On 19 April 2017, a bench comprising of Justice Pinaki Chandra Ghosh and Justice Rohington Fali Nariman held that where an exclusive jurisdiction clause in an arbitration agreement states that the courts at a particular place alone would have jurisdiction in respect of disputes arising under the agreement, it would oust all other courts’ jurisdiction in the matter, even in a case where no part of the cause of action arises at that place.

Factual Background

  • The Respondent in the matter was engaged in the manufacture, marketing and distribution of mobile phones, tablets and other accessories and had its registered office at Amritsar in Punjab.
  • The Respondent was supplying goods to the Appellant at Chennai via New Delhi.
  • The Appellant expressed its desire to become the Retail Chain Partner of the Respondent following which, an agreement dated 25 October 2014 was entered between the two parties.
  • Clauses 18 and 19 of the aforesaid agreement  dealt with the dispute resolution mechanism between the parties. In terms thereof disputes between the parties were to be finally settled by arbitration conducted under the provisions of the Arbitration and Conciliation Act, 1996. Further it was categorically stated that such Arbitration was to be conducted in Mumbai.
  • Clause 19 also provided that all disputes arising out of, or in connection with the aforesaid Agreement would be subject to the exclusive jurisdiction of the Courts of Mumbai only.
  • A dispute arose between the parties and thereafter the Respondent invoked the arbitration clause and appointed a sole Arbitrator to which the Appellant objected in writing.
  • Two Petitions were then filed by the Respondents - one under Section 9 of the Act for certain interim reliefs, in which the Delhi High Court issued notice and restrained the Appellant from alienating, transferring or creating any third-party interests in respect of a certain property in Chennai vide interim order dated 22 September 2015. The second was a petition under Section 11 of the Act, for appointing an Arbitrator.

The Impugned Judgment

  • The Delhi High Court held that as no part of the cause of action arose in Mumbai only the Courts of Amritsar, Chennai and Delhi would have jurisdiction in the Matter and the Courts in Mumbai would have no jurisdiction over the matter.
  • It was also determined that the Delhi Courts being the first to be approached would have jurisdiction in the matter and confirmed the interim order dated 22 September 2015.

Decision of the Supreme Court

  • The Court referred to its earlier judgments in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552, Enercon (India) Ltd. v. Enercon Gmbh, (2014) 5 SCC 1 and Reliance Industries Ltd. v. Union of India, (2014) 7 SCC, 603 and opined that the Court has time and again reiterated that once a seat of Arbitration has been decided upon and fixed it is akin to a clause of exclusive jurisdiction. Thereafter the court (which has territorial jurisdiction) over the seat would exercise supervisory powers over the arbitration.
  • Further that the ‘juridical seat” is equivalent to the “legal place” of arbitration.
  • Under the law of Arbitration, the concept of “seat” has been developed to facilitate the exercise of the option by the parties, of choosing a neutral venue for Arbitration. It is neither necessary for any cause of action to have arisen at the neutral venue, nor would any of the provisions of Section 16 to 21 of the Code of Civil Procedure, 1908 be attracted.
  • It was thus held that in the present case, the minute the seat of arbitration was chosen as Mumbai, the Courts of Mumbai alone would have jurisdiction over all proceedings in the Arbitration to the exclusion of all other courts in the country. To this extent the impugned judgment was set aside.

Khaitan Comment

This judgment rendered by the Supreme Court provides clarity on an issue that often arises when an arbitration clause refers to one state/city as the seat of arbitration and parties thereafter approach the courts of other states/cities as per their convenience alone and against the terms of the contract. In light of the recent amendments to the Act, this judgment and the judgments referred to herein, parties will now select the seat of arbitration after due thought and deliberation and will be prevented from resorting to forum shopping, in derogation to contractually agreed terms.