Juxtaposing Seat of Arbitration vis-à-vis Exclusive Jurisdiction Clauses: Judicial Trend Thus Far

Introduction

A Division Bench of the Supreme Court in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd.[1], (Indus Mobile) was dealing with the issue of whether, when the seat of arbitration is Mumbai and an exclusive jurisdiction clause stating that the courts at Mumbai alone would have jurisdiction in respect of disputes arising under the agreement would oust all other courts including the High Court of Delhi.

The Supreme Court observed 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.” Accordingly, it held 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.

However, on facts, Indus Mobile[2] dealt with a fact scenario where both seat and exclusive jurisdiction of courts were designated to be at Mumbai.

Even now and post Indus Mobile, the Supreme Court is yet to pronounce a judgment involving a domestic seated arbitration and dealing with a situation where jurisdiction for purposes of regulating arbitral proceedings would lie, when seat of arbitration and exclusive jurisdiction clause have named different places. Given that there is no Supreme Court decision dealing with the scenario where seat and exclusive jurisdiction clauses have designated different places, we have seen much divergence amongst the High Courts while dealing with this fact scenario.

In this piece, the authors analyse various High Court decisions post Indus Mobile which has dealt with the fact scenario of seat and exclusive jurisdiction clauses being at different places.

Decision of the Single Judge of the Bombay High Court in Aniket SA Investments LLC

A Single Judge Bench of the Bombay High Court in Aniket SA Investments LLC v. Janapriya Engineers Syndicate (P) Ltd.[3], was dealing with the issue of whether a Section 9[4] petition under the Arbitration and Conciliation Act, 1996 (1996 Act) would lie before the Bombay High Court as exclusive jurisdiction clause provided that courts of Hyderabad shall have exclusive jurisdiction to try and entertain disputes. However, the exclusive jurisdiction clause was subject to an arbitration clause which clearly provided that the seat of arbitration shall be at Mumbai.

The Court speaking through Kulkarni, J. interpreted Indus Mobile and by a judgment dated 22-10-2019 held:

… the parties had agreed that not only the arbitration shall be conducted at Mumbai but the jurisdiction shall vest with the Mumbai Court, whereby the parties had excluded jurisdiction of the other courts. In this context, the parties having conferred exclusive jurisdiction on the Mumbai Court, the Supreme Court has observed that no other court would have jurisdiction.[5]

Strangely, the Court also interpreted, the phrase “subject to” as meaning “notwithstanding” and gave precedence to the exclusive jurisdiction clause despite it being subject to the arbitration clause.

Accordingly, it was held that the courts at Hyderabad would have exclusive jurisdiction to entertain the Section 9 petition.

Decision of the Calcutta High Court in Devyani International Limited

A Single Bench of the Calcutta High Court in Commercial Division Bowlopedia Restaurants India Ltd. v. Devyani International Ltd.[6], was dealing with maintainability of a Section 9 petition under the 1996 Act where courts of Kolkata had exclusive jurisdiction to try disputes under the exclusive jurisdiction clause whereas seat of arbitration was at New Delhi.

The Calcutta High Court speaking through Basak, J. by a judgment dated 21-1-2021 held:

… The seat of arbitration, in the case of a domestic arbitration, assume significance, in the absence of a valid forum selection clause. In other words, if the parties have by agreement, chosen a specified court, and which such court otherwise have jurisdiction over the subject-matter of the arbitration, then, notwithstanding a seat of arbitration being prescribed which is different to the forum selection clause, the court selected by the parties will have jurisdiction, in the case of a domestic arbitration.

Accordingly, it was held that the Calcutta High Court has the jurisdiction to try and determine the Section 9 petition.

Decision of the Delhi High Court in Sumithra Inn

A Single Bench of the Delhi High Court in My Preferred Transformation and Hospitality (P) Ltd. v. Sumithra Inn[7], was dealing with a fact scenario where the place of arbitration was designated to be New Delhi, however, courts at Bengaluru had exclusive jurisdiction to try disputes arising out of the agreement.

The Delhi High Court speaking through Hari Shankar, J. in a judgment dated 5-1-2021 relied upon the decision of the Supreme Court in Mankastu Impex (P) Ltd. v. Airvisual Ltd.[8] In Mankastu, the place of arbitration was designated to be Hong Kong whereas courts at New Delhi were given exclusive jurisdiction. The fixation of the seat of arbitration as Hong Kong, held the Supreme Court, resulted in the vesting of exclusive jurisdiction, to entertain the petition for appointment of the arbitrator, with courts at Hong Kong, and divested all other courts of jurisdiction in the matter.

