SELECTION OF ARBITRAL SEAT IN INTERNATIONAL ARBITRATION

TABLE OF CONTENTS
1 Introduction..................................................................................................2

2 Importance of Location & Means of Selection of Arbitral Seat.................3

3 Parties’ Autonomy To Select Arbitral Seat..................................................4

3.1 International Arbitration Conventions...............................................5

3.2 National Arbitration Legislation.........................................................6

3.3 Institutional Arbitration Rules............................................................7

3.4 Terms of Agreements Selecting Arbitral Seat....................................7

3.5 Agreement to Change Arbitral Seat....................................................8

4 Determination of the Lex Arbitri.................................................................9

5 Indian Parties Choosing A Seat Outside India.........................................12

6 Conclusion..................................................................................................16

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 SELECTION OF ARBITRAL SEAT IN INTERNATIONAL ARBITRATION

1 INTRODUCTION
A critical issue in any international arbitration is the location of the arbitral seat or place of
arbitration. This Chapter first examines the reasons for the arbitral seat’s importance.
Thereafter, the Chapter addresses the available means of selecting the arbitral seat in
international arbitration, including by agreement of the parties, by the arbitral tribunal or
arbitral institution and (rarely) by national courts.

As discussed above, the location of the arbitral seat can have profound legal and practical
consequences for the parties to an international arbitration, and can materially alter the course
and outcome of the arbitral process. In one experienced practitioner’s words: “The
importance of the place of arbitration cannot be overestimated.”1

Preliminarily, it is important to distinguish between the “seat” of the arbitration (sometimes

referred to as the “place” of the arbitration) and the geographic location of the hearings or
meetings in the arbitration. As discussed above, the arbitral seat is the legal or juridical home
(or domicile) of the arbitration, the choice of which results in a number of highly significant
legal consequences. At the same time, most national laws2  and institutional arbitration
rules3 permit hearings and meetings to be conducted outside the arbitral seat, for reasons of
convenience. With very few exceptions, the conduct of hearings outside the arbitral seat does
not affect the location of the arbitral seat or the applicability of the arbitration legislation of
the arbitral seat to the arbitration.

There are a number of reasons why the location of the arbitral seat can have critical
importance to an international arbitration. As noted above, the importance of the arbitral seat
has diminished somewhat over the past several decades, but it nonetheless remains of
potentially decisive significance in many cases. 

The wise selection of the arbitral seat is essential in order for an international arbitration to be
able to proceed efficiently, effectively and in accordance with the parties’ objectives. It is
therefore not surprising that, in the vast majority of cases, the parties’ arbitration agreement

1
Bond, How to Draft An Arbitration Clause (Revisited), 1(2) ICC Ct. Bull. 14, 18 (1990).
2
UNCITRAL Model Law, Art. 20(2).
3
2012 ICC Rules, Art. 18(2); ICDR Rules, Art. 13(2); LCIA Rules, Art. 16(2); 2013 HKIAC Rules, Art. 14;
2010 SCC Rules, Art. 20(2); 2013 SIAC Rules, Art. 18(2); 2013 VIAC Rules, Art. 20(2)

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will specify the arbitral seat.4 As discussed below, the drafting of a clause selecting the
arbitral seat is straightforward.

2 IMPORTANCE OF LOCATION & MEANS OF SELECTION OF ARBITRAL

SEAT

There are a number of reasons why the location of the arbitral seat can have critical
importance to an international arbitration. As noted above, the importance of the arbitral seat
has diminished somewhat over the past several decades, but it nonetheless remains of
potentially decisive significance in many cases.

The significance of the arbitral seat can arise in part from relatively mundane issues of
convenience and cost (such as the availability of hearing facilities, technical
support, accommodations, transportation connections).5 Although hearings can be held
outside the arbitral seat, this frequently does not occur, making the location of the seat a
matter of practical and logistical importance. These factors are often given undue weight, but
they can nonetheless be important to the conduct of an arbitration.

