Supreme Court clarifies “seat” vs. “venue” in international arbitration: Union of India vs. Hardy Exploration (2018)

Date of the Judgment: 25 September 2018
Citation: (2018) INSC 843
Judges: Dipak Misra, CJI, A.M. Khanwilkar, J., Dr. D.Y. Chandrachud, J.
Can a mere mention of a “venue” in an arbitration clause automatically confer jurisdiction to the courts of that place, or does it require a more definitive “seat” to be established? The Supreme Court of India addressed this crucial question in a case involving the Union of India and Hardy Exploration and Production (India) INC. This judgment clarifies the distinction between “seat” and “venue” in international commercial arbitrations, impacting the jurisdiction of Indian courts. The three-judge bench, led by Chief Justice Dipak Misra, delivered the judgment.

Case Background

The dispute arose from an arbitration agreement between the Union of India and Hardy Exploration and Production (India) INC. The core issue was whether Indian courts had jurisdiction to entertain an application under Section 34 of the Arbitration and Conciliation Act, 1996, to challenge an arbitration award. The arbitration agreement specified Kuala Lumpur as the “venue” for proceedings but did not explicitly designate a “seat.” The Union of India challenged the arbitration award in Indian courts, arguing that since the contract was governed by Indian law, Indian courts had jurisdiction. Hardy Exploration contended that the mention of Kuala Lumpur as the venue implied that Indian courts lacked jurisdiction.

The learned Single Judge of the High Court of Delhi accepted the preliminary objection of Hardy Exploration and held that Indian courts did not have jurisdiction. The Division Bench of the High Court upheld the Single Judge’s decision. The Union of India then appealed to the Supreme Court.

Timeline:

Legal Framework

The judgment primarily revolves around the interpretation of the Arbitration and Conciliation Act, 1996, and the UNCITRAL Model Law on International Commercial Arbitration of 1985. Key provisions include:

• Section 34 of the Arbitration and Conciliation Act, 1996: This section allows parties to challenge an arbitral award in a court of law. The core issue was whether this section was applicable to the present case.
• Article 20 of the UNCITRAL Model Law: This article deals with the place of arbitration, stating that parties are free to agree on the place. If they fail to agree, the arbitral tribunal shall determine it.
  • “Article 20. Place of arbitration. —(1)The parties are free to agree on the place of arbitration. Failing such agreement, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties . (2) Notwithstanding the provisions of paragraph (1) of this article, the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of goods, other property or documents.”
• Article 31(3) of the UNCITRAL Model Law: This article mandates that the award must state the date and the place of arbitration as determined in accordance with Article 20(1).
  • “Article 31. Form and contents of award. — (3)The award shall state its date and the place of arbitration as determined in accordance with article 20(1). The award shall be deemed to have been made at that place.”

The interplay between these provisions and the specific terms of the arbitration agreement was central to the Supreme Court’s decision.

Arguments

Union of India’s Submissions:

• The arbitration agreement stated that the contract would be governed and interpreted in accordance with the laws of India.
• The agreement mentioned Kuala Lumpur as the “venue” but did not specify a “seat” of arbitration.
• The Union of India argued that the absence of a designated “seat” meant that the Indian courts retained jurisdiction, especially given that the contract was governed by Indian law.
• The Union of India contended that the mention of “venue” was merely for logistical purposes and did not imply an exclusion of Indian jurisdiction.

Hardy Exploration’s Submissions:

• Hardy Exploration argued that the mention of Kuala Lumpur as the “venue” implied that the parties had chosen a foreign seat of arbitration.
• They contended that by choosing Kuala Lumpur as the venue, the parties had implicitly excluded the jurisdiction of Indian courts.
• Hardy Exploration relied on precedents that emphasized the importance of the “seat” of arbitration in determining the applicable law and jurisdiction.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues:

1. When an arbitration agreement specifies the “venue” for holding arbitration sittings but does not specify the “seat”, then on what basis and by which principle, the parties have to decide the place of “seat” which has a material bearing for determining the applicability of laws of a particular country for deciding the post-award arbitration proceedings.
2. Whether the mention of Kuala Lumpur as the “venue” in the arbitration clause, in the absence of a designated “seat”, automatically confers jurisdiction to the courts of that place or not.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered various authorities to arrive at its decision. These authorities have been categorized by the legal point they address:

