VENUE OF ARBITRATION: AN IN-DEPTH ANALYSIS

FINAL DRAFT SUBMITTED IN THE PARTIAL FULFILLMENT OF THE COURSE TITLED –

ALTERNATIVE DISPUTE RESOLUTION

ACADEMIC SESSION – 2019-20

SUBMITTED TO:

Mr. HRISHIKESH MANU

FACULTY OF ALTERNATIVE DISPUTE RESOLUTION

SUBMITTED BY:

DEEPTANGSHU KAR

B.A., LL.B. (Hons.)

Roll No.: 1723

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 TABLE OF CONTENTS
ACKNOWLEDGEMENT.........................................................................................................3

DECLARATION.......................................................................................................................4

INTRODUCTION:....................................................................................................................5

VENUE OF ARBITRATION....................................................................................................9

RELATION BETWEEN VENUE OF ARBITRATION AND SEAT OF ARBITRATION. 15

RELEVANT CASE LAWS.....................................................................................................22

CONCLUSION........................................................................................................................28

BIBLIOGRAPHY....................................................................................................................29

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 ACKNOWLEDGEMENT
On this occasion of completion of my project work, I would like to express my indebtedness
towards my respected faculty, Mr. Hrishikesh Manu, who was always there to assist me in
this journey. He guided me with infinite patience and warmth throughout the course of
making this project work. Whenever I visited him for any suggestion, he used to show me
one or the other effective way out. As per his suggestion, I went through several books from
CNLU library and visited many websites for the purpose of this project. His contribution is
invaluable for the completion of this project.

Other than him, I would like to thank my roommate Amol Verma who helped me out by
providing with some very important books which were unavailable in the library.

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 DECLARATION
I hereby declare that the work submitted in the B.A., LL.B. (Hons.) Project Report entitled
“VENUE OF ARBITRATION: AN IN-DEPTH ANALYSIS” submitted at Chanakya
National Law University is an original work undertaken by me carried out under the
supervision of Mr. HRISHIKESH MANU. I made this project work all by myself by burning
the midnight lamp. There is no kind of copyright violation on my part.

NAME OF CANDIDATE: DEEPTANGSHU KAR.

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

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INTRODUCTION:
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

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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.

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.”

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:

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“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.

“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

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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.

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.

RESEARCH QUESTIONS:

1. What are provided in the Arbitration and Conciliation Act 1996 regarding Venue of
arbitration?
2. How Venue of arbitration is different from Seat of arbitration?
3. What are the relevant case laws in this regard?

HYPOTHESIS:
The researcher will seek to establish that Venue of arbitration is different from Seat of
arbitration.

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VENUE OF ARBITRATION
The first Indian Act on arbitration law came to be passed in 1899 known as Arbitration Act,
1899. It was based on the English Arbitration Act, 1899. Thereafter, the Arbitration Act,
1940 ("1940 Act") was enacted to consolidate and amend the law relating to arbitration.

The 1940 Act was based on the English Arbitration Act, 1934. While several changes were
made to the English Arbitration law, there were, however, no corresponding changes the law
of arbitration as it existed in India under the 1940 Act. The law of arbitration in India
remained static.

Juridical seat of arbitration, as a concept, did not find place in the 1940 Act. Under the 1940
Act once an award was signed and filed in court, a judgement in terms of the award would
follow. The court before which the award was to be filed was a court having jurisdiction to
decide questions forming the subject matter of the reference to arbitration if the same had
been the subject matter of a suit.

The 1940 Act was repealed by The Arbitration Act, 1996 (“1996 Act”). While the preamble
of the 1996 Act stated that the provisions of UNCITRAL Model Law have been adopted for
the purpose of “establishment of a unified legal framework for the fair and efficient
settlement of disputes arising in international commercial relations” a perusal of the
provisions of the 1996 Act, particularly those in relation to the place of arbitration and
jurisdiction of the courts, will show that elements of both the 1940 Act along with the
UNCITRAL Model Law were adopted in the 1996 Act.

A juxtaposition of the provisions of the 1996 Act with the 1940 Act and the UNCITRAL
Model Law, will reveal that Section 20 and Section 31(4) of the 1996 Act are a complete
replica of Article 20 and 31(3) of the UNCITRAL Model Law and Section 2(1)(e) and
Section 42 of the 1996 Act are predominantly Section 2(c) and Section 31(4) of the 1940 Act,
with minor modifications.

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Despite the fact that a significant importance was given to juridical seat of arbitration under
the 1996 Act, the jurisdiction of the Courts over such arbitral proceedings remained with the
civil court and high court exercising original jurisdiction. The conflict between the juridical
seat and jurisdiction of the court remained as a result of which the distinction between seat
and venue wasn’t properly distinguished.