Much more significant than logistical convenience and cost, however, is the effect of the law
of the arbitral seat on the arbitration, both directly and indirectly. As detailed elsewhere, the
law of the arbitral seat can directly govern a number of distinct legal issues affecting any
international arbitration, many of which can be highly important. These include (a) the
national arbitration legislation applicable to the arbitration;  (b) the law applicable to the
“external” relationship between the arbitration and national law and courts (including
annulment of awards and selection and removal of arbitrators); (c) the law applicable to the
“internal” procedures of the arbitration (including requirements for equality of treatment and
due process);  and (d) the law presumptively applicable to the substantive validity of the
arbitration agreement.6

In addition, the law of the arbitral seat can indirectly affect a number of other aspects of the
arbitral process, which again can be of substantial importance. These include (e) where the
award is “made” for purposes of the New York Convention; (f) in some cases, the likely
nationality and other characteristics of the arbitrators; and (g) in some cases, the likely
approach to the arbitral procedure.

4
J. Fry, S. Greenberg & F. Mazza, Secretariat’s Guide to ICC Arbitration 3-678, Table 28 (2012).
5
W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration7.02 (3d ed. 2000).
6
Ibid.

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 SELECTION OF ARBITRAL SEAT IN INTERNATIONAL ARBITRATION

Given these various factors, the wise selection of the arbitral seat is essential in order for an
international arbitration to be able to proceed efficiently, effectively and in accordance with
the parties’ objectives. It is therefore not surprising that, in the vast majority of cases, the
parties’ arbitration agreement will specify the arbitral seat. 7  As discussed below, the drafting
of a clause selecting the arbitral seat is straightforward.

When parties (unwisely) do not specify the arbitral seat in their arbitration agreement, other
means must be used to make the selection. As discussed below, the most frequent avenues for
selecting the arbitral seat in those circumstances are either by the arbitral institution (where
the parties have agreed to arbitrate in accordance with a set of institutional arbitration rules)
or by the arbitral tribunal. Both mechanisms ordinarily function smoothly and result in the
efficient choice of a suitable arbitral seat. 

Only in rare cases, where the parties have not incorporated any institutional arbitration rules
and cannot agree upon the constitution of the arbitral tribunal, do national courts play a role
in selecting the arbitral seat. The selection of the arbitral seat by national courts is
problematic, because of the risk resulting from potentially overlapping judicial competence of
courts in different states and the possibility of conflicting national court decisions on the
issue. Nevertheless, in cases where the parties have not agreed on either an arbitral seat or a
means of selecting an arbitral seat, or where their agreement as to the seat is ambiguous or
contradictory, there may be no alternative to national court involvement in selection of the
arbitral seat. The difficulties that can arise in these cases are also addressed below.

3 PARTIES’ AUTONOMY TO SELECT ARBITRAL SEAT

Given the potential importance of the location of the arbitral seat, it is highly advisable for
international arbitration agreements to designate the arbitral seat. That serves to avoid
obviously inappropriate seats, to select a desirable place of arbitration and to reduce the risk
of national court litigation over the location of the arbitral seat.

As noted above, parties follow this advice in a significant majority of cases and include a
designation of the arbitral seat in their arbitration agreement.  Alternatively, the parties may
agree upon institutional arbitration rules that permit either an appointing authority or the
arbitral tribunal to choose the arbitral seat for the parties. 
7
Jarvin, The Place of Arbitration – A Review of the ICC Court’s Guiding Principles and Practice When Fixing
the Place of Arbitration, 7(2) ICC CT. BULL. 54 (1996).

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 SELECTION OF ARBITRAL SEAT IN INTERNATIONAL ARBITRATION

As detailed below, most arbitration statutes and institutional rules recognize the parties’
autonomy to designate their arbitral seat by agreement, either directly or through delegation
to an appointing authority. This parallels the parties’ freedom to agree to resolve their
disputes by arbitration, as well as to structure the arbitral procedures and to select the
arbitrators; more generally, it reflects the fundamental importance of party autonomy in the
arbitral process.  As a consequence, if a party reconsiders its agreement selecting the arbitral
seat, after disputes arise, it will virtually never be successful in avoiding the terms of that
agreement.

