6 May 2021
Introduction:
A division bench of the Supreme Court in M/s Inox Renewables Ltd. v. Jayesh Electricals Ltd.[1] has recently reiterated the decision in BSG SGS SOMA JV vs. NHPC Limited[2], equating the juridical concepts of seat and venue. In this regard, the Court has clarified that a shift in venue by mutual agreement between the parties would be tantamount to a shifting of the place/ seat of arbitration.
Factual Background:
In the instant case, a purchase order dated January 28, 2012, was placed by M/s Gujarat Fluorochemicals Ltd. (“GFL”) upon Jayesh Electricals Ltd. (the “Respondent”) for the manufacture and supply of power transformers at wind farms (the “Purchase Order”). The Purchase Order contained an arbitration clause which inter alia provided that “all the dispute[s] and differences if any shall be settled by arbitration in the manner hereinafter provided… The venue of the arbitration shall be Jaipur…In the event of arbitrators’ award being not acceptable to either party, the parties shall be free to seek lawful remedies under the law of India and the jurisdiction for the same shall be courts in the State of Rajasthan.”
Thereafter, M/s Inox Renewables Ltd. (the “Appellant”) acquired the entire business of GFL by way of a business transfer agreement dated March 30, 2012 (the “Business Transfer Agreement”). The Respondent was not a party to the said Business Transfer Agreement. According to the Business Transfer Agreement, Vadodara had been designated as the seat of arbitration and the courts in Vadodara were given the exclusive jurisdiction over the disputes arising out of the same.
Subsequently, on September 5, 2014, the Respondent filed a Section 11 application before the High Court of Gujrat at Ahmedabad for appointment of an arbitrator under the Purchase Order. Thereafter, the Appellant and Respondent mutually agreed to have their disputes referred to a sole arbitrator. On July 28, 2018, the sole arbitrator passed an award in favour of the Respondent. The arbitrator had specifically recorded in his award that the parties had mutually agreed that the venue/ place of arbitration would be Ahmedabad and accordingly, the proceedings were conducted at Ahmedabad. The Appellant filed a Section 34 petition before Commercial Court at Ahmedabad, challenging the said award (“Section 34 Petition”). The Respondent opposed the Section 34 Petition on the ground that Vadodara courts alone had jurisdiction over the arbitration. Relying on the Business Transfer Agreement, the Commercial Court at Ahmedabad vide judgment and order dated April 25, 2019, held that the courts at Vadodara had exclusive jurisdiction (“Order”).
The Appellant challenged the said Order before the Gujarat High Court. Relying on the arbitration clause contained in the Purchase Order, the Gujarat High Court held that the exclusive jurisdiction was vested in the courts at Rajasthan. Accordingly, the Gujarat High Court held that the courts in Jaipur, Rajasthan, would be the courts in which the Section 34 petition could be filed (“Impugned Judgment”). Challenging the Impugned Judgment, the Appellant filed the present appeal before the Supreme Court.
Submissions of the Parties:
The Appellant inter alia submitted that (i) the Business Transfer Agreement was not being between the Appellant and the Respondent, and was therefore irrelevant in the present case; (ii) the Impugned Judgment had failed to consider the fact that the arbitrator had recorded in the arbitral award that the venue/ place of arbitration was shifted by mutual consent to Ahmedabad, as a result of which, the place of arbitration or seat of arbitration became Ahmedabad, resulting in courts in Ahmedabad having exclusive jurisdiction.
The Respondent inter alia contended that (i) even if the place of arbitration was shifted by mutual agreement, it could not have been done without a written agreement between the parties; (ii) the arbitrator’s finding that the venue was shifted by mutual consent from Jaipur to Ahmedabad had reference only to Section 20(3) of the Arbitration and Conciliation Act, 1996, as Ahmedabad was in reality a convenient place for the arbitration to take place, the seat of the arbitration always remaining at Jaipur; and (iii) the vesting of exclusive jurisdiction with the courts in Rajasthan, being independent from the arbitration clause stating that the arbitration is to be held in Jaipur, would indicate that the courts in Rajasthan alone would have exclusive jurisdiction.
