Introduction
The Supreme Court of India (“SC”) in its landmark decision in Arif Azim Co. Ltd. v. Micromax Informatics FZE[1] (“Arif Azim”)[2] has once again reiterated the distinction between ‘seat’ and ‘venue’ in an arbitration agreement and its jurisdictional implication. The judgment addresses the contentious issue of whether a location designated in an arbitration agreement serves merely as ‘venue’ (a place where proceedings may occur) or as juridical ‘seat’ (which grants a court jurisdictional oversight). This distinction has immense implications, especially for cross-border commercial agreements, where different interpretations can lead to divergent legal outcomes.
Case Background
Arif Azim Co. Ltd. (“Petitioner”), an Afghanistan-based company, entered into a consumer distributorship agreement, dated November 9, 2010 (“Agreement”), with Micromax Informatics FZE (“Respondent No.1”), a UAE-based entity, to distribute handsets in Afghanistan. Respondent No.1 is a wholly-owned subsidiary of M/s Micromax India (“Respondent No.2”), which is a public listed company incorporated in India (having same Board Members in both the companies). Respondent No. 2 is a non-signatory to the arbitration agreement in respect of which the Section 11 petition was filed before the SC.
The Agreement was executed in Kabul and stipulated the following clauses:
“26. DISPUTE RESOLUTION
In the event of any dispute or difference arising out of the Agreement, its validity, applicability, then the same shall be referred to the arbitration. The arbitration shall be subject to UAE Arbitration and Conciliation rules made there under. The venue of arbitration shall be Dubai, UAE.
27. LAW AND JURISDICTION
This Agreement shall be governed by and construed in accordance with the laws of UAE and shall be subject to the nonexclusive jurisdiction of the Dubai Courts.”
When a dispute arose over an unpaid/ unsettled credit, the Petitioner sent a notice for invocation of arbitration under the Indian law, i.e. under Section 21 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), in terms of Clause 26 of the Agreement, to Respondent No.1 and Respondent No.2, seeking appointment of an arbitrator by the SC.
Submissions on behalf of the parties
In the notice, the Petitioner alluded that under Clause 27 of the Agreement, the parties had not designated a specific court, to the exclusion of all other courts to adjudicate the dispute, thus no exclusive jurisdiction had been conferred by the parties upon any particular court. It further stated that, as the cause of action had occurred concurrently both in Afghanistan and India, the Petitioner expressed its preference to resolve the dispute through arbitration administered under the jurisdiction of the courts in India. Thus, the Petitioner sought to argue that Dubai was only the venue, and not the juridical seat. It further argued that the laws of the country with which the subject Agreement was most closely connected are India and Afghanistan, where the Agreement is to be wholly performed.
The Respondent, however, contended that Dubai was the designated seat and argued that the choice of UAE laws demonstrated that the party’s intent was to choose Dubai as the seat of arbitration, thus excluding the applicability of Indian law and Indian courts’ jurisdiction. Further, the use of “non-exclusive jurisdiction of Dubai Courts” in the Agreement did not ever envisage jurisdiction of Courts outside UAE and in no manner whatsoever the “Courts of India”. It further contended that there exists no privity of contract between the Petitioner and Respondent No.2 (Indian entity).
Legal Issues
The case presented three central legal issues:
- Applicability of Part I of the Arbitration Act: Would Part I, particularly Section 11, which empowers the court to appoint arbitrators, apply to the arbitration clause in the subject Agreement?
- Concurrent Jurisdiction Doctrine: Can Indian courts claim concurrent jurisdiction if the venue is a foreign country, but the seat is ambiguous or implied?
- Determination of the Seat of Arbitration: Should the designation of Dubai as the ‘venue’ be interpreted as the ‘seat’, or is it merely a physical location?
The SC delved into the historical jurisprudence in arbitration law in India, reviewing landmark judgments that defined the “seat” of arbitration and its jurisdictional implications. Key doctrines, including concurrent jurisdiction, the closest connection test, and the Shashoua principle, were also examined.
Applicability of Part I of the Arbitration Act
The SC first examined the applicability of Part I of the Arbitration Act. Part I applies automatically to domestic or international arbitrations seated in India, and does not apply to foreign-seated arbitrations.
Historically, Indian courts have handled this issue in divergent ways: the Bhatia International v. Bulk Trading S.A.[3](“Bhatia”)judgment, which held that unless the arbitration agreement states to the contrary, even if the seat or place of arbitration is outside India, the national courts in India will have concurrent jurisdiction in terms of Section 2(1)(e) of the Arbitration Act, along with the courts situated in the seat jurisdiction in terms of the arbitration agreement. This was later revised by the ruling in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.[4](“BALCO”), which clarified that Part I applies exclusively to arbitrations seated in India. However, to avoid chaos, the Court held that the law declared by it in BALCO will only apply prospectively to all arbitration agreements that have been executed on or after September 06, 2012, i.e., the date of pronouncement.
