The Viewpoint: Can parties change the seat of arbitration through mutual agreement?

Recently a question arose before the Supreme Court in M/s Inox Renewables Ltd v Jayesh Electricals Ltd again, if the seat could be changed by a subsequent mutual agreement between the parties, which was not in writing.
The Viewpoint: Can parties change the seat of arbitration through mutual agreement?
Nilava Bandyopadhyay, Adhip Kumar Ray

In arbitration the determination of the seat of arbitration is absolutely crucial as the same governs the lex arbitri and curial law.

The lex arbitri is the law applicable to the arbitral proceedings and the seat of arbitration determines which courts have jurisdiction over the arbitration proceedings.

The curial law is the law governing the conduct of proceedings of arbitration relating to commencement of proceedings, appointment of arbitrators, pleadings, manner of conducting evidence, etc. The same also is generally determined by the Seat of arbitration (similar to the lex arbitri). However, if the parties choose, they can make some other curial law applicable.

Curiously, the word “seat” has not been mentioned anywhere in the Arbitration and Conciliation Act, 1996. The word used in the Act instead, in Section 20(1) is place“The parties are free to agree on the place of arbitration.”

The Hon’ble Supreme Court has in a number of judgments has laid down the law that the word “place” contained in Section 20(1) is used interchangeably with “seat”. It is pertinent to note that the word “place” used in Section 20(1) is different from the word “place” used in section 20(3), which has been held by the Hon’ble Supreme Court to mean “venue” where the arbitration proceedings are held and the same might or might not be at the same place as the seat.

The issue of seat and venue again came up in the recent Supreme Court judgment of M/s Inox Renewables Ltd v Jayesh Electricals Ltd (Civil Appeal No. 1556 of 2021), where the question before Hon’ble Supreme Court was whether the seat designated in an agreement could be changed in by a subsequent mutual agreement between the parties, which was not in writing.

The issue arose from an arbitration clause contained in the Purchase Order (“PO”) dated 28.01.2012, signed between Jayesh Electricals Limited (“Jayesh Electricals”) and Gujarat Fluorochemicals Limited (“GFL”).

Subsequently, through a business transfer agreement dated 30.03.2012, Inox Renewables Ltd took over the entire business of GFL. This business transfer agreement designated Vadodara as the seat of the arbitration and pertinently, Jayesh Electricals was not a party to this agreement.

Thereafter, certain disputes arose between Inox Renewables and Jayesh Electricals and on 05.09.2014, Jayesh Electricals made an application under section 11 of the Arbitration and Conciliation Act, 1996 (“Act”) for appointment of arbitrator, in which the parties made a joint request for the appointment of a sole arbitrator. The Gujarat High Court made the appointment on 28.07.2018.

The arbitration agreement in question as contained in clause 8.5 of the PO expressly stated that “The venue of the arbitration shall be Jaipur” and also that, “In the event of arbitrators' award being not acceptable to either party, the parties shall be free to seek lawful remedies under the law of India and the jurisdiction for the same shall be courts in the State of Rajasthan.”

However, while awarding certain sums in favour of Jayesh Electricals in the award, the Arbitrator recorded that irrespective of the specific clause as to the venue, the place of the arbitration would be Ahmedabad and not at Jaipur. The relevant paragraph of the award reads as follows –

“12.3 There is no controversy as to the constitution of the Tribunal between the parties and the parties have agreed to get their dispute resolved by a sole arbitrator. As per arbitration agreement, the venue of the arbitration was to be Jaipur. However, the parties have mutually agreed, irrespective of a specific clause as to the [venue, that the place] of the arbitration would be at Ahmedabad and not at Jaipur. The proceedings, thus, have been conducted at Ahmedabad on constitution of the Tribunal by the learned Nominee Judge of the Hon’ble High Court of Gujarat.”

Aggrieved by the award, Inox Renewables made an application under Section 34 of the Act before the Commercial Court at Ahmedabad (Commercial Court) for setting aside of the Award.

However, pertinently, the Arbitrator’s observations regarding the change in the place of arbitration were not challenged. The Ahmedabad Commercial Court through an order dated 25.04.2019 dismissed the application on the ground that the seat of arbitration was in Vadodara, apparently relying on the business transfer agreement between GFL and Inox Renewables.

