Domestic arbitration: who's 'SEAT' is it anyway?

It was not long ago when the larger bench of Hon’ble Supreme Court settled the prolonged tussle between the word ‘seat’ and ‘venue/place’ mentioned in an arbitration agreement, in respect of international commercial arbitration, in the case of Union of India vs. Hardey Exploration and Production (India) Inc. (Civil Appeal No. 4628 / 2018). In this case it was held that arbitration clause specifying the ‘venue’ has to be read in a holistic manner so as to determine the jurisdiction of the Court. Further, Apex Court held that the word ‘venue/place’ adopts the connotation of the word ‘seat’ by stating that “When only the term 'place' is stated or mentioned and no other condition is postulated, it is equivalent to 'seat' and that finalises the facet of jurisdiction. But if a condition precedent is attached to the term 'place', the said condition has to be satisfied so that the place can become equivalent to seat.”

An issue on the similar lines cropped up in respect of the domestic arbitration. The issue relates to which ‘court’ would exercise jurisdiction when the ‘venue’ is specified in the arbitration agreement. This issue came for consideration before the Hon’ble Supreme Court in Brahmani River Pellets v. Kamachi Industries Ltd. Civil Appeal No. 5850 / 2019 (“Case”). Brahmani River Pellets Ltd. (“Appellant”) preferred an appeal against the impugned order of the Hon’ble Madras High Court wherein Kamachi Industries Ltd.’s (“Respondent”) petition for appointment of arbitrator was allowed and a former Madras High Court Judge was appointed as the sole Arbitrator to adjudicate the disputes between the parties. The Hon’ble Supreme Court passed its judgment on July 25, 2019.

In this Case, certain disputes arose between the Appellant and Respondent (“Parties”) and the Respondent invoked the arbitration clause under the agreement. However, the Appellant did not agree on the appointment of the arbitrator. Clause 18 i.e. arbitration clause of the agreement provided that the ‘venue’ of arbitration shall be Bhubaneswar. The Respondent filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) before the Madras High Court for appointment of sole arbitrator. The Appellant contested that the petition before Madras High Court stating it to be not maintainable inter alia Madras High Court lacks jurisdiction as the arbitration clause confers jurisdiction on the Orissa High Court as the Parties have mutually agreed on the ‘venue’ of the Arbitration to be at Bhubaneswar. The Madras High Court rejected the Appellant’s contention and held that the mere designation of ‘seat’ would not oust the jurisdiction of other courts than the seat of arbitration and in absence of any express clause excluding jurisdiction of other courts, both Orissa High Court and Madras High Court would have such jurisdiction.

Setting aside the impugned order of the Madras High Court, Hon’ble Supreme Court relying on its judgment passed in Swastik Gases (P) Ltd. v. India Oil Corporation [(2013) 9 SCC 32] held that non-use of words like ‘exclusive jurisdiction’, ‘only’, ‘exclusive’, ‘alone’ in the arbitration clause is not decisive and does not make any material difference. Further, where the contract specifies the jurisdiction of the court at a particular place, then only that court will have the jurisdiction to deal with the matter as Parties intended to exclude all other courts. Hence, in the present Case, Bhubaneswar would be become the juridical seat of the Arbitration and as such Orissa High Court will have the jurisdiction to the entertain petition under section 11(6) of the Arbitration Act..

The Madras High Court in order to determine the jurisdiction applied the principle as applicable to the court relating suits governed under the Code of Civil Procedure, 1908 (“CPC”) and per se definitely erred in assuming that it has jurisdiction to entertain petition(s) under the Arbitration Act. This position was already made clear in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. &Ors. [(2017) 7 SCC 678] wherein the Hon’ble Supreme Court had held that unlike CPC, under the Arbitration Act, when parties have chosen a ‘seat’, court of that place shall have jurisdiction over the arbitral proceedings arising out the agreement between the parties, irrespective of whether the ‘seat’ of arbitration does or does not form any part of cause of action.

Now, the law seems to be settled as to which court would have the jurisdiction in respect of the arbitral proceedings. The Hon’ble Supreme Court, through this Case has left it at the discretion of the parties to the Arbitration to confer jurisdiction of particular court upon itself for the purpose of regulating the arbitral proceeding by deciding the ‘seat’/’place’ of their choice and convenience.

This Article is by Abhishek Naik, Advocate at Agarwal Jetley & Co., Advocates & Solicitors. Contact: Email: abhisheknaik@agarwaljetley.com or Mob: (+91) - 976612121