This article is Sahil Kumar Purvey and Siddhant Singh, students of Hidayatullah National Law University, Raipur, Chhattisgarh. In this article, the authors explain Judicial Elucidation of “Seat vs. Venue”.
The present era of the globalized economy makes the contract between entities belonging to different nations inevitable, which along with arbitration as quick dispute resolution mechanism have been expanding the terrain of ‘international commercial arbitration’. The party autonomy is the cornerstone of the law of arbitration, and parties of the contract are free to decide the law applicable to the substantive contract (lex contractus), the law applicable to the arbitration agreement and performance of that agreement (Juridical seat or lex arbitri), and the law governing the procedure of arbitration (curial law). International commercial arbitration due to the involvement of entities from different nations raises the issue of jurisdiction of the court to deal with the arbitration disputes, which involves the concept of “seat” and “venue”. The seat of arbitration is necessary to determine because it would affect several major legal issues such as the arbitrability of the subject matter, the legal validity of the arbitration agreement, procedural guarantees, judicial review of the award and supervisory jurisdiction of the court, etc., whereas venue of arbitration is flexible, and only signifies the physical place for the conduct of said arbitration proceedings.
The Arbitration Act 1996 along with many other flaws lacks clarity on the meaning of seat and venue. The Act doesn’t define the meaning of these terms but only uses the term “place” of arbitration. Section 2(2) of the Act states that Part I shall apply if the place of arbitration is in India. It doesn’t clarify that, whether “place” means to be mere “venue” of arbitration or it also includes “seat” which confers jurisdiction to the court. Even Section 20 of the Act, which provides how to determine the place of arbitration, is ambiguous and fails to distinguish between “seat” and “venue”. To answer this vexed question of law, time and again the judiciary has given various interpretations in different judgments.
On 5th March 2020, the Supreme Court in Mankastu Impex Private Limited vs. Airvisual Limited (Mankastu) revived the conundrum of “seat vs. venue” under the Arbitration Act 1996 and tried to settle down the issue in the line of UOI vs. Hardy Exploration (Hardy). This article tries to analyze the said conundrum in four phases i.e. prior to Hardy Exploration, the judgment of Hardy Exploration, post-Hardy Exploration, and the judgment of Mankastu.
Prior to Hardy Exploration
After the enactment of the Act, the first landmark attempt by the judiciary to settle down the quandary was in the case of Bhatia International v. Bulk Trading SA (Bhatia). In this case, the Supreme Court while interpreting Section 2(2) of the Act, rather than differentiating between “seat” and “venue”, held that any international commercial arbitration which involves an Indian party irrespective of being proceeded in any country would confer jurisdiction on Indian Courts to entertain applications under Part I of the 1996 Act. This view was without any reasoning and is considered as a judicial fiasco.
However, the Apex Court in the case of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO), overruled the interpretation of Section 2(2) as laid down in Bhatia, and held that Part I of the Act would only apply if “seat” of arbitration is in India, and reading of Section 2(2) along with Section 20 established that the Act has no extraterritorial jurisdiction. The Court restored the distinction between “seat” and “venue” and stated that the term “place” used in Sections 20(1) and (2) connotes “seat” and Section 20(3) talk about “venue”. Sections 20(1) and (2) deal with the right of the parties to select the place of arbitration and in the absence of any such selection in the agreement, authorizes the tribunal to determine the same, whereas Section 20(3) allows the tribunal to meet at any place for convenience in procedural matters. Before BALCO the other prevailing approach to determine the supervisory jurisdiction of the court for arbitration was to decide as per section 2(1)(e) of the Act, which recognizes that the court at the place of cause of action would have jurisdiction, but BALCO adopted a seat centric approach instead of the place of cause of action approach and extended the supervisory jurisdiction of the arbitration exclusively onto the court, which is considered as the seat of arbitration.
In 2014, the 246th Report of Law Commission had addressed that the use of word “place” in the Act as a misnomer and suggested replacing the word “place” with the words “seat” and “venue” in section 2(2) and section 20 of the Act on the line of explanation given in Balco, but suggestion never materialized.
