Arbitration In IndiaThe Choice of Seat is a Manifestation of Party Autonomy

August 5, 20210

In the case of Aniket SA Investments LLC vs Janapriya Engineers Syndicate Pvt Ltd (Commercial Appeal No 504 of 2019), the Division Bench of the Bombay High Court held that while the selection of the Seat of the Arbitration should be in accordance with established international practices, it is ultimately a manifestation of the will, intentions and autonomy of the parties.

FACTS

Aniket SA Investments LCC (“the Appellant”) is a foreign investor while Janapriya Engineers and Syndicate Private Ltd (“Respondent No. 1”) were the shareholders of Janapriya Townships Pvt. Ltd. which was a Special Purpose Vehicle, created for the construction of a Real Estate Development Project in Telangana.

The Parties entered into an Agreement with regards to the commercial arrangement and relationship between them. However, disputes arose between the parties and, therefore, the Appellant issued a notice of default dated 19.03.2019 to Respondent No. 1 to invoke the Arbitration Clause.

The present dispute focuses mainly on two Clauses of the Agreement, namely the Jurisdiction Clause (Clause 20.3) and the Arbitration Clause (Clause 20.4). The Jurisdiction Clause conferred the sole jurisdiction over disputes arising from the Agreement to the Courts at Hyderabad, whereas the Arbitration Clause declared the “Seat” of Arbitration to be Mumbai.

The Appellant filed a Petition for interim relief under Section 9 of Arbitration and the Conciliation Act, 1996 (hereinafter referred to as “the Act”), which was dismissed by the Single Judge Bench of the Bombay High Court (hereinafter referred to as “the HC”). The Single Judge cited the decision of the Hon’ble Supreme Court (hereinafter referred to as “the SC”) in Bharat Aluminum Company v Kaiser Aluminum Technical Services Inc (BALCO) (Civil Appeal No. 7019 of 2005) and held that by expressly conferring jurisdiction to the Courts at Hyderabad, the parties can no longer seek relief from the Courts at Mumbai. The HC further said that expression “Seat” must be read as “Venue “and, therefore, the Petition was liable to be dismissed. It is against this impugned Order of the Single Judge Bench of the HC that the present Appeal, before the Division Bench, was filed under Section 37 of the Act.

 

ISSUES

  1. Whether the Impugned Order is correct while relying upon Paragraph 96 of BALCO in order to recognize the concurrent jurisdiction under Section 2(1)(e) of the Act or whether the choice of Seat for Arbitration has the legal effect of providing exclusive jurisdiction to the Courts of that Seat?

 

  1. If the two Courts have concurrent jurisdiction, is the Order correct in holding that, as a matter of party autonomy, the parties have clearly expressed their choice of conferring jurisdiction to Courts at Hyderabad and the expression of ‘subject to’ must be read as ‘notwithstanding’ and the expression ‘Seat’ must be read as ‘Venue’?

 

 

CONTENTIONS OF THE PARTIES

The Appellant argued that, even if it is assumed by the law that the two Courts – that of Hyderabad and Mumbai, here – have concurrent jurisdiction as conferred by the Act, the two parties clearly intended that the Courts at Hyderabad in the Jurisdiction Clause would be subject to the Arbitration Clause which provides the Seat of the Arbitration to be at Mumbai. Therefore, it is necessary to note that, in case of any conflict, the Arbitration Clause will prevail.

The Appellant further argued that there was no need to read “subject to” as “notwithstanding” and that such interpretation would be against the will of the parties. The Appellant stated that the Jurisdiction Clause only covered disputes that were not covered by the Arbitration Clause, and since the current dispute falls within the ambit of the Arbitration Clause, the Seat of the Arbitration would clearly be Mumbai.

The expression ‘Seat’ could never be read as only ‘Venue’ specifically in order to maintain party autonomy.  The Appellants also placed heavy reliance upon the judgement in the case of BGS SGS Soma JV v NHPC Ltd (BGS) (Civil Appeal No. 9307 of 2019) in order to emphasize the importance of party autonomy and the intention of the parties.

The Respondents argued that the judgement in the BGS case did not have any correlation to the present dispute since the analysis of the aspect of ‘Seat’ was with reference and similar to providing exclusive jurisdiction and not considering the possibility of two Courts having concurrent jurisdiction.

The Respondent also argued that the Arbitration Clause should not be read as being a choice of ‘Seat‘ so as to displace the exclusive jurisdiction of the Courts of Hyderabad and, thus, the Impugned Order was correct in reading the expression ‘subject to‘ as ‘notwithstanding’.

The Promoters (Respondents No. 3-6) contended that when the Agreement was entered into, the interpretation of the word ‘Seat‘ was actually to be understood as ‘Venue’ and there was no clear-cut demarcation intended between the two. Therefore, the jurisdiction that was actually granted by the Jurisdiction Clause was exclusive and not subject to the Arbitration Clause.

