Law Web: Whether HC Which Has Jurisdiction Over 'Venue' Of Arbitration Can Entertain Petition Seeking Appointment Of Arbitrator?

Where the contract specifies the jurisdiction of the court at

a particular place, only such court will have the jurisdiction to

deal with the matter and parties intended to exclude all other

courts. In the present case, the parties have agreed that the

“venue” of arbitration shall be at Bhubaneswar. 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.

17. 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. Since

only Orissa High Court will have the jurisdiction to entertain the

petition filed under Section 11(6) of the Act, the impugned order

is liable to be set aside.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5850 2019

BRAHMANI RIVER PELLETS LIMITED Vs KAMACHI INDUSTRIES LIMITED

R. BANUMATHI, J.

Dated:July 25, 2019.

Citation: 2019 SCC OnLine SC 929

Leave granted.

2. Whether the Madras High Court could exercise

jurisdiction under Section 11(6) of the Arbitration and

Conciliation Act, 1996 despite the fact that the agreement

contains the clause that venue of arbitration shall be

Bhubaneswar, is the question falling for consideration in this

appeal.

3. Brief facts which led to filing of this appeal are as under:-

The appellant entered into an agreement with the respondent

for sale of 40,000 WMT (Wet Metric Tonne) of Iron Ore Pellets

on FOB terms and payment was to be made by Letter of Credit

in Bhubaneswar. The loading port was Dhamra Port, Bhadrak,

Odisha and destination was Chennai/Ennore Ports, Tamil

Nadu. Dispute arose between the parties regarding the price

and payment terms and the appellant did not deliver the goods

to the respondent. The respondent claimed for damages

alleging that it had to procure the Iron Ore Pellets from other

sources at higher rates. The appellant denied any liability to

pay damages on the ground that contract was later modified

and that the respondent breached the material terms of the

contract and this led to the dispute between the parties.

4. Clause 18 of the agreement between the parties contains

an arbitration clause which reads as under:-

“18. Arbitration shall be under Indian Arbitration and Conciliation

Law 1996 and the Venue of Arbitration shall be Bhubaneswar.”

5. The respondent on 07.10.2016 invoked arbitration clause.

The appellant did not agree for the appointment of the

arbitrator. Hence, the respondent filed petition being OP

No.398 of 2018 under Section 11(6) of the Arbitration and

Conciliation Act, 1996 (for short ‘the Act’) before the Madras

High Court on 24.01.2018 for appointment of sole arbitrator.

The appellant contested the petition challenging the jurisdiction

of the Madras High Court on the ground that the parties have

agreed that Seat of arbitration be Bhubaneswar and therefore,

only the Orissa High Court has exclusive jurisdiction to appoint

the arbitrator. The Madras High Court vide impugned order

appointed a former judge of the Madras High Court as the sole

arbitrator by holding that mere designation of “Seat” by parties

does not oust the jurisdiction of other courts other than at the

Seat of arbitration. The High Court held that in absence of any

express clause excluding jurisdiction of other courts, both the

Madras High Court and the Orissa High Court will have

jurisdiction over the arbitration proceedings. Challenging the

impugned order, the appellant has preferred this appeal.

6. The learned counsel for the appellant submitted that when

the parties have agreed for a place/venue for arbitration, it gets

the status of Seat which is the juridical Seat and therefore only,

the Orissa High Court will have the jurisdiction under the Act.

The learned counsel submitted that the Madras High Court

erred in assuming jurisdiction under Section 11(6) of the Act

despite Bhubaneswar being the Seat of arbitration. In this

regard, reliance was placed upon Indus Mobile Distribution

Private Limited v. Datawind Innovations Private Limited and

others (2017) 7 SCC 678, Union of India v. Hardy Exploration

and Production (India) Inc. (2018) 7 SCC 374 and other

judgments. It was contended that the High Court erred in

holding that clause (18) of the agreement does not outst the

jurisdiction of the courts other than the courts at the Seat of

arbitration at Bhubaneswar. The learned counsel submitted

that the High Court erred in not applying the ratio of Indus

Mobile wherein the Supreme Court held that in case of

domestic arbitration where the parties have agreed at the Seat

of arbitration, the said court will have exclusive jurisdiction.