Inox renewables filed Special Civil Application No. 9536 of 2019 against the aforesaid order, wherein the High Court also dismissed the same although the High Court finds that the jurisdiction lies with courts at Jaipur, Rajasthan. Against the order of the High Court, Inox Renewables had approached the Supreme Court in appeal.

Inox Renewables, contended that the Gujarat High Court had failed to consider that the arbitrator had recorded in the arbitral award that the venue/place of arbitration was shifted by mutual consent to Ahmedabad, as a result of which, the place of arbitration or seat of arbitration became Ahmedabad, resulting in courts at Ahmedabad having exclusive jurisdiction.

Jayesh Electricals on the other hand contended that even if the place of arbitration is shifted by mutual agreement, it cannot be so done without a written agreement between the parties. Reliance was placed in the Supreme Court judgments of Videocon Industries Limited vs. Union of India & Anr., (2011) 6 SCC 161 (“Videocon”) and Indus Mobile Distribution Private Limited vs. Datawind Innovations Private Limited (2017) 7 SCC 678 and (“Indus Mobile”). Jayesh Electricals further argued that arbitrator’s recording that venue was shifted by mutual consent from Jaipur to Ahmedabad was with reference to Section 20(3) of the Act, thereby meaning that only the venue of arbitration had shifted to Ahmedabad for convenience. However, the seat of the arbitration always remained at Jaipur, it was submitted.

On due consideration of the issue, the Hon’ble Supreme Court held that the arbitrator had clearly recorded that the parties by mutual agreement have specifically shifted the “venue/place” of arbitration from Jaipur to Ahmedabad. This being the case, Jayesh Electrical’s argument that only the venue had shifted and not the seat, could not be accepted.

Accordingly, in this situation, the shifting was in reference to shifting of the seat (and not merely the venue) under Section 20(1) of the Act. The Court then relied on BSG SGS SOMA JV vs. NHPC Limited, (2020) 4 SCC 234 to hold that the moment the seat was chosen as Ahmedabad, it was akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with the arbitration. Accordingly, the Hon’ble Supreme Court set aside the judgment of the Gujarat High Court and referred the parties to courts at Ahmedabad for the resolution of the Section 34 application.

It is interesting to note that in the present case, the Hon’ble Supreme Court has also distinguished the landmark judgment of Videocon Industries Limited v. Union of India and Anr. (2011) 6 SCC 161. In Videocon, the seat of arbitration was Kuala Lumpur. However, on account of the outbreak of SARS the Arbitral Tribunal had recorded in a procedural order that “By consent of parties, seat of the Arbitration is shifted to London.” However, the Hon’ble Supreme Court after a holistic reading of the contract between the parties, observed that there was a clause in the contract, which required all changes to the contract to be made through a written instrument signed by all the parties. As this was not done, the tribunal’s order stating that the seat was shifted to London would only mean that the venue of the arbitration had shifted and not the seat.

In the present case, between Jayesh Electricals and Inox Renewables, the Hon’ble Supreme Court, while distinguishing the Videocon judgment, observed that there was no stipulation in the Purchase Order, which required that changes to the same would have to be in writing. Therefore, the fact that the arbitrator had recorded in the Award that the place was changed from Jaipur to Ahmedabad, by mutual agreement, and this was not objected by the parties, would mean that the seat of arbitration had shifted from Jaipur to Ahmedabad.

It is pertinent to note that while the Supreme Court has discussed and distinguished the Videocon case on facts, it has not overruled the same.

Therefore, the current position of law appears to be that if seat is mentioned in the contract and the contract has a clause that requires the amendment of the contract to be in writing, then any change in the contract would have to be in writing as per the relevant terms of the contract. In such a situation, the parties would only be able to change the seat of arbitration by following the procedure laid down in the contract. authored by Nilava Bandyopadhyay, Senior Partner, Singh & Associates and Adhip Kumar Ray, Principal Associate, Singh & Associates.

However, if there is no such provision which requires the change to the contract, to be in writing, the Judgment of Inox Renewables would apply, and as per the Hon’ble Supreme Court “the parties may mutually arrive at a seat of arbitration and may change the seat of arbitration by mutual agreement which is recorded by the arbitrator in his award to which no challenge is made by either party.”

Authored by

Nilava Bandyopadhyay, Senior Partner, Singh & Associates and Adhip Kumar Ray, Principal Associate, Singh & Associates.

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