Supreme Court on Seat vs Venue: albeit Malaysia’s Arbitral Award, Indian Court’s Jurisdiction
[Mreganka Kukreja]

 

The author is a 4th year student of SLS, Pune.

 

Introduction

The seat versus venue debate, owing to the simultaneous convergence and polarity of the two theories, has been a matter of long-standing deliberation before the courts. The Indian Judiciary in the case of Union of India v. Hardy Exploration and Production (India) Inc., [1] was once again required to substantiate the relationship between the two concepts. The author discusses the background of the case; the decision of the court and the implications of the pronouncement on the arbitration regime in India.

Background

The dispute between Hardy Exploration and Production (India) Inc. (hereinafterHardy”) and Union of India (hereinafter India”) arose under the Production Sharing Contract concerning oil and gas exploration rights in India’s territorial waters. In 2006, Hardy claimed that it had discovered natural gas in India’s Southeastern coasts, which, under the contract, entitled it to a five-year appraisal period to ascertain the commercial viability of the extraction. India disagreed on the proposition, claiming that the discovery was of crude oil, which entitled Hardy to an appraisal period of two years. On expiry of the two-year time period, India relinquished Hardy’s rights to the block on the ground that Hardy has failed to submit the commercial viability in a timely manner. This prompted Hardy to initiate arbitration proceedings against India. On February 2, 2013, the arbitrators, sitting in Kuala Lumpur, issued an arbitral award in favour of Hardy. India knocked the doors of Delhi High Court to set aside the said award under S.34 of the Indian Arbitration and Conciliation Act 1996 (hereinafter “the Act”). The Delhi High Court upheld Hardy’s preliminary objection that the court had no jurisdiction over the matter and Part I of the Act is inapplicable, thereby rejecting India’s argument that Kuala Lumpur was merely a physical venue where the arbitration between the parties was concluded. [2] India appealed this decision to the Supreme Court. A two-judge bench of the Supreme Court referred the matter to a larger bench to determine the seat of arbitration and consequently, Indian Court’s jurisdiction in the present case. [3] Therefore, the present case came before a three-judge bench of the Supreme Court. Earlier in the month of June, the United States District Court for Columbia had not considered India’s request to stay the order for enforcement of arbitral award owing to pending proceedings in the Indian Court, however, the court ultimately refused to enforce the arbitral award. [4] Hence, the US District Court did not make any observations on the seat of arbitration or the competency of the Indian courts to hear the matter.

Issue

When the arbitration agreement specifies the ‘venue’ of arbitration, but does not specify the ‘seat’ of arbitration, then on what basis and principle is the ‘seat’ of arbitration proceedings determined?

Judgment

[A.] A reflection on the existing jurisprudence and non-application of Sumitomo case

 The appellant had relied on the case of Sumitomo Heavy Industries Limited v. ONGC Limited & Ors [5] to argue that in the absence of an expressed seat of arbitration, the proper law of the contract (lex contractus), which in the present case was that of India, must govern the arbitration proceedings. The court observed that discussion in the Sumitomo case pertained to the Arbitration Act, 1940 and Foreign Awards (Recognition and Enforcement) Act, 1961. Further, the developments subsequent to the Bharat Aluminum Company v Kaiser Aluminum Technical Services Inc.[6] has rendered the Sumitomo case irrelevant and therefore, non-applicable in the present case. The court discussed a plethora of judicial pronouncements that had already discussed the relationship between the seat of and venue of arbitration [7] and explained the difference between the terms, pointing that while the former is concerned with the law of arbitration, the latter is merely restricted to a geographical location of the award. Thereafter, the Court reiterated that the arbitration clause of a contract has to be read in a holistic manner, and if there is a mention of venue and additional information pertaining to the venue, then depending upon the information appended, the court could conclude that there is an implied exclusion of Part I of the Act. The applications of these principles in the light of facts of the case were discussed as elaborated below.

