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Evolution Of Seat In Indian Arbitration And Settling The Dispute Between Seat And Venue Of Arbitration

The Seat of arbitration is a very important facet in arbitral proceedings. It determines which court will have the supervisory power over the matter and clarifies the jurisdictional issue. The enforcement of awards also depends upon the seat/venue of arbitration. This article explains the evolution of concept of seat in Indian arbitration and with the help of plethora of cases and judicial justifications settles the dispute between seat and venue of arbitration.

India had a Village Panchayat system which was a combination of arbitration and mediation. It was only when the courts in the British India started controlling the Panchayat Decisions, the problem started arising. In an earlier Privy Council judgment of Seethamma v. Veeranna[i], an interesting comment was made on the village Panchayat system which said that not only it is quick, inexpensive, goes according to customary law but also goes according to morality and courts in British India should be loathed to set aside these awards only because they do not agree with the village morality.

In existing statutes of Indian law, there is Code of Civil procedure, 1859, in which only existing disputes could be referred and not future ones by and large by courts in suits instituted with them, after which came the 1899 Act which applied to the Presidency Towns only. At no stage in these earlier acts, including the Arbitration Act 1940 Act (hereinafter referred to as 1940 Act) was there any concept of the place or seat of arbitration.

The concept of seat of arbitration was first brought in by the Geneva Protocol of 1923, post World War I, which had grounds to refuse to recognize and enforce Foreign Award on the ground that the award was annulled in the place where it was made. The Indian law accepted and imbibed the Protocol in its domestic law as it was signatory to the protocol by the Protocol Convention Act of 1937.

Then came the New York Convention in 1958 which again had a limited concept of seat, same as the Geneva Convention. Amongst all these shadowy concepts, concurrent jurisdiction evolved in the early two judgments, National Thermal Power v. Singer Company And Ors, under the 1940 Act, the brief facts of which are that arbitration was to take place in London, hence English Law was to apply.

So, the question which arose was how is the 1940 Act empowered to have the jurisdiction to give power to the Indian Courts to set aside the award of the London Court. The argument failed only on one ground that section 9(b) of the Foreign Award Act says that an arbitration agreement governed by the law of India will not be covered by this act. It was stated that an arbitration agreement is part of the main agreement which is governed by the Indian law which is the substantive law. M/s Sumitomo Heavy Industries Ltd. v. ONGC Ltd. also followed the judgment of Singer.

In the above confusion, the first legislative correction made in the Arbitration and Conciliation Act, 1996 (hereinafter referred to as Act of 1996) was that, section 9(b) of the Foreign Awards Act was dropped and the Act of 1996 repealed all the three older acts which are the Convention Act, Foreign Award Act and the 1840 Act.

Then came the Model UNCITRAL Law of 1985, the Act of 1996 took certain portions of the Model and retained certain portions of the older Act.

The famous case of Bhatia International v. Bulk Trading SA, discusses the applicability of Part I of the UNCITRAL Model Law, where in the end instead of applying only section 9, the whole Part I was applied. The same went on to be followed by in the case of Venture Global Engineering v. Satyam Computer Services Ltd.

All the above confusion arose because somewhere the Model Law was not followed by the 1996 Act when section 9 was concerned.

Then came the landmark case of Bharat Aluminium Co v. Kaiser Aluminium Technical Services ('BALCO'), where the above mentioned two cases were overruled.

Overruling Bhatia and Venture Global decisions
Although the Indian Arbitration and Conciliation Act, 1996 ('the 1996 Act') is based on the UNCITRAL Model Law, on a clearly erroneous statutory construction of the 1996 Act, the Supreme Court in these decisions assumed that, unless the parties expressly or implied agreed to the contrary, the Indian courts had jurisdiction with respect to foreign-seated arbitration similar to their curial jurisdiction with respect to arbitrations seated within India under Part I of the 1996 Act.

