Brain Booster Articles
SEAT-VENUE CONCERNS WHEN THE ARBITRATION AGREEMENT IS SILENT: JUDICIAL ANALYSIS
Author: Adv. Harshit Adwani, LL.M. from Maharashtra National Law University, Nagpur
Co-author: Vishakha Gupta, LL.M. from Maharashtra National Law University, Nagpur
Overburdened judiciary and delay in the decisions have increased the dependency on alternate dispute resolution (ADR) mechanism for resolving the disputes, especially in the corporate world. However, it is to be noted that these methods have certain issues, which come to light after implementation. One of such issues is confusion regarding seat and venue of arbitration. This confusion intensifies when the agreement is silent on these clauses. The present article deals with two recent judgments of Supreme Court and High Court, and analyses how judiciary has dealt with this issue, to ensure that the popularity of arbitration proceedings among people remains unaffected.
INTRODUCTION – SEAT AND VENUE
The concept of ‘seat’ and ‘venue’ in arbitration is considered to be one of the biggest impediments in the progress of arbitration proceedings. Due to lack of legal knowledge, parties tend to forget to designate a place as ‘seat’ of arbitration in the agreement,[i] which leads to a sense of confusion[ii] in respect of the place of arbitration and the applicable law. The terms ‘seat’ and‘venue’ have not been defined under the Arbitration and Conciliation Act, 1996 [hereinafter ‘the Arbitration Act’]. Instead,it deals with ‘Place of arbitration’ underSection 20 of the Act.[iii]In real-world applicationscenarios, ‘seat’ is the place where the arbitration proceedings are anchored,[iv] It helps in determining the laws applicable for governing arbitral proceedings (lex arbritri),[v]whereas the term ‘venue’ is related to the geographicallocation decided by the parties for conductingthe arbitration proceedings. While dealing with this issue, judiciary has made significant efforts to create a line of differentiation between the two concepts.[vi]However, the issue intensifies when the agreement is silent on the ‘seat’ or ‘venue’ of the arbitration, as it effects the jurisdictional aspect for regulation of arbitral proceedings.
BGS SGS SOMA JV v. NHPC LTD.[vii]: WHEN AGREEMENT IS SILENT ON ‘SEAT’ OF ARBITRATION
The parties entered into a contract of construction. The agreement contained a clause for dispute resolution, which specified that the Arbitration Proceedings shall be held at New Delhi/Faridabad, India. As dispute arose between the parties, the Petitioner issued a notice of arbitration to the Respondent, and dispute was referred to arbitral tribunal, constituted in New Delhi, which delivered an award in favour of the Petitioner. The award was challenged before the Court of District and Sessions Judge, Faridabad,against which the Petitioner filed an application, contending that the appropriate court to entertain such application wouldbe either the court of New Delhi (which was the seat of arbitration) or District Judge at Dhemaji, Assam (where the cause of action arose). The court returned sec. 34 application to be filed before the appropriate court i.e. the court at New Delhi. The Respondent filed an appeal before the High Court of Punjab and Haryana, which and held that court of Faridabad shall have jurisdiction, as Delhi is only a convenient venue where arbitral proceedings were held and not the seat of the arbitration proceedings. Aggrieved by the judgement, the petitioner filed a special leave petition before the Supreme Court of India.
The Supreme Court in this case observed that choice of seat is akin to an exclusive jurisdiction clause.[viii] It was further noted that if the concept of concurrent jurisdiction is accepted, it will empower the party to approach any court, other than the court at the agreed upon seat, which might cause great inconvenience, and might defeat the general expectations of other party. As a result, the Court held that when any place is specified as a ‘venue’ in an arbitration agreement, it can be considered as a ‘seat’ of arbitration, as venue is related to the arbitration proceedings as a whole.
