CHANGE OF SEAT OF ARBITRATION BY MUTUAL AGREEMENT

The issue about whether an Arbitration proceeding’s inimitable jurisdiction could be enmeshed on the grounds of the Seat of Arbitration, regardless as to whether any cause of action has surfaced at such and such seat, has indeed been contemplated for the sometime before various Courts.The Hon’ble Supreme Court through its recent judgement denounced on April 13, 2021 through “Inox Renewables vs Jayesh Electricals”[1] had also ultimately landed the assertion clutching that the Place of Arbitration collectively agreed by the disputants will indeed vest unique jurisdiction with in Courts of the location of the Bench regardless as to whether any cause of action must have arisen within said location.The Hon’ble Supreme Court however has retained that if the current Seat of Arbitration is shifted to a different location by mutual agreement of the parties, its exclusive jurisdiction is also altered and vests in the tribunals at the new Seat of Arbitration.

 – Inox, Jayesh Electrical, Arbitration and Conciliation Act

Brief Facts of the Case:

M/s Gujarat Fluorochemicals Ltd. approved a purchase requisition for the manufacture and supply of power transformers for wind turbines to M/s Jayesh Electricals. In the event of disputes, the Arbitration Clause in the purchase requisition stated that the venue as well as seat of the arbitration will be in Jaipur, Rajasthan.Following that, the entire operation of M/s Gujarat Fluorochemicals Ltd. was redirected to M/s Inox Renewables underneath a Business Transfer Agreement, with courts in Vadodara, Gujarat, having officially sanctioned jurisdiction to arbitrate disputes between parties.

Soon after, disagreements originated among M/s Inox Renewables (subsequently referred to as “Inox”) and M/s Jayesh Electricals (subsequently referred to as “Jayesh Electricals”). As per the form attached by Jayesh Electricals in the Hon’ble Court of Gujrat in Ahmedabad as per the Arbitration and Conciliation Act, 1996 – Section 11 ( subsequently referred as “the Act” ). In order to resolve the pertained issues, a sole arbitration has been appointed.

Jayesh Electricals was granted an arbitral award by the single arbitrator. Inox, aggrieved by the said Arbitration, filed opposition to it in the Commercial Court of Ahmedabad under Section 34 of the Act, requesting that the Arbitral Award be earmarked.As during assertions, Jayesh Electricals reared the very first aversion, claiming that perhaps the Courts in Ahmedabad lacked jurisdiction to hear the opposition because the Courts in Vadodara had exclusive jurisdiction.Making reference to the provisions of the Business Transfer Agreement, the Commercial Court in Ahmedabad retained that the Courts of Vadodara would have only exclusive jurisdiction to hear the petition because the courts in Ahmedabad weren’t really entrenched with the same kind of jurisdiction.Inox filed an appeal with the Hon’ble High Court of Gujarat in Ahmedabad, but the charges were dismissed. The Hon’ble Supreme Court of India was then propositioned by Inox.[2]

Whether the exclusive authority of tribunals at the seat of arbitration titled “ in the arbitration clause will change the dynamics of the parties’ consensual understanding to alter the place of arbitration’s bench?

In a series of decisions over the years, the Supreme Court has considered the question of the seat as well as venue of arbitration proceedings. In Bharat Aluminium Company vs Kaiser Aluminium Technical Services[3] and Indus Mobile Distribution Pvt Ltd vs Datawind Innovations Pvt Ltd and Ors, the concern of seat as well as venue was brought up.[4]The Hon’ble Supreme Court observed once the seat of arbitration is ascertained, it acts as the exclusive jurisdiction clause, allowing just the Courts where the bench is positioned to listen the arbitration, excluding all other Courts, along with Courts at which part of the cause of action may well have emerged.

While transcribing the facts in Inox Renewables vs Jayesh Electricals, the Hon’ble Supreme Court acknowledged that perhaps the Sole Arbitrator in Para 12.3 retained that there really is no debate between the parties who have consented to arbitration as just a dispute resolution system concerning the establishment clause of the Arbitral Tribunal.The Arbitration was to take place in Jaipur, as stipulated in the Arbitration Agreement. Regardless of a specific clause, the parties have agreed that the arbitration would be held in Ahmedabad rather than Jaipur. As a result, the hearings were held in Ahmedabad. As a result of the Hon’ble High Court of Gujarat appointing a sole arbitrator.It was therefore evident, that just by consensual understanding, the parties have explicitly changed the venue or location of arbitration from Jaipur to Ahmedabad. This becoming so, the Hon’ble Supreme Court rejected the argument produced by Jayesh Electricals that every transition could have only been done by either a signed agreement or also that the Arbitrator’s finding really would have allusion to a suitable venue but not the seat of arbitration. Although part of the cause of action emerges across several locations, such as where the contract is moderately to be executed, the Hon’ble Supreme Court reaffirmed the ratio of its decision in BSG SGS SOMA JV vs NHPC Limited[5], putting that the courts at the Seat of Arbitration explicitly identified in the Arbitration Clause between both the parties would’ve had exclusive jurisdiction.

It was held that even if concurrent jurisdiction does become the rule, despite the parties’ explicit choice of the seat, party independence would be jeopardized, which could not be permitted.As a result, the mere fact that parties have preselected a particular location as the seat implies that both parties have agreed that the courts at the seat will still have exclusive jurisdiction well over entire arbitration award.Furthermore, in Videocon Industries Ltd vs Union of India and Anr., the Hon’ble Supreme Court held that throughout the apparent lack of any clause in the contract between both the parties constraining any addendum or alteration of a contract to be accomplished only by an apparatus in writing, the parties may collectively decide on a seat of arbitration and perhaps even alter the seat of arbitration by consensual understanding.

In Inox Renewables, the Primary Arbitrator noted in the Arbitration Agreement that neither party had objected to the modification of seat. By consensual understanding, the Sole Arbitrator has also noted that Jaipur has been supplanted as a “venue” by Ahmedabad.In illumination of this, the Hon’ble Supreme Court concluded that it was impossible to consider that the jurisdiction of Rajasthan’s courts was autonomous of the venue’s location in Jaipur. Just because the place of arbitration was to be in Jaipur, the Rajasthan courts were given jurisdiction.

The Courts of Rajasthan will be no longer bestowed with authority as once seat of adjudication is supplanted by consensual understanding to be in Ahmedabad, as exclusive jurisdiction has become enmeshed in the Courts of Ahmedabad, due to the change in the seat of arbitration.

Thus, in Inox Renewables, the Hon’ble Supreme Court established that when a collectively satisfactory Seat of Arbitration is shifted to another location, the exclusive jurisdiction of the Courts changes as well, and jurisdiction vests with the Courts at the substituted Seat of Arbitration agreed upon by the parties.

Conclusion

In particular circumstance both of the parties seek to change or modify the Place and Seat of the Arbitration by comportment or having to give affirmative consent to about the same, it is just not necessary to define the subject agreement. The parties could even collectively decide to change or modify the venue of Arbitral proceedings and the collectively satisfactory place would become the Place of the Arbitral proceedings.They should therefore bear in mind, even so, that altering the arbitration location in the sake of comfort entails granting jurisdiction to the courts of the new venue.


[1]Appeal bearing No. 9536 of 2019

[2](2012) 9 SCC 552

[3](2017) 7 SCC 678

[4](2020) 4 SCC 234

[5](2011) 6 SCC 161

By Avnip Sharma

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