Specificity of Seat in Arbitration Agreements

Introduction

The ‘Seat’ of arbitration refers to the place, the laws whereof would be applicable to the arbitration proceedings. Interestingly, despite being such a significant concept and central to arbitration, the term has not been defined in the Arbitration & Conciliation Act, 1996 (ACT). More so, the term ‘seat’ does not even find a mention in the said Act.

The significance of a ‘Seat’ in arbitration is that the Courts of law in that particular place are conferred with the exclusive jurisdiction to consider any matter arising out of or in relation to the arbitration proceedings. It is also said that the Seat of arbitration is the center of gravity in arbitration.

Seat of arbitration plays a pivotal role in as much as the same determines which Courts the parties ought to approach for appointment of an arbitrator, injunctive reliefs, challenging an arbitral award, etc.

Importance of the Seat of Arbitration

As mentioned above, designation of a place as the Seat of arbitration confers upon the Courts of that place the exclusive jurisdiction to deal with all matters arising out of the arbitration proceedings. However, what is to be kept in mind is that it is not important to term a place categorically as the seat of arbitration to confer upon the courts of such place exclusive jurisdiction to deal with the matter. The Courts, as would be illustrated below, have in various cases concluded that even a place mentioned as a venue of arbitration could be regarded as the seat thereof under certain circumstances.

Under the law of arbitration, a reference to ‘seat’ is a concept by which a neutral place can be chosen by the parties to an arbitration clause, to be the place whose courts would have exclusive jurisdiction to deal with arbitration related matters. It is to be remembered that it is not important for any part of the cause of action to have arisen at such a neutral place.

Position of a Seat in India

A fundamental difference between the ‘seat’ of arbitration and ‘venue’ of arbitration is that the seat determines the Courts which would have exclusive jurisdiction over the arbitral proceedings whereas venue only determines the geographic place where the arbitration hearings would take place.

Section 20 of the Act defines the ‘place of arbitration’ which is used interchangeably for both seat and venue. However, the Supreme Court has held that while Section 20(1) and Section 20(2) deal with the seat of arbitration, Section 20(3) deals with the venue of arbitration.  

This means that Section 20(1) of the Act empowers the parties to determine the seat of arbitration. The parties are at liberty to choose a neutral seat of arbitration. It is immaterial as to whether any cause of action has arisen at such a place.

In case the parties have not determined the seat of arbitration, then the seat of arbitration may be determined by the Arbitral Tribunal by virtue of Section 20(2) of the Act.

A question then arises as to which Court should be approached for appointment of an arbitrator if the parties have not chosen the seat of arbitration under Section 20(1) of the Act and the arbitral tribunal has not come in existence to determine the seat of arbitration in terms of Section 20(2) of the Act. It is to be noted that in the absence of any contrary indica, the seat of arbitration would necessarily need to be determined keeping in mind the principles under Section 16 to 20 of the Code of Civil Procedure, 1908 (CPC).
 

• The Delhi High Court, in the matter of Kings Chariot vs Tarun Wadhwa [Arbitration Petition No. 421 of 2024] was concerned with a case where the arbitration clause in the agreement was silent on the seat of arbitration. However, a clause conferring exclusive jurisdiction on the Courts at New Delhi was to be found in the agreement. The Petitioner approached the Delhi High Court by placing reliance on the abovementioned exclusive jurisdiction clause for appointment of an arbitrator to adjudicate the disputes.

The Hon’ble Delhi High Court dismissed the arbitration petition on the ground that since the arbitration clause was silent on the seat as well as venue of arbitration, the jurisdiction of the Courts would necessarily have to be determined in accordance with Section 16 to 20 of the CPC. Since no cause of action had arisen in Delhi, in as much as the agreement was executed at Madhya Pradesh, the contractual obligation was to be performed in Madhya Pradesh and even the Respondent was residing in Madhya Pradesh, the Delhi High Court would have no territorial jurisdiction to appoint an arbitrator.

• In Indus Mobile Distribution Pvt. Ltd vs Datawind Innovations Pvt. Ltd [AIR 2017 SC 2105], the Supreme Court was concerned with a case where the arbitration clause mentioned that the arbitration would be conducted at Mumbai and further that the Courts at Mumbai alone would have exclusive jurisdiction to deal with all disputes arising out of the agreement.

The Supreme Court held that since the seat of the arbitration was provided to be in Mumbai coupled with the exclusive jurisdiction clause, it was only the Courts at Mumbai which would have the jurisdiction to entertain and decide any matter arising out of the agreement.

• In Brahmani River Pellets Ltd. vs Kamachi Industries Ltd. [AIR 2019 SC 3658], the question before the Supreme Court was whether the Madras High Court was correct in appointing an arbitrator despite the fact the agreement between the parties contained a clause whereby the venue of arbitration was stated to be Bhubaneshwar.

The Supreme Court held that since the parties had chosen Bhubaneshwar to be the venue of arbitration, the intention of the parties was to exclude all other courts. In effect, it was held that the Madras High Court had no jurisdiction to appoint an arbitrator.

• The Supreme Court in the matter of BGS SGS SOMA JV vs NHPC Ltd. [(2020) 4 SCC 234] had categorically held that when there is an express designation of a ‘venue’ and no designation of any alternative place as the ‘seat’, combined with the supernational body of rules governing the arbitration, and no other significant contrary indicia, the conclusion would be that the stated ‘venue’ is actually the juridical seat of the arbitral proceedings.

Can the Seat of Arbitration Once Designated, Be Changed?

It is clear that the designation of a place as the ‘seat’ of arbitration anchors the arbitration to such place. A question may arise as to whether, after designation of a place as the ‘seat’ of arbitration, the same be changed so as to anchor the arbitration to another place.

The answer to that is in the affirmative.

The Supreme Court in BBR (India) Pvt. Ltd vs S.P. Singla Constructions Pvt. Ltd [AIR 2022 SC 2673] had held that the juridical seat of arbitration, once fixed in terms of Section 20(2) of the Act, can be changed only with the express mutual consent of the parties.  

The express mutual consent of the parties may be in the form of a written agreement executed between the parties thereby changing the Seat of arbitration or the consent of the parties to change the Seat of arbitration may be recorded by the Arbitrator in his Award to which no challenge may be made by either party.

Should Seat of Arbitration Be Mentioned in the Arbitration Clause?

As seen from the above discussion, while it is not mandatory to designate a place as the seat of arbitration, however, to avoid unnecessary litigation, it is prudent if the seat of arbitration is explicitly mentioned in the arbitration clause. Special care and attention ought to be given while drafting an arbitration clause to ensure that the same is clear and unambiguous.

It must be remembered that once a particular place is designated as the seat of arbitration, it is the Courts situated at that place alone which would have the jurisdiction to deal with any matter arising out of the arbitration agreement including but not limited to appointment of arbitration, injunctive reliefs, etc.

Conclusion

Designation of a seat in an arbitration clause carries immense importance. The arbitration proceedings would be anchored at the place designated as the seat of arbitration and it will be the Courts at such place alone which would be competent to deal with any matter arising out of the agreement. In the case of international commercial arbitrations, designation of a country as the seat of arbitration would entail that the laws of that country would govern the arbitration.