The "Embedded Clause" Fallacy: How High Courts are Unraveling Soma Presumption in Indian Arbitration

[Pranava is a student at Jindal Global Law School.]

The position of Indian arbitration jurisprudence regarding the “seat” of the arbitration is akin to a pendulum, which swings wildly between the poles of party autonomy and judicial interventionism. The Supreme Court, in its 2019 landmark decision of BGS SGS Soma JV v. NHPC Limited (Soma) intended to halt this motion. By establishing a bright-line test where the designation of a venue for arbitration proceedings carries along the presumptive status of the juridical seat, the court sought to align Indian law with the international standard set in the case of Roger Shashoua v. Mukesh Sharma. The intention was simple: to eliminate the confusion caused by Bharat Aluminium Co v. Kaiser Aluminium Technical (BALCO) and Union of India v. Hardy Exploration (Hardy Exploration) and to reduce the transactional costs of jurisdictional disputes.

However, over the past two years, a disturbing trend has emerged (2023–2025) across Indian High Courts which threaten to undo this clarity. Dictums, most notably the Delhi High Court’s ruling in Precitech Enclosures Systems Private Limited v. Rudrapur Precision Industries (Precitech) (2025) and the Gujarat High Court in Instakart Services v. Megastone Logiparks (Instakart) (2023), have carved out a broad exception that privileges the “exclusive jurisdiction” clauses over explicit venue designations. This article argues that these courts are employing a formalistic “embedded clause” doctrine that fundamentally misinterprets the function of jurisdiction clauses, thereby resurrecting the very forum-shopping chaos that Soma sought to bury.

The Doctrinal Baseline: Why Soma’s Privileged Venue

To understand the magnitude of the recent deviation, one must first appreciate the baseline established by Soma. In Soma, the Supreme Court recognized that, in both international and domestic commercial practice, the choice of a place for arbitration is rarely a matter of mere geography; it is a choice of the lex arbitri (curial law). Therefore, when parties agree that arbitration shall be “held at New Delhi,” they are implicitly choosing New Delhi courts for supervisory jurisdiction.

Under the Soma framework, the interaction between a “venue clause” and an “exclusive jurisdiction clause” follows a clear hierarchy. A designated venue is the seat unless there are significant contrary indicia. Crucially, Soma clarified that a generic exclusive jurisdiction clause (e.g., “courts at Mumbai shall have exclusive jurisdiction”) is not a contrary indicium. It is interpreted harmoniously as governing the substantive contract or civil disputes (subject-matter jurisdiction), while the seat determines the supervisory jurisdiction over the arbitration itself. This distinction, between the court of the contract and the court of the arbitration, is the bedrock of modern arbitration law.

Precitech: The Conflation of Statute and Seat

The Delhi High Court’s 2025 ruling in Precitech represents a sophisticated but flawed challenge to this framework. The dispute in this particular juncture arose from a Rent Agreement containing a clause granting exclusive jurisdiction to courts in Rudrapur “for any application to be made under the Arbitration and Conciliation Act 1996 (Arbitration Act).” Crucially, the parties subsequently exchanged emails agreeing to conduct the arbitration in New Delhi and, in fact, filed Section 11 applications in that location.

Under a strict analysis under Soma, the later agreement to fix the venue in Delhi, which is reinforced by the parties’ conduct should have established Delhi as the juridical seat. Nevertheless, the High Court here held that the Rudrapur jurisdiction clause prevailed. The court’s reasoning hinged on the fact that the jurisdiction clause was not merely general but specifically referenced the Arbitration Act. This, the court reasoned, indicated a clear “contrary intent” that rebutted the presumption of the Delhi venue.

Such a reasoning suffers from a fatal conflation. It treats a choice of court for applications (which can be procedural or interim) as a choice of seat (which is foundational). The “seat” is the centre of gravity for the arbitration; it determines the nullity of awards and the procedural law. By contrast, a clause directing applications to a specific court is merely a procedural mechanism. The error is magnified by the court’s disregard for Section 42 of the Arbitration Act, which locks jurisdiction in the court where the first application is made. By ignoring the parties’ subsequent conduct (agreeing to Delhi) and their initial filings in Delhi, the court prioritized a static contractual clause over the dynamic reality of the arbitration. This prioritizes paper jurisdiction over practiced jurisdiction, and interferes with the commercial sense that Soma sought to protect.

Instakart: Inverting the Hierarchy of Construction

If Precitech was a misapplication of statutory jurisdiction, the Gujarat High Court’s decision in Instakart (2023) was a crisis of contractual construction. In Precitech, the arbitration clause explicitly stated proceedings would be “conducted at Bangalore.” However, a separate clause granted exclusive jurisdiction to courts at Ahmedabad “subject to the foregoing.”

