Supreme Court of India: ‘Place’ is not always ‘Seat’ of Arbitration

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The seat of arbitration is a vital aspect of any arbitration proceedings. Significance of the seat of arbitration is that it determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award. The situs is not just about where an institution is based or where the hearings will be held. But it is all about which court would have the supervisory power over the arbitration proceedings. It is well-settled that “seat of arbitration” and “venue of arbitration” cannot be used inter-changeably. But does similar analogy applies between ‘place’ of arbitration and ‘seat’. This question was answered recently by the Supreme Court of India in Mankastu Impex Private Limited v. Airvisual Limited Arb Pet. No. 32 of 2018 decided on 5 March 2020.

In this case, the Supreme Court was called upon to decide an application under Section 11(6) of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) for the appointment of an arbitrator in an international commercial arbitration. The Arbitration clause in question provided ‘place’ of arbitration as Hong Kong. The Applicant Indian party urged before the Court that the seat of arbitration is Delhi since the underlying contract i.e. MoU in the instant case is governed by the laws of India and the Courts at New Delhi have the jurisdiction as per the dispute resolution clause. Per contra the simple submission of the Respondent was that by agreeing for the place of arbitration as Hong Kong the parties have agreed for the juridical seat of arbitration as that place and since the place of arbitration is outside India an application under Section 11 for the appointment of arbitration shall not lie before the Supreme Court of India.

The Governing law and the dispute resolution clause in the underlying MoU read as under:-

17 Governing Law and Dispute Resolution

17.1 This MoU is governed by the laws of India, without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction.

17.2 Any dispute, controversy, difference or claim arising out of or relating to this MoU, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered in Hong Kong.

The place of arbitration shall be Hong Kong.

The number of arbitrators shall be one. The arbitration proceedings shall be conducted in English language.

17.3 It is agreed that a party may seek provisional, injunctive, or equitable remedies, including but not limited to preliminary injunctive relief, from a court having jurisdiction, before, during or after the pendency of any arbitration proceeding.

In view of the above clause, the applicant argued that in the absence of the clear stipulation as to the proper law and curial law of the arbitration, laws of India should be taken as the proper law and curial law under the MoU.

The Court while deciding the issue observed that Section 2(1)(f) of the Arbitration Act defines “International Commercial Arbitration”. As per Section 2(1)(f), to be an “International Commercial Arbitration”, three factors ought to be fulfilled – (i) arbitration; (ii) considered as commercial under the laws in force in India; and (iii) at least one of the parties is national or habitual resident in any country other than India. In the present case, since the Respondent was incorporated under the laws of Hong Kong, the Court was concerned with “International Commercial Arbitration”.

Further, as per Section 2(2) of the Arbitration Act, Part-I (in which Section 11 is contained) shall apply where the place of arbitration is in India. If the “International Commercial Arbitration” is seated in India, then Part-I of the Act shall apply. The interpretation of Section 2(2) of the Arbitration Act was considered by the Constitution Bench in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc.[1]wherein it was inter alia held that Part-I of the Arbitration Act would have no application to “International Commercial Arbitrations” held outside India.

The Court observed that mere expression “place of arbitration” cannot be the basis to determine the intention of the parties that they have intended that place as the “seat” of arbitration. The intention of the parties as to the “seat” should be determined from other clauses in the agreement and the conduct of the parties.

In the present case, the arbitration agreement entered into between the parties provides Hong Kong as the place of arbitration. The agreement between the parties choosing “Hong Kong” as the place of arbitration by itself will not lead to the conclusion that parties have chosen Hong Kong as the seat of arbitration. The words, “the place of arbitration” shall be “Hong Kong”, have to be read along with Clause 17.2. Clause 17.2 provides that “….any dispute, controversy, difference arising out of or relating to the MoU “shall be referred to and finally resolved by arbitration administered in Hong Kong…..”. On a plain reading of the arbitration agreement, it is clear that the reference to Hong Kong as “place of arbitration” is not a simple reference as the “venue” for the arbitral proceedings; but a reference to Hong Kong is for final resolution by arbitration administered in Hong Kong. The agreement between the parties that the dispute “shall be referred to and finally resolved by arbitration administered in Hong Kong” clearly suggests that the parties have agreed that the arbitration be seated at Hong Kong and that laws of Hong Kong shall govern the arbitration proceedings as well as have power of judicial review over the arbitration award.

