This blog is authored by Vidit Parmar a fourth-year student at Amity Law School, Delhi (affiliated to GGSIPU)
The Bombay High Court in Aniket SA Investments LLC v. Janapriya Engineers Syndicate Private Limited & Ors. laid down that the seat of the arbitration as specified in the arbitration agreement must prevail over an exclusive jurisdiction clause, if any has been provided. The court held that a choice of seat is in and of itself an assertion of party autonomy and carries with it the effect of conferment of exclusive jurisdiction on the courts of the seat and even if it was to be interpreted that two concurrent courts were to have jurisdiction, the choice of courts in the exclusive jurisdiction clause is made ‘subject to’ the court of the seat. The High Court arrived at the aforementioned conclusions by analysing in detail the decision of the Hon’ble Supreme Court in BGS SGS SOMA JV v. NHPC LIMITED (BGS SGS).
This article attempts to analyse the decision made by the High Court.
Background of the case
The judgment arises out of an appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (the Act) challenging an order passed by a single judge bench dated 22nd October, 2019. The Appellant, a foreign investor, had filed a petition under Section 9 of the Act seeking urgent interim relief in relation to disputes arising out of a Securities Subscription and Shareholders Agreement. The dispute(s) had arisen in relation to the implementation and execution of a real estate project in Telangana.
The relevant clauses of the arbitration agreement were as follows:
20.3 Governing Law and Jurisdiction
This Agreement and the rights and obligations of the Parties hereunder shall be construed in accordance with and be governed by the Laws of India. Subject to the provisions of Article 20.4, the courts of Hyderabad shall have exclusive jurisdiction to try and entertain any disputes arising out of this Agreement.”
20.4.1 Any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement or the consequences of its nullity) shall be sought to be resolved and settled amicably within 30 days of such dispute arising, failing which it shall be referred to and finally resolved by arbitration under the Arbitration & Conciliation Act, 1996.
20.4.2 The arbitration shall be conducted as follows:
(a) The parties shall mutually appoint a sole arbitrator to resolve the aforesaid disputes or differences. In the event that the parties fail to mutually appoint a sole arbitrator within 15 days, the Promoter and the Investor shall appoint one arbitrator each and the two arbitrators so appointed shall appoint the presiding arbitrator.
(b) All proceedings in any such arbitration shall be conducted in English.
(c) The seat of the arbitration proceedings shall be Mumbai.
20.4.3 The arbitration award shall be final and binding on the parties, and the Parties agree to be bound thereby and act accordingly.”
The Appellants, relying on Clause 20.4.2(c) of the Agreement submitted that the court has jurisdiction to entertain the Section 9 Petition although the dispute pertains to a cause of action that has arisen at the site of the project i.e., within the territorial jurisdiction of the Courts at Hyderabad. Respondents No. 1 & 2, on the other hand, contended that the Bombay High Court could not entertain the Section 9 petition due to a lack of territorial jurisdiction, submitting that a ‘court’ under Section 2(1)(e) of the Act would be the Court within whose territorial jurisdiction the cause of action has arisen, relying on paragraph 96 of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. (BALCO), further, also submitting that the express clause (Clause 20.3) stated that the Courts at Hyderabad shall have exclusive jurisdiction to try and entertain the disputes arising out of the Agreement.
The Appellants, in response, cited the judgment of Indus Mobile Distribution (P) Ltd. v. Datawind Innovation (P) Ltd. (Indus Mobile), where the Supreme Court held that a clause identifying the seat of an arbitration would have the effect of conferring exclusive jurisdiction on Courts where the seat of the arbitration is located.
What the Single Judge held (“impugned order”)
The main observation of the impugned order was that the parties had, as a matter of party autonomy, recognized in Section 20 of the Act, chosen/agreed to vest exclusive jurisdiction to the courts at Hyderabad to decide any disputes arising out of the agreement, citing the judgments in Devas Multimedia (P) Ltd. v. Antrix Corporation Ltd., BALCO, Indus Mobile, and Swastik Gases (P) Ltd. v. Indian Oil Corporation Ltd.(Swastik Gases), holding that once the parties have conferred jurisdiction on one of the courts, such an agreement would have to be recognized under Section 20 of the Act and that plain commercial meaning should be attributed to the concerned clauses where parties had agreed to confer exclusive jurisdiction to the courts at Hyderabad, applying the principle of party autonomy. The impugned order further held that it is well settled that “seat” and “venue” are often used interchangeably and the true intention of the parties in agreeing to the clauses of the agreement would have to be derived from a joint reading of the concerned clauses.
Issues that arose for consideration
1) Whether the impugned order was correct in accepting that paragraph 96 of BALCO recognizes two courts as having concurrent jurisdiction u/s 2(1)(e) of the Act? Or whether a choice of seat confers exclusive jurisdiction on the court of the seat?