3.1 International Arbitration Conventions

Most international arbitration conventions contain no provision expressly addressing the

parties’ autonomy to select the arbitral seat. A conspicuous exception to this is the European
Convention, which recognizes the parties’ freedom to designate the arbitral seat in Article
IV(1)(b)(ii), providing that the parties shall be free “to determine the place of
arbitration.” The Convention does not contain any express limitation on this recognition of
party autonomy (for example, for cases where the parties select an arbitral seat that is
fundamentally unfair or that subsequently undergoes radical changes (through war,
revolution, or otherwise) or that is unconscionably inconvenient or biased against one party),
although such limitations are arguably implied. 

The New York Convention (like the Inter-American Convention) contains no language with
regard to the parties’ selection of the arbitral seat comparable to that of the European
Convention. Nevertheless, Articles II(1) and II(3) of the New York Convention are properly
interpreted to accomplish much the same result, by providing that arbitration agreements
shall be recognized and that parties shall be referred to arbitration in accordance with their
arbitration agreements. As discussed elsewhere, the obligations imposed by Article II extend
to the material terms of agreements to arbitrate,  which includes the parties’ agreement
specifying the arbitral seat. Accordingly, as with the European Convention, the New York
Convention is best interpreted as imposing an international obligation to recognize and give
effect to the parties’ selection of the arbitral seat. 

Where the parties have agreed to the arbitral seat, both national courts and the tribunal are
bound by their choice. A tribunal’s failure to give effect to the parties’ choice of the arbitral
seat would subject its award to potential annulment or non-recognition: “[A]n erroneous

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decision on the question of venue, which ultimately affected the procedure that has been
followed in the arbitral proceedings,” could permit annulment under Article 34. 

Applying the UNCITRAL Model Law, one national court removed an arbitrator after he
persisted in conducting the arbitration outside the agreed place of arbitration.  Although that
decision underscores the importance of the parties’ autonomy in selecting the arbitral seat, it
appears to disregard both the judicial non-interference principle and the tribunal’s authority to
conduct hearings outside the arbitral seat of convenience.

3.2 National Arbitration Legislation

In parallel with the New York Convention, almost all national arbitration regimes recognize
the parties’ autonomy to agree upon an arbitral seat in international matters. Article 20(1) of
the UNCITRAL Model Law is representative, providing:

“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.”8 

The Swiss Law on Private International Law is similar, providing in Article 176(3) that

“[t]he seat of the arbitral tribunal shall be determined by the parties, or the arbitration
institution designated by them, or, failing both, by the arbitrators.”   In other jurisdictions,
legislation is similar  or, when silent, domestic courts have affirmed the parties’ autonomy to
select the arbitral seat. 

In virtually no instances do national laws deny the parties’ autonomy to select the arbitral
seat. The only arguable exceptions, which are discussed below, involve national laws
providing that particular categories of claims may only be resolved in local courts, which are
in fact applications of the non-arbitrability doctrine,  and judicial decisions applying
variations of the forum non conveniens doctrine to agreements selecting the arbitral seat,
which are in fact (illegitimate) applications of rules relating to unconscionability. 

8
UNCITRAL Model Law, Art. 20(1).

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3.3 Institutional Arbitration Rules

Leading institutional rules, including those of “national” arbitral institutions, also confirm the
parties’ freedom to agree upon an arbitral seat. Article 18(1) of the 2010 UNCITRAL Rules
is representative, providing:

“If the parties have not previously agreed on the place of arbitration, the place of arbitration
shall be determined by the arbitral tribunal having regard to the circumstances of the
case.”9 

Other leading institutional rules, including those of the ICC, LCIA and ICDR, are to the same
effect. (108) Likewise, arbitral institutions with a predominantly national focus, such as
CEPANI, CIETAC, DIS, HKIAC, JCAA, SCC and VIAC, all recognize the parties’
autonomy to select the arbitral seat.10 

3.4 Terms of Agreements Selecting Arbitral Seat

The terms of an agreement selecting the arbitral seat can, and should, be very simple. The
model clauses recommended by leading arbitral institutions generally provide only that “the
place of arbitration shall be [New York, USA],” or “the seat of the arbitration shall be [Paris,
France].”11 These provisions are sufficient and, indeed, additional language can be confusing,
as well as generally unnecessary.

