Position of the ‘Shashoua Principle’ in the Indian Jurisprudence

By: Shantanu Lakhotia


INTRODUCTION

The term ‘venue’ and ‘seat’ have a very specific connotation in the realm of arbitration law and cannot be used interchangeably. While the former is used only to depict the geographical place at which the arbitration proceeding or a specific aspect of the arbitration proceeding will take place, the latter provides for the rules and laws according to which the entire arbitration proceeding will be governed. The location of the ‘seat’ will also confer exclusive jurisdiction to the Court under whose jurisdiction the ‘seat’ is located, to entertain applications, as well as, a challenge against the arbitral award. Hence, considering all these factors, the determination of the ‘seat’ of arbitration is of utmost importance in arbitration law. However, it is not uncommon for an arbitration agreement, to not use the expressive term ‘seat’ but to only specify the ‘venue’. In such a situation, a dispute may arise concerning the location of the ‘seat’ and incidentally the jurisdiction of a Court to entertain any application or challenge emanating from the arbitration proceeding. The present article discusses the ‘Shashoua principle’ as devised by the English Court, to settle such a particular form of a dispute and its validity and applicability in the Indian jurisprudence.

THE ‘SHASHOUA PRINCIPLE’

The ‘Shashoua principle’ was devised by the England and Wales High Court (Commercial Court) at London in the matter of Shashoua v. Sharma (‘Shashoua case’). The judgment was given in the backdrop of the claimants requesting the Court for an anti-suit injunction. Even though both the parties were in agreement that the basis for the Court’s grant of an anti-suit injunction would depend upon the seat of the arbitration, the pivotal issue to be adjudicated by the Court was how to choose where is the ‘seat’ of arbitration, in the absence of such an expressive term in the arbitration agreement. The author of the judgment, Justice Cooke, had held that (para 34):

When therefore there is an express designation of the arbitration venue as London and no designation of any alternative place as the seat, combined with a supranational body of rules governing the arbitration and no other significant contrary indica, the inexorable conclusion is, to my mind, that London is the juridical seat and English law is the crucial law.

This scrupulous reasoning, derived from the circumstances surrounding the conduct of the arbitration, came to be known as the ‘Shashoua principle’ in Indian arbitration law jurisprudence.

USE OF THE ‘SHASHOUA PRINCIPLE’ IN INDIAN ARBITRATION LAW JURISPRUDENCE

a. Domestic Arbitration

In the context of domestic arbitration and international commercial arbitration seated in India, the aspect of ‘seat’ and ‘venue’ in arbitration law is governed by Section 20 of the Arbitration and Conciliation Act, 1996 (‘the Act’) titled “Place of Arbitration”, and states as follows:

(1) The parties are free to agree on the place of arbitration.

(2) Failing any agreement referred to in sub-section (1), 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.

(3) Notwithstanding sub-section (1) or sub-section (2), 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 documents, good or other property. ” [emphasis supplied]

The above-mentioned provision has been written in such a way to bring it in consonance with Article 20 of the UNCITRAL Model Law on International Commercial Arbitration. A simple reading of the provision would show that the term ‘seat’ or ‘venue’ does not appear in the section. In fact, it is important to emphasize that the term ‘seat’ or ‘venue’ does not appear anywhere in the Act. It was expected of the parties to know the difference between the concept of ‘seat’ and ‘venue’ through the manner in which the sentences of the sub-section are framed.

In order to explicitly bring about the distinction between the “[legal]’ seat’ from a ‘[mere]’ venue of arbitration”, the Law Commission Report of 2014 had recommended replacing the word ‘place’ used in sub-section (1) of Section 20 of the Act with ‘seat and venue’ and ‘place’ in sub-section (2) with ‘venue’. The adoption of this recommendation would have further helped to make the Act consistent with the international usage of the concept of ‘seat’ of arbitration.

