The Dichotomy of Jurisdiction When Exclusive Jurisdiction Is Different from The Seat of Arbitration

[This guest post is authored by Shinjani Agnihotri, a fourth-year student at the Institute of Law, Nirma University]

The Dichotomy of Jurisdiction When Exclusive Jurisdiction Is Different from The Seat of Arbitration

On 29th January, 2021 the Hon’ble Bombay High Court through its division bench rendered a decision in Aniket SA Investment LLC v. Janapriya Engineers Syndicate Pvt Ltd (Aniket SA) on the issue of jurisdiction when there is a clause in the arbitration agreement conferring exclusive jurisdiction to one place and designating seat of arbitration to another. Another issue that was addressed by the court was whether the “venue” can be regarded “seat”. This blog analyses the reasoning provided by the division bench while referring to the principle developed in Shashoua v. Sharma (Shashoua Principle) in arriving to the conclusion.

Background of the case

The appellant (original petitioner) filed an application before single judge of Bombay High Court (High Court) seeking certain reliefs under section 9 of the Arbitration and Conciliation Act 1996 (Arbitration act). The issue was whether courts at Mumbai could entertain a section 9 Petition.

The parties’ agreement stated that the seat of arbitration will be Mumbai, but conferred exclusive jurisdiction on courts at Hyderabad. The relevant clauses are reproduced below:

20.3 Governing Law and Jurisdiction

This Agreement and the rights and obligations of the Parties hereunder shall be construed in accordance with and be governed by the Laws of India. Subject to the provisions of Article 20.4, the courts of Hyderabad shall have exclusive jurisdiction to try and entertain any disputes arising out of this Agreement.

20.4 Arbitration

20.4.2The arbitration shall be conducted as follows:

  1. The parties shall mutually appoint a sole arbitrator to resolve the aforesaid disputes or differences. In the event that the parties fail to mutually appoint a sole arbitrator within 15 days, the Promoter and the Investor shall appoint one arbitrator each and the two arbitrators so appointed shall appoint the presiding arbitrator.
  2. All proceedings in any such arbitration shall be conducted in English.
  3. The seat of the arbitration proceedings shall be Mumbai.” (emphasis added)

Here, the exclusive jurisdiction clause was ‘subject to’ the seat of arbitration clause. The petitioner relied on clause 20.4 to argue that the seat of arbitration was Mumbai. The respondents contented that courts at Hyderabad would have jurisdiction because of exclusive jurisdiction clause (20.3) and since cause of action arose there.

A single judge of High Court (Single Judge) ruled in favour of respondent and held that exclusive jurisdiction clause would prevail over the seat clause. It was the parties’ choice to confer jurisdiction exclusively on courts at Hyderabad and party autonomy is the underlying principle of arbitration. Aggrieved, the petitioner filed an appeal before a division bench (i.e. two judges) of the High Court [Division Bench].

Decision of the High Court

The Supreme Court in paragraph 96 of the Bharat Aluminium Co v. Kaiser Aluminium Techincal (“BALCO”)case has stated the position that there might be concurrent jurisdiction for arbitral proceedings to courts, where (a) cause of action arose; and (b) the seat of arbitration is designated.

However, three-judge benches of Supreme Court in BGS SGS SOMA JV v. NHPC Ltd (“BGS SGS”) and Indus Mobile Private Limited v. Datawind Innovations Private Limited (“Indus Mobile”) held that the parties’ choice of a seat carries within it their decision to give exclusive jurisdiction to court where that seat is situated i.e., choosing a ‘seat’ is akin to giving exclusive jurisdiction.

The Single Judge in Aniket SA (author to confirm) relied on the decisions of Union of India v. Hardy Exploration and Production (“Hardy Exploration”) and Antrix Corporation v. Devas Multimedia Pvt Ltd. (“Antrix”), which gave effect to only paragraph 96 of BALCO to affirm concurrent jurisdiction of courts in Hyderabad and Mumbai (author to confirm).

In the Aniket SA, the Division Bench stated that decisions of various High Courts giving effect to only para 96 of the BALCO judgment is the incorrect approach. The subsequent paragraphs of BALCO state the position that ‘seat’ amounts to conferment of exclusive jurisdiction to the court where the seat is situated. A conjoint reading of Sec 2(1)(e) and Sec 20 of the Arbitration Act would follow this interpretation that the court where the seat is situated would become the subject-matter court which will have ordinary original civil jurisdiction to supervise the arbitral proceedings.

