Anshul Ramesh

Keywords: Place, Seat, Venue, Lex Arbitri, Party Autonomy.

Introduction

Arbitration, an Alternate Dispute Redressal mechanism, was introduced as a substitute for Courts. In further pursuance came the Arbitration Act, 1940, followed by the Arbitration and Conciliation Act, 1996 (hereinafter ‘the Act’) that was supposed to provide more clarity, speed and efficiency in the attempt to settle disputes. While the Act has considerably improved the conduction of arbitral proceedings, one cannot say with all certainty that it is good legislation. Several provisions have been under the radar ever since the Act’s inception, and this can be illustrated by the large multitude of suggestions by the 246th Law Commission Report, which orchestrated a desire to fundamentally change several core provisions. This article sheds light upon the ever-ambiguous and uncertain meaning of the word “place” under Section 2(2) (to a minute extent) and Section 20 of the Act. This article will largely focus on Section 20, and it would also involve a discussion on Section 2(2). Before getting into the thick of it, it is imperative to get an understanding of the distinction between seat and venue.

The law that is applicable to the arbitration proceeding is the law of the “juridical seat” of the arbitration or more commonly referred to as lex arbitri. The lex arbitri would determine the courts which can exercise supervisory jurisdiction over the arbitration proceedings. Parties may choose the seat of the arbitration proceeding to be a legal system that has no nexus with the parties simply to obviate the possibilities of bias or unfamiliarity that may exist in a system that naturally exercises jurisdiction over a party. The venue is to be differentiated from the seat. It is the actual and exact physical location where the arbitration proceedings are going to be conducted. The venue of arbitration may be at a location outside the juridical seat of arbitration, as was held in ONGC Petro Additions Ltd. v. Daelim Industrial Co. Ltd. It has nothing to do with the laws to be applicable to the proceeding. This distinction has arisen because, while the parties have chosen to conduct their proceedings at a particular place (seat) which may also be the procedural law applicable if parties mutually agree, they may choose a location that is not the seat.[i] This could be due to convenience, a better atmosphere for conducting the arbitration, etc.

Breakdown of Section 20

The very inception of this section was inspired by Article 20 of the UNCITRAL Model Law, which also corresponds to Section 34(2)(a) of the English Arbitration and Conciliation Act, 1996. Section 20 of the Act used the term “place” in all three of its sub-sections. On a prima facie reading of the section, the legislative intent behind this section seems to be embedded in the idea of party autonomy. Considering that one of the facets of arbitration is party autonomy, for e.g. appointment of the arbitrator, the number of arbitrators, laws applicable, etc., it is only fitting that a purposive and holistic interpretation be given so as to give the parties to the contract a wider array of autonomy with respect to their contract.[ii] The very drafting of sections 20(1) and 20(2) suggest that parties have the liberty of coming up with a suitable “seat or venue”, and in cases, no consensus is reached, the arbitrator decides the suitable “seat” or “venue” owing to the circumstance of the case and convenience of the parties.

Analysis of Case laws

The first case which throws some light as to the interpretation of the term “place” in Section 20 is the 2001 case of Sashin Chemicals Industry v. Oriental Carbons & Chemicals Ltd. The issue, in this case, was whether the place chosen by the Committee and the subsequent award is binding on the parties. The court, in this case, did not make a clear cut distinction between “venue” and “seat”, but while interpreting the scope of the Committee’s decision on clauses (1) and (2) of Section 20 of the Act, held that “[T]he decision on the question of venue under Section 20 would not come within the making of an arbitral award starting from Section 28 and on this view of the matter also, the said decision on the question of venue will not be either an award or an interim award so as to be appealable under Section 34 of the Act.” Hence, the Court interpreted “place” to mean “venue”.

The following year came the severely criticized decision of Bhatia International v. Bulk Trading S.A. The court herein did not delve into Section 20, but it interpreted the word “place” in Section 2(2) in a manner to allow Part I of the Act to apply whether the place was within or outside India, thereby granting Indian Courts the requisite jurisdiction to provide reliefs. This again diluted the distinction between “place” and “venue”. The expression “place” used in Section 2(2) of the 1996 Act should have connotated “seat” and not merely the “venue” of the arbitration.

