Promod Nair and Bhavya Mohan

The selection of an arbitral seat is a decision with significant legal consequences for the parties to an arbitration agreement. The seat of arbitration has been described as the “juridical home” of the arbitration and the choice of seat generally determines which courts have jurisdiction to consider challenges to arbitral awards, appoint arbitrators and otherwise exercise judicial supervision over arbitral proceedings. The seat of an arbitration is fundamentally different from its ‘venue’, which expression is used to refer to the geographic location of the hearings or meetings in an arbitration.

In its 25 July 2019 decision in Brahmani River Pellets Limited v. Kamachi Industries Limited (judgement dated 25 July 2019, in Civil Appeal No. 5850 / 2019 available here), the Supreme Court considered whether the Madras High Court had jurisdiction to appoint an arbitrator under section 11(6) of the Arbitration & Conciliation Act 1996 (the “Act”) in circumstances where the parties had specified Bhubaneswar as the ‘venue’ of the arbitration. The Supreme Court held that the choice of Bhubaneswar as the venue for arbitration meant that only the Orissa High Court would have jurisdiction to entertain a petition under section 11(6) of the Act for appointment of an arbitrator.

Factual Background

Brahmani River Pellets Limited (“Brahmani”) entered into an agreement with Kamachi Industries Limited (“Kamachi”) for the sale of iron pellets. The loading port was Dharma Port in Odisha and the destination was Ennore Port in Tamil Nadu. The agreement contained an arbitration clause which provided that:

“[a]rbitration shall be under Indian Arbitration and Conciliation Act 1996 and the [v]enue of [a]rbitration shall be Bhubaneswar”.

Disputes arose between the parties in relation to the price and terms of payment and the shipment was eventually not delivered as a result. Kamachi made a claim for damages arising from Brahmani’s alleged breach of contract and issued a notice of arbitration. It also approached the Madras High Court for the appointment of an arbitrator. The Madras High Court assumed jurisdiction and appointed an arbitrator, which judgment was challenged by Brahmani before the Supreme Court.

Brahmani’s position was that by choosing Bhubaneswar as the venue of arbitration, the parties had also chosen Bhubaneswar as the seat of the arbitration. On this basis, it contended that only the Orissa High Court would have jurisdiction to appoint an arbitrator under the Act. Kamachi, on the other hand, contended that (i) Bhubaneswar was only the venue (and not seat) of arbitration and, (ii) since at least a part of the cause of action arose in Chennai, the Madras High Court had jurisdiction to appoint an arbitrator.

Decision: Choice of Venue Excludes Jurisdiction of all other Courts

The Supreme Court held that where “the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter and parties intended to exclude all other courts”. Referring to the choice of Bhubaneswar as the venue of arbitration, the Supreme Court inferred that the parties intended to “exclude [the jurisdiction of] all other courts”. On this basis, it held that the Madras High Court erred in assuming jurisdiction and appointing an arbitrator and that such jurisdiction was vested exclusively in the Orissa High Court.

Comment

The Supreme Court’s reasoning is problematic and could potentially unsettle the previously well-entrenched distinction between ‘seat’ and ‘venue’ under Indian law. In effectively holding that the venue of arbitration would automatically determine the court which is entitled to exercise supervisory jurisdiction over the arbitration, the judgment has misstated the law as previously laid down by the Supreme Court.

In Brahmani, the Supreme Court cited (but failed to properly apply) a number of precedents which reaffirmed the distinction between seat and venue as set out in section 20 of the Act and in arbitral jurisprudence more generally. One such decision is that rendered by Justice Nariman in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. ((2017) 7 SCC 678) in which he described the distinction between seat and venue as “crucial”. Interpreting section 20 of the Act (which uses the expression ‘place of arbitration’ in sub-sections (1) and (2) and ‘place’ in sub-section (3)), Justice Nariman held that ‘place of arbitration’ is a reference to the juridical seat of the arbitration whilst ‘place’ as used in section 20(3) is only a reference to the physical venue for hearings, inspection of property and consultation amongst members of an arbitral tribunal. He clarified that only the choice of seat (and not choice of venue) would operate as an exclusive jurisdiction clause, conferring the courts at the seat with the power to consider challenges to an arbitral award and otherwise supervise the arbitration process.