7. Per contra, the learned counsel for the respondent

submitted that since cause of action arose at both the places

i.e. Bhubaneswar and Chennai, both Madras High Court as

well as Orissa High Court will have supervisory jurisdiction.

Reliance was placed upon para No. (96) of Bharat Aluminium

Co. v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC

552. It was submitted that in domestic arbitration, unless the

parties tie themselves to an exclusive jurisdiction of the court in

the agreement, mere mention of “venue” as a place of

arbitration will not confer exclusive jurisdiction upon that court.

It was urged that apart from mere mention of “venue” as place

of arbitration, there should be other concomitant circumstances

like use of words “alone”, “exclusive”, “only” etc. or other

circumstances, then only the jurisdiction of the other court

which otherwise would have had jurisdiction would stand

excluded. Taking us through the impugned order, the learned

counsel for the respondent submitted that mere expression

“venue of arbitration shall be Bhubaneswar will have no special

significance” and the High Court rightly exercised its jurisdiction

under Section 11 (6) of the Act in appointing the arbitrator.

8. We have carefully considered the submissions of both the

parties and perused the impugned order and the judgments

relied upon by the parties.

9. As per Section 2(2) of the Act, arbitrations which take

place in India are governed by Part-I of the Act. The “court”

which will have jurisdiction to decide the questions forming the

subject matter of arbitration is the “court” as defined by Section

2(1)(e) of the Act which reads as under:-

2. Definitions. – (1) In this Part, unless the context otherwise

requires,-

……

(e) “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 subjectmatter

of the arbitration if the same had been the subjectmatter

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.

As per Section 2(2) of the Act, Part-I would apply to all

arbitration where the place of arbitration is in India. Section 2(1)

(e) of the Act defines “court” with reference to Part-I of the Act

and would govern the place of arbitration.

10. In BALCO, the issue arose before the Constitution Bench

was as to whether in international commercial arbitrations

whose juridical or legal Seat of arbitration was outside India

whether the provisions of Part-I of the Act would be applicable

for grant of relief as held in Bhatia International v. Bulk Trading

S.A. and another (2002) 4 SCC 105. The Constitution Bench in

BALCO held that “if the legal or juridical seat of arbitration is

outside India, then Part-I of the Arbitration and Conciliation Act,

1996 shall be inapplicable to such arbitrations; and even in

case a clause in the arbitration agreement purports to apply

Part-I of the 1996 Act to an arbitration where the juridical seat

of arbitration is outside India, Part-I shall be inapplicable to the

extent inconsistent with the arbitration law of the seat of

arbitration.”1

11. In BALCO, the court highlighted the distinction between

the “Seat” and “Venue” in the context of Section 20(3) of the

Act. Section 20(3) of the Act allows the parties to hold

1 Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552

meetings, proceedings and hearings at any place agreed by

the parties. In BALCO, the court has held that in an

international commercial arbitration “seated” in India, parties

may by mutual agreement, hold arbitral proceedings outside

India. This, however, would not have the effect of changing the

Seat of arbitration which would continue to remain in India. The

court then envisages a situation where the arbitration

agreement designates a foreign Seat and also selects

Arbitration Act, 1996 as the law applicable to the conduct of

arbitration proceedings and in such circumstances, hearing of

the arbitration conducted at the venue fixed by the parties

would not have the effect of changing the Seat of arbitration

which would remain in India. In para (100), the Supreme Court

held as under:-

“100. True, that in an international commercial arbitration, having

a seat in India, hearings may be necessitated outside India. In

such circumstances, the hearing of the arbitration will be

conducted at the venue fixed by the parties, but it would not have

the effect of changing the seat of arbitration which would remain

in India. The legal position in this regard is summed up by

Redfern and Hunter, The Law and Practice of International

Commercial Arbitration (1986) at p. 69 in the following passage

under the heading “The Place of Arbitration”:

…….