AARKA SPORTS MANAGEMENT PVT. LTD. v. KALSI BUILDCON PVT. LTD.[ix]:WHERE AGREEMENT IS SILENT ON ‘SEAT’ AS WELL AS ‘VENUE’
The petitioner, in this case, Aarka Sports Management filed a petition in the Delhi High Court, requesting for appointment of an arbitrator under Section11 of the Arbitration Act. Though the respondent (Kalsi Buildcon) did not dispute the existence of agreement or notice of invocation, they challenged the jurisdiction of the Delhi High Court to entertain the said petition.
The petitioner relied on the main agreement signed by the parties along with judicial precedents,[x]and argued that the parties mutually provided the exclusive jurisdiction to the courts in Delhi under clause 15 of the agreement and so the High Court of Delhi is empowered to entertain and decide on the petition.To this, the respondent highlighted that the agreement was drawn in Ranchi, signed in Lucknow and executed in Patna. In this way, neither the cause of action arose in Delhi, nor did the agreement contain any provision specifying Delhi to be the seat of arbitration. On the other hand. The respondent relied on the case of Interglobe Aviation Limited v. N. Satchidanand,[xi] and argued that parties are not empowered to confer jurisdiction on a Court, which otherwise has no jurisdiction.
The Court analysed relevant provisions of the Act related to the court of competent jurisdiction,[xii] and place of arbitration,[xiii]along with various judgments referred by both the parties and held that Section20 of the Act confers power in the hands of parties to choose a ‘neutral seat of arbitration’. In other words, the choice of seat of arbitration is not restricted by provisions of the Code of Civil Procedure,[xiv]and parties can choose a place as a seat, even where no cause of action arose at that place. Moreover,Courtclarified that when a place is selected as a seat of arbitration, the court of that place would have exclusive jurisdiction to regulate the arbitration proceedings.
However, the position is differentwhen no place is chosen as the seat of arbitration by the parties. In this situation, Section 20(2) of the Act will come into play, under which the arbitral tribunal will have the authority to determine the seat of arbitration.Regarding the court competent to have jurisdiction in such cases, the court held that “If the parties have not agreed on the seat of the arbitration, the Court competent to entertain an application under Section 11 of the Arbitration and Conciliation Act would be the “Court" as defined in Section 2(1) (e) of the Act read with Sections 16 to 20 of the Code of Civil Procedure.”[xv]
Considering this principle, the Court held that not designating Delhi as the seat of arbitrationto entertain sec. 11 petition. The courtobserved that the petitioner could have succeeded if the agreement had provided the seat of arbitration to be Delhi, as it would have provided exclusive jurisdiction to the courts of Delhi to entertain and decide the application. The court also noted that parties are not empowered to confer jurisdiction on the Court, which otherwise had no jurisdiction.
In several instances, Judges from the Supreme Court and High Courts have shared their perception on the active role played by ADR in the protection of rights and access to justice. According to Justice S.B. Sinha, ADR is an age-old principle, roots of which can be identified in ancient India.[xvi] Recent statements by former[xvii] and current Chief Justice of India[xviii] can be referred to recognize the significance of ADR methods in dispute resolution in a contemporary situation.
Though the Court has specified in BGS SGS Soma case that the law laid down under Hardy Exploration case is not a good law, the former judgment canhave a negative impact on the existingarbitration system in the country.[xix] Experts have opined that ruling laid down in BGS SGS Somacase can create a lot of confusion, as it ignores the principles laid down in previous precedents. Also, considering ‘venue’ as ‘seat’ of arbitration would affect the ‘judicial seat’ in case of any change in ‘venue’ of arbitration, which is contrary to the view taken in BALCO case.[xx] Though it is argued that BGS SOMA case can create a clear path for future cases, the judgment laid down in Mankatsu Impex Private Limited v. Airviual Limited,[xxi] further adds to the existing blurriness.
Contrary to this ongoing tussle, the Aarka Sports case is an ideal illustration of an attempt by the judiciary to fill the voids, which might arise while interpretation of seat and venue in an arbitration agreement. The judgment resolves the issue where no seat or venue is specified, which ultimately protects the interest of parties and helps in creating a flawless system, which will guide the parties to approach the competent authority in future events. As Supreme Court has not deliberated or analysed any case with similar facts, the judgment holds a precedential value.
