The critical significance of “Seat”, particularly in International Commercial Arbitration in the present prevalent regime of “localized arbitration”, is more or less settled.
Even the test resorted to, i.e., the “closest and most intimate connection” test, for the purpose of determining the “Seat” in International Commercial Arbitration, when parties to the lis have not expressly agreed to one, has also been uniformly recognized globally. In fact, most of the statute in the world, including the Indian Arbitration Law, i.e. the Arbitration & Conciliation Act, 1996 have, in one form or the other, articulated the said test in their respective statute.
Interestingly, the UNCITRAL Model Law, at its draft stage, in Article 20 initially provided that “Failing such Agreement, the place of arbitration shall be determined by the Arbitral Tribunal”. But, the final version of the said article added the genesis leading to formulation of aforesaid test, in the following words, at the end of the said draft article: “having regard to the circumstances of the arbitration, including the convenience of the parties”, at the suggestion of the representative of India, which proposal found considerable support. [Summary record of the discussions held on 13.06.1985 leading to the Commission Report – A/40/17 (21.08.1985) adopting Article 20 as so amended].
What is being sought to be discussed in the present piece is whether, in an International Commercial Arbitration, with the governing law of arbitration being the Arbitration & Conciliation Act, 1996, is it legally permissible for the Arbitral Tribunal or the Court to undertake the exercise of determining the “Seat”, even though the parties to the lis have expressly agreed to a place of arbitration, on the ground that the said pre-agreed place is not the “Seat” but really the “venue” in which the parties have agreed that the hearing should take place.
As law declared by the Supreme Court stands today, the said issue stands answered in the affirmative.
The Supreme Court in the case of Enercon (India) Ltd. Vs. Enercon GMBH – (2014) 5 SCC 1, has not only undertaken the said exercise of determining the “Seat” of arbitration and that too by employing the aforesaid “closest and most intimate connection” test, even though the agreement between the parties expressly provided that “venue shall be in London”, but went ahead and held that “the seat of arbitration would be in India and London would only be the venue to hold the proceedings of arbitration”.
It is true that on applying the said “closest and most intimate connection” test in the facts of Enercon (India) Ltd case, namely, the law governing the arbitration; the substantive law of contract; as well as curial law being the Indian Law, the result which was arrived at by the Supreme Court in the said case may be correct.
But, that still does not justify the Supreme Court to in fact undertake the said exercise and hold India and not London to be the “Seat” when admittedly there was an express pre-fixed agreement between the parties as to the venue being London.
The Supreme Court did not consider the scheme of the Arbitration & Conciliation Act, 1996, particularly Section 20 of the Act in its correct perspective.
(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 witnesses, experts or the parties, or for inspection of the documents, goods or other property.
The Supreme Court did not notice that the provisions dealing with “Seat” and “Venue” under the English Law were materially different from the corresponding scheme under the Arbitration & Conciliation Act, 1996.
3: The seat of the arbitration.
In this Part “the seat of the arbitration” means the juridical seat of the arbitration designated—
(a) by the parties to the arbitration agreement, or
(b) by any arbitral or other institution or person vested by the parties with powers in that regard, or
(c) by the arbitral tribunal if so authorised by the parties,
or determined, in the absence of any such designation, having regard to the parties’ agreement and all the relevant circumstances.
(1) It shall be for the Tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree to any matter.
(2) Procedural and Evidential matters include-
(a) When and where any part of the proceedings is to be held;
(b) ……………………. …………….. ……………..
“Amendment of Section 20-
(i) In Sub-section (1), after the words "agree on the" delete the word "place" and add words "seat and venue"
(ii) In Sub-section (3), after the words "meet at any" delete the word "place" and add word "venue".
[NOTE: The departure from the existing phrase "place" of arbitration is proposed to make the wording of the Act consistent with the international usage of the concept of a "seat" of arbitration, to denote the legal home of the arbitration. The amendment further legislatively distinguishes between the "[legal] seat" from a "[mere] venue" of arbitration.]”
The Supreme Court, in another case of Indus Mobile Distribution Pvt. Ltd. Vs. Datawind Innovations Pvt. Ltd. – (2017) 7 SCC 678, while dealing with a purely domestic arbitration has interpreted the provision under “Dispute Resolution Mechanism” in the relevant contract in question, namely, “such arbitration shall be conducted at Mumbai…”, in the following terms:
“A conspectus of all the aforesaid provisions shows that the moment the Seat is designated, it is akin to an exclusive jurisdiction clause. On the facts of the present case, it is clear that Seat of Arbitration in Mumbai and clause 19 further makes it clear that jurisdiction exclusively vests in the Mumbai Courts”.
The said declaration of law, in the context of purely domestic arbitration, may not be correct.
