Confusion over basic concepts of arbitration viz, its seat and venue continue to bedevil Indian law. The latest addition to this cornucopia of conflicting judgements was rendered by the Supreme Court in Brahamani River Pellets v/s Kamachi Industries Ltd, on 25 July 2019.
The controversy in the present case arose out a sale of iron ore pellets on FOB terms. Payment under a Letter of Credit was to be made at Bhubaneshwar. Loadport was stipulated as Dhamra (Orissa) and disport Ennore/Chennai. Disputes arose between the parties regarding the price and payment terms. Consequently, Brahamani the seller did not deliver the goods. Kamachi the buyer claimed damages alleging that it had to procure the Iron Ore Pellets from other sources at higher rates.
The arbitration clause in the sale contract provided that, "Arbitration shall be under Indian Arbitration and Conciliation Law 1996 and the Venue of Arbitration shall be Bhubaneswar."
Kamachi the buyer invoked arbitration but the seller, Brahamani refused to appoint an arbitrator compelling Kamachi to apply under Section 11 of the Arbitration & Conciliation Act, 1996 for appointment of a sole arbitrator, before the Madras High Court. Brahamani opposed the application on the ground that the intention underlying the arbitral clause, notwithstanding the use of the expression 'Venue', was that the seat of the arbitration was Bhubaneshwar and the High Court at Bhubaneshwar had exclusive jurisdiction to appoint the arbitrator. The Madras High Court disagreed and held that even if the expression 'venue' was to be treated as 'seat', the curial court would not have exclusive jurisdiction. The Madras High Court accordingly ruled that the mere designation of "Seat" by parties did not oust the jurisdiction of other courts other than at the seat of arbitration and proceeded to appoint an arbitrator.
Brahamani's appeal to the Supreme Court was allowed and the decision of the Madras High Court reversed. However, in doing so, the Supreme Court erroneously conflated the expression "Venue" with "Seat". This is problematical as these are two distinct concepts and the difference crucial. The seat or place of the arbitration is its juridical home and is fixed and immutable. Courts at the seat/place of arbitration have exclusive supervisory jurisdiction over the arbitral process. In contrast and unlike the seat of an arbitration, the venue of an arbitration is portable and can and often does change depending on the convenience of the parties. (See: Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. ((2017) 7 SCC 678)
It is submitted that the Supreme Court in this case arrived at the right conclusion for the wrong reasons. The Supreme Court considered but failed to apply the ratio of its earlier judgements such as Union of India v Hardy Exploration ((2018) 7 SCC 374), where it ruled that the mere use of the term 'venue' would not be decisive- the court in determining the juridical seat of the arbitration would have to ascertain if there were other connecting factors linking the venue with the dispute. In the absence of such connecting factors, the choice of venue of the arbitration did not amount to a choice of juridical seat. The Supreme Court accordingly found in that case that Kuala Lumpur was the venue of the arbitration and not its seat. Similarly, in Enercon (India) Limited and others v. Enercon GMBH ((2014) 5 SCC 1, the Supreme Court found England to be merely the venue and not the seat of the arbitration due to all other connecting factors pointing to India.
In the instant case, all the connecting factors such as load port Dhamra, payment under the Letter of Credit at Bhubaneshwar and the presence of the seller at Bhubaneshwar, pointed to Bhubaneshwar as not just the venue, but the seat/place of the arbitration. The Supreme Court could therefore have arrived at the same conclusion (viz that Bhubaneshwar was the seat and not just venue of the arbitration) but failed to make any such inquiry or analysis of the connecting factors.
The reasoning of the Supreme Court is open to abuse given that a large number of disputes though seated abroad, are for reasons of convenience arbitrated in India. Without an analysis of connecting factors, the danger of having an arbitral venue in India may result in the Indian courts exercising supervisory jurisdiction over the arbitral process, thereby negating the intention of the parties.
The judgement is both an illustration of the pitfalls of imprecise drafting and a reminder to litigants not to use the expression 'venue' loosely when drafting arbitral clauses. A precise expression of the location of the seat of the arbitration in the arbitral clause, may have avoided the controversy.
Originally published August 6, 2019.
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