[i]David Hesse, The Seat of Arbitration is Important. It’s That Simple, KLUWER ARBITRATION BLOG, http://arbitrationblog.kluwerarbitration.com/2018/06/10/seat-arbitration-important-simple/. [ii]Zarir Bharucha, Arbitration – Seat and Venue Revisited, Mondaq,https://www.mondaq.com/india/trials-appeals-compensation/974908/arbitration-seat-and-venue-revisited. [iii] Arbitration and Conciliation Act, 1996, § 20, No. 26, Acts of Parliament, 1996, (India). [iv] Roopadaksha Basu, The Seat v/s.Venue Debate – A Continuing Saga, MONDAQ, https://www.mondaq.com/india/arbitration-dispute-resolution/957918/the-seat-vsvenue-debate-a-continuing-saga. [v]Alastair Henderson, Lex Arbitri, Procedural Law and the Seat of Arbitration 26 Sing Ac LJ 886, 890 (2014). [vi]Union of India v. Hardy Exploration and Production (India) Inc., (2019) 13 SCC 472, in which the Court held that “a venue could become a seat of arbitration only if something else is added to it as a concomitant.” [vii]2019 SCC Online SC 1585. [viii] Aman Deep Borthakur, A Tale of Two Seats: The Indian Supreme Court on the Seat/Venue Distinction, 6 MCGILL J. Disp. Resol. 216, 224 (2019). [ix]Aarka Sports Management Pvt. Ltd. v. Kalsi Buildcon Pvt. Ltd., Arb. P 662/2019. [x]Brahmani River Pellets Limited v. Kamachi Industries Limited, (2019) SCC OnLine SC 929; State of West Bengal v. Associated Contractors, (2015) 1 SCC 32; Raman Deep Singh Taneja v. Crown Realtech Private Limited, 2017 SCC OnLine Del 11966. [xi] (2011) 7 SCC 463. [xii]Arbitration and Conciliation Act, 1996, § 2(1)(e),No. 26, Acts of Parliament, 1996, (India). [xiii]Arbitration and Conciliation Act, 1996, § 20,No. 26, Acts of Parliament, 1996, (India). [xiv]Code of Civil Procedure, 1908, §16-21, No. 5, Acts of Parliament, 1908, (India). [xv]Aarka Sports, supra note 9, Para 26. [xvi] Hon’ble Justice S.B.Sinha, ADR and Access to Justice: Issues and Perspectives, http://www.tnsja.tn.gov.in/article/ADR-%20SBSinha.pdf. [xvii]Mindset that ADR is second option needs to change: CJI SA Bobde at Conference on Arbitration in the Era of Globalisation, BAR & BENCH, https://www.barandbench.com/news/mindset-that-adr-is-second-option-needs-to-change-cji-sa-bobde [xviii]Shagun Suryam, Courts should be last resort, only after exploring alternative dispute resolution: CJI NV Ramana, Bar & Bench, https://www.barandbench.com/news/courts-last-resort-after-alternate-dispute-resolution-cji-nv-ramana. [xix]Vatsal Patel, “Place” of arbitration when the contract explicitly states it: Indian Supreme Court’s inconsistent stance”, NLUJ LAW REVIEW, http://www.nlujlawreview.in/place-of-arbitration-when-the-contract-explicitly-states-it-indian-supreme-courts-inconsistent-stance/. [xx]Rajeev Aggarwal and Prateek Badhwar, The Curious Case Of ‘Seat/Venue/Place' In Arbitration – Need For Legal Practitioners To Employ Clear Phraseology, MONDAQ, https://www.mondaq.com/india/arbitration-dispute-resolution/1099776/the-curious-case-of-seatvenueplace39-in-arbitration-need-for-legal-practitioners-to-employ-clear-phraseology. [xxi](2020) 5 SCC 399.