The Hon’ble Bombay High Court (“BHC”) has in its judgment dated January 29, 2021 (“Judgement”), in the matter of Aniket SA Investments LLC v. Janapriya Engineers Syndicate Private Limited and Others [Commercial Appeal No. 504/2019], held that a choice of seat is itself an expression of party autonomy and carries with it the legal effect of conferring exclusive jurisdiction on the courts of the seat.

Facts

Aniket SA Investments LLC (“Appellant”), a foreign investor and Janapriya Engineers and Syndicate Private Limited (“Respondent No. 1”) were shareholders of Janapriya Townships Private Limited (“Respondent No. 2”), a special purpose vehicle carrying out a real estate development project in Telangana. The Appellant, Respondent No. 1 and Respondent No. 2 had entered into a share subscription and shareholders agreement dated August 21, 2008 (“the Agreement”). The other respondent nos. 3 to 6, party to the petition, were the promoters of Respondent No. 1 (“Promoters”). Respondent No. 1, Respondent No. 2 and the Promoters are collectively referred to as “Respondents”.

Disputes arose between the Appellant and the Respondents in relation to the implementation and execution of the Agreement. Therefore, the Appellant issued a notice of default dated March 19, 2019. Subsequently, Appellant issued a notice to Respondent No. 1 exercising a ‘Put Option’ under the shareholders agreement dated July 08, 2019, and finally a dispute notice dated August 22, 2019, to invoke arbitration. The relevant clauses of the Agreement are Clause 20.3 (Governing Law and Jurisdiction) that provided jurisdiction to courts at Hyderabad (“Jurisdiction Clause”) and Clause 20.4 (Arbitration) that provided jurisdiction to courts at Mumbai (“Arbitration Clause”).

Thereafter, the Appellant had filed a petition under Section 9 (Interim measures, etc., by Court) (“Section 9 Petition”) of the Arbitration and Conciliation Act, 1996, (“Act”). Therein, by order dated October 22, 2019 (“Impugned Order”), the learned single judge, BHC, extensively relied on paragraph 96 of the decision of the Supreme Court (“SC”) in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc [(2012) 9 SCC 552] (“BALCO”), among other judgements, and held that there was concurrent jurisdiction of court where the cause of action accrued and the court of the seat of arbitration. The Impugned Order further held that as a matter of party autonomy, the parties had made an express choice in conferring jurisdiction on the courts at Hyderabad and that to give effect to this plain commercial term of the Agreement, the expression ‘subject to’ must be read as ‘notwithstanding’ and that expression ‘seat’ must be read as ‘venue’. Therefore, the Impugned Order disregarded the choice of Mumbai as a ‘seat’. Hence, the appeal was filed under Section 37 of the Act to challenge the Impugned Order.

Issues
1. Whether the Impugned Order was correct in relying on paragraph 96 of BALCO to recognize concurrent jurisdiction under Section 2(1)(e) (definition of court) of the Act or whether a choice of seat of arbitration has the legal effect of conferring exclusive jurisdiction on the courts of that seat (“Issue 1”).

2.  If there is concurrent jurisdiction of two courts, is the Impugned Order correct to hold that as a matter of party autonomy, the parties have made an express choice in conferring jurisdiction on the courts at Hyderabad and that to give effect to this plain commercial term of the Agreement, the expression ‘subject to’ must be read as ‘notwithstanding’ and that expression ‘seat’ must be read as ‘venue’.

Arguments

Contentions raised by the Appellant:

The Appellant submitted that, even if it is to be assumed that by law, two courts had concurrent jurisdiction under the Act, the clear intent of the parties as gathered by the plain meaning of the clauses is that, choice of courts at Hyderabad in Jurisdiction Clause is made “subject to” Arbitration Clause that provides for the seat at Mumbai. Therefore, in the event of any conflict the latter must prevail in consonance with the well settled meaning of the expression “subject to”. There was no warrant for reading “subject to” as “notwithstanding” and giving it the very opposite meaning to the clear words chosen by the parties. The Appellant suggested that one way of reconciling both the clauses is that, the Jurisdiction Clause will apply in relation to a dispute that is not covered by arbitration, and in relation to all disputes under the arbitration agreement, the choice of seat being at Mumbai, the choice of court will also be at Mumbai even in a situation of concurrent jurisdiction with two court

