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Whether Venue of the Arbitration is the Seat-An analysis

Venue of Arbitration, though not defined anywhere in the Arbitration and conciliation act of 1996, is the place chosen by the parties of the arbitration agreement to conduct the arbitration proceedings. The seat of Arbitration has a distinct meaning from that of the venue. Seat of arbitration determines whether the court has jurisdiction over an award, whereas venue refers to the location where the arbitration proceedings are conducted.

Venue is the physical location where the arbitration proceedings are held whereas seat of the arbitration determines whether a court has jurisdiction over the award passed by the arbitration proceedings. The seat of the arbitration establishes a legal relationship between the arbitration proceedings and the legal framework of the governing state.

The seat of the Arbitration determines whether a court has jurisdiction over the arbitration proceedings and the scope of supervisory powers. In the case of Atlas Power v. National Transmission[1], the claimants filed an anti-suit injunction to restrain the defendant from challenging the partial award passed by the LCIA. Phillip J found that the jurisdiction of the court is wholly based upon the Seat of arbitration proceedings which in the present case is London.

The Hon’ble judge referred to the case of C v. D[2] in which it was regarded that seat to necessarily provide for exclusive jurisdiction and thereby avoid multiple jurisdictions over an arbitration proceeding and thus held that choice of seat has paramount importance and shouldn’t be considered as a minute detain in the arbitration clause.

UOI V. Hardy Exploration And Production Inc.[3]

In this present case, UOI entered into a contract with HEPI in November 1996 under which HEPI could extract, develop, and produce hydrocarbons in the south Asian block in India. The parties to the agreement have decided the venue of arbitration to be Kaulalampur by mutual consent but haven’t agreed upon the seat of the Arbitration proceeding.

However, it was decided that the contract is to be governed by the Indian law and decided that the proceedings are to be in accordance with UNCITRAL Model Law on International Commercial Arbitration of 1985 except in an event in when there is a conflict with Article 33 of the arbitration agreement, the latter shall prevail.

The parties had a dispute later, and arbitration proceedings were conducted in Kaula Lumpur in adherence to the arbitration clause. An award was passed in favor of HEPI and aggrieved by the award passed, UOI challenged the award in the Delhi High court.

This application was contented by the respondent that the court doesn’t have jurisdiction under section 34 of the Arbitration and conciliation act to entertain this application since the seat of the arbitration proceeding isn’t India and thus doesn’t attract part 1 of the Arbitration and conciliation act. Further, it was contended by the respondent that the parties to the arbitration chose model law and not the Indian law to be applicable over the arbitration clause and thereby the court doesn’t have jurisdiction by section 34 of the Act.

The UOI contended that India has adopted UNCITRAL model law and has incorporated the same under section 34 of the act. However, the single-judge bench of the Delhi High Court accepted the preliminary objection of the respondent and held that only Malaysian Courts have jurisdiction to entertain this appeal. Aggrieved by this decision, UOI preferred appealed under Section 37(2) of the Act before the Division Bench of the HC which concurred with the decision of the single judge bench of Delhi High court.

Thereafter the UOI filed a special leave petition before the division bench of the Supreme court who opined that the question of ‘seat’ and ‘venue’ frequently rises in International commercial matters and exercised power under Order VI Rule 2 of the Supreme Court Rules, 2013 and referred this case to the larger Bench for hearing.

The issue before the court was whether venue of the arbitration proceedings could be considered as the seat of the arbitration proceeding.

Mr. Tushar Mehta, learned Addl. Solicitor General appearing for UOI contended that the only venue has been mentioned in the arbitration agreement and not the seat of the arbitration. Article 20(1), 20(2) and 31(3) UNCITRAL model law was drawn for the court’s attention by which the court opined that the parties to the agreement are free to determine the place of the arbitration.

Once determined, it would be considered as the seat of the arbitration if it is interpreted from the clause or if any concomitant factors are attached to the place of arbitration which can be seen in the case of Harmony Innovation Shipping Ltd[4] in which it states about venue and something in addition by which the seat is determinable. The court held that the place of arbitration should not be assumed as the seat of arbitration unless one of the following conditions is satisfied.

Thus, the place of arbitration would be considered as the seat of arbitration if:

  1. Law governing arbitration agreement is the same as the law of the place mentioned as venue.[5] Thus, if the law which governs the law of the arbitration agreement is the law in Malaysia, then Kaula Lumpur can be considered as the seat of the arbitration.
     
  2. Law of the Matrix Contract and law of the venue/ place of arbitration are the same.[6] Thus, if the contract is governed by the laws of Malaysia instead of India in the present case, then Kaula Lumpur would’ve been considered as the seat of the arbitration.
     
  3. If the parties to the arbitration agreement decide to be governed by institutional rules instead of any national law, two situations arise which are when the institutional rules are localized and when they are delocalized. In the case of Roger Shashoua v. Mukesh Sharma[7], the parties to the agreement have provided for ICC rules, Paris to be followed and thus the court interpreted that the parties never intended to be governed by the Indian law since they opted for ICC rules, Paris which particularly applies for the said country.

