Kartik Jain, LLB, Jindal Global Law School
ABSTRACT
A juridical concept, the seat of arbitration is one of, if not the most, important clause in an arbitration agreement[1]. Granting the courts within the jurisdiction of the seat of the arbitration with the exclusive authority to oversee the comportment of the proceedings, the seat of arbitration not only decides the curial law between the arbitrating parties but also the substantive law governing the contract between them[2]. International commercial arbitration defined under Section 2(1)(f) of The Arbitration and Conciliation Act, 1996 allows an Indian party to choose a foreign seat of arbitration governed by the law of the foreign seat in circumstances of disputes with foreign parties[3]. Yet, the answer to the proposition of two Indian Parties choosing a foreign seat of arbitration has remained indistinct and unrequited, becoming even more perplexing due to the disparity in answers amongst various High Courts in the country[4]. In November 2020, the High Court of Delhi pronounced the validity and acceptance of the proposition of two Indian parties choosing a foreign seat for arbitration without violating Indian public policy under Section 23 of the Indian Contract Act, 1870[5]. This paper seeks to explore the “seat v. venue” debate and henceforth, investigate the impact, opportunities and concerns arising out of the Dholi Spintex[6] Judgement on Indian arbitration.
Seat v. Venue
The “seat” of arbitration is vital in arbitral proceedings[7]. Despite the importance of the term, the Arbitration and Conciliation Act, 1996 uses the phrase “place of arbitration” under Section 20 and 28 instead of “seat” which is not used or demarcated under the statute[8]. Section 20 states that parties to an arbitration are free to agree and decide the place of arbitration and failure to do so grants the arbitral tribunal the authority to select the place of arbitration with due care for the circumstances of the case[9]. The last part of the provision states that hearings of the arbitration may occur at any other appropriate place apart from the place of arbitration agreed upon by the parties[10]. Despite these provisions, the distinction between seat and venue remained a contentious issue and was examined by the Supreme Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Service Inc[11](BALCO). The Supreme Court iterated the importance of the concept of seat of arbitration[12], a suggestion highly neglected in the past, claiming the seat of arbitration to be the centre of arbitral proceedings and the existence of a significant difference between the concepts of “seat” and “venue” [13]. While the “seat” is the location of the home of the arbitral proceedings, a “venue” simply implies a location wherein the meetings of the arbitral proceedings are conducted[14]. The Court held that since the seat of the arbitration was London, the overseeing and governance of the arbitral proceedings would be within the jurisdiction of English Law, implying that a petition under Section 9 would not be applicable as Part I[15] and Indian Courts would not have jurisdiction to entertain proceedings with a foreign seat of arbitration[16][17].
Dealing again with the “seat v. venue” debate, the Supreme Court explored the proposition further in Union of India v. Hardy Exploration[18]. As per the contract between the arbitrating parties, the venue of the arbitration was Kuala Lumpur, Malaysia while the arbitral proceedings themselves were to be governed under the United Nations Commission on International Trade Law UNCITRAL Model Law on International Commercial Arbitration[19]. While determining the seat of arbitration, the Court rejected the proposal to recognise Kuala Lumpur as the seat[20]. Deviating from the Shashoua Principle[21], the Court claimed that the words “venue” cannot be used as a synonym to the word “seat”, henceforth, a venue cannot become the seat of the arbitration without other applicable contemporaneous factors[22]. Allowing challenging of the awards in Indian courts, the Supreme Court reiterated the point that governance under the Model Law does not automatically convert a venue into that of an arbitral seat due to the many considerations required to do so[23].
Re-establishing the principles enunciated by the English Courts in Roger Shashoua v. Mukesh Sharma[24], the Supreme Court overturned the Hardy Exploration judgement in BGS-SGS SOMA-JV v. NHPC Ltd[25]. In this case, a three-judge bench of the Supreme Court, while determining a dispute in the seat of an arbitral proceeding in domestic arbitration, held the precedent in the judgement to be “bad law”[26]. The Court claimed that the previous bench had shown ignorance to the principle established in the Roger Shashoua[27] judgement and established that in instances wherein a location is mentioned in a contract as the venue of the arbitration, it shall be held to be the seat of the arbitration unless specificities regarding the seat are mentioned in the contrary[28].
