The Seat v/s.Venue Debate – A Continuing Saga

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The concepts of ‘Seat' and ‘Venue' are of utmost significance in any arbitration proceeding as they not only determine where the arbitration...
India Litigation, Mediation & Arbitration
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I. Introduction – Concept of Seat and Venue

The concepts of 'Seat' and 'Venue' are of utmost significance in any arbitration proceeding as they not only determine where the arbitration is conducted but is also crucial in ascertaining the supervisory jurisdiction of courts and the curial law (lex arbitri) which governs such arbitration.

The 'Seat' of arbitration is the 'situs' of arbitration, the place where the arbitration is anchored. The seat of arbitration defines the curial law or procedural law governing the arbitration and also determines which court(s) will exercise supervisory jurisdiction over such arbitration. E.g. An arbitration proceeding seated in Mumbai will be governed by the Arbitration and Conciliation Act, 1996 (unless otherwise agreed) and any application challenging an award / order of an arbitrator (Ss. 34 and 37) will lie before the Bombay High Court. For international arbitrations, the concept of seat assumes greater significance as it acts as the indicator for both curial law as well as supervisory jurisdiction.

In contrast, the 'Venue' of arbitration merely defines the geographical place where such arbitration is conducted and is not associated with either the curial law or the jurisdiction of courts.

The term 'Seat' and 'Venue' has not been defined either under the Arbitration Act, 1940 or under the Arbitration and Conciliation Act, 1996 ("Act"). Section 20 of the Act defines 'Place of Arbitration' which is used interchangeably for both seat and venue. Even though, the Law Commission recommended for ascribing independent definitions for seat and venue under the 2015 Amendment Act, such suggestions did not translate into actual amendments. In the absence of a clear statutory regime, the law has been settled through various judicial pronouncements albeit some of them being conflicting in nature.

This article attempts to summarise the evolution of the law related to Seat of arbitration and covers the following facets: - (i) the exclusive jurisdiction of courts governing the seat; and (ii) the principles for determining the seat.

II. Jurisdiction of supervisory courts – Exclusive or not?

For ordinary civil dispute, the jurisdiction of a court is ascertained from the parameters prescribed under Sections 16 to 20 of the Code of Civil Procedure, 1908 ("CPC"). As per Section 20 of CPC, a court can assume jurisdiction over a particular dispute, if the Defendant resides or carries on business within its territorial limits or if the cause of action whole or in part thereof arises within its territorial limits. This principle often leads to situations where different courts have concurrent jurisdiction over a particular dispute. In modern contracts, to avoid conflicts related to jurisdictions of courts, parties often select a particular court to the exclusion of all other courts and such courts get exclusive jurisdiction to determine the disputes. However, the parties, by their choice, cannot confer jurisdiction upon a court, which otherwise does not have jurisdiction. This legal position has been conclusively settled by the Supreme Court in A.B.C. Laminart Pvt. Ltd. & Anr. v A.P. Agencies, Salem. For an arbitration proceeding, the principles of CPC (Ss. 16 to 20) governing jurisdiction of courts are not applicable. An arbitration proceeding can be seated even at a neutral venue which in the classical sense of the term may not have the jurisdiction to entertain a dispute i.e. the cause of action may not have arisen at that place. This would not invalidate the seat of arbitration and the courts exercising supervisory jurisdiction over such "seat" would have jurisdiction to exercise powers vested under the Act.

But does such a court have exclusive jurisdiction and oust the jurisdiction of all other courts? Whether the courts where the cause of action arose continue to have concurrent jurisdiction? These are some of the questions, answered in this section of the article. i) BALCO – The first law

Some of the earlier decisions of the Supreme Court failed to adequately define the concept of "seat" and "venue" of arbitration. The first case which distinguished between the concept of "seat" and "venue" of the arbitration was Bharat Aluminium Company (BALCO) v Kaiser Aluminium Technical Service Inc.. The Supreme Court analysed the concept of "Seat" and "Venue" at length and held that both the concepts are different. The Court clarified that the "Seat" of arbitration is the center of gravity of the arbitration i.e. the place where the arbitration is anchored whereas the "Venue" is merely the geographical location where such arbitration meetings are conducted. The Court further clarified that the term "Place of arbitration" is used interchangeably under Section 20 of the Act viz. (i) as seat under Section 20 (1); and (ii) as venue under Section 20 (3).

