Economics & Corporate Law

Too Many Courts Spoil the Broth: Tracing Jurisdictional Conflicts in Indian Arbitration

Prerona Banerjee & Rajvansh Singh

Arbitration Image

This article analyses the current position of law on possible jurisdictional conflicts in Indian arbitration. To that end, it analyses the legal effect of choosing a ‘venue’, and undertakes a jurisprudential study of recent cases related to the ‘venue’ versus ‘seat’ issue at the High Court and Supreme Court levels, to ultimately demonstrate why continued uncertainty on this point of arbitration law defeats the purpose of opting for arbitration itself. 

Introduction

As per Section 2(1)(e) of the Arbitration and Conciliation Act, 1996 (‘Act’), the ‘court’ that supervises and supports the arbitration proceeding is determined as per the principles contained in the Code of Civil Procedure, 1908 (‘CPC’). The CPC vests jurisdiction with multiple courts based on the cause of action and residence of the defendant. This leads to a peculiar situation where more than one court attains territorial jurisdiction over the supervision and support of arbitral proceedings, thereby increasing the chances of forum shopping. Often, parties, anticipating this risk, attempt to contractually limit this jurisdiction to one court in order to supervise and support the arbitration proceedings as provided in the Act, by incorporating an exclusive jurisdiction clause. Such a choice of court is considered licit as long as the court conferred with exclusive jurisdiction also has territorial and subject-matter competence under the CPC to dispose of such a matter. On the other hand, parties can elect a venue or seat on their own accord and such a selection can be independent of the principles in the CPC.

Equating the loaded concepts of exclusive jurisdiction and venue has brought several issues to the fore, as will be shown below. This article discusses one such bone of contention where parties fail to designate a seat and mention the venue alongside a competing exclusive jurisdiction clause in the agreement. This is often the result of an oversight that takes place because arbitration clauses are not drafted precisely, and ill-fitting ‘boilerplate clauses’ are often foisted on unsuspecting parties.


Are there legal implications of electing a venue?

In 2012, the Supreme Court of India (‘SC’) in Bharat Aluminium v. Kaiser Aluminium (‘BALCO’) widened the definition of ‘court’ and stated that “the legislature has intentionally given jurisdiction to two courts”, i.e., (i) the competent court as per the CPC, and (ii) the court at the seat of arbitration. Since this extension adds to the number of competent courts, parties, through an exclusive jurisdiction clause, may bestow jurisdiction to either the CPC courts or where the seat lies. However, post BALCO, the CPC courts have been stripped of their concurrent status, with courts at the seat taking precedence. Notably, in Indus Mobile v. Datawind (‘Indus’), the choice of seat has been levelled up to mean an exclusive jurisdiction clause. Essentially, courts at the seat could now oust the jurisdiction of the CPC courts, which otherwise, in a classical sense, enjoy concurrent jurisdiction.

Even more recently, the SC, in Brahmani v. Kamachi (‘Brahmani’), completely glossed over the jurisdiction of the CPC courts. Instead, the SC made a jump to hold that in cases where the parties have not delineated the court through a choice of seat, the court at the venue of arbitration is to be treated as the competent court. Consequently, in the absence of a seat, the choice of venue would have the effect of an exclusive jurisdiction clause. To address the controversy raked by Brahmani, BGS SOMA v. NHPC  (‘BGS’) streamlined Brahmani’s blanket rule with the ‘bright-line test’ to determine the seat of arbitration. Even while doing so, BGS has diluted the higher threshold proposed by a corresponding bench of the SC in UOI v. Hardy Exploration (‘Hardy’) to identify the venue as the seat. As discussed here, Hardy deemed that the venue could only be the seat through positive reinforcement of ‘concomitant factors’. Contrary to Hardy, BGS stated that the venue can become a seat as long as there exists no ‘significant contrary indicia’. This state of affairs has made it easier for one to conflate the concepts of a venue and an exclusive jurisdiction clause.


Can an exclusive jurisdiction clause unseat the venue? 

Before the High Courts

The SC has not established what constitutes significant contrary indicia in BGS. This has given High Courts the freedom to adopt divergent stances while considering whether an exclusive jurisdiction clause can displace the presumption in favour of the venue being the seat of arbitration. The unpredictability of Indian courts’ response is albeit problematic because it increases the chances of a jurisdictional challenge that can slow down the arbitral process.

Such a problem arose before the Delhi High Court (‘DHC’) in the case of Ramandeep Singh Taneja v. Crown Realtech Private Ltd (‘Ramandeep’). In this case, the arbitration clause stipulated that exclusive jurisdiction was to vest with courts in Delhi, while the venue of the arbitration was to be Haryana. The DHC relied on the judgment in Indus to hold that by providing for the venue at a particular place, the parties intended to vest the territorial jurisdiction with the courts at that place. Thus, the designation of the venue would supersede the exclusive jurisdiction clause.

