In my earlier post, dated 8 May 2018, I had covered the case of Union of India v Hardy Exploration and Production (India) INC, 1 (2018) 7 SCC 374 wherein the matter was referred to a larger Bench. The moot question before the Court was in a situation where the arbitration agreement specifies the “venue” but does not specify the “seat”, then on what basis and by which principle, the parties have to decide the place of “seat”. The larger bench had decided this question in civil appeal no. 4628 of 2018 on 25 September 2018 and the ratio of the case is discussed below:
The relevant clauses pertaining to arbitration is reproduced below:
“32.1 This contract shall be governed and interpreted in accordance with the laws of India.
33.9 Arbitration proceedings shall be conducted in accordance with the UNCITRAL Model Law on International Commercial Arbitration of 1985 except that in the event of any conflict between the rules and the provisions of this Article 33, the provisions of this Article 33 shall govern.
33.12 The venue of conciliation or arbitration proceedings pursuant to this Article unless the parties otherwise agree, shall be Kuala Lumpur and shall be conducted in English language. Insofar as practicable the parties shall continue to implement the terms of this contract notwithstanding the initiation of arbitration proceedings and any pending claim or dispute.”
Applicable Legal Principles
Article 20 of the UNCITRAL Model Law
“Article 20. Place of arbitration.—
(1) The parties are free to agree on the place of arbitration. Failing such agreement, 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.
(2) Notwithstanding the provisions of paragraph (1) of this article, 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 goods, other property or documents.”
Article 31(3) of the UNCITRAL Model Law
“Article 31. Form and contents of award.— (3)The award shall state its date and the place of arbitration as determined in accordance with article 20(1). The award shall be deemed to have been made at that place.”
As per Union of India, there was no specific mention of juridical seat but reference is to the venue. Further, Article 20 of the UNCITRAL Model Law, which is referred to in Article 33.9 of the agreement, mandates “determination” of “juridical seat” while Article 20(2) leaves it open to the Arbitral Tribunal to select “venue”. The Union of India contended that on conjoint reading of Articles 20 and 31(3) of the UNCITRAL Model Laws, the parties are free to agree on the place of arbitration.
The Court noticed the dicta of earlier cases in deciding the moot issue in the instant case. Some of them are discussed below:
First case under scrutiny was Sumitomo Heavy Industries Ltd. v. ONGC Ltd. and Others, (1998) 1 SCC 305. This judgment is a complete authority on the proposition that the arbitrability of the dispute is to be determined in terms of the law governing arbitration agreement and the arbitration proceedings has to be conducted in accordance with the curial law. In this case, the Court relied on Mustill and Boyd (the Law and Practice of Commercial Arbitration in England, 2nd Edition), and observed that where the law governing the conduct of the reference is different from the law governing the underlying arbitration agreement, the Court looks to the arbitration agreement to see if the dispute is arbitrable, then to the curial law to see how the reference should be conducted and then returns to the first law in order to give effect to the resulting award. The Court declared that the law which would apply to the filing of the award, to its enforcement and to its setting aside would be the law governing the agreement to arbitrate and the performance of that agreement.
Next case analysed by the Court was the famous case of Bhatia International. In that case, the order of District Judge was challenged before the High Court, by Bhatia International by way of a writ petition, which was also dismissed by the High Court. The Judgment and Orders, both of the District Judge and the High Court, were challenged before the Supreme Court of India by Bhatia International and it was submitted on its behalf that Part-I of the Act applies only to arbitrations where the place of arbitration is in India, as has been clearly indicated in Sub-section (2) of Section 2 of the Act. In the said case, it was also urged on behalf of Bhatia International that Section 2(i)(f) of the Act, defines “International Commercial Arbitration” and that such arbitration could take place either in India or outside India. The submissions made on behalf of Bhatia International were accepted by the Supreme Court of India upon a finding that, although, Section 2 (2) of the Act, provides that Part-I of the Act would apply where the place of arbitration is in India, it did not provide that Part-I would not apply where the place of arbitration is not in India. It was also held that it was nowhere provided that Part-I of the aforesaid Act would not apply to arbitrations taking place outside India.
