INDUS MOBILE DISTRIBUTION PRIVATE VS DATAWIND INNOVATIONS PVT. LTD: A CASE COMMENT

[Rajvansh singh]

2017 (4) TMI 929 - SUPREME COURT

Introduction-

Today, arbitration is considered to be the most preferred means to resolve commercial dispute but in many case it becomes very difficult to decide as where the arbitration will take place. Although, arbitration clause lacks ambiguity but the concept of seat has produced a lot of confusion. The concept of seat has been evolved by the courts of England and now embedded in our jurisprudence. The seat of arbitration determines the law according to which arbitration proceedings are conducted. The regulation of arbitration proceeding and recognition of the award is performed by the court within whose jurisdiction the arbitration take place i.e. seat. Thus, it can be safely concluded that seat is very important in arbitration.

In case of domestic arbitration a peculiar question arises that which court will have jurisdiction, court mentioned as seat of arbitration or court having jurisdiction under section 16-20 of Civil Procedure Code, 1908. In this case comment, I seeks to discuss that when a party choose a particular place then the court of that place have exclusive jurisdiction over the arbitration proceeding.

Facts –

Datawind Private Limited (Respondent No.1), which has its registered office at Amritsar and was engaged in the manufacture, marketing and distribution of mobile phones, tablets and their accessories. Indus mobile distribution private limited (appellant) approached respondent no. 1 for business, acting as their retail chain partner. Further, both the parties entered into an agreement in which respondent no.1 supplied goods to the appellant at Chennai from New Delhi.

Clause 18 and 19 of the agreement pertains to Dispute Resolution Mechanism.

Clause 18 says that, “If the Dispute cannot be amicably resolved by such officers within thirty (30) days from the date of referral, or within such longer time as mutually agreed, such Dispute shall be finally settled by arbitration conducted under the provisions of the Arbitration & Conciliation Act 1996 by reference to a sole Arbitrator which shall be mutually agreed by the parties. Such arbitration shall be conducted at Mumbai, in English language.”

Whereas clause 19 says that, “All disputes & differences of any kind whatever arising out of or in connection with this Agreement shall be subject to the exclusive jurisdiction of courts of Mumbai only.”

Dispute arose between the parties as a result respondent no.1 invoked the arbitration agreement and appellant denied the claims made by respondent no.1. Also, the appellant questioned the appointment of the sole arbitrator. Respondent no.1 filed two petitions before the Delhi High Court-

• Under section 9 asking for various interim reliefs
• Under section 11 for the appointment of arbitrator.

Delhi High Court judgment -

Delhi high court while disposing off the judgment held that as no cause of action arose in Mumbai, the courts of Mumbai doesn’t have the legitimate jurisdiction over this matter. Courts of Delhi, Amritsar and Chennai will only have jurisdiction over the case. Delhi being the first court approached regarding the matter is entitled over the jurisdiction over the matter and proceeded to confirm interim order and appointed Justice S.N Variava as the sole arbitrator.

Issue before Supreme Court

Whether Mumbai, where no part of cause of action arose and has exclusive jurisdiction according to the agreement has the legitimate jurisdiction over the dispute?

Supreme Court’s judgment and analysis

The Supreme Court set aside the order of the Delhi High Court in the following words:

“..the moment the seat is designated, it is akin to an exclusive jurisdiction clause. On the facts of the present case, it is clear that the seat of arbitration is Mumbai and Clause 19 further makes it clear that jurisdiction exclusively vests in the Mumbai courts. Under the Law of Arbitration, unlike the Code of Civil Procedure, which applies to suits filed in courts, a reference to 'seat' is a concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have jurisdiction – that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Section 16 to 21 of the CPC be attracted. In arbitration law however, as has been held above, the moment 'seat' is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.”

“20. Place of arbitration. - (1) The parties are free to agree on the place of arbitration.

(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the Arbitral Tribunal having regard to the circumstances of the case, including the convenience of the parties.

(3) Notwithstanding sub-section (1) or sub-section (2), the Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.”

A simple reading of Section 20 of the arbitration act says that if the place of arbitration is in India, the parties are free to decide “venue” and “seat” of the arbitration. Section 20 (1) and (2) talk about the seat of arbitration whereas section 20(3) talks about the venue of the arbitration. There will be only one seat of arbitration, which will be decided by the parties or the tribunal. This is the place, where arbitral tribunal should carry its proceedings. This does not mean that arbitral tribunal shall hold all its meeting at the place of arbitration. In international commercial arbitration often people from many countries are involved so conducting meeting at a place other than place of arbitration for the convenient of the parties as well as of arbitrators is not unusual. This doesn’t change the seat of arbitration.

Section 2(1)(e) of the Arbitration Act, 1996 defines “court” and it has to be read with section 20. The Hon’ble supreme court in BHARAT ALUMINIUM CO VERSUS KAISER ALUMINIUM TECHNICAL SERVICE, INC AND OTHERS [ 2012 (9) TMI 912 - SUPREME COURT ] judgment was of the view that the legislature has intentionally given jurisdiction to two courts i.e. the court having jurisdiction where the cause of action arises and the court where arbitration take place. On many instance the agreement included clause, which provide with seat of arbitration, which would be neutral to both the parties. It is important to note that when parties have intention to choose limit the jurisdiction to one court then it should be mentioned in the agreement in unambiguous, explicit and specific term.

In Swastik gases private limited v. Indiana Oil Corporation Limited [ 2013 (7) TMI 642 - SUPREME COURT ], cause of action arose at two places – Jaipur and Kolkata. According to contract Kolkata was the place, which was bestowed with exclusive jurisdiction. It was held that if there is a clause pertaining to exclusive jurisdiction then expressio unius est exclusio alterius comes into picture, which means that expression of one is exclusion of another. Thus, when the contract specifies the jurisdiction of courts at a particular place even if no part of cause of action took place there, an inference can be made that parties intended to exclude all other courts and gave jurisdiction to a particular court. Further, Such clause doesn’t violate of section 23 and 28 of Indian Contract Act.

CONCLUSION

The Supreme Court in this landmark judgment has provided clarity on jurisdiction of courts. The judgments make it very clear that when there is an exclusive jurisdiction clause in arbitration agreement stating that a particular court would have jurisdiction over the dispute arising under the agreement, it will oust the jurisdiction of other courts, even if cause of action didn’t arose at that place. Lawmaker should amend and include provision, which is similar to judgment; otherwise it will continue to create confusion. Also, Parties entering into agreement should decide the seat of arbitration after due consideration as this case prevents forum shopping, once the seat is decided.