Debate on Seat vs Venue of Arbitration and Role of Arbitral Institutions in the Dichotomy

Author – By CHITWANDEEP KAUR & Akshit Gupta (Intern)

 

INTRODUCTION

The Arbitration and Conciliation (Amendment) Act, 2019 (“then Amendment Act”) was enacted pursuant to the recommendations of the Report of the High-Level Committee to ‘Review the Institutionalization of Arbitration Mechanism in India’ (“The Committee”). The Committee ,developmental of institutional arbitration , examines specific issues affecting the Indian arbitration landscape, and prepare a roadmap for making India “a robust center for international and domestic arbitration”, Following are key recommendations from the Committee and the corresponding amendment .

 

Body for grading arbitral institutions

The committee recommended that there is a need for a national-level body , the Arbitration Promotion Council of India (“APCI”) ,which grades arbitral institutions on the basis of criteria related to infrastructure , personnel and performance. The APCI would set a benchmark for assessing arbitral institutions ,and thus provide an indicator of their quality. Further, it may incentivize under-performing institutions to improve their functioning and infrastructure or find themselves weeded out by a competitive market for arbitral  institutions. Ultimately , the grading process would evolve a certain common minimum standard by which arbitral institutions in India function. The Committee was however of the opinion that accreditation of the arbitral institution should not be a pre-condition for recognition and enforcement of awards.

 

The Amendment Act –   It establishes the APCI to promote and encourage arbitration and other ADR mechanisms. It’s powers and functions include framing policies ,goverving the grading of arbitral institutions, reviewing the grading of arbitral institutions, and making recommendations regarding personnel, training and infrastructure of arbitral institutions .The criteria for grading under the Act are on the basis of infrastructure of arbitral institutions, quality and calibre of arbitrators ,performance and compliance of time limits for disposal of domestic or international commercial arbitrations.

 

Composition of the ACI

The committee acknowledged that regulating institutional arbitration by statute is antithetical to party autonomy. It thus emphasized that the body should not act as a regulator set-up by the government , but only grade arbitral institutions and thereby evolve minimum standards. The body must be autonomous with representations from all stakeholders, i.e. parties and their lawyers , the government and arbitral institutions. The government’s presence must be as a stakeholder, both as a litigant and as a state, providing for infrastructure and funding for the APCI’s proper functioning . The governing Board may compose of a a) a retired Judge of the Supreme Court of a High Court , nominated by the CJI b) an eminent arbitration counsel , nominated by the Central Government , c) An overseas arbitration practitioner , nominated by the Attorney General d) A nominee from the Ministry of Law and Justice e) A representative of commerce and industry chosen on rotation basis by the Ministry of Commerce

 

Accreditation of arbitrators 

The Committee found that many stakeholders perceived the poor quality of domestic arbitrators as a problem affecting the growth of arbitration in India. Another common complaint was that where judges are arbitrators , they often import the ills of the judicial process into the arbitral process. One of the steps that can be taken to facilitate the creation of a pool of young, qualified and well-trained arbitrators is accreditation. Arbitrators must be encouraged to seek accreditation from bodies already providing such accreditation in India and internationally , such as CIArb.

Arbitral institutions could consider the following factors for inclusion on their panel of arbitrators – educational qualification , age, experience, membership of a professional institute , references and professional and moral standing . The APCI may recognize professional institutes providing for accreditation of arbitrators. The APCI has the function of recognising professional institutes providing accreditation arbitrators and reviewing the grading of arbitrators. The Eighth Schedule of the Act prescribes minimum qualifications for a person to be accredited/act as an arbitrator.

