What significance do the terms “place”, “seat” and “venue” of arbitration have in a dispute resolution clause? Are they not key to an arbitration proceeding? Is their meaning clear to a layman and to lawyers? Tracing the recent law on this issue would be certainly interesting!
The Supreme Court of India, in the case of Union of India vs. Hardy Exploration, (2018) 7 SCC 334 (“Hardy Exploration case”), held that the terms “venue” and “seat” of arbitration cannot be used interchangeably and a venue becomes seat only when a contrary intention has been attached to it. However, this interpretation was regarded bad in law by an equal strength bench in the case of BGS SGS Soma vs. NHPC Ltd., (2019) SCC Online SC 1585 (“BGS Soma case”), in which the Hon’ble Supreme Court held that “place” of arbitration is akin to “seat” of arbitration.
The Hon’ble Supreme Court, however, has taken a different view, from the BGS Soma case, in Mankatsu Impex Private Limited vs. Airvisual Limited, Arbitration Petition No. 32 of 2018, decided on 05 March 2020 (“Mankatsu Case”).
The facts of this case are relevant for further discussion. Mankatsu Impex Private Limited (“MIPL”) in this case was in the business of supplying of air purifiers, air quality monitors, etc., while Airvisual Limited (“AL”) was a manufacturer of these products. Suffice it to stat that MIPL and AL had entered into a contract for sale and purchase of these products.
“17. Governing Law and Dispute Resolution
17.1 This MoU is governed by the laws of India, without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction.
17.2 Any dispute, controversy, difference or claim arising out of or relating to this MoU, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered in Hong Kong. The place of arbitration shall be Hong Kong. The number of arbitrators shall be one. The arbitration proceedings shall be conducted in English language.”
AL was subsequently acquired by IQAir AG (“IQAir”), and right after AL was acquired, IQAir communicated its intention, to MIPL, of not assuming any legal obligations arising out of any agreement signed between AL and MIPL. However, IQAir was ready to sell their manufactured product (modified version) at a price more than what was contemplated under the contract between MIPL and AL, which was not acceptable. Consequently, the arbitration clause was invoked by MIPL.
MIPL apart from filing a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter, the “Act”) before the Hon’ble High Court of Delhi, also filed a petition, before the Hon’ble Supreme Court under Section 11(6) of the Act, for the appointment of an arbitrator.
MIPL contended that Clause 17.1 of the contract stipulated that the contract is governed by the laws of India, therefore the courts at New Delhi have the jurisdiction and not Hong Kong as it is just a “venue” and not the juridical “seat”. To buttress its argument, MIPL relied upon the decision given by an equal strength bench of the Supreme Court in the Hardy Exploration case, wherein, it was held that “venue” can become “seat” only if – no condition is postulated; if a condition precedent is attached to the term “place”, the said condition has to be satisfied first for “venue” to be equivalent to seat.
MIPL also contended that the decision in the case of BGS Soma case was given by a three-judge bench and therefore the declaration by the later Bench that Hardy Exploration case is not a good law, may not tantamount to an overriding of Hardy Exploration case as both the decisions were given by equal strength benches. Moreover, MIPL contended that the parties have agreed that the proper law of the contract will be Indian laws. However, the contract was silent on the proper and curial law of the arbitration proceedings and therefore Clause 17.1 would govern the proper and curial law. Hence, MIPL prayed for appointment of sole arbitrator due to the applicability of Part-I of the Act (as courts at New Delhi will have jurisdiction).
IQAir however contended that as per Clause 17.2 of the contract, the place of arbitration is Hong Kong, which implies that seat of arbitration is located outside India, hence the applicability of Part-II of the Act in the present dispute. IQAir relied on the decision rendered in BGS Soma case, wherein, it was held by the Apex Court that “venue” is really the “seat” of arbitration proceedings. IQAir also concluded that the term “administered” used in Clause 17.2 of the contract clearly shows that the parties have agreed that the arbitration between the parties would be seated in Hong Kong.
On “seat” of arbitration proceedings, the Apex Court observed that “place” of arbitration cannot be construed as the “venue” of arbitration proceedings. However in the context of the arbitration clause in the contract, the Apex Court held that the words, “the place of arbitration” shall be “Hong Kong”, have to be read along with Clause 17.2, which provides that “…any dispute, controversy, difference arising out of or relating to the MoU “shall be referred to and finally resolved by arbitration administered in Hong Kong…..”. The Apex Court held that the above stipulation indicates that the parties have agreed that the arbitration be seated at Hong Kong and that laws of Hong Kong shall govern the arbitration proceedings as well as have power of judicial review over the arbitration award.
Therefore, since the arbitration is seated at Hong Kong, the petition filed by MIPL under Section 11(6) of the Act was held to be not maintainable as Part-1 of the Act is not applicable in this scenario and therefore the petition was dismissed. Essentially, the Apex Court has held that the terms “seat of arbitration” and “venue of arbitration” cannot be used inter-changeably and that the expression “place of arbitration” cannot be the basis to determine the intention of the parties that they have intended that place as the “seat” of arbitration. The intention of the parties as to the “seat” should be determined from other clauses in the agreement and the conduct of the parties.
Suffice it to state that the relevance of the “seat of arbitration” cannot be undermined/underestimated. “Seat” of the arbitration determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award. The situs is not just about where an institution is based or where the hearings will be held.
In our view, the Hon’ble Supreme Court in the Mankatsu case has chosen not to comment on the correctness of the aforesaid judgment as the facts and circumstances of the instant case are different. Therefore, the judgment does not modify the position as it stood in the BGS Soma case. However, it has taken a view different from BGS Soma case by ruling that mere determination of “place” of arbitration does not indicate the “seat” of arbitration; acts of the parties are also to be considered.
In conclusion, we would only like to highlight that the Hon’ble Supreme Court in the Mankatsu Case has taken a view similar to Hardy Exploration case but divergent from BGS Soma case. It is significant that all the three decisions are given by benches of equal strength. The Apex Court’s decision in the Mankatsu case has however added to the lack of clarity on the subject. It also means that lawyers and parties to contract cannot underestimate the importance of clearly defining these terms in their contracts.
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