In 2012, a five-judge bench of the Supreme Court in Bharat Aluminium Company vs. Kaiser
Aluminium Technical Services Inc1  (BALCO) clarified the distinction between seat of
arbitration and the jurisdiction of the Courts as under:

“…. In our view, the legislature has intentionally given jurisdiction to two courts i.e. the
court which would have jurisdiction where the cause of action is located and the courts
where the arbitration takes place. This was necessary as on many occasions the agreement
may provide for a seat of arbitration at a place which would be neutral to both the parties.
Therefore, the courts where the arbitration takes place would be required to exercise
supervisory control over the arbitral process. …. In such circumstances, both the Courts
would have jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the
suit is situated and the courts within the jurisdiction of which the dispute resolution, i.e.,
arbitration is located.”

The above observation in BALCO were understood to give concurrent jurisdiction over the
arbitral proceedings to (i) courts possessing the subject-matter/cause of action jurisdiction
and (ii) courts where the place/seat of arbitration was designated.

What ensued post BALCO, was a clash between the territoriality principle, as espoused under
Section 20 of the 1996 Act and the cause of action/subject-matter jurisdiction of the courts, as
per Section 2(1)(e) of the 1996 Act.

The cases that followed post BALCO clarified that concurrent jurisdiction is vested in the
courts of seat and venue, only in case of domestic arbitrations when the seat of arbitrations is
in India as there is no risk of conflict of judgments of different jurisdictions, as all courts in
India would follow the Indian Law.2

In International Commercial Arbitrations however venue can often be different from the seat
of arbitration. In such circumstances, the hearing of the arbitration will be conducted at the
1
ABC Laminart (P) Ltd. v. A.P. Agencies, (1989) 2 SCC 163.
2
 (1952) 2 QB 329, 342 (CA).

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venue fixed by the parties, but this would not bring about a change in the seat of the
arbitration. Once the seat of arbitration has been fixed, in international commercial
arbitrations, it would be in the nature of exclusive jurisdiction to exercise the supervisory
powers over the arbitration. The considerations for designating a convenient venue in
international commercial arbitration cannot be understood as conferring concurrent
jurisdiction over the arbitration proceedings or disputes in general.3

However, a division bench of the Supreme Court in Indus Mobile Distribution Private

Limited vs Datawind Innovations Private Limited4 (“Indus Mobile”) while dealing with the
issue of seat and jurisdiction under domestic arbitration held that,

".... once seat of arbitration is designated it is akin to an exclusive jurisdiction clause ….

Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed
in courts, a reference to “seat” is a concept by which a neutral venue can be chosen by the
parties to an arbitration clause. The neutral venue may not in the classical sense have
jurisdiction — that is, no part of the cause of action may have arisen at the neutral venue and
neither would any of the provisions of Sections 16 to 21 of CPC be attracted. In arbitration
law however, as has been held above, the moment “seat” is determined, the fact that the seat
is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of
regulating arbitral proceedings arising out of the agreement between the parties."

The division bench of the Calcutta High Court 5 however deferred with the dictum in Indus
Mobile. The Calcutta High Court held that in Indus Mobile, the choice of seat of arbitration
and the exclusive jurisdiction clause, both provide for the courts of Mumbai and does not deal
with a situation where the seat and the exclusive jurisdiction are two different courts. Further,
Calcutta High Court observed that Indus Mobile failed to see the distinction between
international arbitration and domestic arbitration and the laws which are applicable to the
international arbitration cannot be applied directly to the domestic arbitration.

The Calcutta High Court while recognizing party autonomy held that it is not open to the
parties by agreement to confer by their agreement jurisdiction on a Court which it does not
possess under the Code. When two Indian parties enter into an arbitration agreement where
the seat of the arbitral reference is in India, the choice of such seat has no impact on the lex
3
Reliance Industries Ltd. v. Union of India (2014) 7 SCC 603; Videocon Industries Limited v. Union of India and
Anr. MANU/SC/0598/2011.
4
(2017) 7 SCC 678.
5
Debdas Routh v/s Hinduja Leyland Finance Ltd. & Anr. AIR 2018 Cal 322.

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arbitri since the arbitration law is uniform all over the country. The concept of juridical seat
of arbitration is irrelevant in any domestic arbitration since the arbitration law does not
change from one place to another within this country.

Further, if a party to an agreement which is governed by a forum selection clause is of the

opinion that the forum selection clause is inoperative or incapable of being enforced because
the designated court is not authorised under the law to receive the action, the petition or the
plaint must clearly say so and indicate the reasons why the designated court would be
incompetent under the law to entertain any action arising out the agreement.

A similar view was taken by the Division Bench of Delhi High Court in Antrix Corporation
Ltd v. Devas Multimedia Pvt. Ltd.6 (“Antrix”) where the court observed that if the parties had
designated the seat as New Delhi and also provided an exclusive forum selection clause in
favour of the courts at New Delhi, could it be said that this court would have exclusive
jurisdiction over all applications filed under the Arbitration Act. Merely choosing a seat,
cannot amount to exercising such a right of exclusive forum selection. If seat were equivalent
to an exclusive forum selection clause in Part-I arbitrations, then every time parties would
designate a seat, that would in effect mean that Section 42 would have no application.

In light of the above judgements and other similar judgement of the Mumbai High Court the
conflict between Juridical Seat and Jurisdiction of Court continued.