It is desirable to avoid references to the “situs,” “venue” or “forum” of the arbitration. In

principle, these terms should have the same meaning as either “place” or “seat.”  Nonetheless,
they also connote either a requirement that the arbitral hearings and meetings be conducted in
the designated “venue” or “forum” (which contradicts parties’ expectations as to the freedom
to conduct hearings and meetings wherever may be convenient) or that the designated
location is not intended as the arbitral “seat,” but merely as a geographic location for
hearings. Similar confusion may arise where the arbitration agreement designates where the
arbitral tribunal shall “meet.”

9
2010 UNCITRAL Rules, Art. 18(1).
10
2013 CEPANI Rules, Art. 21(1); 2012 CIETAC Rules, Art. 7(1); DIS Rules, §21(1); 2013 HKIAC Rules, Art.
14(1); 2014 JCAA Rules, Art. 36(1); 2010 SCC Rules, Art. 20(1); 2013 VIAC Rules, Art. 25.
11
2010 UNCITRAL Rules, Model Clause (“The place of arbitration shall be…[town and country].”)

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In many cases, these various references are interpreted as implied specifications of the
arbitral seat.12 Nonetheless, there are decisions holding, on particular facts, that the selection
of the “venue” or location of hearings do not constitute a choice of the arbitral seat. As a
consequence, the foregoing usages (referring to the venue, situs, or forum) produce
unnecessary uncertainty and should be avoided as a drafting matter.

A clause selecting the arbitral seat should specify both the city and the country (e.g.,
“London, England” or “Geneva, Switzerland”). If the parties select a country as the arbitral
seat, without identifying a particular city, the arbitral tribunal will generally be free (subject
to contrary agreement by the parties) to determine the locale of the arbitration within that
country.13 Nonetheless, leaving ambiguities in the arbitration agreement can create
opportunities for national court litigation, which may delay or derail the arbitral process.
Moreover, under some national laws, the failure to specify the city in which the arbitral seat
is located may invalidate the arbitration agreement (for lack of certainty). 

Some practitioners recommend more detailed provisions, addressing matters such as the
holding of hearings in locations other than the arbitral seat. For example, some clauses
provide: “The seat of the arbitration shall be [Tokyo, Japan]. The arbitrators may hold
hearing or meetings in any other locations for convenience.”14 

Although little harm can come from including such provisions, they are almost always
unnecessary. As discussed above, most national laws and institutional rules permit arbitrators
to conduct hearings outside the arbitral seat, for reasons of convenience, even without such
language. 

3.5 Agreement to Change Arbitral Seat

Parties sometimes reconsider an earlier selection of the arbitral seat, and jointly seek to
substitute a new seat by agreement. If no arbitrators have been selected, changing the seat by
mutual agreement is usually noncontroversial, subject to the same formal and substantive
requirements as an initial agreement specifying the arbitral seat. 15 In the words of one

12
 Enercon GmbH v. Enercon (India) Ltd [2012] EWHC 689, 56-59 (Comm) (English High Ct.)
13
UNCITRAL Rules, 1976, Art. 16(2).
14
G. BORN, INTERNATIONAL ARBITRATION AND FORUM SELECTION AGREEMENTS: DRAFTING AND ENFORCING
69 (4th ed. 2013).
15
Ehrat, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 176, 21 (2000).

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decision: “It is incontrovertible that parties are at liberty to change the place of
arbitration.”16 As a matter of contract interpretation, it would generally be appropriate to
require clarity from any putative agreement to change the arbitral seat, but where the parties
agreed to change the arbitral seat, that agreement should be given effect.

It is conceivable that national arbitration legislation might not apply where a previously
“foreign” arbitration is purportedly transferred into a state. Nonetheless, it is difficult to see
what policies would be advanced by such a refusal to recognize an agreement by the parties,
and such refusals would arguably also be contrary to the obligations imposed by Article II of
the New York Convention.

More difficult questions are raised if an arbitral tribunal has already been selected, on the
basis that the arbitral seat is State A and the parties then agree to change the seat to State B.
In principle, the parties have the power through their agreement to change the arbitral seat
even after the arbitral tribunal is constituted,  regardless whether the arbitrators consent. On
the other hand, it is equally clear that the arbitrator(s) may be free to resign their position(s)
on the arbitral tribunal as a consequence of a change of this sort.

