Supreme Court: Place of arbitration not always seat

By Karthik Somasundram and Sneha Jaisingh, Bharucha & Partners
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On what basis is the “seat” of an arbitration determined if the arbitration agreement specifies only the venue of hearing? The three-judge bench of the Supreme Court answered this issue in Union of India v Hardy Exploration and Production (India).

An award made under the rules of the United Nations Commission on International Trade Law (model law) in Kuala Lumpur was challenged by the government of India in the Delhi High Court. The challenge was rejected on the technicality that the seat of arbitration was outside India as the award was made in Kuala Lumpur, and therefore Indian courts did not have jurisdiction. A review against the order and an appeal to the division bench of the high court met with a similar fate. The subsequent Supreme Court appeal was referred to a larger bench.

Karthik-Somasundram-Bharucha-&-Partners
Karthik Somasundram
Partner
Bharucha & Partners

The court noted that, theoretically, there could be different laws that govern aspects of a contract containing an arbitration clause: (1) the governing law of the contract; (2) the proper law of the arbitration; and (3) the law governing the conduct of arbitration itself (curial law). The proper law of arbitration governs: the determination of arbitrability of a dispute, the scope of the arbitral reference, the constitution of the tribunal, the validity of and challenge to the award, and the discharge from obligation to arbitrate further.

The curial law governs: the procedure and manner of conduct of the arbitration, the determination of the proper law of contract, the powers and duties of arbitrators, and the questions of evidence. In the absence of an express agreement, the law of the place where the arbitration is conducted is usually the proper law of arbitration. However, this is not always the case and therefore determination of the seat is required.

The court traced the evolution of the law on “juridical seat” of an arbitration and the power of Indian courts with respect to arbitrations that are not seated in India. In Bhatia International v Bulk Trading SA & Anr (2002), the court ruled that unless part I of the Arbitration and Conciliation Act, 1996, was expressly or implicitly excluded, Indian courts would have jurisdiction even over international commercial arbitrations that were seated outside India.

Sneha-Jaisingh-id
Sneha Jaisingh
Managing associate
Bharucha & Partners

However, almost a decade later, in Bharat Aluminum Company v Kaiser Aluminum Technical Services (2012), the court ruled that part I of the act was only applicable to arbitrations seated in India. Indian courts do not have the power to grant interim reliefs or entertain challenges to arbitral awards in the case of arbitrations seated outside India.

The court ruled that the arbitration clause must be read in its entirety to determine the “presumed intention” of the parties as to the seat of arbitration, in case the seat was not expressly mentioned.

In Roger Shashoua & Ors v Mukesh Sharma & Ors (2017), the court ruled that if the seat was not prescribed but the venue is, along with some other prescriptions, then those must be considered when determining the seat of arbitration.

The court analysed the position in law to answer the reference: place and seat are universally used interchangeably. If the place is mentioned, and no other condition is prescribed, the place assumes the status of the juridical seat. However, if a stipulation is attached to the place mentioned in the agreement then it has to be satisfied for the place to become the seat of arbitration. If the seat of arbitration is outside India, then part I of the act will not apply, and Indian courts will not have jurisdiction to entertain a challenge to the award.

In the appeal by the government, the court noted that while the governing law of the contract was Indian, the curial law of the arbitration was the model law. Kuala Lumpur was the venue of hearings, but the seat and place were not mentioned in the agreement. The model law prescribes that if the place of arbitration was not agreed upon, the tribunal has to determine the place and mention it in the award.

The government contended that the arbitral tribunal had not determined the place. The court rejected the contention of the respondent that the place had been determined implicitly by virtue of the arbitral hearings having been conducted in Kuala Lumpur and the award having been signed there. The determination of the place required adjudication by expressing an opinion by the arbitral tribunal, which had not happened.

In this case, since the arbitral tribunal did not determine the place, Kuala Lumpur was not the seat of arbitration and the challenge to the award could be maintained in Indian courts. Delhi High Court could, therefore, decide on the government’s challenge to the award.

Karthik Somasundram is a partner and Sneha Jaisingh is a managing associate at Bharucha & Partners.

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