The Significance Of The Seat Of Arbitration

Seat of arbitration refers to the legal jurisdiction where the arbitration is supposed to take place. It establishes a geographical boundary for the arbitral procedure and related litigation.

It is important to specify the seat of arbitration clearly when drafting the arbitration clause in any agreement. Any ambiguity in the arbitration clause may lead to unnecessary litigation. Many agreements that contain arbitration clause stays silent about the seat of arbitration; this leads to confusion between the parties to the agreement as to what shall be the seat of arbitration, especially in the case where the parties to the agreements operates in multiple states. Some agreements mention contradicting clauses for adjudication of arbitration for example in an agreement one clause mentions seat of arbitration as Delhi, and in another clause in the same agreement, it says that the court in Kolkata will have the exclusive jurisdiction in case of any dispute, such contradicting clauses defeats the sole purpose of arbitration that is to get the dispute resolved in time bound manner.

Citing relevant judicial decisions concerning the seat of arbitration, my aim is to provide clarity and dispel any confusion surrounding this crucial aspect of arbitration proceedings.

Conflicting clauses: Seat of Arbitration and Exclusive Jurisdiction

Loosely worded agreements containing contradictory clauses often lead to satellite litigation. Litigants find it difficult to determine the appropriate forum for resolving their disputes.

In the case of Devyani International Ltd. v. Siddhivinayak Builders and Developers, (2017 SCC OnLine Del 11156), the Hon'ble Delhi High Court encountered a legal issue wherein clause 11 of the agreement specified the seat of arbitration as Delhi. However, clause 12 of the same agreement conferred exclusive jurisdiction upon the courts at Mumbai to entertain disputes arising out of the Agreement. The High Court held that the moment the seat is designated, it is akin to an exclusive jurisdiction clause. Consequently, the courts at Delhi would have exclusive jurisdiction to adjudicate the dispute between the parties.

In the case Aniket Sa Investments LLC v. Janapriya Engineers Syndicate (P) Ltd., (2021 SCC OnLine Bom 919), a similar situation was considered before the Bombay High Court. In the agreement the seat of arbitration was fixed as Mumbai, and exclusive jurisdiction was conferred to Hyderabad. The single judge bench held that “the Courts at Hyderabad would have exclusive jurisdiction to entertain this petition…. The parties agreeing to the seat of arbitration being at Mumbai would be required to accept it as the venue of the arbitration, and

the said clause cannot be held to confer jurisdiction on the Courts at Mumbai.” However, the division bench set aside the decision of the single bench and held that the court of the 'seat'— which is Mumbai—will have the exclusive jurisdiction."

In BGS SGS SOMA JV V. NHPC, (2020) 4 SCC 234 the Supreme Court while referring to its previous judgement in BALCO held that …..choosing of a "seat" amounts to the choosing of the exclusive jurisdiction of the Courts at which the "seat" is located.

In the case of Nitin Kwatra vs. Stadhawk Services Pvt. Ltd. and Ors (ARB.P. 722/2023), a dispute arose between the parties, leading the petitioner to approach hon'ble Delhi High Court for the appointment of a sole arbitrator. However, the respondent resisted this on the grounds of jurisdiction. The agreement had two clauses: one stated, 'All disputes between parties shall be subject to the exclusive jurisdiction of the courts at Gurugram only,' while the other stated, 'The place of arbitration shall be Delhi.' The Hon'ble High Court, while rejecting the objections raised by the respondent, held that 'the venue of arbitration has to be treated as akin to the seat, in the absence of any contrary indicia, and hence, this Court would have jurisdiction to appoint an arbitrator to adjudicate the disputes between the parties.

Venue vs Seat of Arbitration

The Arbitration and Conciliation Act, 1996, does not mention the words 'Seat' or 'Venue.' However, these terms are commonly used in commercial agreements instead of the word 'Place.' Interestingly, the Act does refer to the 'Place of arbitration' under Section 20, but commercial agreements generally avoid using this term.

The 'venue of arbitration' refers to the appropriate or convenient geographic location where the tribunal conducts its hearings. In contrast, the 'seat of arbitration' serves as the legal domicile of the arbitration and generally determines the procedural law applicable to the arbitration proceedings. Additionally, the seat establishes which court possesses supervisory jurisdiction over the arbitration.

In the case of Roger Shashoua and Others vs. Mukesh Sharma, the arbitration clause 14.4 stated, 'The venue of the arbitration shall be London, United Kingdom.' Additionally, under governing clause 17.6, it stated, 'This Agreement shall be governed by and construed in accordance with the laws of India.' The High Court of Wales had the opportunity to determine the seat of arbitration in the absence of any express term in the agreement related to the seat of arbitration. The court held that when there is an express designation of the arbitration venue

and no alternative place is designated as the seat, combined with a supranational body of rules governing the arbitration and no other significant contrary indica, then the venue will be considered the seat of arbitration.

This principle became known as the Shashoua principle. A Constitutional Bench of five judges of Supreme Court of India referred to this principle for the first time in the case of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, and subsequently in the case of Enercon (India) Ltd. v. Enercon Gmbh, (2014) 5 SCC 1.

The Law commission in its 246^th report had recommended certain amendments to the arbitration and conciliation act, 1996 to clear dispel the confusion of venue and seat.

Amendment of Section 2

1. In sub-section (1), after clause (h), insert clause “(hh) “seat of the arbitration” means the juridical seat of the arbitration”

2. In sub-section (2), add the word “only” after the words “shall apply” and delete the word “place” and insert the word “seat” in its place.

