Supreme Court clarifies the significance of ‘Venue’ as ‘Seat’ in Arbitration Agreements: Brahmani River Pellets Ltd. vs. Kamachi Industries Ltd. (25 July 2019)

Date of the Judgment: 25 July 2019
Citation: (2019) INSC 714
Judges: R. Banumathi, J. and A.S. Bopanna, J.
Can a designated ‘venue’ of arbitration in an agreement be considered the ‘seat’ of arbitration, thereby conferring exclusive jurisdiction to the courts of that location? The Supreme Court of India addressed this critical question in a dispute between Brahmani River Pellets Limited and Kamachi Industries Limited. The court clarified that when parties agree on a specific venue for arbitration, it implies that the courts at that venue will have exclusive jurisdiction over the arbitration proceedings. This decision has significant implications for determining the appropriate jurisdiction in arbitration matters.

Case Background

Brahmani River Pellets Limited (the appellant) and Kamachi Industries Limited (the respondent) entered into an agreement for the sale of 40,000 WMT of Iron Ore Pellets on FOB terms. Payment was to be made by Letter of Credit in Bhubaneswar. The loading port was Dhamra Port, Bhadrak, Odisha, and the destination was Chennai/Ennore Ports, Tamil Nadu. A dispute arose between the parties regarding the price and payment terms, leading to the appellant not delivering the goods. The respondent claimed damages, alleging that they had to procure the Iron Ore Pellets from other sources at higher rates. The appellant denied any liability, claiming that the contract was modified and that the respondent breached the material terms of the contract.

Timeline

Course of Proceedings

The respondent filed a petition before the High Court of Judicature at Madras under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a sole arbitrator. The appellant contested the petition, arguing that the Madras High Court lacked jurisdiction because the arbitration agreement specified Bhubaneswar as the “venue” of arbitration. The High Court of Judicature at Madras, however, appointed a sole arbitrator, holding that the mere designation of a “seat” does not oust the jurisdiction of other courts unless there is an express clause excluding their jurisdiction. The High Court of Judicature at Madras held that in the absence of such an express clause, both the Madras High Court and the Orissa High Court would have jurisdiction over the arbitration proceedings. This order was challenged by the appellant before the Supreme Court.

Legal Framework

The case revolves around the interpretation of Section 2(1)(e) and Section 20 of the Arbitration and Conciliation Act, 1996.

• Section 2(1)(e) of the Arbitration and Conciliation Act, 1996: Defines “court” as the principal Civil Court of original jurisdiction in a district, including the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit.
  
  “Court” means – (i) in the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes; (ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decree or courts subordinate to that High Court.
• Section 20 of the Arbitration and Conciliation Act, 1996: Allows parties to agree on the place of arbitration.
• Section 11(6) of the Arbitration and Conciliation Act, 1996: Provides for the procedure for appointment of arbitrators.

The Supreme Court has previously held that the term “subject matter of the arbitration” in Section 2(1)(e) is related to identifying the court with supervisory control over the arbitration proceedings. The court also noted that Section 20 recognizes the autonomy of the parties to choose the “place of arbitration.”

Arguments

Appellant’s Submissions:

• The appellant argued that when parties agree on a place or venue for arbitration, it becomes the juridical seat of arbitration. Therefore, only the courts at that seat have jurisdiction under the Arbitration and Conciliation Act, 1996.
• The appellant contended that the Madras High Court erred in assuming jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996, because Bhubaneswar was the designated seat of arbitration.
• The appellant relied on the judgment in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited and others (2017) 7 SCC 678, which held that in domestic arbitration, where parties have agreed on a seat of arbitration, the courts at that seat have exclusive jurisdiction.