Indian Parties & Foreign Seat
The BGS-SGS[29] judgement significantly reduced the debate surrounding the discussion between arbitral seats and venues[30]. Despite the confusing position of the law determined through the aforementioned judgements, the importance of the seat/venue in arbitration proceedings is clear[31]. The significance of such is due to the seat of the arbitration determining the curial law overseeing the proceedings despite changes in venue[32]. Section 2(1)(f) defines “international commercial arbitrations” and allows an Indian party in contract with a foreign party to commence arbitration proceedings at the point of a dispute in a foreign seat, governed by foreign law[33]. Henceforth, a significant point of contention in the realm of Indian arbitration has been the validity of whether two Indian parties are eligible to choose a foreign seat of arbitration.
Public Policy Violation
Significant debates have arisen numerous times in various High Courts around the country regarding the violation of Indian public policy under Section 23 of The Indian Contract Act, 1872 due to proceedings on foreign arbitral seats between two Indian parties[34]. One of the conditions under section 23[35] stipulates that an agreement between two or more parties will only be lawful if such agreement is not opposed to public policy[36]. Henceforth, in TDM Infrastructure Pvt. Ltd. v. UE Development India Ltd.[37], the Supreme Court claimed that an agreement amongst two Indian parties would not be considered to be an international commercial agreement while overseeing the validity of an application under Section 11[38]. While not directly addressing whether two Indian parties are permitted to choose a foreign seat for arbitration, the Court concluded that two Indian parties cannot be permitted to deviate away from Indian substantive law because in doing so, they would violate Indian public policy under Section 23[39][40]. Yet, in the earlier judgement of Atlas Export Industries v. Kotak & Co.[41], the Supreme Court approved the validity of international commercial agreements[42], the likes of which were discussed in TDM[43]. The Court claimed such agreements would not violate Indian public policy as they fall and therefore qualify within exception 1 of Section 28[44].
Distinct Points of View
Henceforth, based on TDM[45] and Atlas[46], various High Courts have adjudicated conflicting views on the eligibility of Indian parties arbitrating in foreign seats[47]. While placing reliance upon TDM, the Bombay High Court in Addhar Mercantile v. Shree Jagdamba Agrico Exports[48] held in favour of the applicant who claimed that two Indian parties, incorporated and based out of Mumbai, cannot be allowed to deviate away from Indian substantive law by claiming Singapore to be the seat of arbitration with English law administering the proceedings[49]. By doing so, the Court claimed that the parties in dispute would have to undergo arbitral proceedings in India itself, with the Indian substantive law arbitrating the matter[50]. However, the Madhya Pradesh High Court had conflicting views in Sasan Power v. North American Coal Corporation[51]. While placing reliance upon Atlas[52], the Court held that two Indian companies incorporated under the Companies Act, 1956 are within their rights to choose a foreign seat of arbitration such as London[53]. Claiming the Atlas judgement to have created a binding precedent, the Court claimed that along with the judgement and the law stated under Section 28[54], two Indian companies cannot be coerced to arbitrate in India if a foreign seat has already been chosen for arbitral proceedings as the law does not obstruct this choice[55][56]. Following in the footsteps of the Madhya Pradesh High Court, the Delhi High Court subsequently allowed the choice of a foreign seat by two Indian parties in GMR Energy Limited v. Doosan Power Systems[57], further clouding the correct proposition to be followed.
PASL, Dholi Spintex and the Way Forward
The recent few months have substantially catapulted and solidified the blurry position of foreign arbitral seats for Indian parties. The Gujarat High Court in GE Power Conversion v. PASL Wind Solutions[58] has furthered the autonomy of Indian parties and their right to choose foreign arbitral seats. In the case, it was observed that both parties had agreed that in case of disputes, arbitration would be sought in Zurich, the arbitral seat under Swiss law[59]. The Court rejected the contentions put forth by the respondent, clarifying the absence of any provision forbidding Indian parties from choosing foreign arbitral seats[60]. Furthermore, the court rejected the maintainability of Section 9[61] and clarified that since Section 2(1)(f)[62] requires at least one party to be a foreign party to constitute international commercial arbitration, interim relief could not be granted as both parties to the contract were Indian[63].