The SC further clarified the true import and effect of the decision in BALCO, in Union of India v. Reliance Industries Ltd. & Ors[5], and held that the position of law that emerges from a conjoint reading of BALCO and Bhatia International is that where the court comes to a determination that the juridical seat is outside India or where law other than Indian law governs the arbitration agreement, Part I of the Arbitration Act would be excluded by necessary implication and the doctrine of concurrent jurisdiction will not apply, irrespective of whether the arbitration agreement pre-dates BALCO or not.
In Arif Azim, the Petitioner contended that since the subject Agreement was executed on November 09, 2010, i.e., prior to the decision of BALCO, Part I of the Arbitration Act would be applicable. However, the SC ruled that Part I of the Arbitration Act is applicable to arbitration agreements prior to BALCO only if either (i) the seat of arbitration is in India or (ii) where the arbitration agreement is found to be governed by Indian laws. The Court held that the clear choice of Dubai and applicability of UAE laws effectively designated Dubai as the seat, and thus ousted the jurisdiction of Indian courts.
Doctrine of Concurrent Jurisdiction
Previously, the Indian arbitration law regime recognised the doctrine of concurrent jurisdiction, allowing Indian courts limited jurisdiction in cases where Indian law governs aspects of the arbitration, even if it is seated abroad. This principle was first discussed in National Thermal Power Corporation v. Singer Company & Ors[6], which held that where the parties have agreed to two distinct choices of law, one governing the arbitration agreement and the other governing the arbitration proceedings, i.e., both lex arbitri and lex curiae, then the appropriate courts under both the laws will have concurrent jurisdiction in respect of the matters governed by their respective system of law.
This notional doctrine of concurrent jurisdiction was further upheld in Sumitomo Heavy Industries Ltd. v. ONGC Ltd. & Ors[7] and expanded by the SC in Bhatia International, wherein it was held that unless the arbitration agreement states to the contrary, even if the seat or place of arbitration is outside India, the India courts will have concurrent jurisdiction in terms of Section 2(1)(e) of the Arbitration Act, along with the courts situated in the seat jurisdiction in terms of the arbitration agreement.
However, the notional doctrine of concurrent jurisdiction has been expressly rejected and prospectively overruled in BALCO.
Determining the Seat of Arbitration
The SC has examined the nuanced distinction between ‘venue’ and ‘seat’. A venue designated without explicit clarification can create ambiguity. In Enercon (India) Ltd. v. Enercon GMBH[8], the SC held that the primary criterion is the parties’ intention. For determining the seat of arbitration, the closest connection test involves identifying the law with which the agreement to arbitrate has its closest and most real connection. In other words, where the question before the courts involves ascertaining whether a particular place is the seat or venue of arbitration, the place with the closest connection with the law governing the arbitration agreement would be the seat of arbitration.
Thereafter, the Shashoua principle was introduced in Roger Shashoua (1) v. Sharma[9], which states that a designated venue is presumed to be the seat unless the agreement indicates otherwise. The SC held that when 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 indicia, the inexorable conclusion would be that such venue in-fact is the juridical seat. It observed that often in arbitration agreements, it is likely that the law of the arbitration agreement will coincide with the curial law, and thus any express stipulation of the curial law would aid in determination of the juridical seat. The principle enunciated in Roger Shashoua had been expressly approved by the 5-Judge Bench decision in BALCO.
Further, the SC in BGS SGS SOMA JV v. NHPC Ltd.[10],laid down a three-condition test as to when ‘venue’ can be construed as ‘seat’ of arbitration, which are as under:
- The arbitration agreement should designate only one place;
- The arbitral proceedings must have been fixed to that place alone, without any scope of change; and
- There must be no other significant contrary indicia to show that the place designated is merely the venue and not the seat.
In Arif Azim, Clause 26 of the Agreement stipulates that the arbitration shall be subject to UAE Arbitration and Conciliation rules. The given arbitration clause further designates only one place, i.e. Dubai, as the venue of arbitration. Thus, the SC held that, in view of the law laid down in BGS SGS SOMA, since only one place has been designated in the arbitration clause, and such place has been categorically fixed inasmuch as there is no scope for the place designated as venue to change in terms of Clause 26, and furthermore, the said clause has explicitly stipulated that the curial law would be the UAE Arbitration and Conciliation rules, and there being no other contrary indicia, let alone a significant contrary indicia, Dubai has not been designated merely as a venue, but rather as the juridical seat of arbitration in terms of clause 26 of the Agreement.
The SC was also guided by the Shashoua Principle as laid down in Roger Shashoua, wherein it was held that more often than not the, law of the arbitration agreement and the seat of arbitration coincides with the curial law. Since the parties have expressly chosen curial law of arbitration to be the UAE Arbitration and Conciliation rules, the SC observed that there is no second opinion that the seat of arbitration in the underlying Agreement is Dubai and not India.
Non-exclusive jurisdiction
Once it is settled that the seat of arbitration is Dubai, another related issue that arises is – implication of the phrase “non-exclusive jurisdiction”.