The words in Clause 17.2 that “arbitration administered in Hong Kong” is an indicia that the seat of arbitration is at Hong Kong. Once the parties have chosen “Hong Kong” as the place of arbitration to be administered in Hong Kong, laws of Hong Kong would govern the arbitration. The Indian courts have no jurisdiction for appointment of the arbitrator.

Clause 17.1 of the MoU stipulates that the MoU is governed by the laws of India and the courts at New Delhi shall have jurisdiction. The interpretation to Clause 17.1 shows that the substantive law governing the substantive contract are the laws of India. The words in Clause 17.1 “without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction” has to be read along with Clause 17.3 of the agreement. As per Clause 17.3, the parties have agreed that the party may seek provisional, injunctive or equitable remedies from a court having jurisdiction before, during or after the pendency of any arbitral proceedings.

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In nutshell, if one has to demarcate ‘place’, ‘venue’ and ‘seat’ then following diagram may help to understand the difference.

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Thus, in a given situation, ‘place’ can be a convenient place to hold arbitration proceedings which then makes ‘place’ as ‘venue’ but in that case it is not the juridical seat of arbitration. ‘Place’ can also be ‘seat’ of arbitration if there exists no contrary indicia like different curial law of arbitration but again as we have seen the expression ‘place’ cannot in all circumstances connotes juridical seat though Model law and Arbitration act use the expression ‘place’ as seat at many places. Classic example is Section 20 of Arbitration Act which reads as under:-

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

(2) Failing any agreement referred to in subsection (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.

(3) Notwithstanding subsection (1) or subsection (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing winners, experts or the parties, or for inspection of documents, goods or other property.

The expression ‘place’ in subclause 1 & 2 above means juridical seat of arbitration whereas the same expression in subclause 3 denotes venue. Thus, what is reasonable to infer that ‘place’ is a wider set which encompasses ‘venue’ and ‘seat’ depending on the context in which it is used subject of course of contrary indicia, if any, agreed by the parties in their underlying contract.

In essence, the genesis of what has been observed in this case by the Supreme Court of India maybe traced from English Authorities. In Braes of Doune Wind Farm (Scotland) Limited v. Alfred Mcalpine Business Services Limited [2008] EWHC 426 (TCC), the clause in scrutiny read as under:-

“1.4.1. The Contract shall be governed by and construed in accordance with the laws of England and Wales and, subject to Clause 20.2 [Dispute Resolution], the Parties agree that the courts of England and Wales have exclusive jurisdiction to settle any dispute arising out of or in connection with the Contract.

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(c) This arbitration agreement is subject to English Law and the seat of the arbitration shall be Glasgow, Scotland. Any such reference to arbitration shall be deemed to be a reference to arbitration within the meaning of the Arbitration Act 1996 or any statutory re-enactment.”

The English High Court interpreted the above clause to mean that the parties’ express agreement that the “seat” of arbitration was to be Glasgow, Scotland must relate to the place in which the parties agreed that the hearings should take place. However, by all the other references the parties were agreeing that the curial law or law which governed the arbitral proceedings was that of England and Wales. Although authorities establish that, prima facie and in the absence of agreement otherwise, the selection of a place or seat for an arbitration will determine what the curial law or “lex fori” or “lex arbitri” will be, where in substance the parties agree that the laws of one country will govern and control a given arbitration, the place where the arbitration is to be heard will not dictate what the governing or controlling law will be.

It is common for laws, rules and commentaries to use “place” and “seat” of arbitration interchangeably. However, “seat” seems preferable to “place” as it reflects more accurately the juridical nature of the concept, the nexus between territorial attachment and applicable law. It is “a legal construct, not a geographical location. The arbitral seat is the nation where an international arbitration has its legal domicile or juridical home”. Reference to the “seat” also helps to differentiate juridical attachment from the physical place where hearings and meetings are held (i.e. the venue), thus avoiding ambiguity and the potential for arguments about the intended location of the seat where arbitration agreements are poorly drafted in this respect (as regularly seen in practice). The Model Law and most arbitration rules draw a clear distinction between the seat of arbitration and the venue for hearings and meetings, and provide that the latter may change according to convenience without affecting the underlying connection to the seat.[2]

[1] (2012) 9 SCC 552

[2] Lex Arbitri, Procedural Law and The Seat of Arbitration: Unravelling the Laws of the Arbitration Process (2014) 26 SAcLJ 886 at [16]

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

4 Comments Add yours

  1. Utkarsh Khandelwal says:

    A well articulated and informative post. However, I have a couple of concerns. Firstly, with the current judgement requiring a Significant Indicia along with designation of Place, is this not in congruence with the Hardy approach to determine seat afterall?
    Secondly, my query arises over your Venn diagram demarcating Place, Venue and Seat. In what case would a Place of arbitration not be a venue or seat?

