Inox Renewables v. Jayesh Electricals: A Renewed Tussle between Seat and Venue

[This guest post is authored by Sumit Kulkarni and Mitali Ingawale. They are final-year LL.B students at ILS Law College, Pune]

Inox Renewables v. Jayesh Electricals: A Renewed Tussle between Seat and Venue

On 13 April 2021, the Supreme Court in M/S. Inox Renewables Ltd. v. Jayesh Electricals Ltd.,(‘Inox Renewables’) ruled that, in the prevailing circumstances, a change in the “venue” of arbitration by mutual consent was tantamount to a change in the juridical seat of arbitration.

The seemingly never-ending saga of the seat-venue debate has thus taken an unexpected turn, further blurring the line between the two.

Factual Matrix

Gujarat Chemicals Limited (‘GCL’) and Jayesh Electricals Limited (‘JEL’) entered into an Agreement cum Purchase Order for manufacture and supply of power transformers to wind farms. The Purchase Order contained an arbitration clause which fixed Jaipur as the venue of arbitration. If  the award were to be unacceptable to either party, it was agreed that the parties could seek remedies under Indian law; and that the jurisdiction for the same will be with the courts of Rajasthan.

During the pendency of the said Agreement, a Business Transfer Agreement (BTA) was entered into between GCL and Inox Renewables Limited (‘Inox’) through which the entire business of GCL was transferred to Inox in a slump sale. The BTA also contained an arbitration clause which fixed Vadodara as the seat of Arbitration. JEL was not a party to the BTA.

Subsequently, disputes arose between JEL and Inox with regards to the Purchase Order. JEL filed an application in the Gujarat High Court for appointment of an Arbitrator under section 11 of the Arbitration and Conciliation Act, 1996 (‘Act’). A sole arbitrator was appointed by the court based on a joint submission of both parties. 

The Arbitrator passed an award in favour of JEL, which was challenged by Inox in the Commercial Court of Ahmedabad under section 34 of the Act. The Court dismissed the application for lack of jurisdiction and held that the proper court to file the application was Vadodara.

Inox’s appeal against the said order in the Gujarat High Court was also dismissed for lack of jurisdiction. It was held that Jaipur would be the proper place to file the said application owing to the ‘exclusive jurisdiction clause’.

Subsequently, Inox approached the Supreme Court with a special leave petition.

Ruling of the Court

In the Supreme Court (‘Court’), JEL relying on the earlier judgements given by the Court in Videocon Industries Limited v. Union of India (Videocon) and Indus Mobile Distribution Private Limited vs. Datawind Innovations Private Limited (Indus Mobile) contended that the clauses in the Purchase Order, fixing the seat and venue of arbitration were independent of each other. Thus, a change in venue by mutual consent of the parties would not automatically imply the consent of parties to also change the seat of arbitration, in absence of a written agreement for the same.

However, the Court heavily relied on its earlier judgement in BGS SGS SOMA JV vs. NHPC Limited (‘BGS Soma’) and rejected the above contentions.  It referred to the arbitral award and observed that the venue of arbitration was specifically shifted to Gujarat by mutual consent of the parties. It held that the Purchase Order must be read as a whole. The clauses of seat and venue must be read together, as the Courts of Rajasthan are vested with exclusive jurisdiction only because the parties wanted Jaipur to be the venue.

Hence, the change in venue to Ahmedabad, as recorded by the arbitrator, divested the exclusive jurisdiction from the Courts of Rajasthan and placed it in the Courts of Ahmedabad. Thus, the Court, only on the basis of the above reasoning concluded that a change in venue by mutual consent of the parties was akin to shifting the seat of arbitration to the new venue.

Comment

The Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., had clarified that the ‘seat’ of arbitration is the centre of gravity of arbitration, the place where the arbitration is anchored. The ‘venue’ is merely a geographical location where the arbitration can be conducted. The venue can be changed according to the convenience of the parties, but the seat remains fixed.