However, the Supreme Court, while emphasizing on party autonomy, granted concurrent jurisdiction to two different courts to exercise powers under the Act i.e. the court with supervisory jurisdiction over the seat of arbitration and the court in whose jurisdiction the cause of action arose. This observation of the Supreme Court (ref para 96) created confusion and led to conflicting decisions of different High Courts. ii) Reliance, Enercon and Indus Mobile - Subsequent judgements espousing exclusive jurisdiction

There was an immediate deviation to the concurrent jurisdiction principle propounded by the Supreme Court in BALCO (supra). In Enercon (India) Limited v Enercon GmBH the Supreme Court observed that "Once the seat of arbitration has been fixed in India, it would be in the nature of exclusive jurisdiction to exercise the supervisory powers over the arbitration". Similarly, in the matter of Reliance Industries Ltd. v Union of India, the Supreme Court reiterated the principles of exclusive jurisdiction.

In Indus Mobile Distribution Private Limited v Datawind Innovations Private Limited, the Supreme Court was directly dealing with the issue as to whether the seat of arbitration connotes an exclusive jurisdiction and ousts the jurisdiction of all other courts. The Supreme Court examined the concepts of Seat and Venue threadbare and after analyzing the entire legal position, the Supreme Court concluded that once a seat is designated, it is akin to an exclusive jurisdiction clause. Consequently the courts at the "Seat" are vested with exclusive jurisdiction to exercise powers and regulate arbitral proceedings, to the exclusion of all other courts, including courts where the cause of action arose.

The principle enunciated by Indus Mobile (supra) was followed in Brahmani River Pellets Ltd. v. Kamachi Industries Ltd.

A reading of the aforesaid judgement shows that the Supreme Court had immediately deviated from the concurrent jurisdiction principle under BALCO (supra) and conferred exclusive jurisdiction on the "Seat" of arbitration and the courts supervising such seats. However, none of these judgements expressly overruled the observations in para 96 of BALCO (supra). iii) Antrix Corporation – A deviation

While the Supreme Court was propounding the exclusive jurisdiction concept, certain High Courts, particularly the Bombay, Calcutta and Delhi High Courts started adopting the concurrent jurisdiction principle.

In Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd. the Delhi High Court after relying on judgments passed by the Bombay High Court and the Calcutta High Court held that even courts where cause of action arose would have concurrent jurisdiction under the Act, notwithstanding designation of seat of arbitration. The High Court followed the observations made in para 96 of BALCO (supra) to arrive at such conclusion. The High Court also observed that Section 42 of the Act presupposes that more than one forum is competent to hear applications under the Act and thus to ensure efficacy of dispute resolution, the provision empowers the Courts, who is first seized of the matter, to have exclusive jurisdiction. Thus, ousting the jurisdiction of the court where the cause of action arose would render Section 42 otiose and nugatory.

The High Court distinguished Indus Mobile (supra) on the ground that in that case, the parties had not only agreed to the seat of arbitration but also had an exclusive jurisdiction clause which ousted other jurisdictions. The Court held that in the absence of such an exclusive jurisdiction clause, the courts where cause of action can continue to exercise jurisdiction.

iv) BGS-SGS-Soma-JV – A mistake cured

As pointed above, even though the Supreme Court deviated from the concurrent jurisdiction principle propounded in BALCO (supra), it did not overrule the observations made in para 96 of the judgement. This led to confusion and contradictions as evident from the Antrix Corporation (supra) judgement and similar judgements passed by Calcutta and Bombay High Courts. This contradiction has been finally put to rest by the Supreme Court in the case of BGS SGS SOMA JV v. NHPC Ltd. wherein it has been expressly observed that the findings recorded in para 96 of BALCO (supra) is in conflict with other observations of the same judgement and cannot be considered as ratio decidendi. It also overruled the law followed in the Antrix Corporation (supra) judgement. The Supreme Court reiterated that once the parties designate the seat of arbitration, only the courts governing the seat have exclusive jurisdiction to govern such arbitration proceeding and jurisdiction of all other courts stand ousted.

The exclusive jurisdiction principle has been reaffirmed in the recent judgement of Mankatsu Impex Private Limited v Airvisual Limited.

III. Principles for determining juridical seat of arbitration – Confusion and contradiction

As highlighted above, the concepts of "Seat" and "Venue" are distinct and independent. However, the reality depicts a completely opposite picture. Poorly drafted arbitration agreements fail to demonstrate the actual seat and venue of arbitration and often these terms are used interchangeably. This inevitably leads to conflict and confusion while determining the actual seat of arbitration. Over the time, the Courts have evolved various principles to untangle the web and ascertain the actual seat of arbitration in such poorly framed contracts. However, these principles have often been contradictory which have further added to the confusion. In this section of the article, we look at some of the important judgements passed by the Supreme Court enunciating the principles for determining seat of arbitration.

i) Adopting the Shashoua principle – BALCO and Enercon

As stated in part II of this article, the first judgement which elaborately discussed the concepts of "Seat" and "Venue" and set-out distinguishing parameters was in the matter of BALCO (supra) wherein the Supreme Court adopted the famous English principle propounded by Justice Cooke in Roger Shashoua v Mukesh Sharma. The Shashoua principle states that when an agreement expressly designates the venue without any express reference to seat, combined with a supranational body of laws and no significant contrary indicia, the inexorable conclusion is that the venue is actually the seat of arbitration.

