Author: Ritwik Prakash, V year of B.Com.,LL.B.(Hons.) from Amity Law School, Noida
Black’s Law Dictionary defines “Arbitration” as “An arrangement for taking and abiding by the judgment of selected persons in some disputed matter, instead of carrying to established tribunals of justice, and is intended to avoid the formalities, the delay, the expense and vexation of ordinary litigation”. Arbitration is typically characterised as a process of alternative conflict settlement in which the disputing parties pick a neutral arbitrator whose decision is binding on the parties. It is thought to be an out-of-court settlement technique that is more effective, faster, private, and takes less time.
Legal history has spanned millennia, with significant developments in response to changing periods and social, economic, cultural, and political circumstances. Capitalism and liberalism both benefited from industrialization in the 18th century. As a result of these changes, the idea and concept of globalisation emerged, which some authors believe has existed since the beginning of trade and interchange of goods centuries ago.
It is no secret that individuals have disagreements, and traditionally, disagreements have been settled through the old-school approach of litigation. As a result of the increasing complications of globalisation, liberalisation, and the fast speed of life, there has been a massive increase in litigation across all countries. As expected, this has resulted in an overburdening of the courts in practically all nations, prompting many people to consider and develop various sorts of alternative dispute resolution processes (ADR's).Arbitration is one of those techniques which are internationally accepted as a successful method of resolving disagreements peacefully and reaching amicable, mutually beneficial, and agreeable solutions to issues of different complexity. However, the concept of arbitration may be traced back to Greek and Roman city states in the 6th century BC. According to historical documents, Greek city governments used arbitration to settle disputes over land ownership and damages.[i]
In India, the Indian Arbitration Act of 1899 was the first to deal with arbitration, but it only applied to the presidential towns of Calcutta, Bombay, and Madras. Arbitration is also mentioned and referred to in three additional legislative acts: the Indian Contract Act of 1872 (Sections 10 & 28), the Specific Relief Act of 1877 (Section 21), and the Second Schedule of the Civil Procedure Code of 1908. The Arbitration Act, modelled after the English Arbitration Act of 1934, was passed in 1940. However, two different laws regulated the enforcement of a foreign award. The Arbitration (Protocol and Convention) Act of 1937 (for Geneva Convention Awards) and the Foreign Awards (Recognition and Enforcement) Act of 1961 was both enacted (for New York Convention Awards). These acts, however, were fraught with complexity and thus inefficient. Following the 1990s economic liberalization, the Arbitration & Conciliation Act, 1996 was enacted, based on the UNCITRAL Model Law on International Commercial Arbitration, 1985, and the UNCITRAL Conciliation Rules, 1980. So far, it has been updated in 2015 and 2019.
In the context of globalisation, transnational disputes involving entities from other countries have become more widespread, attracting the scrutiny and jurisdiction of their respective countries. International commercial arbitration involving numerous parties from several jurisdictions has raised a number of critical issues. In the case of Naviera Amazonica Peruana SA v. Compania International de Seguros del Peru, the Court of Appeal of England elaborated on the questions to be considered when entering into an arbitration agreement, such as the law applicable to the substantive contract (LexContractus), the law applicable to the arbitration agreement & its performance (LexArbitri), and the law governing the procedure & conduct of arbitration (Curial Law).
The issue of "seat" vs. "venue/place" of arbitration governing the dispute is a critical distinction that arises in international commercial arbitration disputes. While venue/place of arbitration solely refers to the geographical region in which the arbitration proceedings are taking place, seat of arbitration refers to the court/tribunal that has jurisdiction over the proceedings. This has various legal consequences, including the arbitral award's legality and enforceability, the extent of contesting the award by either party/parties, procedural guarantees, the effectiveness and efficiency of conflict settlement, court appeal and review of the award, and so on. [ii]
The Arbitration & Conciliation Act of 1996 fails to define the terms "seat" and "venue" of arbitration, instead using the term "place" under Section 2. (2). India is represented by its location under the act. Furthermore, Section 20, which explains how to determine the location of arbitration, is confusing in its distinction between "seat" and "venue." Despite the Law Commission's 246th report suggesting a slew of amendments to the Act, only a few were implemented through the 2015 revision. Thus, in order to shed some light on this ambiguity, the judiciary has taken it upon itself time and again to provide clarity on these phrases.
The seat may be distinct, distinct, and independent of the venue or site of arbitration. The term "seat" refers to the tribunal or court that has jurisdiction over the arbitral proceedings, whereas "venue" solely refers to the country or region/area where the proceedings are being held. As a result, the seat is more important than the venue because it is the courts of that location that will have supervisory jurisdiction over the essential subjects before it.
Since the act itself is ambiguous on certain terms, the judiciary has stepped in to provide explanation on such clauses of the act. After its enactment, one of the earliest cases that later went on to be reversed was Bhatia International v. Bulk Trading SA. In this case the apex court elaborated upon the interpretation of Section 2 (2) of the Arbitration & Conciliation Act, 1996. It was held that an international commercial arbitration involving an Indian party would confer jurisdiction on Indian Courts.