The above rationale of the Calcutta, Mumbai and Delhi High Courts however did not meet
favour with the Supreme Court. In BGS SGS Soma JV v. NHPC Ltd (“BGS”)7 the Supreme
Court while holding that the law stated by the Bombay and Delhi High Courts is incorrect,
overruled the judgements and clarified that:

1. It is incorrect to state that BALCO reinforces the concurrent jurisdiction. BALCO

clearly and unmistakably states that the choosing of a “seat” amounts to the choosing of
the exclusive jurisdiction of the Courts at which the “seat” is located.
2. Section 42 of the 1996 Act is meant to avoid conflicts in jurisdiction of Courts by
placing the supervisory jurisdiction over all arbitral proceedings in connection with the
arbitration in one Court exclusively. This is why the section begins with a non-obstante
clause, and then goes on to state “…where with respect to an arbitration agreement any

6
2018 SCC OnLine Del 9338.
7
2019 (6) ArbLR393 (SC).

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 application under this Part has been made in a Court…” It is obvious that the application
made under this part to a Court must be a Court which has jurisdiction to decide such
application. The subsequent holdings of this Court, that where a seat is designated in an
agreement, the Courts of the seat alone have jurisdiction, would require that all
applications under Part I be made only in the Court where the seat is located, and that
Court alone then has jurisdiction over the arbitral proceedings and all subsequent
applications arising out of the arbitral agreement. So read, Section 42 is not rendered
ineffective or useless.
3. Where it is found on the facts of a particular case that either no “seat” is designated by
agreement, or the so called “seat” is only a convenient “venue”, then there may be
several Courts where a part of the cause of action arises that may have jurisdiction.
Again, an application under Section 9 of the Arbitration Act, 1996 may be preferred
before a court in which part of the cause of action arises in a case where parties have not
agreed on the “seat” of arbitration, and before such “seat” may have been determined, on
the facts of a particular case, by the Arbitral Tribunal under Section 20(2) of the
Arbitration Act, 1996. In both these situations, the earliest application having been made
to a Court in which a part of the cause of action arises would then be the exclusive Court
under Section 42, which would have control over the arbitral proceedings.

The Supreme Court went a step further and clarified that:

1. Whenever there is the designation of a place of arbitration in an arbitration clause as

being the “venue” of the arbitration proceedings, the expression “arbitration
proceedings” would make it clear that the “venue” is really the “seat” of the arbitral
proceedings, as the aforesaid expression does not include just one or more individual or
particular hearing, but the arbitration proceedings as a whole, including the making of an
award at that place.
2. Where the language indicates that arbitral proceedings “shall be held” at a particular
venue would also indicate that the parties intended to anchor arbitral proceedings to a
particular place, signifying thereby, that that place is the seat of the arbitral proceedings.
This, coupled with there being no other significant contrary indicia that the stated venue
is merely a “venue” and not the “seat” of the arbitral proceedings, would then
conclusively show that such a clause designates a “seat” of the arbitral proceedings.

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3. In an International context, if a supranational body of rules is to govern the
arbitration, this would further be an indicia that “the venue”, so stated, would be the seat
of the arbitral proceedings.
4. In a national context, this would be replaced by the Arbitration Act, 1996 as applying
to the “stated venue”, which then becomes the “seat” for the purposes of arbitration.

While, the Supreme Court has provided the much needed clarity on the aspect of seat of
arbitration and exclusive jurisdiction of courts, by reiterating the law laid down in Indus
Mobile, however, in my humble view, in doing so party autonomy has been given a go by.
The Supreme Court ought to have considered that in the case of domestic arbitrations where
the seat of the arbitral reference is in India, the choice of such seat having no impact on
the lex arbitri since the arbitration law is uniform all across the country, the term “seat” shall
be construed as “venue” where the arbitration agreement provides for an exclusive
jurisdiction clause.

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RELATION BETWEEN VENUE OF ARBITRATION AND SEAT OF
ARBITRATION
Globalisation has made the world a small place. With drastic increase in transnational
transactions, there has also arisen an urgent need for a mechanism for quick and efficient
method of adjudicating disputes, and that explains the rise of the era of international
commercial arbitrations. Transactions involving entities belonging to different nationalities
invite the supervisory jurisdictions of their respective nations. It is in this context that it
becomes necessary to explain the concept of seat and venue under the Arbitration and
Conciliation Act, 1996 (the 1996 Act), judicial precedent that has comprehensively
interpreted the 1996 Act, and the subsequent amendment to the 1996 Act in 2015.

International commercial arbitrations

The 1996 Act defines the term “international commercial arbitration” under Section 2(1)(f).
Due to the involvement of parties of different nationalities, there is always an issue of conflict
of laws between two or more jurisdictions. The doctrine of party autonomy plays a vital role
in avoiding such conflicts between jurisdictions. It permits the parties to choose the seat of
arbitration, the venue of the arbitration and the law that is applicable to the contract itself.
Although the dominant issue pertains to conflict of laws and law of arbitration, as much as it
is concerned with choice of law and arbitral proceedings, it is essential to also briefly discuss
the law of contract for addressing the issue of legality of clauses in a contract which exclude
jurisdiction of courts.

