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Reconciling a conflict between Seat of Arbitration clause and Exclusive Jurisdiction

By – Ramesh Vaidyanathan & Suyash Sarvankar

In present day arbitration jurisprudence, the principle of territoriality is generally followed to determine which courts have exclusive jurisdiction. It provides that the seat of arbitration is analogous to an exclusive jurisdiction clause conferring jurisdiction upon the court(s) of the seat. However, in certain Agreements, parties have stipulated that a certain Court shall have exclusive jurisdiction over disputes or differences arising out of the Agreement, and also stipulated a distinct Seat in the Arbitration clause.

In Aniket SA Investments LLC v. Janapriya Engineers Syndicate Pvt. Ltd.[1][“AniketSA”], the Bombay High Court reconciled the conflicting provisions of such an agreement by distinguishing between- [A.] a Court having exclusive jurisdiction in matters under the (Indian) Arbitration and Conciliation Act, 1996 [“Arbitration Act”], being the principal court of civil jurisdiction at the Seat; and [B.] a Court having exclusive jurisdiction in all other matters.

AniketSA concerned a Securities Subscription and Shareholders Agreement that contained an Exclusive Jurisdiction Clause stipulating that courts at Hyderabad shall have exclusive jurisdiction to try and entertain the disputes arising out of that Agreement. The Agreement also contained a distinct Arbitration Clause (Clause 20.4) wherein the parties agreed that “the seat of the arbitration proceedings shall be Mumbai”. The Exclusive Jurisdiction Clause was made “subject to” the Arbitration Clause in the Agreement.

The Court in AniketSA relied upon the judgment in BALCO[2], as explained in Indus Mobile[3] and reiterated in BGS SGS[4], to hold that a choice of seat is itself an expression of party autonomy and carries with it the effect of conferring exclusive jurisdiction on the Courts of the seat. Consequently, the Courts of Hyderabad would only have jurisdiction over disputes that are incapable of being settled by arbitration.

The decision in AniketSA is well founded in commercial considerations. Parties, especially foreign parties, select a major city as Seat of the arbitration even if the cause of action arises only where the contract is to be performed. However, cause of action may arise entirely in remote and inaccessible places especially in infrastructure sector contracts. Under the Code of Civil Procedure, 1908, a civil suit must be filed where the cause of action arises (wholly or in part) or where the defendant is located. Per contra, the Arbitration Act allows the selection of a neutral city as Seat, even if no part of the cause of action would arise there.

Therefore, it remains important that the parties by agreement confer exclusive jurisdiction on one of the many places where cause of action actually (in parts) arises to address disputes incapable of being settled by arbitration such those pertaining to local regulations, taxes or stamp duties where an element of public interest is involved. Take for illustration a public infrastructure project in remote Tripura. The winning Kolkata based contractor engages a Delhi based sub-contractor. The sub-contracting agreement must be ‘made at’ Tripura in terms of the tender documents, and taxes and stamp duties must be paid to the State of Tripura accordingly. Nevertheless, the parties might notice that their operations in Tripura are transient, and hence designate Mumbai as a neutral and convenient seat of arbitration. However, Courts at Mumbai cannot be designated for exclusive jurisdiction as no part of cause action has arisen in Mumbai (assuming imaginative legal gymnastics are not involved). Therefore, it would make sense to stipulate exclusive jurisdiction of the relevant Courts at Tripura, which could be approached to resolve limited non-arbitrable disputes.

The principles of Aniket SA have been generally followed since the decision. Yet, unsurprisingly, the principles would find no application in peculiar drafts of arbitration agreements. Take for instance Mankatsu Impex Pvt. Ltd. v. AirVisual Ltd.[5] were parties agreed that “This MoU is governed by the laws of India, without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction” for “arbitration administered in Hong Kong and where “The place of arbitration shall be Hong Kong”. On a holistic reading of the agreement, Supreme Court came to the conclusion that parties had chosen Hong Kong as the Seat of arbitration. Consequently, choice of Seat would have the effect of conferring exclusive jurisdiction on the Courts of the Seat (Hong Kong). Ordinarily, parties would have to approach Hong Kong Courts for interim reliefs. However, the Arbitration Act allows Indian Courts to exercise supervisory jurisdiction over foreign seated arbitrations unless it is excluded by an explicit agreement of the parties. Therefore, the Supreme Court held that what parties had done was confer exclusive supervisory jurisdiction on New Delhi courts over other Indian courts.