The court reiterated the same principle in Enercon (India) Ltd. v. Enercon GmbH (Enercon). In Enercon, the court noted that if the “seat” of arbitration is not clear, the “closest and most intimate connection test” would be applied. This test necessitates taking into consideration, several factors like place of performance, contractual conditions in the contract, governing and curial laws of arbitration, the intention of the parties, and the legal system which has the most intimate connection with the arbitral proceedings while determining the “seat”.
In Roger Shahshoua v. Mukesh Sharma(Roger Shahshoua), the Supreme Court upheld the judgment of English case and recognized “the significant contrary indicia” test to differentiate between “venue” and “seat” and held that unless there is the contrary intention of party “seat” of arbitration would be determined by “venue” and “something else” prescribed in the agreement, which would vary with the facts of the case. However, BALCO has also implicitly concluded that a “venue of the arbitration” is the “seat of arbitration”, in the absence of any significant contrary intention in the agreement.
Before, the Judgment of Hardy, the law to determine “juridical seat” was “the significant contrary indicia” test, but the judgment of Hardy, led the other way around to determine the “seat of arbitration”.
UOI vs. Hardy Exploration
Facts- Hardy Exploration and the government of India signed a contract and agreed to solve the dispute through arbitration. The arbitration clause specified Kuala Lumpur as the “venue” of arbitration, whereas the UNICITRAL Model Law of International Commercial Arbitration of 1985 would govern arbitration proceeding. The arbitration was conducted and the award was signed in Kuala Lumpur in favor of Hardy Exploration, which was challenged before Delhi High Court under section 34 of Arbitration and Conciliation Act, 1996. The high court held that seat of Arbitration is Kuala Lumpur and Indian courts don’t have any jurisdiction to hear the matter. The matter was further challenged before the Supreme Court and heard by a three-judge bench.
Issue- Whether the “juridical seat” of the arbitration is the same as the “venue” of arbitration if the venue is given but the seat is not specifically mentioned in the arbitration agreement.
Held- Court contradicted judgment of Roger Shashoua, BALCO and held that “Seat” of the arbitration and “Venue” of the arbitration are distinct from each other and if the arbitration agreement only mentioned the “Venue of arbitration”, the same can be considered as the “Seat of arbitration” only if arbitration agreement has explicitly mentioned it or other factors of the arbitration agreement indicate that. The Apex Court held that the arbitration agreement should be read holistically to deduce the ‘seat’ of arbitration.
In the present case, the Supreme Court read the Arbitration agreement holistically and considered the Model Law as a factor to deduce the seat of arbitration. As per the Model Law if there is no mention about the place of arbitration, then the same can be determined by the arbitral tribunal. The Apex court noted that the award was signed and declared in Kuala Lumpur, but the place of arbitration was not expressly determined by the arbitral tribunal. So, the ‘seat’ of arbitration is not Kuala Lumpur and the award rendered isn’t a “foreign award”, which entitle the Indian court to entertain the application under Section 34 of the Act.
Post Hardy Exploration
In the case of Brahmani River Pellets v. Kamachi Industries, the matter was involved of domestic arbitration, but the court in the case obliterated the difference between “seat” and “venue” and held that, in the absence of specification of “seat” of arbitration in the arbitration agreement, the “venue” of the arbitration would be same as “seat” of the arbitration without any other concomitant factors. The court neither mentioned any reason for its judgment nor applied or set any test or standard which could determine that “venue” would be considered as “seat”. This blanket formula could have far-reaching effects on the arbitration because the venue of the arbitration could be flexible and could take place at different locations but the same can’t go with the seat of the arbitration.
Another landmark judgment in this series of judicial interpretation is BGS SGS Soma v. NHPC, (BGS Soma). Many regarded the BGS Soma judgment to be the defining moment in the never-ending debate of “seat vs. venue”, as it tried to clarify and describe the stand of the Apex Court on the issue. In this particular judgment, the Apex Court restored the reasoning of Roger Shashoua and BALCO, and held that choosing the “venue” of the arbitration is akin to the choosing of the “seat” of the arbitration. And, the absence of any contrary indication about any difference in the context of “seat” and “venue” shall be a strong sign to regard both venue and seat as indistinguishable and not required any explicit mention of the same as held in Hardy. This judgment was hailed by many as significant. Nonetheless, the judgment being contrary to Hardy has added fuel to the already undying debate on “seat vs. venue”. Also, the Court held that the law laid down in Hardy shouldn’t be considered as a good law as being contrary to the judgment of a five-judge bench in BALCO and Roger Shashoua.