The expression ‘seat’ could never have been read as a mere venue, rather the law in fact leans in favour of reading a reference to ‘venue’ as ‘seat’. When the parties make an express reference to a place as being the ‘seat’, that choice under the principles of party autonomy must be given full effect. The Appellant relied on the judgment of BGS SGS SOMA JV v. NHPC LIMITED [(2020) 4 SCC 234] (“BGS SGS”), being completely applicable to answer the Issue 1. The SC therein had held that paragraph 96 of BALCO must be read consistently with the entire judgment, that is, when properly construed, it was held that, the courts of the seat of arbitration would have exclusive jurisdiction in relation to disputes arising in relation to the arbitration. The SC in BGS SGS noted the ratio laid down in the case of Antrix Corporation Limited v. Devas Multimedia Private Limited [2018 SCC OnLine Del 9338] (“Antrix”), as relied upon in the Impugned Order, as incorrect and contrary to the ratio in BALCO. It was also observed in BGS SGS that, a reference to a ‘place’ or ‘venue’ in an arbitration agreement will generally be understood as being a reference to a ‘seat’ of the arbitration unless there is a clear indication to the contrary.

Contentions raised by the Respondents:

The SC’s decision in BGS SGS does not have a direct bearing on Issue 1. Further, the judgment in BGS SGS does not apply to the present situation, as while analysing precedents and considering ‘seat’ as being akin to exclusive jurisdiction, it did not consider possibility of an agreement stipulating different places being mentioned in respect of ‘seat’ in the arbitration clause and an exclusive jurisdiction provided generally in the contracts.

The Arbitration Clause should not be read as being a choice of ‘seat’ so as to displace an exclusive jurisdiction of the courts at Hyderabad, as stated expressly, as the choice in Jurisdiction Clause. The Impugned Order was correct in reading the expression ‘subject to’ as ‘notwithstanding’ so as to give effect to the intent of the parties as was apparent in the Agreement. The Promoters contended that in the year 2008, when the Agreement was entered into between the parties, the expression ‘seat’ was understood to mean ‘venue’. The expression ‘seat’ as it is now understood was unknown to the parties at that time. Therefore, for the purpose of vesting jurisdiction on courts, the phrase ‘exclusive jurisdiction’ was stipulated in the Jurisdiction Clause. It was submitted that, therefore, disregarding common usage at the relevant time will amount to disregarding the intent of parties.

The concept of ‘seat’ is relevant only to international commercial arbitration. In domestic arbitrations or international commercial arbitrations seated in India, parties would retain the right to vest exclusive jurisdiction with a court from amongst multiple courts which would naturally have jurisdiction over the subject matter or cause of action. It is submitted that reference to ‘seat’ in domestic arbitrations or international commercial arbitrations seated in India would not subsume within it an exclusive jurisdiction of courts of that ‘seat’.

Observations of the Bombay High Court

Jurisprudence laid down in BALCO and BGS SGS on exclusive jurisdiction of the courts at the ‘seat’:

The BHC extensively noted the observations made in the BGS SGS case by the SC. The BHC noted that the judgment of BALCO was previously understood by some high courts to recognize concurrent jurisdiction of the ‘cause of action’ court and the ‘seat’ court. It was noted that the conflicting observations made in the BALCO judgement were clarified in the case of BGS SGS by the SC. The BHC further observed that if, as laid down in paragraph 96 of BALCO, the concurrent jurisdiction was to be the order of the day, despite seat having been located and specifcally chosen by the parties, party autonomy would sufer. The BHC noted the observations of the SC that paragraph 96 of BALCO was not in consonance with other observations as made therein in the judgement. The BHC observed that, the very fact that the parties have chosen a place to be the seat would necessarily carry with it the decision of both the parties that the courts at the seat would exclusively have jurisdiction over the entire arbitral process.