Standard canons of construction dictate that the phrase “subject to” creates a hierarchy: the clause following the phrase (jurisdiction) yields to the clause preceding it (arbitration venue). Thus, it was implicit that that the parties intended for Bangalore (the venue) to govern the arbitration, while Ahmedabad retained jurisdiction over residual matters subject to that primary choice.

Nevertheless, the Gujarat High Court inverted this. It held that the Ahmedabad jurisdiction clause overrode the Bangalore venue, effectively reading “subject to” as “notwithstanding.” Such an interpretation renders the phrase “conducted at Bangalore” otiose - a mere geographical convenience stripped of legal meaning. It resurrects the ghost of the BALCO era, suggesting that parties can split the physical “venue” from the legal “seat” without explicit language, a proposition Soma expressly rejected. By allowing a subordinate clause to swallow the primary clause, Instakart introduces a dangerous level of unpredictability into contract drafting.

The “Embedded Clause” Fallacy: Mankastu v/s Activitas

Defenders of these High Court decisions often cite Supreme Court precedents, such as Mankastu Impex v Airvisual Ltd. (Mankatsu) (2020), to argue that jurisdiction clauses can override venue. However, this relies on a superficial reading that ignores critical nuances.

In Mankastu, the Supreme Court held that a jurisdiction clause (in New Delhi) was overridden because the arbitration clause stated proceedings would be “administered in Hong Kong” The use of the word “administered” was key, because it signalled a choice of the arbitral institution and curial law, which is a hallmark of the seat. The Court did not simply let a jurisdiction clause prevail; it sought words that indicated control over the process.

Contrast this with the Supreme Court’s recent ruling in Activitas Management Advisor v. Mind Plus Healthcare (Activitas) (2025). Here, the Court held that an exclusive jurisdiction clause (in Mumbai) determined the seat in the absence of a venue designation. This is legally sound: if the contract is silent on seat/venue, the exclusive jurisdiction clause is the only anchor available to determine the seat. The error of Precitech and Instakart lies in applying the Activitas logic (jurisdiction = seat) to cases where a specific venue already exists. They allow a general jurisdiction clause to cannibalize a specific venue clause. They are transforming a gap-filling tool (Activitas) into a weapon of displacement. This “Embedded Clause” doctrine - whereby any mention of jurisdiction in the contract is presumed to be the seat - ignores the specific Shashoua test adopted in Soma, which requires “significant contrary indicia,” not just any contrary clause.

The “Zombie” Doctrine: Consequences of Uncertainty

This “jurisdiction-as-seat” trend resurrects the “zombie doctrine” of other concurrent jurisdiction. If a “conducted at X” clause can be negated by a “jurisdiction at Y” clause, commercial parties lose the predictability of the Soma test.

The practical implications of  such uncertainty are severe. We are likely to see a resurgence of roving Section 9 applications, where parties race to file interim relief applications in courts mentioned in jurisdiction clauses, even if the arbitration is actually taking place elsewhere. This creates the incongruity of an arbitration panel sitting in New Delhi, signing orders in New Delhi. At the same time, the parties are forced to litigate challenges to those orders in Rudrapur or Ahmedabad - courts which have no physical or logistical connection to the proceedings at all. Furthermore, this uncertainty imposes a “drafting tax” on commercial contracts. Lawyers must now draft defensively, explicitly stating that “the seat shall be X, notwithstanding any other jurisdiction clause,” rather than relying on the previously settled presumption that “venue = seat.”

Conclusion: Restoring the Shashoua Principle

This varying jurisprudence from the High Courts suggests a dangerous drift toward formalism, where the inclusion of the words “exclusive jurisdiction” acts as a talisman to negate specific venue agreements. This trend incentivizes forum shopping and punishes parties for using standard boilerplate jurisdiction clauses alongside negotiated venue terms. Thus, the Supreme Court must urgently clarify the hierarchy of clauses, through a larger bench, to settle the friction between Soma and Hardy Exploration once and for all. The correct doctrinal position should be:

• Venue clause: Presumptively the juridical seat (Soma).

• Conduct: Actual sittings and party agreements should reinforce the venue.

• Jurisdiction clause: Should be read restrictively to apply only to civil suits or residual matters, unless it explicitly states “the seat shall be X.”

  
  

Until courts stop treating boilerplate jurisdiction clauses as “embedded” seat designations, the conundrum of Indian arbitration will persist. The ghost of BALCO has not yet been exorcised; it has merely found a new home in the “exclusive jurisdiction” clause.