The Supreme Court in the matter of Inox Renewables v. Jayesh Electricals Limited, [Civil Appeal No. 1556 of 2021, decided on April 13, 2021], has recently held that parties can shift/ change the venue/ place/ seat of arbitration by mutual agreement.
Brief facts:
On January 28, 2012, a purchase order was entered into between Messrs. Gujarat Fluorochemicals Limited (“GFL”) and Jayesh Electricals Limited (“JEL”), for the manufacture and supply of power transformers at wind farms. As per the arbitration clause, the venue was decided to be at Jaipur.
Subsequently, the entire business of GFL, by way of a business transfer agreement (“BTA”) between Inox Renewables (“Inox”) and GFL was transferred to Inox. JEL was not a party to this BTA. The BTA designated Vadodara as the seat of the arbitration between the parties, vesting the courts at Vadodara with exclusive jurisdiction qua disputes arising out of the agreement.
In September 2014, JEL filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) before the Gujarat High Court, to appoint an arbitrator under the purchase order. The Gujarat High Court appointed a retired High Court Judge as an arbitrator and on July 28, 2008, an arbitral award was passed in favor of JEL. This award was challenged by Inox before the Commercial Court at Ahmedabad, when JEL raised an objection, stating that as per the BTA, the courts of Vadodara have jurisdiction. Thus, vide an order dated April 25, 2019, the Commercial Court at Ahmedabad, ruled that the courts at Vadodara alone would have exclusive jurisdiction and the courts at Ahmedabad would not be vested with such jurisdiction.
Inox filed a Special Civil Application challenging the aforesaid order, wherein interestingly the Gujarat High Court observed that, in view of the arbitration clause in the purchase order dated January 28, 2012, only the courts at Rajasthan ought to have the jurisdiction in the matter. However, despite this finding, the Gujarat High Court found no error in the Commercial Court’s decision dated April 25, 2019 and dismissed the Special Civil Application.
Inox challenged the aforesaid order before the Apex Court. Inox argued that the Gujarat High Court has failed to consider that the arbitrator had recorded in the arbitral award that the venue/ place of arbitration was shifted by mutual consent to Ahmedabad, as a result of which, the seat of arbitration became Ahmedabad, resulting in courts at Ahmedabad having exclusive jurisdiction. In this regard, reliance was placed upon ratio laid by the Apex Court in the case of BGS SGS Soma J.V. v. NHPC Limited, [(2020) 4 SCC 234] (“BGS SGS”).
JEL argued that if the place of arbitration is shifted by mutual agreement, it cannot be so done without a written agreement between the parties. In this regard, it placed reliance upon the ratio laid down in the case of Videocon Industries Limited v. Union of India [(2011) 6 SCC 161] (“Videocon Industries”). The respondent also argued that, the arbitrator’s finding that the venue was shifted by mutual consent from Jaipur to Ahmedabad has reference only to Section 20(3) of the Act as Ahmedabad was in reality a convenient place for the arbitration to take place and the seat of the arbitration always remained at Jaipur.
Issue involved in the Appeal:
The issue which arose for consideration before the Apex Court was whether parties can shift/ change the ‘venue/ place of arbitration' by mutual agreement?
Decision by the Court:
The Supreme Court, in the instance case, placed reliance on its decision in the case of BGS SGS (supra), wherein it had held that:
“…. whenever there is a designation of a place of arbitration in an arbitration clause as being the “venue” of the arbitration proceedings, the expression, “arbitration proceedings” would make it clear that the “venue” is really the “seat” of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place.” (emphasis supplied)
In the light of the aforesaid, the Apex Court, noted that, since by mutual agreement, the parties have specifically shifted the venue/ place of arbitration from Jaipur to Ahmedabad (as recorded by the arbitrator in his award dated July 28, 2008) and the arbitral proceedings were also conducted at Ahmedabad, the city of Ahmedabad would be construed as the seat of arbitration. Further, the Court also observed that, the “venue” being shifted from Jaipur to Ahmedabad amounted to shifting of the venue/ place of arbitration as per Section 20(1) of the Act and not, with respect to Section 20(3) of the Act since, it has been made clear that Jaipur does not constitute the seat of the arbitration and Ahmedabad is now the seat designated by the parties and not a convenient venue to hold meetings.
The Apex Court thus, held that, such a shift/ change in the venue/ place/ seat of arbitration can be made vide mutual agreement recorded by the arbitrator in his award, even in the absence of an agreement expressed in writing between the parties.
Moreover, with respect to the issue of absence of an express agreement in writing between the parties to shift the venue/ place of arbitration, the Court distinguished the judgment rendered in the case of Videocon Industries by highlighting that in the case of Videocon Industries, the clause comprising the ‘Venue and Law of Arbitration Agreement’ also consisted of an ‘amendment clause’ which warranted any amendment to the ‘Venue and Law of Arbitration Agreement’ to be executed only through an instrument in writing signed by all the parties. However, the Supreme Court noted that, in the instant case, the arbitration clause between the parties, does not comprise any such amendment clause and hence, the judgment of Videocon Industries shall have no application to the facts of the instant case.
Further, the Supreme Court also reiterated that, the moment a seat is chosen, it is akin to an exclusive jurisdiction clause and hence, the parties by choosing Ahmedabad as the ‘seat’ of arbitration by mutual agreement, have vested the courts at “Ahmedabad” with exclusive jurisdiction.
The Supreme Court thus, directed the parties to the courts at Ahmedabad for resolution of their dispute under Section 34 of the Act.
Please find a copy of the judgment here.
This update has been contributed by Ranjit Shetty (Senior Partner) and Vatsala Pant (Associate).
Argus Knowledge Centre is now on WhatsApp! Send us a message on +91 8433523504 to receive updates from our Knowledge Centre.
7A, 7th Floor, Tower C, Max House,
Okhla Industrial Area, Phase 3,
New Delhi – 110020
The rules of the Bar Council of India do not permit advocates to solicit work or advertise in any manner. This website has been created only for informational purposes and is not intended to constitute solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work in any manner. By clicking on 'Agree' below, you acknowledge and confirm the following:
a) there has been no solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work through this website;
b) you are desirous of obtaining further information about us on your own accord and for your use;
c) no information or material provided on this website is to be construed as a legal opinion and use of this website will not create any lawyer-client relationship;
d) while reasonable care has been taken in ensuring the accuracy of the contents of the website, Argus Partners shall not be responsible for the results of any actions taken on the basis of information provided in this website or for any error or omission in the website; and
e) in cases where the user has any legal issues, the user must seek independent legal advice.