However, these amendments did not appear in the Arbitration and Conciliation (Amendment) Act, 2015. The reasoning attributed to this by the Supreme Court (‘the Court’) has been provided in the case of Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. & Ors., wherein the Court was of the opinion that (para 19):

the amended Act, does not, however, contain the aforesaid amendments, presumable because the BALCO judgment in no uncertain terms has referred to ‘place’ as ‘juridical seat’ for the purpose of Section 2(2) of the Act. It further made it clear that Section 20(1) and 20(2) where the word ‘place’ is used, refers to ‘juridical seat’, whereas in Section 20(3), the word ‘place’ is equivalent to ‘venue’ [emphasis supplied]. This being the settled law, it was found unnecessary to expressly incorporate what the Constitution Bench of the Supreme Court has already done by way of construction of the Act.” [emphasis supplied]

Ordinarily, the usage of the ‘Shashoua Principle’ has been restricted by the courts for matters concerning international commercial arbitration not seated in India, however the Court in the matter of Brahmani River Pellets Ltd. v. Kamachi Industries Ltd, made use of the ‘Shashoua Principle’ in the context of domestic arbitration, however, the Court did not explicitly rely upon it. This is demonstrated from the reasoning of the Court in holding Bhubaneswar as the ‘seat’ of arbitration even though the parties had agreed that the “venue of arbitration shall be at Bhubaneswar” [emphasis supplied].

Subsequently, a three-judge bench of the Court in the matter of BGS SGS Soma JV v. NHPC Ltd (‘BGS SGS’) upheld this interpretation of Brahmani River Pellets Ltd. (paras 83 and 84). The Court had held that, where ‘venue’ of arbitration has been provided, and that there exists no other significant contrary indica in such a scenario the stated ‘venue’ is not merely a ‘venue’ but the ‘seat’ of arbitration proceedings.

b. International Commercial Arbitration

Reference to the ‘Shashoua Principle’ was made for the first time in India by a five-judge bench of the Court, in the matter of Bharat Aluminum Co. v. Kaiser Aluminum Technical Service, Inc. (‘BALCO’). The Court in its judgment had reproduced certain paragraphs from the Shashoua case.

Thereafter, in the matter of Enercon (India) Ltd. and Ors. v. Enercon GmbH and Anr., the Court had struck down a decision by the High Court for contradicting the ‘Shashoua Principle’. The Court further stated (para 133) that the ‘Shashoua Principle’ has become a part of the Indian arbitration regime, as the same was approvingly relied upon by a constitution bench of the highest court of the country.

Even though a constitution bench of the Supreme Court in BALCO had relied upon the dictum as laid down by the English Court in the Shashoua case, the acceptability of the ‘Shashoua Principle’ came into question before the Supreme Court in 2017, in the matter of Roger Shashoua & Ors. v. Mukesh Sharma & Ors. The Supreme Court in the matter unambiguously held that (para 50):

On a clear reading, the ratio of the decision in BALCO, in the ultimate eventuate, reflects that the Shashoua principle has been accepted and the two-judge Bench in Enercon (India) Ltd. (supra), after succinctly analyzing it, has stated that the said principles have been accepted by the Constitution Bench.

Recently, the Court, in the matter of BGS SGS, has reiterated the findings regarding the applicability of the ‘Shashoua Principle’ in Indian arbitration law jurisprudence.

CONCLUSION

Even though the Court has repeatedly upheld the validity of the ‘Shashoua Principle’, there seems to be an imbroglios situation created in the Supreme Court concerning the use of the ‘Shashoua Principle’. Recently, a three-judge bench of the Supreme Court, in the matter of Union of India v. Hardy Exploration and Production (India) Inc. (‘Hardy Exploration’), failed to make use of the ‘Shashoua Principle’ and instead held that mere mention of ‘venue’ cannot be held to be the ‘seat’ unless an explicit mention making it the ‘seat’ exists. On the other hand, another three-judge bench of the Supreme Court in the BGS SGS Soma JV again upheld the validity of the ‘Shashoua Principle’ and simultaneously held that the judgment passed in the Hardy Exploration matter was incorrect. Even though Hardy Exploration was held to be incorrect, it is against the principles of common law that two benches of the same strength can overrule a decision of one another. Hence, the Chief Justice of India should consider assembling a 5-judge bench to comment upon the validity of the ‘Shashoua Principle’ in unambiguous and unequivocal terms.


(Shantanu is an advocate practicing in New Delhi).

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