Indian Arbitration: The Persistent Challenge of Seat vs. Venue

The Supreme Court addressed this conundrum in its landmark judgment BALCO v. Kaiser Aluminium Technical Services Inc. [(2012) 9 SCC 552] and elaborated further in BGS SGS Soma v. NHPC [(2020) 4 SCC 234]. These judgments introduced the concept of “contra indicia” as a test to determine the seat of arbitration. According to the Shashoua Test adopted therein, if the arbitration agreement expressly designates a “venue” without specifying a “seat,” and there are no contra indicia, the venue should be deemed the juridical seat.

However, despite these authoritative rulings, confusion persists as various High Courts have diverged in their interpretations of contra indicia, reigniting the debate.

Supreme Court’s Attempts at Resolution

The Supreme Court has made significant efforts to resolve this confusion. In BALCO v. Kaiser Aluminium Technical Services Inc. [(2012) 9 SCC 552], the Court laid the groundwork, later refined in BGS SGS Soma v. NHPC [(2020) 4 SCC 234]. These rulings introduced the concept of “contra indicia,” a test to ascertain the seat of arbitration when only the venue is specified. According to the Shashoua Test adopted by the Court, the venue is presumed to be the seat unless other provisions in the agreement indicate otherwise.

Despite this guidance, lower courts have offered divergent interpretations, creating uncertainty for litigants.

Understanding Contra Indicia

The concept of contra indicia requires a careful examination of the arbitration agreement to discern the parties’ intent. The Supreme Court in Mankastu Impex Pvt. Ltd. v. Airvisual Ltd. [(2020) 5 SCC 399] clarified that a mere reference to the “place of arbitration” is not sufficient to establish it as the seat. Instead, the agreement must be analyzed holistically, considering all relevant clauses and the conduct of the parties.

Conflicting High Court Decisions

Approach 1: Venue as Juridical Seat

High Courts in Bombay, Madras, and some Delhi benches have taken the view that the place specified as the venue in the agreement should be treated as the juridical seat. These judgments typically rely on the Shashoua Test and interpret exclusive jurisdiction clauses as applicable only to ancillary matters, not the arbitration itself.

• Justification: Courts supporting this approach argue that specifying a venue, in the absence of other indicators, reflects the parties’ intent to designate it as the seat.
• Shortcomings: This perspective often disregards exclusive jurisdiction clauses, leading to potential misalignment with the holistic interpretation principle laid out in BGS SGS Soma.

Approach 2: Exclusive Jurisdiction Clause as Contra Indicia

High Courts in Gujarat, Rajasthan, Calcutta, and other Delhi benches have adopted a contrasting stance, treating exclusive jurisdiction clauses as decisive contra indicia. According to this view, the designation of a venue is insufficient to establish it as the seat when the agreement grants exclusive jurisdiction to courts in a different location.

• Justification: These courts emphasize that the venue serves only as a convenient location for hearings, while the exclusive jurisdiction clause reflects the parties’ intent to confer the seat elsewhere.
• Recent Cases: Decisions in Aseem Watts (Rajasthan High Court) and Homevista Décor (Calcutta High Court) have reinforced this view, distinguishing earlier judgments that aligned with the first approach.

The Way Forward

The persistent confusion around seat and venue highlights the need for clearer guidelines. In our view, the second approach aligns more closely with the Supreme Court’s guidance, as it prioritizes a holistic understanding of the parties’ intentions. Exclusive jurisdiction clauses should serve as a decisive indicator, preventing the venue from being mistakenly elevated to the status of the seat.

Judgments favoring the first approach often fail to address how exclusive jurisdiction clauses interact with the parties’ choice of venue. Recent decisions, including those by Delhi High Court in Kush Raj Bhatia, Cravants Media Pvt. Ltd., and Mrs. Meenakshi Nehra Bhat, have attempted to resolve these inconsistencies by emphasizing the importance of contra indicia.

Ultimately, the ongoing ambiguity in Indian arbitration law underscores the need for legislative intervention or a larger Supreme Court bench to provide definitive clarity. Until then, courts must consistently apply the principles set forth in BGS SGS Soma to balance party autonomy with judicial efficiency.