The Hon'ble Supreme Court in BALCO has now unequivocally overruled Bhatia and Venture Global on the basis that Part I of the 1996 Act does not apply to foreign-seated arbitrations. It opined that the application of the UNCITRAL Model Law was intended to be limited to the territorial jurisdiction of the seat of arbitration i.e. the territoriality principle and as the seat of the arbitration is the 'centre of gravity' of the arbitration, therefore a choice of a foreign-seated arbitration by the parties ordinarily meant that the parties also agreed to the application of the curial law of that foreign country.

After the BALCO regime being followed, Hon'ble Supreme Court had to clarify in its subsequent decisions that BALCO was to apply only when the seat of arbitration is not foreign. This was laid down in the case of Reliance Industries Ltd. And Ors. V. Union of India, wherein it held that Part I of the Act will be excluded by necessary implication 'if juridical seat is outside India or where law other than Indian law governs the arbitration agreement'. Due to the presence of a foreign seat and as well as a foreign law to govern the arbitration agreement, the SCI held Part I to be excluded.

Before the BALCO judgment in 2012, The Seat Doctrine was already in development from 2011 through the following judgments:
  1. Videocon Industries Limited v. Union of India and Anr.
  2. Yograj Infrastructure Ltd. v. Ssang Yong Engineering and Construction Co. Ltd.
In both the above cases it was held that, Part I of the Act will be excluded if a combination of a foreign seat with foreign curial law or a foreign seat with foreign law to govern the arbitration agreement is present in the arbitration agreement.

The Indian courts, previously, have carved out a clear distinction between venue and seat in the landmark case of Enercon (India) Ltd. and Ors. v. Enercon GMBH and Anr. , where the 'seat' was understood to be the venue, a convenient place, which was London in the present case and not seat as in the arbitral sense, even though the laws of India were to be applied.

This case looked at certain important judgments which were:
  1. Braes of Doune Wind Farm (Scotland) Limited Vs. Alfred McAlpine Business Services Limited [2008]EWHC 426 [ii], where the seat of arbitration was Glasgow. It held that the law governing the arbitration is English law, then the challenge procedure cannot be a Scottish law. Therefore, seat was read as 'venue' and Glasgow became the venue only.
  2. Roger Shashoua & Ors v Mukesh Sharma, which held that courts of the seat of arbitration have exclusive jurisdiction over all proceedings arising out of the arbitration. The existence of multiple venues is only a matter of convenience.

In 2017, three interesting judgments came up regarding seat and venue, which were:
  1. IMAX Corporation v E-City Entertainment Pvt Ltd , where there were no seat designation rules, the ICC rules were to be followed. The ICC designated London as the seat of arbitration, which gave the exclusive jurisdiction to London.
  2. Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited , where Mumbai was designated as the seat of arbitration, giving exclusivity to the Mumbai Courts.

In the latest case of BGS SGS Soma JV v NHPC Ltd, the Hon'ble Supreme Court of India held that the venue of arbitration is synonymous with the seat of arbitration when the seat is not expressly provided for in an arbitration agreement. In the case of Union of India v. Hardy Exploration and Production (India) Inc., the interpretation of 'venue' in the Hardy Exploration Case as just a location that the parties has agreed upon for the arbitral proceedings to physically take, unless concomitant factors exist to show that the venue is the intended juridical seat, is incorrect.

They explain that the reasoning in the Hardy Exploration Case fails to take into account the principles expounded in the Shashoua Case and therefore is not legally sound. The Hardy Exploration judgment was pronounced by a three judge bench as same as the Bgs Soma Case, hence, not yet overruled. But as the dictum of Hardy goes against the Shashoua Case which was pronounced by a five judge bench, Hardy is an incorrect law.

To conclude, now even in a purely domestic situation, if a seat is designated, it amounts to an exclusive jurisdiction clause, and all other courts are excluded.

  1. Seethamma v. Veranna, AIR 1934 PC 105
  2. Braes of Doune Wind Farm (Scotland) Limited Vs. Alfred McAlpine Business Services Limited [2008]EWHC 426

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