SC says: Place of Arbitration in a dispute doesn’t by the very fact reckon the Status of “Seat”

The Supreme Court constituting a three judge bench comprising of Chief Justice Dipak Misra, Justice AM Khanwilkar and Justice DY Chandrachud, pointing out the dissimilarities between ‘venue’, ‘place’ and ‘seat ‘of Arbitration said that place of arbitration doesn’t by itself recognizes the status of seat.
In lay man’s term a venue can become a seat if something else is appended to it as an auxiliary and as given in the contract, a place unlike seat shall only become a seat if the conditions precedent is fulfilled.

In the present case Union of India vs. Hardy Exploration and Production (India) INC) the venue of arbitration was decided at Kuala Lampur. Regarding the place of arbitration the parties are free to agree failing which the determination of the place of arbitration has to be done by the Arbitral Tribunal also contemplation the circumstances as well as the convenience of the parties.The petitioner challenged the arbitral award given by the arbitrator at Kuala Lampur under Section 34 where the Delhi High Court claimed that the Indian courts have no jurisdiction to entertain such application. The matter was appealed and the two-judge bench which heard the SLP (Special Leave Petition) referred the matter for decision to a larger bench.

The question of Law before the Supreme Court was “When the arbitration agreement specify the “venue” for holding the arbitration sittings by the arbitrators but does not specify the “seat”, then on what basis and by which principle, the parties have to decide the place of “seat” which has a material bearing for determining the applicability of laws of a particular country for deciding the post-award arbitration proceedings”
The bench taking into account the question propped that this squabble has to be governed by using the BALCO principle and also the principle of implied exclusion as held in Bhatia International.

The facts of the case implies that since the parties have failed to agree the place of arbitration, it was incumbent of the arbitral tribunal to determine the place of arbitration according to the parties convenience and the circumstances surrounding the case and also incumbent for the tribunal to state its determination with regard to such place in the form and contents of arbitral award as given under section 31. Since there was no determination on behalf of the tribunal, signing the award doesn’t amount to determination of place in the present scenario.

The Court further added that the clause is categorical and the term venue of arbitration cannot be equivalent to the term place of arbitration or seat of arbitration. “When a “place” is agreed upon, it gets the status of seat which means the juridical seat. We have already noted that the terms “place‟ and “seat‟ are used interchangeably. When only the term “place‟ is stated or mentioned and no other condition is postulated, it is equivalent to “seat‟ and that finalizes the facet of jurisdiction. But if a condition precedent is attached to the term “place‟, the said condition has to be satisfied so that the place can become equivalent to seat”

Therefore the venue of Kuala Lampur cannot be taken as a seat or place of arbitration in the present case as the terms interchangeable use shall not apply in the strict sense.

Submitted by- Vedant Agrawal,
Student Reporter INBA