There have been interesting situations and instances that we generally come across in the aspect of the domestic arbitration where an arbitration clause that envisages for the seat of arbitration comes in conflict with the exclusive jurisdiction clause. Usually, there is not a jot of any difficulty on this aspect where the seat of arbitration is consistent with the exclusive jurisdiction clause having no problem in it or any sort of conflict.[1]
However, the problem arises when the clauses are conflicting with each other. This aspect of conflict invariably gives fair chance and a good opportunity to the counterparty to raise a jurisdictional objection. in this situation, the process delays the effective adjudication of any arbitration that is in regards to litigation.[2]

Resolving The Ambiguity

The main question comes into existence as to how to resolve this ambiguity in an efficient manner? Also, it becomes mandatory to ponder upon the question as to how to deal with the problem of jurisdictional objection raised by the counterparty. It is a settled position of law that a seat of arbitration is seen akin to an exclusive jurisdiction clause.[3]

This primarily set the idea that court that is located at the seat will have the authority to exercise the supervisory jurisdiction over the arbitral tribunal. Along with that, it is mandatory for the parties to adhere to the aspect that all the arbitration related proceedings are to be filed there, unless the terms of the contract specifically include a provision or clause that indicates otherwise. As per the law laid down by some of the high courts, all arbitration related proceedings would lie before the court where the seat is located.[4]

Supreme Court Ruling on Seat of Arbitration

The Hon'ble Supreme Court's ruling in Arif Azim Co. Ltd. v. Micromax Informatics FZE[5] is a landmark decision in India's arbitration jurisprudence that further clarifies the concepts of 'seat' and 'venue' in arbitration. The Supreme Court held that the moment 'seat' of an arbitration is determined, it would treat akin to an exclusive jurisdiction clause. In this regard, the primary doctrine of concurrent jurisdiction has been explicitly rejected and was overruled by the court.[6]

Closest Connection Test and Shashoua Principle

The 'Closest Connection Test' that was in use for the determination of the seat of the arbitration by the identification of the law with which the arbitration agreement for that purpose shared its closest and real connection has lost its viability as the prime criterion for the determination of the seat/situs of arbitration taking the consideration of the views of the Shashoua principle.[7]

The Shashoua principle was introduced in the case of Roger Shashoua v. Sharma[8], in which the Supreme Court decided that a designated venue of arbitration will be presumed to be the seat of arbitration unless the clause in the agreement indicates otherwise.[9]

The Supreme Court also decided that where, the case is such that there is an express designation of the arbitration venue for example London and there is no designation of any alternative place as the seat of the arbitration, then in consonance with a supranational body of rules governing the arbitration and there are no other significant contrary indicia, the ultimate result would be in such a manner that such venue in-fact is the juridical seat.[10]
The court also observed that generally in arbitration agreements, it is likely to happen that the law of the arbitration agreement will coincide with the curial law, consequently any express stipulation of the curial law would aid in the determination of the juridical seat in that case.[11]

Exceptions To the Closest Test

It is pertinent to consider the fact that apart from this, the Supreme Court has also made it clear that the court does not say or decide that the Closest Connection Test will have no application whatsoever – in the instances where there is no express or implied designation of a place of arbitration in the arbitration agreement, either in the form of 'venue' or 'curial law', in that scenario, the application of closest connection test may be more suitable for determining the seat of arbitration.[12]

Doctrine of Forum Non Conveniens and Importance of Clear Arbitration Clause

Where the situation arises where there are two or more possible places that equally appear to be the seat of arbitration, then the conflict may be resolved through recourse to the Doctrine of Forum Non Conveniens.[13]
The judgment reinforces the principle of party autonomy by concluding that the courts are only a conduit or means to arbitration, and the sum and substance of arbitration is derived from the choices of the parties and their intentions contained in the arbitration agreement. Finally, this judgment also emphasises the importance of drafting clear arbitration clauses, especially in cross-border agreements, to prevent disputes over jurisdictional ambiguities and consequent delays, to enhance the predictability of outcomes, and to support the efficiency of international arbitrations.[14]

Conflicting Decisions of The High Courts and Conflicting Terminologies

Notwithstanding the exclusive jurisdiction clause conferring authority on courts at a different location, all the arbitration-related proceedings will be heard in the court where the seat is located. But there are conflicting decisions of some other High Courts which hold the opinion that an exclusive jurisdiction clause providing for a different court is in itself an aspect of contrary indicia and thus, it would prevail over the seat of arbitration.[15]

The real problem arises or the confusion takes place when instead of specifically demarcating the seat of arbitration, the parties tend to use words like 'venue' or 'place' of arbitration in an arbitration clause. There is precedence which holds that there is a possibility of interpretation of the words venue and place which can mean the juridical seat of arbitration in appropriate cases but in cases where there is also a conflicting exclusive jurisdiction clause, the usage of the words venue or place may not have the same effect as that of a seat of arbitration.[16]