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  2. Dear Utkarsh,

    Thank you for your kind words and queries.

    In respect of the first concern raised by you, I want to highlight that albeit the word used in Hardy Exploration was ‘concomitant’, it in a way infers an ‘indicia’ only. If one has to sum up ratios of Hardy, BGS and Mankastu, it will be reasonable to infer that the place, seat and venue has to be adjudged not merely by their nomenclature simpliciter but other factors such as curial law of arbitration, use of place as a convenient place of meeting i.e. venue, needs to considered as well which then maybe termed as ‘concomitant’ as referred to in Hardy or ‘contrary indicia’ as used in BGS or ‘indicia’ as used in Mankastu.

    In respect of your second query, I would like to draw your attention to a scenario where say ‘place’ of arbitration is mentioned as India but the curial/proper law of arbitration is agreed by the parties to be say the English law. In such a scenario, the term ‘place’ may itself not be treated as ‘seat’ rather a convenient place of meeting i.e. ‘venue’. This reasoning finds its genesis in the English case of Braes of Doune Wind Farm (Scotland) Limited v. Alfred Mcalpine Business Services Limited [2008] EWHC 426 (TCC) cited in the above post as well wherein the ‘seat of arbitration’ was mentioned as Glasgow, Scotland in the arbitration clause. However, on consideration of contrary indicia/concomitants (if I may use the terms from Hardy and BGS), it was ultimately held that Glasgow Scotland was not the juridical seat of arbitration rather it was a venue for meeting. Similar view was taken by the Singapore Court of Appeal in the celebrated case of PT Garuda Indonesia v Birgen Air [2002] 1SLR393 wherein the terms of reference provided for the ‘place’ of arbitration to be Jakarta but due to unrest in Jakarta, the parties agreed to the suggestion of the Arbitral tribunal that Singapore should be the place for the hearing. In latter reference, Singapore as ‘place’ was held to be mere ‘venue’ of hearing and not juridical seat of arbitration.

    You may further consider reading on delocalisation of seat in international commercial arbitration to understand this concept further.

    Hope I have answered your queries.

    Thank you.

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  3. Utkarsh Khandelwal says:

    Thank you for replying, Sir.
    From what I understand you’ve tried to harmoniously interpret BGS, Hardy and Manakastu.
    That, in my understanding is problematic.
    Justice Nariman in BGS had emphatically emphasized on the fact that the concomitant factors/Significant Indicia theory to determine seat is against the Roger Shoshua judgement and also BALCO(where Shoshua was relied upon), hence is bad law.
    BGS clarifies that a place would be considered seat only if there are No Contrary Indicia. The logic behind BGS and Hardy seem quite the opposite.
    In Mankastu, there is no mention of searching for a Contrary Indicia against the place, but they affirm the seat to be HK using a Significant Indicia (clause 17.2 of the MoU). So to that extent is Mankatsu not tipping more towards the Hardy spectrum of things?

    To clarify my second query,
    I meant, in which case would a place of arbitration neither be a seat nor a venue. As per the Venn diagram.

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  4. Hello Utkarsh,

    Thank you for your comment.

    At the outset, the question which is yet to be answered with precision by, may be, the Constitution Bench of the Supreme Court of India is whether a coordinate bench can override a judgment of another coordinate bench of the Supreme Court. As contended, and I believe quite rightly, by Mr. Vikas Dutta in Mankastu when both the judgments i.e. Hardy and BGS were by Bench of equal strength, it was not open to the Bench rendering the decision in BGS to hold that the decision in Hardy was incorrect and the learned Bench in BGS Soma ought to have referred the matter to larger Bench otherwise the whole concept of referring matters to a larger bench, in my view, may end up in vain. This, in a way, is direct attack to the doctrine of binding precedent and leaves the said doctrine as toothless tiger.

