[Ankit Singh is a 5th Year student at the School of Law, UPES Dehradun. The author would like to thank Mr. Ajar Rab, Partner, Rab & Rab Associates LLP for his valuable inputs and suggestions]
This post is in defense of the criticism levied against the judgment of the Supreme Court in Brahmani River Pellets Limited v. Kamachi Industries Limited in an earlier post available here. It has been argued that judgement in Brahmani disrupts the reasoned position laid down in Union of India v. Hardy Exploration and Production (India) INC.
The criticisms are arguably misplaced as it is inappropriate to compare both the judgments. Though in principle both cases relate to the issue of “venue” and “seat”, it is necessary to emphasize that the distinction between the two concepts has altogether very different implications in domestic and international arbitration. This distinction is extremely important as Hardy Exploration was a case dealing with international arbitration and Brahmani was in the context of domestic arbitration.
In international arbitration, the designation of “seat” affects the choice of law governing arbitration proceedings such as (a) the national arbitration legislation applicable to the arbitration; (b) the law applicable to the “external” relationship between the arbitration and national law and courts (including annulment of awards and selection and removal of arbitrators); (c) the law applicable to the “internal” procedures of the arbitration (including requirements for equality of treatment and due process); and (d) the law presumptively applicable to the substantive validity of the arbitration agreement.[i] Therefore, the designation of “seat” is crucial in international arbitration and if a party fails to choose the seat and designates only the “venue”, then it is imperative to consider the intention of the parties.
In domestic arbitration, on the other hand, the designation of “seat” does not have such far-reaching implications. The proceedings will inevitably be governed by the Arbitration and Conciliation Act, 1996 (“Act”). Such designation may, at best, impact the question of exclusive jurisdiction of courts.[ii] Therefore, as rightly considered by the Supreme Court in Brahmani, the intent of the parties in choosing the “venue” may as well have been the intent to confer exclusive jurisdiction. In fact, the same is writ large in the reasoning of the Court given below:
- 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.
Comparing this line of reasoning with that in Hardy Exploration would hardly be appropriate. To give more context, in Hardy Exploration, Kuala Lumpur was chosen as a “venue” of arbitration, leaving the question of “seat” completely open. Ideally, the determination of “seat” should have been done by the arbitral tribunal prior to passing the award. However, the tribunal did not do so, and hence the Supreme Court was called upon to make such determination while considering the application for setting aside the award. The Court, with respect, incorrectly disregarded the test of “intention” while determining the “seat.”
The choice of a particular location may be based on the convenience and neutrality of the venue, its acceptability to both parties and issues of enforceability.[iii] Therefore, to state that in the absence of a designated “seat” by the parties, the parties intended to choose the country of one of the parties as the “seat,” is not only implausible but also illogical. Such a view vitiates the salient feature of neutrality in international arbitration. Parties chose arbitration over court adjudication for ensuring neutrality and, hence, to bring the parties back into the courtrooms of one of the parties thwarts the entire purpose of international arbitration. Clearly, parties could never have intended such a consequence.
For the sake of clarity, the assertion here is not that “venue” should always be used interchangeably with “seat.” Instead, it is argued that disregarding “venue” outrightly is dangerous. The intention of the parties ought to be considered while determining “seat” and sometimes the designation of “venue” may well be a good indicator of why a particular place was chosen. Even if that is not the sole test, it does establish, unequivocally, the intention to have arbitration under a neutral law and a neutral venue. If the will of the parties is ignored, such an interpretation will run afoul of the principle of party autonomy. This is exactly what happened in Hardy Exploration.
In fact, in Hardy Exploration, the Supreme Court missed a golden opportunity to once and for all settle to scope and import of section 20 of the Act. Section 20(1) provides: “The parties are free to agree on the place of arbitration.” The Court ought to have interpreted or categorically defined what is meant by “place of arbitration.” Does it mean the ‘seat of arbitration,’ or the ‘venue of arbitration,’ or both? Interestingly, the 246th Law Commission Report attempted to resolve this conundrum between “seat’ and “venue,” and suggested that “in section 20, delete the word “Place” and add the words “Seat and Venue” before the words “of arbitration. However, the same was not incorporated by the legislature in the 2015 or 2019 amendments to the Act.
Unfortunately, parties at the time of entering into a contract and while deciding their dispute resolution clause or arbitration clause do not pay heed to the language of the clause, especially in the choice of words between “seat” and “venue” or “place.” Such clauses, are often, not part of negotiations but are left to the legal teams of one of the parties or simply adopted from pre-existing formats or templates of dispute resolution clauses with minute alterations and amendments. In such cases, the designation of “venue” or “place” becomes even more important, as it serves a clear indicator of the choice of parties. The intention of the parties to designate a place may imply a clear choice of jurisdiction as “seat” and in the absence of an opposite intent appearing from other facts and circumstances, the phrase “venue” or “place” should be interpreted as the “seat,” especially in the context of domestic arbitration. Therefore, the approach adopted by the Supreme Court in Brahmani is more favourable to, and reaffirming, the principles of party autonomy, neutrality, and enforceability. Moreover, in the context of domestic arbitration, such a view does not per se have far-reaching implications with respect to the choice of law, as it would have in the case of international arbitration.
– Ankit Singh
[i] Gary B. Born, International Commercial Arbitration 2053 (2nd ed. Kluwer Law International 2014).
[ii] Harmony Innovation Shipping v. Gupta Coal India Ltd., (2015) 9 SCC 172, (Supreme Court); Indus Mobile Distribution Pvt. Ltd. v. Data Wind innovations Pvt. Ltd., (2017) 7 SCC 678 (Supreme Court).
[iii] Julian D.M. Lew, Loukas A. Mistelis & Stefan M. Kröll, Comparative International Commercial Arbitration 361 (Kluwer Law International, 2003).