This was a case where parties to an international commercial agreement had agreed that the substantive law governing the agreement would be the English law. Parties had neither made a choice in regard to the curial law governing the procedure of the arbitration nor the seat of the arbitration. This case recognised as a fairly well settled principle that when an arbitration agreement is silent on the law and procedure to be followed in implementing the arbitration agreement, the law governing the arbitration agreement would ordinarily be the same as the law governing the contract. This was, however, distinguished on the facts of that case following Bhatia International. This was a case where there was a proceeding under Section 11 (Appointment of arbitrator by the Court) of the Act before the designate of the Chief Justice of India and in a situation where parties had neither agreed to the seat of the arbitration or the curial law. An arbitration with a seat in India was permissible under the contract between the parties. Hence, the designate of the Chief Justice of India held that whatever be the applicable law of arbitration, Part-I would apply under the Bhatia principle. This case was decided Analysing the arbitration clause and the authority of House of Lords in Lesotho Highlands Development Authority v. Impregilo SpA  UKHL 43.
In this case, the Court held that once the parties consciously agree that the juridical seat of Arbitration would be London and that the Arbitration agreement will be governed by laws of England, the provisions of Part-I of the Act would not apply. In other words, the it was held that since the juridical seat or legal place of arbitration was London, English courts alone would have jurisdiction over the arbitration thus excluding Part I of the Indian Act.
In this case, the issue before the Court was related to the applicability of the provisions of Section 9 (Interim Measures by Court) of the Act to a case involving an international commercial agreement where (i) The proper law of the contract was Indian law; (ii) The seat of the arbitration was Kuala Lumpur, Malaysia; and (iii) The arbitration agreement was to be governed by English law. On the question of whether it had jurisdiction to entertain the said petition under Part I of the 1996 Act, the Supreme Court, relying on Section 3 & 53 of the English Arbitration Act, 1996 held that a change of the venue would not result in a change of the seat of arbitration and the Supreme Court decided it does not have jurisdiction to entertain the said petition because the parties had agreed to exclude Part I of the 1996 Act.
In this case, the Constitution Bench of the Supreme Court overruled the judgment of Bhatia International. The issue before the Supreme Court was whether the provisions of Part-1 would apply to a foreign seated international commercial arbitration. The Supreme Court has held that Part-1 is applicable only to arbitrations which take place within the territory of India and in a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 of the Act. This part of the law so declared has been held to apply prospectively. In drawing these conclusions, the Supreme Court of India relied on the English authorities of Naviera Amazonica Peuana S.A. v. Compania International de Seguros del Peru (1988) 1 Lloyd’s Rep 116 (CA) and Union of India v. McDonnell Douglas Corporation 1993 2 Lloyd’s Rep 48.
In this case, the Supreme Court dealt with an agreement Clause which stipulated that “the arbitration agreement contained in this Article 34 shall be governed by the laws of England”. In the said case again the question arose as to whether the seat of arbitration could be stated to be in London. The parties had agreed that the venue of arbitration would be London. The contract was to be governed by English law and that the arbitration should be conducted, if the claim is for a sum, lesser than USD 50,000, in accordance with small claims procedure of the London Maritime Arbitration Association. Relying on Reliance Industries Ltd., it was held that “There is ample indication through various phrases like ‘arbitration in London to apply’, arbitrators are to be the members of the London Arbitration Association, and the contract “to be governed and construed according to English Law”, to reflect the intention of the parties that the juridical seat of arbitration would be London”. Accordingly, the Court applied the implied exclusion rule in Bhatia International and held that the Indian law was impliedly excluded.
In this case, the Supreme Court referred Harmony Innovation Shipping and held that in cases where the seat of arbitration is London, by necessary implication Part I of the Arbitration and Conciliation Act, 1996 is excluded as the supervisory jurisdiction of courts over the arbitration goes along with “seat”. In other words, the Supreme Court formulated that the exclusion of Part-I of the Act, depends upon two questions namely, (1) whether the juridical seat of the arbitration is outside India and (2) whether the law governing the arbitration agreement is a law other than Indian law.
In this case, the Supreme Court was concerned with a case where the appellant had filed an application under section 47/49 of the Act for enforcement of a foreign award in Bombay High Court and the respondent had filed a prior petition under section 34 of the Act before the District Judge. The Supreme Court considered the arbitration clause that stipulated that the disputes between the parties were to be settled and referred to arbitration in London and the English Law would apply and held that the Part-I of the Act would not apply.
