Author: Megha Nautiyal, II year of LL.B. from Campus Law Centre, University of Delhi
Introduction
Arbitration, a legal mechanism for resolving disputes outside the court system, entails the submission of the conflict to an impartial third party known as an arbitrator or arbitral tribunal. The governing legislation in India for the arbitration process is the Arbitration and Conciliation Act of 1996 [1], which is rooted in the UNCITRAL Model Law on International Commercial Arbitration.
In the present era, arbitration has become a preferred method for resolving commercial disputes, owing to its efficiency, flexibility, and confidentiality. Notably, arbitration provides a swifter and more cost-effective alternative to traditional litigation, which is often a protracted and exorbitant process. Additionally, parties to an arbitration proceeding exercise greater control over the process, including the appointment of arbitrators, the procedural rules, and the location of the proceedings.
What is the Seat v. Venue debate?
Unarguably, arbitration has gained considerable traction as a preferred dispute resolution mechanism, especially in the domains of commerce and international affairs. However, a considerable debate revolves around this legislation regarding the interpretation of the words “seat” and “venue”. The distinction between these two words can be a complex and nuanced issue with significant legal implications.
What is a Seat?
The "seat" of arbitration refers to the legal place that determines the governing laws that apply to the arbitration proceedings. It is the legal domicile of the arbitration proceedings and is usually determined by the arbitration agreement. The seat determines the arbitration law that will apply, the supervisory court that will have jurisdiction over the arbitration, and the procedural rules that will govern the arbitration process. The seat is often chosen by the parties to the arbitration agreement, and it can be located in any country or jurisdiction.
What is a Venue?
The "venue" refers to the physical location where the arbitration proceedings take place. It is usually chosen by the parties involved in the arbitration agreement or by the arbitrator, and it can be located in any jurisdiction or country that is deemed convenient by them.
Why is it important?
The determination of the seat and venue of arbitration is crucial in legal proceedings. The choice of seat determines the law that will apply to the arbitration proceedings. It can significantly affect the outcome of the case since different countries and jurisdictions have different laws, rules, and procedures.
The choice of venue can also have a significant impact on the outcome of a case. The choice of venue can impact the costs of legal proceedings. If the venue is located in a city or jurisdiction where the cost of living is high, it can significantly increase the expenses of the parties involved in the arbitration proceedings. Conversely, if the venue is located in a jurisdiction where the cost of living is low, it can significantly reduce the costs of arbitration proceedings.
Judicial Approach to the Debate
The issue of seat v. venue debate came to the forefront in the landmark decision of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 [2] (the BALCO case) in 2012. In this case, the arbitration agreement entered between the parties provided for the arbitration to be held in London and the governing law was English law. However, the arbitration clause specified that the proceedings would take place in New Delhi.
The Supreme Court of India while distinguishing between the words “seat” and “venue” of arbitration held that the physical location of the arbitration hearings does not necessarily determine the seat of arbitration. The Court also held that the determination of the seat of arbitration is a matter of substantive law and must be decided by examining the terms of the arbitration agreement, including the governing law and the choice of the arbitral institution, if any. Furthermore, the seat of the arbitration determines the lex arbitri or curial law that governs the arbitration proceedings, which includes the law of the arbitration agreement, the law of the seat, and any mandatory provisions of the law of the forum. Accordingly, the Court held that the arbitration proceedings, in this case, would be determined by English law, the seat court.
Another case that clarified the seat v. venue issue was the Enercon (India) Ltd. v. Enercon Gmbh, (2014) 5 SCC 1 [3] case in 2014. In this case, the arbitration agreement provided for the arbitration to be held in Zurich, Switzerland, and the governing law was Swiss law. However, the arbitration clause also stated that the venue of the arbitration would be New Delhi. The Supreme Court held that the seat of the arbitration was Zurich and Swiss law governed the arbitration proceedings. The court further held that the venue of the arbitration in New Delhi was merely a convenient location for the parties to hold the hearings and did not change the seat of arbitration.
In cases where the arbitration agreement does not explicitly specify the seat of arbitration, the courts will determine the seat of arbitration based on the factual matrix of the case, including the place where the arbitration agreement was signed, the place where the cause of action arose, and the place where the award was passed.
Recently in 2020, in Aarka Sports Management (P) Ltd. v. Kalsi Buildcon (P) Ltd., 2020 SCC OnLine Del 2077 [4], neither the seat nor the venue of arbitration was specified in the agreement. The question before the Hon’ble Delhi High Court was the determination of the seat court in such a situation. After due consideration, the Court held that if neither the seat nor the venue is specified, then such agreements would be determined according to Section 2(1)(e) of the Arbitration Act [5] read with sections 16 to 20 of the Code of Civil Procedure, 1973.
Factors to consider while determining the seat and venue
In ascertaining the seat and venue of arbitration, several crucial factors require due contemplation:
Firstly, the place of signing the arbitration agreement assumes significant importance as it may offer an indication of the parties' intended jurisdiction and venue for the arbitration proceedings.
Secondly, the place of cause of action warrants critical consideration as it denotes the location where the dispute has arisen, and therefore, may influence the choice of seat and venue.
Lastly, the place of award demands careful deliberation as it serves as a crucial determinant of the appropriate jurisdiction and venue for enforcing the arbitral award.
Prudent examination of these factors may facilitate informed decision-making concerning the seat and venue of the arbitration proceedings.
Conclusion
In conclusion, the distinction between the seat and venue of arbitration is an important issue in Indian arbitration law. The BALCO and the Enercon cases have established that the determination of the seat of the arbitration is a matter of substantive importance and must be decided based on the terms of the arbitration agreement. It was also established that the seat is determined by the governing law of the arbitration agreement, while the venue is simply the location where the arbitration hearings take place. However, the issue continues to be a matter of debate, particularly in cases where the arbitration agreement does not explicitly state the seat of the arbitration. As such, parties should carefully consider and draft their arbitration agreements to include clear provisions regarding the seat and venue of arbitration to avoid any ambiguity and potential disputes.
Endnotes