Report No. 176
2.14.1 Place of arbitration:
Amendments proposed in Section 20: Section 2(2) of the 1996 Act states that Part 1 of the Act shall apply "where the place of arbitration is in India".
Section 2(6) of the 1996 Act is also relevant in this context and reads as follows: -
"Sec. 2(6): Where this part, except Section 28, leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authorise any person including an institution to determine that issue". Under Section 2(6), which corresponds to Article 2(d) of the Model Law, the parties may request an institution to fix the place of arbitration.
The place of arbitration has to be fixed on the basis of Section 20 of the Act. But the point is whether, in arbitration between two Indian companies where the contract is to be executed in India, the parties or the institution can nominate a place outside India as the place of arbitration? This depends upon an interpretation of the provisions of Section 20 of the Act read with Section 2(2). Section 20 of the Act as it now stands reads as follows:
"Sec. 20: (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, goods or other property".
Section 20 is in Part 1 of the 1996 Act and as stated in Section 2(2), Part 1 of the Act applies to all arbitrations in India, whether the arbitrations are international in nature or are purely domestic in nature, i.e., between Indian nationals. On a literal construction of Section 20(1), it may appear that the parties to a contract, such as the one mentioned earlier, could agree for a place of arbitration outside India. But, as explained below, this is not permissible in as much as Section 2(2) controls Section 20(1).
The combined effect of Section 2(2) and Section 20(1), has been explained in Dr.P.C.Rao's commentary on the Indian Arbitration and Conciliation Act, 1996 as follows at Page 83: "Sub-Section (1) permits parties to select the place of arbitration. On the face of it, this sub-section may give an impression that this place could even be outside India. However Section 2(2) clearly states that Part 1 itself applies where the place of arbitration is in India, whether such arbitration is "international commercial arbitration or domestic arbitration".
In other words, the legal position is as follows. Whether the arbitration is international in nature or is a purely domestic arbitration between Indian nationals, where Part I applies, the place of arbitration must be in India and there is no question of the parties or the institution to which they have referred the issue of the place of arbitration under Section 2(6), taking a decision that the place of arbitration will be outside India.
The confusion appears to have obviously arisen because of an unintended omission in Section 20(1) which does not contain the additional words "in India", which have to be implied from section 2(2) and parties are misled into thinking that they are free to select a place of arbitration outside India. In the light of what is stated in the commentary by Dr.P.C.Rao in this regard (at page 83) with which the Commission fully agrees, the words "in India" are proposed to be added in section 20(1). We therefore propose to remove the confusion or ambiguity and amend sub-section (1) of Section 20.
Sub sections (2) and (3) are converted into provisos so that, in case parties do not agree on the venue, the arbitral tribunal may not fix a place of arbitration outside India. Under sec. 32 of the Amending Act, we propose to make this retrospective, provided the arbitral tribunal has not been appointed by the date of the commencement of this Act. Section 20 is proposed to be amended as follows: Place of arbitration "20. (1) Subject to the provisions of sub-section (2) ,the parties are free to agree on the place of arbitration:
Provided that where the parties fail to agree, 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. Provided further that 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, goods or other property. (2) The place of arbitration shall be within India."