Accordingly, the Delhi High Court relying upon Mankastu held that, 40. … Where, however, the “exclusive jurisdiction” clause does not specifically confer Section 119 jurisdiction on the High Court at Bengaluru and, on the other hand, the separate “seat of arbitration” clause fixes the seat of arbitration at New Delhi, applying the law laid down in Mankastu Impex (P) Ltd., Section 11 jurisdiction would vested in this Court, and not in the High Court of Karnataka at Bengaluru.10

It is to be noted though that in Mankastu, the Supreme Court was dealing with the issue in the context of an international commercial arbitration and not in the context of a domestic arbitration.

Decision of the Division Bench of the Bombay High Court in Aniket SA Investments LLC

A Division Bench of the Bombay High Court speaking through Kathawalla, J.11 reversed the Single Judge decision of the Bombay High Court dated 22-10-201912 in the matter.

The Division Bench relied upon the decision of the Supreme Court in BGS SGS Soma JV v. NHPC13, (BGS Soma) and observed that,

Given that, BGS SGS has held that there is no concurrent jurisdiction of two courts under Section 2(1)(e)14 of the Act, the principles applied by the learned Single Judge that as a matter of party autonomy the parties can choose one of the two courts and confer exclusive jurisdiction on one of those courts, by relying inter alia upon para 96 of BALCOKaiser Aluminium Technical Services Inc.15 and the judgment in Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd.16, would have no application in a situation where the parties have chosen a seat of arbitration.17

Accordingly, it was held that the Bombay High Court would have the jurisdiction to hear the Section 9 petition instead of courts at Hyderabad.

Notably, in BGS Soma, the Supreme Court laid down that the designated seat of arbitration would carry with it the fact that courts of seat alone would have jurisdiction.

Conclusion

Recently, the Madras High Court in Balapreetham Guest House (P) Ltd. v. Mypreferred Transformation & Hospitality (P) Ltd.18, in a judgment delivered on 19-3-2021 has accorded an interesting way to approach the issue when exclusive jurisdiction and the seat of arbitration clause names different courts to adjudicate upon. The exclusive jurisdiction provided courts at Chennai to have jurisdiction to resolve disputes, whereas the seat of arbitration was designated to be at New Delhi. The Court observed that,

“[a] reading of the 2 clauses would indicate that the parties had agreed that in case of a cause of action arising from out of the agreement then the courts at Chennai alone will have jurisdiction, if parties abandon their right to arbitrate the dispute and file a civil suit.”

Accordingly, it can be stated that exclusive jurisdiction clause can be used and becomes relevant in the event the parties decide to give up on arbitration and pursue civil remedies. In such a scenario, the courts where exclusive jurisdiction has been conferred becomes relevant subject to it having jurisdiction under the Civil Procedure Code, 190819. However, in all other situations where there are conflicting clauses providing two different courts/places as seat and court having exclusive jurisdiction, one may resort to the distinction carved out by the Supreme Court on the phrases “subject-matter of arbitration” as contradistinguished from the “subject-matter of suit”. In case of the former, the fundamental principle of party autonomy enshrined in arbitration would assume significance and the moment a seat of arbitration has been agreed, unless there are any contrary indicia the seat of arbitration would be akin to an exclusive jurisdiction clause. Consequently, courts of that place alone (to the exclusion of others, notwithstanding a conflicting general exclusive jurisdiction clause) would exercise supervisory control and jurisdiction over the Arbitral Tribunal and all related arbitration proceedings would lie before that court only.

Also, the Division Bench of the Bombay High Court has clearly interpreted Indus Mobile20 to be a judgment where the Supreme Court relied on the seat to confer jurisdiction on courts at Mumbai. In this regard, the Division Bench states that, “We are also of the opinion that in view of the Supreme Court’s reading and understanding of Indus Mobile, in the case of BGS SGS21, the impugned order was not correct in distinguishing Indus Mobile only because of the clauses in the agreement in Indus Mobile conferring exclusive jurisdiction on the same court as that of the seat. As the Supreme Court clearly notes, Indus Mobile gives two separate reasons for its conclusion and the first of them is that a choice of seat has the effect of conferring exclusive jurisdiction on the court of the seat.”

Hopefully, this interpretation of Indus Mobile by the Division Bench of the Bombay High Court would help settle the issue.

† Partner, Khaitan & Co, e-mail: jeevan.ballav@khaitanco.com.

†† Principal Associate, Khaitan & Co, e-mail: satish.padhi@khaitanco.com.

[1] (2017) 7 SCC 678.

[2] (2017) 7 SCC 678.

[3] 2019 SCC OnLine Bom 3187.

[4] <http://www.scconline.com/DocumentLink/8p216XFz>.

[5] Aniket SA Investments case, 2019 SCC OnLine Bom 3187.

[6] 2021 SCC OnLine Cal 103.

[7] 2021 SCC OnLine Del 1536.

[8] (2020) 5 SCC 399.

9 <http://www.scconline.com/DocumentLink/02bfnuC4>.