In Indus Mobile Distribution Private Limited v Datawind Innovations Private Limited, the Supreme Court had held that in an arbitration agreement, the moment a seat is designated it is akin to an ‘exclusive jurisdiction clause’. Once a court has been vested with exclusive jurisdiction, it will oust the jurisdiction of all the other courts including those where the cause of action arose.

The BGS Soma Test

The Supreme Court, in BGS Soma was concerned with the issue of ascertaining the seat of arbitration in an agreement stipulating, “Arbitration Proceedings shall be held at New Delhi/Faridabad,.….”, prescribed the following test to determine when a venue can be considered as the seat of arbitration.

  1. If in an arbitration agreement a named place is fixed as the “venue” of “arbitration proceedings”, it signifies the intention of the parties to anchor the entire arbitration proceedings including the making of an award to the chosen place and the same will be considered as the ‘seat’ of arbitration.
  2. If an arbitration clause contains language such as “the tribunals are to meet or have witnesses, experts or the parties” at a “venue”, the same shows the intention of the parties to treat the chosen place merely as the venue and not as the seat of arbitration.
  3. However, if there are “significant contrary indicia” to suggest that the place named as the venue in the agreement was not intended to be the seat of arbitration, the above test would not apply.

The arbitration clause in question with relation to the Purchase Order stipulated that,

“The venue of the arbitration shall be Jaipur.

In the event of arbitrators’ award being not acceptable to either party, the parties shall be free to seek lawful remedies under the law of India and the jurisdiction for the same shall be courts in the State of Rajasthan.

Furthermore, when the venue of the arbitration was changed from Jaipur to Ahmedabad, the sole arbitrator in the award recorded, “…… 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…….”

The following ‘significant contrary indicia’  ascertain the intention of the parties to retain the seat of arbitration as Rajasthan, irrespective of the change in venue to Ahmedabad.

  1. Clause 8.5 of the Purchase Order which vests ‘exclusive jurisdiction’ to the courts in Rajasthan;
  2. The individual and distinct meanings given in the clause for seat and venue; and
  3. The award given by the sole arbitrator which indicates that the mutual agreement between the parties was only for a specific change in venue and would not disturb the seat of arbitration.

Surprisingly, the Court did not arrive at its conclusion of deciphering the intention of parties to change the seat of arbitration from the S.11 petition filed by JEL in the Gujarat High Court. Instead, the Court inferred it solely on the basis of mutual consent of the parties as recorded in the award.

Flawed Application of the BGS Soma Test

Firstly, the BGS Soma test is applicable only when the arbitration agreement is silent or unclear on the aspect of the seat of arbitration. In the instant case, the Purchase Order provides an ‘exclusive jurisdiction clause’ which clearly fixes the seat of arbitration as Rajasthan, making the application of this test to it unnecessary and irrelevant. 

Secondly, even assuming that the test is applicable to the Purchase Order, there are ‘significant contrary indicia’ that determine the parties intended for the seat of arbitration to remain as Rajasthan.

Thus, it is submitted that the Court’s application of the BGS Soma test was flawed. This is mainly due to the Court’s disregard of the ‘exclusive jurisdiction clause’.

The Proper Reasoning

According to the law laid down in the case of  Brahmani River Pellets Limited v. Kamachi Industries Limited, the intention of the parties in the instant case to shift the seat from Jaipur to Ahmedabad can be sufficiently inferred from:

  1. JEL’s application to Gujarat High Court under Section 11 of the Act for appointment of an arbitrator and;
  2. subsequent appointment of the sole arbitrator by the Gujarat High Court on the joint submission of both the parties.

Thus, it is submitted that even though the conclusion of the court in the instant case is proper, the reasoning for inferring the same is flawed. This sets a precedent which might lead to the courts disregarding the intention of the parties and misdirecting the evolving jurisprudence on the question of seat and venue.

Concluding Remarks

As a result of the precedent set by this judgement, it is feared that, henceforth, a change in venue by the parties for the sake of convenience or otherwise will also be considered as an implicit assumption for the change of the seat of arbitration.

For parties who merely wish to change the venue and not the seat, it will now be imperative to carefully draft the written agreement for the same and expressly mention that the said agreement is only for the change in venue and the seat will remain the same.

 

 

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