However, there are instances where other High Courts, while dealing with a similar question, have taken diametrically opposing views. For instance, in the case of Cobra Cipl v. Project Manager, one of the parties argued that in the absence of a seat, the stipulated venue would have jurisdiction over the matter. Contrarily, the other party relied on BALCO to argue that in the absence of a seat of arbitration, the court of the cause of action should have exclusive jurisdiction. While rendering its decision, the Madhya Pradesh High Court highlighted that Ramandeep‘s reliance on Indus to treat the venue as the seat was misplaced. This is because Indus clearly recognises the distinction between seat and venue. After this analysis, the court expressed its inability to hold that the venue could be equated with the seat or supersede CPC courts to have jurisdiction over the matter.

The DHC’s ruling in CVS v. Vipul IT (‘CVS’) is in a similar vein. Here, the arbitration clause provided for the venue to be Delhi or Noida (Uttar Pradesh) while agreeing to vest exclusive jurisdiction with courts at Noida. The court ruled that if, alongside the venue, there is a prescription for jurisdiction to be at another place, there has to be a thorough factual determination before equating the venue with the seat.  The court also cited Indus to emphasize that the distinction between a venue and a seat should remain undisturbed. Finally, the court held that since the parties had given exclusive jurisdiction to the court at Noida, the dual choice of venues was merely specified for the convenience of the parties.

A similar situation can arise when parties elect a place of arbitration along with a competing exclusive jurisdiction. The Madras High Court (‘MHC’) dealt with a similar situation in M/s.Balapreetham Guest House Pvt. v. Mypreferred Transformation wherein it was called upon to interpret two inconsistent and conflicting clauses. On one hand, the agreement provided that courts at Chennai would have exclusive jurisdiction while noting that the place of arbitration was to be New Delhi. The court opined that every clause inserted in a contract was to serve a purpose and any interpretation of the contract would have to give effect to both clauses. In this regard, the court opined that if the parties abandoned their right to arbitrate, courts at Chennai would have jurisdiction over civil suits whereas courts in Delhi would supervise any arbitration proceeding between parties.

While dealing with a similar case, the DHC held that a reference to a place of arbitration would supersede an exclusive jurisdiction clause. In Cinepolis v. Celebration City (‘Cinepolis’), the parties had nominated Delhi as the ‘place’ of the arbitration whereas the courts in Uttar Pradesh were given exclusive jurisdiction. It was argued that a caveat in the form of an exclusive jurisdiction clause shows the intention of the parties to vest jurisdiction in the courts at Ghaziabad, Uttar Pradesh. However, the court ruled that the word ‘place’ constituted an undisputed reference to the juridical seat of the proceeding, and that the argument pertaining to exclusive jurisdiction lacked legal merit.

The conclusion of the courts in the above-mentioned cases are rather unfortunate because it is not res integra that all references to the place of arbitration constitute a reference to the seat.  In addition to this, the DHC in Cinepolis did not give any reasoning to prove why the exclusive jurisdiction clause did not attract the rider of “significant contrary indicia” in BGS nor did it identify any associated factors to justify treating the chosen venue as the seat as per Hardy. In our opinion, the very existence of an exclusive jurisdiction clause signifies that the parties did not want to vest jurisdiction solely with the courts at the place. In fact, the existence of such an exclusive jurisdiction clause would be meaningless if it is not construed in this sense.

In light of this, we are inclined to agree with the judgment of CVS which recognizes the difference between the seat and venue and calls for attaching factual evidence. This assumes paramount importance because the intention of the parties is crucial for the institution of arbitration. Therefore, if the parties, either expressly or impliedly, did not intend for the venue or a place to be the juridical seat, then the court has to determine and respect such intention instead of applying any blanket rule to reach such a conclusion. Further, relying on BALCO, if no such intention can be deciphered, the court as per the CPC should have jurisdiction.


Before the Supreme Court

In 2020, the SC dealt with the issue at hand in Mankastu Impex v. Airvisual where the parties had concluded an agreement containing a jurisdiction clause as well as a choice for a venue. The court, after reading the other clauses of the agreement, concluded that since the case pertains to international arbitration, the exclusive jurisdiction clause (Delhi) would operate only to give effect to the provisions of Part I of the Act that are applicable to international arbitration. Furthermore, the venue (Hong Kong) was construed to be the seat. This way, the court harmoniously read the venue and exclusive jurisdiction clause. Nonetheless, this law cannot be extended to Indian domestic arbitration cases where such clauses cannot be read together. This is because, as per Section 42 of the Act, only one competent court can have the jurisdiction to support the arbitration. Thus, the seemingly never-ending saga of the territorial jurisdiction of courts in domestic arbitration remained unsettled.

