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LATEST TRENDS IN ARBITRATION (The trail of distinction between seat and venue)

Arbitration is a process whereby two or more parties agree to submit a legal dispute to one or more third parties, whose role it is to enunciate judicially on that dispute in the shape of a binding award. The purpose of arbitration is to retract the power to decide a dispute from the national court and to transfer that power to an arbitrator. The consensual nature of arbitration may need the parties in the arbitration agreement to resort to the Court to enforce the incidence of their agreement. The court will support and supervise the arbitration process, but this does not imply that the court gives powers to the arbiter beyond those that are strictly necessary to permit the arbiter to perform the duties that have been imposed upon, and accepted by him. As a general principle, the Court should not intervene with the arbitration process except as provided by the Act.

The trail of distinction between seat and venue

The Courts exercise supervisory jurisdiction over the arbitration proceedings. This supervision is limited to granting interim measures, the appointment of the arbitrator, assistance in evidence taking, and setting aside the arbitral award. We need to analyze whether the Indian courts have justified their limited role, or whether they have been interventionist. In this newsletter, we cover the latest arbitration related judgments of different courts in India.

The trail of distinction between seat and venue still continues to be a vexed question under the Arbitration Law in India. Recently, the Supreme Court of India again addressed this ongoing uncertainty, in the case of BgS SgS Soma J.V. v. NHPC Ltd., 2019 (6) ARB LR 393(SC). The judgment was delivered on 10th December 2019, declaring the previous judgment, Hardy Exploration, AIR 2018 SC 4871, (on a similar issue) as incorrect.

The contract was signed between NHPC and BgS SgS Soma which stated that any dispute would be referred to arbitration under the Indian Arbitration Act and the proceeding would be held in New Delhi or Faridabad. When the dispute arose, the arbitration proceeding took place in New Delhi and the award was passed in BgS's favor. Subsequently, NHPC filed an application for setting aside the Arbitral Award under Section 34, before the District Court of Faridabad. BgS SgS Soma filed an application under Section 151 r/w Order VII Rule 10 of CPC, 1908 in the District Court of Delhi; the matter was referred to a Special Court in Gurugram, and it ordered the transfer of the application made by NHPC under Section 34 to the New Delhi Court from Faridabad Court.

The Supreme Court stated that the court of the place of Arbitration has exclusive jurisdiction over the matter. Further, the court determined the seat of Arbitration to be Delhi, even though the place of Arbitration according to the contract was the Delhi/ Faridabad. The party chose New Delhi when the dispute arose, giving New Delhi Court the exclusive jurisdiction over the matter.

Further, the Supreme Court held that the place of arbitration is the seat of arbitration as Lex Fori (the venue decides the law applicable to the matter). The Supreme Court declared the Hardy Exploration case to be incorrect as the term seat and venue were distinguished wrongly. In the Hardy Exploration case, the venue of the arbitration according to the agreement was Kuala Lumpur and nothing indicated any contradiction for the seat of arbitration, in-spite of which the Supreme Court applied the Part 1 of Arbitration & Conciliation Act (only applicable to domestic Arbitration) and the foreign award was challenged under Section 34. Therefore, the Supreme Court in the present case declared that the Hardy Exploration was a bad law.

  • Introduction to Arbitration
  • The trail of distinction between seat and venue.
  • Hardy Exploration Case

BY : Shardul Srivastava

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