Author: Mahima, 5th Year student at School of Law, UPES, Dehradun.
Date of Judgment: April 13, 2021
Bench: Rohinton Fali Nariman, Hrishikesh Roy
Original Copy: View
Issues in Question:
- Whether mutual decision of the parties to shift the venue of arbitration would be equivalent to change in the juridical seat of arbitration?
Background of the Cases:
- M/s Gujarat Flurochemicals Ltd and Jayesh Electricals Ltd (Respondent) signed a purchase order dated 28th January, 2012 for manufacturing and supplying power transformers at wind farms.
- Clause 8.5 was the Arbitration clause which specified the arbitral procedure to be followed, the number of arbitrators, venue of arbitration, time limit for making the award and the procedure for extension of the same, powers of arbitrators and the Courts having jurisdiction to seek remedies in case of discontentment with the arbitral award. The venue for arbitration was set out to be Jaipur and the jurisdiction for seeking lawful remedies was conferred upon the courts in the State of Rajasthan.
- The execution of a business transfer agreement dated 30th March, 2012 between the Appellant and GFL resulted in a slump sale of GFL’s entire business in favor of the Appellant. The Respondent was not a party to the said transfer agreement. Clause 9.11 and 9.12 of the Transfer Agreement, declared Vadodara as seat of arbitration, thereby conferring exclusive jurisdiction to courts in the State of Gujarat.
- An application dated 5th September, 2014 was filed under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator where Ahmedabad High Court appointed Shri C.K. Buch (retd. Judge of High Court of Gujarat) as sole arbitrator for settlement of disputes between the parties stemming out of the agreement dated 28th January, 2012.
- The Arbitral proceedings was summed up on 28th July, 2018 in favor of the Respondent where a sum of ₹ 38,97,150 in addition to an interest of ₹ 31,32,650 and ₹ 2,81,000 as quantified costs was awarded to him. Future interest of 15% from the date of award till the date of realisation was also awarded.
- The Respondent resisted the petition filed by the Appellant under Section 34 in Ahmedabad. They contended that jurisdiction for entertaining a plea in this case was vested with the courts at Vadodara as per the business transfer agreement. After careful examination of Clause 9.11 and 9.12 of the Agreement, the Commercial Court in Ahmedabad accepted Respondent’s contention via judgment and order dated 25th April, 2019.
- The Appellant filed a Special Civil Application challenging the judgment of the Commercial Court of Ahmedabad. The High Court scrutinized both the agreements and held that even in a scenario where it is found that Ahmedabad had jurisdiction, Clause 8.5 of the purchase order vests exclusive jurisdiction with the courts in Rajasthan. While maintaining that the appropriate court would have been that of Jaipur, it found the decision of the court of Ahmedabad as irrefutable and therefore, dismissed the petition via an order dated 25th April, 2019.
- The Appellant, therefore, filed a petition against the Impugned Order of High Court. The purchase order was highlighted by the counsel of the Appellant and it was argued that the business transfer agreement is irrelevant in this case as it was not signed between the Appellant and the Respondent.
- The counsel for the Appellant emphasized upon the fact that the venue/seat of arbitration was shifted to Ahmedabad by mutual consent of the parties as recorded in the arbitral award, by virtue of which, Ahmedabad became the venue of arbitration conferring exclusive jurisdiction to the courts of Gujarat which was duly ignored in the impugned judgment.
- The counsel for Respondent argued that mutual decision of the parties to shift the place of arbitration cannot be given effect without a written agreement between the parties as was held in Videocon Industries Limited v Union of India & Anr. He further argued that conferring exclusive jurisdiction to the courts at Rajasthan would affirm the existence of exclusive jurisdiction on the courts at Rajasthan, irrespective of the arbitration clause specifying that the arbitral proceedings should take place in Jaipur. He additionally contended that the mutual decision to shift the venue for arbitral proceedings was carried out with reference to Section 20(3) of the Arbitration and Conciliation Act, 1996 as it was more convenient at the time for both the parties and it didn’t change the seat of arbitration as laid down in the agreement altogether.
- The Supreme Court relied upon the award passed by the learned Arbitrator as well as the Arbitration Agreement and held that the parties had mutually agreed to shift the venue/seat of arbitration. The Court, therefore, held the Respondent’s argument regarding the existence of a written agreement for giving effect to the mutual decision of shifting the venue of arbitration to be invalid as any provision, akin to Clause 35.2 in the Videocon case, restricting mutual amendment of the Contract was absent.
- The Court inferred that Respondent’s argument also favor Appellant’s contentions as the shifting of venue from Jaipur to Ahmedabad is shifting of venue of arbitration as under Section 20(1) and not within Section 20(3) of the 1996 Act as it was indicated that Jaipur would not continue to remain the seat of arbitration.
- The Court objected to the contention of the Respondent that jurisdiction of courts in Rajasthan is independent of the fact that the venue was in Jaipur explaining that the courts in Rajasthan were conferred jurisdiction solely because the seat of arbitration was Jaipur and the mutually decided relocation of the seat of arbitration connotes that the jurisdiction no more vests with the courts in Rajasthan.
- Citing the above-mentioned findings and rationale, the Supreme Court repudiated the impugned judgment and referred the parties to the courts at Ahmedabad for adjudicating upon the petition filed under Section 34.
- The Court also passed an interim order dated 12th December, 2019 and stayed the ongoing execution proceedings in favor of the Respondent on the condition that the Appellant would deposit ₹ 40,00,000 in this Court which will be transferred to the concerned forum at Ahmedabad. The decision of staying the execution proceedings would continue to be in effect until the appropriate forum at Ahmedabad modifies the interim order.
- The Supreme Court’s concluding remarks implying that the shifting of ‘venue’ of arbitration is synonymous to the shift of juridical seat has blurred the line of distinction between both the concepts.
- In the BALCO case, the Supreme Court had drawn a distinction between ‘venue’ and ‘seat’ where venue was concluded merely as a geographical location and seat as the centre of arbitral proceedings. In Indus Mobile case, the Supreme Court concluded that designation of seat is equivalent to granting the courts of seat with exclusive jurisdiction.
- In the present case, heavy reliance was placed on the BGS SGS Judgment and still, Supreme Court skipped the important concept of significant contrary indica which can be inferred by the language of the award, “… However, the parties have mutually agreed, irrespective of a specific clause as to the venue, that the place of the arbitration would be at Ahmedabad and not at Jaipur….” This ascertains that the parties intended to retain the seat of arbitration as Jaipur.
- Further, the claim regarding the arbitration seat was backed up by the ‘exclusive jurisdiction clause’ mentioned explicitly in the Purchase Order.
- However, the intention of the parties to shift the seat of arbitration from Jaipur to Ahmedabad could have also been inferred from the fact that the Respondent filed an application under Section 11 at Gujarat High Court for appointment of arbitrator as well as underwent the arbitral proceedings.