DECODING THE SEAT-VENUE CONUNDRUM IN DOMESTIC ARBITRATION IN INDIA

The perennial seat/venue contest in arbitration regime whether domestic or international, hold significatory value since the determination of seat tantamount to application of procedural law of situate and exercise of supervisory powers over all jurisdictions. More often than not, the parties determine the seat of arbitration to submit themselves to the curial law of a country which seem to be most attractive to them. If parties do not reach a consensus over seat, the tribunal determines the same based on facts and circumstances surrounding the case, and parties’ convenience, to uphold pillars of party autonomy. The determination of seat holds prominence since it outlines the legal jurisdiction to which an arbitration is attached and the governing law of arbitration. The territorial nexus between the seat of arbitration and the curial law has been manifested in both the New York Convention and UNCITRAL Model International Commercial Arbitration of 1985. The language of Article 1(2)[1] and Article V(1)(d)[2] of the Model law and New York Convention, respectively, crystallizes the above statement. The confusion begins with ill-thought drafting of arbitration clause in an agreement, vague and open interpretations paving way for judicial intervention to decipher the hastily constructed agreements.

The seat/venue debate has been going on since time immemorial. The focal point of the debate in domestic arbitration in India started with the celebrated judgment of BALCO v. Kaiser Aluminium Technical Services[3] (BALCO), the watershed decision that paved way for making India a pro-arbitration jurisdiction by condensing the traditional barriers created by Bhatia International[4] and suggested a paradigm shift by regulating applicability of Part I and II of the Act. The Court proactively stepped up for the first time to delineate the difference between seat and venue, in the sense that the word ‘place’ appearing in Section 20(1) & (2) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) connotes ‘seat’ instead whereas it indicates ‘venue’ in Section 20(3) of the Act. It was succinctly observed that seat is the ‘centre of gravity’ of arbitration having supervisory jurisdiction, carefully acknowledging the convenience of the parties and thereby party autonomy, to hold meetings/hearings at a place that is not the designated seat, i.e.., at a ‘venue’, which is more of a geographical concept, for the purpose of collection and inspection of evidence, examination of witnesses, and such, without having the effect of transitional shift of situs of arbitration. It is a matter of interpretation of individual agreements when the arbitration clauses mention ‘place’ of the arbitration at some geographical location to reckon it as ‘seat’ or ‘venue’ according to the facts and circumstances surrounding the case and the relevant jurisprudence available.

The judgment seems to be an oxymoron when the Court in para 96 elucidated while interpreting the language of Section 2(1)(e) of the Act[5] that two Courts would have concurrent jurisdiction ie., the Court where the cause of action arises (subject matter of the suit) and where the arbitration is supposed to take place as agreed to, by the parties (subject matter of the arbitration), thereby conferring the status of ‘seat’ on two jurisdictions. The Court acted judiciously while granting the status of ‘seat’ on a neutral venue but failed to strike a chord on the exclusive status of the ‘seat’. The implication of such misconstruction by the Court was anticipatory enough, both theoretically, to illustrate- in a situation where the cause of action is continuing, it is difficult to render jurisdiction on one Court or the most probable result- conflicting judgments; and in practice, a catena of judgments pronounced after BALCO were misplaced and antithetical.

It is important to note at this juncture that there are three dimensions of law that can be found in an arbitration agreement, namely- the law governing the contract, law governing the arbitration agreement and the procedural rules which serves as an umbrella for conducting the arbitration typically known as the lex fori. Though a glimpse of closest and the most intimate connection principle (principle of propinquity) can be observed in BALCO, Enercon India[6] finds its basis of ruling from this principle culled out in the case of Naviera Amazonica[7] where it was categorically held that the intention of the parties vis-à-vis nomination of seat can be ascertained from the fact that they chose a law governing the arbitration agreement of a particular country to subject its procedural rules to and vice-versa. In an attempt to provide clarity to disputed para 96 of BALCO, this Court observed that the concurrent jurisdiction on seat and venue can be conferred only when the seat is in India, the reason being that it will technically have no risk of conflicting judgments since the Courts are motivated by the same law. Such observation of the Court comes across to be flouting the privilege of party autonomy when they have determined the seat at a particular/neutral place and defeating the very purpose of determination.

It has been hinted in many judgments following BALCO that determination of seat is akin to an exclusive jurisdiction clause which grants Courts supervisory jurisdiction over the arbitration as ordained in Enercon[8], Reliance[9] and Harmony Innovations[10]. Finally, in 2017, the Court decided to break the ice on the issue in the matter of Indus Mobile[11], and decisively affirmed that the parties are free to choose a neutral forum for the adjudication of their disputes, unrelated to subject matter jurisdiction, which in turn will accord irrevocable supervisory and exclusive jurisdiction to such ‘forum’ over the regulation of arbitral proceedings; ousting jurisdiction of other Courts where it lies in the classical sense placing reliance on the case law- Swastik Gases[12]. It bears noting to the fact that Swastik judgment also observed that the words such as ‘alone’, ‘only’, ‘exclusive’ is not of material importance while reading between the lines of the ouster clause by virtue of maxim- expressio unius est exclusio alterius i.e.., expression of one thing excludes another.

This seemingly new proposition introduced by the Court was expected to hold high grounds and conviction but instead it got casted by shadows of differing opinions of various High Courts. Ensuing Indus, one viewpoint[13] championed the conviction of the Courts in BALCO and Indus to hold that the selection of seat connotes the exclusive nature of the forum, whereas another school of thought[14] rigidly failed to read Indus Mobile and BALCO harmoniously, and vehemently held that parties, on their own motion cannot confer jurisdiction on a Court, which in the traditional sense does not hold competence to try the matter under relevant provisions of CPC. In the similar vein, the Delhi HC[15] misconceived the clear wordings of Indus mobile in the sense that it flagrantly disregarded the dictum of the Court and opined that mere consensus over seat of arbitration does not necessarily import the exclusivity of the Court.

Strikingly noted, none of the Courts while decoding the seat/venue conundrum explicitly overruled the famous para 96 of BALCO, which was a source of the continuing perplexity. While such seat/venue discourse became a common sight in the Courts, the Supreme Court in Hardy Exploration[16] digressed from the consistent view of determination of seat and venue, and ordained that when parties have failed to agree on the seat of arbitration, and the tribunal has failed to determine the same u/s 20(2); mere selection of venue does not amount to establishment of seat unless certain ancillary factor attached to it, is suggestive of the same. Likewise, a place is not equivalent to seat unless the condition precedent, if any, appended to it is satisfied. This judgment failed to demarcate lines among place, seat and venue since it did not give an inclusive/exhaustive list as to what constitutes ‘concomitant’ (ancillary factor).

The Apex Court took the opportunity to reiterate again, the ratio held by BALCO and championed the principle endorsed by Shashoua[17], in BSG Soma[18] that if nothing significantly indicative to the contrary is mentioned in the clause, the venue together with the transnational body of rules governing the arbitration, ipso facto obtains the status of seat akin to an exclusive jurisdiction clause. It discussed the complicity of having recourse to multiple jurisdictions and declared Hardy to be a bad law. What is critical to be noted at this point is whether the bench of equal strength can overrule the decision made by another? It has been held in a catena of judgments[19] that the only remedy in a scenario of a conflicted decision on a similar subject matter is to refer the matter to a larger bench to decide on the issue. That not being the case, there is room to ruminate on its validity. The judgment in the case of Hindustan Construction v. NHPC[20] reinforces the ratio reiterated in BSG Soma in the sense that once the seat is determined to be in New Delhi, S. 34 application filed before Faridabad Courts for the first time, where the cause of action arises partially, would be considered to be held without jurisdiction and stand transferred as Delhi Court alone would have jurisdiction to hear the matter, digressing from obiter in para 96 of BALCO.

A much recent decision of the Supreme Court in Mankastu Index[21] deliberated on the same issue and opined that mere selection of place does not amount to designation of seat and the arbitration agreement has to be read in a holistic manner, as a whole, to conclude that the intention of the parties was indeed to attribute ‘seat’ to a place of arbitration. When the issue of correctness of BSG Soma was mooted, the Court shied away from commenting on the same, although it clearly departed from the views expressed in BSG Soma and ordained along the lines of dictum in Hardy.

A rather absurd position of law was established in the case of Quippo Constructions Ltd[22] by the Apex Court in which it opined that the party is deemed to have waived off the right to all objections including the objection relating to the venue of proceedings if it does not object to the jurisdiction and authority of the arbitrator well within time and fails to participate in the arbitral proceedings. This leaves one to wonder whether this is the new yardstick used to ascertain the seat of arbitration. It would blur the distinction between seat and venue if such a proposition is upheld, contrary to the views expressed in BALCO. It also raises a multitude of unanswered questions such as- If parties do not object to the conduct of arbitral proceedings, then the place where proceedings are held is equivalent to seat? Does this place the parties under obligation to challenge authority of arbitrator to hint that the place is not the seat but just a convenient venue to avoid conflict? Does the challenge against seat/venue discord be only made through challenge under Section 16[23]?

As LCB Gower[24] would put it, though in reference to lifting veil of corporate personality when blatantly used as a cloak for fraud that, “the trouble is that the attitude of the Courts is unpredictable, insinuating that every positive case of regarding subsidiary as agent of parent company can be matched with another in which the Court has refused to do so.” This holds much significance when exhibiting the Court’s interpretation of seat and venue in the Indian arbitration model. One school of thought champions the idea that the terms seat/venue/place can be used analogously whereas another endorses that venue is merely physical concept and seat signify the lex arbitri i.e., is a juridical concept.

Be that as it may, on a more hopeful note, the findings of Mankastu seems to hold ground since it delineates the line between seat and venue, a conceptualized expression in BALCO instead of conferring unwarranted status of seat on venue, diluting their contrasting construction. The Court took the opportunity on this occasion to remark that all the clauses in the arbitration agreement should be as a whole, not in isolation, a classic accepted canon of construction of an agreement/Statute, in order to ascertain the true intention of the players. Correspondingly, the recent judgment of Quippo should not be taken as an accepted position of law since it fails to provide answers to the core mooted propositions and prima facie fails to reflect on the standard approach to deal with seat/venue imbroglio.

Hitherto, the position of law as it stands today is conflicting, in the sense, that there is no determinative definition of seat and venue to fall back on, rather a vexed jurisprudence on the same, which is a major lacuna as to why India is not seen as a pro-arbitration friendly jurisdiction. The question of law is settled in so far as the applicability of Part I to international commercial arbitrations is concerned such that Part I of the Act does not apply in a case seated outside India, saving certain provisions from the ambit as provided for under amended Section 2(2) of the Act and; an express agreement of the parties to include Part I qua internal conduct of their arbitration and which are not inconsistent with the mandatory provisions of the foreign curial law. The prime discipline of the debate vis-à-vis discerning the seat/venue dilemma remains disputed. From the arbitral jurisprudence available at our disposal, a congruous pattern of Courts to hide behind the smokescreen is evident. The Courts are seen to give customized definition of seat and venue let alone follow the classic settled elucidation of the same, discernible from the plethora of judgments analyzed. Therefore, it is difficult to accurately decode the seat/venue conundrum owing to the vast, often contradictory judicial decisions. The legislators failed to consider recommendations of the Law Commission[25] to depart from common usage of ‘place’ and replace it with ‘seat’ and ‘venue’ to be more in line with the international standards and avoid judicial logjam. Furthermore, in this context, the Court in Indus Mobile held in explicit terms that implementation of such recommendation would be redundant since the Constitutional Bench in BALCO in no uncertain terms differentiated between the two by way of construction of Statute. The ramification of such observation can be seen from conflicting and home-made definition of seat and venue attributed to the place of arbitration in the plethora of judicial pronouncements mentioned. There is an imminent need to refer the decision of BSG Soma and Hardy Explorations to a larger bench in the interest of certainty in the position. In the meantime, one can only give an advice of caution to drafting litigators to pen clauses in certain and unambiguous manner, patently differentiating between seat and venue to avoid unnecessary intervention which defeats purpose of speedy trials.


References [1] UNCITRAL Model law on International Commercial Arbitration Art. 1(2) (June 21st, 1985), available at https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/06-54671_ebook.pdf. [2] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards Art. V(1)(d) (June 10, 1958), available at https://www.newyorkconvention.org/english. [3] BALCO v. Kaiser Aluminium Technical Services, (2016) 2 SCC (Civ) 580 (India). [4] Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105 (India). [5] Arbitration and Conciliation (Amendment) Act § 2(1)(e) (2015). [6] Enercon (India) Ltd. V. Enercon GmbH, (2014) 5 SCC 1 (India). [7] Naviera Amazonica Peruana S.A. v. Compania International de Seguros del Peru, (1988) 1 Llyod’s Rep 116 (CA). [8] Supra at note 6. [9] Union of India v. Reliance Industries Ltd., (2015) 10 SCC 213 (India). [10] Harmony Innovation Shipping Ltd. v. Gupta Coal India Ltd., (2015) 9 SCC 172 (India). [11] Indus Mobile Distributions (P) Ltd. V. Datawind Innovations (P) Ltd., (2017) 7 SCC 687 (India). [12] Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd., (2013) 9 SCC 32 (India). [13] Unique Optical Fiber and Telecom Services Private Limited v. Telecommunications Consultancy India Limited, (2018) SCC OnLine Guj 316 (India); Brahmani River Pellets Ltd. v. Kamachi Industries Ltd., (2020) 5 SCC 462 (India). [14] Tarak Upadhyay v. State of West Bengal, (2019) SCC OnLine Cal 7111 (India). [15] Antrix Corporation Ltd. V. Devas Multimedia P Ltd., (2018) SCC OnLine Del 9338 (India). [16] Union of India v. Hardy Exploration & Production (India) Inc., (2018) 7 SCC 374 (India). [17] Roger Shashoua v. Mukesh Sharma, (2009) 2 Lloyd’s Law Rep 376 (United Kingdom). [18] BGS SGS Soma JV v. NHPC, (2020) 4 SCC 234 (India). [19] Safiya Bee v. Mohd. Vajahath Hussain, (2011) 2 SCC 94 (India). [20] Hindustan Construction Co. Ltd. V. NHPC, (2020) 4 SCC 310 (India). [21] Mankastu Index (P) Ltd. V. Airvisual Ltd., (2020) 5 SCC 399 (India). [22] Janardan Nirman (P) Ltd. V. Quippo Construction Equipment Ltd., (2017) SCC OnLine Cal 3815 (India). [23] Arbitration and Conciliation Act § 16 (1996). [24] Paul L. Davies, Gower & Davies’, Principles of Modern Company Law, 221-222 (9th Ed. 2003). [25] Law Commission of India Report No. 246 (August, 2014), available at https://lawcommissionofindia.nic.in/reports/report246.pdf.


Author - Vanshita Gupta, National Law University, Visakhapatnam.