Subsequently, the Delhi High Court in Dholi Spintex v. Louis Dreyfus Corporation[64] adjudicated on similar grounds as their counterparts in Gujarat, holding the validity of two Indian parties choosing a foreign arbitral seat[65]. It was observed that both parties had agreed that in case of disputes, arbitration would be sought in London, the arbitral seat under English Law[66]. The Court, while emphasising the importance of the venue v. seat debate as examined earlier, rejected the claims of the petitioner and clarified the position of New Delhi as being simply the venue whereas London was the seat of the arbitration[67]. Furthermore, the Court clarified that Indian parties could enforce arbitral proceedings under foreign law because of the independent nature of an arbitration clause from the law of the substantive contract, regardless of the location of the arbitration clause within the substantive contract itself[68].
Opportunities and Concerns
The adoption of an arbitration-friendly environment by High Courts across the country, especially the judgement adjudged in Dholi Spintex[69] has successfully shown the upwards trend of compliance with international standards in Indian arbitration. The recent judgements are testament to a shift in judicial stance towards permitting foreign arbitral seats for Indian parties[70], making it essential to inspect the opportunities involved and the many choices available for Indian parties to seek foreign seats for arbitrations.
A common law jurisdiction with considerably advanced legal principles of arbitration, London has consistently been an appreciably popular location for foreign arbitral seats in international commercial arbitrations[71]. With the presence of institutions such as the LCIA – London Court of International Arbitration and the recognition of English principles in legal systems around the world, London is an ideal location for Indian parties seeking foreign arbitral seats[72]. Furthermore, the city of Paris remains a top global contender as a location for arbitral proceedings due to the well-recognised characteristics of impartiality in French jurisprudence[73]. With the presence of institutions such as the ICC’s Court of International Arbitration and the increasing number of specialist forums, Paris contends as a robust and unique location for Indian arbitrations[74]. Henceforth, with the permissibility of Indian parties seeking foreign seats for arbitration, strong institutions such as those in London and Paris can become a significant advantage for Indian parties in dispute and a swifter process of impartial and unbiased adjudication.
Despite the advantages present with the opportunity to choose foreign seats for arbitration, the decision to do so can also incur serious consequences upon the parties to the contract. As was examined earlier in the case of PASL[75], the Gujarat High Court held that interim order under Section 9 would not be applicable wherein the seat of arbitration was outside of India[76]. Yet, the stance of the Supreme Court was different in their earlier judgement in Bhatia International v. Bulk Trading [77]wherein it was held that provisions of Part I, such as the grant of interim relief under Section 9, would still be available to parties seeking foreign seats of arbitration[78].
The decision in Bhatia was effectively overruled by the Supreme Court in Bharat Aluminium v. Kaiser Aluminium[79] (BALCO). The Court held that the decision in Bhatia was erroneous and clarified that in instances wherein Indian parties have chosen a foreign seat of arbitration, Part I automatically ceases to apply to such proceedings, implying that Indian courts would have no jurisdiction over such matters[80]. This similarly meant that interim reliefs under Section 9[81] would also cease to be available for foreign seated arbitral proceedings. The lack of this provision can be disastrous for Indian parties seeking arbitration abroad because if a majority of the assets of a company belong in India, the lack of jurisdiction given to Indian courts would mean the party seeking enforcement of arbitral awards might not have any recourse to do so[82].
The consistent shift towards an arbitration-friendly India can be hugely beneficial for the Indian arbitration landscape and helping it become an arbitral hub for the world. Throughout the past few years, India has witnessed the emergence of institutions such as the Delhi International Arbitration Centre and the Mumbai Centre for International Arbitrations[83]. Some claim the quality of such arbitral institutions is at par with some of the best in the world, such as the Singapore International Arbitration Centre[84]. Henceforth, further development in the field would only further the agenda for an even valuable landscape for Indian arbitration. As has been discussed earlier, the seat and the venue are essential for an arbitration proceeding as they can determine the applicability of either Part I or Part II and the curial law overseeing the conduct of the proceedings. Therefore, the Delhi and Gujarat High Court judgements in Dholi Spintex and PASL are a welcome change and a shift towards a pro-arbitration landscape for the country.
