The Supreme Court determined the question that when the seat of arbitration is at place X, an exclusive jurisdiction clause stating that the courts at place X alone would have jurisdiction in respect of disputes arising under the agreement would oust all other courts including the High Court where the jurisdiction lies.
In 'Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited & Ors.'1 the division bench of the Hon'ble Supreme Court of India overturned the decision of the Hon'ble High Court of Delhi, wherein the said High Court dismissed both the applications under section 9 and section 11 of the Arbitration and Conciliation Act, 1996 as filed by the Respondent and held that the moment "seat" is determined as per the agreement entered between the parties, that particular seat will have exclusive jurisdiction for purposes of regulating arbitral proceedings.
Brief facts of the case
In the above case Respondent was engaged in the manufacture, marketing and distribution of Mobile Phones, Tablets and their accessories. Respondent had its registered office at Amritsar, Punjab. The Respondent was supplying goods to the Appellant at Chennai from New Delhi. The Appellant approached Respondent to do business with Respondent as its Retail Chain Partner. This being the case, an agreement was entered into between the parties. Following clauses were part of the agreement between them:
"Dispute Resolution Mechanism:
Arbitration: In case of any dispute or differences arising between parties out of or in relation to the construction, meaning, scope, operation or effect of this Agreement or breach of this Agreement, parties shall make efforts in good faith to amicably resolve such dispute.
If such dispute or difference cannot be amicably resolved by the parties (Dispute) within thirty days of its occurrence, or such longer time as mutually agreed, either party may refer the dispute to the designated senior officers of the parties.
If the Dispute cannot be amicably resolved by such officers within thirty (30) days from the date of referral, or within such longer time as mutually agreed, such Dispute shall be finally settled by arbitration conducted under the provisions of the Arbitration & Conciliation Act 1996 by reference to a sole Arbitrator which shall be mutually agreed by the parties. Such arbitration shall be conducted at Mumbai, in English language.
The arbitration award shall be final and the judgment thereupon may be entered in any court having jurisdiction over the parties hereto or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. The Arbitrator shall have the power to order specific performance of the Agreement. Each Party shall bear its own costs of the Arbitration.
It is hereby 'agreed between the Parties that they will continue to perform their respective obligations under this Agreement during the pendency of the Dispute.
19. All disputes & differences of any kind whatever arising out of or in connection with this Agreement shall be subject to the exclusive jurisdiction of courts of Mumbai only."
Disputes arose between the parties and a notice was sent by Respondent to the Appellant. Clause 18 of the Agreement was invoked by Respondent, and Justice H.R. Malhotra (Retd.) was appointed as the Sole Arbitrator between the parties. The Appellant objected to the appointment of Justice Malhotra and asked Respondent to withdraw its notice.
In this matter, Two petitions were then filed by Respondent - the first was under Section 9 of the Arbitration and Conciliation Act, 1996 asking for various interim reliefs in the matter and the second application was under section 11 to appoint an Arbitrator.
Both the aforementioned applications were disposed of by the impugned judgment by the High Court. First and foremost, it was held by the impugned judgment that as no part of the cause of action arose in Mumbai, only the courts of three territories could have jurisdiction in the matter, namely, Delhi and Chennai (from and to where goods were supplied), and Amritsar (which is the registered office of the Appellant company). The court therefore held that the exclusive jurisdiction Clause would not apply on facts, as the courts in Mumbai would have no jurisdiction at all. It, therefore, determined that Delhi being the first Court that was approached would have jurisdiction in the matter and proceeded to confirm interim order and also proceeded to dispose of the Section 11 petition by appointing Justice S.N. Variava, retired Supreme Court Judge, as the sole Arbitrator in the proceedings. The judgment recorded that the conduct of the arbitration would be in Mumbai.
The counsel of the appellant assailed the judgment of the Delhi High Court in the Supreme Court, stating that even if it were to be conceded that no part of the cause of action arose at Mumbai, yet the seat of the arbitration being at Mumbai, courts in Mumbai would have exclusive jurisdiction in all proceedings over the same. According to him, therefore, the impugned judgment was erroneous and needs to be set aside.
In opposition to these arguments, the counsel for Respondent sought to support the impugned judgment by stating that no part of the cause of action arose in Mumbai. This being the case, even if the seat were at Mumbai, it makes no difference as one of the tests prescribed by the Civil Procedure Code, 1908, to give a court jurisdiction must at least be fulfilled. None of these tests being fulfilled on the facts of the present case, the impugned judgment is correct and requires no interference.
The Hon'ble Supreme Court passed the judgement in favour of the Petitioner and held as follows: -
"19. The amended Act, does not, however, contain the aforesaid amendments, presumably because the BALCO judgment in no uncertain terms has referred to "place" as "juridical seat" for the purpose of Section 2(2) of the Act. It further made it clear that Section 20(1) and 20 (2) where the word "place" is used, refers to "juridical seat", whereas in Section 20 (3), the word "place" is equivalent to "venue". This being the settled law, it was found unnecessary to expressly incorporate what the Constitution Bench of the Supreme Court has already done by way of construction of the Act.
