BACKGROUND

We often come across arbitration clauses that specify the 'Venue' for conducting the arbitration proceedings but do not specify the 'Seat' of the arbitration. This leads to a confusion regarding the applicable laws and since the issue goes to the root of the matter, the Court's intervention is sought by the parties for decision on this issue. A similar issue came before the Hon'ble Supreme Court of India in Union of India Vs. Hardy Exploration and Production (India) Inc. Vide a decision rendered on May 01, 2018, the Hon'ble Apex Court considered it appropriate to refer the issue to be decided by a larger bench of the Hon'ble Apex Court.

FACTS OF THE CASE

Union of India (UOI) filed application under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act) challenging the legality, validity and correctness of an award passed in an international commercial arbitration proceeding. Hardy Exploration and Production (India) Inc. (Hardy) took the preliminary objection that Indian Courts do not have jurisdiction to entertain the application under Section 34 of the Act to question the legality of award rendered in international commercial arbitration proceedings. Hardy succeeded in its submissions before the Single Bench as well as the Division Bench of the Hon'ble High Court. UOI challenged the decisions and raised the issue before the Hon'ble Apex Court for their determination and conclusion.

ISSUE

When the arbitration agreement specifies the "Venue" for conduction and holding the arbitration proceedings by the arbitrator(s) but does not specify the"Seat", then on what basis and by which principle, the parties need to decide the place of "seat"? The Court noted that this issue has a material bearing for determining the applicability of laws of a particular country for deciding the post award arbitration proceedings.

RELEVANT CLAUSES IN THE AGREEMENT ENTERED BETWEEN THE PARTIES

32.1 - This contract shall be governed and interpreted in accordance with 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.

33.11 - Prior to submitting a dispute to arbitration, a party may submit the matter for conciliation under the UNCITRAL conciliation, rules by a sole conciliator to be appointed by mutual agreement of the Parties. If the parties fail to agree on a conciliator in accordance with the said rules, the matter may be submitted for arbitration. No arbitration proceedings shall be instituted while conciliation proceedings are pending.

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.

FINDINGS

The Apex Court heard the arguments for few months in intervals with lucidity in order to appreciate the law being discussed and laid down by the several High Courts as well as the Apex Court in India on this issue.

The Apex Court observed that the aforesaid clauses in the agreement do not specify the place of the arbitration as only venue was stated to be Kuala Lumpur. The contract was stated to be governed and interpreted in accordance with the laws of India. The Apex Court recorded the series of judgments passed in relation to this issue in both foreign cases and Indian cases.

RULING

Recognizing the importance of the issue qua the "seat"and"venue"and the fact that this issue arises frequently in International Commercial Arbitration matters, the Hon'ble Supreme Court considered it appropriate to refer the matter to be dealt with by the larger bench of the Supreme Court for hearing.

CONCLUSION

This issue has cropped up from time to time and it has confused parties to the arbitration agreement at the time of dispute. The parties then consult the legal experts on the subject to arrive at a conclusion. The issue gets into play at the primary stage of initiation of the arbitration dispute and remains a mystery until it is decided by the concerned court of law. The parameters that decide the 'Seat' in case of absence of specific mention of a 'Seat' in an arbitration clause in an agreement have seen several judicial pronouncements, be it the ruling rendered in National Thermal Power Corporation vs. Singer Co. and Ors in the year 1992 or the one passed in the year 2017 in Roger Shashoua and Ors. vs. Mukesh Sharma & Ors. Since the 'Seat' is an imperative factor in an arbitration and the issue needs the precision, the ruling to be rendered by the Larger Bench of the Hon'ble Supreme Court will be of great significance and importance.

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