[1] 1 Indu Malhotra, Commentary on the Law of Arbitration (4th ed. 2020). [2] Id. [3] Avtar Singh, Law of Arbitration & Conciliation (11tth ed. 2021). [4] 1 Indu Malhotra, Commentary on the Law of Arbitration (4th ed. 2020). [5] Dholi Spintex Pvt. Ltd. v. Louis Dreyfus Company India Pvt. Ltd., 274 (2020) D.L.T. 457 (India). [6] Id. [7] 1 Indu Malhotra, Commentary on the Law of Arbitration (4th ed. 2020). [8] Avtar Singh, Law of Arbitration & Conciliation (11tth ed. 2021). [9] Id. [10] Id. [11] Bharat Aluminium Company and Ors. vs. Kaiser Aluminium Technical Service, Inc. and Ors., (2012) 9 S.C.C. 552 (India). [12] Id. [13] 1 Indu Malhotra, Commentary on the Law of Arbitration (4th ed. 2020). [14] Id. [15] The Arbitration and Conciliation Act, 1996, No. 26, Acts of Parliament, 1996 (India). [16] Bharat Aluminium Company and Ors. vs. Kaiser Aluminium Technical Service, Inc. and Ors., (2012) 9 S.C.C. 552 (India). [17] Duncan Speller & Dharshini Prasad, The Choice of a Foreign Seat in Domestic Disputes – An Opportunity for One More Step Forward in India’s Journey to Establish Itself as an Arbitration Friendly Jurisdiction, 6 Indian J. Arb. L. 43, 43-61 (2017). [18] Union of India (UOI) vs. Hardy Exploration and Production (India) Inc., (2019) 13 S.C.C 472 (India). [19] Id. [20] Id. [21] Roger Shashoua v. Mukesh Sharma, [2009] EWHC 957 (Comm) (England). [22] Union of India (UOI) vs. Hardy Exploration and Production (India) Inc., (2019) 13 S.C.C 472 (India). [23] Id. [24] Roger Shashoua v. Mukesh Sharma, [2009] EWHC 957 (Comm) (England). [25] BGS SGS SOMA JV vs. NHPC Ltd., 2019 (17) SCALE 369 (India). [26] Id. [27] Roger Shashoua v. Mukesh Sharma, [2009] EWHC 957 (Comm) (England). [28] BGS SGS SOMA JV vs. NHPC Ltd., 2019 (17) SCALE 369 (India). [29] Id. [30] Anirudh Hariani, Indian Arbitration and the Shifting Sands of Public Policy, 16 Asian International Arbitration Journal 159, 159-192 (2020). [31] Id. [32] 1 Indu Malhotra, Commentary on the Law of Arbitration (4th ed. 2020). [33] Avtar Singh, Law of Arbitration & Conciliation (11tth ed. 2021). [34] Vikas H. Gandhi, Recent Developments in Indian Arbitration, 8 Asian Journal of Research in Social Sciences and Humanities 135, 135-145 (2018). [35] The Indian Contract Act, 1872, No. 9, Acts of Parliament, 1872 (India). [36] 1 Indu Malhotra, Commentary on the Law of Arbitration (4th ed. 2020). [37] TDM Infrastructure Private Limited vs. UE Development India Private Limited, (2008) 14 S.C.C. 271 (India). [38] Id. [39] The Indian Contract Act, 1872, No. 9, Acts of Parliament, 1872 (India). [40] 1 Indu Malhotra, Commentary on the Law of Arbitration (4th ed. 2020). [41] Atlas Export Industries vs. Kotak and Company, (1999) 7 S.C.C. 61 (India). [42] Id. [43] TDM Infrastructure Private Limited vs. UE Development India Private Limited, (2008) 14 S.C.C. 271 (India). [44] Atlas Export Industries vs. Kotak and Company, (1999) 7 S.C.C. 61 (India). [45] TDM Infrastructure Private Limited vs. UE Development India Private Limited, (2008) 14 S.C.C. 271 (India [46] Atlas Export Industries vs. Kotak and Company, (1999) 7 S.C.C. 61 (India). [47] Avtar Singh, Law of