VENUE — SEAT CONUNDRUM — SUPREME COURT CLARIFIES EFFECT OF CHANGE IN VENUE BY MUTUAL CONSENT
Rhia Marshall & Aviva Jogani
In a recent decision, a division bench of the Supreme Court in Inox Renewables Ltd. v Jayesh Electricals Ltd, considered the effect of a change in venue or place of arbitration by mutual consent of the parties to an arbitration agreement. The Supreme Court held that parties to an arbitration agreement are free to change their seat of arbitration by mutual agreement and observed that shifting of the “venue” was really a shifting of the seat of arbitration; resultantly transferring exclusive jurisdiction to the courts of the changed place/venue. The Supreme Court also held that changing the seat of arbitration by mutual agreement, even if not made in writing, will be valid if recorded by the arbitrator in the arbitral award to which no challenge is made by either party.
A purchase order [‘PO’] was placed by M/s. Gujarat Fluorochemicals Ltd. [‘GFL’] upon Jayesh Electricals Ltd. [‘Respondent’]. The PO contained an arbitration clause which stipulated that the venue of arbitration would be Jaipur and courts in the State of Rajasthan would have exclusive jurisdiction in respect to a challenge to the award passed by the arbitrator.
Subsequently, a slump sale of GFL’s business took place in favour of Inox Renewables Ltd. [‘Appellant’] vide a business transfer agreement [‘BTA’]. The Respondent was not a party to the BTA. The BTA contained an arbitration clause which, inter alia, designated Vadodara as the seat of arbitration, vesting the courts at Vadodara with exclusive jurisdiction over disputes arising out of the said agreement.
Disputes arose and the Respondent filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 [‘Act’] before the High Court of Gujarat for appointment of an arbitrator under the PO. The High Court of Gujarat appointed a sole arbitrator, who passed an award in favour of the Respondent [‘Award’]. With respect to the venue/ place of the arbitration, the Award held as under:
“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 arbitration would be at Ahmedabad and not at Jaipur. The proceedings, thus, have been conducted at Ahmedabad…”
Aggrieved by the Award, the Appellant filed a petition under Section 34 of the Act before the Commercial Court at Ahmedabad, challenging the Award. The Commercial Court dismissed the petition vide order dated 25 April 2019 on the ground that courts at Vadodara were vested with exclusive jurisdiction under the BTA.
The Appellant challenged the said order before the Gujarat High Court by way of special civil application. The High Court held that as per the PO, exclusive jurisdiction was vested in the courts of Rajasthan and therefore the appropriate court would have been the court at Jaipur. Despite this, the High Court found no error in the Commercial Courts Order dated 25 April 2019 and dismissed the special civil application under an Order dated 9 October 2019. The Appellant filed a Special Leave Petition against the Order dated 9 October 2019 before the Supreme Court.
Relying on the arbitrator’s findings in respect of venue/ place of the arbitration, the Supreme Court held that the parties had specifically shifted the venue/ place of the arbitration from Jaipur to Ahmedabad by mutual agreement.
The Supreme Court rejected the Respondents’ submission that the place of arbitration could have been changed only by a written agreement and that the arbitrator’s findings referred to a convenient venue and not the seat of arbitration. The Supreme Court held that parties may change the seat of arbitration by mutual agreement, as has been done in the present case and which is recorded by the arbitrator in the Award. Further, the Supreme Court held that the “venue” being shifted from Jaipur to Ahmedabad was in reality the shifting of the venue/ place of arbitration with reference to Section 20(1), and not Section 20(3) of the Act, since it is clear that Jaipur will not continue to be the seat of arbitration and Ahmedabad was now the seat designated by the parties, and not a venue to hold meetings.
Relying on its previous decision in BSG SGS SOMA JV v. NHPC the Supreme Court reiterated that the moment the parties designate Ahmedabad as the seat of arbitration, it is akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with the arbitration. The Supreme Court followed the reasoning in BSG SGS SOMA JV v. NHPC (supra) Limited wherein designation of a chosen “venue” is really the designation of a “seat” of arbitration when there is no other significant contrary indicia.
The Supreme court further observed that the PO had to be read as whole and that the two clauses — clause designating the jurisdiction of courts and clause designating the venue of arbitration — must be read together. In effect, the Supreme Court found that the Courts in Rajasthan had been vested with jurisdiction only because the parties had chosen Jaipur as the seat of arbitration. The Supreme Court went on to clarify that once the seat of arbitration was replaced by mutual agreement to be at Ahmedabad, the courts at Rajasthan would cease to have jurisdiction as exclusive jurisdiction is now vested in the court at Ahmedabad.
This judgment delves into the long-standing venue — seat conundrum that parties, arbitrators and courts alike have been grappling with ever since the emergence of arbitration as an alternate dispute resolution mechanism. The Supreme Court has relied on earlier judgments to reiterate that (i) choosing a seat is akin to an exclusive jurisdiction clause; and (ii) if a venue/ place is designated in an arbitration agreement, in the absence of a designated seat, such venue/ place is considered the seat if there is no contrary indicia.
Echoing the principle of party autonomy, in the present case, the Supreme Court has held that parties to an arbitration agreement can change their seat of arbitration by mutual agreement. Such change of seat would be considered valid, even if not recorded in writing, but recorded in the arbitral award and not challenged by either party.
While ambiguous drafting of the arbitration clause is one of the contributors to the seat — venue conundrum, however, the lack of express provisions in the Act cannot be ignored. Whether explicit provisions relating to the choice of seat/ venue/ place and their numerous intricacies will be introduced in the Act remains to be seen. In the meantime, parties should unequivocally specify their choice of seat and the venue in the arbitration agreement to avoid potential complications and prolonged litigation.
For more information please contact:
Rhia Marshall, Partner, Disputes, firstname.lastname@example.org
Murtaza Somjee, Partner, Disputes and Insolvency, email@example.com
Aviva Jogani, Associate, firstname.lastname@example.org