INDIAN ARBITRATION UPDATE | SUPREME COURT`S LATEST TAKE ON VENUE/PLACE/SEAT
The Supreme Court of India (SC) in a recent case of Inox Renewables Ltd v Jayesh Electricals Limited has held that when parties to an arbitration agreement mutually agree to change the venue/place of arbitration, the new venue/place will become the 'seat’ of arbitration and the courts of the changed venue will be vested with the exclusive jurisdiction qua disputes and the courts at the earlier venue will cease to be vested with the jurisdiction.
This update briefly analyses the said judgement of the Supreme Court.
- One Gujarat Fluorochemicals Limited (GFL) entered into a purchase order dated 28 January 2012 with the Respondent i.e. Jayesh Electricals Limited (Jayesh) for the manufacture and supply of power transformers at wind farms PO).
- PO contained an arbitration clause which prescribed Jaipur as the venue of arbitration and vested the jurisdiction over the disputes arising out of the arbitration in the courts of Rajasthan.
- GFL entered into a business transfer agreement dated 30 March 2012 (BTA) with the Appellant i.e. Inox Renewables Limited (Inox). Through this BTA, a slump sale of the entire business of GFL took place in favour of Inox, wherein the PO was also assigned to Inox. However, Jayesh was not a party to the said BTA. The BTA designated Vadodara as the seat of the arbitration between the parties, vesting the courts at Vadodara with exclusive jurisdiction qua disputes arising out of the BTA.
- As disputes arose between the parties, Jayesh filed an application against Inox under Section 11 of the Arbitration and Conciliation Act, 1996(Act) before the Gujarat High Court to appoint an arbitrator under the PO. The Application was allowed and a Sole Arbitrator was appointed. The Sole Arbitrator passed an award dated 28 July 2018 in favour of Jayesh. In the award, the Sole Arbitrator also recorded that the parties had 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.
- Inox challenged this award vide an application under section 34 of the Act, before the civil commercial court at Ahmedabad. The Application was resisted by Jayesh stating that under the BTA, exclusive jurisdiction was vested in the court of Vadodara. The civil commercial Court at Ahmedabad accepted this contention and dismissed the application.
- Aggrieved, Inox filed a Civil Application against this order before the Gujarat High Court. The High Court made a reference to the PO and brought to the notice of the Court that the exclusive jurisdiction under the PO was vested in the courts of Jaipur. However, the High Court found no error in the order of the commercial court of Ahmedabad and dismissed the civil application. An appeal was then preferred to the SC.
- Whether the mutual agreement as to the change of venue of arbitration can imply the change of seat and result in exclusive jurisdiction of the courts of the newly agreed seat?.
Placing heavy reliance on judgment in the case of BSG SGS SOMA JV v NHPC Limited , the SC allowed the appeal for the following reasons:
- The parties, by mutual consent, entered into an agreement to substitute the venue at Jaipur with Ahmedabad as the place/seat of arbitration under Section 20(1) [and not Section 20(3)] of the Act. The same is also recorded in the award, thus obviating the need for a separate agreement in writing. Thus, Jaipur does not continue to be the seat of arbitration and Ahmedabad is now the seat designated by the parties, and not merely a venue to hold meetings.
- Rejecting the argument of Jayesh, that even if it is admitted that the seat was shifted from Jaipur to Ahmedabad by mutual agreement, the same is independent of the clause vesting exclusive jurisdiction in the courts of Rajasthan; the SC held that “[T]he moment the seat is chosen as Ahmedabad, it is akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with the arbitration.” It further held that said argument cannot stand as the arbitration clause in the PO ought to be read as a whole.
MHCO Comments :
- Section 20 of the Act provides for the “Place” of arbitration. While the words “venue”, “seat” and “place” continue to be common confusables, this judgment thickens the line between Section 20(1) and 20(3).
a) Section 20(1) refers to the place of arbitration in the notion of “seat”, i.e. the courts whereof would have exclusive jurisdiction over the arbitration. The section empowers the parties to agree upon any seat of arbitration. If the parties fail to reach such agreement, the tribunal can determine the seat [Section 20(2)].
b) Section 20(3), independent of Sections 20(1) and 20(2), refers to the place of arbitration in the notion of “venue” for mere logistical convenience.
- The Judgment sets an important precedent in terms of the interpretation of Section 20 of the Act in determining the seat of arbitration and the impact of mutual agreement of parties on it, in a post-dispute scenario.
This update was released on 04 May 2021.
Legal Update Team
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