Recently, in 2021, the SC in M/s. Inox Renewables Ltd. v. Jayesh Electricals Ltd. (‘Inox’) had the chance of settling this debate for good. In this case, the parties designated Jaipur as the venue while courts in the state of Rajasthan were given exclusive jurisdiction over the matter. However, the venue was subsequently changed to Ahmedabad, Gujarat. The court ruled that the clauses of seat and venue must be read together and that the courts in Rajasthan were only vested with exclusive jurisdiction because the parties wanted Jaipur as the venue. Furthermore, the court went on to say that the change in venue to Ahmedabad seemingly divested the exclusive jurisdiction from the courts of Rajasthan and placed it in the courts of Gujarat.

However, in our opinion, the court erred in its judgment and blurred the lines even further. Firstly, BALCO and a series of other judgments have defined the contours of a venue in an agreement. Essentially, the venue manifests the intention of parties to conduct the proceedings at transient locations where they can hear witness statements, experts, or inspect documents, assets, or goods involved in the proceedings. Unless intended, the venue does not have a bearing on the jurisdiction of the court and can be changed at any stage as per convenience. On the contrary, the seat is where the arbitration has its legal domicile, with the seat’s courts exercising exclusive jurisdiction over the proceedings. In Inox, the parties changed the venue as per their convenience but did not change the court that was to exercise jurisdiction over the proceedings. This shows the intention of the parties to create a distinction between the venue of arbitration and its arbitral seat. However, the court turned a blind eye to the facts and precedents, and without adducing any evidence, held that a change of venue would be considered as a change of seat. Such a conclusion can have widespread legal consequences. The court’s conclusion implies that if an agreement does not explicitly make a mention about a seat, the venue will inevitably carry the characteristic of the former. Thus, it will be imperative for parties who merely wish to change the venue to expressly mention that the concerned agreement pertains only to the change in venue and that the seat would continue to be the same.

Secondly, the court in Inox relied heavily on BGS to reach its conclusion. However, its test for determining the seat is only applicable when the parties have not designated the same. In the present case, through an exclusive jurisdiction clause, the parties had clearly designated the seat of arbitration that was to exercise territorial jurisdiction over the proceedings. In fact, the court in BGS upheld that the seat is analogous to an exclusive jurisdiction clause, thus, the presence of such a jurisdiction clause makes the application BGS unwarranted.

Lastly, even assuming that the test is applicable, the venue cannot be equated with the seat in the instant case. As mentioned earlier, BGS held that the venue can be the seat unless there is significant contrary indica. The caveat of an exclusive jurisdiction clause indicates that parties make it clear that they never intended for the venue to exercise supervisory jurisdiction over the proceedings.

In view of the above, we are of the opinion that when parties designate an exclusive jurisdiction clause and a venue, the former should supersede the latter because it manifests the intention of the parties to attach jurisdiction to a place. Essentially, venues are only picked for logistical convenience and can be changed as per the convenience of the parties. Equating a transitory place to an exclusive jurisdiction clause, whose sole purpose is to restrict forum shopping, negates the point of such election.


Concluding Remarks

While electing a seat or a venue might seem trivial while drafting an agreement, the clause becomes seminal as soon as a dispute arises. Even though domestic arbitrations are already localised, jurisdictional concerns due to ambiguity can take years to resolve, defeating the point of an arbitration clause. With Brahmani and Inox, the law leans in favour of reading any reference to the venue of arbitration as the seat. Furthermore, with two 3-judge benches of the SC in Hardy and BGS advancing different standards for the seat test, there is widespread uncertainty as to the correct law. Not only does such unpredictability make jurisdictional issues subjective to the judicial mind but also wastes judicial time with a case-to-case analysis of every seat/venue conflict. This freedom has led to conflicting opinions allowing an opportunity for a conniving party to stall the arbitration.

In India and elsewhere, a seat and a venue connote two different concepts. In order to avoid a lengthy jurisdictional challenge, in the absence of an election by the parties, the arbitral tribunal can determine the seat. Failing any agreement, Section 20 of the Act empowers the tribunal to determine “the place of arbitration…having regard to the circumstances of the case.” The advantage is that arbitral tribunals are not bound by stare decisis and can decide as per the intention and convenience of the parties. Having said that, parties should be mindful that any decision taken by the tribunal thereof may not be subject to challenge at a later stage.


The authors are fifth year students at the National Law University Odisha (NLUO), Cuttack.