Appointment of Arbitrators 

S.11 of the Act, which provides for the appointment of arbitrators has been subject to significant scrunity . the 2015 amendments sought to limit court intervention in the appointment of arbitrators by enabling persons and institutions as appointing authorities , in addition to the High Courts and Supreme Court.The Committee thus looked at the practice of jurisdictions , like Hong Kong and Singapore , which allowed institutions like the HKIAC and SIAC to make default appointment of arbitrators under the shall only be done by arbitral institutions, designated by the Supreme Court (in case of international commercial arbitrations) or the High Court (in case of all other arbitrations) , without the court’s determination of the existence of an arbitration agreement.

 

Overview of  International Arbitration

Arbitration is a speedy, cost-efficient and resource effective dispute resolution mechanism wherein parties mutually agree to eschew the traditional path of litigation and amicably solve disputes which are mostly of commercial nature . Arbitration is of the type of Alternative Dispute Resolution Mechanism which is helping India to integrate with global business and economic ventures due to the simplicity of it’s operations in case differences arise between partners at later stage. Section 44 of The Arbitration and Conciliation Act, 1996  make provisions for the establishment of an Arbitration Promotion Council which seeks to promote and advance the culture of ADR in the country.  International Commercial Arbitration has been defined under section 2(1)(f) of the Act as arbitration arising out of legal disputes wherein one of the parties to the dispute is Indian and other is an entity situated outside the jurisdiction of Indian Courts.  In TDM Infrastructure Pvt. Ltd. Vs. UE Development India Pvt. Ltd.,2008  the court held that the domicile of a company would be determined by the laws of the country in which the same is incorporated .

Arbitration is a form of hybrid dispute resolution process, wherein the procedural aspects of civil and commercial law are fused with modern approaches to resolve cross-border disputes; which sometimes gives rise to ambiguity as to how far the jurisdiction of  Indian courts ,or any other country where the seat of arbitration is situated be fair in awarding or challenging an arbitral award . In the landmark judgment of Union of India vs. Hardy Exploration and Production , it was held that a dispute wherein the merely the venue of arbitration had been decided and not the seat, which gave rise to notion that the venue  of arbitration, by default, assume the status of the seat as well in the absence of a specific mention of the same. The Supreme Court of India gave clarification that mere exemption from mentioning of seat of arbitration does not mean that the venue automatically is conferred with the status of seat as well. Thus, Indian Courts had supervisory jurisdiction to try and adjudicate the arbitral award as well , pursuant to Article 20 of the UNICTRAL Model on International Commercial Arbitration, which states that –  

“ 1. . The parties are free to agree on the place of arbitration. Failing such agreement, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.

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  1. Notwithstanding the provisions of paragraph (1) of this article, the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of goods, other property or documents.”

 

 International Commercial Arbitration Award and Foreign Award

Foreign Award as per the Geneva Convention have been defined under section 53 to 55 of the Act as awards on differences relating to matters which are commercial in nature prior to the commencement date of the Convention . An agreement for arbitration between the parties can be made between parties one of whom is subject to the jurisdiction of the Central Government , while the other party is  subject to the jurisdiction of some other nation. Certain conditions have been set forth for the enforcement of a foreign award , as per the regulations of the Act. Every matter has to be testified with regard to it’s arbitrability  ,in conformity with laws of respective jurisdictions where parties reside as well as not contrary to any principle of justice, public safety and equality. The Supreme Court in  Vidya Drolia and Others vs. Durga Trading Corporation (2019)  propounded a four – fold test to determine  the arbitrability of a matter , the court put forward that The Arbitration and Conciliation Act, 1996 does not, in specific terms, exclude any category of disputes—civil or commercial—from arbitrability. Intrinsic legislative material is in fact to the contrary. Section 8 contains a mandate that where an action is brought before a judicial authority in a matter which is the subject of an arbitration agreement, the parties shall be referred by it to arbitration, if a party to or a person claiming through a party to the arbitration agreement applies not later than the date of submitting the first statement on the substance of the dispute. The only exception is where the authority finds, prima facie, that there is no valid arbitration agreement”. A foreign award shall be deemed to be a decree of the court in event that the court is satisfied with the merits of the award thus passed .