Respondent’s Submissions:

• The respondent argued that since the cause of action arose in both Bhubaneswar and Chennai, both the Madras High Court and the Orissa High Court have supervisory jurisdiction.
• The respondent relied on Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552, contending that in domestic arbitration, unless parties expressly agree to the exclusive jurisdiction of a court, the mere mention of a “venue” as the place of arbitration does not confer exclusive jurisdiction upon that court.
• The respondent submitted that there should be other factors like use of words “alone”, “exclusive” or “only” in addition to the mention of “venue” to exclude the jurisdiction of other courts.
• The respondent argued that the expression “venue of arbitration shall be Bhubaneswar” has no special significance and the High Court rightly exercised its jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996, in appointing the arbitrator.

Issues Framed by the Supreme Court

The main issue before the Supreme Court was:

1. Whether the Madras High Court could exercise jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996, despite the agreement stating that the venue of arbitration shall be Bhubaneswar.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Supreme Court relied on Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. and others (2017) 7 SCC 678* to state that the moment the seat is designated, it is akin to an exclusive jurisdiction clause.
• The Supreme Court relied on Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. (2013) 9 SCC 32* to hold that even without the use of words like “exclusive jurisdiction”, “only”, “exclusive”, “alone”, the intention of the parties to choose a particular court for jurisdiction is clear.
• The Supreme Court distinguished Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552* by stating that the observation in the case was in the context of the agreement providing for a seat of arbitration at a neutral place.

What weighed in the mind of the Court?

The Court emphasized the importance of party autonomy in choosing the seat of arbitration. The Court also emphasized that when parties agree on a specific venue for arbitration, it implies that the courts at that venue will have exclusive jurisdiction over the arbitration proceedings. The Court noted that the intention of the parties is paramount and that the use of specific words like “exclusive” is not always necessary to determine the exclusive jurisdiction of a court.

The Court’s reasoning was primarily based on legal interpretation and precedents, with less emphasis on the specific facts of the case.

The Supreme Court rejected the argument that both the Madras and Orissa High Courts had jurisdiction. The Court reasoned that the agreement of the parties to have the “venue” of arbitration at Bhubaneswar implied the exclusion of all other courts. The Court held that the intention of the parties, as expressed in the arbitration agreement, was to have the arbitration proceedings governed by the courts at Bhubaneswar.

The Court’s decision was unanimous.

“When the parties have agreed to have the “venue” of arbitration at Bhubaneswar, the Madras High Court erred in assuming the jurisdiction under Section 11(6) of the Act.”

“Considering the agreement of the parties having Bhubaneswar as the venue of arbitration, the intention of the parties is to exclude all other courts.”

“As held in Swastik, non-use of words like “exclusive jurisdiction”, “only”, “exclusive”, “alone” is not decisive and does not make any material difference.”

Key Takeaways

• When an arbitration agreement specifies a “venue” for arbitration, it is generally considered the “seat” of arbitration, conferring exclusive jurisdiction to the courts of that location.
• The intention of the parties, as expressed in the arbitration agreement, is paramount in determining jurisdiction.
• The use of specific words like “exclusive jurisdiction” is not always necessary to determine the exclusive jurisdiction of a court.
• This judgment reinforces the principle of party autonomy in arbitration.

Directions

The Supreme Court set aside the order of the High Court of Judicature at Madras and allowed the appeal. The parties were granted the liberty to approach the High Court of Orissa for the appointment of an arbitrator.

Development of Law

The ratio decidendi of this case is that when parties agree to a specific venue for arbitration, it implies that the courts at that venue will have exclusive jurisdiction over the arbitration proceedings. This decision clarifies the position of law that the “venue” of arbitration is to be considered as the “seat” of arbitration and it reaffirms the principle of party autonomy in choosing the seat of arbitration. This judgment reinforces the legal position established in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. and others (2017) 7 SCC 678 and Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. (2013) 9 SCC 32.

Conclusion

The Supreme Court’s decision in Brahmani River Pellets Limited vs. Kamachi Industries Limited clarifies that the designated “venue” of arbitration in an agreement is to be considered as the “seat” of arbitration, thereby conferring exclusive jurisdiction to the courts of that location. This judgment underscores the importance of party autonomy in arbitration and provides much-needed clarity on the interpretation of arbitration clauses.