Shifting the Place of Arbitration: Supreme Court Reaffirms BGS and Upholds Party Autonomy
[Soham is an Associate (Litigation) at Pioneer Legal.]
In M/s Inox Renewables Limited v Jayesh Electricals Limited, the Supreme Court of India (Supreme Court) held that where the venue/place of arbitration has been changed by mutual consent of the parties, dehors a written agreement, such venue/place shall ipso facto become the seat of the arbitration. In doing so, the Supreme Court reaffirmed its previous decision in BGS Soma JV v NHPC Limited (BGS), holding that reference to a 'venue' of the 'arbitral proceedings' would necessarily mean 'seat' of the arbitral proceedings and upheld the autonomy of parties to alter such venue/place, even in the absence of a written agreement.
Gujarat Fluorochemicals Limited (GFL) and Jayesh Electricals Limited (JE) entered into a purchase order for the manufacture of certain equipment at wind farms. The arbitration clause designated Jaipur as the venue of the arbitration and vested the courts at Rajasthan with exclusive jurisdiction to adjudicate disputes arising out of and/or in relation to the purchase orders.
Subsequently, GFL sold its entire business to Inox Renewables (Inox) by way of a business transfer agreement (BTA). in which Vadodara was designated as the seat of the arbitration and was also vested with exclusive jurisdiction.
Upon disputes arising between Inox and JE, arbitration was invoked and the arbitrator passed an award in favor of JE against which, a challenge was filed by Inox before the Commercial Court in Ahmedabad (Commercial Court). The Commercial Court held that courts at Vadodara would have exclusive jurisdiction to adjudicate upon the disputes and dismissed the challenge to the award.
It would be pertinent to note that the arbitrator, while delivering the award, had expressly noted that the parties, by mutual consent, have shifted the place of arbitration to Ahmedabad. Accordingly, Inox filed a special civil application, challenging the Commercial Court’s order before the High Court of Gujarat. The Gujarat High Court, however, held that even if Ahmedabad was designated as the seat, the courts at Rajasthan were conferred with exclusive jurisdiction to adjudicate the dispute and hence, dismissed the special civil application filed by Inox.
Submissions by Inox and JE
Inox inter alia argued that the BTA was executed between GFL and Inox to which, JE was not a party. Therefore, reliance placed on the BTA was irrelevant in deciding the disputes that had arisen between Inox and JE. Further, Inox also relied on the arbitrator’s award wherein it was expressly held that the parties had, by mutual consent, shifted the place of arbitration to Ahmedabad and hence, relying on BGS, submitted that the seat of arbitration ipso facto was Ahmedabad.
JE per contra contended that a written agreement is a sine qua non for shifting a place of arbitration. Reliance was placed on the Supreme Court’s dictum in Videocon Industries v. Union of India and Another (Videocon) and Indus Mobile Distributions Private Limited v. Datawind Innovations Private Limited and Others (Indus Mobile) to submit that parties cannot, in the absence of a written agreement, shift the place of arbitration by mutual consent. JE further submitted that in terms of the purchase orders, the courts at Rajasthan were to exercise exclusive jurisdiction and as such, the exclusive jurisdiction clause was independent of the arbitration agreement designating Jaipur as the place/venue of the arbitration. Accordingly, the shifting of the place of arbitration to Ahmedabad was merely a shifting of the venue for the convenience of the tribunal.
Relying upon the findings of the arbitrator, the Supreme Court, at the outset, observed that JE could not emphasize the existence of a written argument to establish that the place/venue of the arbitration had not been shifted. Since the arbitrator expressly recorded that the parties had, by mutual consent, agreed to shift the place/venue of the arbitration, the courts at Ahmedabad were to exercise supervisory jurisdiction over the arbitral proceedings.
The Supreme Court further distinguished JE’s reliance on BGS, Videocon, and Indus Mobile as under:
Relying on BGS, the Supreme Court held that a change in the venue/place of the arbitral proceedings implies a change in the seat. Therefore, a shift in the venue/place of the arbitration would necessarily imply that the seat of the arbitration had also been shifted to Ahmedabad.
