The Arbitration and Conciliation Act, 1996 (hereinafter referred to as Act) does not explicitly uses the work “seat” or “venue” of arbitration. However, Section 20 of the Act states that the parties are free to agree upon the “place of arbitration”. The word “place” used in the provision has led to emergence of plethora of cases wherein the Hon’ble Supreme Court and High Courts have given their interpretations in order to decide the law which shall govern arbitration proceedings. In arbitration, the following are three sets of law which may apply the proceedings:
As per Section 20 of the Arbitration and Conciliation Act, 1996, the parties are free to agree upon the place of arbitration agreement, and if the parties fail to agree upon the place, then 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. Herein, we delve into the cases, wherein the Indian Judiciary has interpreted the “place of arbitration agreement” or “seat of arbitration”
In the case of Union of India (UOI) v. Hardy Exploration & Production (India) Inc.1 , a three-Judge Bench of the Hon’ble Supreme Court held that the words “seat” and “venue” can be used interchangeably and these words would mean to be the juridical seat of arbitration. Further, in BGS SGS Soma JV v. NHPC Ltd.2 , a Three-Judge Bench of the Hon’ble Apex Court held that if the agreement mentions the venue and further states that the venue is actually the seat, then it implies that venue is actually the seat. Further, if there is nothing contrary to declare that venue is venue and not seat, then in such a case also, the same shall be considered as seat. The Hon’ble Court has followed the Shashou Principle as laid down by England and Wales High Court. The Court held the following with respect to the Shashoua Principle:
“61. It will thus be seen that wherever there is an express designation of a “venue”, and no designation of any alternative place as the “seat”, combined with a supranational body of rules governing the arbitration, and no other significant contrary indicia, the inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding.”
Shashoua Principle applies where the parties have agreed the venue of arbitration but have not specified the seat of arbitration specifically. In such a case, the seat of arbitration would be the venue as agreed provided that the parties have selected a supranational body of rules to govern the arbitration and there is no other indication to the contrary.
Shashoua Principle originated in a judgment delivered by Justice Cooke of England and Wales High Court (Commercial Division) Decisions in Roger Shashoua and Ors. v. Mukesh Sharma3 , and was further accepted by the fiveJudge Bench of the Hon’ble Supreme Court in the case of Bharat Aluminium Company & Ors. v. Kaiser Aluminium Technical Services Inc. Herein below we reproduce relevant extract from the Judgment:
“34. …. When therefore there is an express designation of the arbitration venue as London and no designation of any alternative place as the seat, combined with a supranational body of rules governing the arbitration and no other significant contrary indicia, the inexorable conclusion is, to my mind, that London is the juridical seat and English law the curial law. In my judgment it is clear that either London has been designated by the parties to the arbitration agreement as the seat of the arbitration or, having regard to the parties’ agreement and all the relevant circumstances, it is the seat to be determined in accordance with the final fall back provision of section 3 of the Arbitration Act.”
The Shashoua Principle was further applied and re-affirmed by the Hon’ble Supreme Court of India, in cases of Enercon (India) Ltd. and Ors. v. Enercon GMBH and Anr.,4 and BGS SGS Soma JV v. NHPC Limited5 .
In India, an arbitral award can be challenged under Section 34 of the Arbitration and Conciliation Act, 1996 (India). If the juridical seat is based in England, then such an arbitral award cannot be challenged in India under Section 34. This is because Part I of Arbitration and Conciliation Act, 1996 (India) does not apply to international commercial arbitrations..
The same has also been held by a five-Judge Bench of the Hon’ble Supreme Court of India in Bharat Aluminium Company & Ors. v. Kaiser Aluminium Technical Services Inc6 , (hereinafter referred to as “BALCO”). The following is the extract of the relevant paragraph of the judgment:
“100. … Only if the agreement of the parties is construed to provide for the “seat”/“place” of arbitration being in India – would Part I of the Arbitration Act, 1996 be applicable. If the agreement is held to provide for a “seat”/“place” outside India, Part I would be inapplicable to the extent inconsistent with the arbitration law of the seat, even if the agreement purports to provide that the Arbitration Act, 1996 shall govern the arbitration proceedings.”
Furthermore, in Reliance Industries Ltd. v. Union of India7 (hereinafter referred as “Reliance Industries case”), the Hon’ble Supreme Court reiterated the BALCO’s ratio and held that if the parties have consciously agreed that the juridical seat of arbitration is London, then Part I of the Arbitration and Conciliation Act, 1996 (India) would not apply. The following is the extract of the relevant paragraph of the judgment:
“45. In our opinion, it is too late in the day to contend that the seat of arbitration is not analogous to an exclusive jurisdiction clause. This view of ours will find support from numerous judgments of this Court. Once the parties had consciously agreed that the juridical seat of the arbitration would be London and that the arbitration agreement will be governed by the laws of England, it was no longer open to them to contend that the provisions of Part I of the Arbitration Act would also be applicable to the arbitration agreement.”
Furthermore, in the above-mentioned Reliance Industries case, the Court refused to accept the argument that a foreign arbitral award can be challenged on grounds of violation of public policy in India and stated as under:
“58. Mr Ganguli has vehemently argued that the issues involved here relate to violation of public policy of India. Therefore, the applicability of Part I of the Indian Arbitration Act cannot be excluded even if the seat of arbitration is London. It would also, according to Mr Ganguli, make no difference that the arbitration agreement specifically provides for the arbitration agreement to be governed by the laws of England. According to Mr Ganguli, proper law of the contract would be relevant to determine the question as to whether the interim final award would be amenable to challenge under Section 34 of the Arbitration Act, 1996. In our opinion, the aforesaid submission of the learned counsel runs counter to the wellsettled law in India as well as in other jurisdictions.”
The Indian Judiciary, particularly the Hon’ble Supreme Court has tried to address issue pertaining to “seat”, “place” and “venue” of arbitration in several cases. Since, Section 20 of the Arbitration and Conciliation Act, 1996 uses the expression “place of arbitration”, there exists obscurity to what constitutes a juridical seat and what will be the curial law to governing the arbitration proceedings. The seat of arbitration plays a crucial role governing the arbitration proceedings and the fate of an arbitral award. The Hon’ble Supreme Court in BALCO by applying the Shashoua Principle has endeavoured to bring clarity to this issue, which was further clarified by the Court in BGS SGS case. However, it would be too soon to say that the difference between “seat” and “venue” can be illustrated in an exhaustive list. However, it is apposite to state that the recent judgments of the Supreme Court are progressive in nature and there is a likelihood that a Larger Bench of the Hon’ble court may come up with a more crystallised response to this intriguing issue.
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