Contract law
It is a well-settled position of law in India that parties by contract cannot oust the jurisdiction
of courts absolutely, as such clauses are contrary to public policy and are void. However,
referring disputes to an Arbitral Tribunal for adjudication instead of courts is not barred. Such
reference is permitted as it does not entirely oust the jurisdiction of courts. Reference of
potential disputes to arbitration only creates a mechanism for dispute resolution whereby
questions of fact and law may be decided by an Arbitral Tribunal. This adjudication is finally
subject to a court’s approval. Lord Denning’s observation in Lee v. Showmen’s Guild of
Great Britain8 summarises the aforesaid position:
… parties cannot by contract oust the ordinary courts from their jurisdiction. They can, of
course, agree to leave questions of law, as well as questions of fact, to the decision of the
domestic tribunal. They can, indeed, make the tribunal the final arbiter on questions of fact,

8
 (1952) 2 QB 329, 342 (CA).

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but they cannot make it the final arbiter on questions of law. They cannot prevent its
decisions being examined by the courts. If parties should seek, by agreement, to take the law
out of the hands of the courts and put it into the hands of a private tribunal, without any
recourse at all to courts in case of error of law, then the agreement to that extent is contrary to
public policy and void.

The Contract Act, 1872 protects contracts which refer disputes to arbitration from being
declared void. The parties being permitted to exclude jurisdiction of courts for adjudication of
disputes, the next question that arises is regarding the permissibility to choose the law
applicable to the contract and arbitral proceedings.
As mentioned earlier, party autonomy is the cornerstone of the law of arbitration. The
signatories to the contract are free to decide not only the law that is applicable to the contract,
but also the law applicable to the arbitration agreement (lex arbitri), and the procedural law
governing the arbitration (curial law)9.
The Court of Appeal in England in Naviera Amazonica Peruana SA v. Compania
International de Seguros del Peru10 has summarised the relevant laws that are applicable to a
contract involving an arbitration agreement, which are as follows:
(i) law governing the substantive contract (applicable law);
(ii) law governing the agreement to arbitrate, and the performance of that agreement (juridical
seat or lex arbitri); and
(iii) law governing the procedure of the arbitration  (curial law).
In international commercial arbitrations, incorporating clauses that choose the aforesaid laws
clearly and distinctly is of vital importance. Not every dispute which arises pursuant to an
agreement is covered by arbitration. The arbitration clause may specify the kind of disputes
which may be referred to arbitration. Therefore, the courts exercising jurisdiction over the
disputes which can be referred to arbitration and courts exercising jurisdiction over any other
disputes not covered by the arbitration agreement can be different. Specifying the law
applicable to the contract, lex arbitri and the curial law helps ascertain the courts which have
supervisory jurisdiction. It is possible that courts in the aforementioned situations may be
different; therefore, not stating the same in express terms can prove to be perilous for parties.

The aforesaid laws are discussed hereinafter.

Applicable law — Contract

9
NTPC v. Singer Co., (1992) 3 SCC 551.
10
(1988) 1 Lloyd’s Rep 116 (CA).

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A contract creating obligations between parties requires a legal system in accordance with
which the obligations may be fulfilled. The law governing the performance of the obligations
under the contract may be distinct from the law that is applicable to the arbitration clause.
The term “applicable law” or “proper law of the contract” is the law that governs the
discharge of the contract itself. In case of disputes arising, the Arbitral Tribunal applies the
applicable law to determine the substantive dispute11. Applicable law or the proper law of the
contract are terms which refer to a legal system in which a contract may be executed.
Applicable law — Arbitration agreement
A clause referring parties to arbitration in case of a dispute arising between them is treated as
a separate agreement. Although the clause is part of the main contract, the clause stands on a
different pedestal and is therefore treated as a separate agreement. Therefore, any dispute
pertaining to the validity of the contract itself, does not render the arbitration agreement
inoperative, except in cases involving egregious fraud that perpetrates the main agreement
itself12. The law applicable to the arbitration clause can be classified in two categories,
namely, the juridical seat (lex arbitri), and the curial law.
Juridical seat or lex arbitri
The law that is applicable to the arbitration proceeding is the law of the juridical seat of the
arbitration or more commonly referred to as lex arbitri. The lex arbitri would determine the
courts which can exercise supervisory jurisdiction over the arbitration proceedings. Parties
may choose as the seat of arbitration proceeding, a legal system which has no nexus with the
parties simply to obviate the possibilities of bias or unfamiliarity, that may exist in a system
which naturally exercises jurisdiction over a party.

