This article has been written by Laghima Jain & Mahima Jain, 4th year Students pursuing B.COM. LL.B (Hons) from Institute of Law Nirma University, Ahmedabad.
The concepts of seat and venue in any arbitration proceedings are of crucial importance which helps in deciding the place of conducting the proceedings, the supervisory jurisdiction of courts and lex arbitri applicable to such proceedings. The controversy regarding the seat and venue of arbitration has been existing since the codification of Arbitration and Conciliation Act, 1996 (hereinafter "1996 Act"). Section 20 of the 1996 Act provides for the party autonomy to choose their place of arbitration for settling the dispute.
Place of arbitration includes the seat and venue of arbitration proceedings and the 1996 Act does not specifically distinguish between them. The place of arbitration is termed as juridical seat of arbitration which implies that the place where the courts have jurisdiction to enforce or give finality to the arbitral award as a civil decree. The seat of arbitration implies that the law of that particular land is applicable while passing the arbitral award. On the other hand, the venue of the arbitration is the place where the proceedings are being conducted.
The landmark judgment of BALCO v. Kaiser Aluminum Technical Service Inc., distinguished between the seat and venue of arbitration and stated that the term place of arbitration used in section 20 of the 1996 Act can be used interchangeably for the the term seat and venue of arbitration. The judgement provided the principle to determine the seat of the arbitration, referred as the Shashoua principle. The Shashoua Principle was formulated by Justice Cooke in the England and Wales High Court in the case of Roger Shashoua & Ors. v. Mukesh Sharma, which explains that, an agreement specifically assigns a place as venue without mentioning about the seat along with supranational body of laws, then the venue will be the seat of the arbitration.
In Union of India v. Hardy Exploration and Production (India) Inc., the arbitration agreement mentioned the venue of the arbitration as Kuala Lumpur and the procedural law applicable as the UNCITRAL Model Law on International Commercial Arbitration, 1985. After the award was passed in Kuala Lumpur, it was challenged before the Delhi High Court. It was contented that the agreement did not explicitly mention the seat of the arbitration and Kuala Lumpur was only the venue of arbitration. The Supreme Court held that the parties failed to choose the seat of arbitration and the arbitral tribunal did not determine the seat. The agreement stated Kuala Lumpur as venue of arbitration which does not imply that it is the seat of arbitration. In order to make the venue as seat of the arbitration, some additional concomitant has to be present. The Supreme Court in Hardy Exploration deviated from the principle of Shashoua.
In BGS SGS Soma JV v. NHPC Ltd., a bright line test was formulated for determining whether the venue of the arbitration is the seat of the arbitration. Through the bright line test, the court reaffirmed the Shashoua principle. A venue can be treated as seat when, the place in the arbitration agreement is termed as venue of the “arbitration proceedings”. The term arbitration proceedings implies that the hearing and the award shall be at the venue and it is then the venue can be considered as the seat of the arbitration of the use of the term ‘shall be held at a specific venue’ in the arbitration agreement for conducting arbitration proceedings indicates that the parties are considering the venue as the seat of the arbitration. The judgement provided that the venue shall be considered as seat in the absence of any “significant contrary indicia”.
In Mankastu Impex Pvt. Ltd. v. Airvisual Ltd., the Supreme Court considered the issue of deciding seat of the arbitration. In the arbitration agreement it was specifically mentioned that the place of arbitration shall be Hong Kong and the governing law of the Memorandum of Understanding were the laws of India and the courts of New Delhi shall have the jurisdiction. The Supreme Court affirming the decision of BSG SGS Soma JV, stated that the use of the term ‘place’ of arbitration does not signify that the intention of the parties to assign it as the seat of arbitration. The intention has to be determined by other clauses of the agreement and the action of the parties.
Online Dispute Resolution
Online Dispute Resolution (ODR) is a concept where the proceedings are held on an online platform, and therefore the issue regarding deciding the seat and the venue of arbitration is of more significant concern. For speedy disposal of the proceedings, the determination of arbitration's seat is an essential factor to avoid any delay in the enforcement of the award. If the seat and venue are specified in the agreement, then the adjudication of the proceedings will happen according to the party's seat. The issue of deciding a seat arises when there is no agreement in respect of that. ODR poses the issue of determining the jurisdiction where the parties can enforce or challenge the tribunal's award. It is still one of the significant concerns which need to be addressed with utmost care and caution.
ODR, an alternative to resolve the disputes amidst the pandemic, has commenced the debate related to the determination of seat or venue of arbitration proceedings and the substantive law's selection in the absence of the agreement for the same. The New York Convention laid down the method for determining the seat and venue of arbitration. The seat shall decide the substantive law governing the particular arbitration. Further, the relevant seat of arbitration can be taken as the nation in which the dispute arose, but it will create confusion in international arbitration where the parties may belong to two different countries, and the dispute may arise in the third country. The tribunal shall decide the relevant seat of arbitration if the agreement is silent on that part.
The arbitration clause or agreement is the only way to determine the seat and venue of the arbitral proceedings, even in the case of ODR. When the agreement is not explicit about the seat or venue, various issues arise in the ODR mechanism related to handling evidence, applying the substantive law, maintaining confidentiality virtually, jurisdictional issue, challenge, and enforceability of the award. Therefore, if the agreement is silent on the arbitration seat and venue, the tribunal should have the power to decide the seat and venue at the initial stage of the proceedings to avoid any issues at the later stage.