09/05/2019 The Seat–Venue–Place Conundrum: Supreme Court Weighs In | India Corporate Law

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The Seat–Venue–Place Conundrum: Supreme Court

Weighs In
By Shaneen Parikh, Jeet Shroff & Avantika Panwar on October 8, 2018

Last week, the Supreme Court issued its decision in the case of Union of India v. Hardy
Exploration and Production (India) Inc[1]. The much-anticipated decision attempts to
provide clarity on the venue-seat conundrum in arbitration cases — cases where an
arbitration agreement fails to specify the ‘seat’ of an arbitration but does specify a ‘venue’.

Facts of the Case

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Hardy Exploration and Production (India) Inc. (Hardy Exploration) entered into a
production-sharing contract with the Indian Government for the extraction, development
and production of hydrocarbons in a geographic block in India. Disputes arose between
the parties, which were referred to arbitration. The arbitration clause specified Kuala
Lumpur as the ‘venue’ of the arbitration. Arbitration was conducted in Kuala Lumpur and a
final award was rendered in favour of Hardy Exploration. The award was challenged by the
Indian Government under Section 34 before the Delhi High Court (Section 34 Challenge).
Hardy Exploration resisted the Section 34 Challenge on the basis that Indian courts could
not have jurisdiction to entertain the Section 34 Challenge because the seat of the
arbitration was Kuala Lumpur and Part I of the Arbitration Act would not be applicable. The
Delhi High Court ruled in favour of Hardy Exploration. The Indian Government appealed
the Delhi High Court decision before the Supreme Court.

Court’s Decision

The Court ruled that the ‘venue’ of an arbitration could not, ipso facto, be considered to be
its ‘seat’ and that the ‘place’ could be equated with ‘seat’ only if it had no conditions
precedent attached to it: “The term ’place’ does not ipso facto become equivalent to ’seat’,
and only when one of the conditions precedent is satisfied can the ’place’ take the
position of ’seat’. On the other hand, however, the term ’venue’ can become ’seat’ if
something else is added to it as a concomitant.”

On the facts before it, the Court ruled that since the arbitration agreement did not provide
for a seat, the determination of the seat would have to be made by the arbitral tribunal. The
Court held that merely because the arbitrator had “held the meeting at Kuala Lumpur and
signed the award… does not amount to determination… The sittings at various places are
relatable to venue. It cannot be equated with the seat of arbitration or place of
arbitration…” On this basis, the Court set aside the decision of the Delhi High Court and
found that Indian courts would have jurisdiction to entertain the Section 34 Challenge.

Implications for Arbitration Law in India

The Supreme Court’s decision treads familiar ground. It reiterates that where a contract
does not specify the ‘seat’ but specifies a ‘place’ or a ‘venue’, such ‘place’ or ‘venue’
cannot ipso facto be considered to be the ‘seat’. Whether a ‘place’ or ‘venue’ is the seat
depends on a contextual analysis of the facts. This has long been accepted as the guiding
principle for determination of a seat.

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In Shashoua v Sharma[2] (Shashoua) the arbitration agreement provided for London as

the ‘venue’ of the arbitration but was silent as to the ‘seat’. The English High Court
concluded that London would be the seat of the arbitration because it was designated as
the arbitral ‘venue’ and because the arbitration clause provided for arbitration to be
conducted in accordance with the ICC Rules. The court held that if the parties had
intended to name a ‘venue’ that was distinct from the ‘seat’, they would have specifically
named both. Similarly, the Indian Supreme Court in Enercon (India) Ltd. v Enercon GMBH[3]
held that where the seat was not specified by the parties, it would have to be determined
by analysing which seat had “closest and most intimate connection” with the dispute.

While the Court’s decision in Hardy Exploration provides some incremental guidance, it
largely follows these principles. That is also perhaps a criticism of the Court’s decision —
the judgment is worded somewhat abstractly and fails to provide a comprehensive,
pragmatic test by which a determination of the seat can be made. The Court’s eventual
conclusion that Delhi (and not Kuala Lumpur) was the seat of the arbitration also does not
seem to be borne out from the facts in keeping with the test adopted in Shashou – i.e. if
Kuala Lumpur was only intended to be the ‘venue’ and not the ‘seat’, why did the parties
not separately mention the seat?

Conclusion

The decision in Hardy Exploration would probably count as a missed opportunity. Given
that the Supreme Court specially constituted a three-judge bench to determine the issue,
the Court could have clarified, once and for all, the law on this point. In failing to lay down a
clear cogent test, the Court missed an opportunity to provide greater clarity to arbitration
law in India. Perhaps the biggest takeaway from such cases continues to be the need to
draft arbitration clauses with care and precision.

[1] CIVIL APPEAL NO. 4628 OF 2018

[2] [2009] EWHC 957 (Comm)

[3] (2014) 5 SCC 1

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