NEWS

Is there a difference between venue and seat

under Indian law?
04 February 2020

Credit: Shutterstock

Ila Kapoor and Ananya Aggarwal of Shardul Amarchand Mangaldas in New Delhi consider
two recent Indian Supreme Court judgments that have revived confusion over the difference
between the seat and venue of an arbitration.

Just when one thought that the law on seat and venue was well established, the Supreme Court
judgments in BGS SGS Soma JV v NHPC Ltd and Brahmani River Pellets Limited v Kamachi
Industries Limited have opened up this issue again.

Seat and venue are different concepts. The “seat” is considered to be the most critical aspect of
the proceeding. It is the anchor of the arbitration as it determines the curial law and designates
the court with supervisory jurisdiction. For this reason, parties so often litigate over where the
seat of arbitration should be. By contrast, the venue was meant to be merely a place where
hearings are held for convenience.

However, these two recent judgments have blurred the distinction between seat and venue and
created doubt as to whether a mere mention of “venue” in an arbitration clause can be read as
the seat of arbitration.

Seat and venue: distinct concepts

The Court of Appeal in London clarified the difference between seat and venue in a 1988
decision, where it recognised that there is only one ”place” of arbitration, which is chosen by or
on behalf of the parties. However, it is was not necessary for the arbitrator to hold all its meetings

First published on the Global Arbitration Review website, 04 February 2020.

at this place. Since international arbitration involves people of different nationalities, from
different countries, it is common for arbitral tribunals to hold meetings at a location other than
the designated seat for its own convenience or that of the parties. This does not imply a change
in the seat, which remains the same as that agreed by or on behalf of the parties.

This principle was reiterated in the decision of the constitutional bench of the Indian Supreme
Court in Bharat Aluminium Company v Kaiser Aluminium Technical Service Inc (Balco). The
court in Balco was dealing with the applicability of part I of India’s Arbitration & Conciliation Act,
1996 to arbitrations seated outside India. It was in this context that the court agreed with the
territorial link between the place of arbitration and the law governing that arbitration and
ultimately held that if the arbitration is seated outside India, then part I of the 1996 Act would not
be applicable. The court further noted that in an international commercial arbitration seated in
India, there may be hearings held outside India. However, this would not have the effect of
changing the “seat” of arbitration, which would still be India and therefore part I would be
applicable.

The differentiation between seat and venue is also found in section 20 of the 1996 Act, which
provides that the parties are free to agree to the place of arbitration (that is, the seat) and allows
the arbitral tribunal to meet at any place it considers appropriate (that is, the venue).

Therefore, the venue was intended to merely be a location for the hearing that is convenient for
the parties, arbitral tribunal or witnesses. A choice of venue did not have any effect on the seat
and courts of the venue were not conferred with any jurisdiction regarding the arbitral
proceedings.

Selecting only venue in foreign-seated arbitrations

While Balco clearly distinguishes between seat and venue, it also brings to the forefront the
decision of Mr Justice Cooke in the High Court in London in Roger Shashoua v Mukesh
Sharma, where the selection of a “venue” by the parties was read to mean “seat”. Cooke J was
dealing with an arbitration clause which provided that the disputes be arbitrated in accordance
with ICC Rules, with venue in London and substantive law as Indian law. Therefore, the
arbitration clause did not specify the seat of arbitration proceedings. The court held that “in an
arbitration clause which provides for arbitration to be conducted in accordance with the Rules of
the ICC in Paris (a supranational body of rules), a provision that the venue of the arbitration shall
be London, United Kingdom, does amount to the designation of a juridical seat”. The court
reasoned that the parties had not simply provided for London as the location for the hearing for
sake of convenience, as there was no suggestion that London would be convenient, in light of
the governing law which was Indian, the nature of the agreement and the nature of the disputes.