Re: Indus Mobile
The Supreme Court held that the dispute resolution clause in the purchase orders needed to be read in its entirety and rejected JE’s interpretation of isolating the exclusive jurisdiction clause (courts at Rajasthan) from the rest of the arbitration agreement designating Jaipur as the venue/place of arbitration. The Supreme Court held that since Jaipur was the venue, the courts at Rajasthan had to be granted exclusive jurisdiction anyway in terms of the purchase orders. The Supreme Court further observed that the change in the venue/place of arbitration from Jaipur to Ahmedabad was effectively a change in the seat of the arbitration and not merely a change in the geographical and/or convenient venue for the arbitration proceedings. Since JE had contended that the shifting of the venue / place was merely for the convenience of the tribunal and the parties, the Supreme Court clarified that post its ruling in BGS, any change in the venue / place of arbitral proceedings has to be treated as a change in the seat of the arbitral proceedings.
The primary thrust of JE in relying upon Videocon was to establish that a written agreement was a necessary pre–condition to shift and/or alter the place/venue of the arbitration proceedings. The Supreme Court however distinguished Videocon’s applicability to facts of this case since the parties in Videocon had agreed to make amendments to their agreement, and a possible change in seat of arbitration, only by way of a written agreement. Since the purchase orders or the BTA in this case did not have such a clause, the Supreme Court held that the parties were at liberty to mutually consent and change and/or shift the place/venue of the arbitration.
At the outset, it would be crucial to note that the Supreme Court has reaffirmed its principle in BGS, holding that reference to a 'venue' of the 'arbitration proceedings' in an agreement would ipso facto imply reference to its seat. This is particularly interesting since two coordinate bench rulings of the Supreme Court in Union of India v. Hardy Exploration and Production (India) Inc (which was questionably held to be “bad law” in BGS) and Mankastu Impex Private Limited v. Airvisual Limited have categorically held that venue can only mean seat, if [a] there are no contrary indicia displacing such an assumption (such as the cause of action, the conduct of the parties and the procedural rules governing the arbitration); and [b] there are concomitant factors apart from the mere reference to the venue of the arbitration (such as SIAC Rules governing the arbitration in an agreement with Singapore as the venue) to confer upon venue the status of the seat of the arbitration. In quoting extensively from and relying upon BGS, the Supreme Court has, at least for the time being, indicated that reference to venue in arbitration agreements shall be construed to be its seat.
Interestingly, in Government of West Bengal v. Chatterjee Petrochem, the Calcutta High Court observed that in agreements that require amendments to be carried out expressly by way of a written agreement, a mere request to change the venue of the arbitration could not be construed to be a change in the seat of the arbitration. The Calcutta High Court relied upon two Supreme Court decisions in Reliance Industries Limited v. Union of India and Videocon to observe that in agreements which set out a procedure for amending and/or altering its terms by way of written instruments, a change in any of the terms of the agreement, such as shifting of the seat of arbitration, has to necessarily be carried out through a written agreement. Parties cannot traverse dehors the term of the contract to change the seat of the arbitration by mutual consent. However, since there was no express procedure for amending the agreement in the instant case and the arbitrator had recorded that parties by consent had agreed to shift the seat of the arbitration, the requirement of a written agreement to change the seat of the arbitration was not necessary.
Therefore, dispute resolution clauses in commercial instruments need to be carefully worded, with specific emphasis on defining terms such as 'seat' and 'venue' to ensure that their meanings are consistent with current judicial interpretations. It is advisable that specific language be used to define the term 'venue' when it is used to connote a convenient geographical location for holding arbitration hearings, recording evidence of parties, etc., and not as the seat of the agreement. Avoiding ambiguous and/or pathological arbitration clauses to seep into commercial contracts will enable parties to effectively safeguard their interests and avoid spending time and resources on multiple rounds of litigation.