In this article, we will discuss the crucial ratio delivered by the Hon’ble Supreme Court of India, in the authority cited as Indus Mobile Tower Distribution Limited vs. DatawindInnovations Private Limited and Others [2017 (7) SCC 678], wherein speaking for the Court, his lordship Justice R.F. Nariman has laid down that whenever the parties to anagreement, fix the seat of arbitration at a particular place, only the Courts at that place will have exclusive jurisdiction over the arbitration proceedings and that section 16 to section 20 of The Code of Civil Procedure, 1908 willhave no application in such cases.
Facts of the Case:
Respondent No. 1 was engaged in the manufacture, marketing and distribution of Mobile Phones, Tablets and their accessories. Respondent No. 1 had its registered office at Amritsar, Punjab. Respondent No. 1 was supplying goods to the Appellant at Chennai from New Delhi. The Appellant approached Respondent No. 1 and expressed an earnest desire to do business with Respondent No. 1 as its Retail Chain Partner. An agreement was entered into between the parties. Disputes arose between the parties and a notice was sent by Respondent No. 1 to the Appellant. The notice stated that the Appellant had been in default of outstanding dues of Rs. 5 crores with interest thereon and was called upon to pay the outstanding dues within 7 days. Clause 18 of the Agreement was invoked by Respondent No. 1, and one Justice was appointed as the Sole Arbitrator between the parties. By a reply, the Appellant objected to the appointment of Justice and asked Respondent No. 1 to withdraw its notice. By a further reply, the averments made in the notice were denied in toto. Two petitions were then filed by Respondent No. 1 – the first dated September 2015, Under Section 9 of the Arbitration and Conciliation Act, 1996 asking for various interim reliefs in the matter. By an order, the Delhi High Court issued notice in the interim application and restrained the Appellant from transferring, alienating or creating any third party interests in respect of the property till the next date of hearing. By an application, Respondent No. 1 filed a Section 11 petition to appoint an Arbitrator. Both applications were disposed of by the impugned judgment. First and foremost, it was held by the impugned judgment that as no part of the cause of action arose in Mumbai, only the courts of three territories could have jurisdiction in the matter, namely, Delhi and Chennai (from and to where goods were supplied), and Amritsar (which was the registered office of the Appellant company). The Court therefore held that the exclusive jurisdiction Clause would not apply on facts, as the courts in Mumbai would have no jurisdiction at all. It, therefore, determined thatDelhi being the first Court that was approached would have jurisdiction in the matter and proceeded to confirm interim order dated 22.9.2015 and also proceeded to dispose of the Section 11 petition by appointing retired Supreme Court Judge, as the sole Arbitrator in the proceedings. The judgment recorded that the conduct of the arbitration would be in Mumbai. Hence, the present appeal.
Statutory Provisions & Supreme Court’s Observations:
Relevant provisions of the Arbitration and Conciliation Act, 1996 are set out hereinbelow:
2. Definitions. – (1) In this Part, unless the context otherwise requires, –
(e) “Court” means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having, jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;
(2) This Part shall apply where the place of arbitration is in India.
20. Place of arbitration. – (1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in Sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.
(3) Notwithstanding Sub-section (1) or Sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.
31. Form and contents of arbitral award. –
(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with Section 20 and the award shall be deemed to have been made at that place.
10. The concept of juridical seat has been evolved by the courts in England and has now been firmly embedded in our jurisprudence. Thus, the Constitution Bench in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., MANU/SC/0722/2012 : (2012) 9 SCC 552, has adverted to “seat” in some detail. Paragraph 96 is instructive and states as under:
Section 2(1)(e) of the Arbitration Act, 1996 reads as under:
“2. Definitions.–(1) In this Part, unless the context otherwise requires–
(a)-(d)***
(e) ‘Court’ means the Principal Civil Court of Original Jurisdiction in a district, andincludes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such Principal Civil Court, or any Court of Small Causes;”
The Apex Court has held that the term “subject-matter of the arbitration” cannot be confused with “subject-matter of the suit“. The term “subject-matter” in Section 2(1)(e) is confined to Part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. The provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the learned Counsel for the Appellants would, in fact, render Section 20 nugatory. The legislature has intentionally given jurisdiction to two courts i.e. thecourt which would have jurisdiction where the cause of action is located andthe courts where the arbitration takes place. This was necessary as on manyoccasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process. For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, and the tribunal sitting in Delhi passes an interim order Under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order Under Section 37 must lie to the courts of Delhi being the courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi.
“20. Place of arbitration.–(1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in Sub-section (1), the place of arbitration shall be determined by the Arbitral Tribunal having regard to the circumstances of the case, including the convenience of the parties.
(3) Notwithstanding Sub-section (1) or Sub-section (2), the Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.”
A plain reading of Section 20 leaves no room for doubt that where the place of arbitration is in India, the parties are free to agree to any “place” or “seat” within India, be it Delhi, Mumbai, etc. In the absence of the parties’ agreement thereto, Section 20(2) authorizes the tribunal to determine the place/seat of such arbitration. Section 20(3) enables the tribunal to meet at any place for conducting hearings at a place of convenience in matters such as consultations among its members for hearing witnesses, experts or the parties.
The fixation of the most convenient “venue” is taken care of by Section 20(3). Section 20, has to be read in the context of Section 2(2), which places a threshold limitation on the applicability of Part I, where the place of arbitration is in India. Therefore, Section 20 would also not support the submission of the extra-territorial applicability of Part I, as canvassed by the learned Counsel for the Appellants, so far as purely domestic arbitration is concerned.
True, that in an international commercial arbitration, having a seat in India, hearings may be necessitated outside India. In such circumstances, the hearing of the arbitration will be conducted at the venue fixed by the parties, but it would not have the effect of changing the seat of arbitration which would remain in India. The legal position in this regard is summed up by Redfern and Hunter, The Law and Practice of International Commercial Arbitration (1986) at p. 69 in the following passage under the heading “The Place of Arbitration”:
“The preceding discussion has been on the basis that there is only one ‘place’ of arbitration. This will be the place chosen by or on behalf of the parties; and it will be designated in the arbitration agreement or the terms of the reference or the minutes of proceedings or in some other way as the place or ‘seat’ of the arbitration. This does not mean, however, that the Arbitral Tribunal must hold all its meetings or hearings at the place of arbitration. International commercial arbitration often involves people of many different nationalities, from many different countries. In these circumstances, it is by no means unusual for an Arbitral Tribunal to hold meetings–or even hearings–in a place other than the designated place of arbitration, either for its own convenience or for the convenience of the parties or their witnesses…. It may be moreconvenient for an Arbitral Tribunal sitting in one country to conduct a hearing in another country–for instance, for the purpose of taking evidence…. Insuch circumstances, each move of the Arbitral Tribunal does not of itself mean that the seat of arbitration changes. The seat of the arbitration remains the place initially agreed by or on behalf of the parties.”
The Supreme Court eventually concluded by stating that the moment the seat of arbitration is designated, it is akin to an exclusive jurisdiction clause. On the facts of the present case, it was clear that the seat of arbitration is Mumbai. Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to “seat” is a concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have jurisdiction – that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Section 16 to 21 of the Code of Civil Procedure be attracted. In arbitration law however, as has been held above, the moment “seat” is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.