Supreme Court on Seat vs. Venue Conundrum in Domestic Arbitration: More Confusion than Clarity?

[By Mreganka Kukreja]

The author is a final year student of Symbiosis Law Schoole, Pune and can be reached at mreganka.kukreja@symlaw.ac.in.

Introduction

The seemingly unending saga of the seat versus venue debate seems to have taken an interesting turn in light of the Supreme Court’s recent decision in the case of Brahmani River Pellets Limited v. Kamachi Industries Limited. [i] In this judgment, the Division Bench revisited the applicability of the simple yet intriguing principles surrounding the seat and venue in the context of domestic arbitration, and thus sparked controversy. Through this blog post, the author discusses the background of the case; the key arguments of the parties; the decision of the court and the implications of the judgment on the Indian arbitration regime.

Background

Brahmani River Pellets Limited (hereinafter “Appellant”) entered into an agreement with Kamachi Industries Limited (hereinafter “Respondent”) for sale of iron ore pellets, which were required to be loaded from Bhubaneshwar, Odisha and were destined for the port in Chennai, Tamil Nadu. A dispute arose between the parties regarding the price and payment terms and the Appellant refused to deliver the goods to the Respondent. Accordingly, the Respondent invoked the arbitration clause under the agreement which provided that the arbitration shall take place under the Arbitration and Conciliation Act, 1996 (hereinafter “Arbitration Act”) and the venue of such arbitration shall be Bhubaneswar.

The Appellant did not agree for the appointment of the arbitrator. Hence, the Respondent filed a petition under Section 11(6) of the Arbitration Act before the Madras High Court for appointment of an arbitrator. The Madras High Court vide its order appointed a sole arbitrator by holding that in absence of any express arbitration clause excluding the jurisdiction of other courts, both the Madras High Court and the Orissa High Court would have jurisdiction over the arbitration proceedings. Challenging the impugned order, the Appellant preferred an appeal before Division Bench of the Supreme Court.

Issue for determination

Whether the Madras High Court could exercise jurisdiction under Section 11(6) of the Arbitration Act even though the agreement contains the clause that the venue of arbitration shall be Bhubaneswar?

Key Arguments of the Parties

The Appellant contested the impugned order in a two-pronged manner- First, since the parties had agreed with Odisha as the venue for arbitration, it acquired the status of a juridical seat. Second, as observed in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited and others [ii] (hereinafter “Indus Mobile Case”), once the parties agree on the seat of arbitration in domestic arbitration, the said court acquires the exclusive jurisdiction. The Appellant, therefore, submitted that Odisha High Court, being the juridical seat, holds exclusive jurisdiction in the matter and the decision of Madras High Court must be set aside.

In response to the assertions of the Appellant, the Respondent argued that- first, since the cause of action arose at both the places i.e. Bhubaneswar and Chennai, both the Madras High Court and the Odisha High Court would have supervisory jurisdiction over the matter. Second, reliance was placed on the decision of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. [iii] (hereinafter “BALCO”) to argue that mere mention of the venue as a place of arbitration would not confer exclusive jurisdiction upon that court. There should be other concomitant circumstances, like the use of words “alone”, “exclusive”, “only” etc. to indicate the exclusive jurisdiction of the court over the matter. The Respondent, therefore, submitted that Madras High Court could also exercise jurisdiction over the matter.