In the present case, the parties to the agreement have chosen for UNCITRAL model law which is delocalized and doesn’t refer to any particular national law thus, and it would even apply to India. If the parties to the agreement have opted for MCIA rules, then the default place for arbitration would be considered as Mumbai.

Thus, the court has decided upon the first issue when the place of arbitration is considered as the seat of the arbitration proceeding.

The second issue was whether by signing the arbitral award in Kaulalampur, would it be determined as the seat of the arbitration. The court referred to Article 20(1) of UNCITRAL model law and section 20(2) of arbitration and conciliation and considered the word ‘determine’ as positive determination and an expressive opinion by the Arbitral tribunal. The court in the present case held that there had been no determination in Kaulalampur since it is mere signing.

The court considered that if the arbitration proceedings are a failure, then it may be continued at some other place. Thus, the place of the arbitration is only for convenience but doesn’t act as the seat of arbitration.[8]

The Supreme Court also referred to the case of Ashok Leyland Limited and State of T.N. and another[9] to determine the definition of ‘determination’ from Law lexicon dictionary, Mills Ltd. v. Lakshmi Chand[10], Thomas Van Dyken Joint Venture v. Van Dyken[11] and concluded that there has been no adjudication or expression of opinion in the present case.

Thus, it was held by the Supreme court in the present case that the word ‘place’ cannot be used as the ‘seat’ unless something is added to it as concomitant which in the present case isn’t there in Kaulalampur and thus cannot be considered as the seat of arbitration.

The court passed an order providing for jurisdiction to the courts over this present case and thereby set aside the order passed by the Delhi High court.

Analysis of The Case Law
Prior to this judgment, the supreme court in the case of Sumitomo Heavy Industries Ltd. v. ONGC Ltd. and Others[12] observed that in circumstances where the parties to the arbitration agreement failed to determine the seat of arbitration, the curial law which governs the contract would govern the arbitration agreement even though it has a separate legal status from the contractual agreement on the ground that the rights and obligations in the arbitration agreement arise from the contractual agreement.

In Bhatia International v. Bulk Trading S.A. & Another[13], the Supreme court concluded that part 1 of the Arbitration and conciliation act would be applicable on all arbitrations that have seat of arbitration in India and in the case of international commercial arbitration, the supreme court referred to Article 23 of the ICC rules and observed that Parties to the arbitration agreement can apply before a competent for interim and conservatory measures under section 34 of the Act.

This was reiterated in the case of Intel Technical Services Private Ltd. v. W.S. Atkins Rail Limited[14] in which the court held that an application made under section 11 of the act would be maintainable if it is international commercial arbitration.

This view of Supreme court differed in the case of Reliance Industries Limited and another v. Union of India[15] whereby the court observed that if the parties to the agreement have decided that London as the seat of the arbitration and the agreement to be governed by the laws of London, then part 1 of the Act wouldn’t be applicable.

The same observation was given by the Supreme court in the case of Videocon Industries Limited v. Union of India and another[16] where the court referred to section 3 of English arbitration act and the case of Dozco India Private Ltd. v. Doosan Infracore Co. Limited[17] and held that deciding the seat to be London, the parties have impliedly excluded the applicability of part 1 of the Act.

The Supreme court in Bharat Aluminium Company v. Kaiser Aluminium Technical Services INC[18] overruled the decisions of Bhatia International[19] and Venture Global Engineering v. Satyam Computer Services Ltd. & another[20] and held that relief under section 9 of the act is not maintainable in international commercial arbitration.

The supreme court also clarified that the absence of the word “only” in Section 2(2) of the Act, 1996 which is present in section 1(2) of the model law does not change the scope of the Arbitration and conciliation Act and concluded that part 1 of the Act would apply only on domestic arbitrations.

In Harmony Innovation Shipping Ltd. v. Gupta Coal India Limited and another[21], the court has relied upon the principle of Implied exclusion laid down in the case of Bhatia international.

Later in Eitzen Bulk A/s & others v. Ashapura Minechem Limited and another[22], the court opined that by choosing the venue to be any place outside India, the parties have intended to exclude themselves from the applicability of the Indian law, and thus any application under section 34 challenging the award is not maintainable.

The court has developed a peculiar jurisprudence in this case by opining that the parties don’t get to choose by giving an example that if a person travels to France, he doesn’t get to choose the traffic rules, but they are mandated upon them, and the person cannot choose to follow traffic rules of the USA in France. Thus it is held that once the venue is decided, the laws are mandated upon them and it is not a matter of choice.

Further, in the case of Imax Corporation v. E-City Entertainment (India) Pvt. Ltd.[23], the parties to the agreement haven’t decided upon the venue nor the seat of the arbitration and have decided that in case of any dispute, ICC would choose the seat of the arbitration. later when a dispute arose and ICC was requested to decide upon the seat for which ICC chose the seat as London after consulting with the parties on their convenience. The court held that Indian laws wouldn’t apply on the rule of implied exclusion.

