therefore, the Courts at Haryana shall have jurisdiction. Reliance was placed upon para 96 of BALCO to state that two courts would have concurrent jurisdiction viz. one where the seat is located and one where the cause of action has arisen. The Supreme Court, however, repelled the aforesaid contentions of the Respondents and categorically stated that BALCO does not “unmistakably” hold that two courts would have concurrent jurisdiction as follows-

Therefore, the court overruled Antrix (supra) by clarifying the observations in BALCO (supra). The Court reiterated that choosing of seat amounts to choosing of the exclusive jurisdiction of the courts at which the seat is located. On the issue of seat of Arbitration, the Supreme reached the conclusion that since the arbitration proceedings were held in New Delhi, awards were signed in New Delhi and not in Faridabad, would lead to the conclusion that both parties have chosen New Delhi as the Seat of arbitration. Resultantly, only courts at New Delhi would have supervisory jurisdiction over such proceedings. Before arriving at conclusion, the Supreme Court laid down various guiding principles for adjudicating the controversy between Seat and Venue-

1. Whenever 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 proceedings.
2. Whenever there is the designation of a place of arbitration in an arbitration clause as being the “Venue” of the arbitration proceedings, the expression “arbitration proceedings” would make it clear that “venue” is really the “seat” of arbitration proceedings.
3. If a clause stipulates that arbitration proceedings “shall be held” at particular venue would also indicate that the said “venue” is the seat of the arbitral proceedings.
4. The aforementioned rules are to be applied coupled with there being no other significant contrary indicia that the stated venue is merely a “venue” and not the “seat” of the arbitral proceedings.
5. In an international context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that the “venue”, so stated, would be the seat of the arbitral proceedings.
6. In a national context, this would be replaced by Arbitration Act, 1996 as applying to the stated “venue” which then becomes the “seat” for the purposes of arbitration.

Conclusion

As evident from the aforementioned judgments, there is no straight jacket formula or a hard and fast rule to decide seat and venue of an arbitration proceedings. While there are guiding principles laid down by the Supreme Court in the aforementioned judgments, however, the same ought to be applied keeping in view the party autonomy and ultimate intention of the parties to the arbitration proceedings. The Seat and Venue of an arbitration proceedings cannot be derived by reading an arbitration clause in isolation. The intention of the parties as to the seat and venue ought to be construed by harmoniously reading down the arbitration clauses in a holistic manner in order to give effect to intention of the parties.