2) If there is concurrent jurisdiction of two courts, was the impugned order correct in holding that the parties had, as a matter of party autonomy, made an express choice in conferring jurisdiction on the courts at Hyderabad and that to give effect to the plain commercial term of the agreement, ‘subject to’ must be read as ‘notwithstanding’ and ‘seat’ must be read as ‘venue’?
Reasons and Findings of the Division Bench
The Bombay High Court laid down the following reasons and findings:
(1) The judgment in BALCO was previously understood by some High Courts (including in the impugned order) to recognize concurrent jurisdiction of the ‘cause of action’ court and the ‘seat’ court’. The same was explained by the Supreme Court in BGS SGS. Even in the case of Indus Mobile, the SC had reiterated that a choice of seat amounted to a conferment of exclusive jurisdiction on the courts of the seat, the same being confirmed in BGS SGS.
(2) As per the law laid down in BGS SGS, the impugned order, in so far as it holds that paragraph 96 of BALCO recognizes concurrent jurisdiction of the ‘cause of action’ court and the ‘seat’ court, cannot be sustained as it would not be consistent with the judgment in BGS SGS.
(3) The Supreme Court in BGS SGS held that there is no concurrent jurisdiction of two courts under Section 2(1)(e) and therefore the principles applied in the impugned order that as a matter of party autonomy the parties can choose one of the two courts and confer exclusive jurisdiction on one of the courts by relying inter alia on paragraph 96 of BALCO and Swastik Gases would have no application where the parties have explicitly chosen a seat. The High Court reiterated the view of the Supreme Court by stating that a choice of seat is itself an expression of party autonomy and carries with it the effect of conferring exclusive jurisdiction on the seat court.
(4) In view of the Supreme Court’s understanding of Indus Mobile (as illuminated in BGS SGS), the impugned order was not correct in distinguishing Indus Mobile just because the clauses in Indus Mobile conferred exclusive jurisdiction on the seat court.
(5) In light of the observations laid down in BGS SGS, the High Court answered the first part of the first issue, i.e., whether the impugned order was correct in accepting that paragraph 96 of BALCO recognizes two courts as having concurrent jurisdiction u/s 2(1)(e) of the Act, in the negative and the second part of the first issue, i.e., whether a choice of seat confers exclusive jurisdiction on the court of the seat, in the affirmative.
(6) Two important findings in the impugned order were that the expression ‘subject to’ in Clause 20.3 must be read as ‘notwithstanding’ and the expression ‘seat’ in Clause 20.4.2(c) must be read as ‘venue’; arrived at to give effect to the choice of court in Clause 20.3 of the agreement. The High Court held that both findings were erroneous and that it is a settled rule of interpretation that the courts must give effect to the plain language used by the parties and that the intention of the parties must be ascertained from the plain meaning of the words used.
(7) The High Court further held that the choice of courts at Hyderabad is made ‘subject to’ the seat at Mumbai, which essentially is a choice of courts at Mumbai, and in the event of any conflict the latter clause should prevail.
(8) Relying on the judgments in Jawahar Sons Enterprises Pvt. Ltd. v. State & Ors. and South Indian Corpn. (P) Ltd. v. Secy., Board of Revenue, the meaning of the expression ‘subject to’ is the opposite of ‘notwithstanding’, contrary to what was held in the impugned order.
(9) The High Court held that there was no basis for reading Mumbai as a ‘venue’ only because effect has to be given to the choice of courts at Hyderabad, which itself is subject to Clause 20.4. The court arrived at this conclusion by relying upon paragraph 82 of BGS SGS, which concluded 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 and reiterated that the law laid down in Union of India v. Hardy Exploration & Production (India) Inc. is not good law as per paragraphs 92 & 94 of BGS SGS.
(10) The High Court stated that the meaning to be attributed to Clause 20.3 w.r.t Clause 20.4.2(c) must be gathered not by altering their meaning, but rather by giving plain meaning and effect to the important expressions ‘subject to’ and ‘seat’. The High Court further stated that Clause 20.3 and the choice of courts expressed therein would apply in a dispute not covered by the arbitration agreement.
(11) Therefore, the second issue, i.e., if there is concurrent jurisdiction of two courts, was the impugned order correct in holding that the parties had, as a matter of party autonomy, made an express choice in conferring jurisdiction on the courts at Hyderabad and that to give effect to the plain commercial term of the agreement, ‘subject to’ must be read as ‘notwithstanding’ and ‘seat’ must be read as ‘venue’, was answered by the High Court in the negative.
The impugned order was accordingly set aside and the appeal was allowed.
Significance of the judgement
The judgment of the Bombay High Court serves as an important precedent which recognizes the significance of the “seat” of an arbitration and how it should prevail over an exclusive jurisdiction clause by recognizing the ratio laid down in BGS SGS. The judgment brings the Indian arbitration regime in line with international practices by minimizing the confusion as to what takes precedence between the seat of an arbitration and the exclusive jurisdiction clause, paving the way for India to become an arbitration-friendly jurisdiction.