In the case of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.(BALCO), the court reversed its judgement in the 2002 case of Bhatia International v. Bulk Trading SA. The Supreme Court ruled that Part I of the Act only applies if the seat of arbitration is in India, and that Section 2 (2), when combined with Section 20, suggests that the Act lacks extraterritoriality. It was also determined that under the Act, there is a distinction between the terms "seat" and "venue.” While Sections 20 (1) and (2) [which elaborate on the parties' right to select the place of arbitration, and in the absence of such selection authorises the tribunal to determine the same] use the term place, which is equivalent to "seat," Section 20 (3) [which allows the tribunal to meet at any location for the sake of convenience] uses the term "venue."[iii]
The recommendation of the Law Commission's 246th Report to replace the words "place" and "venue" with "seat" and "venue" never materialised, and the same was reiterated by the Supreme Court in the case of Enercon (India) Ltd. v. Enercon GmbH (Enercon), in which the court laid down the "closest & most intimate connection test" to determine the "seat" of arbitration. The Delhi High Court found in Antrix Corporation Ltd v Devas Multimedia Pvt Ltd. that the "seat" of arbitration and the court of cause of proceedings have concurrent jurisdiction, however this decision was overturned in the BGS Soma case, which is discussed below.
In the case of Roger Shahshoua v. Mukesh Sharma, to distinguish between "seat" and "venue," the condition of "substantial contrary indicia" was recognised. The ruling in the case of Union of India v. Hardy Exploration & Production was pivotal in bringing some clarity to the situation. In this particular issue, Hardy Exploration and the Government of India agreed to resolve conflicts through arbitration.
The contract's arbitration clause designated "Kuala Lumpur" as the "forum" for arbitration, with the UNCITRAL Model Law of International Commercial Arbitration of 1985 governing the proceedings. The award, which was in favour of Hardy Exploration, was signed by both parties but contested by the Government of India in the Delhi High Court under Section 34 of the Arbitration & Conciliation Act, 1996, with the court ruling that it, was not within its jurisdiction to consider the matter. The case further went to the apex court with the issue being whether “seat” & “venue” specified the same thing if venue is, but seat is not specifically mentioned in the arbitration agreement.It was determined that the terms "seat" and "venue" meant different things, and that "venue of arbitration" can only be interpreted as "seat of arbitration" if the arbitration agreement expressly states so and other articles of the agreement imply the same. Because the "seat of arbitration" was not in Kuala Lumpur, the verdict might be contested in Indian courts under Section 34. This distinction between “seat” & “venue” of arbitration was liquefied in Brahmani River Pellets v. Kamachi Industries, wherein it was held that “seat” & “venue” of arbitration would mean the same thing if it was not expressly mentioned so in the agreement. [iv]
In BGS SGS Soma v. NHPC, some clarity regarding the stand of the apex court on this confusion was reached as the judgement referred back to the reasoning given in the previous cases of BALCO & Roger Shahshoua. Despite being hailed as a significant judgement, the case has not done particularly much in bringing about a resolution to the debate. More recently, the case of MankastuImpex Private Limited vs. Air visual Limited, the Supreme Court unfortunately, it contributes to the general lack of clarity on the matter.The Court noted that the seat defined the applicable law guiding the arbitration procedures as well as the scope of judicial review of the arbitration result.
To sum up, In a country where the court has taken an active part in casting light on confusing terminology, phrases, articles, and clauses, one finds that it has failed to do so in the instance of Sections 2 (2) and 20 (1), (2), and (3) of the Arbitration and Conciliation Act, 1996. Riddled with ambiguities and varying interpretations, it creates a highly hazy image in front of parties that may seek to use arbitration as an alternate conflict resolution tool to traditional litigation.
In order to make it easier for parties, the court must take a firm stand once & for all to resolve the hazy cloud hanging around these sections of the Act. The court in the case MankastuImpex Private Limited vs. Air visual Limited clearly stated that the mere language "place of arbitration" could not be used to determine the seat, and that court should consider other terms in the agreement as well as the behaviour of the parties to determine the seat of arbitration. Although the court is trying its best, it has to look into all the different aspects that may be impacted whilst doing so & thus I believe it is taking such a long time to reach a conclusive solution to the debate around the terms “seat” &“venue” of arbitration.[v]
[i] Benedict M. Cooney, The Industrial revolution, Politics and Public policy, Tony Blair institute for global change, ( Sept. 15, 2022, 4:45 PM), https://institute.global/policy/industrial-revolution-politics-and-publicpolicy. [i]Anil Xavier, The social & economical facet of Alternative dispute resolution, Indian institute of arbitration & mediation, (Sept. 15, 2022, 5:00 PM), https://www.arbitrationindia.com/poverty_adr.html. [ii]NavieraAmazonicaPeruanna SA v. CompaniaInternacional De Seguros Del Peru, (1988) 1 Lloyd’s Rep 116 (CA). [iii]Bhatia International v. Bulk Trading, AIR 2002 4 SCC 105. [iii]2010 1 SCC 72 [iv](2017) 14 SCC 722. [iv](2019) SC 3658. [v](2020) 4 SCC 234. [v](2019) SC 32.