Arbitration & Conciliation (11th ed. 2021). [48] Addhar Mercantile Private Limited v. Shree Jagdamba Agrico Exports Pvt. Ltd., 2015 SCC OnLine Bom 7752 (India). [49] Id. [50] 1 Indu Malhotra, Commentary on the Law of Arbitration (4th ed. 2020). [51] Sasan Power Limited vs. North American Coal Corporation India Private Limited, (2016) 10 S.C.C. 813 (India). [52] Atlas Export Industries vs. Kotak and Company, (1999) 7 S.C.C. 61 (India). [53] Sasan Power Limited vs. North American Coal Corporation India Private Limited, (2016) 10 S.C.C. 813 (India). [54] The Indian Contract Act, 1872, No. 9, Acts of Parliament, 1872 (India). [55] Sasan Power Limited vs. North American Coal Corporation India Private Limited, (2016) 10 S.C.C. 813 (India). [56] 1 Indu Malhotra, Commentary on the Law of Arbitration (4th ed. 2020). [57] GMR Energy Limited v. Doosan Power Systems India Private Limited, (2017) 6 Arb LR 447 (India). [58] GE Power Conversion India Private Limited vs. PASL Wind Solutions Private Limited, MANU/GJ/1345/2020 (India). [59] Id. [60] Id. [61] The Arbitration and Conciliation Act, 1996, No. 26, Acts of Parliament, 1996 (India). [62] Id. [63] GE Power Conversion India Private Limited vs. PASL Wind Solutions Private Limited, MANU/GJ/1345/2020 (India). [64] Dholi Spintex Pvt. Ltd. v. Louis Dreyfus Company India Pvt. Ltd., 274 (2020) D.L.T. 457 (India). [65] Id. [66] Id. [67] Id. [68] Id. [69] Dholi Spintex Pvt. Ltd. v. Louis Dreyfus Company India Pvt. Ltd., 274 (2020) D.L.T. 457 (India). [70] Gracious Timothy Dunna, Keeping with the Times, Revisiting the UNCITRAL Model Law on International Commercial Arbitration, 11 Journal of International Dispute Settlement 459, 459-484 (2020). [71] Gonzalo Vial, Influence of the Arbitral Seat in the Outcome of an International Commercial Arbitration, 50 The International Lawyer 329, 329-346 (2017). [72] Id. [73] Talat M. Birgonul, Irem Dikmen & Sinasi Bektas, Comparison of an Emerging Seat of Arbitration and Leading Arbitration Seats and Recommendations for Reform, 10 Journal of Legal Affairs and Dispute Resolution in Engineering and Construction 250, 250-271 (2018). [74] Id. [75] GE Power Conversion India Private Limited vs. PASL Wind Solutions Private Limited, MANU/GJ/1345/2020 (India). [76] Id. [77] Bhatia International vs. Bulk Trading S.A. and Ors., (2002) 4 S.C.C. 105 (India). [78] Id. [79] Bharat Aluminium Company and Ors. vs. Kaiser Aluminium Technical Service, Inc. and Ors., (2012) 9 S.C.C. 552 (India). [80] 1 Indu Malhotra, Commentary on the Law of Arbitration (4th ed. 2020). [81] The Arbitration and Conciliation Act, 1996, No. 26, Acts of Parliament, 1996 (India). [82] Vikas H. Gandhi, Recent Developments in Indian Arbitration, 8 Asian Journal of Research in Social Sciences and Humanities 135, 135-145 (2018). [83] Namrata Shah & Niyati Gandhi, Arbitration: One Size Does Not Fit All: Necessity of Developing Institutional Arbitration in Developing Countries, 6 J. Int’l Com. L. & Tech 232, 232-250 (2011). [84] 1 Kaviraj Singh, Foreign Legal Consulting Regime in India: India Legal Market (1st ed. 2015).
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