In the judgment of the Delhi High Court of Gopal Singh v. Ashok Leyland Finance Manmohan J. interpreted the word “place” under Section 20 to mean “seat”. In fact, he said that:

“7. Having heard the parties, I find that Section 20 of the Act, 1996 provides the mode and manner of fixing the place of arbitration.

8. In view of the aforesaid, it is apparent that the parties are free to choose a “seat” of arbitration, a geographical location to which arbitration is ultimately tied. In fact, in my opinion, the aforesaid section incorporates the principles of party autonomy as would be apparent from the words “parties are free to agree on”. Consequently, the said section gives the parties the option to either agree or disagree on a procedural requirement. Since the parties in the present case have chosen the seat of arbitration as Chennai, it is irrelevant as to whether any cause of action had arisen at the said place or not. I am of the view that the concept of “venue” of arbitration is entirely different from the concept of the jurisdiction of Courts, which, needless to say, cannot be conferred upon a particular Court, even with the consent of the parties.”

The Supreme Court in Dozco India (P) Ltd. v. Doosan Infracore Co. Ltd. relied on a passage in Redfern and Hunter to refer to “place” in Section 20(1) and 20(2) to mean “seat”.[iii] The judgement stated that there is only one “place” of arbitration chosen by or on behalf of the parties, which would be visible in either the arbitration agreement, terms of reference or minutes of the proceedings as the “place” or “seat” of the arbitration. However, this does not equate to all meetings and hearings to be held at that place of arbitration. Therefore, the court hints at a distinction between “seat” and “venue” and emphasizes place to mean “seat”.[iv]

The case of Videocon Industries v. Union of India is of paramount importance in the interpretation of “place” under Section 20. A contract was signed between the government of India and a consortium consisting of Indian and foreign companies wherein Kuala Lampur was designated as the “juridical seat” of arbitration. Due to the outbreak of SARS, the arbitration was conducted in London instead. There was no written agreement or an amendment to the existing provision. In such circumstances, the Court had to decide which laws would apply and therefore made a distinction between the “juridical seat of arbitration” and the “physical or geographical venue”. The Court relied on English law and the aforementioned Dozco case to hold that shifting of the arbitration to London cannot be interpreted as anything except physical change of the “venue” of Arbitration from Kuala Lampur to London. The word “place” in subsections (1) and (2) was understood to be “seat” and not “venue”, and the word “place” meant “venue” in sub-section (3). By “venue”, the Court understood that the arbitration could be conducted in a physical place that is not the “seat”. Hence, this case is the first landmark decision that unambiguously interprets the meaning of “place” in all three subsections of Section 20.

Post Videocon came the landmark case of Bharat Aluminum Co. (BALCO) v. Kaiser Aluminum Co. wherein the Court interpreted the subject matter in Section 2(1)(e) in light of Section 20 of the Act while stating that “accepting a narrow construction would render Section 20 nugatory”. Then in paragraphs 98 and 100, the apex court clearly states that Section 20(1) and 20(2) refers to “place” as “seat” of arbitration. In the subsequent paragraph, the Court states that the fixation of the most convenient “venue” is taken care of by Section 20(3). While highlighting the importance of the distinction between “seat” and “place”, the Court exemplified it as a matter of construction of the individual agreement and the intention of the parties. The Court also felt the need for an amendment in this section. The Court used the principle of territoriality and allowed for Part I of the Act to apply only those matters where the “seat” of arbitration was in India.

In August 2014 came the 246th Law Commission Report, which suggested several amendments to the Act. With respect to Section 20, the report desired consistency in the meaning of the phrase “place” with the international usage of the concept of a “seat” of arbitration to denote the legal home of the arbitration. Hence, it desired the replacement of “place” with the words “seat” and “venue” in order to fit the explanation provided in the BALCO case. The amendment further legislatively distinguishes between the “legal seat” and a “[mere] venue” of arbitration.

In a subsequent 2014 judgment by the Bombay Division Bench, the “place” of arbitration is that which is agreed upon between the parties under subsection (1) and failing such an agreement, that which is determined by the tribunal under sub-section (2) of Section 20.[v] Parties may initially agree to a particular place as a “seat” of arbitration, but there is nothing in sub-section (1) of Section 20 which prevents them from agreeing subsequently to another place as the “seat” of arbitration. The “venue” of arbitration is something that the Tribunal can do from time to time. Further, in Enercon (India) Ltd. v. Enercon Gmbh, the court rejected a contention that “place” under Section 20(1) can be interpreted as “venue” like it is interpreted in Section 20(3).

