• Team Sapphire and Sage

CAN THE SEAT OF ARBITRATION BE SHIFTED BY THE PARTIES? SUPREME COURT CLEARS THE AIR

-Submitted by Shubham Sharma | S&S Trainee, ADR (T&E Q5)

Introduction

The seat of arbitration remains to be one of the most enduring questions of jurisprudence in the law of arbitration. In Inox Renewables Ltd. vs Jayesh Electricals[1], a division bench of the Hon’ble Supreme Court consisting of Justice R.F. Nariman and Justice Hrishikesh Roy have clarified the position on whether a seat can be shifted from one jurisdiction to another with the consensus of the parties.


Factual Matrix

Jayesh Electricals Ltd. (the Respondent) entered into a Purchase Order dated 28.01.2012 with Gujarat Fluorochemicals Ltd. (GFL), the business of which was later transferred to Inox Renewables Ltd. (the Appellant). The said Purchase Order was for the supply and manufacture of power transformers at wind farms. The arbitration clause contained therein provided Jaipur as the venue of arbitration. As disputes arose, the Respondent filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (the Act) at the High Court of Gujarat on 05.07.2014, for the appointment of a sole arbitrator. The High Court appointed a sole arbitrator and the arbitration proceedings commenced. Pursuant thereto, the arbitrator passed an award dated 28.06.2018, awarding the sum in dispute along with interest to the Respondent. Notably, the Arbitrator set out in the award that the parties have mutually agreed that the venue/place of arbitration would be at Ahmedabad and not Jaipur.

Aggrieved by the award, the Appellant challenged the award by filing an application under Section 34 of the Act at the Commercial Court in Ahmedabad (Gujarat). The Respondent opposed the application by relying on the Business Transfer Agreement and objected that the courts at Vadodara alone have jurisdiction to hear the application under Section 34 of the Act as it is the legitimate seat of arbitration. The Court accepted the objection of the Respondent and vide order dated 9.11.2019, and dismissed the application. The Appellants moved the High Court of Gujarat in appeal. The Court upheld the aforesaid order but at the same time held, relying on the Purchase Order, that the appropriate forum for challenging the award would not be the Court in Vadodara but the Court in Jaipur. The Appellants preferred an appeal at the Supreme Court by way of Special Leave Petition.


Arguments

The Appellants argued that the High Court failed to consider that the arbitrator recorded in the award that the parties have consensually and mutually decided to change the seat of the arbitration from the one mentioned in the Purchase Order. It was further placed that the Business Transfer Agreement was signed between the Appellants and GFL and was irrelevant to the present facts.

The Respondents argued that the seat of arbitration cannot be changed without entering into a written agreement to that effect. It was further placed that the arbitrator’s record of changing the seat is only with reference to Section 20(3) of the Act and without touching the juridical seat of the arbitration.


Findings and the Decision

At the outset, the Court ascertained the seat of arbitration by relying on the award wherein it was clearly stated that the parties intended to specifically shift the venue/place of arbitration from Jaipur to Ahmedabad.

The Court relied on the decision in BSG SGS SOMA JV vs. NHPC Limited,[2] (BSG SOMA) wherein the Supreme Court dealt with the issue of concurrent jurisdiction head on and held “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 relied on its decision in Indus Mobile Distribution Private Limited vs. Datawind Innovations Private Limited[3], (Indus) wherein it was held that the parties deciding on a seat in an agreement is akin to an exclusive jurisdiction clause vesting the jurisdiction to the Courts in the territory of the chosen seat. The Court in Indus also clarified the position of Venue and Seat with respect to Section 20 of the Act wherein it was held that the term ‘place’ appearing in Section 20(1) and (2) refers specifically to the juridical seat/venue of the arbitration whereas the same term appearing in Section 20(3) refers only to the place where the arbitration hearings are held.

Having discussed the law, the Court categorically held that the seat of the arbitration being changed with a mutual agreement to Ahmedabad would have the effect of Ahmedabad having exclusive jurisdiction as the juridical seat of arbitration. Applying the dicta of Indus, the Court categorically held that the “venue” being shifted from Jaipur to Ahmedabad is shifting of the venue/place in terms of Section 20(1) and not Section 20(3) of the Act.

Applying the law to the facts of the case, the Hon’ble Court set aside the impugned judgement of the High Court and referred the matter to the Courts at Ahmedabad for hearing the application for the challenge of the arbitral award.


Conclusion

The decision is a welcome change to the existing jurisprudence of seat and venue of arbitration. By upholding the mutually agreed decision of the parties, the Court has further broadened the horizons of party autonomy in arbitration. The decision makes the seat of arbitration not a rigid but a flexible and mobile concept. As an effect, the parties would be able to exercise more control on the process and not be weighed down by a seat decided in a contract that was put into effect aeons ago.


[1] CIVIL APPEAL NO. 1556 OF 2021 (Decided on 15 April 2021)

[2] (2020) 4 SCC 234

[3] Indus Mobile Distribution Private Limited vs. Datawind Innovations Private Limited, (2017) 7 SCC 678

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