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The Importance of
Determination of Seat under
Indian Arbitration Law
By Guest / December 11, 2018 / 8 Min read / Add comment

[Saumitra Shrivastava is a IV year B.A. LLB (Hons,) student at HNLU,

Raipur]

Introduction

In international commercial arbitration the concepts of place, seat and venue are of
tremendous importance as they determine which law and whose jurisdiction would
be applied in a case. The courts of a country could interfere in any arbitral
proceedings only if they have jurisdiction to do so. For instance, Part one of the
Indian arbitration legislation, i.e., the Arbitration and Conciliation Act, 1996 (the
‘Act’) has several provisions enabling Indian courts to interfere. However, they are
only applicable where the place of arbitration is India (see section 2(2) of the Act) .
This leads to several questions. When do we consider if the place of arbitration is
India? How is it different from the seat or venue? Does deciding venue automatically
decide seat? The Supreme Court has decided upon these questions on 25 September
2018 in the landmark judgment of Hardy Exploration v Union of India.

Interplay of Three Laws

In any international arbitration, there is an interplay of three kinds of laws:

1. Applicable law (law governing the matrix of the contract);

2. Law of arbitration agreement; and
3. Lex arbitri (law of juridical seat).

In the aforesaid judgment, the classification was more or less the same:

1. 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.

2. 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 an
award.
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3. The curial law, i.e. the law governing the conduct of the individual reference.

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The parties generally specify these laws by specifying them in the agreement. When
they decide the seat of the arbitration, they impliedly decide that courts (of the
country in which seat is located) have jurisdiction over the proceedings. That
decides which country’s courts would have supervisory jurisdiction over the
arbitral tribunal. However, the problem arises when the contract does not specify
same. In the present case, the seat was not decided.

Facts of the Case

Hardy Exploration Pvt. Ltd (‘HEPL’) entered into a contract with the Union of India
in November, 1996 in relation to the extraction, development and production of
hydrocarbons in a geographic block in India (“Block”). The arbitration clause did not
specify the seat of the arbitration. Instead it specified Kuala Lumpur as the venue of
the arbitration. Further the contract law was decided to be that of India. The curial
law was specified to be the UNCITRAL Model Law on International Commercial
Arbitration, 1985.

The contract between the parties provided:

32.1 This contract shall be governed and interpreted in accordance with the
laws of India.

32.2 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.

33.9 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.

33.12 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.

A dispute arose between the parties and arbitration proceedings commenced in

Kuala Lumpur pursuant to the arbitration agreement. The award was passed by the
tribunal in favour of HEPL and consequently signed by the parties in Kuala Lumpur
on 2 February, 2013. The award was challenged under section 34 of the Act in Delhi
High Court in July 2013.
Contentions of the Parties

HEPL submitted that the Indian courts have no jurisdiction over the award as the
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contract stipulated that Indian law would be applicable only for the contract.[1]
Articles 32.1 and 32.2 of the arbitration agreement point towards the contractual HOME ABOUT US SUBMISSION GUIDELINES 
rights of the parties. There was nothing in the agreement to suggest any indication
towards Indian law as the law of juridical seat or curial law. In fact, Article 33.9
refers the arbitral proceedings to the application of Model Law and not the Indian
law.

The Union of India contended that the UNCITRAL Model Law was adopted by the
Indian Parliament by enacting the Act as evidenced by its Statement of Objects and
Reasons. It was further submitted that the grounds mentioned in Article 34 of the
UNCITRAL Model Law have been, mutatis mutandis, incorporated in section 34 of
the Act.

The single judge of Delhi High Court decided in favour of HEPL stating that the
courts of Malaysia would have jurisdiction as the venue of the arbitral proceeding
was decided to be Kuala Lumpur. The Division Bench of the High Court confirmed
the decision.

Law Regarding Seat and Venue in India

It is interesting to note that the Act does not even mention the terms ‘seat’ and
‘venue’. Section 20 of the Act merely talks about ‘place of arbitration’. It is only by a
series of judgments of the Supreme Court that the law has been laid down on
several questions revolving around the ambiguous section of the Act. In Bhatia
International v. Bulk Trading, the Court distinguished between venue and the seat of
the country and held that the ‘place’ in sections 20(1) and 20(2) refer to the seat and
in section 20(3) it refers to venue.

In the present case, the venue was determined and not the seat. The arbitral tribunal
of the Kuala Lumpur passed the award without determining the seat. There was no
question of determination by either party in the arbitral proceedings.

Principles Laid Down in Bhatia International and BALCO

Of the many judgments submitted by the parties before the Supreme Court, the
Court noted that the said controversy has to be governed by the principle laid down
in Bharat Aluminium Company v. Kaiser Aluminium (‘Balco’) or by the agreement
or by the principle of implied exclusion as has been held in Bhatia International.

The principle laid down in Balco states that when there is an absence of any specific
choice on the law governing the arbitration agreement, the same would be
determined by the substantive law of contract. The principle of implied exclusion in
Bhatia International is that Part One is to apply also to international commercial
arbitrations which take place out of India, unless the parties by agreement, express
or implied exclude it or any of its provisions. In the present case, the substantive law

of contract was Indian law. Further, it was held that there was no exclusion of Act by
the parties.

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Exclusion of the Act

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The Supreme Court held that the seat and venue could not be used interchangeably
and for excluding the ‘Part one’ of the Act, there has to be a positive act of
determination of seat by the parties and, in case of their failure, by the arbitral
tribunal. The mere meeting of parties and signing of the award by the party would
not be equal to determination. The sittings at various places are relatable to venue
and would not make them seat automatically.

Conclusion

Thus, the Supreme Court overruled the decision and held that the Indian courts
have the jurisdiction to entertain the case under section 34 of the Act. For excluding
the application of the Act, there has to be specific exclusion of Indian courts, which
in the present case, was neither done by the parties nor by the tribunal.

The law has become somewhat clear on the question of the difference between seat
and venue of the court. However it must be noted by the legislators that the Act still
provides no reference to the concept of seat or venue of the arbitration and merely
provides for the ‘place’ of arbitration. For the sake of clarity of law, especially for the
international observers who by mere reading of the Act could conclude the place to
be same as seat and venue, it must be amended to distinguish between these terms
in sections 2(2) and 20 of the Act.

– Saumitra Shrivastava

[1] Article 32.1, Contract

Arbitration

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