Supreme Court Provides Clarity on Exclusive Jurisdiction Clause in Arbitration Agreement

Supreme Court Provides Clarity on Exclusive Jurisdiction Clause in Arbitration Agreement-Vikrant Rana and Akshay Gupta

On April 19, 2017, a two-judge bench of the Supreme Court bench passed their judgment in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited and Ors.[1] holding that in cases where the parties include an exclusive jurisdiction clause in an arbitration agreement designating a particular place as the seat of the arbitration, the Court in whose jurisdiction the seat of the arbitration falls would have sole jurisdiction to entertain petitions in respective of non-arbitrable issues arising out of the agreement, to the exclusion of any other Courts.

Use of Exclusive Jurisdiction Clauses in Agreements

Exclusive Jurisdiction Clauses are widely used by parties to an agreement as often it may not be convenient for the parties to sue at the place at which the cause of action for the dispute may have arisen. In such cases the exclusive jurisdiction clause offers a party the opportunity to establish a convenient pre-determined place where disputes arising in regard to the contract would be referred to, if and when they arise.

Factual Background

• Datawind Innovations Private Limited (hereinafter referred to as Respondent No.1) having its registered office at Amritsar in Punjab was engaged in the manufacture, marketing and distribution of mobile phones, tablets and other accessories.
• Indus Mobile Distribution Private Limited (hereinafter referred to as the Appellant) wished to conduct business with Respondent No.1, acting as their Retail Chain Partner.
• In furtherance of the above, an agreement dated October 25, 2014 was entered into between the Parties with Respondent No.1 supplying goods to the Appellant at Chennai from New Delhi.
• The Dispute Resolution Mechanism was provided under Clauses 18 and 19 of the agreement dated October 25, 2014.  Clause 18 provided that in case of disputes between the parties, if the dispute could not be resolved by discussion between senior officials of the parties, then the matter would finally be settled through arbitration, presided by a sole arbitrator, conducted under the provisions of the Arbitration and Conciliation Act, 1996 with the seat of the Arbitration being Mumbai.
• Further, Clause 19 provided that all disputes arising out of, or in connection with the Agreement would be subject to the exclusive jurisdiction of the Courts of Mumbai alone.
• Disputes arose between the parties and Respondent No.1 sent a notice dated September 25, 2015 to the Appellant. Further, the arbitration clause provided under Clause 18 of the Agreement was invoked. The Appellant denied the contents of the notice and asked Respondent No.1 to withdraw the same.
• In the meantime, Respondent No. 1 filed a petition before the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) seeking various interim reliefs.
• In October 2015 Respondent No.1 filed a second petition before the Delhi High Court under Section 11 of the Act to appoint the sole Arbitrator.

The Impugned Decision of the Delhi High Court

• The Delhi High Court while disposing off the two petitions held that as no part of the cause of action arose in Mumbai, the Courts of Mumbai would have no jurisdiction over the matter with only the Courts of Amritsar, Chennai and Delhi having jurisdiction.
• Since, the Delhi High Court had been approached first, it would continue to have jurisdiction in the matter. Further, the Court restrained the Appellant from transferring, alienating or creating any third-party interests in the Appellant’s property in Chennai and also appointed the sole Arbitrator.

Issue before the Supreme Court

In case no cause of action arises at the place where the seat of arbitration is situated, whether the Court within whose jurisdiction the seat of arbitration is located would have exclusive jurisdiction in all proceedings.  

Decision of the Supreme Court

• The Supreme Court referring to its earlier judgments in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc[2], Enercon (India) Ltd. v. Enercon Gmbh[3], and Reliance Industries Ltd. v. Union of India[4], the Court observed that in its previous judgments, it has time and again been reiterated that once the seat of arbitration has been fixed, it would be in the nature of an exclusive jurisdiction clause as to the courts which exercise supervisory powers over the arbitration.
• Further, in Union of India v. Reliance Industries Limited and Others[5], the Court referred had held that the supervisory jurisdiction of courts over the arbitration goes along with seat.
• Under the law of Arbitration, a reference to seat is a concept that has been developed to facilitate parties to choose a neutral venue for Arbitration. It is not necessary for any cause of action to have arisen at the neutral venue as the provisions of Section 16 to 21 of the Code of Civil Procedure, 1908 would not be attracted.
• Therefore, while setting aside the impugned order of the Delhi High Court with regard to its jurisdictional power, the Supreme Court held that since the parties had established the seat of the arbitration at Mumbai, exclusive jurisdiction would vest in Mumbai, the Courts of Mumbai would have exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.

Observations

This decision of the Supreme Court is a welcome clarity on the issue that often arises with the parties to a contract approaching Courts whose jurisdiction has been ousted by the terms of the exclusive jurisdiction clause in the agreement. Parties should ensure that the seat of arbitration is selected by them after due consideration as this judgment prevents forum shopping, once the seat of arbitration is agreed to by the parties.

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SS Rana & Co - Vikrant Rana and Akshay Gupta