Concept of Seat of Arbitration
Arbitration and conciliation as alternate dispute mechanisms help the judiciary lessen the burden on courts and other legal forums due to its ease in resolving any kind of matter be it civil or criminal. Arbitration and Conciliation Act, 1996 (AC Act) and rules thereunder form the basis for any alternate dispute mechanisms in India and the notion of ‘seat’ of arbitration is the most important consideration in any arbitration proceeding. The very term ‘seat of arbitration’ has been referred to or used as the ‘place’ or ‘venue’ as per Section 20 of the AC Act. Section 20(1) of the AC Act further states that the parties involved may mutually choose the venue of arbitration or alternatively the Arbitral Tribunal may decide on the same. Along these lines, the parties have the liberty to pick a feasible place for holding the said arbitration proceedings enshrined in Article 20(3) of the AC Act.
However, the Supreme Court (SC) in many of its judgements has discussed the conundrum pertaining to the comprehension of the term ‘seat of arbitration’. In common parlance, seat of arbitration is the mainstay of any arbitration proceeding clarifying which courts will have jurisdiction over the same.
Errors in arbitration agreements and neglect to understand the difference between actual seat and venue of arbitration leads to these terms being utilized reciprocally.
Furthermore, reference to the suggestions of the 246th Law Commission of India Report, clarifies any vagueness with respect to Section 20 of the AC Act by amending the same and in sub-section (1), after clause (h), clause (hh) was inserted as “seat of the arbitration” meaning the juridical seat of the arbitration.
Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act)
A decade after the enactment of the AC Act, the parliament of India enacted the MSMED Act with the goal of facilitating promotion and development of competitiveness inter se between micro, small and medium enterprises. It makes the principal legal framework for understanding the concept of “enterprise,” which incorporates both manufacturing and service enterprises. It not only defines medium enterprises but also attempts to unite the micro, small, and medium levels of these businesses.
Section 18 of the MSMED Act, which states that notwithstanding anything contained in any other law, any party to a dispute under the MSMED Act may make a reference to the Micro and Small Enterprise Facilitation Council (MSEFC). This surely indicates an interplay between the AC Act and MSMED, because any kind of agreement invariably has an arbitration clause. Since the said section starts with a non obstante clause, it also gives rise to conflicts and confusion between the applicability of the two acts in case of a future dispute.
Does the MSMED Act override the provisions of an arbitration agreement already executed between the parties?
Let’s understand the position in light of few judgments.
- In the case law of Manibhai (Supra) in Principal Chief Engineer v. Manibhai and Brothers , it was held that once there is an arbitration agreement in existence, the dispute is required to be referred for arbitration.
- In the case of GE T&D India Limited vs Reliable Engineering, the provisions of the AC Act were to applied to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section (1) of section 7 of that Act.
- A three-judge bench of the SC in Mankastu Impex Pvt. Ltd. v. Airvisual Ltd. held that place of arbitration doesn’t naturally allude to the seat of arbitration.
- In a contrary viewpoint however in the case of Porwal Sales V. Flame Control, it was held that the arbitration agreement, as entered between the parties would not be of any effect and the parties would be deemed to be governed under the MSMED Act in that regard.
- In the case of Bharat Heavy Electricals Limited v. The Micro and Small Enterprises Facilitation Centre, it was held that there is no irregularity between the arbitration agreement and section 18(3) of the Act; Section 18(3) contemplates just an institutional arbitration and not an ad hoc arbitration.
- Welspun Corp. Ltd. vs The MSEFC, Punjab, it was held that if there exists an arbitration agreement between the parties, it only means that the power is still available when the MSFEC, without invoking its own powers.
- In the case of Gujarat State Petronet Ltd. vs MSEFC & Ors, the provisions of AC Act, completely, are made material as though the arbitration was in compatibility of the arbitration agreement alluded to in sub-section (1) of Section 7 of the AC Act.
- The case of Microvision Technologies Private Limited vs UOI in particular was a matter with question of jurisdiction wherein it was held that MSMED Act, S. 18(3) and AC Act, S. 11(6) — Section 18(3) cannot be treated as an arbitration agreement for Chief Justice or his designate to act upon under section 11(6) of Act upon failure of MSEFC to take up dispute or refer it to arbitration.
- In the case of Silpi Industries vs Kerala State Road Transport Corporation & Anr. , it was clarified in Section 18(3) that in case of failure by the MSEFC under Section 18(2) specific mention is made to the effect as if the arbitration was in pursuance to an arbitration agreement.
Since statutes are enacted for specific purposes taking measures to constructively work towards the same is pertinent. Inconsistency or any conflicts between statutes may defeat the very reasons for their enactment. The effective realisation of the MSMED Act and the inconsistencies between the MSMED Act and AC Act can be resolved by giving precedence to a special statute over a general one.