Findings and Analysis of the Court:
To ascertain the venue/ place of arbitration, the Supreme Court examined the arbitrator’s findings with respect to the venue/ place of arbitration. In this regard, it was found that the arbitrator had inter alia held that “As per arbitration agreement, the venue of the arbitration was to be Jaipur. However, the parties have mutually agreed, irrespective of a specific clause as to the [venue, that the place] of the arbitration would be at Ahmedabad and not at Jaipur. The proceedings, thus, have been conducted at Ahmedabad on constitution of the Tribunal by the learned Nominee Judge of the Hon’ble High Court of Gujarat.”
Accordingly, the Court observed that the parties had by mutual agreement specifically shifted the venue/ place of arbitration from Jaipur to Ahmedabad. Considering the same, the Court rejected the submissions made by the Respondent in this regard (i.e. that the place of arbitration could be changed only by way of a written agreement and that the arbitrator’s findings referred to a convenient venue and not the seat of arbitration). The Court observed that in the instant case, the “venue” being shifted from Jaipur to Ahmedabad was in fact a shifting of the venue/ place of arbitration with reference to Section 20(1)[3], and not with reference to Section 20(3)[4] of the Arbitration and Conciliation Act, 1996, as it has been made clear that Jaipur did not continue to be the seat of arbitration and Ahmedabad was the seat designated by the parties, and not a venue to hold meetings.
The Court specifically relied on its earlier decision in BSG SGS SOMA JV vs. NHPC Limited[5]wherein a three judge bench of the Supreme Court had inter alia observed that “whenever there is the designation of a place of arbitration in an arbitration clause as being the “venue” of the arbitration proceedings, the expression “arbitration proceedings” would make it clear that the “venue” is really the “seat” of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. This language has to be contrasted with language such as “tribunals are to meet or have witnesses, experts or the parties” where only hearings are to take place in the “venue”, which may lead to the conclusion, other things being equal, that the venue so stated is not the “seat” of arbitral proceedings, but only a convenient place of meeting. Further, the fact that the arbitral proceedings “shall be held” at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a “venue” and not the “seat” of the arbitral proceedings, would then conclusively show that such a clause designates a “seat” of the arbitral proceedings.”
The Court further held that the Purchase Order was to be read as a whole and that the jurisdiction clause and the arbitration clause were to be read together as the Courts in Rajasthan had been vested with jurisdiction only because the seat of arbitration was to be Jaipur. It further held that once the seat of arbitration was replaced by mutual agreement to be at Ahmedabad, the Rajasthan Courts were no longer vested with jurisdiction as exclusive jurisdiction had now been vested with the Courts in Ahmedabad, given the change in the seat of arbitration.
Thus, the Court held that parties may mutually arrive at a seat of arbitration and may change the seat of arbitration by mutual agreement. In this regard, it has been clarified that the change in seat need not be made by way of a written agreement only (unless mandated by the arbitration clause) and the same may instead be recorded by the arbitrator in his award.
In light of the above, the Court set aside the Impugned Judgment, and referred the parties to the court in Ahmedabad for the resolution of the Section 34 Petition.
Conclusion:
Underscoring the principle of party autonomy in arbitral proceedings, the Supreme Court has reiterated its view on the seat-venue conundrum. Keeping in mind the Court’s perspective, parties to commercial contracts would be well advised to specify their choice of seat at the outset and specifically provide for a separate venue (with clear and unequivocal language to show that the intention is not to change the seat of the arbitral proceedings) for holding hearings as per their convenience (if they so desire).
For further information, please contact:
Aditya Mehta, Partner, Cyril Amarchand Mangaldas
aditya.mehta@cyrilshroff.com
[1] Judgment dated 13th April 2021 in Civil Appeal No. 1556 of 2021 (Arising out of SLP (C) No. 29161 of 2019
[2] (2020) 4 SCC 234
[3] 20(1) The parties are free to agree on the place of arbitration.
[4] …20(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.
[5] (2020) 4 SCC 234