4 DETERMINATION OF THE LEX ARBITRI

The law governing the arbitration agreement is one of the areas which is ambiguous and
requires urgent clarification. It is also referred to as the ‘proper law of the arbitration
agreement’ or ‘lex arbitri’  in an international arbitration.

It is largely agreed that there are broadly three sets of laws which apply to an arbitration:17 

i. The proper law of the contract i.e., the law governing the contract which creates the
substantive rights of the parties, in respect of which the dispute has arisen (Substantive law).

ii. The proper law of the arbitration agreement, i.e., the law governing the obligation of the
parties to submit the disputes to arbitration, and to honour the award. (lex arbitri or the law
governing the arbitration agreement).

PT Garuda Indonesia v. Birgen Air, (2002) 1 SLR 393, ¶34 (Singapore Ct. App.)
16

17
LORD MUSTILL AND STEWART BOYD, APPLICABLE LAW AND JURISDICTION OF COURTS IN COMMERCIAL
ARBITRATION, (2nd ed. 1989).

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iii. The proper law of the conduct of the arbitration i.e., the law governing the conduct of the
individual reference. It is usually held to be the law of the seat of the arbitration. (lex
fori/curial law).

The principle of party autonomy allows parties to choose different laws, for all the above, in
their contracts. Ideally an arbitration clause would identify all three kinds of law, however,
parties often fail to specify the lex arbitri leaving it to the courts to determine what the parties
intended to be the proper law of the arbitration agreement.

In a large majority of cases the parties choose the same law for the lex arbitri as that of the
seat, and the curial law. However, it is open to the parties to choose, either expressly or by
implication, a different law for the conduct of the proceedings from the one governing the
arbitration agreement. In such cases where the law chosen is different, the courts will look to
the law of the arbitration agreement to see if the dispute is arbitrable, then to the curial law to
see how the reference should be conducted.18 

There is no clear cut definition which determines the matters covered under the lex arbitri. A
distinction has to be drawn between substantive matters relating to the arbitration agreement,
which are governed by the law of the arbitration agreement and, procedural matters relating
to a reference, which are governed by the curial law i.e. law governing the conduct of the
arbitration. The law of the arbitration agreement has been stated to regulate substantive
matters relating to that agreement, including the interpretation, validity, effect and discharge
of the agreement to arbitrate; identification of the parties to the arbitration agreement; issues
relating to reference and enforcement of the award; and issue as to whether a particular
dispute falls within the scope of an arbitration agreement. 19

Where the parties have not expressly chosen the lex arbitri in their dispute resolution clause,
it falls on the courts to decide what the parties intended. The Supreme Court of India
in National Thermal Power Corporation v. Singer Company and Others 20 [“NTPC”], held
that “the proper law of the arbitration agreement is normally the same as the proper law of
the contract. It is only in exceptional cases that it is not so even where the proper law of the
contract is expressly chosen by the parties. Where, however, there is no express choice of the

18
Sumitomo Heavy Industries Ltd v. ONGC Ltd. and Others, (1998) 1 S.C.C 305 (India).
19
DAVID SUTTON ET AL., RUSSELL ON ARBITRATION 83 (23rd ed. 2007).

20
National Thermal Power Corporation v. Singer Company and Others, (1992) 3 S.C.C 551, ¶ 21 (India).

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law governing the contract as a whole, or the arbitration agreement as such, a presumption
may arise that the law of the country where the arbitration is agreed to be held is the proper
law of the arbitration agreement. But this is only a rebuttable presumption.”21

However, since the court did not clarify what the ‘exceptional cases’ were, it is unclear
when lex arbitri would be the same as the proper law of the contract and when it would be an
exception. In Sumitomo Heavy Industries Ltd. v. ONGC Ltd. and Ors. 22 [“Sumitomo”], the
Supreme Court upheld an early decision of an English court holding that the proper law of the
contract was decisive of the lex arbitri. 

