Revisiting The Tale Of The Stubborn Law: The Saga of ‘Venue’ vs. ‘Seat’ Of Arbitration

[Kunal Dey is a Judicial Research Assistant]

The simple yet intriguing concepts of  ‘seat’ vs. ‘venue’ of arbitration has been at the core of many judicial decisions by various High Courts and the Supreme Court of India who have time and again strived to put the issue to rest. In 2018, the substantial question was assumed to be decided by the landmark judgment of the Supreme Court in the case of Union of India v. Hardy Exploration and Production (India) INC; however, the recent judgment dated 25 July 2019 given by the Supreme Court in Brahmani River Pellets Limited v. Kamachi Industries Limited has again unsettled the presumably settled position of law with regard to ‘seat’ vs. ‘venue’ and has provoked a debate which is expected to last for a fairly long time in the future.

Facts of the Case

Brahmani River Pellets entered into an agreement with Kamachi Industries for the sale Iron Ore Pellets. The loading port was Dhamra Port, Odisha and the destination was Chennai Port, Tamil Nadu. The dispute arose with respect to the price and payment terms as well as the delivery of goods. The arbitration agreement read as under:

18. Arbitration shall be under Indian Arbitration and Conciliation Law 1996 and the Venue of Arbitration shall be Bhubaneswar.

The respondent (Kamachi) invoked the arbitration clause; however, due to the dissent by the appellant (Brahmani), an application under section  11(6) of the Arbitration and Conciliation Act  was filed before the High Court of Madras, wherein the Court held that in the absence of any express clause excluding the jurisdiction of other courts, both the Madras High Court and the Orissa High Court will have jurisdiction over the arbitration proceedings. Challenging the said order, an appeal was filed by Brahmani River Pellets before the Supreme Court.

Judgment

The Supreme Court, while deciding the aforesaid appeal, inter-alia, held that:

16. Where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter and parties intended to exclude all other courts. In the present case, the parties have agreed that the “venue” of arbitration shall be at Bhubaneswar. Considering the agreement of the parties having Bhubaneswar as the venue of arbitration, the intention of the parties is to exclude all other courts. As held in Swastik, non-use of words like “exclusive jurisdiction”, “only”, “exclusive”, “alone” is not decisive and does not make any material difference.

Analysis

Section 20(1) of the Act mandates the determination of the ‘juridical seat’ whereas section 20(2) of the Act grants liberty to the arbitral tribunal to select the ‘venue’. The Supreme Court in Bharat Aluminum Company V. Kaiser Aluminum Technical Services INC, while dealing with the concept of seat/place/situs of arbitration held that the law of the “seat” (locus arbitri) or “place” where the arbitration is held, is normally the law which governs the arbitration and the same is also recognized under International instruments i.e. the New York Convention of 1958 and the UNCITRAL Model Law of 1985. Further, the Supreme Court in Enercon (India) Ltd. v Enercon GMBH, categorically held that where the seat was not specified by the parties, it would have to be determined by analysing which seat had “closest and most intimate connection” with the dispute.

A three-judge bench of the Supreme Court in Hardy Exploration, with an intent to settle the everlasting debate on the seat vs. the venue of an arbitration, opined that the arbitration clause has to be appositely read in order to understand its intention and to arrive at a conclusion whether the same determines the seat or not. Additionally, the Court enumerated that if the arbitration agreement is silent with respect to the seat of the arbitration, but there is mention of venue and something else is appended thereto i.e. concomitant factors, then depending upon the nature of the prescription, the court can come to a conclusion with regard to the seat of the arbitration. Thus, the Hardy Exploration judgment laid down the guidelines for determining the ‘seat’ of an arbitration in case the same has not been clearly stipulated by the parties in the arbitration agreement.   

It is pertinent to mention that the venue of an arbitration cannot be equated with the seat of arbitration or the place of arbitration since they have a different connotation altogether.[1] Further, it is a settled position of law that in case the parties are unable to reach an agreement with respect to the appointment of an arbitrator, the parties must first resort to the seat of arbitration since it is usually the courts of the seat that have the power to nominate any remaining members of the arbitral tribunal.[2]

The Supreme Court in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited categorically held:

14. This Court reiterated that once the seat of arbitration has been fixed, it would be in the nature of an exclusive jurisdiction clause as to the courts which exercise supervisory powers over the arbitration. (See: paragraph 138).

15. In Reliance Industries Ltd. v. Union of India, (2014) 7 SCC, 603, this statement of the law was echoed in several paragraphs. This judgment makes it clear that “juridical seat” is nothing but the “legal place” of arbitration. It was held that since the juridical seat or legal place of arbitration was London, English courts alone would have jurisdiction over the arbitration thus excluding Part I of the Indian Act. (See: paragraphs 36, 41, 45 to 60 and 76.1 and 76.2). This judgment was relied upon and followed by Harmony Innovation Shipping Limited v. Gupta Coal India Limited and Another, (2015) 9 SCC 172 (See: paragraphs 45 and 48). In Union of India v. Reliance Industries Limited and Others, (2015) 10 SCC 213, this Court referred to all the earlier judgments and held that in cases where the seat of arbitration is London, by necessary implication Part I of the Arbitration and Conciliation Act, 1996 is excluded as the supervisory jurisdiction of courts over the arbitration goes along with “seat”

……

20. A conspectus of all the aforesaid provisions shows that the moment the seat is designated, it is akin to an exclusive jurisdiction clause….

21. It is well settled that where more than one court has jurisdiction, it is open for parties to exclude all other courts. For an exhaustive analysis of the case law, see Swastik Gases Private Limited v. Indian Oil Corporation Limited, (2013) 9 SCC 32. This was followed in a recent judgment in B.E. Simoese Von Staraburg Niedenthal and Another v. Chhattisgarh Investment Limited, (2015) 12 SCC 225…. 

[emphasis added]

Thus, in the light of the aforesaid judgment, it is ex-facie evident that once a party to an arbitration has designated a “seat” for an arbitration, the courts of the jurisdiction of the “seat” of that arbitration shall have exclusive jurisdiction, since the clause of the arbitration agreement designating the “seat” shall act analogous to an exclusivity clause and oust the jurisdiction of any other supervisory court with regard to that particular arbitration.

The most surprising aspect with respect to the Brahmani judgment is that the Supreme Court did not even attempt to determine the true ‘seat’ of the arbitration and proceeded on the basis of the ‘venue’ of the arbitration enumerated in the arbitration agreement, in complete disregard of the previous position of law laid down by a larger bench of the Supreme Court of India in Hardy Exploration and hence, to this extent, the Brahmani is arguably to be regarded as per incuriam. It can, therefore, be concluded that the judgment of the Supreme Court in Brahmani has created more issues than it has resolved and is in need of further judicial intervention to cure the anomaly.

[1] Reliance Industries Limited v. Union of India, (2014) 7 SCC 603, Union of India v. Reliance Industries Ltd, (2015) 10 SCC 213.

[2] Redfern & Hunter on International Arbitration (6th Edn.), September 1, 2015, pp. 243.

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