In this situation, the parties have to be very cautious and extremely mindful in regards to the contrary and conflicting decisions of the High Courts where there is a high chance of interpretation of the jurisdictional issue. This aspect if very crucial for the parties as the jurisprudence around this is still not fully evolved due to the lack of a definitive judgment of the Honourable Supreme Court in the context of domestic arbitration.[17]

Conclusion Therefore, in the aspect of contract negotiation, and particularly dealing with the dispute resolution clause, it is very important and considered to be a very crucial aspect to refrain oneself from using the terms like seat, venue and place in a very loose manner. This is to be taken care of because each of the terms have different connotations and implications. It is also advisable to decide and take the strategic decisions or any advice if necessary in regards to same, pre-emptively before agreeing and finalizing the dispute resolution clause in a contract to cut short the risk of such jurisdictional objection in future.[18]

End Notes:

1. Utsav Garg, Seat Vs Venue Of Arbitration: The Necessity, The Absurdity And The Road Ahead, IJIRL, 1,2, 2021, https://ijirl.com/wp-content/uploads/2021/12/SEAT-VS-VENUE-OF-ARBITRATION-THE-NECESSITY-THE-ABSURDITY-AND-THE-ROAD-AHEAD.pdf
2. Ibid.
3. By Vikash Kumar Jha & Namrata Sadhnani, Decoding Supreme Court's Landmark Decision on 'Seat' vs. 'Venue' in Arbitration, CYRILAMARCHANDBLOGS, (Dec. 01, 2024, 9 AM.), https://disputeresolution.cyrilamarchandblogs.com/2024/11/decoding-supreme-courts-landmark-decision-on-seat-vs-venue-in-arbitration/
4. Ibid.
5. (2013) 9 SCC 32
6. Vikash Kumar Jha & Namrata Sadhnani, Decoding Supreme Court's Landmark Decision on 'Seat' vs. 'Venue' in Arbitration, CYRILAMARCHANDBLOGS, (Dec. 01, 2024, 9 AM.), https://disputeresolution.cyrilamarchandblogs.com/2024/11/decoding-supreme-courts-landmark-decision-on-seat-vs-venue-in-arbitration/
7. Prakhar Singh & Manas Rohilla, Deciphering Counter-indica and Parties' Intent in Arbitration Clause Designation, The Arbitration Workshop Blog (Sep. 3, 2023), https://www.thearbitrationworkshop.com/post/deciphering-counter-indica-and-parties-intent-in-arbitration-clause-designation
8. [2009] EWHC 957 (Comm)
9. Ibid.
10. Anjali Anchayil & Ashutosh Kumar, Choice of Seat or Venue: Supreme Court of India Dithers, Kluwer Arbitration Blog (May 13, 2020), https://arbitrationblog.kluwerarbitration.com/2020/05/13/choice-of-seat-or-venue-supreme-court-of-india-dithers/
11. Ibid.
12. Khushboo Kataruka, Meaning Of "Court" In Domestic Arbitration: A Conundrum That Needs To Be Simplified, Mondaq (Nov. 13, 2024), https://www.mondaq.com/india/arbitration-dispute-resolution/1544404/meaning-of-court-in-domestic-arbitration-a-conundrum-that-needs-to-be-simplified
13. Gulshan Kumar Maurya, The Significance Of The Seat Of Arbitration, LiveLaw (June 9, 2024), https://www.livelaw.in/lawschool/articles/importance-of-specifying-seat-of-arbitration-in-agreements-260028
14. Ibid.
15. Utsav Garg, Seat Vs Venue Of Arbitration: The Necessity, The Absurdity And The Road Ahead, IJIRL, 1,2, 2021, https://ijirl.com/wp-content/uploads/2021/12/SEAT-VS-VENUE-OF-ARBITRATION-THE-NECESSITY-THE-ABSURDITY-AND-THE-ROAD-AHEAD.pdf
16. Ibid.
17. Vikash Kumar Jha & Namrata Sadhnani, Decoding Supreme Court's Landmark Decision on 'Seat' vs. 'Venue' in Arbitration, CYRILAMARCHANDBLOGS, (Dec. 01, 2024, 9 AM.), https://disputeresolution.cyrilamarchandblogs.com/2024/11/decoding-supreme-courts-landmark-decision-on-seat-vs-venue-in-arbitration/
18. Anjali Anchayil & Ashutosh Kumar, Choice of Seat or Venue: Supreme Court of India Dithers, Kluwer Arbitration Blog (May 13, 2020), https://arbitrationblog.kluwerarbitration.com/2020/05/13/choice-of-seat-or-venue-supreme-court-of-india-dithers/