The Honorable Supreme Court of India, in its recent decision (given on 19th April, 2017) given in the case of Indus Mobile Distribution Private Ltd. v. Datawind Innovations Private & Ors has held that,- if the parties agree to a place as the “seat” of arbitration, the courts of that place shall have an exclusive jurisdiction for any supervisory functions and/or in respect of non-arbitral issues arising out of the agreement between the parties and the same would oust the jurisdiction of all other courts.
Facts of the Case
A commercial agreement was entered into between Indus Mobile Distribution Private Ltd. (“Appellant”) and Datawind Innovations Private & other parties (“Respondents”) pursuant to which the goods were to be shipped from New Delhi to Chennai. The Respondent’s registered office is situated at Amritsar, Punjab.
Disputes arose between the parties wherein Respondent no. 1 alleged that the Appellant had defaulted in making payments. As per the Agreement, the dispute had to be resolved by arbitration conducted under the provisions of the Arbitration and Conciliation Act, 1996 (“Act”) at Mumbai.
The Agreement vested exclusive jurisdiction on courts of Mumbai for all disputes and differences arising out of or in connection with the Agreement. The relevant extracts of these clauses are as below:
“18. …such Dispute shall be finally settled by arbitration conducted under the provisions of the Arbitration & Conciliation Act 1996 by reference to a sole Arbitrator which shall be mutually agreed by the parties. Such arbitration shall be conducted at Mumbai, in English language…[Note: Underlining supplied for emphasis.]
19. All disputes & differences of any kind whatever arising out of or in connection with this Agreement shall be subject to the exclusive jurisdiction of courts of Mumbai only.” [Note: Underlining supplied for emphasis.]
The Respondent no. 1 filed an application before the Delhi High Court for interim relief under Section 9 of the Act, in order to prevent the Appellant from alienating or creating a charge on the property which was the subject matter of dispute.
By its order dated June 13, 2016, the High Court held that,- as no part of the cause of action arose in Mumbai, only the courts of three territories namely, Delhi (from where goods were supplied), Chennai (to where goods were supplied) and Amritsar had jurisdiction. The Court thus held that,- the exclusive jurisdiction clause would not apply on facts, as the courts of Mumbai would have no jurisdiction at all. It held that Delhi being the first court that was approached would have jurisdiction in the matter. Accordingly, the High Court allowed the interim relief restraining the Appellant from transferring, alienating or creating any third party interest in respect of a property situated in Chennai.
The appellant filed a special leave petition with the Supreme Court to set aside the order of the Delhi High Court.
When the parties have chosen a particular place (Mumbai in this case) as the seat of arbitration in the Agreement executed between them, then, in case of a dispute between the parties, will the courts of that place (Mumbai) have exclusive jurisdiction over such dispute even if no cause of action arises at that place (Mumbai)?
Judgment of the Court
Setting aside the decision of the High Court, the Supreme Court held that once the seat of arbitration has been fixed, courts of such seat will exercise exclusive jurisdiction on the proceedings arising out of or in connection with the arbitration, including proceedings initiated under Section 9 of the Act, even when no cause of action had arisen there.
Unlike Code of Civil Procedure, reference to “seat” may also be towards a neutral venue which is chosen by the parties to an arbitration agreement. But as soon as a “seat” is selected and agreed to by the parties, it renders jurisdiction to the Courts of that “seat” thereby excluding the jurisdiction of all other Courts irrespective of section 16 – 21 of the Code of Civil Procedure, 1908.
Key Takeaways & Comments
In contracts where the parties agree to resolve disputes by way of arbitration and select a “seat” of arbitration, it renders jurisdiction to the Courts of that “seat” thereby excluding the jurisdiction of all other Courts irrespective of section 16 – 21 of the Code of Civil Procedure, 1908.
Identification of the seat of arbitration (as opposed to the location where hearings are to take place, which is referred to as the “venue” of arbitration) is one of the most important features of an arbitration clause. Therefore, care should be taken that while drafting the arbitration clause to clarify the intent of the parties as to whether a particular place is intended to be the seat or only the venue. In the aforesaid case, the Supreme Court was inclined to hold that courts in Mumbai will have the exclusive jurisdiction to entertain disputes (also)because of the specific mention of such clause under the Agreement. Therefore, if the Agreement does not mention that courts of a particular place shall have the exclusive jurisdiction to entertain the disputes arising out of the contract, it becomes all the more important to clarify whether a place is intended to be a “seat” or “venue”. ////
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