Seat v. Venue – An Endless Pursuit in Domestic Arbitrations
A student at Pendekanti Law College, Telangana
“Arbitration” is an Alternate Dispute Resolution mechanism availed by individuals and other entities with regard to commercial disputes. It acts as a quasi-judicial means of speedy grievance redressal, unlike the traditional mode of court system wherein delay is inevitable especially in cases of intricate factual matrix. Arbitration offers the freedom to parties of dispute in determining: the procedure of appointment of Arbitrator; number of Arbitrators; place of Arbitration; etc. With minimal judicial intervention, Arbitration stands out as the most feasible options to seek swift recourse in disputes arising out of commercial transactions.
Arbitration and Conciliation Act, 1996
The Arbitration and Conciliation Act, 1996 (hereinafter called “the Act”) aims to fill the lacuna of The Arbitration Act, 1940. While the latter dealt with domestic arbitrations alone, the former incorporated provisions pertaining to the international commercial arbitrations. To achieve uniformity in the space of International Arbitration Law, India adopted the UNCITRAL Model Law on International Commercial Arbitration which was also the basis for the incorporation of Part II (Enforcement Of Certain Foreign Awards) in the Act. The Act, however, has a number of loose ends as far as the domestic arbitrations are concerned. Particularly, the Seat vs. Venue debate stands as a legal impediment in an otherwise efficient dispute resolution mechanism.
Supreme Court on the “Seat v. Venue debate”:
The Act neither defines “seat” or “venue” nor does it find their usage in it. Section 20 of the Act speaks about the “place of Arbitration” whereas most Arbitration agreements in commercial contracts include “seat” or “venue” or “both”. “Seat” and “venue” are often used inter-changeably. While “venue” limits itself to a geographical location where arbitration takes place, “seat” or “juridical seat” is a reference to that place which is located within the territorial limits of courts that have the jurisdiction to entertain applications for: appointment of Arbitrator (Section 11); setting aside the Arbitral award (Section 34) etc. Such “Courts” as defined under Section 2(1)(e) of the Act, have the jurisdiction to entertain applications pertaining to the subject-matter of the arbitration clause provided that the said clause is in respect of the adjudication of the main dispute. Time after time, the Supreme Court (hereinafter called “SC”) and various High Courts (hereinafter called “HC”) attempted to settle the statutory silence on the disputed concepts of “venue” and “seat”.
It was in Bharat Aluminum Co V. Kaiser Aluminum Technical Service, Inc. (2017) ibclaw.in 246 SC, that the constitution bench of the SC differentiated between “seat” and “venue” in order to ascertain the scope of jurisdiction of seat courts as against the venue courts. It held that Section 20(1) of the Act gives autonomy to the parties of the dispute to choose a “seat of arbitration”, failing which Section 20(2) empowers the Arbitral Tribunal to decide the same taking into consideration the convenience of parties as well as the facts and circumstances of the dispute. Reiterating the legislative intent for a flexible conduct of arbitral proceedings, the Court went on to interpret that Section 20(3) authorizes the Tribunal to meet at any convenient venue for consultation among its members, hearing witnesses, inspection of documents etc. In order to do away with the confusion, The 246th Law Commission Report proposed for the replacement of word “place” with “seat and venue” in Section 20. However, the said amendment did not take effect.
It is now settled that the “place of arbitration” in Section 20 might mean both, “venue of arbitration” and “seat of arbitration”. Crucial questions then arise – Whether the venue courts or seat courts have the jurisdiction to entertain arbitration applications under Section 11 or 34 of the Act etc.; Whether the courts within whose territorial limits cause of action arises, too shall have the said jurisdiction. These questions were dealt in BALCO(Supra). On the one hand, the SC held that the “court” under Section 2(1)(e) must be read in consonance with Section 20 of the Act, so as to ensure party autonomy thereby including the seat courts to have the supervisory jurisdiction over the arbitral proceedings. On the other hand, it held that both courts would have concurrent/parallel jurisdiction, i.e., the courts within whose territorial limits cause of action arises and those courts within whose territorial limits’ arbitration takes place. Contrary to what was observed, The SC in the same case, recognized the proposition laid down in Shashoua & Ors. Vs. Sharma that the agreement as to the seat of arbitration was analogous to an exclusive jurisdiction clause and that the challenge to arbitral awards could lie only in the courts within whose territorial limits the seat is located. Conflicting views expressed in BALCO(Supra) inevitably led to increased litigation concerning the jurisdictional battle between seat and venue courts.
