Seat vs Venue

Introduction

Arbitration is a dispute resolution procedure wherein the parties engaged in a dispute stipulate the involvement of a neutral third party who makes a decision as to the conflict which bears a binding effect upon such parties. By relying upon the process of arbitration, the parties opt for a method of resolution that is inherently private, instead of choosing to go to court. It was by virtue of the Indian Arbitration Act 1899 that the concept of arbitration was introduced to India for the first time, clothing it in the solemn garb of statute. The concept of arbitration has, since then, undergone manifold developments.

The following are some key characteristics of the process of arbitration:

• It is consensual
• The duty to appoint arbitrators falls upon the parties
• It is neutral
• It is a confidential procedure
• The final decision is binding on all the parties involved

Seat of Arbitration

A seat of arbitration refers to the legal jurisdiction which is deemed to wield the governing authority over the arbitral proceedings. It determines the law to be applied to the arbitral procedure and is also known as the situs of arbitration. It, therefore, becomes crucial to specify the seat of arbitration clearly when drafting the arbitration clause of an agreement. Any ambiguity in this regard may lead to confusion between the parties entering into an agreement.

Venue of Arbitration

While the seat of arbitration is an indicator of the legal jurisdiction, the venue of an arbitration refers to the geographical location where the arbitration is to be conducted. It denotes the location where the arbitral proceedings are to be held.

Seat vs Venue

The Arbitration and Conciliation Act of 1996 provides little clarity as to the definition of these terms or the differences between them. Therefore, for the longest time, the problem of seat and venue of arbitration stood as the foremost point of contention among the Indian Courts.

The position of the Indian Judiciary on the issue of seat of arbitration and the venue of arbitration remained, for long, largely unclear despite the Supreme Court’s attempts to settle the law on this matter. Since the use of the terms ‘Venue’ and ‘Seat’ is far more prevalent in commercial agreements, those arbitration agreements that are marred by inelegant drafting fail to substantiate the actual Seat and Venue of arbitration. It may further be noted that on account of the fact that these terms are used interchangeably, conflicts arising out of such vague and ambiguous agreements are ineluctable.

The Shashoua Principle

 The Shashoua Principle, in the context of arbitration, implies that where agreements providing for arbitration designate a place as the venue of arbitration but offers no designation as to the seat of arbitration, then such venue of arbitration may also be considered to be the seat of arbitration if there is a want of any indications to the contrary. Naturally, in order for an adjudicating authority to determine the seat of arbitration in such cases, regard must be had to various factors, inter alia, the conduct of the parties, their intentions and the like. This principle comes from the case Roger Shashoua and Others vs. Mukesh Sharma ET. AL. which was decided by the Court of England and Wales.

In the said case, there existed an arbitration agreement which was entered into by the two parties. This agreement designated London as the venue of arbitration but it provided little guidance as to the determination of the seat of arbitration. The agreement stated, however, that the agreement was to be governed in accordance with the Indian laws. In consideration of the facts of the case, the Court held that when there is an express designation of the arbitral venue along with the mention of the governing laws but no alternative place is designated as the seat, the venue is to be considered to be the seat of the arbitration in the absence of any contrary indicia, which is an indication to the contrary. This came to be known as the ‘Shashoua Principle’.

The Stance of the Supreme Court

The first judgement rendered by an Indian Court which elaborately discussed the concepts of “Seat” and “Venue” and set-out distinguishing parameters was in the matter of BALCO vs. Kaiser Aluminium Technical Services Inc. wherein the Supreme Court adopted the famous ‘Shashoua Principle’. The underlying principle was that the exclusive jurisdiction was to be conferred upon the courts of the place which has been designated as the venue of the arbitration in cases where there was no mention of the seat of arbitration and where there was an absence of contrary indicia.

In yet another case, Enercon India Ltd. and Ors. v. Enercon GmbH and Anr., where the designated venue of arbitration was London, since it was observed that the parties had agreed that the substantive law governing the agreement was to be Indian, the Supreme Court held that this amounted to contrary indicia, as propounded under the Shashoua Principle. Thus, London was ultimately held to be only the venue of arbitration and not the seat.

However, the Court deviated from this view in the case Union of India v. Hardy Exploration and Production (India) Inc., where the agreement designated Kuala Lumpur to be the venue of arbitration and it stipulated Indian laws to be the governing authority. The Supreme Court declared that a designated venue would not automatically assume the status of a seat unless it satisfies the condition attached to such venue.

Interestingly, the Court’s judgment in Mankatsu Impex Private Limited v. Airvisual Limited added to the prevailing lack of clarity on the matter of seat vs issue. The Court was called upon to adjudicate a dispute which involved a Memorandum of Understanding stating that the memorandum itself was to be governed in accordance with the laws of India and that the courts at New Delhi would have jurisdiction. It further stated that the disputes were to be referred to and resolved in Hong Kong. The issue framed before the Court was, therefore, was to determine whether the seat of arbitration would be Hong Kong or New Delhi. The Court observed that the mere expression of a venue of arbitration does not indicate the intention of establishing it as the seat of arbitration. The designation of the seat is to be determined from the other clauses of the agreement and the conduct of the parties.

In Arif Azim Co. Ltd. v. Micromax Informatics FZE, the Supreme Court reaffirmed the settled distinction between the seat and venue of arbitration. The Court held that where the arbitration clause in agreements specifies a foreign location as the “venue,” incorporates foreign arbitral rules, and manifests no contrary intent, such designation must be construed as the juridical seat of arbitration. Consequently, the supervisory jurisdiction lies with the courts of that country, thereby reinforcing the Shashoua Principle.

Conclusion

The cloud of uncertainty that once loomed over the realm of arbitration has, at length, dispersed. The Judiciary has, through its judgments has greatly illumined the distinction between the seat of arbitration and the venue of arbitration, thereby restoring a sense of clarity to the landscape of Indian arbitration. It would prove most prudent to acknowledge and address the challenges that continue to stand as an impediment such as procedural efficiency, greater consistency in the enforcement of awards, et cetera. However, the resolution of the matter also serves to demonstrate the country’s resolve to foster an environment wherein arbitration may flourish unhindered.

Author:–Chinmay Nayak.,  in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.