In its 13 April 2021 decision in M/s Inox Renewables Ltd v Jayesh Electricals Ltd,(1) the Supreme Court considered the implications of parties changing the venue or place of arbitration by mutual agreement. The Supreme Court held that shifting the venue or place will also shift the seat of arbitration and that the courts of the new venue will have exclusive jurisdiction for all purposes under the Arbitration and Conciliation Act 1996.
On 28 January 2012 Gujarat Fluorochemicals Ltd (GFL) placed a purchase order on the respondent, Jayesh Electricals Ltd, for the manufacture and supply of power transformers. This purchase order contained an arbitration clause which, among other things, provided that the arbitration venue would be Jaipur and that the Rajasthan courts would have jurisdiction over the arbitration proceedings.
Through a business transfer agreement (BTA) dated 30 March 2012, GFL transferred its entire business to the appellant, Inox Renewables Ltd. Jayesh was not a party to the BTA. Vadodara was the seat of arbitration and exclusive jurisdiction was vested in the Vadodara courts as per the BTA.
Disputes arose between Inox and Jayesh under the purchase order and were referred to arbitration. On an application filed by Jayesh for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, the Gujarat High Court, by consent of the parties, appointed a sole arbitrator to resolve the disputes. The sole arbitrator passed an award dated 28 July 2018 in favour of Jayesh, which, among other things, noted as follows:
As per the arbitration agreement, the venue of arbitration was to be Jaipur. However, the parties have mutually agreed, irrespective of a specific clause as to the [venue, that the place] of arbitration would be at Ahmedabad and not at Jaipur. The proceedings, thus, have been conducted at Ahmedabad.
Aggrieved by the award, Inox filed an arbitration petition under Section 34 of the Arbitration and Conciliation Act before the Ahmedabad Commercial Court. By an order dated 25 April 2019, the Ahmedabad Commercial Court rejected the arbitration petition, accepting Jayesh's submission that under the BTA, the Vadodara courts had exclusive jurisdiction.
Inox challenged the 25 April 2019 order before the Gujarat High Court by way of a special civil application. As per an order dated 9 October 2019, the Gujarat High Court dismissed the special civil application, stating that under the purchase order, exclusive jurisdiction was vested in the Rajasthan courts and that, as per the arbitration clause in the purchase order, the appropriate court for the purpose of a challenge under Section 34 of the Arbitration and Conciliation Act was the Jaipur courts.
Inox submitted that while the Gujarat High Court had correctly held that the BTA was irrelevant, the judgment failed to consider that the award had specifically recorded that the arbitration venue had been shifted to Ahmedabad by the parties' consent.
Inox relied on the Supreme Court's judgment in BGS SGS Soma JV v NHPC Ltd ((2020) 4 SCC 234), which held that the arbitration venue will also be the seat of arbitration when it is mutually agreed between the contracting parties.
Jayesh contended that, as per the Supreme Court decision in Videocon Industries Limited v Union of India ((2011) 6 SCC 161), even if the place of arbitration is shifted by mutual agreement, it still requires a written agreement between the parties.
The arbitrator's finding that the venue had been shifted by mutual consent from Jaipur to Ahmedabad has reference only to Section 20(3) of the Arbitration and Conciliation Act as, in reality, Ahmedabad was a convenient place for the arbitration to take place, with the seat of the arbitration always remaining as Jaipur.
The Supreme Court, relying on its decisions in BGS SGS Soma JV and Indus Mobile Distribution (P) Ltd v Datawind Innovations Private Limited ((2017) 7 SCC 678), held that shifting the arbitration venue from Jaipur to Ahmedabad had also shifted the seat of arbitration. The court also observed that the Rajasthan courts had been vested with jurisdiction only because the seat of arbitration was to be Jaipur. Once the seat of arbitration had been replaced by mutual agreement with Ahmedabad, the Rajasthan courts had ceased to have jurisdiction; the exclusive jurisdiction was now vested in the Ahmedabad courts, given the change in the seat of arbitration.
The Supreme Court distinguished its decision from that in Videocon Industries Limited on the ground that the contract in that case had specifically required all amendments to be in writing and signed by the parties. However, in the absence of such a stipulation in the present case, the mutual consent with respect to Ahmedabad as the venue of arbitration, as recorded in the arbitration award, was sufficient to shift the seat to Ahmedabad.
The court reiterated that the choice of the seat of arbitration carries with it the choice of the courts of the seat. Accordingly, the change in the seat of arbitration to Ahmedabad was akin to an exclusive jurisdiction clause.
This is an important decision on the effect that a change of venue in arbitration proceedings has on the courts which have supervisory jurisdiction over said proceedings. The Supreme Court, having held that the courts at the new arbitration venue had exclusive jurisdiction over the arbitral proceedings, has once again reinforced the legal importance of the seat of arbitration – namely, choosing a seat amounts to choosing the courts of the seat for all purposes under the Arbitration and Conciliation Act, including interim orders and challenges to the award.
For further information on this topic please contact Nihal Shaikh or Shrikant Pillai at Clasis Law by telephone (+91 11 4213 0000) or email ([email protected] or [email protected]). The Clasis Law website can be accessed at www.clasislaw.com.
(1) In Civil Appeal 1556 of 2021, arising out of SLP (C) 29161 of 2019.