In the present case, the supreme court has divulged entirely from the previous precedents. The court held that Kaula lumpur is not the seat of arbitration by analyzing what would not amount to be a seat of arbitration by laying down that concomitants are required for the venue to be considered as a seat. But even after concluding that at least one condition is to be satisfied for the venue to be the seat, the court has not laid down the exact conditions required for the determination since the court considered that it is not an exhaustive list and must be considered from case to case basis.

The Supreme court could have instead decided upon a test which could help in determining when a venue would be considered as a seat. In the present case, the parties have not decided upon any institutional rules which lay down any default seat of arbitration, and the parties to the agreement have not provided for any contrary intentions for Kaula Lumpur being the seat of arbitration. The supreme court must have taken these factors into consideration in deciding upon the matter instead of adopting a semantic approach.

Article 31(3) of the UNCITRAL model law lays down that it is mandatory to write down the place where the arbitration is done. This creates a legal fiction that place is deemed to be the arbitral seat.[24] In the present case, the parties have explicitly agreed upon being adhered by the UNCITRAL model law, and thus the court must have given this fact some weight in determining whether the signed place is to be deemed as the arbitral seat.

In the case of Imax Corporation v. E-City Entertainment (India) Pvt Ltd[25], the court laid down that in case where the parties have not decided upon the seat of arbitration, then the place where the arbitration takes place acts as a major determinant which in the Hardy case, the Supreme court failed to take notice of this fact and also the GOI model production sharing contract[26] where the words ‘seat’ and ‘venue’ are used interchangeably.

The court by this judgment has increased the scope for further legal disputes whereby a party to an agreement where the seat is not determined can apply for jurisdiction to determine the seat of arbitration before an Indian court thereby increasing the multiplicity of proceedings thus failing the primary intention of Arbitration clause in the contract.

Conclusion
The Supreme court has not laid down cogent principles as to determine when the seat of arbitration would be considered as venue of Arbitration and has adopted linguistic approach instead of a pragmatic approach for which the supreme court in its defense opined that arbitration agreement has to be read in a holistic manner.

The court by this decision has diverged itself from the precedents laid down in Videocom and Roger Shashoua which overruled the oppressive rule of implied exclusion laid down in the case of Bhatia international.

This judgment has increased the scope for legal disputes when the seat is not determined in the agreement, thereby increasing the multiplicity of proceedings, thus failing the intention of the Arbitration clause in the Contract.

Thus, it can be safely concluded that clarity and the highest level of detail are required in drafting an arbitration agreement failing which would lead to legal disputes in the future causing harm to the parties to the agreement.

End-Notes
[1] Atlas Power v National Transmission, [2018] EWHC 1052 (Comm).
[2] C v D, [2008] 1 Lloyd’s Rep 239.
[3] Union of India v. Hardy Exploration and production Inc,(2018) 7 SCC 374.
[4] Harmony Innovation Shipping Ltd v. Gupta Coal India Limited and anr, (2015) 9 SCC 172.
[5] Harmony Innovation Shipping Ltd v. Gupta Coal India Limited and anr, (2015) 9 SCC 172.
[6] Dozco India v. Doosan Infrastructure, (2011) 6 SCC 179.
[7] Roger Shashoua v. Mukesh Sharma, (2009) EWHC 957 (Comm.).
[8] Harmony Innovation Shipping Ltd v. Gupta Coal India Limited and anr., (2015) 9 SCC 172.
[9] Ashok Leyland Limited and State of T.N. and another, (2004) 3 SCC 1.
[10]Mills Ltd. v. Lakshmi Chand, AIR 1963 SC 677, 680.
[11]Thomas Van Dyken Joint Venture v. Van Dyken, 90 Wis 236, 27 NW 2d 459,463.
[12] Sumitomo Heavy Industries Ltd. v. ONGC Ltd. and Others, (1998) 1 SCC 305.
[13] Bhatia International v. Bulk Trading S.A. & Another, (2002) 4 SCC 105.
[14] Intel Technical Services Private Ltd. v. W.S. Atkins Rail Limited (2008) 10 SCC 308.
[15] Reliance Industries Limited and another v. Union of India, (2014) 7 SCC 603.
[16] Videocon Industries Limited v. Union of India and another, (2011) 6 SCC 161.
[17] Dozco India Private Ltd. v. Doosan Infracore Co. Limited, (2011) 6 SCC 179.
[18] Bharat Aluminium Company v. Kaiser Aluminium Technical Services INC, (2012) 9 SCC 552.
[19] Supra note 13.
[20] Venture Global Engineering v. Satyam Computer Services Ltd. & another, (2008) 4 SCC 190.
[21] Harmony Innovation Shipping Ltd. v. Gupta Coal India Limited and another, (2015) 9 SCC 172.
[22] Eitzen Bulk A/s & others v. Ashapura Minechem Limited and another, (2016) 11 SCC 508.
[23] Imax Corporation v. E-City Entertainment (India) Pvt. Ltd, (2017) 5 SCC 331.
[24] Howard M. Holtzmann & Joseph E. Neuhaus , A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary, pp. 836-865 (1989).
[25] Supra note 23.
[26] Report of the Committee On the Production Sharing Contract Mechanism in Petroleum Industry, available at http://petroleum.nic.in/sites/default/files/MPSC%20NELP-V.pdf .

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