“Lex arbitri” may be best explained by referring to the judgment in XL Insurance
Ltd. v. Owens Corning13. An American party A entered into a contract with a British party B.
The substantive law of the contract was New York State law and the agreement to arbitrate
was subject to the English Arbitration Act, 1996. Insured party A brought proceedings before
the Delaware Court for indemnification of certain losses which were insured.
Insurer B initiated proceedings in London seeking to restrain A from pursuing proceedings in
Delaware. The English Court held that the choice of law (proper law) being different from the
lex arbitri would not invalidate the arbitration clause. Since the parties have chosen to seek
refuge under the English Law for arbitration, the provisions of the English Arbitration Act
11
Arbitration of Commercial Disputes: International and English Law and Practice, Andrew Tweeddale, Keren
Tweeddale, pp. 180-181.
12
A. Ayyasamy v. A. Paramasivam, (2016) 2 SCC 386.
13
(2000) 2 Lloyd’s Rep 500 : (2001) 1 All ER (Comm) 530.

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would be applicable and English Law shall solely govern the matters falling within the scope
of the arbitration agreement/clause, including formal validity of arbitration agreement and the
jurisdiction of the arbitrators.
Curial law
The procedural law applicable to the conduct of arbitration is known as the curial law. It is
synonymous with the procedural law in litigation. Curial law will almost always be the same
as lex arbitri. It governs the internal arbitration procedures like commencement of
proceedings, appointment of arbitrators, pleadings, manner of conducting evidence, etc.

Arbitration and Conciliation Act, 1996 (the 1996 Act)

The 1996 Act is fraught with vague and ambiguous sections. The provisions of the 1996 Act
themselves did not incorporate the concepts of seat and venue and the same have largely been
developed by judicial precedent. Although, a constant intervention by the judiciary is an
anathema to the process of arbitration, it has almost proved to be beneficial for the
development of the law in India. Due to lacunae in the Act, the Law Commission submitted
its 246th Report suggesting a plethora of amendments radically reforming the entire 1996
Act. Despite having recommended comprehensive changes, very few suggested amendments
were actually enacted by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of
2016) (the 2015 Amendment).

Before adverting to the case law that has supplied interpretations to the 1996 Act and the
2015 Amendment, a brief analysis of the provisions of the 1996 Act are necessary to
understand the lacunae in the legislation, the judicial precedent remedying the lacunae, and
the new position of law under the 2015 Amendment.

The 1996 Act is divided in four parts. Parts I, II and IV of the 1996 Act govern arbitrations,
and Part III governs conciliation. For the sake of the present article, Part I is relevant. Part I
of the 1996 Act, espouses all the provisions governing the conduct of arbitration proceedings
taking place in India, and the extent of judicial intervention which may be sought to assist the
process.

A conflict between two jurisdictions would necessarily arise only in international commercial
arbitrations. The term “international commercial arbitration” is defined under Section 2(1)(f)
of the 1996 Act and is self?explanatory. The provisions relevant for understanding
conspectus of seat and venue under the 1996 Act are Sections 2(2) and 20. Section 2(2) in an
ominously cryptic manner reads as follows:
2(2). This Part shall apply where place of arbitration is in India.

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On a bare perusal of the said section, it seems that the 1996 Act was applicable only to
arbitrations which were taking place in India. Whether “place” meant seat (conferring
jurisdiction to Indian courts) or merely venue was clearly ambiguous begging judicial
interpretation. Further, Section 20 also in a similarly ambiguous manner while granting
parties the autonomy to decide the “place” of arbitration, failed to distinguish between seat
and venue. The section reads as follows:
20. Place of arbitration.—(1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in sub-section (1), 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.
(3) Notwithstanding sub-section (1) or sub-section (2), the Arbitral Tribunal may, unless
otherwise agreed by the parties, meet at any place it considers appropriate for consultation
among its members, for hearing witnesses, experts or the parties, or for inspection of
documents, goods or other property.                                                                                                                     
(emphasis supplied)
The word “place” necessarily should connote different meanings in the sub-sections. A bare
perusal of the section would imply that the parties are at liberty to choose only the “place”
(meaning venue) of arbitration and nothing further. This thoroughly undermines and restricts
the autonomy of parties to choose the convenient legal systems and the manner in which
arbitrations can be conducted. The concept of party autonomy under Section 20 was
ultimately consolidated by the Supreme Court by furnishing it with proper interpretations. An
analysis of the judgments is vital to understand the evolution of the 1996 Act.

Report 246 — Law Commission of India

The Law Commission of India in 2014 suggested sweeping amendments to the 1996 Act, that
would radically change the arbitration jurisprudence developed in India. The Report
discussed in great detail the need to amend Sections 2(2) and 20. The changes suggested
replacing the word “place” with the words “seat” and “venue”, in accordance with the
explanation provided by BALCO14.
The amendment further proposed addition of a proviso to Section 2(2) permitting parties to
choose to remain under the supervisory jurisdiction of Indian courts. The proviso was
suggested to make Section 2(2) a derogable provision in order to extend the doctrine of party
autonomy. The recommended proviso read as follows:

