This case comment is a part of our Annual Arbitration Review of the year 2017.
Citation: (2017) 7 SCC 678
Court: Supreme Court of India
Coram: Justice Pinaki Chandra Ghose and Rohinton Fali Nariman
Date: 19th April 2017
This decision rules that assignment of a seat of arbitration is akin to conferment of an exclusive jurisdiction clause. Therefore, even when there is a neutral seat of arbitration, and cause of action is somewhere else, courts in the seat of arbitration would enjoy exclusive jurisdiction. This should prevent the multiplicity of proceedings and/or forum shopping.
Issue: Whether assignment of seat of arbitration is akin to conferment of an exclusive jurisdiction clause?
Facts: Respondent 1 and the appellant entered into an agreement on 25th October 2014. Respondent 1 had its registered office at Amritsar, Punjab. Respondent 1 was to supply goods to the appellant at Chennai from New Delhi. The Clause in the agreement provided for dispute resolution via arbitration and granted exclusive jurisdiction to Mumbai. In 2015, a dispute arose between the parties on the default of outstanding dues by the appellant. The Arbitration clause was invoked and the arbitrator appointed to which the appellant expressed his objection and sought withdrawal of the notice by Respondent 1. All the averments were also denied via a second notice. Respondent 1 filed two petitions in response – u/s 9 seeking various interim reliefs in the matter and a second petition u/s 11 to appoint an arbitrator.
Delhi High Court disposed of both the application in the impugned judgment.The High Court held that only courts of three territories will have the jurisdiction, Delhi and Chennai (as goods were supplied from and received here respectively) and Amritsar (registered office of the appellant). The Court held that the exclusive jurisdiction clause will have no application here as no part of the cause of action arose in Mumbai. It was held that the Delhi High Court will have jurisdiction and accordingly an arbitrator was appointed u/s 11 petition. The venue of the arbitration was to be in Mumbai.
This decision is a commentary on the relationship between arbitration proceedings and the court system. The ruling is simple. The court states, that when a ‘seat of arbitration’ is designated in an arbitration agreement, it is akin to an exclusive jurisdiction clause. It is to be noted, that the decision concerned itself with an arbitration agreement, where exclusive jurisdiction was conferred in courts of Mumbai expressly (the word ‘only’ was used). The court, in one bold stroke, went a little further to rule that the mere designation of a ‘seat’ would confer exclusive jurisdiction.
Now, the decision utilizes Indian, as well as English jurisprudence. It relies on academic commentary too. This analysis will examine those decisions, along with few other critical judgments of Indian courts.
The Supreme Court notes that an arbitration proceeding may choose as its seat a neutral venue. That neutral venue may not have jurisdiction in the classical sense that is no part of the cause of action may have arisen at that neutral venue.
It’s important to clarify the circumstances. For example, A and B may conduct is business in Kolkata but have designated Mumbai (a neutral venue) as the seat of arbitration. The cause of action may arise in Kolkata, but which court would have jurisdiction when the seat of arbitration is Mumbai, a neutral venue? This essentially is the subject matter of the court’s analysis.
The decision places heavy reliance on the constitutional bench decision of BALCO v. Kaiser Aluminium Technical Services. At the beginning of the decision, a reference to Paragraph 96 of BALCO is made. The paragraph discussed Section 2 (1) (e) [Definition of ‘Court’] and Section 20 [Place of Arbitration] of the Arbitration and Conciliation Act, 1996. Paragraph 96 notes that the legislature has intentionally given jurisdiction to two courts. The court in the neutral venue exercises supervisory control over the arbitral process. The court under whose jurisdiction the subject matter of the suit is situated would also possess jurisdiction.
After Indus noted this, it quickly moved on to rule that an agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. It relied on the Court of Appeal, England’s decision in C v. D, wherein it was observed that, ‘It follows from this that a choice of seat for the arbitration must be a choice of forum for remedies seeking to attack the award.’ Indus aligned itself with the scheme of international instruments such as the New York Convention, as well as the UNCITRAL Model Law.
Indus also relied on the Supreme Court’s holdings in Enercon (India) Ltd. v. Enercon Gmbh, and Reliance Industries v. Union of India. The court observed that, arbitrations are anchored to the seat/place of arbitration.
Relying on these precedents, the court concluded that once the seat of arbitration has been fixed, it would be in the nature of an exclusive jurisdiction clause as to the courts which exercise supervisory powers over the arbitration.
Now, there seems to be a gap between paragraph 96 of BALCO and the ultimate ruling in Indus. Now, this gap is sufficient to criticise the jurisprudential accuracy of Indus. To understand the gap, we must take a close look at ABC Laminart v. AP Agencies, Salem. ABC Laminart stands for the legal principle that courts shall entertain matters unless the contract expressly excludes jurisdiction. This possibility to exclude jurisdiction, known as the doctrine of ouster, has been noted in Hakam Singh v. Gammon (India) Ltd.
The problem with Indus is that, it takes away from the parties the right to choose a jurisdiction once they have assigned an arbitral seat. This is inconsistent with paragraph 96 of BALCO, which provides that courts in two distinct locations have concurrent jurisdiction. Now, in such a case, as ABC Laminart and Hakam Singh provide, parties can exclude jurisdictions and settle on one. In the Indus case, the parties had exercised such a choice by conferring Mumbai courts exclusive jurisdiction expressly.
Now, Indus’ ruling that, the mere assignment of the seat of arbitration confers exclusive jurisdiction, takes away the right of parties to choose one out of many valid jurisdictions. This is one problem with Indus.
The court concluded that once the seat of arbitration has been fixed, it would be in the nature of an exclusive jurisdiction clause as to the courts which exercise supervisory powers over the arbitration.
(This case comment has been contributed by Aditi Singh Kashyap, fourth year law student of Jindal Global Law School)
Datawind Innovations (P) Ltd. v. Indus Mobile Distribution (P) Ltd., OMP (I) No. 531 of 2015 order dated 22-9-2015 (Del).
(2012) 9 SCC 552.
2008 Bus LR 843.
(2014) 5 SCC 1.
(2014) 7 SCC 603.
Redfern and Hunter on International Arbitration, 5th Edn., Oxford University Press, Oxford/New York, 2009.
1989 SCR (2) 1.
(1971) 1 SCC 286.