Can an arbitration clause be void for uncertainty if it provides for multiple seats of Arbitration?

In contract law, arbitration clauses are a common mechanism to resolve disputes between parties without going to court. However, certain ambiguities or uncertainties in such clauses can sometimes render them void. One key question that arises is whether an arbitration clause that provides for multiple seats of arbitration can be considered void for uncertainty. The High Court of Delhi recently dealt with this issue in the case of Vedanta Limited vs. Shreeji Shipping (ARB.P. 342/2023), providing clarity on the enforceability of such clauses.

Background of the Case

The dispute between Vedanta Limited (the petitioner) and Shreeji Shipping (the respondent) revolved around a Purchase Order issued by Vedanta for the transportation of coal between different locations in India. The respondent contested the validity of the Purchase Order, specifically objecting to the arbitration clause. This clause provided for multiple possible seats of arbitration—Goa, Karnataka, and Delhi—and the respondent claimed that such a provision made the clause void for uncertainty.

The court was asked to determine whether the clause was enforceable or void under Section 29 of the Indian Contract Act, 1872, which renders agreements void if their terms are uncertain or incapable of being made certain. Let’s break down how the court addressed this question.

The Argument Against the Arbitration Clause

Shreeji Shipping contended that the arbitration clause was void for uncertainty due to the provision of multiple seats of arbitration. They argued that the clause, which allowed the parties to choose between the jurisdictions of Goa, Karnataka, and Delhi, created ambiguity. In their view, such uncertainty made it impossible to determine which court had jurisdiction over the arbitration process, and thus the clause violated Section 29 of the Indian Contract Act, which states:

“Agreements, the meaning of which is not certain, or capable of being made certain, are void.”

Furthermore, the respondent argued that the absence of a definite seat for arbitration left the dispute open to multiple interpretations, which could lead to confusion and further legal battles.

The Court’s Analysis

The court, presided over by Justice Jasmeet Singh, rejected the argument that the arbitration clause was void for uncertainty. The court’s analysis focused on several key factors:

1. Clear Identification of Possible Seats:
   • The court noted that the arbitration clause did not leave the seat of arbitration open-ended. Instead, it provided specific options—Goa, Karnataka, and Delhi. This, according to the court, did not create an uncertain or vague agreement. While the clause allowed the parties to choose from multiple seats, the options were clearly defined, which meant that the clause was capable of being made certain.
2. Choice and Flexibility in Arbitration:
   • The court emphasized that offering multiple seats of arbitration does not necessarily create uncertainty. Instead, it gives the parties flexibility, allowing them to select the most convenient or appropriate seat depending on the circumstances of the dispute. Justice Singh explained that this flexibility does not equate to ambiguity but rather represents a practical arrangement between the parties.
   • The judgment noted that it is common for arbitration clauses in commercial contracts to provide for multiple venues or seats, especially in cross-border or inter-state disputes where parties may want to leave room for negotiation about the forum.
3. Reference to Legal Precedent:
   • The court referred to the decision of the Supreme Court of India in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., (2017) 7 SCC 678. In this case, the Supreme Court held that once a seat of arbitration is designated, it functions similarly to an exclusive jurisdiction clause, conferring exclusive jurisdiction on the courts of that location. The judgment highlighted that the concept of a “seat” is essential in arbitration law because it determines the legal framework and supervisory jurisdiction over the arbitration process.
   • Justice Singh pointed out that the moment the parties choose one of the three seats (Goa, Karnataka, or Delhi), that chosen seat effectively becomes the seat of arbitration, and the courts of that jurisdiction would have exclusive control over the arbitration process.
4. Application of Section 29 of the Indian Contract Act:
   • The court ruled that Section 29 of the Indian Contract Act, 1872, was not applicable in this case because the clause was not inherently uncertain. As the court explained, the clause provided specific seats and allowed for a clear mechanism to make the agreement certain, i.e., by choosing one of the designated jurisdictions. Hence, the arbitration agreement was not void under Section 29.
   • The court concluded that the provision of multiple seats was not an ambiguity or uncertainty that could void the contract, but rather a practical way for the parties to decide the seat based on the convenience and specifics of the dispute.

Conclusion: The Arbitration Clause Was Not Void for Uncertainty

The court concluded that the arbitration clause, despite providing for multiple seats of arbitration, was not void for uncertainty. Instead, the clause offered the parties flexibility, and the seats were clearly defined and capable of being made certain by selecting one of the options. The provision of multiple seats did not introduce uncertainty; it simply allowed the parties to choose an appropriate seat when the need for arbitration arose.

Implications for Arbitration Clauses in Contracts

The ruling in Vedanta Limited vs. Shreeji Shipping has significant implications for the drafting of arbitration clauses in contracts:

1. Flexibility is Permissible:
   • Contracts may provide for multiple potential seats of arbitration without rendering the clause void for uncertainty. Parties are free to specify multiple jurisdictions as long as the seats are clearly identified and the clause provides a mechanism for selecting one of the options.
2. Definiteness of Arbitration Agreements:
   • The court emphasized that the core requirement for an arbitration agreement is that it must be capable of being made certain. As long as the arbitration clause specifies the available choices and provides a clear way for the parties to select a seat, the clause will not be void for uncertainty.
3. Practical Utility in Cross-Border or Multi-Jurisdictional Contracts:
   • This ruling is particularly relevant for cross-border contracts or those involving parties in different jurisdictions. By allowing multiple seats of arbitration, businesses can retain the flexibility to choose a venue that best suits the needs of the dispute, without risking the invalidation of the clause.
4. Clear Communication is Key:
   • While flexibility is allowed, it is important that the options for seats of arbitration are clearly communicated in the contract. Vague or overly broad options may lead to disputes over jurisdiction, so clarity is essential to avoid unnecessary litigation.

Conclusion: Arbitration Clauses and Multiple Seats – Valid or Void?

The Vedanta Limited vs. Shreeji Shipping judgment provides clear guidance on the validity of arbitration clauses that offer multiple seats of arbitration. As long as the clause is capable of being made certain by offering specific options, it will not be void for uncertainty. This flexibility can be an asset in commercial contracts, especially in complex or multi-jurisdictional disputes.

The case reaffirms the principle that courts prioritize the intent of the parties to arbitrate and will enforce arbitration agreements that are clear in their purpose, even if they provide flexibility regarding the seat of arbitration. Thus, a clause with multiple seats, far from being void, enhances the utility of arbitration as a mechanism for dispute resolution.