 

DECISION AND FINDINGS

The HC noted that the BALCO Judgment has been interpreted by various Courts in order to recognize the distinction between ‘the Court of cause of action’ and ‘the Seat Court’.  It was also noted that the BALCO Judgement was further clarified by the BGS Judgement and, therefore, relevant while analyzing the case in context of the present dispute.

Further, while discussing Paragraph No. 96 of the BALCO Judgement, the HC said that if concurrent jurisdiction is given importance, party autonomy would suffer and the fact that the parties have chosen the Seat gives exclusive jurisdiction to the Courts at such chosen Seat when it comes to the entire Arbitral process.

The Court also observed that the judgement in the case of Antrix Corporation Ltd. vs Devas Multimedia Pvt. Ltd. (2018 SCC Online Del 9338), relied upon by the Single Judge was no longer good in law and was against the BALCO Judgement wherein the premise of the whole judgement was to harmoniously construe Section 20 (Place of Arbitration) and Section 2(1)(e) of the Act so as to broaden the scope of the term ‘Court’.

The HC also observed that any Application under Section 9 may be referred to a Court in whose jurisdiction any part of the cause of action arises, which includes a situation where the parties have either not explicitly agreed upon the Seat of arbitration or where they have agreed upon the ‘Seat’ as under Section 20(2). In both such situations, the first Application would be made to a Court and such a Court would have exclusive jurisdiction under Section 42 of the Act and govern the Arbitral proceedings.

With regards to the applicability of the BGS Judgement, the HC rejected the contention of Respondents No. 3-6 that the judgement was not applicable to the present dispute and that the same would only apply to an International Commercial Arbitration (“ICA”) seated in India. Instead, the HC held that the BGS Judgement would also be applicable in cases involving Domestic Arbitration without any discrimination.

The Court further observed that it the BGS Judgement clearly laid down that there was no concurrent jurisdiction under Section 2(1)(e) of the Act and as a matter of party autonomy, the parties are free to choose which Court must have exclusive jurisdiction with regards to the Arbitral proceedings. With regards to the choice of Seat, the HC explained that the choice of Seat is a manifestation of party autonomy itself and, therefore, conferring of exclusive jurisdiction has the same effect.

The HC also rejected the contention of Respondents No. 3-6 that, with regards to interpretation of the term ‘Seat’, the scope of the term was narrow in 2008 – at the time of entering into the Agreement – and stated that it is the intention of the parties and the law laid down in the BGS Judgement that must be given effect to and the legal position under the Act, even if the Agreement was pre-dated.

While interpreting the Clauses of the Agreement, the HC said that the Jurisdiction Clause clearly and unambiguously gave exclusive jurisdiction to the Courts at Hyderabad but the same is subject to’ the Arbitration Clause and not notwithstanding’ it. The HC held that the Impugned Order, in so far as it is related to the Agreement, was incorrect and cannot be sustained.

With reference to Issue 1 the Court said that in case of concurrent jurisdiction, the will of the parties is what gives exclusive jurisdiction to any Court. On the other hand, with regards to Issue 2, the Court held that the rules of interpretation apply to the Agreement and that ‘subject to’ cannot be interpreted to mean ‘notwithstanding’.

It was, thus, held that the Agreement gave exclusive jurisdiction to the two Courts situated at Mumbai and Hyderabad respectively and, further, that the jurisdiction of the Courts at Hyderabad was subject to the jurisdiction of the Courts in Mumbai, in particular with respect to matters covered and governed by the Arbitration Clause. Therefore, on the grounds that the Arbitration Clause would prevail over the Jurisdiction Clause, the HC set aside the Impugned Order and allowed the Section 9 Petition to proceed.

 

AMLEGALS REMARKS

The HC has analyzed at great length the various precedents relied upon by the parties and reiterated the judgement given by the SC in the BGS Case. The present judgement has only reinforced the concept that the Juridical Seat of the Arbitral proceedings must be in accordance with the accepted international practice and also dependent on the will and intention of the parties, which would vary from case to case.

The HC has also clarified its position on the clash between the terms ‘Seat’ and ‘Venue’ in observing that the term ‘Seat of Arbitration’ does not operate to confer exclusive jurisdiction to the concerned Court. Further, with regards to the BALCO Judgement, the HC observed that, when it comes to concurrent jurisdiction, the Seat Court and the Court wherein the cause of action has arisen do have concurrent jurisdiction. However, the HC has also laid emphasis on the fact that where the true jurisdiction of the Arbitration relief lies is dependent, ultimately, on the will of the parties, which is to be given the utmost importance.

This judgement comes as a landmark decision when it comes to ascertaining and reiterating the importance of party autonomy. The HC has clearly indicated that the Judiciary only has a supervisory role to play when it comes to matters pertaining to Arbitration. However, this judgement does leave some room for ambiguity as it relies heavily upon the interpretation and the terms used in the Contract and/or the Arbitration Clause and has the potential to open the floodgates for more litigation and create confusion, arising from the facts and circumstances of each case.

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For any query or feedback, please feel free to connect with rohit.lalwani@amlegals.com or vineeta.tekwani@amlegals.com.

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