The SC in BGS SGS upheld the ratio of Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited [(2017) 7 SCC 678] (“Indus Mobile”) wherein it was clarified that, the moment a seat is designated by agreement between the parties, it is akin to an exclusive jurisdiction clause, which would then vest the courts at the ‘seat’ with exclusive jurisdiction for the purposes of regulating arbitral proceedings.

The BHC observed that the Antrix case as relied upon by the Impugned Order, is no longer good law as it did not follow BALCO. The BHC observed that it is incorrect to state that the example given in paragraph 96 of BALCO reinforces the concurrent jurisdiction. The judgment in BALCO when read as a whole, applies the concept of ‘seat’ and harmoniously construes Section 20 (Place of arbitration) with Section 2(1)(e) of the Act to effectively broaden the definition of ‘court’, to take within its ken the courts of the ‘seat’ of the arbitration. It was observed that the narrow construction of Section 2(1)(e) of the Act was expressly rejected in BALCO.

The BHC further observed that an application under Section 9 of the Act may be preferred before a court in whose jurisdiction part of cause of action arises, in two situations, one, if parties have not agreed on the ‘seat’ of arbitration, and the other, before such ‘seat’ may have been determined on the facts of a particular case by the arbitral tribunal under Section 20(2) of the Act. In both these situations, the earliest application having been made to a court in which a part of the cause of action arises would then be the exclusive court under Section 42 (Jurisdiction) of the Act, which would have control over the arbitral proceedings.

Applicability of BGS SGS to Impugned Order:

The BHC observed that the Impugned Order in so far as it held paragraph 96 of BALCO to recognize concurrent jurisdiction of the ‘cause of action’ court and the ‘seat’ court could not be sustained as it was inconsistent with the judgment in BGS SGS. The BHC further rejected the contentions of Promoters that the judgment of BGS SGS did not apply to the instant case because the present case is an international commercial arbitration seated in India, while law laid down in BGS SGS was on a situation where it was a domestic arbitration. The BHC observed that, it would be incorrect and contrary to the reading of the judgment itself to restrict the application of the law it laid down, to apply only to some situations and not others as had been contended by Promoters. The BHC concluded that on a reading of the entire judgment, the judgement was clearly applicable to Issue 1 irrespective of whether it is a domestic arbitration or an international commercial arbitration seated in India, such as in the present case.

The BHC further observed that, in the case of BGS SGS it had been held that there is no concurrent jurisdiction of two courts under Section 2(1)(e) of the Act. The BHC further observed that the principles applied in the Impugned Order, that, as a matter of party autonomy the parties can choose one of the two courts and confer exclusive jurisdiction on one of those courts, by relying, inter alia, upon paragraph 96 of BALCO, would have no application in a situation where the parties had chosen a seat of arbitration. The BHC observed that a choice of seat, as the SC had also explained, is itself an expression of party autonomy and carries with it the effect of conferring exclusive jurisdiction on the courts of the seat.

The BHC rejected the contentions of the Promoters, that the choice of ‘seat’ in the year 2008 when the Agreement was entered into was not understood as a choice of courts of the ‘seat’ and that this could not be the intention attributed to the parties. The BHC observed that the law as laid down in BGS SGS to the effect of choice of ‘seat’ as conferring exclusive jurisdiction is by no means prospective or applicable only after a particular date. Even the judgment in BALCO, as explained in BGS SGS, must be understood as stating the legal position under the Act and which must be given effect to, even if the Agreement was executed a date prior to the judgment.

The BHC was of the opinion that, in view of the SC’s analysis of Indus Mobile in the case of BGS SGS, the Impugned Order was not correct in distinguishing Indus Mobile only because of the clauses in the agreement in Indus Mobile were conferring exclusive jurisdiction on the same court as that of the seat.

Interpretation of the clauses of the Agreement:

The BHC observed that it is a well settled rule of interpretation of agreements that the courts must give effect to the plain language used by the parties and that the intention of the parties must be gathered from the plain meaning of words used in the agreement. The BHC noted that, the Jurisdiction Clause conferred exclusive jurisdiction on the courts at Hyderabad, and that this was not part of the Arbitration Clause of the Agreement. The BHC noted that significantly, the choice of court at Hyderabad was made clearly ‘subject to’ Arbitration Clause. Therefore, the plain language used in the Agreement, was that Mumbai is chosen as the seat of arbitration proceedings.