14
Page 52 — Law Commission Report.

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Provided that subject to an express agreement to the contrary, provisions of Sections 9, 27,
37(1)(a) and (3) shall also apply to international commercial arbitration, even if the seat of
arbitration is outside India, if an award made, or that which might be made in such place
would be enforceable and recognised under Part II of this Act.
The Report further suggested replacing the word “place” in Section 20(1) with the words
“seat” and “venue”, replacing the word place with “seat” in Section 20(2) and with “venue”
in Section 20(3). However, these amendments were not enacted. Nonetheless, the same does
not prove to be perilous since the section has been extensively interpreted by the Supreme
Court in BALCO15.
2015 Amendment
Although not entirely relevant for the present subject, it is essential to state that the 2015
Amendment is not at all conducive for the philosophy of arbitration. The Assembly Debates
contain absolutely no discussions on any questions of law, and is mostly confined to policy.
The 1996 Act has been subject to constant judicial scrutiny and various interpretations of the
provisions of the 1996 Act find their rationale in judgments. Despite such history of constant
judicial intervention for supplying interpretation, none of the problems concerning the legal
ramifications of the amendment were discussed in Parliament.

Not having discussed any legal ramifications that the amendment might have, and, passing
the legislation with only policy in mind, it is not surprising that several cases concerning
interpretation of the amended provisions are pending before the Supreme Court of India. The
Law Commission Report had suggested certain changes which would have rendered the
arbitration process easier. Not having incorporated the substantial changes suggested by the
Report, the legislation once again remains to be in flux, necessitating constant judicial
interpretation.

Not all the amendments discussed hereinabove have been incorporated in the 1996 Act.
Inclusion of the words “seat” and “venue” would have further established the proposition laid
down in BALCO, safeguarding the interpretation from further scrutiny and adverse
interpretations. The Amendment Act has, however, incorporated the proviso to Section 2(2)
suggested by the amendment. Inclusion of the proviso does not fundamentally alter the nature
of the 1996 Act, which, as per BALCO is a seat-centric legislation. Having granted the parties
the autonomy to choose to retain the jurisdiction of Indian courts, the amendment has
redressed the lacuna that existed in the 1996 Act. The parties involved in foreign seated

15
 (2012) 9 SCC 552.

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international commercial arbitrations can file proceedings under Section 9 in order to secure
the assets which may be necessary to realise their claims.

RELEVANT CASE LAWS

Bhatia International v. Bulk Trading SA16

16
 (2002) 4 SCC 105.

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Briefly stating facts, the parties had entered into a contract wherein the arbitration clause
provided that the arbitration was to be as per rules of International Chamber of Commerce
(ICC). Disputes having arisen between the parties, the respondent initiated the arbitration
proceedings at ICC. In addition to such initiation, the respondent also filed an application
under Section 9 of the 1996 Act seeking an injunction against the appellants restraining them
from alienating in any manner their business assets and properties. The District and High
Court both held that the courts in India have jurisdiction to adjudicate the application despite
the “place of arbitration” being outside India. These orders were challenged before the
Supreme Court. The simple contention raised by the appellant before the Supreme Court
based on a plain reading of Section 2(2) was that, unless the international commercial
arbitration is taking place in India, Part I will not apply.
What should have been contended for the sake of conceptual clarity was that the expression
“place” used in Section 2(2) of the 1996 Act connotes “seat” and not merely the “venue” of
the arbitration. The implication of such submission would have been that the 1996 Act is a
seat-centric legislation, and therefore Part I would apply to international commercial
arbitration, only when the seat of arbitration was in India. Conferring such interpretation on
Section 2(2) would have obviated any inconsistency with the rest of the Act that the court
apprehended. Instead, the court under the garb of “judicial art imbued with creativity and
realism” interpreted Section 2(2) in a manner because of which the distinction between “seat”
and “venue” (in this case the word “place” means venue) was obliterated. According to the
interpretation cast by the Supreme Court, an international commercial arbitration where an
Indian party is involved, being proceeded with in any part of the world, would confer
jurisdiction on Indian courts to exercise powers under Part 1 of the 1996 Act.
Although the intention of the Court seemed to be noble so far as it wanted to grant parties a
remedy to secure or freeze assets which would in the future help realising their claims, the
consequences were far reaching. Rightly, a Constitutional Bench of the Supreme Court
in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.17 held as follows.

Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc.18 (BALCO)

The Supreme Court, while dealing with a poorly drafted legislation, vide this judgment
provided conceptual clarity to the legislation. The Supreme Court interpreted the word
“place” to mean “seat” or “venue” depending on the section in which the word was used. The

17
 (2012) 9 SCC 552.
18
Ibid.

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Court while dealing with Sections 2(2) and 20, extensively laid out the concept of seat and
venue, which have already been discussed hereinabove.

Expressly overruling the interpretations cast on Section 2(2) in Bhatia International19, the
Court observed that the section has to be interpreted to mean that only when the seat/place of
arbitration is in India, will Part I apply, restoring the distinction between seat and venue.
Further consolidating the doctrine of seat and venue under the 1996 Act, the court clarified
that the term “place” used in Sections 20(1) and (2) would connote “seat” and the term
“place” used in Section 20(3) would connote “venue”. Reading Section 2(2) with Section 20,
the Court inevitably concluded that the Act has no extraterritorial application.
The Court was conscious of the fact that the legislation being seat-centric, parties will be
rendered remediless in case they want to secure the assets of the party against which a claim
lies, by filing an application under Section 9. However, making available the remedy of
Section 9 to parties who have chosen the seat to be outside would involve interpreting
Section 9 in a manner that it was never intended to be. Any other interpretation being
conferred on Section 9 would only amount to judicial overreach and therefore the court
rightly stated that such errors, if any, are matters to be redressed by the legislature.

