Supreme Court clarifies distinction between ‘place’ and ‘seat’ of arbitration

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The Supreme Court recently considered the legal issue regarding the specification of a “place” or “venue” for arbitration in an arbitration agreement, and if the agreement is silent with respect to the “seat”, then on what basis and by which principle should it determine the place of seat”, which governs the applicability of laws of a particular country for deciding post-award arbitration proceedings. A three-judge bench of the Supreme Court, while clarifying the distinction between the place and seat of arbitration, held that a contractual clause stipulating Kuala Lumpur as the “venue” of arbitration, in the absence of any additional factors, did not amount to a choice of juridical seat.

In Union of India v Hardy Exploration and Production (India) Inc, Hardy Exploration entered into a production-sharing contract with the government for the extraction, development and production of hydrocarbons in a geographic block in India. When disputes arose between the parties, they were referred to arbitration. The arbitration clause in the agreement specified Kuala Lumpur as the “venue” of arbitration and it was conducted in Kuala Lumpur with the final award granted in favour of Hardy Exploration and directing the government to pay ₹6 billion (US$84 million) excluding interest to Hardy besides restoration of the gas block.

The award was unsuccessfully challenged by the government under section 34 of Arbitration and Conciliation Act, 1996, before a single judge and then the division bench of Delhi High Court. The high court held that Indian courts do not have jurisdiction to entertain the government’s application under section 34 of the act or to question the legality of awards granted in international commercial arbitration proceedings. The government brought the matter before the Supreme Court and referred the matter to a larger bench.

The question before the Supreme Court was whether the juridical seat of the arbitration was outside of India, and therefore, do Indian courts have jurisdiction to consider the set-aside application.

The Supreme Court examined the relevant clauses, articles of UNCITRAL Model Laws, and International Chamber of Commerce Rules of Arbitration and concluded that the parties were free to agree on the place of arbitration, and if this was not specified, the arbitration tribunal would decide on the question. In this case, just because the arbitrators held the meeting in Kuala Lumpur and signed the award, it did not amount to determination of the seat. The court held that the “venue” of an arbitration could not, by that very fact, be considered to be its “seat” and that the “place” could be equated with the “seat” if no conditions precedent were attached to it.

On this basis, the Supreme Court set aside the decision of the high court and referred the matter to a single judge of the high court for adjudication of the section 34 application.

The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.