This, in our view, is the correct depiction of the practical

considerations and the distinction between “seat” [Sections 20(1)

and 20(2)] and “venue” [Section 20(3)]. We may point out here

that the distinction between “seat” and “venue” would be quite

crucial in the event, the arbitration agreement designates a

foreign country as the “seat”/“place” of the arbitration and also

selects the Arbitration Act, 1996 as the curial law/law governing

the arbitration proceedings. It would be a matter of construction

of the individual agreement to decide whether:

(i) the designated foreign “seat” would be read as in fact

only providing for a “venue”/“place” where the hearings

would be held, in view of the choice of the Arbitration Act,

1996 as being the curial law, OR

(ii) the specific designation of a foreign seat, necessarily

carrying with it the choice of that country’s

arbitration/curial law, would prevail over and subsume the

conflicting selection choice by the parties of the Arbitration

Act, 1996.

Only if the agreement of the parties is construed to provide for

the “seat”/“place” of arbitration being in India — would Part I of

the Arbitration Act, 1996 be applicable. If the agreement is held

to provide for a “seat”/“place” outside India, Part I would be

inapplicable to the extent inconsistent with the arbitration law of

the seat, even if the agreement purports to provide that the

Arbitration Act, 1996 shall govern the arbitration proceedings.”

12. As pointed out earlier, Section 2(1)(e) of the Act defines

the “Court” with reference to the term “subject-matter of the

suit”. As per Section 2(1)(e) of the Act, if the “subject-matter of

the suit” is situated within the arbitral jurisdiction of two or more

courts, the parties can agree to confine the jurisdiction in one of

the competent courts. In para (96) of BALCO, the Supreme

Court held that the term “subject-matter” in Section 2(1)(e) of

the Act is to identify the court having supervisory control over

the arbitral proceedings. The Supreme Court held that the

provisions in Section 2(1)(e) of the Act has to be read in

conjunction with Section 20 of the Act which give recognition to

the autonomy of the parties as to “place of arbitration”. The

observations in para No. (96) in BALCO pertaining to

arbitrations governed by Part-I of the Act i.e. where the “place

of arbitration” in India read as under:-

“96. …….We are of the opinion, the term “subject-matter of the

arbitration” cannot be confused with “subject-matter of the suit”.

The term “subject-matter” in Section 2(1)(e) is confined to Part I.

It has a reference and connection with the process of dispute

resolution. Its purpose is to identify the courts having supervisory

control over the arbitration proceedings. Hence, it refers to a

court which would essentially be a court of the seat of the

arbitration process. In our opinion, the provision in Section 2(1)

(e) has to be construed keeping in view the provisions in Section

20 which give recognition to party autonomy. Accepting the

narrow construction as projected by the learned counsel for the

appellants would, in fact, render Section 20 nugatory. In our

view, the legislature has intentionally given jurisdiction to two

courts i.e. the court which would have jurisdiction where the

cause of action is located and the courts where the arbitration

takes place. This was necessary as on many occasions the

agreement may provide for a seat of arbitration at a place which

would be neutral to both the parties. Therefore, the courts where

the arbitration takes place would be required to exercise

supervisory control over the arbitral process. For example, if the

arbitration is held in Delhi, where neither of the parties are from

Delhi, (Delhi having been chosen as a neutral place as between

a party from Mumbai and the other from Kolkata) and the tribunal

sitting in Delhi passes an interim order under Section 17 of the

Arbitration Act, 1996, the appeal against such an interim order

under Section 37 must lie to the courts of Delhi being the courts

having supervisory jurisdiction over the arbitration proceedings

and the tribunal. This would be irrespective of the fact that the

obligations to be performed under the contract were to be

performed either at Mumbai or at Kolkata, and only arbitration is

to take place in Delhi. In such circumstances, both the courts

would have jurisdiction i.e. the court within whose jurisdiction the

subject-matter of the suit is situated and the courts within the

jurisdiction of which the dispute resolution i.e. arbitration is

located.”

The above observations in para No. (96) is in the context that

on many occasions, agreement may provide for a seat of

arbitration at a place which would be neutral to both the parties.

In such circumstances, it was observed that the two courts

would have jurisdiction that is the court within whose

jurisdiction “subject-matter” of the suit is situated and the court

within the jurisdiction of which the dispute resolution i.e. the

“venue” of arbitration is located.

