The Curious Case Of 'Seat/Venue/Place' In Arbitration ' Need For Legal Practitioners To Employ Clear Phraseology

Published date06 August 2021
Subject MatterCorporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Arbitration & Dispute Resolution
Law FirmGravitas Legal
AuthorMr Rajeev Aggarwal and Prateek Badhwar

An attempt to catalog and straighten up the labyrinth, which surrounds the intricate subject: 'Seat/Place/Venue' of Arbitration.

At the outset, it needs to be strictly borne mind that the Arbitration and Conciliation Act, 1996 does employ the words 'seat' or 'venue' of arbitration and only employs the word 'place' of arbitration in the sense of 'juridical seat'. The relevant statutory provision being Section 20 of the Arbitration Act, which reads as under:

"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."

[Emphasis added]

Sub-section (1) to Section 20 gives the parties a right to choose the 'place' of arbitration. Sub-section (3) again uses the word 'place' but with reference to meeting of the members of an arbitral tribunal. This apparent ambiguity was first addressed by the Supreme Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc1, (BALCO), by recognizing the seat as the "centre of gravity" of arbitration, which in actuality is the juridical seat of Arbitration. Nonetheless, in line with international practice, the Supreme Court observed that the arbitral hearings might take place at a location other than the seat of arbitration. The distinction between "seat" and "venue" was, therefore, recognized by judicial ingenuity.

The issue of 'juridical seat' assumes significance because the choice 'juridical seat' of arbitration, in International Arbitration, attracts the law applicable to such location. In other words, it would not be necessary to specify which law would apply to the arbitration proceedings, since the law of the particular country would apply ipso jure2.

Likewise, in domestic arbitration, the choice of 'juridical seat' determines the Court, which shall, in terms of Section 42 of the Arbitration and Conciliation Act, 1996, have the jurisdiction over the arbitral proceedings and all subsequent applications, such as inter alia an application for setting aside the arbitral award. The said Section 42 is reproduced below:

"42. Jurisdiction.'

Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court."

Latest Pronouncements Governing the Field

Without wasting too many words, let us analyze the four latest Supreme Court judgments, which govern the issue of 'juridical seat', in a condensed and capsulized manner.

The first of these four judgments is the 2018, three-Judge bench decision, in Union of India (UOI) v. Hardy Exploration & Production (India) Inc.3 Later, in 2019 came the co-ordinate Bench decision in BGS SGS SOMA JV v. NHPC Ltd.4, which allegorically speaking muddied the waters. Again, in 2020 came a three-Judge Bench decision in Mankastu Impex Private Limited v. Airvisual Ltd.5

Last is the division Bench decision in Inox Renewables Ltd. v. Jayesh Electricals Ltd.6, which wholeheartedly follows the infirm decision in BGS Soma (supra).

Hardy Exploration (supra)

The Appellant therein had filed an Application before the High Court U/s 34 of the Arbitration Act challenging the correctness of award made by Arbitrators in favour of Respondents. The said Application was contested by Respondent on ground that courts in India did not have jurisdiction to entertain such an application. While dealing with the controversy the Supreme Court referred to the relevant Articles of the Contract in question to delineate on whether they oust the jurisdiction of the courts in India. The relevant portion of Article 32 and 33 read as follows:

"32.1 This Contract shall be governed and interpreted in accordance with the laws of India.

32.2 Nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and powers conferred upon it by this Contract in a manner which will contravene the laws of India.

33.9 Arbitration proceedings shall be conducted in accordance with the UNICITRAL Model Law on International Commercial Arbitration of 1985 except that in the event of any conflict between the Rules and the provisions of this Article 33, the provisions of this Article 33 shall govern.

XXX

33.12 The venue of conciliation or arbitration proceedings pursuant to this Article unless the parties otherwise agree, shall be Kuala Lumpur and shall be conducted in English language. Insofar as practicable the parties shall continue to implement the terms of this contract notwithstanding the initiation of arbitration proceedings and any pending claim or dispute."

[Emphasis Added]

The Court noted that as per Article 33.12 'venue' for arbitration was agreed to be Kuala Lumpur. But the...

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