The Supreme Court in Brahmani referred to, but again did not apply, its own ratio as laid down in Union of India v Hardy Exploration ((2018) 7 SCC 374). In its judgment in Hardy Exploration, in construing a contractual clause stipulating Kuala Lumpur as the ‘venue’ of arbitration, the Supreme Court held that in the absence of any additional factors connecting the venue to the dispute, the choice of venue of the arbitration did not amount to a choice of juridical seat.

Enercon (India) Limited and others v. Enercon GMBH ((2014) 5 SCC 1) is yet another precedent cited in Brahmani which ought to have persuaded the court to refrain from effectively equating the venue of arbitration with its seat. In Enercon, the arbitration agreement named London as the venue of arbitration but also provided that the Indian Arbitration Act would apply. The Supreme Court concluded that the juridical seat of the arbitration was India despite London being named as the venue of the arbitration by holding: “…[i]f one has regard to the factors connecting the dispute to India, and in the absence of any factors connecting it to England, the only reasonable conclusion is that the parties have chosen London only as the venue of the arbitration. All the other connecting factors would place the seat firmly in India.”

The enquiry as to whether a particular geographic location, selected as the venue of arbitration, also constitutes the juridical seat should focus on identifying the jurisdiction having the “closest and most intimate connection” to an arbitration. Such an analysis is required to identify the seat of arbitration not only in the context of a transnational dispute but also a sub-national one.

The Supreme Court could easily have reached the result it did in Brahmani by reasoning that Odisha was not only the venue of the arbitration but also its seat. The presence of the seller within that jurisdiction, the requirement for payment to be made by letter of credit in Bhubaneswar, the port of performance (for loading of iron ore pellets) being situated in Odisha, the absence of any other stipulation as to seat could all be cited as factors that linked the transaction and any putative dispute “closely and intimately” to Odisha.

It is not uncommon for the venue of an arbitration to be changed for reasons of convenience of the parties, witnesses or arbitrators. In such a situation, if the decision in Brahmani is to be followed, every change of venue could potentially have the effect of depriving a particular set of courts of jurisdiction and conferring it on another set of courts. This would be illogical and also contrary to the decision of a 5-judge bench of the Supreme Court in BALCO ((2012) 9 SCC 552). As noted by the Supreme Court in BALCO (citing Redfern and Hunter), “each move of the arbitral tribunal does not of itself mean that the seat of arbitration changes. The seat of the arbitration remains the place initially agreed by or on behalf of the parties.”

The judgment in Brahmani is capable of being misused in circumstances that may not have been envisaged by the Supreme Court. It is increasingly common for parties to India-related contracts to choose a foreign seat of arbitration but specify a venue of arbitration within India. If the venue of an arbitration is in India, that could arguably be sufficient to confer jurisdiction on the Indian courts in terms of the law now laid down in Brahmani. This would reopen the door, which was firmly shut by BALCO, for Indian courts to intervene in arbitrations seated outside India. It is, therefore, necessary for the law as laid down in Brahmani to be reconsidered and clarified.

The Brahmani decision also underlines the importance of clear drafting of arbitration agreements to avoid uncertainty. A clear contractual choice of ‘seat’ rather than (or in addition to choice of) ‘venue’ could have helped the parties avoid the dispute that the Supreme Court was called upon to resolve. It is therefore advisable for contracting parties to expressly specify not only the venue but also the seat of arbitration in their arbitration agreements.

(Promod Nair and Bhavya Mohan are advocates at Arista Chambers in Bengaluru).