This principle was also acknowledged and adopted by the Supreme Court in Enercon India (supra). However, in that case, since the substantive law, curial law and law governing arbitration were all Indian, the Court held that the same amounts to significant contrary indicia propounded under the Shashoua principle. The Supreme Court arrived at such conclusion by referring to celebrated English judgements of Naviera Amazonica Peruana S.A. v. Compania International de Seguros del Peru and Braes of Doune Wind Farm (Scotland) v. Alfred McAlpine Business Services Ltd.. Thus, the Court held that the seat of arbitration in India even though the venue is mentioned as London. However, the Supreme Court arrived at such conclusion by relying upon the Shashoua principle.

ii) Hardy Exploration – Deviation from Shashoua principle

In Union of India v. Hardy Exploration and Production (India) Inc. a reference was made before a 3 judge bench to determine whether the judgement declared in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. & Ors. will have an impact on the juridical seat doctrine. The Court answered the reference in negative.

After answering such question, the Court further went to analyse and determine the seat of arbitration. The arbitration clause provided in the Agreement defined the venue of arbitration as Kuala Lumpur and the curial law as UNCITRAL Model Law on International Commercial Arbitration

The Supreme Court held that Kuala Lumpur is not the seat of arbitration. The Court declared that the word place cannot be used as seat. A venue does not automatically become a seat. It requires a positive act and something concomitant attached to it. Similarly, a place becomes a seat when one of the condition precedent is satisfied. It does not ipso facto assume the status of a seat.

iii) BGS-SGS-Soma-JV – Shashoua principle reiterated

A similar question also came for determination before a co-ordinate (3 judges) bench in the matter of BGS-SGS Soma (supra). The Supreme Court after considering various judgements set-out certain parameters for determining the seat of arbitration.

The Supreme Court concluded that when the clause designates a venue of arbitration and declares that the arbitration will be held at such place, it indicates that the venue is actually the seat. This coupled with the fact that there are no significant contrary indicia that the "Venue" is merely a venue and not a seat further demonstrates that such place is actually the seat. The Court thus reaffirmed the Shashoua principle.

The Supreme Court also declared the judgement of Hardy Exploration (supra) as contrary to the principle laid down under BALCO (supra) and consequently as "not being good law".

iv) Mankatsu Impex – Another deviation

Recently, the Supreme Court (3 judges bench) had the opportunity to revisit the issue of seat and venue in the matter of Mankatsu Impex (supra). In that case, the Court was adjudicating a dispute arising out of a Memorandum of Understanding which stated that the MoU is governed by laws of India and Courts in New Delhi will have jurisdiction. The disputes will be referred to and finally resolved in Hong Kong. The issue framed before the Court was to determine whether the seat of arbitration is New Delhi or Hong Kong.

The Court while adjudicating the issue observed that mere expression of place of arbitration will not entail that the parties intended it to be the seat. The intention of the parties to the seat has to be determined from other clauses of the Agreement and the conduct of the parties.

This appears to be a third view taken by another co-ordinate bench which seems to gravitate more towards the ratio expounded in Hardy Exploration (supra).

IV. Conclusion

The concepts of Seat and Venue have led to substantial judicial discourse. The issue related to exclusive jurisdiction of courts at the seat has been finally and hopefully put to rest by BGS-SGS Soma (supra). This is a positive step taken by the Supreme Court to correct the confusion created by para 96 of BALCO (supra) subsequently followed by Antrix Corporation (supra) and similar judgements. As pointed out in BGS-SGS Soma (supra), the interpretation of BALCO (supra) followed in Antrix Corporation can lead to absurd consequences e.g. where a contract is performed across various states, a party can file proceeding in some remote district in Uttarakhand even though the agreement states the seat to be New Delhi or Mumbai.

However, the tests / parameters for distinguishing seat and venue are far from crystallised. The principles enunciated by BGS-SGS Soma (supra) came under criticism for overruling the principles laid down by Hardy Exploration (supra) by a co-ordinate bench i.e. bench having equal strength. To add further to this confusion, the Supreme Court in Mankatsu Impex (supra) (another 3 judge bench) took a view similar to Hardy Exploration (supra) without expressly overruling BGS-SGS Soma (supra). It is likely that this issue will soon be referred to a larger bench for deciding the parameters finally.

Originally Published by The Law Point, June 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

The Seat v/s.Venue Debate – A Continuing Saga

India Litigation, Mediation & Arbitration
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The Law Point is a full service law Firm uniquely identified for its exceptional quality of service to public sector undertakings, apex regulators and leading organisations.
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