Thereafter, in Indus Mobile Distribution v. Datwawind Corporation Ltd. the apex court quoted the relevant paragraphs in the BALCO case and the proposed changes in Section 20 by the Law Commission Report and in paragraph 18 held thus:

“The amended 2015 Act, does not, however, contain the aforesaid amendments, presumably because the BALCO judgment in no uncertain terms has referred to “place” as “juridical seat” for the purpose of Section 2(2) of the Act. It further made it clear that Sections 20(1) and 20(2) where the word “place” is used, refers to “juridical seat”, whereas in Section 20(3), the word “place” is equivalent to “venue”. This being the settled law, it was found unnecessary to expressly incorporate what the Constitution Bench of the Supreme Court has already done by way of construction of the Act.”

The Court then, in Roger Shashoua v. Mukesh Sharma after analyzing the relevant portions of BALCO, observed that the detailed assessment which is required to be undertaken by the Court is to discern from the agreement and surrounding circumstances the intention of the parties as to whether a particular “place” mentioned refers to the “venue” or “seat” of arbitration.

In 2019, The Delhi High Court in Raj Kumar Brothers v. Life Essentials held that “place” in sub-sections (1) and (2) would refer to “seat” and (3) being the “venue”. Finally, a judgement as recent as that of December 2019 in BGS SGS Soma JV v. NHPC Ltd. upheld the decision in BALCO and Indus Mobile pertaining to Section 20(1) and 20(2), whereby “place” in sub-sections (1) and (2) would refer to “seat” and (3) being the “venue”. This judgement is the current position with respect to the interpretation of “place” for Section 20 of the Act.

Amendment to Section 20

One can see that the general approach of the courts is to interpret “place” as “seat”. While this interpretation would generally hold in most cases, the author believes that the interpretation of “place” being “seat” and/or “venue” should be based on the intention of the parties. While the interpretation of “place” as a venue in Section 20(3) is fairly straightforward, the interpretation in sub-sections (1) and (2) should be “a matter of construction of the individual agreement and the intention of the parties”, as was held in the BALCO case. This would imply using the principle of “purposive interpretation”, which assumes special significance due to the fact that the very concept of arbitration stems from the concept of party autonomy and discretion over the mode and manner of settling disputes. Hence, in light of the abovementioned case laws, the concept of party autonomy and recommendations by the 246th Law Commission Report, the following amendment to Section 20 of the Act is in order, which should run as under:

The parties are free to agree on the seat and/or venue of arbitration. Failing any agreement referred to in sub-section (1), the seat and/or venue of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties;

Notwithstanding subsection (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any venue it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.

Conclusion

After interpreting and analyzing the various case laws, one cannot, prima facie, state that the word “place” in sections 20(1) and 20(2) of the Act refers to only “seat” or “venue” or both. The interpretation in Section 20(3) should only mean “venue”; otherwise, the legislative intent behind the framing of this provision would be nugatory. The settled position with respect to Section 20(1) and 20(2) was laid down in BALCO, and Indus Mobile, which are clear that “place” refers to “seat” and in Section 20(3) of the Act is that “place” means “venue”. But considering the fact that this section provides autonomy to the contracting parties to make decisions with respect to resolving their disputes, it would be suitable to interpret sub-sections (1) and (2) of Section 20 to mean either “seat” or “venue” (similar to the recommendations in the 246th Law Commission Report) or both depending on the intention of the parties and the facts and circumstances of the case.

[i] P.C. Markanda, Naresh Markanda, and Rajesh Markanda, Law Relating to Arbitration and Conciliation (9th edn, LexisNexis 2016).
[ii] O.P. Malhotra and Indu Malhotra, The Law and Practice of Arbitration and Conciliation (2nd edn, Eastern Book Company 2006).
[iii] Alan Redfern and Martin Hunter, Redfern and Hunter: Law and Practice of International Commercial Arbitration (6th edn, OUP 2015).
[iv] Naviera Amazonica Peruana S.A. v. Compania International de Seguros del Peru, (1998) 1 Lloyd’s Rep 116 (CA).
[v] Konkola Copper Mines (PLC) v. Stewarts and Lloyds of India Ltd., 2013 SCC OnLine Bom 777.

[This article is authored by Anshul Ramesh, a final year law student at JGLS, Sonipat.]