Author: Mahima, 5th year student at School of Law, UPES, Dehradun.
Citation: CA No 504 of 2019 in CARBP(L) No 1244 of 2019
Date of Judgment: January 29, 2021
Bench: S.J. Kathawalla, R.I. Chagla
Original Copy: View
Issues in Question:
- Whether the decision of Impugned Order to recognise the concurrent jurisdictions on two courts, the Court within whose territorial jurisdiction the cause of action emanates and the Court of seat for arbitral proceedings was correct or does the choice of seat conclusively extends exclusive jurisdiction on the Court of seat barring any other court from having jurisdiction under the agreement?
- In case, existence of concurrent jurisdiction upon both the courts is proven, does it indicate, ad laid down in the Impugned Order, that the parties have exercised ‘party autonomy’ as granted to them under Section 20 by expressly choosing to confer jurisdiction on the Courts in Hyderabad and therefore, the term ‘subject to’ must be read as ‘notwithstanding’ and ‘seat’ must be read as ‘venue’?
Background of the case:
- The Appellant and Janapriya Engineers and Syndicate Private Limited were shareholders of Janapriya Townships Private Limited which was invested in a real estate development project in Medak, Telangana. They entered into two agreements, namely, a Share Subscription and Shareholders Agreement dated 21st August, 2008 and later, into a Development Management Agreement on 2nd March, 2009.
- The bone of contention between the Appellant and Respondents was regarding the implementation and execution of the real estate project, in pursuance of which, the Appellant issued a Notice of Default on 19th March, 2019. Another notice dated 8th July, 2019, was issued to the Respondent to exercise the Put Option as laid down in the SHA. Finally, a Dispute Notice dated 22nd August, 2019 was issued which invoked the arbitration clause. The Appellant then filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 in the Bombay High Court.
- Clause 20.4 of the SHA which stated that the seat of arbitration proceedings shall be Bombay as agreed by the parties was accredited by the Appellant to establish that Bombay High Court had jurisdiction to entertain the petition despite the cause of action being a dispute which concocted on-site within the territorial jurisdiction of the Courts at Hyderabad.
- The Respondents encountered that the Bombay High Court lacked jurisdiction for entertaining the plea. Supreme Court’s decision in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc., which concluded that, ‘Court’ under Section 2(1)(e) of the 1996 Act would also constitute the Court within whose territorial jurisdiction the cause of action stemmed was extracted. It additionally submitted that in the SHA, Clause 20.3 is an express clause conferring exclusive jurisdiction on Courts of Hyderabad for addressing disputes originating out of this Agreement.
- The Appellant responsively contended that the BALCO judgment has been considered by later decision. Supreme Court’s judgment in Indus Mobile Distribution (P) Ltd. v Datawind Innovation (P) Ltd was alluded to where the Court held that existence of a clause which specifies the seat of arbitration would be indicative of conferring exclusive jurisdiction on Court of seat. It was also contended that Clause 20.3 was ‘subject to’ Clause 20.4 thereby empowering this Court to entertain a Section 9 petition.
- The Learned Single Judge dismissed the Section 9 petition while upholding the objections to the jurisdiction. The merits of the matter were neither adjudicated upon by the learned Single Judge nor submissions were made regarding the same in the Appeal to the Division Bench.
- The learned Single Judge ascertained that the parties to the Agreement employed ‘party autonomy’ as recognized under Section 20 of the 1996 Act and chose to grant exclusive jurisdiction to the Courts of Hyderabad for deciding upon disputes stemming between them, thereby, shielding the Agreement from the effect of Section 28 of the Indian Contract Act, 1872.
- The learned Single Judge concluded that when two or more courts share jurisdiction to entertain a plea, the parties by agreement can accede to one court. Addressing the findings in the Indus Mobile Case, he explained that the agreement had conferred exclusive jurisdiction to the Courts in Mumbai while the parties, too, had agreed the seat of Arbitration to be in Mumbai. However, in the present case, the parties conferred exclusive Jurisdiction to Courts in Hyderabad while choosing the seat of Arbitration to be in Mumbai.
- The learned Single Judge relied upon the plain commercial meaning gathered from the Agreement to conclude that exclusive jurisdiction was conferred upon the Courts in Hyderabad by virtue of Clause 20.3 of the Agreement. He also referred to various decisions of the Supreme Court regarding interchangeable usage of words ‘seat’, ‘place’ and ‘venue’.
- The Appellant additionally submitted that following the pronouncement of the Impugned Order, the Supreme Court in the case of BGS SGS Soma JV v NHPC Limited, affirmed the existence of exclusive jurisdiction on the Court of the seat. The Supreme Court concluded that the legal position apropos with reference to ‘place’ or ‘venue’ in an arbitration agreement will generally infer ‘seat’ of the arbitration unless there’s clear indication to the contrary.
- The Appellant also submitted that one way of interpreting the intertwined usage of both the clauses would be that the one which wasn’t a part of the arbitration clause would deal with the disputes that are not covered by arbitration while for those disputes that are covered by arbitration, the Court of the seat would have jurisdiction even in a situation of concurrent jurisdiction.
- The Respondents submitted that the intent of the parties were overlooked when the prevalent perception of ‘seat’ at the time of entering into the agreement was precluded as then, ‘seat’ was understood as venue and the present usage of the term ‘seat’ was unknown to the parties. In the submission the relevance of the concept of ‘seat’ was opined to be limited to International Commercial Arbitration and it was argued that parties to domestic arbitration or such international commercial arbitration which was seated in India, retained the right to vest exclusive jurisdiction.
- Citing landmark cases, the Supreme Court directed that Bombay High Court, in this case, can entertain the application under Section 9, thereby overruling the Impugned Order.
- The Supreme Court highlighted that various High Courts had interpreted that BALCO judgment recognized concurrent jurisdiction. However, in the case of BGS SGS, perusal of the BALCO judgment in its entirety leads to application of the concept of ‘seat’ as per English judgments after harmonious construction of Section 20 with Section 2(1)(e) of the 1996 Act in the 2012 judgment.
- While explaining the concept of ‘juridical seat’ and its relationship with jurisdiction of Courts in BGS SGS, the Court observed selection of ‘seat’ by the parties amounts to exclusive jurisdiction. The Supreme Court further observed that the observation regarding concurrent jurisdiction in the BALCO judgment was contrary to other observations made.
- The Supreme Court opined that recognition of concurrent jurisdiction in the Impugned Order is not tenable as it is not in consonance with the BSG SGS judgment. The principle of party autonomy applied by the learned Single Judge for conferring exclusive jurisdiction was found to be inapplicable in this case as the parties had already chosen the seat of arbitration.
- Regarding the interpretation of the Agreement, Supreme Court disagreed with the conclusion drawn in the Impugned Order that ‘subject to’ must be read as ‘notwithstanding’ and ‘seat’ must be understood as ‘venue’ as these interpretations were violative of the settled principle of giving effect to plain language for interpretation.
- In light of rigorous discussions and clear observations after perusal of landmark cases in their entirety, the issues framed by the Court were decided.
- The Court rejected the findings in the Impugned Order which recognised concurrent jurisdiction on the Court of seat and the Court which had the territorial jurisdiction on cause of action while affirming that choosing the seat for arbitration confers exclusive jurisdiction to the Courts of seat.
- This landmark judgment states that the exclusive jurisdiction granted to the Courts which have territorial jurisdiction over the cause of action is subject to the Court of seat which has supervisory jurisdiction over arbitral proceedings.