The decisions of the Supreme Court in NTPC/Sumitomo are contrary to the stand taken by
most English courts on international arbitration, which say that in the absence of an express
choice by the parties, the lex arbitri will be held to be the law of the country in which the
arbitration is held, i.e., seat of arbitration. (18) This line of reasoning is supported by the
Convention on the Recognition and Enforcement of Awards, 1958 [the “New York
Convention”], which provides that the recognition or enforcement of an award can be
refused if the “arbitration agreement was not   valid under the law to which the parties
subjected it to, or failing any indication thereon, under the law of the country where the
award was made.”23  Therefore, the New York Convention envisaged that where the parties
had not agreed to the lex arbitri, the proper law of the arbitration agreement, would be the
law of the seat of the arbitration.

The principle laid down in NTPC and Sumitomo has been distinguished by Indian courts

leading to uncertainty in this area. Recently, the Calcutta High Court in Coal India Ltd. v.
Canadian Commercial Corporation24, distinguished NTPC to hold that the law of the seat of
arbitration would be the law of the arbitration agreement. The Court distinguished NTPC on
the grounds that in that case the seat was not chosen by the parties but by the arbitral
institution, the ICC, whereas in the present case there was an express choice by the parties. A
similar approach was taken by the Bombay High Court in HSBC PI Holdings (Mauritius)
Limited v. Avitel Post Studioz Limited[“HSBC”],25  where the court held that the agreement to
21
Ibid.
22
Supra note 18.
23
Article V(1)(a), New York Convention.
24
 Coal India Ltd. v. Canadian Commercial Corporation, A.I.R 2012 (Cal.) 92 (India).

25
HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Limited, Arb. P. 1062 of 2012 Jan 22 2014
(Bombay High Court) (India).

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 SELECTION OF ARBITRAL SEAT IN INTERNATIONAL ARBITRATION

arbitrate at Singapore “has a closer and real connection” with the seat chosen by the
parties, i.e. Singapore. Therefore, arbitration agreement would be governed by the law of
Singapore. The Court in HSBC tried to bring their case within the exceptional cases,
stipulated in the rule laid down by NTPC/Sumitomo. Therefore, even though the proper law
of the contract was expressly chosen by the parties in HSBC to be Indian law, the Court chose
to decide the lex arbitri based on the seat of arbitration rather than the proper law of the
contract.

These decisions of the Calcutta and Bombay High Courts try and carve out exceptions to
the NTPC principle, but there is still ambiguity in identifying the lex arbitri when the seat as
well as the substantive law have been identified by the parties. Supreme Court's decision
in NTPC remains a binding precedent in this area. The courts in India lean towards holding
that where such a determination is to be made, the substantive law of the contract bears the
closest connection to the law of the arbitration agreement, while courts in England lean
towards holding that the law of the seat bears the closest connection.

This may prove to be a problem in an international commercial arbitration where, for

instance, the substantive law of the contract is Indian law, but the arbitration is governed by
institutional rules and the seat is outside India. In such a situation, an international tribunal
comprising arbitrators from England and other jurisdictions with similar rules, would
consider the law of the seat to be the lex arbitri. The Indian party may resist the enforcement
of an award from such a tribunal on the grounds that the tribunal applied the wrong law and
this is against the public policy of India.

5 INDIAN PARTIES CHOOSING A SEAT OUTSIDE INDIA

Another area which has been the cause of confusion amongst various Indian courts is whether
two Indian parties can choose a foreign seat and exclude Part I of the Act. It is not uncommon
to have a situation where the Indian subsidiary of a foreign entity has entered into an
arbitration agreement with another Indian party providing for a foreign seat. This often
happens when the arbitration agreement has either been incorporated from the contract with
the principal company, which envisages an international commercial arbitration seated
outside India, or the contract has been assigned to the Indian subsidiary.

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 SELECTION OF ARBITRAL SEAT IN INTERNATIONAL ARBITRATION

Would such an arbitration be considered a domestic arbitration or an international

commercial arbitration? Part I of the Act provides that it will only be applicable where the
place of arbitration is India, therefore an arbitration seated abroad between two Indian parties
would not be a domestic arbitration under Part I of the Act. 26 Section 2(f) of the Act defines
‘International Commercial Arbitration’ as arbitration relating to disputes that arise out of a
legal relationship where one of the parties is not Indian.  An arbitration thus, does not become
international just because it is seated outside India. Therefore, an arbitration between two
Indian parties, seated outside India would not be considered an international commercial
arbitration under the provisions of the Act.

