Contributed by: Samvad Partners
In M/s Inox Renewables Ltd. v Jayesh Electricals Ltd. decided on 13th April 2021 [Civil Appeal No. 1556 of 2021, arising out of SLP (C) No. 29161 of 2019], the Supreme Court had occasion to consider the implications of parties changing the venue or place of arbitration by mutual consent. The Supreme Court held that the shifting of the “venue” was really a shifting of the seat of arbitration, and that the courts of the changed place would have exclusive jurisdiction for all purposes under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).
On 28th January 2012 Gujarat Fluorochemicals Ltd. (“GFL”) placed a purchase order on the Respondent, Jayesh Electricals Ltd. (“Jayesh”), for manufacture and supply of power transformers (“Purchase Order”). This Purchase Order contained an arbitration agreement at Clause 8.5, which inter alia provided that the venue of the arbitration would be Jaipur and that in case of a challenge to the final award, the courts in the State of Rajasthan would have jurisdiction.
By a Business Transfer Agreement dated 30th March 2012 (“BTA”), GFL transferred its entire business to the Appellant, Inox Renewables Ltd. (“Inox”). Jayesh was not a party to the BTA. Under the BTA Vadodara was the seat of the arbitration and exclusive jurisdiction was vested with the courts at Vadodara.
Certain disputes that arose between Inox and Jayesh under the Purchase Order were referred to arbitration. On an application filed by Jayesh for appointment of an arbitrator, the Gujarat High Court, by consent of parties, appointed a sole arbitrator to resolve the disputes. The sole arbitrator passed an award dated 28th July 2018 in favour of Jayesh (“Award”), inter alia recording that:
“As per the arbitration agreement, the venue of 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…” (emphasis supplied).
Aggrieved by the Award, Inox filed a petition under Section 34 of the Arbitration Act to set aside the Award, before the commercial court in Ahmedabad (“Ahmedabad Court”). By an order dated 25th April 2019, the Ahmedabad Court rejected the petition, accepting Jayesh’s submission that under the BTA, the courts at Vadodara had exclusive jurisdiction. This order was challenged by Inox before the Gujarat High Court by way of a special civil application. On 9th October 2019 the Gujarat High Court dismissed the special civil application, on the ground that under the Purchase Order, “exclusive jurisdiction” was vested with the courts in Rajasthan, and as per Clause 8.5 of the Purchase Order, the appropriate court for the purpose of a challenge under Section 34 of the Arbitration Act would be the court at Jaipur. (“Impugned Judgment”).
Inox argued that while the Impugned Judgment correctly held that the BTA was irrelevant, the Impugned Judgment failed to consider that the Award had specifically recoded that the venue / place of arbitration was shifted to Ahmedabad by mutual consent.
Jayesh contended that as per the decision of the Supreme Court in Videocon Industries Limited v. Union of India & Anr.[(2011) 6 SCC 161], the place of arbitration could not be shifted without a written agreement between the parties. Further, it was argued that what was shifted by mutual consent of parties was merely the venue of arbitration and not the seat or place of arbitration.
Findings of the Supreme Court
The Supreme Court, relying on its previous decisions in BSG SGS Soma JV v. NHPC Limited [(2020) 4 SCC 234] and Indus Mobile Distribution (P) Ltd. v. Datawind Innovations Private Limited & Ors.[(2017) 7 SCC 678],held that the shifting of venue from Jaipur to Ahmedabad was really a shifting of the seat or place of arbitration. The Supreme Court laid particular emphasis on the reasoning in BGS SGS Soma on the circumstances when a chosen venue is actually the seat of arbitration, for instance, when language used is “venue of the arbitration proceedings” or “arbitration proceedings shall be held at a particular venue” (there being no other indicators to the contrary).
The Supreme Court distinguished its decision in Videocon, on the ground that the contract in Videocon specifically required all amendments to be in writing and signed by the parties. However, in the absence of such a stipulation in the instant case, the mutual consent with respect to Ahmedabad as the place of arbitration, as recorded in the Award was sufficient to shift the seat to Ahmedabad.
Lastly, the Supreme Court reiterated that the choice of seat carries with it the choice of courts of the seat. Accordingly, the moment the seat of arbitration was changed to Ahmedabad, it was akin to an exclusive jurisdiction clause vesting courts at Ahmedabad with exclusive jurisdiction, and the courts in Rajasthan would no longer be vested with jurisdiction (despite the contractual stipulation in the Purchase Order).
This is an important decision on the effect of change of venue (place / seat), on the courts which would have supervisory jurisdiction over the arbitration proceedings, to the exclusion of a contractual choice of jurisdiction. The Supreme Court, having categorically held that the courts at the changed place of arbitration would have exclusive jurisdiction over the arbitral proceedings, once again reinforces the legal significance of the seat of arbitration (place of arbitration) i.e. choosing a seat amounts to choosing courts of the seat for all purposes under the Arbitration Act, including for the purpose of interim orders and challenges to the award.
Contributed by Samvad Partners
The above article has been authored by Ms. Savani Gupte(Partner) and Ms. Poornima Hatti(Partner).