Dispute resolution through Arbitration is becoming increasingly popular, especially since it offers flexibility and convenience to the parties. The parties have the flexibility to choose the applicable law under which the Arbitral proceedings would be governed as well as the Jurisdiction where the dispute shall be referred. This is where the concepts of Seat and Venue come into play.
The Seat of the Arbitration refers to the place where the Arbitral proceedings shall commence and the laws of such region shall apply. On the other hand, the Venue of the Arbitration shall mean the geographical location where such proceedings may take place. The interplay between these two concepts of ‘Seat’ and ‘Venue’ plays a role of utmost significance in the Arbitration process, overall.
The ‘Seat’ of Arbitration is known to be the ‘situs’ of Arbitration, which refers to the site or location of the Arbitral proceedings. Such juridical Seat defines the ‘lex arbitri’ or the procedural law governing the proceedings. Furthermore, it also determines which Court would exercise Supervisory Jurisdiction over such Arbitration. On the other hand, ‘Venue’ defines the location where such an Arbitration is conducted. It is, however, not associated with either the Curial law or the Jurisdiction of the Courts. For example, an Arbitration seated in Mumbai will be governed by the Arbitration and Conciliation Act, 1996 (hereinafter “Arbitration Act”), by default, and any Application challenging an Award or Order of an Arbitrator under Section 34 or 37 pertaining to such Arbitration would lie before the Bombay High Court.
In Indian Law, the terms ‘Seat’ and ‘Venue’ have not been explicitly defined. However, Section 20 of the Arbitration Act defines ‘Place of Arbitration,’ which is used for both Seat and Venue, interchangeably. This makes matters more confusing as there is no line for demarcating the Seat or the Venue in an Arbitration Agreement/ Clause unless the terms are explicitly mentioned/defined.
SIGNIFICANCE OF THE SEAT OF ARBITRATION
The selection of a specific location as the Seat of Arbitration shall have an effect on various other factors impacting the dispute resolution between the parties, such as the Supervisory Jurisdiction over the Arbitral process and the applicability of the procedural law of that jurisdiction. In the absence of an express/explicit choice of Governing Law under the Arbitration Clause/Agreement, the law prevailing in the jurisdiction of the Seat becomes the law governing the Arbitral proceedings.
The Hon’ble Supreme Court (hereinafter “SC”), in the case of A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies, Salem (1989 SCR (2) 1), has taken the view that an Arbitration proceeding could be Seated even at a neutral Venue. The neutral Venue may not ordinarily have the jurisdiction to entertain the dispute, since neither the cause of action arose there nor do the parties have a geographical nexus with the chosen Venue. However, this would not invalidate the chosen Seat of Arbitration, and the Courts exercising Supervisory Jurisdiction over such a ‘Seat’ would have the jurisdiction to exercise powers vested under the Arbitration Act.
Parties often do not realize the repercussions of selecting a particular location as a Seat in an Arbitration Clause/Agreement, which leads to unnecessary litigation between them. Although the Indian Courts have laid extensive emphasis on the term ‘Seat’, the concept of Seat has often been associated with the Venue of the Arbitration and the terms have also been used interchangeably, leading to a controversy which is yet to be conclusively resolved by the SC.
SEAT VS VENUE – CONFUSION AND CONTRADICTION
Even though the concepts of Seat and Venue can function distinctly, the reality remains that the extent of the two being intertwined and dependent depends largely on the way the parties choose to draft the Arbitration Clause/Agreement. When an Arbitration Clause/Agreement is poorly drafted, the determination of the actual Seat and Venue of Arbitration can become quite a cumbersome task, especially on account of the prevailing conflict and confusion in the matter.
The High Court of England and Wales, in the case of Roger Shashoua v. Mukesh Sharma (Civil Appeal Nos. 2841- 2843 of 2017), laid down the “Shashoua Principle”. The Shashoua Principle, in essence, states that, when parties have selected a Venue of the Arbitration without designating a Seat of Arbitration, it can be concluded that the Venue is the Seat of Arbitration only when the parties have selected an international body of rules governing the Arbitration and where there is no other indication to the contrary.
This principle was further adopted by the Indian Courts in the landmark judgement of Bharat Aluminium Company (BALCO) v Kaiser Aluminium Technical Service Inc. (Civil Appeal No. 7019 of 2005) and then in Enercon (India) Ltd. v. Enercon GmbH (Civil Appeal No. 2086 of 2014). Therefore, at the time it appeared that, at least as far as this principle is concerned, the law had been settled in India.
