India: Party Autonomy In Arbitration: Supreme Court Upholds Change Of Venue Permissible By Mutual Agreement

Introduction

In a recent judgment¹, the Supreme Court of India ("Supreme Court") opined that parties to an arbitration by mutual agreement can change the venue/ place of arbitration and that the new venue/ place of arbitration becomes the 'seat' of arbitration. Thus, when a place of arbitration is mutually chosen by parties, the courts at the agreed place, have exclusive jurisdiction to regulate the arbitration proceedings.

Facts

A purchase order was entered into between Gujarat Fluorochemicals Ltd. ("GFL") and Jayesh Electricals Ltd. ("JE"/ "Respondent") for the manufacture and supply of power transformers at wind farms. The arbitration clause in the purchase order provided for Jaipur to be the venue of arbitration with the Court in the State of Rajasthan having jurisdiction over the disputes arising out of the purchase order.

Thereafter, the entire business of GFL was sold to Inox Renewables ("Inox"/ "Appellant") on a slump sale basis. A Business Transfer Agreement ("BTA") was executed between Inox and GFL to which the Respondent was not a party. Under the BTA, Vadodara was designated as the seat of arbitration with the courts at Vadodara having exclusive jurisdiction over disputes under the BTA.

Disputes arose between Inox and JE and the High Court of Gujarat appointed a sole arbitrator. The sole arbitrator passed an award in favour of JE. A section 34 petition was filed by Inox in a commercial court in Ahmedabad ("Commercial Court") which was opposed by JE on the ground that as per the arbitration clause in the BTA, only the courts at Vadodara have jurisdiction to hear the challenge to the arbitration award. The Commercial Court at Ahmedabad, relying upon the BTA, accepted the case of JE and held that the courts at Vadodara alone would have exclusive jurisdiction.

Inox challenged the order of the Commercial Court² before the High Court at Ahmedabad ("High Court"). The High Court referred to the arbitration clause in the purchase order and held that even assuming that Ahmedabad would have jurisdiction, if one were to go by the arbitration clause in the purchase order, exclusive jurisdiction is vested in the courts at Rajasthan and hence the appropriate court would be the court at Jaipur. In spite of this observation, the High Court dismissed the challenge filed by Inox and upheld the Commercial Court's order. 

Arguments

Counsel for Inox argued that the BTA was irrelevant as it was not between Inox and JE. Relying upon the judgment BSG SGS Soma JV v. NHPC Limited³ ("BSG SGS Soma"), it was argued that the impugned judgment failed to consider that the arbitrator had recorded in the award that the venue/ place of arbitration was shifted by mutual consent to Ahmedabad, as a result of which the seat became Ahmedabad and hence the courts at Ahmedabad had exclusive jurisdiction.

Counsel for JE argued that even if the place of arbitration is shifted by mutual agreement, it requires a written agreement⁴. It was further argued that the purchase order explicitly states that the courts at Rajasthan would have jurisdiction and therefore the arbitration clause stating that the arbitration is to be held at Jaipur is independent. Further, counsel for JE argued that the shift of venue has reference to only Section 20(3) of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") as Ahmedabad was a convenient place for arbitration, with the seat continuing as Jaipur.

Supreme Court's Judgment

The Supreme Court observed that the sole arbitrator had recorded in his award that the parties have "mutually agreed, irrespective of a specific clause as to the [venue, that the place] of the arbitration would be at Ahmedabad and not at Jaipur." the parties have "shifted the venue/place of arbitration to Ahmedabad". The Supreme Court held that it is not necessary that the parties should have shifted the venue only by written agreement.

The Supreme Court relied upon BSG SGS Soma (which relies upon the judgment of Indus Mobile Distribution (P) Ltd.⁵) where it was held that whenever there is the 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.

Relying upon BSG SGS Soma, the Supreme Court held that the moment the seat is chosen as Ahmedabad, it is akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with the exclusive jurisdiction to deal with the arbitration. The Supreme Court further held that the aspect of concurrent jurisdiction as dealt with it the BALCO judgment⁶ does not arise in the present matter, as parties mutually agreed to substitute the venue at Jaipur, with Ahmedabad as the place/ seat of arbitration under Section 20(1) of the Arbitration Act. .

The Supreme Court observed that the reliance by JE's counsel on the judgment in Videocon⁷ is misplaced, as in that matter the arbitration clause explicitly provided that any amendment or modification to the contract will have to be written and signed by all parties. However, in the present matter, no such clause akin to the one in the Videocon matter was present.

The Supreme Court further held that the arbitration clause in the purchase order must be read as a whole and therefore it cannot be accepted that the jurisdiction of courts in Rajasthan is independent of the venue being at Jaipur. It was noted that in the purchase order, courts in Rajasthan had been vested with jurisdiction only because the seat of arbitration was Jaipur. Once the seat was changed by mutual agreement/consent, courts at Rajasthan were no longer vested with exclusive jurisdiction.

In conclusion, the Supreme Court vide this judgment has upheld the findings in BSG SGS Soma and has given priority to party autonomy and mutual consent, thereby doing away with the strict necessity of a written agreement.

Footnotes

1. Inox Renewables v. Jayesh Electricals Limited [Civil Appeal No. 1556 of 2021 decided on April 13, 2021]

2. Special Civil Application No. 9536 of 2021

3. (2020) 4 SCC 234

4. (2011) 6 SCC 161, (2017) 7 SCC 678

5. (2017) 7 SCC 678

6. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552

7. (2011) 6 SCC 161

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