Courts Of Changed “Seat of Arbitration” Will Have Exclusive Jurisdiction When Parties By Mutual Agreement Replace “Venue of Arbitration”: Supreme Court

The Supreme Court has recently observed that once the parties replace their seat of Arbitration by “Mutual Agreement”, the Courts of changed “seat of arbitration” would have the exclusive jurisdiction. 

The Bench of Justice RF Nariman & Justice Hrishikesh Roy was hearing an appeal against the impugned judgment dated October 9, 2019, passed by the High Court of Gujarat at Ahmedabad vide which the Court dismissed the Application filed by the Inox Renewables Ltd. (“Appellant”) against the order dated April 25, 2019, passed by the Commercial Court, Ahmedabad by holding that the courts at Jaipur, Rajasthan would be the courts in which the Section 34 petition could be filed.

Factual Background

In the present matter, the parties Gujarat Fluorochemicals Ltd. (“GFL”) & Jayesh Electricals Ltd (“Respondent”) entered into a purchase order dated January 28, 2012, for the manufacture & supply of power transformers at wind farms & as per the arbitration clause, the venue of Arbitration was decided to be Jaipur. A slump sale of the entire business of GFL took place in Appellant’s favour by way of a business transfer agreement dated March 30, 2012, of which the Respondent was not a party. As per Clause 9.11 and 9.12 of the business transfer agreement, Vadodara was designated as the seat of the Arbitration between the parties, vesting the courts at Vadodara with exclusive jurisdiction qua disputes arising out of the agreement.

The Respondent filed an Application on September 5 2014, u/s 11 of the Arbitration and Conciliation Act, 1996 (“Act”) to appoint an arbitrator under the purchase order before the High Court of Gujarat at Ahmedabad vide which the Court appointed Shri C.K. Buch as a sole arbitrator to resolve the disputes arising between the parties arising out [of a] contract dated 28.01.2012.

Pursuant thereto, the learned Arbitrator passed an award dated July 28, 2018, in which the Respondent was awarded a sum of Rs. 38,97,150/- plus Rs. 31,32,650 as interest on the awarded amount from March 10, 2017, till the date of the award plus Rs. 2,81,000/- as quantified costs. Future interest was awarded at 15% from the date of award till the date of payment. 

The Appellant thereafter filed a petition u/s 34 of the Act, which was resisted by the Respondent, referring to the business transfer agreement and stating that the courts at Vadodara alone have jurisdiction. The Commercial Court at Ahmedabad vide judgment and order dated April 25, 2019, accepted the Respondent’s case by referring to clauses 9.11 and 9.12 of the business transfer agreement and stated that the courts at Vadodara alone would have exclusive jurisdiction, the Ahmedabad courts not being vested with such jurisdiction.

The Appellant filed an application against the order above. The High Court referred to the arbitration clause contained in the purchase order & what is termed as the “exclusive jurisdiction clause” qua the courts in Rajasthan and while dismissing the Application held that, “Even assuming that Ahmedabad would have jurisdiction, if one is to go by clause 8.5 of the purchase order, exclusive jurisdiction being vested in the courts at Rajasthan, the appropriate Court would be the Court at Jaipur. However, despite this finding, it found no error in the Ahmedabad Court’s decision dated April 25, 2019”.

Thereafter, the Appellant approached this Court against the order passed by the High Court of Ahmedabad.

The Bench took note of the award passed by the Arbitrator with respect to the venue/place of Arbitration & observed that the parties by mutual agreement shifted the venue/place of Arbitration from Jaipur to Ahmedabad & being so it was not possible to accede to the argument made by Respondent’s Counsel that this could only have been done by written agreement and that the Arbitrator’s finding would really have reference to a convenient venue and not the seat of Arbitration.

Reliance was placed to the Apex Court Judgement in BSG SGS Soma JV vs NHPC Limited, (2020) 4 SCC 234 to observe that as per this case, the moment the parties chose Ahmedabad as a seat, it was akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with the Arbitration.

Thereafter, the Bench set aside the order dated April 25, 2019, passed by the Commercial Court, Ahmedabad & referred the parties to the courts at Ahmedabad for the resolution of the Section 34 petition.

Case Title: M/S. INOX Renewable  Ltd v. Jayesh Electricals Ltd.| SLP (C) No.29161 of 2019

Penned By: Justice RF Nariman