Subsequently the Supreme Court in its judgment in Enercon (India) Ltd. v. Enercon GmbH20,
and another judgment in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services
Inc.21, reiterated and further established the law laid down by BALCO. Enercon22 clarified the
position of law in case the parties have failed to or improperly mentioned the law applicable
to the arbitration agreement. The court, placing reliance on the judgment in Naviera
Amazonica23 adopted the “closest and most intimate connection test”. This test states that
when it is unclear as to which law is applicable to the arbitration agreement, the intention of
the parties is essential in determining the seat. Further, the legal system in which the
arbitration is taking place or the system which has the closest and most intimate connection
with the arbitration proceedings is relevant. The Supreme Court while placing reliance
on Naviera Amazonica24 reproduced the following paragraph which makes the situation
amply clear.

19
(2002) 4 SCC 105.
20
 (2014) 5 SCC 1.
21
 (2016) 4 SCC 126.
22
 (2014) 5 SCC 1.
23
(1988) 1 Lloyd’s Rep 116 (CA).
24
Ibid.

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100. … Where the parties have failed to choose the law governing the arbitration
proceedings, those proceedings must be considered, at any rate prima facie, as being
governed by the law of the country in which the arbitration is held, on the ground that it is the
country most closely connected with the proceedings.

Union of India v Hardy Exploration and Production (India) Inc unreported 2018 (Sup Ct
(Ind)

Arbitration agreements must be read in a holistic manner to determine the seat and
correspondingly the jurisdiction of the supervisory court, if the seat or place of arbitration is
not specified in the arbitration agreement between parties. If the parties have agreed on a
"venue" but not a "seat" in their arbitration agreement, courts must look at appended or
attached factors to determine the seat of arbitration. Determination, as referred to in art.20(1)
of the UNCITRAL Model Law, signifies an expressive opinion.

Proceedings for the setting aside of an arbitral award are initiated at the seat of arbitration
before the courts possessing supervisory jurisdiction. The Supreme Court of India was
recently faced with the question of which laws would be applicable to post-award arbitration
proceedings when the parties have agreed upon only the "venue" of arbitration and not the
"seat" of arbitration in the case of Union of India v Hardy Exploration and Production (India)
Inc.1 The Court interpreted the arbitration agreement between the parties and the reference to
the UNCITRAL Model Law on International Commercial Arbitration 1985 (Model Law) to
determine the seat of arbitration.

The parties had entered a production-sharing contract in November 2016 (PSC) for the
extraction, development and production of hydrocarbons in a geographic block in India.
Disputes arose between the parties as the Union of India allegedly relinquished the rights of
Hardy Exploration and Production (India) Inc (HEPI) to the geographic block prematurely.
HEPI initiated arbitration proceedings against the Union of India for re-entry to the
geographic block and payment of interest on its investment. The arbitral tribunal rendered its
award in favour of HEPI in February 2013. The award was signed and declared in Kuala
Lumpur.

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The clauses related to applicable laws and arbitration under the PSC read as: "This Contract
shall be governed and interpreted in accordance with the laws of India.

Nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and
powers conferred upon it by this Contract in a manner which will contravene the laws of
India.

Arbitration proceedings shall be conducted in accordance with the UNCITRAL Model Law
on International Commercial Arbitration of 1985 except that in the event of any conflict
between the rules and the provisions of this Article 33, the provisions of this Article 33 shall
govern. *Int. A.L.R. N-26

The venue of conciliation or arbitration proceedings pursuant to this Article unless the parties

otherwise agree shall be Kuala Lumpur and shall be conducted in English language. Insofar
as practicable the parties shall continue to implement the terms of this contract
notwithstanding the initiation of arbitration proceedings and any pending claim or dispute."

The Union of India approached the Delhi High Court for setting aside of the arbitral award
under s.34 of the Arbitration and Conciliation Act 1996 (the Act). An application for setting
aside an arbitral award can be filed under s.34 of Part I of the Act for arbitration proceedings
seated in India. HEPI opposed this application stating that the award was a "foreign" award as
the seat of arbitration was Kuala Lumpur. The Delhi High Court ruled that place of making
the award was Kuala Lumpur and s.34 of Part I the Act would not apply.2 The Union of India
appealed the judgment of the Delhi High Court before the Supreme Court.

The Supreme Court noted that an arbitration clause must be read holistically to understand its
intentions to determine the seat of arbitration. The Supreme Court clarified that there is no
confusion with regard to the difference between the venue and the seat of arbitration.
However, if the "venue" of arbitration alone is mentioned in the arbitration clause, it can be
considered the "seat" of arbitration only if another factor(s) is added to it as a concomitant. If
the intention of the arbitration clause through a choice of venue and appended factors leads to
conclusion that the seat is outside India, Part I of the Act will be excluded.