In this case, the Supreme Court observed that the place of arbitration determines the law that will apply to the arbitration and related matters like challenges to award etc. If in pursuance of an arbitration agreement, the arbitration took place outside India, there is clear exclusion to Part-I of the Act.
In this case, the clause relating to the arbitration stipulated that the arbitral proceedings shall be in accordance with the ICC Rules. There was a clause in the Share Holding Agreement (SHA) that the governing law of SHA would be laws of India. The Court noticed that the Constitution Bench in Bharat Aluminium Co. has concurred with the interpretation of a similar clause by Court of Appeal in C v D (No2)  APP.L.R. 12/05 wherein the Court of Appeal held that the choice of England as the seat of the arbitration by the parties was determinative of the matter in as much as the parties had, by that agreement, expressly (or perhaps impliedly) agreed that any proceedings seeking to attack or set aside the Partial Award would only be those permitted by English law. This decision of Court of Appeal was reaffirmed by the Supreme Court in Bharat Aluminium Co. Thus, in Roger Shashoua, the Supreme Court concurred with interpretation of C v D and held that Courts in India will have no jurisdiction. The Court also observed that when a court finds that there is prescription for venue and something else, it has to be adjudged on the facts of each case to determine the juridical seat.
In the instant case, though the Court has noticed its decision Sumitomo, at the same time, the Court also remarked that the controversy in Sumitomo was related with the old arbitration Act of 1940 the discussion pertained to foreign award under the Foreign Awards (Recognition and Enforcement) Act, 1961. Thus, the principle laid down therein is in no way applicable to the concept of determination of jurisdiction. Relying on Harmony Innovation Shipping, the Court remarked that the arbitration clause has to be appositely read to understand its intention so as to arrive at a conclusion on whether it determines the seat or not.
The arbitration clause has to be read in a holistic manner so as to determine the jurisdiction of the Court. That apart, if there is mention of venue and something else is appended thereto, depending on the nature of the prescription, the Court can come to a conclusion that there is implied exclusion of Part I of the Act.
The Court also found that on a perusal of Articles 20 and 31(3) of the UNCITRAL Model Laws, the parties are free to agree on the place of arbitration. Once the said consent is given in the arbitration clause or it is interpretably deduced from the clause and the other concomitant factors like the case of Harmony Innovation Shipping Ltd. which states about the venue and something in addition by which the seat of arbitration is determinable.
The Court concluded that in the present case, the place of arbitration was to be agreed upon between the parties. It had not been agreed upon; and in case of failure of agreement, the Arbitral Tribunal is required to determine the same taking into consideration the convenience of the parties. It is also incumbent on the Arbitral Tribunal that the determination shall be clearly stated in the “form and contents of award” that is postulated in Article 31. There has been no determination. The word “determination” requires a positive act to be done. In the present case, the only act done by the Tribunal is that of holding the meeting at Kuala Lumpur and signing the award. This does not amount to determination. The clause is categorical. The sittings at various places are relatable to venue. It cannot be equated with the seat of arbitration or place of arbitration which has a different connotation as has been held in Reliance Industries Ltd., Union of India v. Reliance Industries Limited, Harmony Innovation Shipping Limited and in Roger Shashoua.
On the word “determination”, the Court elaborated that the word “determination” has to be contextually determined. When a “place” is agreed upon, it gets the status of seat which means the juridical seat. We have already noted that the terms “place” and “seat” are used interchangeably. When only the term “place” is stated or mentioned and no other condition is postulated, it is equivalent to “seat” and that finalises the facet of jurisdiction. But if a condition precedent is attached to the term “place”, the said condition has to be satisfied so that the place can become equivalent to seat. In the instant case, as there are two distinct and disjunct riders, either of them have to be satisfied to become a place. As is evident, there is no agreement. As far as determination is concerned, there has been no determination.
