By: Rajvansh Singh
The seat of arbitration is ‘the centre of gravity of the arbitration’. The choice of the place or the seat of arbitration is one of the key issues in drafting an arbitration agreement. It not only influences the law which governs the arbitration but also has a bearing on the issue as to which court can exercise supervisory and supportive powers in relation to arbitration. The position in Indian law is settled with respect to the importance and consequences of designating seat in International Commercial Arbitration. However, the same in domestic arbitration is widely contested.
In the present article, the author will anatomise the question of whether designating a seat in the arbitration agreement is analogous to the exclusive jurisdiction clause or not? To this effect, the author will analyse a recent judgement of Delhi High Court in the case of Antrix Corporation v Devas Multimedia (hereinafter ‘Antrix’). The author will highlight the court’s failure to interpret the law laid down in Indus Mobile Distribution v Datawind Innovations (hereinafter ‘Indus Mobile’).
JURISDICTION OF COURTS
Jurisdiction to try suits of civil nature is decided according to the provisions of Civil Procedure Code (hereinafter ‘CPC’). Section 20 of CPC confers jurisdiction on courts where: (i) the cause of action has accrued; (ii) the defendant resides, or carries on business or personally works for gain; or (iii) the cause of action, wholly or in part, arises. Whereas, Section 20 of the Arbitration and Conciliation Act 1996 (hereinafter ‘the Act’) empowers the parties to the agreement to select a ‘place’ as the seat of arbitration. This, by itself, incorporates an important principle of arbitration i.e. ‘party autonomy’. On the contrary, there is a settled principle prevalent in the Indian legal regime that parties to an agreement cannot confer jurisdiction on a court which does not have otherwise. However, if more than one court has jurisdiction, it is permitted for the parties to confer jurisdiction on any one of them. This is known as the exclusive jurisdiction clause.
THE ‘SEAT-CENTRIC’ APPROACH
- The Supreme Court’s decision in Bharat Aluminium v Kaiser Aluminium (hereinafter ‘BALCO’) became the fountainhead for a series of the subsequent decision on the lines that arbitration is ‘seat-centric’. But the constitution bench in BALCO, in paragraph 96, as an obiter, mandates two courts to have jurisdiction over arbitration. It provides that both, the “court of the subject-matter of the arbitration” i.e. the court where the arbitration takes place and the “court of the subject-matter of the suit” i.e. the court where the cause of action is located (as per CPC), will have jurisdiction.
Further, in the same paragraph, the implication of designating a seat is explained with the help of an illustration. The said illustration emphasise that the court of the seat will have jurisdiction. The contrary views expressed in paragraph 96 have resulted in ‘confusion’ and failed to provide a clear picture regarding seat of an arbitration agreement.
In the case of Indus Mobile, the arbitration clause provided that “arbitration shall be conducted at Mumbai” and “for the exclusive jurisdiction of courts of Mumbai only”. Further, no cause of action arose in Mumbai. Amritsar, New Delhi and Chennai had jurisdiction as per CPC. The issue identified was whether the seat designated in an arbitration agreement with respect to domestic arbitration will have exclusive jurisdiction over the dispute arising from the agreement.
The Supreme Court adopted the principle propounded in the illustration described in BALCO at paragraph 96 and opined that the courts of Mumbai will have exclusive jurisdiction. For this, the court also relied on Post-BALCO judgments like Reliance Industries v UOI, Harmony Innovation v Gupta Coal, where the Supreme Court consistently upheld that “when a seat of arbitration is chosen, by necessary implication, courts of that country would have supervisory jurisdiction over that arbitration.”
It is suggested that post-BALCO judgments emphasise seat-centricity and do not favour the theory of two courts having concurrent jurisdiction (‘Two-court theory’). However, it is pertinent to note that the abovementioned theory is still not overruled. If the law put forth in Indus Mobile i.e. “the moment the seat is designated, it is akin to an exclusive jurisdiction clause” is considered to be a valid precedent, then it will be in contradiction with the said theory. However, an alternative argument can be that this stand of Indus Mobile clarifies the confusion that was present in BALCO at paragraph 96.
There are a few High Court judgments that appear to swim against the tide. Recently, the Delhi High Court, in the case of Antrix refused to subscribe to the law put forth in Indus Mobile on the following grounds:
- Section 42 contemplates a situation where two or more courts have jurisdiction. The moment an application has been made to any of such courts, then the court approached first in the order of time acquires exclusive jurisdiction and other courts would be divested of their jurisdiction.
- If designating seat amounts to exclusive jurisdiction clause, the purpose of Section 42 will be defeated. This is because only one competent court will be left to hear applications in relation to arbitration.
- The court was of the opinion that designating a seat in a contract doesn’t amount to exclusive jurisdiction clause. Only if the ‘exclusive jurisdiction clause’ and ‘seat’ are present and indicate towards the same court, then only the ‘seat’ will have exclusive jurisdiction. Otherwise, both seat and other courts will have concurrent jurisdiction and Section 42 will be enlived.
The author is of the view that Delhi High Court has construed the implication of designating seat in an erroneous manner. This is because the Delhi High Court took a stand that Indus Mobile is a valid precedent only for a case where both ‘seat’ and ‘exclusive jurisdiction clause’ are provided. The court in Indus Mobile, at paragraph 19, clearly states that as soon as a seat is mentioned, the court of the seat will have exclusive jurisdiction. By doing this, the division bench is in breach of Article 141 of the Constitution of India and contrary to the doctrine of precedent.
The division bench made an attempt to interpret BALCO and Indus Mobile in a harmonious manner when there was no grave conflict. In doing so, the bench failed to consider that the part of BALCO it was relying upon was not ratio decidendi, and the ratio decidendi of Indus Mobile, it relied upon, was not present in the judgement.
When an area of law is ambiguous, then the illustration attached to it has to be relied upon, as done in Indus Mobile. It has been rightly argued that BALCO talks about two courts having jurisdiction in ‘theory’. If not so, it will render the concept of seat nugatory as seat determines the court that will have jurisdiction over the matter arising from the said contract. Thus, Antrix should have simply abided by the law laid down in Indus Mobile, which settles the confusion created by BALCO to a large extent.
The conflict highlighted by the division bench of Antrix with respect to Section 42 seems to be a legitimate concern on a prima facie view. However, the author does not agree with the same and respectfully submits that Indus Mobile and Section 42 can be read in a harmonious manner. On this, the author is of the view that Section 42 shall be used only in cases which do not provide for a seat and the jurisdiction of a court is to be decided by CPC.
The author feels that the approach adopted in Indus Mobile is a pragmatic one. This approach amounts to certainty regarding the jurisdiction of a court and hence, in turn, avoid forum shopping. Further, the said approach upholds the principle of party autonomy by allowing the parties to select a convenient place or seat as mentioned in Section 20. Further, at this juncture, it is pertinent to note that the principle of seat-centricity is considered to be the cornerstone of the Act.
In the contemporary era, arbitration is the most efficient mode to resolve commercial disputes. It is necessary to have certainty over different aspects of arbitration law as certainty plays an important role in the development of arbitration law regime. In this backdrop, the two-court theory propounded in BALCO should be expressly struck down or clarified by a bench larger than what BALCO had. Though, the Supreme Court, on several occasions, has clarified the confusion that persists at paragraph 96. It has become a tool for a conniving party, trying to delay the arbitration, to start litigation using the same.
(Rajvansh Singh is a 3rd-year student at National Law University, Odisha. He finds his interest in Arbitration Law.)