After the LPG policy as initiated by the government in 1991, there was a sudden rise in the Foreign Direct Investments (FDIs), which fuelled the development and establishment of various MNC’s in India and had a positive impact on the economy of the country. However, this sudden change also gave rise to the demand for faster and more efficient legal disposition system in India, resulting in the enactment of Arbitration and conciliation Act of 1996. Nevertheless, lately due to the increased disputes it has become sine qua non for the Indian Courts to clarify there stand about the terms like “place”, “seat” and “venue” which determines the lex arbitri or curial law of the Arbitration.
Thought, last year Apex Court in BGS SGS Soma JV v. NHPC Ltd[i] tried to clarify the very concept of the “venue” and “seat”, according to which both were held to be akin to each other, and thereby had no specific difference between them. However, recently the Supreme Court in Mankatsu Impex Private Limited v. Airvisual Limited[ii] took a contrary view, as according to the court the terms “venue” and “seat” are distinct, and has to be determined by the court after analysing the intention of the parties, as enshrined in various clauses of the agreement.
BACKGROUND OF THE CASE
In this, the petitioner Mankatsu approached the court under section 11 of the Arbitration and conciliation Act, 1996 (Act).
As per, the dispute, the Petitioner ( Mankatsu Implex Private Limited) and the Respondent (Airvisual Limited) entered into an MOU for the exclusive distribution right to be awarded to the Petitioner for the Respondent’s air quality monitors products for five years.
However, the AVL (respondent) was acquired by an entity named IQ Air AG, which subsequently refused to honour the said MOU entered between the Petitioner and the Respondent. This resulted in the dispute, as Petitioner affirmed and invoked the terms as mentioned in the MOU and claimed the exclusive right of the sale of the Air Visual’s product for the period of 5 years. A notice of Arbitration was sent by the Petitioner as per the clause 17 of the MOU, thereby proposed the name of the sole arbitrator for the execution of the same and claimed the seat of the arbitration to be in India. This interpretation of Clause 17 was rejected by the Respondent and instead claimed the seat to be in Hong Kong.
So, while analysing previous rulings of the court and the significance of the seat of arbitration, the Apex Court highlighted that the lex arbitri or the law of the seat determines the judicial review of the arbitral award and thereby, governs the proceedings of the arbitration by the law as prevalent in the juridical seat as chosen by the parties.
Though while deciding and adjudicating the case, the Supreme Court again opened the said vague dichotomy about the difference between the “venue of the arbitration” and “seat of arbitration”.
JUDGMENT AND ANALYSIS
The Court observed that the words ‘place of arbitration shall be Hong Kong’ as enshrined in the agreement was insufficient and inadequate to determine Hong Kong as the seat of the arbitration. However, the Clause 17.2 of the agreement provides “Any dispute, controversy, difference or claim arising out of or relating to this MoU…. to and finally be resolved by arbitration administered in Hong Kong”. Therefore, by relying on Union of India v. Hardy Exploration[iii] it was held by the court that to determine ‘seat of arbitration’ the court should look into the various clauses of the agreement and the conduct of the parties also plays an important factor to establish the ‘seat of arbitration’ and mere mention of ‘place of arbitration’ shall not be enough. In the instant case, the court upheld the fact that Hong Kong constitutes as the seat of the arbitration proceedings.
Therefore, the court was of the view that the Clause 17.1 which allows the courts at New Delhi to have jurisdiction on the matters or conflicts of the MOU has to be read with Clause 17.3 which allows that a party “may seek provisional, injunctive or equitable remedies from a court having jurisdiction before, during or after the pendency of any arbitration proceedings” along with the BALCO Judgment[iv] which prohibits Indian Courts from any intervention on the issues related to any arbitration proceedings with the seat outside India.
So, as per the court Clause 17.1 which thereby, allowed the jurisdiction of the courts of New Delhi only restricts the use of the proper law of the contract and does not extend to the arbitration proceedings. As a result, the suit filed by the Appellant as per Section 11(6) was held not to be maintainable as Part-1 of the Act is said not to be applicable when the seat of the arbitration proceedings is outside India.
BALCO AND MANKATSU JUDGMENT
The conclusion as arrived by the court in the said case, though can’t be questioned. But it can be said that the Mankatsu Judgment is to certain extent contrary to the 5 Judge Bench decision in BALCO case, as in the impugned judgment the court didn’t emphasise on the doctrine of territoriality as laid down in section- 20 of the Act, according to which the court in the BALCO case upheld the fact that the ‘place of arbitration’ would generally be regarded as ‘seat of arbitration’ and also emphasised that the courts of the place of arbitration and the law under which the award is made do not have concurrent jurisdiction.
At the same point of time, the court’s decision was contrary to that of BGS Sona in which the court went a step forward and declared that the “venue” is akin to “seat” of any arbitration proceedings, provided that there is an absence of any contrary indicia. Now, with the presence of contradictory judgments among various coordinate three judge bench, it will be interesting to see the future course of action of the Apex Court in the said issues.
CONCLUSION
The Apex Court has through the Mankatsu Judgment has thrown light on the vagueness of the law for the determinacy of the ‘place of arbitration’ and ‘seat of arbitration’, though the Court has time again tried to clarify it but due to lack of any stable and set course the court is promoting uncertainty with respect to the said terms. Though in the Mankatsu Judgment court didn’t expressly declare the BGS Sona as bad as the fact and circumstances in both the cases are different, however, the court has taken a different stand in the former by modifying the principle as laid down in BGS Sona.
At last, it can be said that due to uncertainty of the law, it has become inevitable for the court to direct the said issue to a larger bench. Also, this lacunae in the law is thereby hampering the prospects of India to present itself as the seat of International Commercial Arbitration.
[i] BGS SGS Soma JV v. NHPC Ltd , (2019) SCC Online SC 1585.
[ii] Mankatsu Impex Private Limited v. Airvisual Limited, Arbitration Petition No. 32 of 2018.
[iii] Union of India v. Hardy Exploration, (2018) 7 SCC 334.
[iv] Bharat Aluminium Co vs Kaiser Aluminium Technical, (2012) 9 SCC 552.
This article is written by Siddhant Singh of HNLU, Raipur.
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