Amendment of Section 20

12.In section 20, delete the word “Place” and add the words “Seat and Venue” before the words “of arbitration”.

1. In sub-section (1), after the words agree on the” delete the word “place” and add words “seat and venue”

2. In sub-section (3), after the words “meet at any” delete the word “place” and add word “venue”.

The recommended amendments were not adopted in Arbitration and Conciliation (Amendment) Act, 2015, The Supreme Court provided the reasoning behind that in the case of Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., (2017) 7 SCC 678. In para 19 the court opinioned that:

“19. The amended Act, does not, however, contain the aforesaid amendments, presumably because the BALCO judgment in no uncertain terms has referred to “place” as “juridical seat” for the purpose of Section 2(2) of the Act. It further made it clear that Section 20(1) and 20 (2) where the word “place” is used, refers to “juridical seat”,

whereas in Section 20 (3), the word “place” is equivalent to “venue”. This being the settled law, it was found unnecessary to expressly incorporate what the Constitution Bench of the Supreme Court has already done by way of construction of the Act.”

The Supreme court in BGS SGS SOMA JV V. NHPC, (2020) 4 SCC 234 held that when the 'venue' of arbitration is specified and no significant contrary indications exist, the designated 'venue' should be considered the 'seat' of the arbitration proceedings."

84. the fact that the arbitral proceedings “shall be held” at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a “venue” and not the “seat” of the arbitral proceedings, would then conclusively show that such a clause designates a “seat” of the arbitral proceedings. In an International context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that “the venue”, so stated, would be the seat of the arbitral proceedings. In a national context, this would be replaced by the Arbitration Act, 1996 as applying to the “stated venue”, which then becomes the “seat” for the purposes of arbitration.

Jurisdiction on the basis of cause of action

In the case of Delhi Tourism & Transportation Development Corpn. v. Satinder Mahajan, 2024 SCC OnLine Del 3206 the counsel for the petitioner submitted that since the cause of action arose in Delhi, the seat of arbitration shall also be Delhi however the Delhi HC rejected the contention of the petitioner and held that the seat of arbitration is not determined by the cause of action.

19. The question then arises as to whether the seat of the arbitration, in the present case, is Pathankot or Delhi. Mr. Tripathy submits that the cause of action arose entirely in Delhi, inasmuch as the work order was issued in Delhi, the Agreement was signed in Delhi, and the work was, in fact, done in Delhi as well. I am afraid that these contentions are not of much relevance, having regard to the settled law that the seat of the arbitration proceedings are to be determined on the basis of connection with the arbitral proceedings, and not with the cause of action for the underlying disputes.

Jurisdiction when the Agreement is silent on 'Venue' Or 'Seat'

Place of arbitration. (1) The parties are free to agree on the place of arbitration.

(2) 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.

Section 20(2) empowers the arbitral tribunal to determine the seat of arbitration if the parties to the agreement fail to do so. However, the issue arises as to which arbitral tribunal the parties should approach when they fail to agree on a common arbitral tribunal for adjudicating the dispute.

In the case of BBR (India) Pvt. Ltd. vs. S.P. Singla (2023) 1 SCC 693, the Hon'ble Supreme Court held that in the absence of a designated 'venue' or 'seat' of arbitration in the agreement, the determining factor will be the cause of action. Consequently, the court within whose jurisdiction the cause of action arose will have control over the arbitral proceedings.

Para 31…. the court where the earliest application has been made, being the court in which a part or entire of the cause of action arises, would then be the exclusive court under Section 42 of the Act. Accordingly, such a court would have control over the arbitration proceedings.

Shifting of Seat of arbitration

In the case of Inox Renewables Ltd. v. Jayesh Electricals Ltd., (2023) 3 SCC 733, the Supreme Court addressed the legal issue of whether the seat of arbitration can be shifted. The Court held that, pursuant to Section 20(1) of the Arbitration and Conciliation Act, the seat or venue of arbitration can be shifted if both parties mutually agree to the shift.

Which court will have supervisory jurisdiction is determined by the seat of arbitration mentioned in the arbitration clause of the agreement. Hence, it is extremely important to choose the seat of arbitration wisely. When drafting the agreement, the parties may use the word 'Seat' instead of 'Venue' or 'Place' to reaffirm their intention regarding which court they want to confer exclusive jurisdiction to adjudicate any disputes between the parties.

Views Are Personal.

References

Devyani International Ltd. v. Siddhivinayak Builders and Developers, (2017 SCC OnLine Del 11156)

Aniket Sa Investments LLC v. Janapriya Engineers Syndicate (P) Ltd., (2021 SCC OnLine Bom 919)

BGS SGS SOMA JV V. NHPC, (2020) 4 SCC 234

Nitin Kwatra vs. Stadhawk Services Pvt. Ltd. and Ors (ARB.P. 722/2023)

Shashoua and others v Sharma, [2009] 2 All ER (Comm) 477

Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552

Enercon (India) Ltd. v. Enercon Gmbh, (2014) 5 SCC 1

Amendments to the Arbitration and Conciliation Act 1996 August, 2014

Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., (2017) 7 SCC 678

Delhi Tourism & Transportation Development Corpn. v. Satinder Mahajan, 2024 SCC OnLine Del 3206

BBR (India) Pvt. Ltd. vs. S.P. Singla (2023) 1 SCC 693

Inox Renewables Ltd. v. Jayesh Electricals Ltd., (2023) 3 SCC 733