"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, March 10, 2020

Seat, Venue and All that Needless Confusion

This blog began its journey about twelve years back, when International Commercial Arbitration in India was at a nascent state. With the help of great readers, who commented on various aspects of the subject, we were able to clarify several concepts to readers. Gradually, international arbitration reached a state in India where there were hardly any bloopers and thus the need for pointing out errors in decisions became lesser and lesser. Of late, we have not been regular in our posts mainly because Indian arbitration law, except for certain aberrations, is moving in the right direction. And then comes this Seat, Venue and Place confusion, which is toootally needless. As a prelude to this, readers are advised to have a look at this short post: The Mystery of Seat and Place in International Arbitration: History & the Indian Connection

There are two fundamental errors in the seat, place and venue debate. If these two gross errors are corrected, there would be very less confusion: (1) For domestic arbitrations, it is necessary to abandon the concept of seat as it is understood in international arbitration parlance. (2) Courts should stop using the term "seat" although it sounds stylish and use the term "place" in all its seriousness, as it is used in Section 20(1) and (2) of the Arbitration and Conciliation Act, 1996.

The reason why (2) above is suggested is because of a recent decision of the Supreme Court in Mankastu Impex Pvt. Ltd. v. Airvisual Ltd. (2020: SC), where the three judge Bench of the Supreme Court had the occasion to determine whether parties had agreed on Hong Kong as the place of arbitration and had to therefore decide if a petition for appointment of arbitrator could be filed in India. The arbitration clause in question read:

"17. Governing Law and Dispute Resolution
17.1 This MoU is governed by the laws of India, without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction.
17.2 Any dispute, controversy, difference or claim arising out of or relating to this MoU, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered in Hong Kong.
The place of arbitration shall be Hong Kong.
The number of arbitrators shall be one. The arbitration proceedings shall be conducted in English language.
17.3 It is agreed that a party may seek provisional, injunctive, or equitable remedies, including but not limited to preliminary injunctive relief, from a court having jurisdiction, before, during or after the pendency of any arbitration proceeding."

Clause 17.2 is clear. The place of arbitration is Hong Kong. To paraphrase the oft-cited statement, the moment there is a designation of place (in international commercial arbitration), it operates akin an exclusive jurisdiction clause. The arbitration was to be administered in Hong Kong. Nevertheless, there is a slight aberration. Clause 17.1 provides that courts at New Delhi shall have the jurisdiction. This was needless as there was no need for designation of a court, especially given that Clause 17.3 allows a party to approach a court having jurisdiction for equitable relief. But whether this choice can create a doubt on the intent of the parties over the place designation clause? Don't think so.

The court, rightly, came to the conclusion that the place of arbitration was Hong Kong and so the petition was maintainable. But the journey it went through to reach the ultimate conclusion had a howler: "It has also been established that mere expression “place of arbitration” cannot be the basis to determine the intention of the parties that they have intended that place as the “seat” of arbitration." (Para 20) Indian arbitration law uses the term "place" for seat. Therefore, the general rule is and should be that the expression of "place of arbitration" is the basis for determining party intent that they intended the place to mean seat. There is no term called "seat" used in the 1996 Act. Also, the judgment, like this post, is badly edited: "Hardy Exploration is not a god [!] law".

The correct course of action for the court is to do what the Supreme Court did almost a decade ago in a decision on international commercial arbitration. See, this post, on what happened. To cut the story short, the court has to once again list the matter and correct these errors in the decision. Would be great if one of the counsels files an IA and gets the errors corrected.

Happy Holi!

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