The Supreme Court of India has repeatedly held that Part I of the Act does not apply to
international commercial arbitrations seated outside India and if parties choose a foreign seat
of arbitration and a foreign law as their law of arbitration, then the intention is to exclude Part
I of  the Act. 27 This has been reinforced by the Amendment, whereby barring Sections 9, 27
and 37, Part I has expressly been made inapplicable to international commercial arbitrations
seated outside India. 

Next, we must consider whether Part II of the Act would be applicable in such an event. An
award which results from such an arbitration will be considered a ‘foreign award’ under Part
II of the Act. 28Applicability of Part II is solely based on the seat of arbitration and whether
the seat is located in a country which is a signatory to the New York Convention and been
notified by the Central Government in the Official Gazette. Once this criterion is fulfilled,
Part II would apply and the ‘foreign award’ from such an arbitration would be recognised and
enforced in India.

The major risks that two Indian parties take while arbitrating their disputes outside India is
that, (i) they may not have recourse to the Indian courts under Section 9, 27 and 37, as they
are not covered under the definition of an international commercial arbitration and nor are
they governed by Part I of the Act, and (ii) the foreign award may be open to resistance under
Part II of the Act as being against public policy of India.

26
Arbitration and Conciliation Act, 1996, Act of Parliament, No. 26, 1996. §2(2).
27
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 S.C.C 552 (India); Videocon
Industries Ltd. v. Union of India and Anr., (2011) 6 S.C.C 161 (India).
28
Arbitration and Conciliation Act, 1996, Act of Parliament, No. 26, 1996. §44.

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The Act does not envisage a situation where two Indian parties can choose a seat for their
arbitration outside India. This anomaly could have been removed by the Amendment by
broadening the definition of ‘International Commercial Arbitration’, to include an arbitration
seated abroad.

The Indian judiciary has been faced with this dilemma for some time and has been unable to
give a clear answer. This issue came up before the Supreme Court of India in Atlas Exports
Industries v. Kotak and Company [“Atlas Exports”].29 In Atlas Exports, the issue raised was
that the ‘award should have been unenforceable inasmuch as the very contract between the
parties relating to arbitration was opposed to public policy under Section 23 read with
Section 28 of the Indian Contract Act, 1872.’ The contention raised was that the contract was
opposed to public policy as it implicitly excluded the  remedy available under Indian law and
compelled two Indian parties to have their disputes arbitrated by foreign arbitrators. Section
28 of the Indian Contract Act, 1872 provides that agreements in restraint of legal proceedings
are void; the Supreme Court held that this case would be covered by the exception to Section
28 which excludes arbitration agreements from its purview.30  The court went onto hold that
‘merely because the arbitrators are situated in a foreign country cannot by itself be enough
to nullify the arbitration agreement when the parties have with their eyes open willingly
entered into the agreement’. Thus, the arbitral award arising out of a foreign-seated
arbitration between Indian parties was held to be not unenforceable or opposed to public
policy.

The precedential value of this finding is only that of an obiter dicta and, therefore, has not
been followed by many courts. Before this question could be re-examined, by any other
court, the Supreme Court in TDM Infrastructure (P) Ltd. v. UE Development India (P)
Ltd.31 [“TDM”] held that the intention of the legislature behind Section 28 of the Act, is that
Indians should not be permitted to derogate from Indian law by agreeing to conduct
arbitration outside India with foreign substantive law, as this is against the public policy of
India.  Section 28 of the Act provides for the rules on which the Tribunal would decide a
matter, if the arbitration is seated in India. (32) The Court added a corrigendum in TDM to the
effect that ‘any findings/observations made hereinbefore were only for the purpose of
determining the jurisdiction of this Court as envisaged under Section 11 of the 1996 Act and

29
Atlas Exports Industries v. Kotak and Company, (1999) 7 S.C.C 61 (India). 
30
Indian Contract Act, 1872, Acts of Parliament, §28.
31
TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd. (2008) 14 S.C.C 271 (India).