    Next, to explain my last comment, I would like to put the principle enunciated in Hardy at [33] as follows:-

    Venue + ‘concomitant’ = Seat (Let’s take this equation as ‘A’)

    As to what would be a concomitant has been dealt with in the case of Roger Shashoua and Ors. vs. Mukesh Sharma and Ors (2017) 14 SCC 722, wherein after elaborately referring to the judgment in Enercon (India) Ltd. v. Enercon GmbH (2014) 5 SCC 1, wherein referring to the judgment in the case of Roger Shashoua by the High Court of Justice, Queen’s Bench Division Commercial Court, Royal Courts of Justice, London, it was laid down as under:-

    46. As stated earlier, in Shashoua Cooke, J., in the course of analysis, held that “London arbitration” is a well known phenomenon which is often chosen by foreign nationals with a different law, such as the law of New York, governing the substantive rights of the parties and it is because of the legislative framework and supervisory powers of the courts here which many parties are keen to adopt. The learned Judge has further held that when there is an express designation of the arbitration venue as London and no designation of any alternative place as the seat, combined with a supranational body of Rules governing the arbitration and no other significant contrary indicia, the inexorable conclusion is that London is the juridical seat and English law the curial law.

    It can thus be stated as follows:-

    Venue + ‘no other significant contrary indicia’ = Seat (Let’s take this equation as ‘B’)

    Coming to BGS at [63], [84] what Justice Rohinton stated (and which is not in line with your comment “on the fact that the concomitant factors/Significant Indicia theory to determine seat is against the Roger Shoshua judgement”) was as under:-

    63. It will thus be seen that wherever there is an express designation of a “venue”, and no designation of any alternative place as the “seat”, combined with a supranational body of Rules governing the arbitration, and no other significant contrary indicia, the inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding

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    84. On a conspectus of the aforesaid judgments, it may be concluded that whenever there is the designation of a place of arbitration in an arbitration Clause as being the “venue” of the arbitration proceedings, the expression “arbitration proceedings” would make it clear that the “venue” is really the “seat” of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. This language has to be contrasted with language such as “tribunals are to meet or have witnesses, experts or the parties” where only hearings are to take place in the “venue”, which may lead to the conclusion, other things being equal, that the venue so stated is not the “seat” of arbitral proceedings, but only a convenient place of meeting. Further, 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.

    Thus the above underlined observations of Justice Rohinton in BGS can be written as under:-

    Venue + ‘no other significant contrary indicia’ = Seat (Let’s take this equation as ‘C’)

    Next coming to Mankastu, it was held at [22], as you rightly mentioned is that the words in Clause 17.2 “arbitration administered in Hong Kong” is an indicia that the seat of arbitration is at Hong Kong. Thus the ratio can be written as under:-

    Place + ‘indicia’ = Seat (Let’s take this equation as ‘D’)

    From the equations A, B, C, D above, it can be inferred (as I mentioned in my last comment as well) that the expressions ‘venue’, ‘place’ simpliciter and even in some circumstances the word ‘seat’ for that matter when used in solitude (see Braes of Doune) may not be taken as juridical seat of arbitration and to adjudge whether the terms ‘venue’, ‘place’ and ‘seat’ are juridical seat of arbitration or not, other factors such as ‘concomitant’, ‘significant contrary indicia’, ‘indicia’ may have to be taken into account as a whole. I think this is the best I can describe and explain my last comment.

    In respect of your second query, I believe I was not able to make myself clear from the diagram that I have made in the above post. What I was trying to portray from the diagram is that ‘place’ (as used in Model Law as well as the Indian Arbitration Act more precisely Section 20) is a larger concept which may, depending on other factors be taken as the centre of gravity of arbitration. Thus, as the diagram shows, ‘place’ is a larger set of which ‘seat’ or ‘venue’ can form sub-sets basis consideration of other factors in totality. In this regard, I reiterate the classic example of Section 20 of the Indian Arbitration Act which reads as under:-

    (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.
    (3) Notwithstanding sub–section (1) or sub–section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing winners, experts or the parties, or for inspection of documents, goods or other property.

    You will appreciate that under Indian law, the expression ‘place’ in sub-clauses 1 & 2 above means ‘seat’ of arbitration whereas the same expression in sub-clause 3 denotes ‘venue’. Thus, what is reasonable to infer is that ‘place’ is a wider set which encompasses ‘venue’ and ‘seat’ depending on the context in which it is used subject of course to other factors, if any, agreed by the parties in their underlying contract. Thus, by way of this diagram, I was not referring to any situation where place of arbitration can neither be ‘seat’ nor ‘venue’. Otherwise I would not have made ‘seat’ and ‘venue’ as sub-sets of ‘place’ in the diagram. In simple words, I intended to convey that ‘place’ may subsume ‘venue’ and ‘seat’ based on other factors as discussed above.

    Thank you.

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