Courts at the seat of arbitration have exclusive jurisdiction to regulate arbitral proceedings: Supreme Court

The Supreme Court has ruled that the moment a place is chosen as the seat of arbitration, it is akin to an exclusive jurisdiction clause, vesting the courts at the agreed place with exclusive jurisdiction to regulate arbitral proceedings (M/S Inox Renewables Ltd vs Jayesh Electricals Ltd)..The judgment was delivered by a Bench of Justices Rohinton Fali Nariman and Hrishikesh Roy on a plea by a company, Inox Renewables Limited (Appellant) against whom an adverse award was passed by the arbitrator. .By way of background, Gujarat Fluorochemicals Ltd (GFL) and Jayesh Electricals (Respondent) had entered into a purchase agreement in January 2012. As per the arbitration clause in the agreement, Jaipur was agreed to by the parties as the venue of arbitration. Later, a slump sale of the entire business of GFL took place in favour of the Appellant, Inox Renewables Ltd. This took place by way of a business transfer agreement dated March 30, 2012 executed between the Appellant and GFL to which the Respondent, Jayesh Electricals was not a party.The business transfer agreement between them had Vadodara as the seat of Arbitration..Later when the parties fell through, Jayesh approached the Gujarat High Court under Section 11 of the Arbitration and Conciliation Act, 1996 for the appointment of an arbitrator. A retired judge of the High Court was appointed as an arbitrator and it was jointly agreed therein that Ahmedabad would be the venue of Arbitration though initial agreement had Jaipur as the venue. .Later when an award was passed in favour of Jayesh, a Section 34 petition was moved by Inox in Ahmedabad which was resisted by the Respondent stating only courts in Vadodara would have jurisdiction. The Commercial Court, Ahmedabad, agreed with Jayesh. It placed reliance upon the business transfer agreement to hold that the courts at Vadodara alone would have exclusive jurisdiction and not Ahmedabad. On appeal, the High Court noted that the court in Jaipur would have jurisdiction but did not set aside the commercial court order. .On appeal the Supreme Court set aside the Commercial Court and High Court order stating that "moment the seat is chosen as Ahmedabad, it is akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with the arbitration.".The top court further noted that parties may mutually arrive at a seat of arbitration and may change the seat of arbitration by mutual agreement. In this case, such change was recorded by the arbitrator in his award to which no challenge was made by either party.."Venue” being shifted from Jaipur to Ahmedabad is really a shifting of the venue/place of arbitration with reference to Section 20(1), and not with reference to Section 20(3) of the Arbitration and Conciliation Act, 1996, as it has been made clear that Jaipur does not continue to be the seat of arbitration and Ahmedabad is now the seat designated by the parties, and not a venue to hold meetings. The learned arbitrator has recorded that by mutual agreement, Jaipur as a “venue” has gone and has been replaced by Ahmedabad," the judgment said. .The top court rejected the argument that jurisdiction of Courts in Rajasthan is independent of the venue being at Jaipur. The two-judge Bench held that the two clauses must be read together as the courts in Rajasthan have been vested with jurisdiction only because the seat of arbitration was to be at Jaipur. ."Once the seat of arbitration is replaced by mutual agreement to be at Ahmedabad, the courts at Rajasthan are no longer vested with jurisdiction as exclusive jurisdiction is now vested in the Courts at Ahmedabad, given the change in the seat of arbitration," the top court held..The Court, therefore, set aside the High Court judgment and referred the parties to courts at Ahmedabad for resolution of Section 34 petition. .[Read Judgment]