Peculiarity does not stop there. The contract in CARS24 Services Pvt. Ltd. v. Cyber Approach Workspace LLP[6] contained an exclusive jurisdiction clause (Haryana) and a separate Seat of arbitration clause (Delhi), and therefore two clauses conferred jurisdiction on courts located at different territorial locations. The exclusive jurisdiction clause specifically conferred Section 11 jurisdiction for appointment of arbitratoron the Punjab and Haryana High Court[7], almost ignorant that the Delhi High Court has general and obvious supervisory jurisdiction over a Delhi seated arbitration. The Delhi High Court came to the following conclusion:

55. Where, therefore, the seat of arbitration is at place X, and exclusive jurisdiction over the subject matter of the suit is conferred on courts at place Y, a petition under Section 11 would unquestionably lie before the courts at place X. The present case, however, is different, as the exclusive jurisdiction conferred by the arbitration agreement is not in respect of the subject matter of the suit but specifically for appointment of an arbitrator. It would be doing violence to the said clause, therefore, if this Court were to treat the exclusive jurisdiction clause as limited to the subject matter of the suit, and exercise Section 11 jurisdiction contrary to the mandate thereof.

56. It is trite that a court cannot re-write a contract between the parties. Where the contract between the parties, as in the present case, confers exclusive jurisdiction, for appointment of an arbitrator, on courts at Haryana, any petition, under Section 11, would have to be preferred before the High Court of Punjab and Haryana, and not before this Court. There is no decision, to which my attention has been invited, which persuades me to take a different view.”

CARS24 has been affirmed recently in Hunch Circle Pvt. Ltd. v. Futuretimes Technology India Pvt. Ltd[8]in the context of a similarly peculiar clause. However, if choice of an arbitration seat is indeed analogous to the choice of supervisory court, it defies logic that parties may contract out of it. It remains unclear what purpose would a choice of Seat serve were it detached from submission to laws of the Seat and courts at the Seat administering these laws.

Be that as it may, to avoid unnecessary litigation, it is highly advisable to designate the same place in both Exclusive Jurisdiction Clause and Seat of Arbitration Clause, especially in arbitrations seated in India. If this course of least resistance is not available, these clauses may be worded as follows:

  1. The seat, place and venue of the arbitration shall be [City X]. Courts at [City X] shall have exclusive jurisdiction to try, entertain and dispose all disputes and differences pertaining to arbitration.

  2. Subject to above Clause A, the Courts at [City Y] shall have exclusive jurisdiction to try, entertain and dispose all disputes and differences arising out of this agreement that are incapable of resolution by arbitration.

Note that the underlined sentence in Clause A is redundant but added for the sake of unequivocal clarity.

[1] 2021 SCCOnLine Bom 919

[2] Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552

[3] Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd., (2017) 7 SCC 678

[4] BGS SGS SOMA JV v. NHPC Ltd., (2020) 4 SCC 234

[5] (2020) 5 SCC 399

[6] 2020 SCCOnLine Del 1720

[7] It read: “25.4 Parties have agreed that all the Disputes arising out of this Deed shall be referred to a Sole Arbitrator who shall be mutually appointed by the parties, failing which either Party may approach a court of competent jurisdiction at Haryana for appointment of the Sole Arbitrator in terms of the Arbitration and Conciliation Act, 1996 (Act) as amended from time to time. The arbitration proceedings shall be conducted in terms of the Act. The award of the Sole Arbitrator shall be reasoned and in written, which shall be final and binding upon the Parties. It has been further agreed between the Parties that Arbitration proceedings shall be conducted in English Language and the seat of Arbitration will be at New Delhi, India.” (Emphasis supplied)

[8] 2022 SCC OnLine Del 361


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