When Parties Change 'Venue Of Arbitration' By Mutual Agreement, Changed Venue Becomes 'Seat Of Arbitration'

In M/S. INOX RENEWABLES LTD. vs JAYESH ELECTRICALS LTD., an appeal was filed against the order passed by the Commercial Court, Ahmedabad was dismissed, holding that the courts at Jaipur, Rajasthan would be the courts in which the Section 34 petition could be filed.

In this matter originally, a purchase order was was entered into between M/s Gujarat Fluorochemicals Ltd. [“GFL”] and the respondent herein, Jayesh Electricals Ltd. [“Respondent”]. The said order contained an arbitration clause which clearly stated that the venue of the arbitration shall be Jaipur and in the event of arbitrators’ award being not acceptable to either party, the parties shall be free to seek lawful remedies under the law of India and the jurisdiction for the same shall be courts in the State of Rajasthan.

Therefore as per this agreement both the venue and seat of arbitration was Rajasthan and therefore jurisdiction was under the courts in Rajasthan.

Subsequently, the Appellant took over the business of GFL by way of a business transfer agreement to which the Respondent was not a party. The said business transfer agreement designated Vadodara as the seat of the arbitration between the parties, vesting the courts at Vadodara with exclusive jurisdiction qua disputes arising out of the agreement.

Subsequently, the Respondent filed an application being filed under Section 11 of the Arbitration and Conciliation Act, 1996, to appoint an arbitrator, against which the High Court of Gujarat at Ahmedabad appointed a sole arbitrator as mutually agreed between the parties.

A Section 34 petition was filed by the Appellant in Ahmedabad against the award passed by the said sole arbitrator which was resisted by the Respondent referring to the business transfer agreement and stating that the courts at Vadodara alone have jurisdiction. The Commercial Court at Ahmedabad accepted the case of the Respondent by referring to clauses 9.11 and 9.12 of the business transfer agreement and stated that the courts at Vadodara alone would have exclusive jurisdiction, the Ahmedabad courts not being vested with such jurisdiction. On appeal, the High Court while stating that if one is to go by clause 8.5 of the purchase order, exclusive jurisdiction being vested in the courts at Rajasthan, the appropriate court would be the court at Jaipur, found no error in the Ahmedabad Court’s decision.

On appeal, the Supreme Court agreeing with the appellants observed that the learned arbitrator holds that there is no controversy as to the constitution of the Tribunal between the parties and the parties have agreed to get their dispute resolved by a sole arbitrator. As per arbitration agreement, the venue of the arbitration was to be Jaipur. However, the parties have mutually agreed, irrespective of a specific clause as to the [venue, that the place] of the arbitration would be at Ahmedabad and not at Jaipur. The proceedings, thus, have been conducted at Ahmedabad on constitution of the Tribunal by the learned Nominee Judge of the Hon’ble High Court of Gujarat.

In BSG SGS SOMA JV vs. NHPC Limited, (2020) 4 SCC 234, it was held that it may be 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, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. This language has to be contrasted with language such as “tribunals are to meet or have witnesses, experts or the parties” where only hearings are to take place in the “venue”, which may lead to the conclusion, other things being equal, that the venue so stated is not the “seat” of arbitral proceedings, but only a convenient place of meeting. Further, the fact that the arbitral proceedings “shall be held” at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a “venue” and not the “seat” of the arbitral proceedings, would then conclusively show that such a clause designates a “seat” of the arbitral proceedings. In an International context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that “the venue”, so stated, would be the seat of the arbitral proceedings. In a national context, this would be replaced by the Arbitration Act, 1996 as applying to the “stated venue”, which then becomes the “seat” for the purposes of arbitration.

The learned arbitrator has recorded that by mutual agreement, Jaipur as a “venue” has gone and has been replaced by Ahmedabad. As clause 8.5 of the Purchase Order must be read as a whole, it is not possible to accept the submission of Shri Malkan that the jurisdiction of Courts in Rajasthan is independent of the venue being at Jaipur. The two clauses must be read together as the Courts in Rajasthan have been vested with jurisdiction only because the seat of arbitration was to be at Jaipur. Once the seat of arbitration is replaced by mutual agreement to be at Ahmedabad, the Courts at Rajasthan are no longer vested with jurisdiction as exclusive jurisdiction is now vested in the Courts at Ahmedabad, given the change in the seat of arbitration.