India: Supreme Court Clarifies The Ouster Of Jurisdiction Of All Other Courts When Parties To An Arbitration Agreement Exclusively Agree On The Jurisdiction Of One Court.

There has been much controversy around the jurisdiction of the Courts in absence of a specific jurisdiction clause but a specific "seat" of Arbitration. The Hon'ble Supreme Court of India has recently held in the case of Indus Mobile Distribution Private Limited vs Datawind Innovations Private Limited and Ors. being Civil Appeal No. 5370-5371 of 2017 cleared the clouds of doubt and categorically held that when the parties agree on a "seat" of Arbitration in their arbitration agreement, then that Court alone shall have jurisdiction to the exclusion of all the other Courts in the Country.

FACTUAL MATRIX:

Datawind Innovations Pvt. Ltd. (hereinafter referred to as "the Respondent") was engaged in the manufacture, marketing and distribution of Mobile Phones, Tablets and their accessories. On an interest expressed by the Indus Mobile Distribution Private Limited (hereinafter referred to as "the Petitioner"), the parties entered into an Arbitration Agreement on 25.10.2014, Clause 18 of which agreement provided for Dispute Resolution through Arbitration. Further clause 19 of the said agreement prescribed jurisdiction to the Courts in Mumbai exclusively.

When Respondent filed an application under section 9 of the Arbitration and Conciliation Act, 1996 before the High Court of Delhi seeking various interim reliefs, the High Court of Delhi was pleased to issued notice on the said section 9 application also thereby restraining the Petitioner from transferring, alienating or creating any third party interest in respect of a property situated in Chennai. Respondent also filed an application under section 11 of the Arbitration and Conciliation Act, 1996 for appointment of Arbitrator before the High Court of Delhi. Respondent's both applications under section 9 and 11 came to be disposed off by the order dated 03.06.2016 which was impugned in the special leave petition.

The High Court of Delhi held that territorial jurisdiction would be prescribed only to the Courts of Delhi, Amritsar and Chennai since no part of the cause of action arose in Mumbai. It was clarified by the High Court that goods were supplied from Delhi to Chennai and the registered office of the Appellant Company was in Amritsar and by that explanation, jurisdiction shall lie before the aforesaid three Courts. The High Court therefore held that the exclusive jurisdiction clause would not apply on facts, as the courts in Mumbai would have no jurisdiction at all. The High Court further determined that Delhi being the first Court that was approached would have jurisdiction in the matter and proceeded to confirm interim order dated 22.09.2015 and also proceeded to dispose of the Section 11 petition by appointing a sole Arbitrator in the proceedings. The High Court also recorded that the conduct of the arbitration or the "seat" of arbitration would be in Mumbai.

VIEW EXPRESSED BY THE SUPREME COURT:

In Reliance Industries Ltd. Vs Union of India¹ it was made clear that "juridical seat" is the "legal place" of arbitration. In the case of Union of India vs Reliance Industries Limited and Ors.², the seat of Arbitration was London and therefore, the Hon'ble Supreme Court held therein that Part I of the Arbitration and Conciliation Act, 1996 is excluded as the supervisory jurisdiction of Indian Courts evaporates with the placing of the "seat" in London. The Law Commission Report pursuant to which the Arbitration and Conciliation Act, 1996 has been amended in 2015 also specifically differentiates between "seat" and "venue" and even proposed to amend section 20 of the Act to substitute the word "place" and add "seat and venue" in sub-section (1) of section 20 and in place of word "place" substitute the word "venue" in sub-section (3) of section 20. However, these amendments were never enacted with the 2015 amendment.

The Hon'ble Apex Court, while relying on all the above judgments amongst others and the Law Commission's report, has held that once the parties designate and decide a seat, it becomes similar to an exclusive jurisdiction clause. The Court held that in the present case the seat of Arbitration was Mumbai and clause19 of the contract renders exclusive jurisdiction over the Courts in Mumbai. It has been further clarified that 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. The Hon'ble Court while setting aside the order of the High Court came to the conclusion that because the parties had decided Mumbai to hold the seat of arbitration, therefore, the Courts in Mumbai alone shall have jurisdiction to entertain any litigation arising from the said arbitration. The relevant paragraph of the judgment is being produced herein below:

"21. It is well settled that where more than one court has jurisdiction, it is open for parties to exclude all other courts. For an exhaustive analysis of the case law, see Swastik Gases Private Limited v. Indian Oil Corporation Limited, (2013) 9 SCC 32. This was followed in a recent judgment in B.E. Simoese Von Staraburg Niedenthal and Another v. Chhattisgarh Investment Limited, (2015) 12 SCC 225. Having regard to the above, it is clear that Mumbai courts alone have jurisdiction to the exclusion of all other courts in the country, as the juridical seat of arbitration is at Mumbai. This being the case, the impugned judgment is set aside. The injunction confirmed by the impugned judgment will continue for a period of four weeks from the date of pronouncement of this judgment, so that the respondents may take necessary steps under Section 9 in the Mumbai Court. Appeals are disposed of accordingly."

Therefore, it is now clear that when there is an exclusive jurisdiction clause in the Agreement, then irrespective of where the cause of action arises, that Court shall hold jurisdiction to entertain proceedings arising out of such Arbitration. The present judgment of the Apex Court has cleared the confusion about jurisdiction in the litigation arising out of Arbitration Proceedings because ideally, for jurisdiction, guidance is sought from sections 16 – 21 of the Code of Civil Procedure, 1908. However, Arbitration being a separate and independent code, jurisdiction of Court is decided by the selection of seat of Arbitration to the ouster of jurisdiction of all the other Courts for the purpose of the proceedings arising out of that Arbitration.

Footnotes

1 Reported as (2014) 7 SCC 603

2 Reported as (2015) 10 SCC 213

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