Alternative Dispute Resolution (ADR) is a mechanism that developed the techniques of the Indian Judiciary. It helps in reducing the burden on the courts. ADR is a mechanism which offers the solution to all type of matters such as civil, industrial, commercial, and family, etc. Here, in this article, we will try to show some light on the concept of seat of arbitration. Also highlights how the seat of arbitration is different from the venue of arbitration. And why both should not be used interchangeably.
INTRODUCTION:
The ‘seat’ of arbitration termed to be the ‘situs’ of the arbitration. Which means to be the place where something exists or originates specifically. The seat of arbitration plays a crucial role because it defines the law and procedures for governing the arbitration proceedings.
For instance, an arbitration proceeding seated in Delhi will be governed by the Arbitration and Conciliation Act, 1996. And, any application challenging an award/order of an arbitrator (Ss. 34 and 37) will lie before the Delhi High Court. For international arbitrations, the concept of seat assumes greater significance as it acts as the indicator for both curial law as well as supervisory jurisdiction
- The Arbitration Act, 1940 or under the Arbitration and Conciliation Act, 1996 does not define the word ‘Seat’ and ‘Venue’.
Section 20
Section 20 of the Act defines ‘Place of Arbitration’ which is used interchangeably for both seat and venue. Also, the Law Commission recommended the independent definitions for seat and venue under the 2015 Amendment Act, such suggestions did not translate into actual amendments. In the absence of a clear statutory regime, the law has been settled through various judicial pronouncements.
Supreme Court observed in the matter of Bharat Aluminum Co. vs. Kaiser Aluminum Technical (BALCO)[1], that the legal position that turns up for all the decisions appears to be, that choosing the seat of arbitration for another country, necessarily imports an acceptance of the law of that country for the supervision and conduct of arbitrations proceedings.
It means that when parties decide another country as a seat of arbitration, the parties intentionally accepting the law of that country relating to the conduct.
KEY POINTS FOR THE CONCEPT OF SEAT
- The seat of Arbitration is vitally important because the court holds the supervisory jurisdiction over the arbitral process.
- Choosing the seat of arbitration implies choosing the applicable laws.
- It is not mandatory that the seat and the venue of the arbitration will remain the same, they may be different.
- Selection of Seat of Arbitration will be unaffected for the geographical place where the hearing takes place.
As mentioned above, “seat” and “venue” are different parameters.
- The Supreme Court of India adopted the famous English pronounced by J. Cooke in Roger Shashoua vs. Mukesh Sharma[2]. The Shashoua principle states that when an agreement expressly designates the venue without express reference to the seat, combined with a supranational body of laws and no significant contrary indicia, the inexorable conclusion is that the venue is actually the seat of arbitration.
- Hardy Exploration- the divergence from the Shashoua principle
In Union of India vs. Hardy Exploration[3] and Production (India) Inc.,
a reference was made before a bench of three judges to examine whether the judgment mentioned in Sumitomo Heavy Industries Ltd vs. ONGC Ltd. & Ors. will be impacting the juridical seat doctrine. The Court replied in a negative sense. The court analyzes and defines the venue of arbitration as Kuala Lumpur (capital of Malaysia). The SC court analyzed that Kuala Lumpur is not the seat of arbitration. The court held that the word ‘place’ cannot be replaced with the word ‘seat’. A venue does not automatically become a seat. For converting it into the seat, it needed an affirmative action and something accompanying attached with it. In the same way, a place will be termed to be a seat when any of the conditions is satisfied. It does not ipso facto assume the status of a seat.
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BGS-SGS-Soma-JV – Shashoua principle reiterated[4]
In this case, the Supreme Court analyzed that when the clauses designate a venue of arbitration and declare that the arbitration will take place at such place, it reflects that the venue is actually the seat. The judgment points out that it is not important that the ‘Venue’ is merely a venue and not a seat further mentioning that such a place is actually the seat. Hence the Court reiterated the Shashoua principle.
Additionally, the SC declared that the judgment of Hardy Exploration as contradictory to the principles laid down under BALCO and hence as “not being good law”.
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Mankatsu Impex – Another divergence[5]
Again, the bench of three judges revisited the issue of seat and venue, in the matter of Mankatsu Impex. In the present case, the court was adjudicating a dispute stand up out of MoU, governed by laws of India and New Delhi Court will have the jurisdiction. The disputes will be introduced and finally settled in Hong Kong. The issue framed before the Court was to determine whether the seat of arbitration is New Delhi or Hong Kong.
The Court declared that mere expression of the place of arbitration will not presuppose that the parties intended it to be the seat. The intention of the parties to the seat has to be determined from other clauses of the Agreement and the conduct of the parties.
This highlights to be the third view taken by another co-ordinate bench which seems to incline more towards the ratio of Hardy Exploration
CONCLUSION:
The issue related to jurisdiction of courts at the seat has been finally and hopefully put to rest by BGS-SGS Soma. This termed to be the positive step taken by the Supreme Court to resolve the confusion by BALCO.
To add further to this confusion, the Supreme Court in Mankatsu Impex (another 3 judge bench) took a view similar to Hardy Exploration without expressly overruling BGS-SGS Soma. It seems that this issue will soon be referred to a larger bench for deciding the parameters finally.
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[1] Civ App 3678 of 2007
[2] Civil Appeal No. 2841-2843 of 2017
[3] Civil Appeal No. 4628 of 2018
[4] Civil Appeal no. 9307 of 2019
[5] Arbitration petition no. 32of 2018