Depository of awards

The Committee noted that it is difficult for courts to obtain an authentic copy of the arbitral award. This problem  is particularly severe in the case of ad-hoc arbitrations. The APCI may maintain an electronic depository of all arbitral awards , given in both ad –hoc and institutional arbitrations, made in India. In order to maintain confidentiality , only courts may access the depository for the limited purpose of accessing the arbitral award being challenged . Further, a new provision may be inserted in the Act expressly providing for confidentiality of arbitral proceedings , unless disclosure is required by legal duty to protect or enforce legal right, or to enforce or challenge an award before a court or judicial authority.One of the prime duties of the APCI under the Act is to establish and maintain depository of arbitral award s made in India . On the other hand , the Act by amendment expressly provides that all details of arbitration proceedings will be kept confidential except for the details of the arbitral award , where necessary for implementation or enforcement .

 

 Territorial Jurisdiction of an Award

The enforcement of an arbitral award entails a complex process of jurisdiction , since the venue and seat of arbitration are two vaguely different but inherent concepts. Territorial Jurisdiction of an arbitration may be determined by ascertaining the subject matter of arbitration , which would taken into consideration by the court while enforcing a certain award . In the judgement of Tata Internationals Ltd. Vs.Trisuns Chemical Industries [2002 (2) BomCR 88] , the Hon’ble Bombay High Court established this fact that in order to be granted an order for leave from the High Court, the subject matter of the arbitration shall be within the jurisdiction of the High Court, in the absence of the same , the court shall be liable to dismiss any petition that come before it for the enforce of an international arbitral award within it’s local jurisdiction  .

Conclusion

From the above discourse, it is conclusive that  , the term “seat” would refer to the territorial jurisdiction of the nation/state whose laws would apply to the arbitration proceedings, albeit after compliance with the UNICTRAL Model on International Commercial Arbitration. The term “venue” however takes a more literal interpretation  here, denoting to the geographical location of the venue of the arbitration , where both the seat and venue can be same as well as different .

One of the key issues noted by the APCI was that several bodies, that are merely venues for conducting arbitration hearings, may designate themselves as arbitral institutions once the APCI is established . The mushrooming of arbitral centres which do not perform any functions of an arbitral institution might lower the overall quality of arbitral institutions in India. Therefore, in order to bring some accountability and transparency of their functioning , it is desirable that all arbitral institutions be incorporated as companies under s.8 of the Companies Act,2013 or registered as societies under the Societies Registration Act,1860 or the corresponding state legislation. This may prevent arbitral centres owned by private individuals from misleading the public by marketing themselves as arbitral institutions.

References

  • The Arbitration and Conciliation Act,1996 (Act 26 of 1996) s.2(1)(f),11,44
  • TDM Infrastructure Pvt. Ltd. Vs UE Development India Pvt. Ltd. [(2008) 14 SCC 271]
  • Vidya Drolia vs. Durga Trading Company [(2021)2 SCC (1)]
  • Tata Internationals Ltd. Vs.Trisuns Chemical Industries [2002 (2) BomCR 88]
  • Union of India vs. Hardy Exploration and Production [(2019) 13 SCC 472]
  • Anjali Anchayli and Aushotosh Kumar ,”Choice of Seat of Venue : Supreme Court of India Dithers” (Kluwer Arbitration Blog,May13,2020) < http://arbitrationblog.kluwerarbitration.com/2020/05/13/choice-of-seat-or-venue-supreme-court-of-india-dithers/> (access on 25th Decemeber 2022)

Niyati Kanojia and Anand Pratap Singh ,”Strengthening Of The Arbitration Institution In The Post-Amendment 2019 Era”(Mondaq, Janury10,2020)< https://www.mondaq.com/india/trials-amp-appeals-amp-compensation/882126/strengthening-of-the-arbitration-institution-in-the-post-amendment-2019-era> (accessed on 25th Decemeber

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