The Petitioner has contended that no one fixed place or seat of arbitration has been designated under the Agreement, since Clause 27 stipulates that it shall be subject to the non-exclusive jurisdiction of the Dubai Courts, which cannot be construed to imply that the arbitration clause designated Dubai courts to have exclusive jurisdiction.
In this regard, the SC held that:
- The Agreement designates Dubai as the seat of arbitration (as established above), and the same would be akin to an exclusive jurisdiction clause, with only the courts in Dubai having jurisdiction. The SC relied on the following judgments:
- Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd.[11], wherein the SC held that, in arbitration law, the moment ‘seat’ is determined, it would be akin to an exclusive jurisdiction clause, whereby only the courts of that seat will have jurisdiction to regulate the arbitral proceedings.
- Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd.[12], wherein the SC held that in a jurisdiction clause, even if words like “alone”, “only”, or “exclusive” have not been used, it would make no material difference to the exclusive nature of jurisdiction conferred by such clause.
- Even if it is assumed that the given clause does not confer jurisdiction exclusively to the courts where the seat of arbitration is situated, Indian courts will still not have jurisdiction to entertain the Section 11 petition. This is because, in view of the law laid down in BALCO and Reliance Industries, Part I of the Arbitration Act will not be applicable, where the seat of arbitration is outside India or where the law governing the arbitration agreement is not Indian law.
- Even if it is assumed that Clause 27 of the Agreement conferred concurrent jurisdiction to the courts in UAE and other courts, thereby allowing the Petitioner to approach Indian courts, the SC can still decline to exercise its jurisdiction if there exists a more appropriate forum, using the doctrine of “Forum non Conveniens”, which means “an inconvenient forum”. It provides that a court, which otherwise might have jurisdiction, may decline jurisdiction over a case if there is a more appropriate forum available to the parties, having competent jurisdiction, for the interests of all parties and the ends of justice. This principle is typically invoked in respect of cross-border matters that are amenable to multiple jurisdictions.
In Arif Azim, the seat of arbitration under the Agreement is Dubai; both the law governing the contract and the curial law are the laws of UAE; Respondent No. 1, with whom the petitioner’s credit account lies, is also situated in Dubai; even the venue of arbitration is Dubai. Thus, the SC held that, by all reasons of logic, the more appropriate forum suitable for appointment of arbitrator is Dubai.
Conclusion
SC’s ruling in Arif Azimis a landmark decision in India’s arbitration jurisprudence, further clarifying the concepts of ‘seat’ and ‘venue’ in arbitration. This judgment conclusively holds that:
- The moment ‘seat’ is determined, it would be akin to an exclusive jurisdiction clause. The notional doctrine of concurrent jurisdiction has been expressly rejected and overruled.
- The ‘Closest Connection Test’ for determining the seat of arbitration by identifying the law with which the agreement to arbitrate has its closest and most real connection is no longer a viable criterion for determination of the seat or situs of arbitration in view of the Shashoua principle.
- The more appropriate criterion for determining the seat of arbitration, in view of the subsequent decisions of the SC, is that where in an arbitration agreement there is an express designation of a place of arbitration, anchoring the arbitral proceedings to such place, and there being no other significant contrary indicia to show otherwise, such place would be the ‘seat’ of arbitration, even if it is designated in the nomenclature of ‘venue’ in the arbitration agreement.
- At the same time, the SC has also observed that it does not say that the Closest Connection Test has no application whatsoever – where there is no express or implied designation of a place of arbitration in the agreement, either in the form of ‘venue’ or ‘curial law’, there the closest connection test may be more suitable for determining the seat of arbitration.
- Where two or more possible places equally appear to be the seat of arbitration, then the conflict may be resolved through recourse to the Doctrine of Forum Non Conveniens.
The judgment reinforces the principle of party autonomy by concluding that the courts are only a conduit or means to arbitration, and the sum and substance of arbitration is derived from the choices of the parties and their intentions contained in the arbitration agreement.
Finally, this judgment also emphasises the importance of drafting clear arbitration clauses, especially in cross-border agreements, to prevent disputes over jurisdictional ambiguities and consequent delays, to enhance the predictability of outcomes, and to support the efficiency of international arbitrations.
For further information, please contact:
Vikash Kumar Jha, Partner, Cyril Amarchand Mangaldas
vikashkumar.jha@cyrilshroff.com
[1] 2013) 9 SCC 32
[2] Delivered on November 7, 2024 by a bench comprising of Justice D. Y. Chandrachud, Justice J.B. Pardiwala and Justice Manoj Misra
[3] (2002) 4 SCC 105
[4] (2012) 9 SCC 552
[5] (2015) 10 SCC 213
[6] (1992) 3 SCC 551
[7] (1998) 1 SCC 305
[8] (2014) 5 SCC 1
[9] [2009] EWHC 957 (Comm)
[10] (2020) 4 SCC 234
[11] (2017) 7 SCC 678
