The controversy underlying seat and place or venue of arbitration

This article by Dipti Khatri discusses the very important issue of seat and venue of arbitration.

1. Introduction to the issue of Seat & Place/Venue of arbitration

In International Commercial arbitration, the question arises as to which substantive law would govern the arbitration process.  To answer, generally validity of the arbitration agreement and seat or place is considered. Venue is considered simply to be a geographical location as per the convenience of the parties. However, seat decides the actual appropriate court which would have the exclusive jurisdiction to decide the case. Where a seat is specified in the agreement, generally the procedural aspects of that country are considered. However, where the parties have failed to choose the specific law, it is governed by the law of the place of arbitration. The challenge of an award is then required to be done in the Court where the seat of arbitration is located and that Court is considered to have supervisory jurisdiction.

However, after the recent amendments the Part I is to be made applicable under certain situations. Section 9 which relates to Interim Relief, Section 37(1) (a) which relates to appeal to orders, Section 27 (Court assistance for evidence) is applicable even in the foreign seated arbitration.

In Enercon Indian Ltd. and Ors. v. Enercon Gmbh the dispute arose of the non- supplies under the International property License Agreement (IPLA). It stated that the venue would be London and the governing Law would be the Indian Arbitration and Conciliation Act, 1996. The question arose whether London Court could have concurrent jurisdiction where the venue was in London. The Hon’ble Supreme Court of India distinguishing between the seat and venue of the arbitration held that “the express mention in the judgment that London was the venue of the arbitration does not lead to the conclusion that it was the seat of arbitration. Once the seat has been decided, Indian Courts will have supervisory jurisdiction and the English Court will not have jurisdiction. It is thus, not necessary for the seat and venue to be the same. The hearing even if it is taking place at a different place, the chosen seat of arbitration will remain unaffected.

However, in the absence of straight jacket provision relating to Arbitration and Conciliation Act, 1996 the controversy which has still not been resolved includes whether can two Indian parties choose the foreign seat of arbitration? The Court have tried to settle the position through a plethora of cases in the recent years however, there is no clarity provided on the same.  The Madhya Pradesh High Court in the Sasan’s case stated that party autonomy would be considered in deciding the matter. However, again the Supreme Court’s reluctance to answer on the same has let the issue unanswered.  As the Supreme Court established a foreign nexus to the dispute and allowed foreign arbitration between the two parties outside India.

2. Why the controversy regarding seat/venue of arbitration still remains?

In the Sasan’s Case, where the dispute arose out of a mine development agreement there were two parties Reliance-owned Sasan Power Ltd, and NAAC America (Agreement I). Later on after two years, the North America Coal Corporation India (NACC India) was formed, whereby all rights and liabilities under Agreement I were transferred from NAAC America to NACC India (Agreement II).Thus, the Supreme Court concluded that the parties had entered into two agreements (i) the bi-party agreement which was entered between the foreign element and an Indian entity; and (ii) a tripartite agreement between the foreign entity and an Indian entity, where the rights and obligations were given to the Indian entity. The Supreme Court in asserting its Judgment came to the conclusion that there was foreign element involved and thus, allowed the parties to be governed by the foreign law and appointed foreign seat. Therefore, the main questions relating to whether Indian parties can opt for a foreign seat at the autonomy of the parties were unanswered.  Supreme Court was reluctant in addressing and setting aside the judgment of the Madhya Pradesh high Court thereby leaving in the instance of a dilemma. They stated that the

“…. the question whether two Indian companies could enter into an agreement to be governed by the laws of another country would not arise in this case. So long as the obligations arising under the AGREEMENT-I subsists and the American company is not discharged of its obligations under the AGREEMENT-I, there is a ‘foreign element’ therein and the dispute arising therefrom. The autonomy of the parties in such a case to choose the governing law is well recognized in law.”

3. Position prior to Sasan’s Case

Prior to this, the issue has been considered in various recent Judgments. In the case of TDM Infrastructure Pvt. Ltd. V. UE Development India Ltd. that by looking at the legislature’s intention it can be concluded that Indian nationals opting for the foreign seat would derogate the Indian Law and would be against the public policy. The Judgment stated as follows:

“It held that Section 28 is imperative to Section 2(6) of the provisions of the Act. Therefore, the intention of the Legislature is that the Indian Nationals should not derogate Indian Law”. It would be called to be against the public policy of India.”

