BY AANCHAL GUPTA, A FOURTH-YEAR STUDENT AT HNLU, RAIPUR
The arbitration regime in India has struggled with the seat v. venue debate for quite some time now. The ‘venue’ of arbitration proceeding determine where the proceedings will be conducted whereas the ‘seat’ of arbitration proceeding determines which court has a supervisory jurisdiction over the proceeding and which substantive law will be applicable to the proceeding. Issue arises when the arbitration agreement does not mention the specifics of the venue and seat. There is a long list of cases discussing the issue in International Commercial Arbitrations as well as Domestic Arbitrations. The Supreme Court recently made pertinent observations regarding this issue in the case of Quippo Construction Equipment Ltd. v. Janardan Nirman Pvt. Ltd. and held that objections regarding the place of arbitration are not significant in a domestic arbitration proceeding.
Background of The Case
The case involved four distinct agreements for the supply of construction equipment, containing arbitration clauses. Three of these agreements assigned New Delhi as the venue of arbitration whereas one stated Kolkata as the venue. When a dispute arose, the appellant gave notice invoking arbitration and a sole arbitrator was appointed to conduct the proceedings according to the Construction Industry Arbitration Association Rules. The respondent denied the existence of any agreement between the parties and chose not to participate in the arbitral proceedings. Instead an application initiating civil proceedings was moved in the District Court of Sealdah seeking injunction against conducting arbitration proceedings under Section 5 and Section 8 of the Arbitration and Conciliation Act, 1996 (‘the Act’). An ex-parte award was passed in the appellant’s favour covering claims under all of the four agreements. Aggrieved by the award, the respondent filed a petition for setting aside of the award under Section 34 of the Act but was rejected due to lack of jurisdiction. However, the High Court of Calcutta observed that the respondent was amenable to the jurisdiction of the court and sent the case back to the lower court. A revision petition was filed in the Calcutta High Court which was dismissed as not being maintainable. Aggrieved by this order, the appellant has preferred the instant appeal.
Decision of The Court
The SC held that the venue in an arbitration proceeding is of significance in an international commercial arbitration proceeding as it determines which crucial law would be applicable, however in the instant case, the substantive law applicable to the proceedings would be the same in either of the venues. Hence, the court held that the venue of arbitration is not significant in a domestic arbitration proceeding. According to the court, a change in the venue of a domestic arbitration proceeding within the territorial limits of the country will not make a difference on the proceedings as the substantive law applicable throughout the territory is the same.
Although prima facie the judgement of the court seems to be pro-arbitration for all the right reasons, on a closer look it reveals a problem. As a result the rules that can be adduced from the judgement lay on unsteady ground.
The court dismissed the set aside application filed by the respondent quoting ‘lack of jurisdiction’. The court determined that the seat of arbitration was at New Delhi based on the fact that arbitration proceedings were held at New Delhi and the award was made at New Delhi. The court stated that the venue of arbitration is only significant to determine the crucial substantive law that is applicable in the arbitral proceedings and in the instant case the substantive law applicable would be the same in either of the venues. However, the court failed to recognise that the choice of venue would result in the determination of the seat of arbitration and an essential consequence of the choice of seat would be the jurisdiction of the court.
The determination of the seat not only determines which crucial law would be applicable but is vital to determine which court has jurisdiction to set aside the award or make any order on other allied questions. In the instant case, the issue of venue and seat of arbitration is ambiguous. The four agreements between the parties with different venues were clubbed and an award was made which makes it difficult to determine the seat of arbitration clearly. No argument can be made to rely on a seat specified in one agreement as the arbitrator would have no jurisdiction to club all the agreements. The questions of jurisdiction of arbitrator and the selection of venue of arbitration are mixed and the court decides on the issue of waiver.
The SC in its earlier judgements regarding this issue has taken two different views. In the case of BGS SGS SOMA JV v. NHPC Ltd., the SC observed that choice of seat determines which court has the exclusive jurisdiction to deal with set-aside application or any other proceeding related matter. It held that the ‘venue’ of arbitration will be regarded as the ‘seat’ of arbitration in absence of any contrary indication. However, in the instant case one of the agreements related to arbitration designated Kolkata as the venue and seat of arbitration which clearly marks a contrary indication but the court did not consider the same and answered the question of the venue of arbitration partially.
In another case, Mankatsu Impex Pvt. Ltd. Vs Airvisual Ltd. , the SC made an observation on the question of place and seat of arbitration. They observed that the seat of arbitration cannot be decided on the basis of the place of arbitration and instead the seat should be decided by the conduct and agreement between the parties. However, in the instant case, the set-aside application of the respondent was rejected due to lack of jurisdiction. New Delhi was stated to be the seat of arbitration as the proceedings took place and the award was made there. The agreement between the parties also designated Kolkata as a venue for arbitration but it was neglected by the arbitrator and the court.
Suggestions and Conclusion
The SC in this case took steps towards a pro-arbitration approach in an attempt to make India arbitration friendly and hoped to strengthen the domestic arbitration system. The scope of judicial intervention in an arbitration proceeding was narrowed. The non-participation of parties in an arbitration proceeding is discouraged and the court did provide certain amount of clarity on the questions of waiver and time for raising objections regarding the arbitral process; however, the decision suffers from certain loopholes and the mixing up of issues which makes any rules carved out of it to stand on a steady ground. The court had an opportunity to settle the issue of ‘seat’ and ‘place’ of arbitration for once and for all but the court answered it partially and overlooked some important consequences. The issue needs to be tackled effectively soon to ensure that India is set out in on a pro-arbitration path.
Drafting of the arbitration clause –A well drafted arbitration clause that not only sets out the parties’ intentions but also mentions the specifics of the arbitration proceedings can tackle the entire problem. Changes can be made in the Act to state that an arbitration clause must be well drafted and to be effective must contain the disputes that can be arbitrated and clearly mention the place of arbitration along with the seat of arbitration to avoid confusion. It should also mention the governing law of the arbitration agreement, the number of arbitrators and the method for establishing the arbitral tribunal. These specifics will ensure that the parties do not squander with the questions of intent, ambit and application of the arbitration agreement. The focus should be resolution of the dispute through effective proceedings rather than the frustration of the agreement due to parties’ failure to mention the particulars clearly and this step also ensures that party autonomy is not interfered with.
Prima facie standard of review – In case a dispute regarding the seat and venue of arbitration arises between the parties, the court should undertake the prima facie standard of review. A prima facie enquiry is conducted by the court to ascertain the consequences of selecting a particular seat and whether this will affect any of the terms of the arbitration agreement. A seat which is in consonance with all the other terms of the agreement and does not violate any term which was decided according to common consensus between the parties is picked as the seat of arbitration. The Singapore High Court in the case of K.V.C Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd. applied the prima facie standard of review. In this case the bare arbitration clause did not specify the seat of arbitration and applying this standard, it was held that Singapore is the place and seat of arbitration in each of the cases. This step would effectively ensure that part autonomy is upheld in terms of other specifics of the agreement and a seat of arbitration can be decided.
There is an urgent need to put a rest to the issue of venue and seat of arbitration in domestic proceedings as well. Attempts made by the Indian system to be more arbitration friendly needs these specifics to be sorted out so that the focus of the parties is to resolve their dispute through an alternative mechanism outside the court rather than inevitably dragging the matter to the court.