The SC in M/s. Swastik Gases P. Ltd. Vs. Indian Oil Corp. Ltd. (2017) ibclaw.in 263 SC dealt with a dispute wherein the arbitration clause conferred jurisdiction to courts at Kolkata. The legal maxim “expressio unius est exclusio alterius” was applied whereby the court held that the conferment of jurisdiction on one court excludes the jurisdiction of other courts. While agreeing to the arbitration clause, the parties intended to expressly vest the jurisdiction on courts in Kolkata and impliedly excluded all other courts irrespective of the fact that those courts too have jurisdiction. The court held that the mere absence of words such as “alone”, “only”, “exclusive” or “exclusive jurisdiction” in the arbitration clause would not make a substantial difference in determining the jurisdiction of court for the purpose of regulating arbitral procedures.
In Indus Mobile Distribution Private Limited vs. Datawind Innovations Private Limited & Ors. (2017) ibclaw.in 228 SC, the SC dealt with a case wherein the arbitration clause conferred exclusive jurisdiction to Mumbai courts only. Owing to party autonomy, the court reiterated that the decision to designate the “seat of arbitration” as a neutral venue, was an outcome of convenience of parties and such a seat might be located within the local limits of courts that might not have the jurisdiction in a conventional sense. In other words, the seat courts might not be situated in a place where the defendant resides, cause of action arises or where the subject matter of the suit is situated, i.e., for a seat court to exercise its jurisdiction under the Act, it need not fulfil the stipulations under Section 16 to 20 of the Code of Civil Procedure, 1908.
The SC in Union of India vs. Hardy Exploration and Production (India) INC (2018) ibclaw.in 144 SC held that the place where an arbitral hearing is held could not ipso facto assume the status of seat in absence any express designation of “place of arbitration”. The court further noted that for the purpose of ascertaining the curial law, hearings at various places only amount to “venue” and not the “juridical seat”. In the said case, the parties did not determine the “place of arbitration”, failing which the stipulation of determining the same fell on arbitral tribunal. The said stipulation as governed by Article 20 and 31 of the UNICITRAL Model Law, was not fulfilled. Thereafter, the court held that a venue or place of arbitration becomes a juridical seat only when there is no condition precedent. However, if a stipulation is accompanied with the term “place”, the venue becomes the seat after the fulfilment of the said stipulation.
The SC deviated from the ratio of Hardy Exploration (Supra) in Brahmani River Pellets Limited vs. Kamachi Industries Limited (2019) ibclaw.in 158 SC wherein the arbitration clause designated only the “venue of arbitration”. Upholding Swastik Gases (Supra), the court held that the mere absence of words such as “alone”, “only”, “exclusive” or “exclusive jurisdiction” in the arbitration clause did not in itself declare that the venue could not become the juridical seat. The apex court held that the designation of “venue” in the arbitration clause implied the intention of the parties to exclude the conferment of jurisdiction on all other courts.
While criticizing the ratio in Hardy Exploration(Supra), the SC finally settled the law around the seat vs. venue debate in BGS SGS SOMA JV vs. NHPC LTD. (2019) ibclaw.in 184 SC. The court dealt with an arbitration clause stipulating that “Arbitration Proceedings shall be held at Delhi/Faridabad, India.” After extensive perusal of Indian and English case law, it held that when “venue” is designated as the “place of arbitration” in the arbitration clause, the said venue becomes the “seat of arbitration” as the parties intended that the entire arbitral proceedings and not just one or more hearings, would take place at the “venue”. It also held that in absence of a significant contrary indicia w.r.t. “seat”, the “venue” is the implied “seat” of arbitration. The court further noted that, once the “seat” is chosen by the parties, exclusive jurisdiction lies in the courts within whose territorial limits venue is situated.
