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WHETHER THE SEAT Vs. VENUE DEBATE FINALLY SETTLED OR HAS IT GIVEN BIRTH TO ANOTHER DEBATE?

Mahip Singh Sikarwar, Dispute Resolution Lawyer, DSK Legal


Introduction

Arbitration as a concept was conceived much earlier by ways of mediation, conciliation and negotiations and could be traced back to local village Panchayats which used to resolve disputes by such methods. The concept of seat, venue, jurisdiction, though not applicable in the pre-1940 Act regime, but the fact that the local village panchayat would only be the seat of dispute resolution and would have exclusive jurisdiction to decide a particular dispute of that village might give us an idea of the seat being the center of gravity.


Evolution

It is pertinent to note the contribution of judiciary in developing the law of seat under the 1940 Act. The Hon’ble Supreme Court (SC) in NTPC vs Singer[1] was faced with a peculiar question. The contract was governed by Indian Law i.e. the substantive law was Indian and procedural law was ICC Rules and Arbitration was to take place in London. Now, in English law, 1940 Act could not have given jurisdiction to Indian courts to set aside the award. However interestingly, the SC held the exact opposite and stated that the Indian Courts will have jurisdiction. The reasoning was that the Foreign Award Act, 1961 in its Section 9(b) states that “an arbitration governed by the law of India will be outside Foreign Award Act.” The arbitration agreement is part of main agreement, the main agreement was governed by Indian law i.e. the substantive law and therefore it was held to fall outside the ambit of the Foreign Award Act, 1961. Therefore, for the first time we had the issue of concurrent jurisdiction cropping up wherein we had an award passed in England but was eventually set aside by an Indian Court under 1940 Act jurisdiction. This was later on relied by Sumitomo Heavy Industries Ltd. v. ONGC[2], which despite making a well-ordered distinction between curial law, substantive law, procedural law, still got stuck with the issue of jurisdiction.


From 2011 onwards, the seat doctrine started developing in terms with the international understanding of the concept of seat. This was further supported by three SC’s judgments in 2011 itself, inter-alia Videocon Industries[3], Yograj Infrastructure[4], and Dozco India[5], wherein the foreign venue was upheld to be the seat with exclusive jurisdiction in light of its designation in the contract and the applicability of the supranational governing law. Subsequently in 2014, the Apex Court was faced with a peculiar situation in Enercon[6], wherein parties have agreed that governing law of the contract shall be Indian law, law governing arbitration was the 1996 Act however the place of arbitration was specified to be London. The court held that India will be the seat of arbitration not London, since the parties have chosen all the three applicable laws to be Indian laws.


Thereafter in 2017, vide the Imax Corporation[7] the Supreme Court noted, that the general principle in absence of a contrary indication, is that the proper law of the contract law as well as the law governing the arbitration agreement are the same as the law of the country in which arbitration is agreed to be held. The court held that since the agreement in the said case contemplates an award made in pursuance to the ICC Rules without expressly providing for the law governing the arbitration agreement, the law where the arbitration is held would have primacy for governing the same. For domestic arbitration in Indus Mobile[8]the SC ruled that in cases where the arbitration clause specified a particular seat of arbitration, it would be akin to an exclusive jurisdiction clause for courts of that location.


Thereafter in 2018, in Hardy Exploration[9] Kuala Lumpur was the designated venue and UNCITRAL was made applicable. Therefore, the contract had an express designation of venue for arbitration and had supranational rules governing the arbitration. As per the principle laid down in Shashoua[10], in light of an express designation of seat and applicability of supranational rules and no other significant contrary indicia, the venue only should be the seat. However, the SC held to the contrary stating that as per UNCITRAL where there is no designation of seat then there must be designation and in the absence of such designation, seat should be India.


The SC in BGS SGS SOMA[11] clarified the role of the ‘seat’ in an arbitration and set out the tests for determining the ‘seat’ of arbitration and turned the clock back to Balco regime. The Court relied heavily on Shashoua case. A place of arbitration mentioned in the contract is a stipulation that such place shall be the seat and consequently determine the lex fori. In this regard, reliance was placed on Shashoua, which discussed the ‘significant contrary indicia test. The SC, in BGS SOMA took into account the facts that the award was signed in New Delhi, contract provided New Delhi/Faridabad as the venue and that the proceedings for arbitration were also held in New Delhi, and not Faridabad, and reached the conclusion that the parties had chosen New Delhi as the seat of arbitration..