Decision

[A.] Party autonomy to choose the exclusive jurisdiction of the court

The Division Bench observed that Section 2(1)(e) of the Arbitration Act defines the court which would have jurisdiction to decide the questions forming the subject-matter of arbitration, and if such subject-matter is situated within the arbitral jurisdiction of two or more courts, the parties could agree to confine the jurisdiction in one of the competent courts. In this regard, Section 2(1)(e) must be read with Section 20 of the Arbitration Act which gave recognition to the autonomy of the parties as to the place of arbitration. It was noted that such party autonomy has to be construed in the context of parties choosing a court which has jurisdiction out of two or more competent courts having jurisdiction. The Division Bench then discussed the Supreme Court’s decision in Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. [iv] (“Swastik Gases”) In this case, the arbitration clause provided that the agreement shall be subject to the jurisdiction of the courts at Kolkata. However, the appellant filed an application before the Rajasthan High Court. In holding that Calcutta High Court shall have exclusive jurisdiction, it was observed that words like “alone”, “only”, “exclusive” do not make any material difference as to the intention of the parties to choose exclusive jurisdiction. The same was also not hit by Section 23 of the Indian Contract Act,1882 as it was not forbidden by law nor was it against public policy. Therefore, in the present case, since the parties agreed to Bhubaneshwar as the venue of arbitration, the parties intended to exclude the jurisdiction of all other courts.

[B.] Juridical seat designates the exclusive jurisdiction of the court 

The court in the instant case discussed the Indus Mobiles case in which it was laid down that under Section 20(1) and 20(2) of the Arbitration Act, where the word “place” is used, it refers to “juridical seat” and the moment the seat is designated, it is akin to an exclusive jurisdiction clause. Therefore, on the designation of Bhubaneshwar as the venue of arbitration, a status of the seat was acquired and thus, the Odisha High Court was vested with the exclusive jurisdiction for regulating the arbitral proceedings.

Given above, the Supreme Court held that when the parties had agreed to have the venue of arbitration at Bhubaneswar, the Madras High Court erred in assuming the jurisdiction under Section 11(6) of the Arbitration Act. Therefore, the impugned order was set aside.

Concluding Comments

[A.] Questionable interpretation of the precedents  

To arrive at the present decision, the court placed reliance on two key decisions i.e. Indus Mobile Case and Swastik Gases. While the Indus Mobiles Case discussed Section 20 of the Arbitration Act, and provided that under clause (1) and (2) of the Section, the usage of the term ‘place’ depicts the seat of the arbitration, and while under Section 20(3) of the Act, place means a mere venue for administrative purposes. In the present judgment, the court failed to substantiate how the present circumstances fall in the former category and justifies designation of Odisha High Court as the juridical seat. Moreover, in Swastik Gases, the Supreme Court had granted the exclusive jurisdiction status on completely different reasoning i.e. by placing reliance on the maxim expressio unius est exclusio alterius which means that expression of one is the exclusion of another; the court had not delved into the question of demarcation of seat and venue. In the present judgment, the Division Bench borrowed the findings of the Swastik Gases judgment, however, it used it in the context of the seat vs venue conundrum.

[B.] Blurred distinction between the concepts of seat and venue

Time and again the Supreme Court has endeavored to make a strict differentiation between the concepts of seat and venue. [v] However, the court failed to appreciate these judgments in the present decision. Admittedly, a plethora of such cases are related to international commercial arbitration. The present judgment, unfortunately, makes no attempt to clarify any difference in the application of seat and venue concepts in domestic arbitration vis-à-vis international commercial arbitration. As it may seem, a clause which prima facie depicts only the venue of the arbitration has assumed the status of juridical seat without a justifiable explanation. Therefore, the case at hand not only blurs the distinction of seat and venue in domestic arbitration, but also holds potential to be misapplied in the cases of international commercial arbitration.

In view of above, Supreme Court’s reasoning could be very problematic. While the conclusion arrived at may be correct i.e. Odisha High Court should have had jurisdiction over the matter, the reasoning employed for the same is worrisome. In the alternative, the court could have concluded by ascertaining the “closest and most intimate connection” test [vi] by considering a variety of facts such as the presence of the seller within Odisha, the port of performance, payment to be made in Bhubaneshwar and the like. Safe is to state that the seat and venue puzzle is far from solved.

References

[i] 2019 SCC OnLine SC 929

[ii] 2017 7 SCC 678

[iii] 2012 9 SCC 552

[iv] 2013 9 SCC 32

[v] Reliance Industries Limited and another v. Union of India (2014) 7 SCC 603; Union of India v. Hardy Exploration and Production (India) Inc. (2018) 7 SCC 374

[vi] Enercon (India) Limited and others v. Enercon GMBH and another (2014) 5 SCC 1

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