Arbitration In IndiaThe Dilemma of Seat of Arbitration in the absence of Clause in Arbitration Agreement

INTRODUCTION

Arbitration is the most easy and reliable Alternate Dispute Resolution (hereinafter referred to as the “ADR”) mechanism that has become prominent for individuals and entities entering into commercial contracts.  The Court driven litigation involves prolonged dates,  complicated procedure as well as extra-costs. Therefore, the parties prefer Arbitration where they can mutually decide upon the issues, procedure, and terms of the arbitration proceedings, and as the same is also governed and backed by a statute.

The Arbitration process however is made subject to judicial oversight under the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”)

The determination of the seat of Arbitration is an essential part of the Arbitration proceedings as it decides the jurisdiction of  procedure to be followed, and also determines which courts would have the exclusive jurisdiction to adjudicate the disputes arising out of the Arbitration.

Venue in the context of arbitration means the physical location where the  Arbitration proceedings will actually take place and is determined on the basis of varying factors, including but not solely dependent upon, the convenience of parties, a place where cause of action arises.

IMPORTANCE OF SEAT AND VENUE IN ARBITRATION

The question of difference between Seat and Venue has arisen in recent litigations due to varying interpretations of the provisions in the A&C Act. The provision of Section 20 of the A&C Act, governs the seat of arbitration. Further, Section 20(2) of the A&C Act, empowers the Arbitral Tribunal to decide upon the  “place” of Arbitration, in the cases where the parties have not pre-decided the place of Arbitration. However, Section 20(3) of the A&C Act provides that the Arbitral Tribunal may decide a place along with consultation of the parties.

The main dispute is regarding the meaning of ‘place’ under Section 20(2) of the A&C Act and the meaning of place under Section 30(3) of the A&C Act. It has been held that Section 20 is about the seat of Arbitration, whereas, Section 30 of the A&C Act is about the venue of the Arbitration Proceedings.

The Supreme Court in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited and Ors. [(2017) 7 SCC 678]  explained seat of Arbitration as the clause which provides exclusive jurisdiction to the courts and the parties can mutually grant the exclusive jurisdiction from the multiple courts to a specific court.

The seat and venue of Arbitration can be completely different and that shall be decided on the convenience of  the parties.

The Supreme Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. [2010 1 SCC 72] (hereinafter referred to as “BALCO case”), while discussing the difference between the seat and venue of Arbitration,  termed the seat of Arbitration to be “Centre of gravity” of Arbitration, and clarified that the seat would be the judicial seat of Arbitration regardless of the venue.

JUDICIAL PRECEDENTS

The Supreme Court in the  BALCO case  observed that in case of absence of seat/venue clause mentioned in the Arbitration Agreement, the seat would be determined in accordance to Section 20 of the A&C Act. The provision of Section 20(2) of the A&C Act empowers the Arbitral Tribunal to determine the seat of Arbitration.

However, the lacuna in law that remains is the appointment of the Arbitral tribunal between two disputing parties, where there is no consensus ad idem in terms of the Arbitrators themselves, litigation becomes inevitable.

The Bombay High Court, in the case of Nuclear Power Corp v. Kay Bouvet Engineering Ltd. (2021 SCC Online Bom 9869) held that a civil suit can only be instituted in a Court in whose jurisdiction the defendant resides or a part of the cause of action arises. The Court further observed that this principle of jurisdiction will be applicable in cases of both general law as well as arbitration jurisdiction law.

Further in BGS SGS SOMA JV v. NHPC, [(2020) 4 SCC 234], the Supreme Court observed that “a seat is only a convenient venue” and there may be multiple courts of law in whose jurisdiction a cause of action may arise. In such cases the seat is to be determined by the Arbitral Tribunal on the facts of a particular case and that only that Court would continue to have jurisdiction where the earliest application was moved in regards to the subject matter Arbitration dispute, in accordance with Section 42 of the A&C Act.

The Supreme Court in BBR (India) Pvt Ltd. v. S.P. Singla (2023) 1 SCC 693 held that in absence of seat mentioned in the Arbitration Agreement, the A&C Act provides the jurisdiction to the Courts where the cause of action has arisen and the Courts in whose jurisdiction Arbitration Agreement has taken place.

The alternative way of determination of the jurisdiction is under  Section 20 of the Civil Procedure Code, 1908 (hereinafter referred to as “CPC”) which states that suits should be instituted in the Courts in whose jurisdiction the Defendant resides or where the cause of action arises. Although the applicability of CPC is precluded from Arbitration, as Arbitration is a civil matter, Section 20 of the CPC would be applicable for determining the jurisdiction of the Arbitration Tribunal.

The Delhi High Court in Cement Corporation of India v. S. Sultan & Anr. [2004 SCC OnLine Del 505] held that the provision of Section 20 of CPC would be applicable to such cases where an Arbitration related dispute is brought before the Court and that Section 20 of CPC can be relied upon to decide on the issue of jurisdiction.

Considering that the primary issue is regarding the seat of Arbitration, in absence of the clause in the Arbitration Agreement and consensus between the parties to decide upon the seat, Section 11 of the A&C Act clearly states that the Courts would intervene and then the Arbitral Tribunal will be formed and the Courts have the jurisdiction to decide upon the seat of Arbitration. Moreover, the Courts also have the power to decide the jurisdiction under Section 20 of CPC.

AMLEGALS Remarks

The legislative intent of the A&C Act is to reconcile and adjudicate upon disputes between the parties based on the terms agreed between the parties. The major question was in absence of a clause stating the seat of Arbitration in the Arbitration Agreement. The judiciary through various cases has taken the view that the Arbitral Tribunal would have the jurisdiction to decide the seat of Arbitration.

Moreover, the competent Courts under Section 11 of the A&C Act and Section 20 of A&C Act also have the jurisdiction to decide the seat of Arbitration. Additionally, Section 20 of the CPC provides that in arbitration cases where jurisdiction is in question would unfairly limit the rights of the parties, therefore, there is a continued need for further judicial clarification on the question by way of legislative amendment or direct judicial interpretation.

India seeks to become a hub of International Arbitration on the global front and to achieve the same, there needs to be clarity on such elemental questions when it comes to domestic Arbitration.

– Team AMLEGALS assisted by Mr. Jason James (Intern)

For any query or feedback, please feel free to get in touch with mridusha.guha@amlegals.com or himanshi.patwa@amlegals.com.