This topic is one of the most popular themes in recent years, it has always been popular since the law has been evolving as a result of different high court decisions, although, though.

Why is selecting the arbitration venue so crucial in arbitration? 

We must remember that arbitration doesn’t operate in a legal vacuum, the process of arbitration requires the public justice system represented by the courts of the land to give validity and sanctity to the process of arbitration without the support of the courts of the land it will be very difficult for the process of arbitration to be there as a freestanding system of justice and that is why every arbitration is rooted in a particular legal jurisdiction and every arbitration has a judicial seat, which is the primary legal jurisdiction to which an arbitration is anchored.

Anchoring of the arbitration to a particular seat or a jurisdiction is important because it gives it legitimacy, legality and nationality, which has been beautifully summed up by the supreme court in a five-judge constitution bench in that landmark case Bharat Aluminium Co vs Kaiser Aluminium. The Supreme Court is accepted by most experts that in most of the national laws arbitrations are anchored to the seat, place and situs of arbitration and the Supreme Court quotes on Redfern and Hunter, one of the most authoritative books on international commercial arbitration to conclude that the seat of arbitration is intended to be the center of gravity of an arbitration.

Three reasons to fix the seat Under the New York convention and law of the seat of arbitration are

1. Fixes which law would govern the conduct of the arbitration 

2. Decides which courts can have supervisory and supportive jurisdiction over the arbitration

3. Determines the nationality of an award which is so important from the purposes of enforcement of an award.

The results of a study conducted by Queen Mary university of London and its school of arbitration which was done in association with the International Law firm white in case so this study conducted in 2018 was titled The Evolution Of International Arbitration. 

Two questions where the important aspects of the study and the report, which this study culminated in. This is a report or the results of a particular question which was asked of the respondents in this survey as to, 

Which was the most preferred seat of arbitration of the respondents’ organizations?

London still appears to have most preferred seat followed by Paris, Singapore, Hong Kong, Geneva, New York and Stockholm. If looked from an Indian perspective it would be Singapore, London, Paris, Hong Kong, would be the order in terms of the most preferred seats but of course the Queen Mary’s study is an international study and therefore the results are very different from what it would have been as it had the respondents predominantly from an Indian base of respondents. Further very interestingly, the second question asked to the respondents was 

What were the more five most important reasons as to why would you select a particular seat of arbitration?  

1. General reputation and recognition

2. Neutrality and impartiality of the local legal system

3. National arbitration law

4. Track record and enforcing

5. Availability and quality arbitrators who are familiar with the seat 

These are also probably the reasons why in recent times there has been a trend for Indian parties to have a seat of arbitration outside of India.

In such case, when two parties have a seat outside of India, as long as the award is not challenged and voluntarily enforced there shouldn’t be a problem. Nevertheless, if the award might have to be enforced in India then there is a high possibility that it might not be enforced because its unsure that Court may or might not oppose that award on the grounds that it interferes with the public policy of India.

The perception:

Even under such circumstances, the trend of Indian parties selecting a foreign seat of arbitration is still high. There is a perception that courts in India tend to interfere in the process of arbitration much more than they would do in other jurisdictions, reemphasizing the word “perception” and there are chances that it may not be the reality, that courts in India tend to interfere much more in domestic arbitrations seated in India vis-a-vis International commercial arbitration seated in India and foreign seated arbitrations.

Interference of Courts in Domestic Arbitration – End of the perception:

In recent times because of the insertion of Sub-section 2A in Section 34 (2A) under the 2015 amendments to the Indian Arbitration and Conciliation Act, it states that an arbitrary award arising out of arbitrations other than International Commercial Arbitrations may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face the award. This will be applicable only in domestic arbitrations and therefore it would not be there when your arbitration is seated outside of India.

To evade or to escape this ground of patent illegality and the setting aside of an award on this ground is one of the predominant reasons why you have parties today and lawyers advising Indian parties to have a seat of arbitration outside of India 

Speed- End of the perception:

There is another perception that arbitration seated outside of India is of greater speed and efficiency in the delivery of awards in these foreign jurisdictions. This perception is not entirely true post 2015 amendments to the Indian Arbitration and Conciliation Act. There has been a great deal of discipline which has been injected into the arbitration process in India by virtue of a deadline for completion of arbitrations. So this perception that arbitration seated outside of India are speedier and more efficient is not justified, the manner in which arbitrations are conducted today post 2015. The scenario has been changed and now a deadline of 12 months from the completion of pleadings for an award to be delivered. Very rare to find such a timeline or a deadline incorporated in the statute for completion of an arbitration globally. For example, in the UK or the arbitration statute in Singapore, there are no deadlines specifically incorporated into statute with respect to completion of Arbitration. 

Party Autonomy vs Public Policy

Party autonomy is the ability of parties in an arbitration to decide the procedure of arbitration and the flexibility to decide the process of an arbitration and the arbitrator with respect to procedural matters in an arbitration. With respect to the choice of a seat of arbitration which is also called place of arbitration is incorporated under Section 20 of the Indian Arbitration and Conciliation Act. Party Autonomy effectively is giving parties the freedom to choose the place of arbitration, however Section 2(2) of the Indian Arbitration and Conciliation Act which states that this part shall apply only if the place of arbitration is in India.

Section 20 to a large extent is derived from Article 20 of the The United Nations Commission on International Trade Law model law (UNCITRAL) which is the basis on which the 1996 arbitration act in India was based on.

The English Arbitration Act of 1996– Section 3 allows the same freedom and flexibility in choice of seat when the arbitration is in England and when the English arbitration act applies. Section 3 states the seat of arbitration means the juridical seat of arbitration designated by the parties to the agreement.

Domestic Arbitration Act of Singapore (AA) – Section2(1) defines the place of arbitration as the place of arbitration means the juridical seat of arbitration designated by the parties to the arbitration agreement.

It was relatively very easy to challenge an award on the grounds of public policy before 2015 amendments, which has removed the automatic stay on the execution of an award which was there earlier when challenged against public policy. One of the most important grounds on which it has been argued in a lot of cases in India is that two parties cannot have a seat of arbitration outside of India, is that it would be a violation of the principles of public policy permitting two Indian parties to have a seat of arbitration outside India.

Often, the Section(28) is brought into the whole picture which actually deals with the substance of a dispute and Section(58) starts with the words where the place of arbitration is situated in India in an arbitration other than an International Commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India. Two Indian parties, when the place of arbitration is situated in India, cannot choose a foreign substantive law of the contract but there have been certain decisions where this has been stretched to also refer to the procedural law of the arbitration and therefore there is a line of thinking that certain decisions of the high court and supreme court in India that two Indian parties by virtue of having a seat of arbitration outside of India would tend to be derogating from Indian law which would automatically apply to the situation and the most important decision which is quite often cited in favor of the argument is that two Indian parties cannot have a seat of arbitration outside of India relates to a series of contracts tendered by the National Highway Authority of India (NHAI).

Source: Can two Indian Parties choose a Foreign Seat of Arbitration? by Ajay Thomas Advocate https://www.beyondlaw.in/