[B.] Approaches when the parties have not agreed to the juridical seat

 The court discussed the course of action when the arbitration agreement does not provide for a seat of arbitration. First, the court said that the seat of arbitration could be inferred on the basis of the venue of the arbitration in conjunction with concomitant factors pointing towards the venue. [8] Second, on reading Art. 20 and Art. 31 of the UNCITRAL Model Law, the court said that in the absence of an expressed seat of arbitration, the arbitral tribunal is competent to ‘determine’ the seat of arbitration. The court discussed the case of Imax Corporation v. E-City Entertainment (India) Pvt. Limited, wherein the arbitration agreement provided that as per the ICC Rules, the arbitral tribunal would decide the place of arbitration, and therefore, Arbitral tribunal’s decision to hold the seat as London was upheld, as opposed to party’s plea for Paris to be the seat. [9]

[C.] The constructs of arbitral tribunal’s ‘determination’  

The court held that determination by the arbitral tribunal requires a ‘positive act to be done’ and the same must be considered contextually. Reliance was placed on Ashok Leyland Limited and State of T.N. and anr. as per which, the test of determination was laid down as an expressive opinion. [10.] In the present case, there was no adjudication and expression of opinion of the arbitral tribunal and the only act that was done was that the award was given in Kuala Lumpur. The Court held that Indian Courts have jurisdiction and the order passed by the Delhi High Court must therefore be side aside. The court’s position could be summarized in the following words:

“The word ‘place’ cannot be used as seat. To elaborate, a venue can become a seat if something else is added to it as a concomitant. But a place unlike seat, at least as is seen in the contract, can become a seat if one of the conditions precedent is satisfied. It does not ipso facto assume the status of seat. Thus understood, Kuala Lumpur is not the seat or place of arbitration and the interchangeable use will not apply in stricto sensu”

 Concluding Comment

The court, in this case, upheld the position that the venue of arbitration can be deemed as the seat if there is an additional factor as a concomitant. The court did not lay down the conditions precedent for a place to become a seat, as the same is required to be determined by a holistic approach considering the circumstances of the arbitration proceedings. It is questionable whether the decision of the Supreme Court provides any additional guidance on the subject because largely the Court has followed the approach that has already been well entrenched in the Indian arbitration regime. The court could have elaborated on the test to assess the ‘determination’ of the seat of by arbitral tribunal, which has otherwise been couched in vague and expansive terms. Certainly the court held that Kuala Lumpur was not the seat of arbitration; it did not consider what the actual seat of arbitration was and the applicable law sans proper specification. The agreement between the parties though silent on matters of seat and lex arbitri, had provided for India to be lex contractus and UNCITRAL Model Law as the lex fori. The court could have utilized this opportunity to establish, that in the absence of a seat and lex arbitri, what takes precedence– lex contractus or lex fori? This would have made the position on the subject more cogent. It is also yet to be seen that once the arbitral tribunals have determined the seat, does it remain open to the Indian courts to review the said determination of the tribunal. It is indeed not an exaggeration to say that a three judge bench of the Supreme Court has missed an opportunity to once and for all settle the position on the subject. A host of litigation being filed on the matter in future would be no surprise. However, what is indeed a sure-shot take away from this judgment is the importance of clear drafting of the arbitration agreements that have more often than not used the terms seat/venue interchangeably. This is undoubtedly imperative to avoid confusion and potential delays.

 

 

 

 

[1.] 2018 SCC OnLine SC 1640

[2.] 2015 SCC OnLine Del 14522

[3.] (2018) 7 SCC 374

[4.] Hardy Exploration & Production (India), Inc v Government of India, Ministry of Petroleum & Natural Gas, 2018 WL 2758220 (United States District Court, District of Columbia, 7 June 2018).

[5.] (1998) 1 SCC 305

[6.] (2012) 9 SCC 552

[7.] Indtel Technical Services Private Ltd. v. W.S. Atkins Rail Limited, (2008) 10 SCC 308; Videocon Industries Limited v. Union of India and another, (2011) 6 SCC 161; Reliance Industries Limited and another v. Union of India, (2014) 7 SCC 603; Shashoua and Ors. v. Sharma, 2009) EWHC 957 (Comm.); Harmony Innovation Shipping Ltd. v. Gupta Coal India Limited and another, (2015) 9 SCC 172; Eitzen Bulk A/s & others v. Ashapura Minechem Limited and another, (2016) 11 SCC 508; Imax Corporation v E-City Entertainment (India) Pvt. Limited, (2017) 5 SCC 331

[8.] Union of India v Reliance Industries Limited & Ors, (2015) 10 SCC 213 Harmony Innovation Shipping Limited v Gupta Coal India Limited & Anr., (2015) 9 SCC 172

[9.] (2017) 5 SCC 331

[10.] (2004) 3 SCC 1

 

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