Arbitration is a form of alternative dispute resolution (ADR) which settles disputes without involving the court system. The resolution is determined by one or more arbitrators and the arbitral award is legally binding on the parties and can be enforced in the court of law. Section 20 of the Arbitration and Conciliation Act, 1996, deals with the place of arbitration.
"Place of arbitration—
The parties are free to agree on the place of arbitration.
Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.
Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property."
In any arbitration, whether it is domestic or international, parties have the option to seek court intervention for interim relief, appointment of arbitrators etc. The seat of arbitration plays a crucial role in determining the law that governs the procedural aspects of the arbitration process and the court that has supervisory jurisdiction over the proceedings. On the other hand, the venue of arbitration is the location where the hearings take place and can be chosen by the parties based on their convenience.
For example, if two companies, A from China and B from India, enter into an agreement to construct hotels in India, and choose New Delhi as the seat of arbitration and Singapore as the venue, the Indian law- Arbitration and Conciliation Act, 1996 will govern procedural matters, and Indian courts will have supervisory jurisdiction in case of any disputes. Herein, Singapore is chosen as the venue, it simply means that the parties have selected it as a convenient location for conducting the arbitration proceedings.
The significance of the seat in international arbitrations is paramount since it serves as an indicator for both curial law and supervisory jurisdiction. Conversely, the venue of the arbitration solely designates the physical location where the arbitration takes place and is not linked to either curial law or the jurisdiction of courts.
Section 20 of the Act defines 'Place of Arbitration' where the word 'place' is used interchangeably for both seat and venue. The lack of clarity surrounding this terminology was initially addressed by the Supreme Court's five-judge Constitution bench in the case of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc, (2012) 9 SCC 552. The court acknowledged the seat as the "Centre of gravity" of the arbitration process, which is, in essence, the juridical seat of arbitration. According to the court, the "place" mentioned in Section 20(2) refers to the seat of arbitration, while the "place" mentioned in Section 20(3) refers to the venue of the arbitration. In an effort to eliminate confusion and align the Act with BALCO, the Law Commission of India suggested substituting "place" with "seat" in Section 20(2) and "venue" in Section 20(3) in its 246th report. However, these modifications were not included in the 2015 Amendment, and the statute still does not explicitly reference the "seat" or "venue" of arbitration.
In the case of Indus Mobile Distribution Private Ltd v. Datawind Innovations Private & Ors, (2017) 7 SCC 678, the Supreme Court extended the international concept of the "seat" of arbitration to domestic arbitration. The court ruled that if the arbitration clause grants exclusive jurisdiction to the courts of a specific city/state, it is equivalent to designating that place as the "seat" of arbitration. As a result, only the courts of that city/state would have supervisory power over the conduct of the arbitration proceedings and be responsible for providing relief.
In the case of Roger Shashoua & Ors v Mukesh Sharma, (2017) 14 SCC 722, the Supreme Court laid out several key principles. Firstly, it clarified that the venue of arbitration is not necessarily the same as the seat of arbitration. However, there is an exception to this rule in situations where the arbitration agreement specifies the "venue" of arbitration and identifies the supranational body of rules governing the arbitration without explicitly designating a seat. In such cases, if there are no other compelling factors suggesting otherwise, the venue of the arbitration should be considered the seat of arbitration. This determination must be made based on the specific facts of each case, and the courts must carefully analyze all relevant information to reach a conclusion.
In the case of Union of India v. Hardy Exploration and Production (India) Inc, (2019) 13 SCC 472, a three-judge bench of the Supreme Court of India established the following principle for determining the seat of arbitration:
The venue of arbitration is not automatically synonymous with the seat of arbitration. However, if a "concomitant factor" is present, the venue may be considered equivalent to the seat of arbitration under the "concomitant factor test."
The mere mention of the "place" of arbitration in the arbitration agreement does not necessarily make it equivalent to the seat of arbitration. Any contrary evidence would indicate that the place is not the same as the seat of arbitration.
If the arbitration agreement includes a condition precedent related to the place of arbitration, the condition must be fulfilled before the place of arbitration can be considered the same as the seat of arbitration.
The Supreme Court of India, in the case of Brahmani River Pellets v. Kamachi Industries , (2020) 5 SCC 462, altered the previously established differentiation between seat and venue as set out in the BALCO case. The court determined that merely indicating the venue of arbitration in the agreement is adequate to infer that the parties intended to designate that venue as the seat of arbitration.
The Supreme Court of India reexamined this issue in the case of BGS SGS SOMA JV v NHPC Ltd, (2020) 4 SCC 234, which was heard by a three-judge bench. In this case, the court expanded upon the Roger Shashua test and concluded that the 'venue' of arbitration can also serve as the seat of arbitration under certain circumstances:
If the arbitration agreement does not specifically designate a seat of arbitration, and
If there is an explicit designation of a 'venue' in the arbitration agreement, coupled with the application of a supranational body of rules that govern arbitration, and
If there are no significant contrary indicia.
The Supreme Court, in its verdict of Mankastu Impex Pvt. Ltd. v. Airvisual Ltd, 2020 SCC OnLine SC 301, reaffirmed the principles established in the concomitant factor test of the Hardy Exploration case. The court emphasized that the "place" of arbitration does not inherently refer to the seat of arbitration, and that the parties' intentions regarding the seat of arbitration must be deduced from a comprehensive review of the arbitration agreement. Furthermore, the court stated that the parties' actions should also be taken into account in addition to the arbitration agreement.
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