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 SELECTION OF ARBITRAL SEAT IN INTERNATIONAL ARBITRATION

not for any other purpose.’ It is noteworthy that in TDM, a single bench of the Indian
Supreme Court (designate of the Chief Justice of India to decide application under Section 11
of the Act) did not consider the earlier judgment of Atlas Exports, which was delivered by a
two-judge bench.

Since then various High Courts have taken different positions on this issue. In the recent
decision of Sasan Power Ltd. v. North America Coal Corporation India Pvt. Ltd.32, the
Madhya Pradesh High Court upheld an arbitration agreement where two Indian parties had
chosen a foreign-seated  arbitration. The Court followed the decision in Atlas Exports and
permitted the Indian parties to arbitrate outside India, and held that if the seat is in a country
which is a signatory to the New York Convention, then Part II of the Act would be
applicable. The agreement cannot be held to be null and void because the parties had opted
for a foreign-seated arbitration. The High Court further held that where two Indian parties
had willingly entered into an agreement in relation to arbitration, the contention that a
foreign-seated arbitration would be opposed to public policy was untenable. The court
reasoned that where parties, by mutual agreement, had decided to resolve their dispute by
arbitration and chosen a seat of arbitration outside India then in view of the provisions of
section 2(2) read with Section 44 of the Act, Part II of the Act would govern the proceeding
rather than Part I.

The High Court of Bombay in M/s. Addhar Mercantile Private Limited v. Shree Jagdamba
Agrico Exports Pvt. Ltd.33 has taken a contradictory view on the same issue.  The arbitration
clause in Addhar Mercantile provided that the arbitration could be seated in India or
Singapore and English law was to apply. The appellant argued that since both the parties
were Indian, they could not be allowed to derogate from Indian law and that the arbitration
clause should be interpreted to mean that the arbitration be seated in India. The respondent
refuted this argument on the grounds that parties had agreed to the seat of arbitration to be at
Singapore and English Law to apply. The High Court in this case followed TDM and held
that Indian nationals were not allowed to derogate from Indian law. It is noteworthy that the
High Court did not consider the rider in TDM, which limited its application, or Atlas Exports.
This question also came up before the High Court of Delhi in Delhi Airport Metro Express

32
Sasan Power Ltd. v. North America Coal Corporation India Pvt. Ltd., F.A. 310 of 2015, Sep. 11, 2015
(Bombay High Court) (India).
33
M/s. Addhar Mercantile Private Limited v. Shree Jagdamba Agrico Exports Pvt. Ltd., Arb. App. No. 197 of
2014 and Arb. Pet. 910 of 2013Jun.12, 2015 (Bombay High Court) (India).

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 SELECTION OF ARBITRAL SEAT IN INTERNATIONAL ARBITRATION

Pvt. Ltd. v. CAF India Pvt. Ltd.34 The High Court, unfortunately, skirted around this issue by
holding that one of the defendants, a Spanish entity, continued to remain a party to the
arbitration under the agreement, making it an international commercial arbitration and not an
arbitration between two Indian parties.

The argument that two Indian parties choosing a foreign seat is contrary to Section 28 of the
Act is untenable, as Section 28 becomes applicable only when the arbitration is seated in
India. The question is not whether two Indian parties may choose a foreign law as their
substantive law, but whether they can choose a seat of arbitration outside India and whether
this choice would not be against the public policy of India.

In the absence of any legislative clarification, the Supreme Court in an appropriate case, will
have to authoritatively rule on this contentious issue to avoid further confusion.

6 CONCLUSION

From the above discussion, it is clear that there remain some ambiguities in India's revamped
arbitration law, which require judicial clarification. The legislative effort to amend the Act, to
plug loopholes in the country's arbitration law, goes a long way in portraying India as an
arbitration friendly jurisdiction. However, the issues identified in this article are still lurking
in the background and should be dealt with at the earliest.

34
Delhi Airport Metro Express Pvt. Ltd. v. CAF India Pvt. Ltd., 2014 (4) Arb. L.R. 273 (Delhi).

16