However, in 2018, in the case of Union of India v. Hardy Exploration and Production (India) Inc. (Civil Appeal No. 4628 of 2018) (Hardy Exploration Case), the Court again deviated from this principle, thereby again giving rise to confusion and chaos. In this case, Kuala Lumpur was to be the Venue of Arbitration but the Seat of Arbitration had not been decided. When the dispute arose, the Award was signed in Kuala Lumpur. Subsequently, the Appellant challenged the Award under the Arbitration Act before the Delhi High Court, contending that Delhi was the Seat of Arbitration.
On appeal, the SC held that the parties had not chosen the Seat of Arbitration and, therefore, the Arbitral Tribunal also had not made any findings concerning the same. Further, merely because the parties designated Kuala Lumpur as the Venue of Arbitration, it was not a necessary implication that Kuala Lumpur would also be the Seat of Arbitration. However, the SC took the view that a Venue could become a Seat of Arbitration only if something else is added to it as a concomitant factor, deviating from the already established Shashoua Principle, approved by the SC itself in the BALCO case.
Once again, in 2019, in the case of BGS SGS Soma JV v. NHPC Ltd. (Civil Appeal No. 9307 of 2019) (Soma JV Case), the SC reiterated the Shashoua Principle, deviating from the observations made in Hardy Exploration Case. The SC recognized a test that “once a particular place is chosen as the Venue of Arbitration, it must also be considered as the Seat of Arbitration”. Further, the SC also noted that this test must be coupled with the fact that the parties have not made any other contrary indication that the Venue is not the Seat of Arbitration.
In Mankastu Impex (P) Ltd. v. Airvisual Ltd. (Arbitration Petition No. 32 of 2018), the Arbitration Agreement did not expressly use the words Seat or Venue; rather, it laid down that the Arbitration would be administered in Hong Kong and the place of Arbitration was Hong Kong. It further stated that the Governing Law was Indian and that the Courts of New Delhi would have jurisdiction over the matter. When the dispute arose, the parties approached the SC for the appointment of the Arbitrator. Even though the SC relied on the Hardy Exploration Case as well as the Soma JV Case, the SC did not expressly follow the principles established in these landmark cases. Instead, the SC concluded that Hong Kong would be the Seat of Arbitration since it was clearly stated in the Arbitration Agreement that the Arbitration should be administered in Hong Kong.
CHANGE IN THE SEAT/VENUE OF THE ARBITRATION WITH MUTUAL CONSENT OF THE PARTIES
In the case of M/s Inox Renewables v Jayesh Electricals (Civil Appeal No. 1566 of 2021), the Seat of Arbitration was Vadodara whereas the Venue of the Arbitration was Jaipur. Subsequently, the parties mutually agreed that the Venue and the Place of Arbitration would be Ahmedabad and accordingly the proceedings were concluded at Ahmedabad. The Award was challenged by the Appellant under Section 34 of the Arbitration Act, contending that the Courts of Rajasthan have exclusive Jurisdiction over the Arbitration. Thus, the issue adjudicated upon in the present case was whether the Seat/Venue of the Arbitration can change with the mutual consent of the parties.
The SC held that if the parties to the dispute mutually agree to change the Venue of the Arbitration, the changed Venue will become the Seat of the Arbitration and the Courts of the new Venue shall have the jurisdiction over the Arbitral Proceedings. This decision, thus, further reiterated the emphasis laid on party autonomy and the resultant flexibility offered to the parties through Arbitration.
The interpretation and determination of Seat and Venue have led to an extensive judicial dialog and deliberation, in India as well as internationally. Whether the Seat or the Venue for the Arbitration shall prevail when both have been or have not been mentioned in the Arbitration Clause/Agreement is perhaps one of the most widely discussed issues when it comes to the realm of Arbitration.
While the Courts have taken divergent views at different points of time, the more prevailing view has been that, where the Venue of the Arbitration has been mentioned in the Arbitration Clause/Agreement and the parties have failed to decide upon the Seat of the Arbitration, then the Venue shall be deemed to act as the Seat of the Arbitration. However, the Hardy Exploration Case marked a departure from the ‘Shashoua Principle’ and hinged the interplay of ‘Seat’ and ‘Venue’ upon the existence of a concomitant factor in the Arbitration Clause/ Agreement itself.
The precedents for the Seat and Venue in India have been particularly confusing and, because of their divergent nature, there is still no clarity as to whether the Seat or the Venue of the Arbitration shall prevail. This ambiguity can have far reaching consequences and may even result in deterring India’s efforts to promote itself as an Arbitration-friendly Jurisdiction.
In saying this, it is pertinent to acknowledge the steady progress of the Indian Arbitration Laws and Jurisprudence. Although the current pro-Arbitration regime might be grappling with some challenges, India shows immense promise in establishing itself as a popular Arbitration-friendly Jurisdiction.
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