The conclusion of the SC in Hardy is contrary to the observations made in Shashoua which have been approvingly quoted by the five judges bench of SC in Balco in Para 110. The 2009 English judgment in Shashoua was expressly approved by the 5 judges bench. In Hardy, the word venue was used (Kuala Lumpur) and supranational rules applied (UNCITRAL) therefore as per Shashoua principle Kuala Lumpur should have been the seat but the SC held the opposite. Now interestingly, Hardy being 3 judge bench judgement and BGS SOMA also being a 3 judge judgement, therefore it could not have directly overruled it. Therefore, the SC in BGS SOMA held that Hardy by not going the Shashoua route (which was directly approved by 5 judges) Hardy is contra to 5 judges and is thus bad in law.


Assuming that the evolution is complete and we are back from where we started on the seat doctrine, it is refreshing to note that even during the panchayat-raj system in British Regime, the disputes were settled in the same jurisdiction where the parties agreed and the decision was challenged in the courts of the same jurisdiction. The said practice went a huge amount of turmoil and finally by BGS SOMA the practice is back wherein if the parties agree for a place, that place will amount to have exclusive jurisdiction subject to the conditions and tests as laid down in the BGS SOMA. The Bombay High Court recently in L&T Finance Ltd. v. Manoj Pathak[12], relied on BGS SOMA and laid down the tests to be applied while determining the seat as follows: (a) Venue is the seat of the arbitration unless there are clear indicators that the place named is a mere meeting place of convenience, and not the seat; (b) Where there is an unqualified nomination of a seat, the courts there would have exclusive jurisdiction; and (c) Where no venue/seat is named, then any other consideration of jurisdiction may arise, such as cause of action.


Significance of terminologies of the contract clause

The Court in BGS SOMA held that when there is a designation of a venue for “arbitration proceedings”, the expression “arbitration proceedings” make it clear that the venue is to be considered the “seat” of arbitration proceedings. The expression “shall be held” at a particular venue would anchor the arbitral proceedings to a particular place and signify such place as the seat. However, language such as “tribunals are to meet or have witnesses, experts or the parties” signify such a place as only the “venue”.


Conclusion

It maybe noted that though BGS SOMA has addressed the question of seat vs venue to finality and has weeded out most of the anomalies pertaining to concurrent jurisdiction, however the precedential value of BGS SOMA is open to debate in light of Sundeep Kumar Banda vs. State of Maharashtra[13]which held, “where two or more irreconcilable decisions of the Supreme Court are cited at the Bar before the High Courts, the 'inviolable' recourse is to apply the earliest view as the succeeding ones would fall in the category of per incuriam.” Thus, whenever BGS SOMA and Hardy will be cited in an argument before a court, the court might apply the view of Hardy, since Hardy being the earliest view and BGS SOMA will fall in the category of ‘per incuriam’, until the SC itself provides clarity on the same.













[1] NTPC vs Singer Co. & Ors. (1992 SCR (3) 106) [2] Sumitomo Heavy Industries Ltd. v. ONGC Ltd. & Ors (1998 (1) SCC 305) [3] Videocon Industries v. Union of India ((2011) 6 SCC 161) [4] Yograj Infrastructure v. Ssang Yograj Engineer ((2011) 9 SCC 735) [5] Dozco India v. Doosan Infrastructure ((2011) 6 SCC 179) [6] Enercon (India) v. Enercon GMBH ((2014) 5 SCC 1) [7] Imax Corporation v. E-City Entertainment (India) Private Ltd ((2017) 5 SCC 331) [8] Indus Mobile Distribution Private Ltd. v. Datawind Private Ltd. & Ors (AIR 2017 SC 2105) [9] Union of India v. Hardy Exploration and Production (India) Inc (2018 SCC OnLine SC 1640) [10] Shashoua v. Sharma ((2009) 2 LLR 376) [11] BGS SGS SOMA JV v. NHPC Ltd. (2019 SCC OnLine SC 1585) [12] L&T Finance Ltd. v. Manoj Pathak & Ors.(Com. Arb. Petition No. 1315 of 2019) [13] Sundeep Kumar Banda vs. State of Maharashtra and anr. ((2014) 16 SCC 623)

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