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Interpreting the facts of the case, the Supreme Court noted that the arbitration clause between
the parties makes a reference to the "venue" as Kuala Lumpur. As the arbitration clause
makes a reference to the Model Law, the Court interpreted its provisions, as extracted below:

"Article 20. Place of arbitration.—(1) The parties are free to agree on the place of arbitration.
Failing such agreement, 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.

(2) Notwithstanding the provisions of paragraph (1) of this article, the arbitral tribunal may,
unless otherwise agreed by the parties, meet at any place it considers appropriate for
consultation among its members, for hearing witnesses, experts or the parties, or for
inspection of goods, other property or documents.

Article 31. Form and contents of award.—(3) The award shall state its date and the place of
arbitration as determined in accordance with article 20(1). The award shall be deemed to have
been made at that place."

The Court noted that "place" and "seat" of arbitration can be used interchangeably. As per
art.20(1) of the Model Law, if the place of arbitration is not agreed between the parties, the
arbitral tribunal can determine the same. Article 31(3) stipulates that the award shall state the
date and the place of arbitration as determined in accordance with art.20(1). In the present
case, the Supreme Court noted that although the award was signed and declared in Kuala
Lumpur, there was no express determination of the place of arbitration by the arbitral
tribunal. The Court opined that "determination" would require a positive act and an express
opinion. Reversing the judgment of the Delhi High Court, the Supreme Court held that the
venue Kuala Lumpur *Int. A.L.R. N-27 could not be considered as the place or seat of
arbitration. The Supreme Court concluded that courts in India would have jurisdiction to
consider the application for setting aside of the award under s.34 of Part I of the Act as the
award rendered is not a "foreign award".

Through this judgment, the Supreme Court has stipulated and reiterated the manner of
determination of the seat of arbitration as below: Parties can expressly agree upon the seat or
place of arbitration in their arbitration agreement;

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If the seat is not expressly agreed upon, it can be deduced from the arbitration clause and
concomitant factors, such as the venue and an additional factor;

The seat of arbitration can also be determined through the incorporation of rules such as the
Model Law in the arbitration agreement, which stipulates that if parties do not agree on the
place of arbitration, the same shall be determined by the arbitral tribunal.

While the Supreme Court interpreted the arbitration clause and the Model Law to conclude
that Kuala Lumpur is not the place of arbitration (by noting that there was no express
determination of the place of arbitration by the arbitral tribunal), the Court has not applied the
same tests to determine why India is the place of arbitration. It would have been helpful if the
Court had made the positive determination that India is the seat of arbitration by interpreting
the facts of the case and applying the jurisprudence and criteria discussed by it.

This case is yet another example of why it is advisable that parties exercise caution while
drafting arbitration clauses in their agreements by constructing them with more clarity and by
expressly specifying the seat or place of arbitration. This would assist in avoiding delay and
deliberation at the stages of post-award setting aside or enforcement proceedings.

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CONCLUSION
In view of the aforesaid, a summary of the position under Indian law is as follows:

(a) The seat of arbitration determines the courts which would exercise jurisdiction over the
arbitration proceeding.
(b) The parties may by consent make Section 9 applicable even when the arbitration is not
held in India. But, in absence of such an agreement, the 1996 Act solely operates within the
territory of India.
(c) The substantive law applicable to the contract is distinguishable from the law applicable
to the arbitration agreement. The parties may choose the law applicable to the arbitration
agreement, which may be different from the substantive law applicable to the contract itself.
(d) In case the parties have not mentioned the law applicable to the arbitration agreement, the
test of “the closest and most intimate connection” adopted in the judgment of Enercon
India is to be applied. The jurisdiction in which the arbitration is conducted and the intention
of parties are the determining factors while applying the closest connection test.

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BIBLIOGRAPHY

BOOKS

1. Acharya.N. K, Law Relating to Arbitration and A.D.R. (2004), Asian Law House

2. Aiyer.P.Ramanath, The Law Lexicon, the Encyclopedic Legal and Commercial

Dictionary, (2002), Wadhwa And Co., Nagpur

3. Bachawat R.S, Law of Arbitration, (1989), L.R. Publication.

4. Bakshi. P.M., The Arbitration Act, (1980), Paruck, Tripathi Pvt Ltd
5. Basu N.D., Basu’s Arbitration Act, 7th Edition (1976), Eastern Law House

ARTICLES

1. Ashok H Desai, ‘Challenges To an Award – Use and Abuse’

2. Akhilesh R. Bhargave, "Regulating Listing", (2004) 49 Scl 134

3. Bulut, Belma. "The Role of the Place of Arbitration in International Commercial

Arbitration Proceeding; Turkey as A Place of Arbitration", Ankara Bar Review, 2011
(Publications)

4. Center On Democracy, Development And The Rule Of Law - Cddrl On The Subject
of “Development And Practice Of Arbitration In India – Has It Evolved As An
Effective Legal Institution

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