When the dispute between the parties in Shashoua reached the Supreme Court of India, the
Apex Court concurred with Cooke J and held that when the court finds that there is a prescription
for venue and something else, it has to be adjudged on the facts of each case to determine the
juridical seat. Therefore, to read venue as seat, there had to be “something else” apart from the
venue that would indicate the intention of the parties to imply the seat instead of the venue. In
the Shashoua case, the English and Indian courts held that the “something else” was the
selection of the ICC Rules to govern the conduct of the arbitration.

The principle propounded in Shashoua came up again in the Apex Court in Enercon India Ltd v
Enercon GmBH & Anr. The arbitration clause in this agreement provided that the venue of the
arbitration proceedings shall be London and that India’s 1996 Arbitration Act will apply. The
Supreme Court held that by choosing the 1996 Act, parties had made a choice that the seat of

First published on the Global Arbitration Review website, 04 February 2020.

the arbitration would be in India and that London was only a venue. The Supreme Court found
that, as the parties had not chosen a supranational body of rules to govern the arbitration, the
facts did not pass the test laid down in Shashoua. Therefore, the venue could not be read as
the seat. The parties had selected the law applicable to arbitration proceedings (that is, the 1996
Act), implying the choice of the seat as India. This was in consonance with the judgment
in Balco, which stated that part I of the Arbitration Act would only apply if the seat is in India.

The decision in Enercon made it clear that the principle propounded in Shashoua could not be
applied as a mathematical formula and that there had to be “something else” which indicated
the intention of the parties to read the venue as the seat of arbitration. It was clear that to read
“venue” as “seat”, a detailed examination was required to discern from the agreement and the
surrounding circumstances whether a particular place mentioned refers to the “venue” or “seat”
of the arbitration.

Similar question regarding seat and venue came up again before the Apex Court in Union of
India v Hardy Exploration and Production (India) Inc, where the arbitration agreement provided
that the procedure shall be conducted according to UNCITRAL Rules and the venue of the
arbitration proceedings, unless the parties otherwise agree, would be Kuala Lumpur. The court
referred to article 20 of the UNCITRAL Rules, which provides that parties are free to agree on
the place of arbitration, failing which it shall be determined by the arbitral tribunal, referring to
the “seat”. It stated that the arbitral tribunal may meet at any place it considers appropriate,
thereby referring to the “venue”. The court placed emphasis on the word “determination” in article
20(1) of the UNCITRAL Rules and held that a positive act was required, ie, either the parties
had to agree or the arbitral tribunal was to determine the place based on the circumstances of
the case. Since there was no such determination, the mere fact that the arbitrator held meetings
at Kuala Lumpur does not amount to determination of seat. The court further held that “venue
can become a seat if something else is added to it as a concomitant ... It does not ipso facto
assume the status of seat”.

The decision in Hardy was surprising as the arbitration clause was similar to that in Shashoua,
where the court had read venue to mean seat. In all the decisions above, the purpose of dwelling
on the discussion of seat and venue was to decide whether Indian courts would have jurisdiction
over the arbitral proceedings. The debate was in the context whether part I of the Arbitration Act
would apply or not. Therefore, the intention of the parties was paramount.

Selecting only venue in domestic arbitrations

The differentiation between venue and seat was not of much significance in domestic arbitration
as there would be no risk of conflicting judgments from courts within India. It is well established
that the courts of the seat, even in a domestic arbitration, would have exclusive jurisdiction.

The Supreme Court in July 2019 in its decision in Brahmani River Pellets, while applying this
principle, went a step further and conferred exclusive jurisdiction on the courts of the venue, by
interpreting venue to be the seat chosen by the parties. The court relied heavily on Balco and
its 2017 ruling in Indus Mobile to hold that parties may choose a neutral venue as the seat,
where no part of the cause of action has arisen. However such courts, by virtue of being the
seat of arbitration, are vested with exclusive jurisdiction. The court further relied on its 2013
judgment in Swastik Gases, which held that the use of words such as “exclusive jurisdiction”
and “only” is not decisive and it is the intention of the parties that decides whether any court has
been given exclusive jurisdiction. Choosing Bhubaneshwar as the venue of arbitration was held
to be an indicator of the parties’ intention to exclude all other courts. The reasoning of the court
was that “party autonomy has to be construed in the context of parties choosing a court which

First published on the Global Arbitration Review website, 04 February 2020.

has jurisdiction out of two or more competent courts having jurisdiction”. This was the first
instance where, in a purely domestic arbitration, a venue chosen for arbitration had been given
the status of seat.