20. A conspectus of all the aforesaid provisions shows that the moment the seat is designated,it is akin to an exclusive jurisdiction clause. On the facts of the present case, it is clear that the seat of arbitration is Mumbai and Clause 19 further makes it clear that jurisdiction exclusively vests in the Mumbai courts. Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to "seat" is a concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have jurisdiction - that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Section 16 to 21 of the Code of Civil Procedure be attracted. In arbitration law however, as has been held above, the moment "seat" is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.
21. It is well settled that where more than one court has jurisdiction, it is open for parties to exclude all other courts...Having regard to the above, it is clear that Mumbai courts alone have jurisdiction to the exclusion of all other courts in the country, as the juridical seat of arbitration is at Mumbai. This being the case, the impugned judgment is set aside. ........ Appeals are disposed of accordingly."
Similar approach adopted by the Delhi High Court which was affirmed by the Hon'ble Supreme Court and clear distinction from the case of 'M/s Ravi Ranjan Developers Pvt. Ltd. v. Aditya Kumar Chatterjee'2: -
In 'Sikka Motors Pvt. Ltd. v. Hyundai Motor India Ltd.'3 the Delhi High Court, while relying upon Indus Mobile Distribution Private Limited (Supra) held as follows: -
"19. The law laid down by the Supreme Court in Indus Mobile (supra) squarely applies to the facts and circumstance of the present case. In the present case also parties have agreed to the venue of arbitration as Chennai and also that the competent courts in Chennai would have exclusive jurisdiction.
20. Even if assuming that no part of cause of action has arisen in Chennai, applying the ratio of the judgment in Indus Mobile (supra), it can safely be concluded that the courts at Chennai would have exclusive jurisdiction to entertain any proceedings arising under the Arbitration Act.
21. The judgment referred to by the learned counsel for the petitioner in M/s. Ravi Ranjan Developers Private Limited Vs. Aditya Kumar Chaterjee dated 24.03.2022 in SLP 17397 and 17398 of 2021 is not applicable to the facts and circumstances of the present case for the reason that the Clause that was subject matter in Ravi Ranjan Developers (supra) stipulated that "the sitting of the said Arbitral Tribunal shall be at Kolkata."
22. Clearly in Ravi Ranjan Developers (supra), parties had not agreed to confer any exclusive jurisdiction to the courts at Kolkata. Further, the dispute in the said case pertaining to a property that was situated in Muzaffarpur at Bihar.
23. The Supreme Court in Ravi Ranjan Developers (supra) held that suit for recovery of immovable property or determination of any other rights or an interest in any immovable property or for compensation for wrong immovable property is to be instituted in the court within the local limits of whose jurisdiction the property is situated.
24. The Supreme Court further, notice that the suit pertained to an immovable property situated to Muzaffarpur in Bihar outside the territorial jurisdiction of the Kolkata High Court and further, no part of cause of action had arisen within the territorial jurisdiction of the said court.
25. In Ravi Ranjan Developers (supra), Supreme Court has further, held that "a judgment is a precedent for the issue of law that is raised and decided. The judgment has to be construed in the backdrop of the facts and circumstances in which the judgment has been rendered. Words, phrases and sentences in a judgment, cannot be read out of context. Nor is a judgment to be read and interpreted in the manner of a statute. It is only the law as interpreted by in an earlier judgment, which constitutes a binding precedent, and not everything that the Judges say".
26. In the light of the above observation, the Supreme Court in Ravi Ranjan (Supra) perused the development agreement which was the subject matter of the dispute and held that the contention of the respondent that the parties to arbitration had agreed to subject to jurisdiction of Kolkata High Court was not correct.
27. The Supreme Court noticing that parties to the arbitration agreement only agreed that the sitting of the Arbitral Tribunal would be in Kolkata, held that Kolkata was the venue for holding the sitting of the Arbitral Tribunal and that the parties never agreed to submit to the jurisdiction of the Kolkata High Court in respect of disputes.
28. In contrast, in the present case, as noticed hereinabove, Clause 12 of the agreement specifically agrees to the exclusive jurisdiction of the competent courts in Chennai.
29. In view of the above, it is held that the courts at Delhi would not have the jurisdiction to entertain any proceedings arising out of the subject dealership agreement and the competent courts at Chennai alone would have exclusive jurisdiction."
Usage of the terms Seat, Venue and Place of arbitration
Three Judges bench of the Hon'ble Supreme Court in 'Mankastu Impex Private Limited v. Airvisual Limited' 4 explained the usage of the terms Seat, Venue and Place of arbitration as follows: -
"20. It is well settled that "seat of arbitration" and "venue of arbitration" cannot be used interchangeably. It has also been established that mere expression "place of arbitration" cannot be the basis to determine the intention of the parties that they have intended that place as the "seat" of arbitration. The intention of the parties as to the "seat" should be determined from other clauses in the agreement and the conduct of the parties."
The language w.r.t. to the arbitration clause used in the agreement between the concerned parties is the most important factor in determining the real intention of the parties that they have intended that place as the seat of arbitration.
2. Arising out of SLP (C) Nos. 17397 – 17398 of 2021
4. (2020) 5 SCC 399
Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email id: email@example.com
Mobile No.: +91 9810081079
Ankush Mangal, Advocate
Associate, Vaish Associates Advocates
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