The Unsettled Discourse between The Seat and Venue of Arbitration
The identification of lex arbitri i.e. the seat of the arbitration as well as the venue of the arbitration is a crucial aspect of any arbitration proceeding. The seat of arbitration determines the applicable law governing the arbitral proceedings, the lex arbtri determines the Court(s) that will exercise the supervisory jurisdiction over the arbitral proceedings, whereas the venue of the arbitration simply means the place at which arbitration proceedings would take place in case of any dispute between the parties. In international commercial arbitration, the juridical seat of arbitration would also attract the procedural law applicable to such a country.[i]
Origin of the Controversy
The controversy of seat and venue of arbitration really arises due to the ambiguous provisions of the Arbitration and Conciliation Act, 1996 were the words “seat” and “venue” have not been used anywhere instead of the word “place” has been used. The provisions relevant for the understanding seat and venue of the arbitration under the 1996 Act are Sections 2(2) and 20. Section 2(2) reads as follows:
2(2). This Part shall apply where place of arbitration is in India.
On a bare reading of the said section, it appears that the A&C Act was applicable only to arbitrations which were taking place in India. Whether “place” meant seat (conferring jurisdiction to Indian courts) or merely venue was clearly ambiguous, calling for judicial interpretation. Further, Section 20 of the same Act also in a similarly ambiguous manner while granting parties the autonomy to decide the “place” of arbitration, failed to distinguish between seat and venue. The section reads as follows:
20. Place of arbitration.—(1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the Arbitral Tribunal having regard to the circumstances of the case, including the convenience of the parties.
(3) Notwithstanding sub-section (1) or sub-section (2), the Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.
The word “place” in the Section 20 of the Act necessarily should connote different meanings in the sub-section (2) and (3). A bare perusal of this section would imply that the parties are at liberty to choose only the “place” (meaning venue) of arbitration and nothing further [refer sub section (3)]. This thoroughly undermines and restricts the autonomy of parties to choose the convenient legal systems and the manner in which arbitrations can be conducted [refer sub section (2)].
Thus, this had led to various debates between the contractual parties as to what the word “place” really means, whether it means “seat” or “venue” of arbitration.
The Supreme Court of India has tried to answer this question on many instances and in various cases. And, in Soma JV case[ii], it did appeared that this controversy has been sought out by the Apex Court, by adopting the “bright line test” which determined various instances where a chosen venue could be treated as the seat of arbitration. It further upheld the law laid down in BALCOS case[iii] where the Supreme Court clarified that the term “place” used in Sections 20(1) and (2) would connote “seat” and the term “place” used in Section 20(3) would connote “venue”. The Court also held that the designation of a ‘venue’ combined with a supranational body of rules governing the arbitration without any significant contrary indicia would strongly indicate that the ‘venue’ of the arbitration, was in fact, the seat of the arbitration.[iv] Though, the observations in the Soma JV case were directly contrary to the decision of the three Judge Bench of Supreme Court in Hardy Exploration case[v], and thus the position of law remains unsettled.
The Apex Court’s latest judgment in the Mankatu Impex Private Limited v. Airvisual Limited [vi] woefully adds to the already lack of clarity on the subject.
Facts of Mankatsu Case
In Mankastu case, the dispute resolution clause between the parties specified that the agreement between the parties would be governed by Indian laws, and the courts of New Delhi would have jurisdiction over arbitral proceedings. The clause further specified that if any dispute, controversy, difference that arose then it was to be resolved by arbitration which would be administered in Hong Kong. The clause further said that the place of arbitration would be Hong Kong. The dispute resolution clause also granted parties the right to seek preliminary injunctive reliefs from the courts having jurisdiction before, during or after the pendency of any arbitration agreement.
After dispute arose between the parties, the Petitioner (Mankastu) approach the Delhi High Court and filed a petition under Section 9 of the Act seeking interim relief and even obtained an interim order in its favor and then it approached the Apex Court under Section 11(6) of the Arbitration and Conciliation Act for the appointment of a sole arbitrator.
Issue before the Court
The question before the Supreme Court of India was that whether the parties had agreed that the seat of arbitration is at Hong Kong and do the Supreme Court lacked jurisdiction to entertain the petition?
Contentions of the Parties
Mankastu contended that since in the arbitration agreement Indian law was decided as the governing law and courts at New Delhi had jurisdiction, hence, the seat of arbitration was New Delhi, and accordingly, the Supreme Court could appoint a sole arbitrator. It further said that Hong Kong was only the venue of arbitration and thus can’t be the seat of arbitration and relied upon the Hardy Exploration case for this purpose.
On the other hand, Airvisual contended that since the arbitration agreement read that the place of arbitration shall be Hong Kong and such arbitration proceedings shall be administered in Hong Kong, the seat of arbitration was Hong Kong. Accordingly, Indian courts had no jurisdiction to appoint a sole arbitrator. It relied on the judgment given in the Soma JV case for this purpose.
In the response to above contention of the respondent, Mankastu incorrectly argued that since Hardy Exploration case and Soma JV case were both judgments from a three-judge bench, Soma JV could not have decided that Hardy Exploration was per incuriam and therefore Hardy Exploration case continued to be good in law.
The Court laid down that, the use of the expression “place of arbitration” could not decide the intention of the parties to designate that place as the seat of arbitration and such intention had to be determined from other clauses in the agreement between the parties and their conduct. The Supreme Court held that the choice of Hong Kong as the “place of arbitration” itself did not lead to the result that the parties had chosen Hong Kong as the seat of arbitration. Though, because the parties had also agreed that such arbitration was to be administered in Hong Kong, the Supreme Court ultimately held that the parties had chosen Hong Kong as the seat of arbitration.[vii]
The result in Mankastu Impex case is correct insofar as Hong Kong was determined to be the seat of arbitration, but the Supreme Court’s avoidance towards affirming the position of law laid down in Soma JV case has cast doubt on the precedential value of Soma JV case. Furthermore, the Supreme Court did not explicitly follow Hardy Exploration case, albeit, it seemed to have adopted a similar approach in reaching its conclusion, particularly by emphasizing the need for additional evidence of the intention of parties’ rather than the mere use of the expression “place of arbitration”.
As a result, it is unclear whether Hardy Exploration remains good in law or the bright-line test in Soma JV holds the field. According to me, the bright-line test laid down in Soma JV is certainly clearer, administered with more objectivity and aligned with the principle of party autonomy. Therefore, this controversy still continues till the Supreme Court of India decides this issue at the next suitable opportunity.
[i] Eitzen Bulk A/S v. Ashapura Minechem Ltd. and Anr., (2016) 11 SCC 508.
[ii] BGS SGS Soma JV v. NHPC Ltd., (2019) SCC Online SC 1585.
[iii] Bharat Aluminium Co. v. Kaiser Aluminium Technical Service Inc., (2012) 9 SCC 552.
[v] Union of India v. Hardy Exploration and Production (India) Inc., (2018) 7 SCC 334.
[vi] Mankatu Impex Private Limited v. Airvisual Limited, 2020 SCC Online SC 301.