While relying on its past decisions, the court seems to have overlooked the fact that the
agreement did not provide for a seat of arbitration. No reasoning was given as to how the parties’
intention was interpreted to give exclusive jurisdiction to the courts of Bhubaneshwar when the
agreement specifically referred to it as a venue. This decision also seems to be contrary to
the Shashoua principle that venue was to be read as seat only if there was “something else” to
indicate the parties intention. In this case, there was no “something else” that would allow the
court to come to the conclusion that Bhubaneshwar was not merely the venue but the seat of
the arbitration proceedings.

Then in December 2019, the Supreme Court gave its decision in BGS, where it held that the
venue of a purely domestic arbitration denoted the seat. The arbitration agreement in this case
provided that the arbitration be held at two different Indian cities: “New Delhi/Faridabad”. The
award was made at New Delhi but the respondent challenged the award before the courts at
Faridabad on the ground that New Delhi was only a convenient venue for the arbitration. The
question before the court was whether New Delhi was the seat of arbitration or only a venue for
the hearings.

Analysing the arbitration agreement, the court in BGS held that in case of a dispute with a foreign
contractor, on application of the Shashoua principle, the fact that the arbitration proceedings
shall be held at New Delhi/Faridabad would amount to designation of either of these places as
the seat, as a supranational body of law is to be applied, that is, the UNCITRAL Arbitration
Rules, read in conjunction with the 1996 Act. The court held that there being no other contrary
indication, either New Delhi or Faridabad was the designated seat and the parties would have
to choose between these places to hold the arbitration. The court further held that the “same
must follow” even if the dispute is with an Indian contractor.

The court in BGS undertook a detailed examination of various cases especially Shashoua and
held that:

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. 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.

It is not clear how the principles elucidated in Shashoua in the context of an international
commercial arbitration to determine whether parties intended for the seat to be outside India,
will be applicable to BGS for choosing between two Indian cities. The choice of the 1996 Act is
not similar to a choice of supranational rules, which when coupled with a foreign venue could
indicate the intention of parties that the venue be read as the juridical seat. Indian arbitration law
would necessarily apply in a domestic arbitration. Therefore, the choice of Indian arbitration law,
while picking between two Indian cities, does not assist in deciphering the intention of the parties
whether venue was intended to seat.

A more coherent reasoning given in a later paragraph of the judgment is that the clause provided
that “arbitration proceedings” shall be held at New Delhi/Faridabad, which signifies all hearings
and making of an award as opposed to just some meetings or merely the cross-examination.
Since all the hearings were held in New Delhi and the award was made in New Delhi, it was

First published on the Global Arbitration Review website, 04 February 2020.

concluded that the parties had chosen New Delhi as the seat of arbitration, giving it exclusive
jurisdiction over the arbitral proceedings.

Mention of venue best avoided

The rationale behind the Brahmani and BGS judgments was to ensure that parties are not
inconvenienced by having to appear in another court when they have already chosen a venue.
However, in an attempt to give effect to the intention of the parties, the Indian courts may have
impinged on party autonomy, wherein a conscious choice of only a venue, not a seat, has been
elevated to the seat of arbitration. Given the decision in BGS, any choice of venue in a domestic
arbitration, in the absence of any contrary indicators, could be interpreted as designating a seat.

As a result of these judgments, parties and their counsel will have to be more clear and careful
while drafting their arbitration agreements. Since the venue is only a place where hearings are
to be held, it is advisable not to mention the venue in the agreement at all lest it lead to a situation
where it is read as seat and hence the courts of the venue are given exclusive jurisdiction.

First published on the Global Arbitration Review website, 04 February 2020.