Ruling of the Court

The Single Judge disregarded Indus Mobile, stating that both the seat of arbitration clause and exclusive jurisdiction clause conferred jurisdiction to one place in that case. Further, it was observed that between two concurrent jurisdictions if parties have expressly submitted jurisdiction to the court of cause of action exclusively, then the same would be valid under section 20(1) of the Arbitration Act. This was strengthened by the reasoning that even under section 28 of the Indian Contract Act 1872, exclusive jurisdiction by way of agreement would mean that in case of concurrent jurisdictions the parties may submit to jurisdiction of one court to the exclusion of the others. Thus, in order to fully bring out the intention of the parties and give effect to both the clauses, learned single judge interpreted ‘subject to’ as ‘notwithstanding’ to mean that: “Notwithstanding the seat of arbitration clause, exclusive jurisdiction would be with Courts at Hyderabad.”

However, the approach to gather the intention of the parties should be to refer to plain meaning of words used in arbitration agreement. The clause which conferred the jurisdiction to courts at Hyderabad is ‘subject to’ the clause choosing Mumbai as seat of the arbitration proceedings. It is clear, therefore, that the parties intended to confer exclusive jurisdiction on courts at Mumbai insofar as arbitration proceedings were concerned.

Further, the Single Judge conflated “seat” with “venue” while interpreting the seat clause in the agreement to conclude that the actual intention of parties was to designate Mumbai as the venue rather than seat. The Supreme Court in BGS SGS stated that even where parties have designated a place as the “venue of arbitration proceedings”, it would signify that not only one or two hearings but the whole of the arbitration proceeding will be conducted at that place. Hence, that venue will be seat.

It relied on the Shashoua Principle which states that “When there is an explicit designation of the arbitration venue and no other place designated as the location, together with a supranational body of rules governing the arbitration and no other significant contrary indicia, the inference is that the venue is designated as the juridical seat of arbitration proceedings”.

However, in Hardy Exploration, it was stated that a venue cannot ipso facto become seat of arbitration unless something indicative is added to that effect. The two decisions created a gap since Hardy Exploration did not specify what kind of expression would elevate the status of a venue to qualify as the seat. The present case satisfied the test laid down in BGS SGS because the agreement explicitly used the phrase “seat of arbitration proceeding”. This left no other requirement for making Mumbai the juridical seat, and not merely a venue, of arbitration.

The respondents in Aniket SA argued that their agreement was formulated in 2008. The understanding that ‘seat’ confers exclusive jurisdiction didn’t come until BGS SGS in 2019. The Division Bench held that a clear choice of words choosing Mumbai as the seat would confer jurisdiction to Mumbai courts irrespective of when the agreement was formulated. This interpretation prevents future issues regarding any claim of exemption from applicability of proper interpretation of seat on similar grounds.  

The parties are free to amend their agreement if they don’t wish to choose a seat or confer jurisdiction to some other place however claiming exemption because the agreement was formulated before interpretation of seat came into effect is not a possibility anymore.

Concluding remarks

Paragraph 96 of BALCO implies that two or more courts may rightly exercise concurrent jurisdiction over arbitration. One may be on the basis of ‘cause of action’ and the other based on location of the ‘seat’. However, with its subsequent judgments of BGS SGS and Indus Mobile, the Supreme Court has refined this understanding to mean that the exclusive jurisdiction will lie with the court where the seat is situated. While BGS SOMA declared Hardy Exploration incorrect, it had no effect because both the decisions were rendered by three-judge bench. The present case followed the test and helped set a precedent. However, it is weak and this issue needs to be settled by a bench larger than BALCO.

The conclusion in Aniket SA was well-founded. However, instead of disregarding para 96 of the BALCO altogether, the Division Bench could perhaps have construed the findings in BALCO with the subsequent interpretations in Indus Mobile and BGS Soma to conclude that even if there are concurrent jurisdictions, the one that was expressly chosen by the parties (by way of designating seat) would be the final one to supervise arbitral proceedings and the conclusion would have remained the same i.e. that the seat clause would take precedence over the exclusive jurisdiction clause.

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