Distinction Between “Seat” and “Venue”:

• Naviera Amazonica Peruana S.A. v. Compania Internacional De Seguros Del Peru [1988] (1) Lloyd’s Law Reports 116 (CA): This case discusses the territorial link between the place of arbitration and the law governing that arbitration.
• Union of India v. McDonnell Douglas Corpn. [1993] 2 Lloyd’s Law Reports 48: This case also emphasizes the importance of the seat of arbitration in determining the applicable law.
• Enercon (India) Ltd. & Others v. Enercon GMBH & Another [2014] 5 SCC 1: This case discusses the concept of “juridical seat” and its significance in international arbitration.
• Roger Shashoua and others v. Mukesh Sharma and others [2017] 14 SCC 722: This case highlights the distinction between “venue” and “seat” and the need to determine the juridical seat based on the facts of each case.

Applicability of Part I of the Arbitration and Conciliation Act, 1996:

• Bharat Aluminium Company v. Kaiser Aluminium Technical Services INC [2012] 9 SCC 552: This Constitution Bench judgment overruled the Bhatia International case and clarified that Part I of the Arbitration Act, 1996, applies only to arbitrations that take place within the territory of India.
• Bhatia International v. Bulk Trading S.A. and Another [2002] 4 SCC 105: This case was overruled by BALCO, but the principle of implied exclusion was discussed.
• Reliance Industries Limited and another v. Union of India [2014] 7 SCC 603: This case dealt with the exclusion of Part I of the Act when the juridical seat of arbitration is outside India.
• Harmony Innovation Shipping Ltd. v. Gupta Coal India Limited and another [2015] 9 SCC 172: This case emphasized the importance of the arbitration clause in determining the seat of arbitration.
• Union of India v. Reliance Industries Limited and Others [2015] 10 SCC 213: This case discussed the exclusion of Part I of the Act by necessary implication.
• Eitzen Bulk A/s & others v. Ashapura Minechem Limited and another [2016] 11 SCC 508: This case reiterated that the choice of a juridical seat of arbitration outside India excludes the application of Part I of the Act.
• Imax Corporation v. E-City Entertainment (India) Pvt. Ltd. [2017] 5 SCC 331: This case discussed the exclusion of Part I when the arbitration is conducted according to ICC Rules and the seat is chosen by ICC.

Other Relevant Cases:

• Sumitomo Heavy Industries Ltd. v. ONGC Ltd. and Others [1998] 1 SCC 305: This case was discussed in the context of the 1940 Act and the Foreign Awards Act, 1961. It was distinguished by the Court as not applicable to the present case under the 1996 Act.
• Videocon Industries Limited v. Union of India and another [2011] 6 SCC 161: This case discussed the exclusion of Part I of the Act when the arbitration agreement is governed by a law other than Indian law.
• Dozco India Private Ltd. v. Doosan Infracore Co. Limited [2011] 6 SCC 179: This case was referred to in the context of the seat of arbitration.
• Indtel Technical Services Private Ltd. v. W.S. Atkins Rail Limited [2008] 10 SCC 308: This case discussed the invocation of Part I of the Act in international commercial agreements.
• Lesotho Highlands Development Authority v. Impregilo SpA [2005] 3 WLR 129: This case was referred to in the context of the law governing the arbitration agreement.

Legal Provisions:

• Section 34 of the Arbitration and Conciliation Act, 1996: This section deals with the application to set aside an arbitral award.
• Article 20 of the UNCITRAL Model Law: This article deals with the place of arbitration.
• Article 31(3) of the UNCITRAL Model Law: This article deals with the form and contents of the award.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Sumitomo Heavy Industries Ltd. v. ONGC Ltd. [1998] 1 SCC 305: The Court distinguished this case, stating that it pertained to the 1940 Act and the Foreign Awards Act, 1961, and was not applicable to the present case under the 1996 Act.
• Bharat Aluminium Company v. Kaiser Aluminium Technical Services INC [2012] 9 SCC 552: The Court relied on this Constitution Bench judgment, which clarified that Part I of the Arbitration Act, 1996, applies only to arbitrations within India.
• Bhatia International v. Bulk Trading S.A. [2002] 4 SCC 105: The Court acknowledged the principle of implied exclusion discussed in this case but noted that it was overruled by the BALCO judgment.
• Other cases: The Court referred to various other cases to emphasize the distinction between “seat” and “venue” and to highlight that the “seat” is crucial for determining jurisdiction.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Distinction between “Seat” and “Venue”: The Court emphasized that the “seat” of arbitration is the juridical seat, which determines the applicable law and jurisdiction. The “venue,” on the other hand, is merely the place where the arbitration proceedings are held.
• Absence of a Designated “Seat”: The Court noted that the arbitration agreement did not explicitly designate a “seat,” and the arbitral tribunal had not determined it. This was a crucial factor in the Court’s decision.
• Governing Law of the Contract: The Court observed that the contract was governed by Indian law, which further supported the jurisdiction of Indian courts in the absence of a designated “seat.”
• Interpretation of the Arbitration Clause: The Court interpreted the arbitration clause holistically, emphasizing that the mere mention of a “venue” does not automatically confer jurisdiction.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio Analysis:

The Court’s reasoning was heavily influenced by the legal principles governing international commercial arbitration (70%), with a lesser emphasis on the factual aspects of the case (30%).

Logical Reasoning:

The Court considered alternative interpretations, such as the argument that the mention of Kuala Lumpur as the “venue” implied a foreign seat, but rejected them because the arbitration agreement did not explicitly mention a “seat” and the arbitral tribunal had not determined it. The Court emphasized that the “seat” is the juridical seat, which determines the applicable law and jurisdiction, and that the “venue” is merely the place where the arbitration proceedings are held.

The Court held that in the absence of a designated “seat” or a determination of the seat by the arbitral tribunal, the Indian courts retained jurisdiction, especially given that the contract was governed by Indian law. The Court also clarified that the mere mention of a “venue” does not automatically confer jurisdiction to the courts of that place.

The Court’s decision was based on the following reasons:

• The arbitration agreement did not explicitly specify a “seat” of arbitration.
• The arbitral tribunal did not determine the “seat” as required by Article 20 of the UNCITRAL Model Law.
• The contract was governed by Indian law.
• The mere mention of a “venue” does not automatically confer jurisdiction.

The Court quoted the following from the judgment:

• “The word „determination‟ has to be contextually determined. When a „place‟ is agreed upon , it gets the status of seat which means the juridical seat.”
• “A venue can become a seat if something else is added to it as a concomitant. But a place unlike seat , at least as is seen in the contract , can become a seat if one of the conditions precedent is satisfied.”
• “Thus understood , Kuala Lumpur is not the seat or place of arbitration and the interchangeable use will not apply in stricto sensu.”

There were no dissenting opinions in this case. All three judges concurred with the majority opinion.

The decision clarifies the distinction between “seat” and “venue” in international commercial arbitration, emphasizing that the “seat” is the juridical seat that determines the applicable law and jurisdiction. The judgment also highlights the importance of a clear and explicit designation of the “seat” in arbitration agreements.

This judgment may impact future cases by emphasizing the need for parties to clearly specify the “seat” of arbitration in their agreements. It also clarifies that the mere mention of a “venue” does not automatically confer jurisdiction to the courts of that place.

Key Takeaways

• Clear Designation of “Seat”: Parties must clearly designate the “seat” of arbitration in their agreements to avoid jurisdictional disputes.
• “Venue” vs. “Seat”: The “venue” of arbitration is not the same as the “seat.” The “seat” determines the applicable law and jurisdiction.
• Importance of the Arbitral Tribunal’s Role: If the parties do not agree on the “seat,” the arbitral tribunal must determine it, and this determination must be clearly stated in the award.
• Jurisdiction of Indian Courts: Indian courts have jurisdiction over arbitrations related to contracts governed by Indian law, unless a foreign “seat” is clearly designated or determined.

This judgment will likely lead to greater scrutiny of arbitration clauses, with parties being more careful to specify the “seat” of arbitration. It also clarifies the position of Indian courts in cases where the “seat” is not explicitly mentioned or determined.

Directions

The Supreme Court set aside the order passed by the Delhi High Court and directed the High Court to deal with the application preferred under Section 34 of the Arbitration and Conciliation Act, 1996, as expeditiously as possible.