Relying on the definition of the word “determination” from Ashok Leyland Limited and State of T.N. and another, (2004) 3 SCC 1, the Court held that the expression of determination signifies an expressive opinion. In the instant case, there has been no adjudication and expression of an opinion. Thus, the word “place” cannot be used as seat. A venue can become a seat if something else is added to it as a concomitant. But a place unlike seat, at least as is seen in the contract, can become a seat if one of the conditions precedent is satisfied. It does not ipso facto assume the status of seat. Thus understood, Kuala Lumpur is not the seat or place of arbitration and the interchangeable use will not apply in stricto sensu.
In my opinion the Clause in the instant case was complex and had several layers attached to it for determination of seat of arbitration. The parties have chosen Indian law as governing law and UNCITRAL Model Law as the curial law of arbitration. Sometimes, parties choose a “venue” just for the sake of their own convenience but law on seat/place/venue is very clear around the world. While seat and place are chosen interchangeable, venue can only come into picture in absence of any express choice of either governing law or curial law. In absence of any express choice, the applicable standard to determine the seat/place of arbitration is the closest connection test as promulgated the UK Court of Appeal in Sulamerica v. Enesa  EWCA Civ 638 and later confirmed by English Commercial Court in Habas Sinai v. VSC  EWHC 4071 (Comm).
In this case, the Court had gone one step forward by interpreting even the terms used in curial law chosen by parties (the word “determined” under UNCITRAL Model Law). Therefore, I believe this judgement could be lethal for parties who choose Indian Law as their governing law of Arbitration. Reason being, if the parties fails to decide the seat of arbitration either expressly or under the curial law due to any reasons then the Indian court can use this judgement to interpret even the provisions of curial law. The present case also ignores the interpretation of closest and most real connection test as described in Dicey, Morris & Collins, The Conflict of Laws, 14th ed. as follows:
“16-016 It is submitted that in most cases the correct solution will be found in the construction of the agreement as to the parties’ choice of law. This respects the fact that what is in issue is a contractual question, on which the parties enjoy autonomy of choice of law, whether under the common law or under the Rome Convention. If no such choice, express or implied, can be discerned, then it will often be the case that the arbitration agreement will be found to be most closely connected with the law of the place where the arbitration has its seat, which is also the place where the award is to be treated as “made” for the purpose of the New York Convention.”
In the given case, the award was signed (made) in Kuala Lumpur therefore, in light of the above test, it is implied that the place where the award is “made” is also the place where the arbitration has its seat.
The authors of Mustill & Boyd, Commercial Arbitration, 2nd ed., have also defined this concept in a similar way and the same is given below:
“As a general rule the arbitration agreement will be governed by the same law, since it is part of the substance of the underlying contract. But this is not an absolute rule, since other factors may point clearly to some other system of law. Thus if the arbitration is to be held in the territory of a state which is party to the New York Convention on the Recognition and Enforcement of Awards, section 5(2)(b) of the Arbitration Act 1975 [now section 103(2)(b) of the Arbitration Act 1996] appears to give rise to a rebuttable presumption that the law governing the validity of the arbitration agreement is the law where the award is to be made.”
It would be interesting to apply the rule enunciated in this judgement in a situation where the parties have not explicitly chosen the seat/place of arbitration instead they impliedly chosen a seat of arbitration by choosing such curial law under which the seat is designated to be a specific place in absence of any choice by parties. For example, under Rule 16.2 of the LCIA Arbitration Rules, 2014, in case party fails to choose the seat of arbitration, it would be deemed to be London ipso facto. Article 16.2 reproduced below:
“Article 16 Seat(s) of Arbitration and Place(s) of Hearing
16.1 The parties may agree in writing the seat (or legal place) of their arbitration at any time before the formation of the Arbitral Tribunal and, after such formation, with the prior written consent of the Arbitral Tribunal.
16.2 In default of any such agreement, the seat of the arbitration shall be London (England), unless and until the Arbitral Tribunal orders, in view of the circumstances and after having given the parties a reasonable opportunity to make written comments to the Arbitral Tribunal, that another arbitral seat is more appropriate. Such default seat shall not be considered as a relevant circumstance by the LCIA Court in appointing any arbitrators under Articles 5, 9A, 9B, 9C and 11.”
It would also be interesting to apply the above judgement in cases where the institutional laws presumed the place of signing of award as the place of arbitration such as Article 32(3) of ICC Arbitration Rules, 2017 as set out below:
“3 The award shall be deemed to be made at the place of the arbitration and on the date stated therein.”