However, the recent Mankatsu judgment of the Apex court has again brought the issue of “Seat vs. Venue” into the limelight.
Mankastu Impex Private Limited vs. Airvisual Limited
Facts- The Petitioner (Mankatsu Implex Private Limited) and the Respondent (Airvisual Limited) entered into an MoU for the exclusive distribution right to be awarded to the Petitioner for the Respondent’s air quality monitors products for five years. Subsequently, the respondent company was acquired by an entity named IQ Air AG, which refused to honor the pre-existing MoU as entered between the Petitioner and the Respondent and dispute arose between the parties as Petitioner claimed the exclusive right of the sale of the Air Visual’s product for five years as per the terms as mentioned in the MoU. The dispute resolution clause (Clause 17.1 of the MoU) 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. The clause 17.2 of the MoU specified that if any dispute arose out of or relating to the agreement, it was to be resolved by arbitration that was to be administered in Hong Kong and mentioned Hong Kong as the place of arbitration. The clause further specified that parties have the right to seek preliminary injunctive reliefs from the courts having jurisdiction. After the dispute arose, the Petitioner approached the Delhi High Court to file a petition under Section 9 of the Act seeking interim relief and the petitioner had obtained the same and subsequently approached the Apex Court under Section 11(6) of the Act for the appointment of a sole arbitrator.
Issue- Whether the Indian Courts has the jurisdiction to entertain the petition filed under Section 11(6) of the Act?
Held- The Court began its analysis by highlighting the importance of determining the difference between the “seat” and “venue” of any arbitration proceedings, as seat tends to help in deciding the curial law, which thereafter has implications on remedies available through judicial review of the proceedings. It was observed by the court that the mere expression “place of arbitration” can’t be regarded as the focal point on the questions related to the seat and venue of the arbitration proceedings, instead, the court upheld the fact that the same should be determined by the conduct and the agreement between the parties. So, while arriving at this conclusion the Court was of the view that Clause 17.1 shows that it will be the substantive law of India that will be governing the substantive contracts. But, after analyzing Clause 17.2, the Court was of the view that the seat of the said arbitration proceedings is to be Hong Kong. The court while considering the principle of territoriality as held in the five-judge bench decision in BALCO, dismissed the petition made under section 11(6). The judgment of Mankatsu laid down the same law as in Hardy.
The BALCO judgment made it clear that the supervisory jurisdiction of the court would be “Seat Centric” and not at the place of Cause of action. The Court in the BALCO gave exclusive supervisory jurisdiction to “Seat of arbitration”. However, the Delhi high court in Antrix Corporation Ltd v Devas Multimedia Pvt Ltd, held that the court at the seat and the court of the cause of action have concurrent jurisdiction over arbitration applications. The Delhi High Court view has been overruled in BGS Soma and specified the strict stand regarding exclusive supervisory jurisdiction to court at the seat. The view of the judiciary to determine the seat of arbitration has been continuously changing since BALCO. The BGS Soma was considered as the end of the conundrum but the Mankatsu again revived the conundrum. Though, it can’t be said that the BGS Soma stands over-ruled, as there was nothing in the judgment to declare the same as bad law. Further, both the judgment being of the same coordinate bench can’t overrule the other. Also, it can’t be said that the Mankatsu judgment is in complete contradiction to the BALCO judgment as while negating other laws of the BALCO judgment, Mankatsu upheld the Principle of territoriality as held in BALCO. However, in light of the above observations, it can be said that the Mankatsu judgment is a missed opportunity for the Apex Court to clear this conundrum by referring the matter to the larger bench. So, now it would be interesting to see what will be the future course of action of the High Courts as presently due to the ‘negligence’ of the Apex Court there are umpteen contradictory cases in front of the parties to the arbitration, which thereby hampers the growth of India, to become the global hub of arbitration.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: