Introduction:
Today arbitration is a cheap and favourable method to resolve disputes between two parties. It is considered as a fruitful practice and provides numerous rights to the parties for the arbitration procedure. Both the parties are free to choose the language, arbitrators, venue and much more which is included in the arbitral proceedings. In various cases, much time is lost in deciding the venue for the proceedings. Although the arbitration clause leaves no ambiguity generally, still there are some exceptions. There is a major perplexity in understanding the difference between the seat of arbitration and the venue of arbitration.
Difference Between Seat and Venue of Arbitration
The seat of arbitration decides the governing law for the conduct of arbitration proceedings, also the courts have the supervisory dominance over the arbitration as well as over the scope of these powers, especially in relevancy enforcement of awards. Its the seat that truly decides the suitable court which is able to have exclusive jurisdiction to support the arbitration proceedings. The Court noted that “place” and “seat” of arbitration can be used interchangeably. However, the venue is basically the geographical location where the arbitration proceedings will happen that’s chosen on the premise of the convenience of both the parties. The sole exception is when the agreement is totally silent on the seat. In such situations, it’s the venue which can emerge as a vital thing about deciding the suitable court.
After all these definitions, India continues to be facing that parties waste plenty of your time deciding and agreeing upon the place of arbitration. The Supreme Court has given three landmark judgments regarding the matter which helped in understanding the matter in a very better way.
Union of India v. Hardy Exploration and Production (India) Inc. [1]
In September 2018, the Supreme Court delivered the first of these three judgments. During this case, the parties had entered into a production sharing contract with the Indian Government for development, extraction and production of Hydrocarbons within the territory of India. The arbitration agreement gave that Malaysian capital shall be the “venue” of arbitration, together with “arbitration proceedings shall be conducted in accordance with the UNCITRAL Model Law on International Commercial Arbitration of 1985…”. The arbitration procedure was held in the capital of Malaysia and the final reward was rendered within the favour of Hardy Exploration. Union of India sought to challenge the award under section 34 of the Indian Arbitration and Conciliation Act, 1996 before the Delhi state Supreme Court. It contended that the arbitration agreement didn’t specify the seat of arbitration and declared the venue of arbitration only. Therefore, Kuala Lumpur was merely venue and urban centre was the seat of arbitration. Hardy Exploration argued otherwise. The Supreme Court held that the parties had not chosen the seat of arbitration and thus the arbitral tribunal had also not determined the seat of arbitration. The Court ruled that the ‘venue’ of arbitration couldn’t, ipso facto, be contemplated to be its ‘seat’ which the ‘place’ might correspond with ‘seat’ provided that it had no conditions precedent attached to that. the choice in Hardy Exploration is of limited assistance because it doesn’t clearly outline
The concepts of “place”, “seat” and “venue” and since it doesn’t establish the additional elements needed to justify treating the designated venue because of the seat of arbitration. Through this decision, the Supreme Court ultimately did not provide any clarity on this issue except the simple conclusion that a specific venue couldn’t be treated because the seat of arbitration within the absence of additional factors indicating that such chosen venue was planned to be the seat of arbitration.
It is not necessary for the Seat of Arbitration and therefore the venue of the Arbitration to be identical. Location and even when hearings occur during the course of the Arbitration in several different countries, the chosen Seat of Arbitration will remain unaffected and unconventional of the geographical place where the hearings occur.
BGS SGS Soma JV v. NHPC Ltd. [2]
Thereafter, in December 2019, the Supreme Court revisited this matter in Soma JV case which concerned an arbitration agreement that was held between NHPC Limited (NHPC) and its contractor Soma JV for India’s largest hydroelectric project in Arunachal Pradesh and Assam stipulating that “Arbitration Proceedings shall be held at New Delhi/Faridabad, India…”. Disputes arose between NHPC and therefore the JV, and arbitration proceedings were commenced. The arbitration proceedings were conducted in the capital of India and also the subsequent award was also signed there. Since the Award was in favour of the JV, NHPC filed an application under Section 34 of the Arbitration Act challenging the Award before the District Court in Faridabad.
The JV filed an application under Section 2(1)(e)(i) of the Arbitration Act and Order VII Rule 10 of the Code of Civil Procedure 1908, seeking the return of the Section 34 application to the relevant court in Indian capital (since the arbitration had occurred in New Delhi) or Assam, (since the cause of action had arisen in Assam). Accordingly, the Section 34 application was transferred from Faridabad to New Delhi (Transfer Order).
Affronted by this Transfer Order, NHPC filed an appeal under Section 37 of the Arbitration Act before Punjab and Haryana state court. The judicature held that: (a) the appeal under Section 37 of the Arbitration Act was maintainable; (b) capital of India wasn’t the seat of arbitration and narrowly a convenient venue (Impugned Order), and (c) the court with relevant jurisdiction was the Faridabad court as the cause of action had arisen there.
Although the bright-line test prescribed in Soma JV provided much-needed clarity, it absolutely was not without its own share of problems. The Supreme Court didn’t identify which factors constitute “significant contrary indicia” and thereby displace the conclusion that a selected venue is really the seat of arbitration. It also didn’t consider whether the existence of a jurisdiction clause in favour of the courts of an area apart from the selected venue or the selection of curial law of an area aside from the chosen venue constituted “significant contrary indicia”.
The legal quandary between a “seat” and “venue” of arbitration was rectified by India’s Supreme Court (“SC”) in its judgment in Bharat Aluminum Company v. Kaiser Aluminum Technical Services (“BALCO”). This decision shed light on the difficulty that the seat of the arbitration, once chosen, attains a perpetual character which determines the scope of the powers and regulates the court that has the last word supervisory jurisdiction over the arbitration similarly. In contrast, the venue is described to be provisional in nature and is just for administrative suitability. The Supreme Court during this decision also held that the choice of another country because the Seat of Arbitration certainly imports an affirmation that the law of that country with relevancy the conduct and supervision of Arbitrations will pertain to the proceedings.
Mankastu Impex Pvt. Ltd. v. Airvisual Ltd. [3]
In this case, the Memorandum of Understanding was executed between the petitioner (Mankastu, an Indian company) and the respondent (Airvisual, a Hong Kong company). The arbitration agreement as long as “any dispute, controversy… shall be brought up and eventually resolved by arbitration administered in Hong Kong” and “the place of arbitration shall be Hong Kong…”. The governing law clause within the MoU only if “his MoU is governed by the laws of India… and courts at New Delhi shall have the jurisdiction.” Once disputes arose between the parties, Mankastu approached the Supreme Court under the Indian Arbitration and Conciliation Act, 1996 for the appointment of a sole arbitrator.
Mankastu disagreed that since Indian law was the presiding law and courts at Indian capital had authority, the seat of arbitration was national capital, and correspondingly, the Supreme Court could designate a sole arbitrator. It further argued that the city was only the venue of arbitration and not the seat and anticipated on Hardy Exploration for this purpose.
On the opposite hand, Airvisual argued that since the arbitration agreement on condition that the place of arbitration shall be Hong Kong and such arbitration shall be administered in the urban centre because the seat of arbitration was Hong Kong. Accordingly, Indian courts had no power to appoint a sole arbitrator. It relied on Soma JV for this purpose.
The Supreme court held that the seat of arbitration was Hong Kong because it is evident that “seat of arbitration” and “venue of arbitration” can not be implemented inter-changeably. In response, Mankastu incorrectly argued that since Hardy Exploration and Soma JV were both judgments from a three-judge bench, Soma JV couldn’t have decided that Hardy Exploration was per incuriam and so Hardy Exploration continued to be an adequate law.
Conclusion
Up until the selection in BALCO, the supervisory jurisdiction of the court for arbitration was to be decided as per section 2(1)(e) of the Act, which acknowledges that the court at the place of explanation for action should have jurisdiction. The selection in BALCO embraced a seat centric approach and extended this supervisory jurisdiction out upon the court at the seat. Although the cause Mankastu Impex is right insofar New Delhi to be the seat of arbitration, the Supreme Court’s reluctance towards endorsing Soma JV has put a question mark on the precedential value of Soma JV. Moreover, although the Supreme Court didn’t explicitly follow Hardy Exploration, it appears to have adopted a similar approach in reaching its conclusion, particularly by emphasizing the need for extra evidence of the objective of parties’ rather than the mere use of the expression “place of arbitration”
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