The BHC commended the ratio of the judgment in South India Corporation Private Limited v. Secretary Board of Revenue [AIR 1964 SC 207], that the meaning of the expression ‘subject to’ is the opposite of ‘notwithstanding’ and, therefore, ‘subject to’ could never have been interpreted as ‘notwithstanding’ as had been done in the Impugned Order. The BHC, hypothetically analysed that, even if one were to accept that concurrent jurisdiction of two courts is possible, the choice of Mumbai as the seat of arbitration would in any view of the matter mean that the courts at Mumbai had concurrent jurisdiction to entertain disputes under the Agreement. The BHC emphasized that, the choice of courts at Hyderabad is made ‘subject to’ the seat at Mumbai, which implied prevalence of choice of courts at Mumbai, and therefore in the event of any conflict the latter clause should prevail. The BHC stated that this is the plain meaning, beyond any doubt, of the words ‘subject to’ and ‘seat’ and, therefore, this would have the effect of conferring exclusive jurisdiction on the courts at Mumbai.

The BHC observed that the Jurisdiction Clause and the choice of courts expressed therein would apply in a situation not covered by a dispute that is governed by the arbitration agreement in Arbitration Clause. In any view of the matter, even if Jurisdiction Clause does overlap with Arbitration Clause in determining which court would have jurisdiction to entertain applications made under the Act, since Jurisdiction Clause is made ‘subject to’ Arbitration Clause, the BHC observed that the court of the ‘seat’ would even under the Agreement have exclusive jurisdiction to entertain applications made under the Act.

The BHC noted that, the SC in BGS SGS had observed that, even when parties use the expression ‘venue of arbitration proceedings’ with reference to a particular place, the expression ‘arbitration proceedings’ would make it clear that the ‘venue’ should be read as ‘seat’. The BHC observed that thus, there is no basis for reading Mumbai as a ‘venue’, only because effect had to be given to the choice of courts at Hyderabad, which is itself ‘subject to’ the Arbitration Clause.

Decision of the Bombay High Court

The BHC held that the Impugned Order in so far as it related to the interpretation of the Agreement, could not be sustained. The BHC answered the first part of the Issue 1, in the negative; and the second part of the Issue 1 in the affirmative. Further, the issue 2 as mentioned above was answered in negative.

It thus held that, where a provision in the Agreement conferred exclusive jurisdiction on one place and another provision separately provided for a seat of arbitration in another place and the Agreement provides that the first provision is subject to the second provision, the courts at the latter place would have jurisdiction for entertaining the Section 9 Petition. Therefore, the BHC conclusively held that the Arbitration Clause would prevail over the Jurisdiction Clause and hence the courts at the seat, that is, at Mumbai, had the exclusive jurisdiction.

Therefore, the BHC set aside the Impugned Order and allowed the appeal. The Section 9 Petition was ordered to proceed on merits before the BHC and was accordingly restored.

VA View:

The BHC in this Judgement has analysed multiple precedents relied upon by the parties. The BHC relied on the case of BGS SGS to reiterate the clear position of law and reinforced the premise that the concept of juridical seat of arbitral proceedings had to be developed in accordance with the international practice on a case-by-case basis. The BHC after analysing various precedents, and provisions in agreement with the observations made by the SC, noted that it is too late in the day, to contend that the seat of arbitration is not analogous to an exclusive jurisdiction clause.

The BHC in this Judgement has clarified that, BALCO, did not hold that two courts, that is, the seat court and the court within whose jurisdiction the cause of action arises, had concurrent jurisdiction. The BHC noted that the various high courts missed the subsequent paragraphs in BALCO, which clearly and unmistakably stated that the choosing of a ‘seat’ amounted to the choosing of the exclusive jurisdiction of the courts at which the ‘seat’ is located.

For more information please write to Mr. Bomi Daruwala at [email protected]

DOWNLOAD PDF FILE