BRAHMANI RIVER PELLETS LIMITED v. KAMACHI INDUSTRIES LIMITED
CITATION: AIR 2019 SC 3658
BENCH: R. Banumathi, A.S. Bopanna
RATIO: Since the parties had chosen Bhubaneswar as the venue for arbitration, only the Odisha High Court had the jurisdiction to appoint an arbitrator u/S.11(6) of the Arbitration and Conciliation Act 1996 (“Act”).
An agreement for the sale of iron ore pellets was entered into between Brahmani River Pellets (“Appellant”) and Kamachi Industries (“Respondent”). The loading was to be done from a port in Odisha and the destination was in Chennai, Tamil Nadu. On a dispute regarding payment terms and delivery of goods, the arbitration clause in the agreement was invoked by the Respondent. The clause read as follows:
“Arbitration shall be under the Arbitration, and Conciliation Law 1996 and the venue of the arbitration shall be Bhubaneshwar.”
Later, an application u/S.11(6) of the Act was filed by the Respondent with the Madras High Court, which was contested by the Appellant on the grounds that the Madras High Court did not have jurisdiction since the parties agreed that the seat of the arbitration would be Bhubaneshwar. According to the Appellant, this gave the Odisha High Court exclusive jurisdiction over the arbitration proceedings. However, the Madras High Court upheld its jurisdiction on the grounds there was no express clause ousting the jurisdiction of other courts. The above order was appealed before the Supreme Court.
ISSUE: Whether by designating a “venue”, the parties oust the jurisdiction of all courts, other than the court of the venue, over the arbitration proceedings
RULES: Arbitration and Conciliation Act, 1996 – Section 11(6)
CASE(S) RELIED ON: Swastik Gases P. Ltd. v. Indian Oil Corporation Ltd. (2013) 9 SCC 32
The Supreme Court noted that specification of the jurisdiction of the court of a particular place shows the parties’ intention to exclude all other courts and to give jurisdiction to deal with the matter only to the court so specified. Based on this reasoning, the court noted that the parties intended to exclude the jurisdiction of all other courts except that of Bhubaneshwar by referring to it as the venue for the arbitration. Thus, the court held that Madras High Court made a mistake by assuming jurisdiction to appoint an arbitrator and that only the Odisha High Court had the relevant jurisdiction.
Designation of a venue was considered to be equivalent to the designation of a seat, and hence, Bhubaneshwar was held to be the seat of arbitration.
This case is often criticized on the ground that it disturbs the position laid down in Union of India v. Hardy Exploration and Production (India) INC. (Civil Appeal No. 4628 of 2018) (“Hardy”). In this international arbitration case, the Supreme Court was called upon to determine the seat of the arbitration, where the parties had only designated Kuala Lumpur as the venue. The court observed that the intention of the parties where they fail to designate a seat is to choose the country of one of the parties as the seat of the arbitration.
In my opinion, it is not suitable to compare Hardy with the present case because the designation of a seat has different results in domestic and international arbitrations. The designation of a seat of arbitration has extensive consequences in the context of international arbitration as it influences the choice of law governing various aspects of the arbitration proceeding. In this context, the court’s observation in Hardy does not apply to the present case which is a domestic arbitration and will be governed by the Act irrespective of the seat of arbitration. The only major influence of designation of a seat in a domestic context is to determine the court which will have exclusive jurisdiction to appoint arbitrators, determine challenges to arbitral awards and to generally supervise the arbitration proceedings.
Thus, since the jurisdiction to which the parties to the arbitration belonged could have had no actual impact on the law governing the arbitration, the Court in this case rightly did not apply the ratio laid down in Hardy.
Further, it has been argued that if the judgment in Brahmani is followed in its strictest sense, it would result in a change of seat of arbitration every time the parties change the venue, for reasons like convenience, as is common in arbitration practice.In my opinion, this argument is unfounded. The court in this case considered the ‘designation’ of a venue equivalent to the designation of a seat. This does not mean that the seat would change every time the venue of the arbitration is changed. The seat would remain what was designated as the venue for the arbitration in the arbitration agreement. Say in this case, after the first arbitral hearing which might have taken place at Bhubaneshwar as per the clause, the Parties decide that the venue for the second hearing should be Delhi (for the sake of convenience as the legal representatives of the parties have offices in Delhi), this change in venue would not result in a change of seat of arbitration. The seat will continue to remain Bhubaneshwar, as this was what was stipulated by the parties in their arbitration agreement. Any change in venue for reasons of convenience, or otherwise, would not impact the parties intention to oust the jurisdiction of courts other than the courts of the designated venue.
However, this is not to deny the fact that the court’s reasoning in Brahmani remains troublesome for other reasons. The judgment does disturb the well-established difference between ‘seat’ and ‘venue’ u/S.20 of the Act. Justice Nariman in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. ((2017) 7 SCC 678) observed that the phrase ‘place of arbitration’ in S.20 (1) and S.20 (2) refers to the juridical seat of the arbitration; whereas, the term ‘place’ as used in S.20 (3) refers to the physical venue of the arbitration proceeding. Characterizing this distinction between seat and venue as a crucial one, Justice Nariman made it clear that only an express choice of seat of arbitration would confer exclusive jurisdiction on a court.
The Supreme Court further made a distinction between seat and venue in Enercon (India) Limited and others v. Enercon GMBH ((2014) 5 SCC 1), where in an arbitration under the Act, London was chosen as the venue for the arbitration. The court, in this case, concluded that the seat of the arbitration was India, having regard to the “…factors connecting the dispute to India, and in the absence of any factors connecting it to England”. This test of “closest and most intimate connection” is a good way of determining whether a geographic location mentioned in an arbitration agreement was intended to be a seat or venue for the arbitration.
The court in Brahmani could have reached its conclusion using the “closest and most intimate connection” test. The transaction in Brahmani could very easily be linked to Odisha since the seller was situated in Odisha, the payment was to be made in Bhubaneshwar, and also because the port of performance was in Odisha. Hence, I believe that there is a dire need, for the sake of consistent development of precedents, that the law laid down in Brahmani be reconsidered.
Lastly, I would like to point out the importance of drafting a clear arbitration agreement to avoid uncertainties of this kind. Parties seldom negotiate and pay heed to the language of their dispute resolution clauses, especially in the choice of words between ‘seat’, ‘venue’ or ‘place’. These clauses are simply adopted from per-existing formats without considering their suitability to the parties, but nevertheless become binding on the parties serving as a clear indication of their intentions. The parties in this case could have avoided this dispute by either clearly choosing a ‘seat’ of arbitration, in addition to their choice of venue; or, where they intended Bhubaneshwar to be the seat of arbitration, by making the right choice of words. A sample clause which could have avoided this uncertainty could look like this:
“Arbitration shall be under the Arbitration, and Conciliation Law 1996 and the venue of the arbitration shall be Bhubaneshwar. The seat of arbitration shall be XXX”
 Kunal Dey, ‘Revisiting the Tale of the Stubborn Law: The Saga of ‘Venue’ vs. ‘Seat’ of Arbitration’ (IndiaCorpLaw, August 6, 2019) < https://indiacorplaw.in/2019/08/revisiting-tale-stubborn-law-saga-venue-vs-seat-arbitration.html> accessed 16th February 2020.  Promod Nair and Bhavya Mohan, ‘Conflating Seat and Venue: A Review of the Supreme Court’s Decision in Brahmani River Pellets’ (Bar & Bench, July 31, 2019) < https://www.barandbench.com/columns/conflating-seat-and-venue-a-review-of-the-supreme-courts-decision-in-brahmani-river-pellets> accessed 16th February 2020.