The Apex Court upheld the findings of BGS SOMA(Supra) in M/s. Inox Renewables Ltd. Versus Jayesh Electricals Ltd. (2021) ibclaw.in 229 SC. It held that the subsequent change of venue would also change the juridical seat to the place where the following arbitral proceedings take place. The court held that the parties impliedly agreed to change the place of arbitration in respect of Section 20(1) in addition to the change of place in respect of Section 20(3) of the Act, thereby conferring exclusive jurisdiction to the new courts at the venue. This is contrary to the observation in BALCO(Supra) that the venue is a mere location which might change in light of convenience and the “seat” would not change as it is the situs of arbitration determining the lex arbitri of the courts that have the supervisory jurisdiction over the arbitral process.
Holding a different view from BGS SOMA (Supra), the SC in a recent case of M/s Ravi Ranjan Developers Pvt. Ltd. Versus Aditya Kumar Chatterjee (2022) ibclaw.in 173 SC, dealt with an arbitration clause that designated “venue of arbitration” to be that of Kolkata. The court held that neither the parties had intended Kolkata to be the “seat of arbitration” nor did any part of the cause of action arose in Kolkata, and thus the courts in Kolkata would lack the territorial jurisdiction to maintain arbitration applications under Section 11 of the Act.
Delhi HC Determines “Seat” And Not “Venue”, to establish the Court of competent jurisdiction
In Aarka Sports Management Pvt. Ltd. Versus Kalsi Buildcon Pvt. Ltd, the Delhi HC dealt with a case wherein an Operations agreement provided “Governing Law, Jurisdiction & Dispute Resolution” under which it conferred exclusive jurisdiction to courts in Delhi for matters arising out of the said agreement. Due to an absence of designation of “seat” in the arbitration clause of the said agreement and the fact that no part of cause of action arose in Delhi, the court held that Delhi was not the “seat of arbitration” for the purpose of entertaining an application under Section 11 of the Act.
In M/S. Hamdard Laboratories (India) Versus M/S. Sterling Electro Enterprises, the Delhi HC dealt with an arbitration clause that conferred jurisdiction only to the Delhi courts. It held that the mere absence of the word “seat” in the arbitration clause did not rule out the intention of parties to make Delhi, the “seat of arbitration”. The court observed that although, no cause of action arose in Delhi, the parties could choose a neutral seat, thereby vesting Delhi with exclusive jurisdiction for the purpose of supervisory control over arbitral proceedings.
Where a three-Judge bench of the SC in BGS SOMA(Supra) declared that the law laid down in another three-Judge bench of the same Court in Hardy Exploration (Supra) as a bad law, it becomes crucial that a constitution bench of SC clears the revolving ambiguity around the judicial superintendence of seat courts vs. venue courts, once and for all. In the light of the contrasting views expressed by various courts, the Seat vs. Venue Debate would result in an endless pursuit that the litigants have to endure in the course of a long-drawn court procedure with respect to arbitral proceedings. Such an inadequacy in the statute as well as the precedents, would ultimately defeat the purpose of the Arbitration and Conciliation Act, 1996.
Disclaimer: The Opinions expressed in this article are that of the author(s). The facts and opinions expressed here do not reflect the views of IBC Laws (http://www.ibclaw.in). The entire contents of this document have been prepared on the basis of the information existing at the time of the preparation. The author(s) and IBC Laws (http://www.ibclaw.in) do not take responsibility of the same. Postings on this blog are for informational purposes only. Nothing herein shall be deemed or construed to constitute legal or investment advice. Discussions on, or arising out of this, blog between contributors and other persons shall not create any attorney-client relationship.