Seat and venue under the Arbitration and Conciliation Act, 1996 forms a great matter of dispute and dilemma because of the underlining conflict and the differentiation that it presents. While entering into the commercial contracts between parties, there arises a situation to specify the place of adjudicating the matter. This place might act as a place of which the laws are applied or a place only for the territorial purpose. Thereby, it becomes imperative to understand the commercial contracts in a sense where these meanings are not in any way confused or diverted from. The significance of the seat and venue under the arbitration proceedings becomes all the more important because it generates the principle whereby it can culminate its own rules according the natural justice doctrine. It does not follow the strict way of the traditional courts; so, the guidelines and the procedure that must follow should emerge from rule of law, keeping in view and at pedestal with the party autonomy.
Dilemma under the Arbitration and Conciliation Act, 1996
The provision which deals with this are Section 20 and Section 2 (2) whereby the word place is used and it gives different instances under the two sections which causes confusion. The latter talks about the fact that the provisions of that part will apply where place of arbitration is in India. Further, the former section says that the parties are free to agree on the place of arbitration. The question, thus, arises whether this seat and venue can be the same place. Venue is the location where the arbitration proceedings are held while the seat is which has the exclusive jurisdiction or the laws of that particular jurisdiction will apply on the matter. This situation arises when the party does or cannot exercise their autonomy because of these provisions as whether the seat of arbitration or the jurisdiction can apply for a foreign one but since one section says it should abide by the principles of the part whereby it will include in India which in turn completely stops the smooth flow of the autonomy of the parties.
The provisions under the Act do not in any way specify the difference between the word seat and venue and uses them in interchangeable way so as cause ambiguous meaning and interpretation. Though, through the aid and construction of the judiciary in the matter had proved beneficial for the development of the concept to a large extent. The significant conflict and complications are because of the distinction and conundrum related to the jurisdiction issue when there is an international commercial contract. This jurisdictional issue is consequent to the laws of different countries having different implication and effect. When under a commercial contract, the specifications are not mentioned or they are vague related to the jurisdiction of law, it becomes necessary for the judiciary to apply the provision which will neither violate the party autonomy nor will it go beyond the legislative provisions related to arbitration.
In Enercon (India) Ltd. & ors. V. Enercon Gmbh & anr. , the Supreme Court had held that just because there is specified that the venue or the location of the resolving of the dispute is a particular country (in this case, London) does not necessarily gives the consequent result of the law that is to be applied as that of that particular country or the seat of the arbitration as that country (in this case, London). Thus, the seat and venue are two different concepts and cannot be said to be a general rule to assume that they are the same.
The problem is thus, arisen that a party under the potential principle of the party autonomy can choose for the foreign seat of arbitration or not.
The Supreme Court had addressed this issue in several of its judgement while it has also said that the lacunas do exist in relation to the seat and venue of the arbitration which can only be solved through fruitful amendments. In the case of Bharat Aluminium Company V. Kaiser Aluminium Technical Services Inc. , the court expressly provided that that under sub-section 1 and 2 of Section 20, the word place would mean the word “seat” while under sub-section 3 of Section 20, it would mean the word “venue” under the word place. This was done so as to purposely clarify and define the limits of the jurisdiction. The court further said that Part 1 of the Act would apply where the seat is in India and only then can that become functional and operative in real sense.
Further, in Bhatia International V. Bulk Trading S. A. , the issue arose when the rules to be applied was of ICC but the parties filed for the arbitration proceedings under ICC as well as under Section 9 of the Arbitration and Conciliation Act, 1996 whereby the question arose as to the place of arbitration which was outside India and thus, whether under Section 2 (2), the Part I would apply or not. The court held that the arbitration of international nature must take place in Indian exclusively so as to apply Section 2 (2) and Part I but the court did not as such clarified the seat and venue dilemma in the broader sense.
In another case of Union of India V. Hardy Exploration and Production (India) Inc. , the court said that the arbitration agreement or the clause of arbitration is of utmost importance and that it should be read in a way where it categorically express the intention of the parties in relation to the seat or venue. When a party does mention but either of the two, the other can be seen by reading the clause or agreement as a whole. Where the venue is mentioned only and nothing else, the court can understand it to mean seat as well by seeing other intervening factors as well.
In Indus Mobile Distribution Pvt. V. Datawind Innovations Pvt. Ltd. , the court said that the principle has been evolved by various judicial pronouncements and through the way it can be said that the “subject matter of the arbitration” is said in connection to the seat of the arbitration. It basically gives reference to the process of solving the dispute in a way where the seat is a place of neutral origin. Further, in the case of Roger Shashoua V. Mukesh Sharma , the court had said that where the parties have chosen the “juridical seat of the arbitration” as London, then Part I would not apply from that instance. Thereby, the laws of the England would hold relevance.
Thus, to sum up it can be said that there is definitely a need to make amends in the existing provisions of the Arbitration and Conciliation Act, 1996 so as to bring about fruitful change and to make sure that any dilemma does not arise related to the fundamental basics of the substantive as well as procedural ways of conducting an arbitral proceedings. The limits should be adequately defined as to the seat and venue of arbitration for the smooth functioning as well as the party autonomy mechanism to work.
Author: Arushi Anand,
Intern at Lawportal,