Indian Supreme Court revisits the distinction between Seat and Venue of arbitration

by Prerona Banerjee and Rajvansh Singh

The legal quandary between a “seat” and “venue” of arbitration was resolved by India’s Supreme Court (“SC”) in its judgment in Bharat Aluminium Company v. Kaiser Aluminium Technical Services (“BALCO”). This decision clarified that the seat of the arbitration, once chosen, attains a permanent character which decides the scope of the powers and determines the court that has the final supervisory jurisdiction over the arbitration. By contrast, the venue is described to be provisional in nature and is merely for administrative convenience.

This distinction has unfortunately, however, been garbled by a recent SC decision in Brahmani River Pellets v. Kamachi Industries (“Brahmani”).  In Brahmani, the SC has taken the view that the venue of the arbitration can be assumed to be the seat, until explicitly stated otherwise. This may be a cause of concern for many arbitration practitioners – and the recent observation of the SC is ostensibly at odds with  previous judgments of the SC that had consciously differentiated between the “seat” and “venue” of arbitration.

The SC’s judgment in Brahmani

Brahmani concerned a domestic dispute regarding the payment and price terms of goods that were to be delivered from Odisha to Chennai/Madras. The sales contract had the following arbitration clause:

Clause 18. (…) the venue of Arbitration shall be Bhubaneswar.

After the dispute arose, the respondent filed a petition before the Madras High Court[1] seeking the appointment of an arbitrator. The claimant contested this petition on the premise that the parties in Clause 18 of the Contract have agreed that the seat of arbitration would be Bhubaneswar and therefore, only the Orissa High Court situated there would have exclusive jurisdiction to appoint the arbitrator.

The Madras High Court considered the challenge and held that in the absence of any clause excluding the jurisdiction of other courts, it would continue to exercise supervisory jurisdiction along with the Orissa High Court.

Aggrieved by this, an appeal was made before the SC. The appellant contended that when parties to an agreement mention a venue, it results in the selection of a seat for the arbitration proceedings.  In its arguments before the SC, the appellant relied on Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited & Ors. (“Indus”), wherein the SC had determined that once a seat had been fixed it had exclusive jurisdiction, to the exclusion of other courts where the cause of action arose. In view of this, the appellant submitted that the Madras High Court erred by exercising jurisdiction as the same was under the domain of the Orissa High Court only. On the other hand, the respondent argued that merely mentioning the venue does not give it the status of the juridical seat having exclusive jurisdiction. In the absence of the selection of a seat, the courts at the place of cause of action should have jurisdiction. Since the cause of action arose at both the places i.e., Bhubaneswar and Chennai, courts in both places were competent to deal with the matter.

The SC held that, “considering the agreement of the parties having Bhubaneswar as the venue of arbitration, the intention of the parties is to exclude all other courts.” Finally, the order rendered by the Madras High Court was overturned and it was held that only the Orissa High Court, the court at the venue, was competent to entertain the application.

Analysis of the judgment and recent case laws

The seat is the focal point of arbitration, more so, in a country like India which has adopted the traditional localization theory. This approach identifies that the seat is not merely a geographical location but is a mantle for the connection between the law of the place where the arbitration is legally localized and the arbitration proceeding. The selection of a seat directly affects several issues such as arbitrability of the subject matter, the formal validity of the arbitration agreement, procedural guarantees, and judicial review of the award. On the other hand, the venue does not have such far-reaching legal implications and could be one of the many places the hearing is physically conducted. Brahmani does not set any standards, apply any test or lay down any specific situation in which one can equate a seat and a venue. Instead, it applies a blanket formula where a venue is automatically treated as the seat when the latter is not specified. Consequently, if the decision in Brahmani is to be followed, every change in venue could have far-reaching effects on the arbitration. This would be illogical as the venue of the arbitration should be flexible and hearings may be held at different locations for convenience.

Section 20 of the Arbitration and Conciliation Act (the “Act”) alludes to the place of arbitration. Sections 20(1) and (2) deal with the right of the parties to select the place of arbitration and in the absence agreement, authorises the tribunal to determine the same. On the other hand, Section 20(3) allows the tribunal to meet at any place for convenience in procedural matters. The SC in BALCO reasoned that Section 20 refers to the juridical seat, save Section 20(3), where the word “place” deals with transient locations and is a reference to the venue. Soon after the judgment, the Government of India set up the 246th Law Commission to review and address the several inadequacies in the Act. The Commission in its report expressed its desire to etch the difference between seat and venue in Indian arbitration law and stated that the word “place” was a misnomer and should be deleted. Instead, the operative words should be “seat” and “venue” as per the law laid down in BALCO. This would also ensure that the concept of seat in India would be consistent with international usage of the term “seat”.

In fact, in other previous SC decisions that have considered this issue, the SC had stressed the distinction drawn in BALCO. (See e.g.,Enercon (India) Limited and others v. Enercon GMBH. Here, the court decided to employ the closest connection test to determine whether the venue could also be deemed as the seat. In that test, several determinative factors like place of performance, contractual conditions in the contract, the law of the contract, as well as the (governing and curial) laws of arbitration were taken to establish the seat of arbitration. The vigilance the SC had shown through these earlier judgments was a testimony of its acknowledgment of the seat’s legal importance in an arbitration.

Similarly, the SC in Union of India v. Hardy Exploration held that the “venue” can only be considered as the “seat”, if something “concomitant” points towards the same.

However, in the Brahmani case, neither has the SC construed any facts of the case to hint that there was something “concomitant” nor has it deciphered the same through the common intention of the parties. Thus, the observations in Brahmani  appears to have misstated the law to the extent that it regards the seat as the same as a venue, without any reasoning to this effect.

Concluding Remarks

Up until the decision in BALCO, the supervisory jurisdiction of the court for an arbitration was to be decided as per section 2(1)(e) of the Act, which recognises that the court at the place of cause of action should have jurisdiction. The decision in BALCO adopted a seat centric approach and extended this supervisory jurisdiction onto the court at the seat. While upholding this decision, in the Indus case, the SC confined the jurisdiction with the court at the seat, when the seat has been chosen by the parties. By extension, if the seat finds no mention in the agreement, the courts at the place of the cause of action would continue to have jurisdiction. However, if the decision in Brahmani is considered to be good law, it would result in denying the competent court of its jurisdiction and would instead vest jurisdiction onto the court at the “venue”.

In light of this, we believe that observations in Brahmani has the potential to revive the conundrum between the seat and the venue. In order to avoid such a setback, courts should look into the intention of the parties and the germane circumstances or employ tests like the closest connection test to transverse through different laws and factual scenarios. Otherwise, in domestic arbitration, if the parties have not designated a seat, jurisdiction should be vested in the courts where the cause of action arises, as contemplated by the Act and established through precedents.

[1] As per the Constitution of India, the Supreme Court is the apex court in the Indian judicial system. The regional juridical system is taken care by the High Courts. Their jurisdiction is limited to either a state, group of states or Union Territory. Therefore, it is essential to identify the which state or Union Territory houses the seat of the arbitration, to understand which High Court has the power to exercise jurisdiction over the matter.

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