India: A Change In The Venue Is A Change In The Seat Of The Arbitration: Supreme Court Of India

In a recent case titled M/s Inox Renewables Ltd. v. Jayesh Electricals Ltd.¹, the Hon'ble Supreme Court of India held that where the parties to a dispute change the venue of the arbitration by mutual agreement, such venue will become the seat of the arbitration. This article briefly examines the findings of the Hon'ble Supreme Court rendered in the matter mentioned above.

Brief Facts

A purchase order dated 28 January 2012 was entered into between M/s Gujrat Fluorochemicals Ltd. (GFL) and Jayesh Electricals Ltd. (Respondent) for the manufacture and supply of power transformers at wind farms (Agreement). The arbitration clause under the Agreement provided for the venue of the arbitration to be at Jaipur. The Agreement also stated that any challenge to the arbitration agreement would be brought before the courts in the State of Rajasthan.

Sometime later, a slump sale of the entire business of GFL took place in favour of the M/s Inox Renewables Ltd. (Appellant) by way of a business transfer agreement (BTA) dated 30 March 2012. The arbitration clause of the BTA, to which the Respondent was not a party, designated Vadodara as the seat of the arbitration, vesting the courts at Vadodara with exclusive jurisdiction qua disputes arising out of the BTA. Disputes arose amongst the parties, and the Respondent filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) seeking appointment of an arbitration under the Agreement. The High Court of Gujrat (High Court) admitted the application filed by the Respondent and appointed the sole arbitrator. Thereafter, the learned arbitrator passed an arbitral award dated 28 July 2018 in favour of the Respondent.

The Appellant filed a petition under Section 34 of the Arbitration Act before the Commercial Court of Ahmedabad, which the Respondent resisted. The Respondent relied upon the BTA, which provided that the courts at Vadodara alone would have exclusive jurisdiction. The Commercial Court at Ahmedabad, vide its judgment and order dated 25 April 2019, accepted the Respondent's case holding that the courts at Vadodara alone would have exclusive jurisdiction, the Ahmedabad courts not being vested with such jurisdiction. Consequently, the Appellant filed a special civil application before the High Court challenging the order of the Commercial Court. The High Court observed that even assuming that Ahmedabad would have jurisdiction, the Agreement's arbitration clause vested exclusive jurisdiction in the courts at Rajasthan. Despite this finding, the High Court found no error in the Commercial Court's decision and dismissed the special civil application.

Arguments of the Parties before the Hon'ble Supreme Court

The Appellant argued that the arbitrator had acknowledged in the award that the venue of the arbitration was shifted by mutual consent to Ahmedabad. Resultantly, the seat of arbitration became Ahemdabad. The Appellant then relied upon the case in BGS SGS SOMA JV v. NHPC Ltd.² to contend that Ahmedabad being the seat of arbitration resulted in the courts at Ahmedabad having exclusive jurisdiction to entertain the challenge to the arbitral award.

On the other hand, the Respondent argued that Ahmedabad was only a convenient place for the proceedings to occur, and the seat of the arbitration always remained at Jaipur. Moreover, the Respondent argued that a change in the seat of arbitration could only happen on the basis of a written agreement. Therefore, the Respondent submitted that the jurisdiction of the courts in Jaipur was not affected by the continuation of the proceedings in Ahmedabad.

Held

The Hon'ble Supreme Court at the outset took note of the findings of the arbitrator that by mutual agreement, the parties had shifted the venue of the arbitration from Jaipur to Ahmedabad. Further, the Hon'ble Supreme Court held that it was not possible to accede to the Respondent's argument that the venue of the arbitration could have been shifted only through an agreement in writing.

Placing reliance on the judgment in the BGS SGS SOMA JV case, it was held that the moment the seat is chosen as Ahmedabad, it was akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with matters relating to the arbitration. Thus, the Hon'ble Supreme Court concluded that the courts at Rajasthan were no longer vested with jurisdiction. The impugned judgment was consequently set aside, and the parties were referred to the courts at Ahmedabad for the resolution of the Section 34 petition.

Comments

The instant judgment strengthens the position of law laid in the BGS SGS SOMA JV case, which held that the designation of the venue of the arbitration proceedings is really the designation of a seat of the arbitration in the absence of a significant indication to the contrary.

In our view, it is crucial for parties to carefully assess the effect of any change in the venue of the arbitration. The designation of the venue of the arbitration should not be seen as a hollow formality, for the law generally presumes that the venue shall be the seat of the arbitration. To convey the intent that a venue is merely a place of convenience under Section 20(3) of the Arbitration Act, the parties in their arbitration agreements should employ language which indicates the same. An adequately structured arbitration clause would go a long way in preventing unwarranted proceedings at the wrong courts and save the time and resources of the disputing parties.

Footnotes

1 M/s Inox Renewables Ltd. v. Jayesh Electricals Ltd., Civil Appeal No. 1556 of 2021.

2 BSG SGS SOMA JV v. NHPC Limited, (2020) 4 SCC 234.

The authors wish to acknowledge the research and assistance rendered by Harshvardhan Korada, a student of the Amity Law School, Delhi.

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