Determining the Seat of an Arbitration

In the context of arbitration, the terms “seat” and “venue” have very specific meanings. However, judicial interpretation over the years have created confusion as to the actual understanding of the same. In India, over the course of the past two years, we have seen conflicting decisions with respect to interpretation of arbitration clauses and determining the “seat of the arbitration”. In light of that, the recent decision of the three-judge bench of the Supreme Court in Mankastu Impex Private Limited V Airvisual Limited^[1] (“Mankastu”) has attained utmost significance.

Seat of the Arbitration: An Overview

Determining the seat of an arbitration is akin to determining an exclusive jurisdiction clause.^[2] The “seat of the arbitration” determines the applicable law when deciding the arbitration proceedings and procedure as well as judicial review over the arbitration award. Whereas the term venue is the actual location as to where the arbitration proceedings take place. It is well-settled that “seat of arbitration” and “venue of arbitration” cannot be used inter-changeably.

Under the Arbitration and Conciliation Act, 1996 (“Act”), the term “seat” has not been defined and instead of the term “seat”, the term “place” has been used in the Act^[3]. Thus, while drafting arbitration clauses, one does not see the term “seat”, but rather, one would see that the place of arbitration is specified. When it comes to the interpretation of the terms “seat” and “place”, the Supreme Court’s decision in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. (“Balco”)^[4] provided conceptual clarity, wherein it was clarified that the term “place” used in Sections 20 (1) and (2) of the Act would mean “seat” and the term “place” used in Section 20(3) of the Act would mean “venue”.

In an international commercial arbitration, there is more to the meaning of the word “seat”.  In such a scenario, the juridical seat of arbitration would also attract the procedural law applicable to such a country.^[5] In an international commercial arbitration, when the parties choose a seat of arbitration in a particular country, the decision would automatically include with it submission to the laws of that country, including any mandatory provisions of its law on arbitration.^[6] 

Dispute in Mankastu

The dispute resolution clause between the parties in Mankastu specified that the agreement between the parties would be governed by Indian laws, and the courts of New Delhi would have jurisdiction. The clause further specified that if any dispute, controversy, difference that  arose out of or relating to the agreement, it was to be resolved by arbitration that was to be administered in Hong Kong. The clause further specified that the place of arbitration would be Hong Kong. The dispute resolution clause also granted parties the right to seek preliminary injunctive reliefs from the courts having jurisdiction before, during or after the pendency of any arbitration agreement.

After some disputes arose between the parties, the Petitioner filed a petition before the Delhi High Court under Section 9 of the Act seeking interim relief and even obtained an interim order in its favour and subsequently approached the Supreme Court under Section 11(6) of the Act for the appointment of a sole arbitrator. Thus, the question before the Supreme Court was that in view of the arbitration clause, whether the parties had agreed that the seat of arbitration is at Hong Kong and whether the Supreme Court lacked jurisdiction to entertain the petition.

Avoiding a Conflict

In 2018, the Supreme Court through a three judge bench in Union of India v. Hardy Exploration and Production (India)^[7] (“Hardy”) had held hat a “venue” can become a “seat” only if (i) no other condition is postulated; (ii) if a condition precedent is attached to the term “place”, the said condition  has to be satisfied first for “venue” to be equivalent to “seat”. However, in 2019, another three judge bench of the Supreme Court in BGS SGS SOMA JV v. NHPC Ltd.^[8] (“BGS”) held that the expression “arbitration proceedings” would make it clear that the “venue” is really the “seat of arbitration proceedings” as the aforesaid expression does not include just one or more single or part hearing but the arbitration proceedings as a whole including making of the award at that place. Further, the Supreme Court in BGS declared Hardy as bad law. However, given that both matters were decided by a three judge bench, there was a possibility of conflict, which the Supreme Court in Mankastu managed to avoid due to the dispute resolution clause in the agreement.

Seat: New Delhi or Hong Kong

The Supreme Court in Balco held that Part-I of the Act would have no application to international commercial arbitrations held outside India on the basis of Section 2(2) of the Act, which declares that Part I of the Act shall apply to all arbitrations which take place within India. Therefore, for Section 11 of the Act to be applicable in the case, the Supreme Court was required to determine whether the “seat of the arbitration” was New Delhi or Hong Kong.

The Supreme Court held that the expression “place of arbitration” cannot be the basis to determine the intention of the parties that they have intended that particular place as the “seat” of arbitration. To determine the intention of the parties as to the “seat” of the arbitration, the Court was required to determine the same from other clauses in the agreement and the conduct of the parties.

The arbitration agreement between the parties provided for Hong Kong as the “place of arbitration”. However, if this clause were to be read by itself would not be enough to determine Hong Kong as the “seat of the arbitration”. The other clause in the arbitration agreement provided for any dispute, controversy, difference arising out of or relating to the agreement to be referred to and finally resolved by arbitration administered in Hong Kong. Therefore, on a plain reading of the arbitration agreement, it was abundantly clear that the reference to Hong Kong as the “place of arbitration” was not a simple reference as the “venue” for the arbitral proceedings and the parties had agreed that the “seat of the arbitration” was Hong Kong, thus, the laws of Hong Kong would govern the arbitration proceedings. As a result, the Indian courts did not have any jurisdiction to appoint an arbitrator under Section 11 of the Act.

Conclusion

In Mankastu, the Supreme Court was faced with a situation where the seat of the arbitration could be determined from the arbitration agreement itself after determining the intention of the parties through other clauses of the arbitration agreement. However, to avoid any confusion in determining the “seat of the arbitration”, the “seat of the arbitration” should always be specified in the agreement itself.