Bombay High Court: Seat v Venue in Case of Domestic Arbitration

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In BGS SGS Soma JV v NHPC Ltd [1]the Supreme Court settled the interpretation of Seat and Venue in terms of international and domestic arbitrations in India. Pertinently, BGS SGS[2] also provides us with an analysis of how the test for determining where lies the seat of an arbitration.

The settled law now is that in a domestic arbitration, a named venue is the seat of the arbitration unless there is something to indicate that the place is a ‘mere venue’ (where a tribunal may examine witnesses etc). If a venue is specified, then absent a specific indication of it being merely a venue, it will constitute the seat of the arbitration; and jurisdiction will be determined by the location or situs of the seat. It is only if neither seat nor venue are specified that the cause of action based jurisdiction concept can operate. Simply: venue is ordinarily the seat and venue-seat determine jurisdiction, not vice-versa.

In L&T Finance Ltd v. Manoj Pathak, Com. Arb. Pet. No. 1315 of 2019 decided on 31 Jan 2020, the Bombay High Court was called to decide whether, in view of the peculiar arbitration clause contained in the agreement between the parties in that case, the parties have agreed for Seat of arbitration as New Delhi or it is merely a convenient venue agreed for arbitration. The arbitration clause (‘Clause’) in question reads as under:-

(f) The venue of arbitration shall be New Delhi or such other place as may be determined by L&T in its sole discretion and courts in New Delhi or such other place shall have exclusive jurisdiction.

The Petitioner parse the Clause into two component parts as follows:-

(f) (i) The venue of arbitration shall be New Delhi or such other place as may be determined by L&T in its sole discretion, and

(ii) courts in New Delhi or such other place shall have exclusive jurisdiction.

Based on the above segregation, the Petitioner argued that assuming (i) suffers from any legal infirmity, it has no bearing at all on (ii). It was further contended that the second part of the Clause does not confer exclusive jurisdiction, and, necessarily this implies that it is not the venue or the seat that will determine a Court’s jurisdiction, but, rather, the traditional cause of action or Section 20 Code of Civil Procedure 1908 (‘CPC’) concept.

Per contra, the Respondent argued that clause has two distinct elements. First there is an unequivocal nomination by the parties of a venue of choice, i.e. New Delhi, and that the Courts in New Delhi have exclusive jurisdiction. Second, to the extent that the clause purports to grant a unilateral overriding discretion to L&T Finance to choose ‘any other place’ as a venue and says that ‘such other place’ (being the place nominated by L&T Finance) to be the jurisdictional hub, the clause must fail because the Supreme Court has (in BGS) now clearly said that considerations under Section 20 of the Arbitration Act and the demands of party autonomy, neutrality and even handedness do not permit one party to dictate terms and unilaterally foist its choice or decision on the other.

In view of the rival contentions, the Court fully dissected the Clause as under:

(f) (i) The venue of arbitration shall be

(a) New Delhi or

(b) such other place as may be determined by L&T in its sole discretion, and

(ii) courts in

(a) New Delhi or

(b) such other place shall have exclusive jurisdiction.

The Court observed that everything turns on how it approach this expression ‘such other place’ in (f)(ii)(b) above. The term ‘Such other place’ occurs in both subsidiary clauses and in both contexts i.e. regarding venue and in regard to a Court’s jurisdiction. For venue, it does not simply say ‘such other place’. That would make no sense. It says such other place as may be determined by L&T Finance in its sole discretion. This confers on L&T Finance a unilateral discretion to choose any other venue at will, whether or not the Respondents agree. In its second occurrence, therefore, ‘such other place’ must be a reference not to some cause of action based jurisdictional Court but to ‘such other place as L&T Finance in its sole discretion may’ have previously determined, i.e. to court with jurisdiction over ‘such other’ venue that L&T Finance in its sole discretion chose. That is the only holistic and harmonious reading of the whole of sub-clause (f).

Interpreting para 83 of BGS SGS Soma JV, the Court further observed that opening paragraph of the said para portrays that whenever the word ‘venue’ is used in regard to domestic arbitration proceedings, it is really an indication then that is to be seat of those proceedings. The only exception is when a ‘venue’ is separately designated as a meeting place of convenience.

In view thereof, the Court settled the following trifecta of propositions in regard to a domestic arbitration:

(a) A stated venue is the seat of the arbitration unless there are clear indicators that the place named is a mere venue, a meeting place of convenience, and not the seat;

(b) Where there is an unqualifed nomination of a seat (i.e. without specifying the place as a mere venue), it is courts where that seat is situated that would have exclusive jurisdiction; and

(c) It is only where no venue/seat is named (or where it is clear that the named place is merely a place of convenience for meetings) that any other consideration of jurisdiction may arise, such as cause of action.

In addition, the Petitioner also contended that the whole of the selection of the seat (or venue=seat) provision is rendered bad because of the discretion impermissibly conferred on L&T Finance to choose some other place in its sole discretion. The Court refuted to accept this argument holding that all that this means is that L&T Finance cannot pick any venue other than New Delhi, and that the stated venue, New Delhi, will be the seat (since there is nothing to indicate that it is a ‘mere venue’, a meeting place of convenience). The Court observed that in its current form, the clause does name a venue. It does not say it is merely a venue or meeting place of convenience. This venue, New Delhi, is therefore the seat.

However, an important obiter as observed by the Bombay High Court was that the Petitioner may have been correct had the clause simply said that the venue of the arbitration will be at such place as L&T Finance may in its sole discretion decide. That would have rendered the entire clause void, and then there would be no designated venue/seat at all.

This reasoning is in line with the reasoning adopted by the Delhi High Court in Proddatur Cable TV Digi Services v. SITI Cable Network Limited in O.M.P. (T) (COMM.) 109/2019 decided on 20 Jan 2020 to decide the eligibility of a ‘Company’ referred to in an arbitration clause between the parties, which provided a unilateral right on the Company to appoint a Sole Arbitrator to adjudicate the disputes between the parties. Following the ratio of the ratio of Supreme Court in Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd2019 SCC Online SC 1517, the Delhi High Court observed that a unilateral appointment by an authority which is interested in the outcome or decision of the dispute is impermissible in law. It is noteworthy that in Perkins, the Supreme Court inter alia held that a person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator.

Thus, in view of the obiter of the Bombay High Court in this case, it will be interesting to see what will be the fate of an arbitration clause which confers a unilateral right on one party to decide the juridical seat/venue of arbitration as and when it is directly mooted before the Indian Courts.

[1] (2019) SCC OnLine SC 1585 at [85]

[2] at [63] to [84]

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

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