To further explain what they mean by “opposed to public policy” the Court relied on the case of Oil and Natural gas Corporation Ltd. v. Saw Pipes Ltd. It held that if it is contrary to the fundamental policy of Indian Law; the interest of India; justice and morality and patent illegality it would amount to be against the public policy. Further, the scope was enhanced in the case of Phulchand Exports Limited v. O.OO. Patriot where it was stated that Section 48 would also carry the same meaning as that of given in the Saw Pipes Case.

The Court again relied on TDM Infrastructure in the case of Addhar Mercantile Private Limited v Shree Jagdamba Agrico Exports Pvt. Ltd. (Addhar Mercantile) which was related to Section 11 of the Arbitration Act. In this case, the  Court made the parties to follow the substantive Laws of India even though the parties had an agreement to contractually agree to an “ arbitration in “India or Singapore’’ with substantive Law to be taken as English Law.

Further, in Reliance Industries Limited & Anr. v Union of India, the arbitration was challenged on the ground that it was seated outside India. However, the Court without touching on this ground only upheld the foreign seated arbitration between two Indian parties.

The Supreme Court opined as follows:

“It stated that it was too late to state that the seat of arbitration is not analogous to an exclusive jurisdiction clause. Once the parties have mutually agreed that the seat will be in London, it can no longer be the content of the parties that Part I of the Arbitration agreement will be applicable”.

Also, in the case of Videocon Industries Ltd. v. UOI it was stated by the Supreme Court that appellants have nowhere claimed exemptions under the Indian Law and therefore, they see no reason why Indian Law should be exempted. Thus, the Court no where mentioned about the ‘foreign seat’. Their only concern was ‘exemption from the Laws of India’.

Further, again the same contentions were raised in the case of Delhi Airport Metro Express Pvt. Ltd. which demonstrated the uncertainty in determining the issue of whether the two parties can choose the foreign seat of arbitration. Again seeking hold of the TDM Infrastructure Case, BALCO and Aadhar the Court reached at Further, even if two Indian parties successfully obtain a foreign arbitration award, it is still possible to delay enforcement proceedings in India by claiming that the award violates public policy.

However, earlier Supreme Court in the Bharat Aluminium Company Ltd. v. Kaiser Aluminium Technical services Inc. has held that seat of arbitration inevitably imports the acceptance of the party to the substantial law of the other Country. Also, the Court made an observation that no parties can circumvent the substantive Indian Law and will not have an overriding effect contrary to the provisions of the contract.

Thus, where the above two cases establish that argument can take place abroad; the judgment of Madhya Pradesh High Court has raised the controversy again. The Reliance Industries Judgment and the Sasan’s Judgment suggest totally contrary position to that of the above case.

4. Recent Amendment adding to the controversy

While the recent amendments have been brought in 2015 with the aim of reducing the judicial intervention and bringing about the effectiveness, however, it has not concluded on the point of whether interim reliefs by the Indian Court can be granted in a foreign seated International commercial arbitration. As, the International commercial arbitration should include at least one non- Indian Party. However, the present act does not talk about the interim relief of the same.

5. Conclusion

At last, the conflicting opinion of the Courts, reluctance to address the matter has set out ambiguous position. Further, while recent amendments relating to interim relief has been brought it does not expressly mention the case of International commercial arbitration where two Indian parties are involved. Thus, the uncertainty and the ambiguity continue. A conclusive finding by the Supreme Court is still awaited.

Bibliography:

1. Can two Indian parties opt for a foreign seat of arbitration: An unresolved question http://www.trilegal.com/pdf/create.php?publication_id=14&publication_title=can-two-indian-parties-opt-for-a-foreign-seat-of-arbitration-an-unresolved
2. Post Balco Developments, Mondaq,
3. Seat versus Venue, http://www.financialexpress.com/archive/seat-versus-venue/1229641/
4. International Commercial Arbitration, Law and Recents Developments in India, Nisith Desai Associates http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/International_Commercial_Arbitration.pdf
5. Can Indian parties choose foreign seat of arbitration? Supreme Court’s Sasan judgment fails to resolve uncertainty http://barandbench.com/can-indian-parties-choose-foreign-seat-arbitration-supreme-courts-sassan-judgment-fails-resolve-uncertainty/

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