The aforesaid conclusion was arrived at by the Supreme Court by relying upon passages of an earlier Constitution Bench judgment of the Supreme Court in Bharat Aluminium Company Ltd. Vs. Kaiser Aluminium Technical Services, Inc. – (2012) 9 SCC 552, as well as the finding to the aforesaid effect as to exclusive jurisdiction clause in another but later Supreme Court judgment in the case of Enercon (India) Ltd. Vs. Enercon GmBH – (2014) 5 SCC 1.
In so far as the said Constitution Bench judgment in Bharat Aluminium Company case is concerned, the passage therein (para 123 of SCC) on which reliance was placed upon in Indus Mobile case, in turn, is inspired by the following observations:
“In the aforesaid case, the Court of Appeal had approved the observations made in A Vs. B, (2007) 1 All ER (Comm.) 591, wherein it is observed that:
‘….. an agreement as to the seat of an arbitration is analogous to an exclusive jurisdictional clause. Any claim for a remedy….. as to the validity of an existing interim or final award is agreed to be made only in the Courts of the place designated as seat of arbitration’.
In so far as the case of Enercon (India) Ltd. is concerned, therein the Supreme Court did hold that (para 138 of SCC) “once the seat of arbitration has been fixed in India, it would be in the nature of exclusive jurisdiction to exercise the supervisory power over the arbitration”; but, in the very next sentence, the Supreme Court followed it up with a significant observation that “this view of ours will find support from the judgment of the Court of Appeal in England in recognizing the difficulties that the parties will face in case of Courts in India and England have concurrent jurisdiction”.
It is thus clear that the reasoning of the Supreme Court in the case of Indus Mobile case, while arriving at the conclusion as to Mumbai Courts having exclusive jurisdiction and such a clause being akin to an exclusive jurisdiction clause, in the first place, was actuated on account of importing the reasoning given in the context of international commercial/ foreign arbitration to a purely domestic arbitration.
This is clearly a mistake.
In the case of an international commercial/foreign arbitration, the role of seat, is very critical and, as discussed above in Part-I, seat is the center of gravity of any arbitration proceedings particularly in the present regime of “localized arbitration”; whereas, the said significance of seat is not relevant in a purely domestic arbitration in India, where the law governing the arbitration, both the substantive as well as the curial facet, is uniform across the country (sans) Jammu & Kashmir; and the same does not really depend upon whether the Arbitration is being held and/or the seat of arbitration is in Mumbai or Chennai or Delhi or for that matter Meghalaya.
The said concept of exclusive jurisdiction in a case of international commercial/foreign arbitration is also evident from the manner in which Art. V(1)(e) of New York Convention, ostensibly providing for two alternative Courts, namely, Courts in the country “in which the award was made” and the Courts under the law of which “the award was made”, has been interpreted.
Even though the said two Courts have been held to be “the first alternative” and the “second alternative”, respectively, it has been consistently interpreted and so has been the consistent view of the international commentators that the “second alternative” relates exclusively to the procedural law arbitration which produced the award and not to other possible laws (such as the substantive law governing the parties to the dispute or the law governing the parties’ arbitration agreement) and the Courts have generally been extremely reluctant to conclude that the parties have agreed upon the procedural law other than that of the arbitral seat. Consequently, although it is theoretically possible for an award to be subject to annulment outside the arbitral seat, by virtue of Art. (V)(1)(e) (second alternative), in reality, this is highly unusual, once in a blue moon occurrence. ( paras 133,136,144-146 of BALCO)
In fact, in case of Part-I arbitration, the Court having jurisdiction in the context of purely domestic arbitration is defined in Section 2(1)(e) of the Arbitration & Conciliation Act, 1996. The said definition of “Court”, and that too in the context of Section 20 of the Act, dealing with “place of arbitration” has, in turn, been interpreted by the Constitution Bench judgment in the BALCO case in the following terms:
“96 …… In our view, the legislature has intentionally given jurisdiction to two courts, i.e. the Court which would have jurisdiction where the cause of action is located and the Courts where the arbitration takes place….. In such circumstances, both the courts have jurisdiction, i.e. the Court within whose jurisdiction the subject matter of the suit is situated and the Courts within whose jurisdiction of which the disputed resolution i.e. arbitration is located”.
The said clear enunciation of law viz-a-viz a pure domestic arbitration also seems to have missed the attention of the Supreme Court while making the aforesaid declaration in the case of Indus Mobile.
The said view in Indus Mobile would also render S. 42 of the Arbitration and Conciliation Act, 1996 otiose in as much as in every arbitration particularly under “localised arbitration” regime, there would always be a seat of arbitration. In which case, it would be the Court of the said seat, which, as per Indus Mobile judgment, would have exclusive jurisdiction. Hence, the question of any party approaching any other Court would not arise and therefore the significance of the Court which has been “first approached”, namely, it having jurisdiction over other Courts for future recourse, something otherwise expressly contemplated in S. 42 of the Arbitration and Conciliation Act, would never come into play.
Ramesh Singh is an Advocate; currently Standing Counsel, GNCTD
[The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of LiveLaw and LiveLaw does not assume any responsibility or liability for the same]