13. As per Section 20 of the Act, parties are free to agree on

the place of arbitration. Party autonomy has to be construed in

the context of parties choosing a court which has jurisdiction

out of two or more competent courts having jurisdiction. This

has been made clear in the three-Judges Bench decision in

Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. (2013) 9 SCC

32. In the said case, respondent-Indian Oil Corporation Limited

appointed M/s. Swastik Gases (P) Ltd. situated at Jaipur,

Rajasthan as their consignment agent. The dispute arose

between the parties as huge quantity of stock of lubricants

could not be sold by the applicant and they could not be

resolved amicably. In the said matter, clause 18 of the

agreement between the parties provided that the agreement

shall be subject to the jurisdiction of the courts at Kolkata. The

appellant-Swastik invoked clause 18 – arbitration clause and

filed application under Section 11(6) of the Act before the

Rajasthan High Court for appointment of arbitrator. The

respondent contested the application made by Swastik inter

alia by raising the plea of lack of territorial jurisdiction of the

Rajasthan High Court in the matter. The plea of Indian Oil

Corporation was that the agreement has been made subject to

jurisdiction of the courts at Kolkata and Rajasthan High Court

lacks the territorial jurisdiction in dealing with the application

under Section 11(6) of the Act. The designated judge held that

Rajasthan High Court did not have territorial jurisdiction to

entertain the application under Section 11(6) of the Act and

gave liberty to Swastik to file the arbitration application in

Calcutta High Court which order came to be challenged before

the Supreme Court. Pointing out that the words like “alone”,

“only”, “exclusive” or “exclusive jurisdiction” have not been used

in the agreement and use of such words is not decisive and

non-use of such words does not make any material difference

as to the intention of the parties by having clause 18 of the

agreement that the courts at Kolkata shall have the jurisdiction,

the Supreme Court held as under:-

“31. In the instant case, the appellant does not dispute that part

of cause of action has arisen in Kolkata. What appellant says is

that part of cause of action has also arisen in Jaipur and,

therefore, the Chief Justice of the Rajasthan High Court or the

designate Judge has jurisdiction to consider the application

made by the appellant for the appointment of an arbitrator under

Section 11. Having regard to Section 11(12)(b) and Section 2(e)

of the 1996 Act read with Section 20(c) of the Code, there

remains no doubt that the Chief Justice or the designate Judge

of the Rajasthan High Court has jurisdiction in the matter. The

question is, whether parties by virtue of Clause 18 of the

agreement have agreed to exclude the jurisdiction of the courts

at Jaipur or, in other words, whether in view of Clause 18 of the

agreement, the jurisdiction of the Chief Justice of the Rajasthan

High Court has been excluded?

32. For answer to the above question, we have to see the effect

of the jurisdiction clause in the agreement which provides that

the agreement shall be subject to jurisdiction of the courts at

Kolkata. It is a fact that whilst providing for jurisdiction clause in

the agreement the words like “alone”, “only”, “exclusive” or

“exclusive jurisdiction” have not been used but this, in our view,

is not decisive and does not make any material difference. The

intention of the parties—by having Clause 18 in the agreement—

is clear and unambiguous that the courts at Kolkata shall have

jurisdiction which means that the courts at Kolkata alone shall

have jurisdiction. It is so because for construction of jurisdiction

clause, like Clause 18 in the agreement, the maxim expressio

unius est exclusio alterius comes into play as there is nothing to

indicate to the contrary. This legal maxim means that expression

of one is the exclusion of another. By making a provision that the

agreement is subject to the jurisdiction of the courts at Kolkata,

the parties have impliedly excluded the jurisdiction of other

courts. Where the contract specifies the jurisdiction of the courts

at a particular place and such courts have jurisdiction to deal

with the matter, we think that an inference may be drawn that

parties intended to exclude all other courts. A clause like this is

not hit by Section 23 of the Contract Act at all. Such clause is

neither forbidden by law nor it is against the public policy. It does

not offend Section 28 of the Contract Act in any manner.

33. The above view finds support from the decisions of this Court

in Hakam Singh v. Gammon India Limited (1971) 1 SCC 286,

A.B.C. Laminart Private Limited v. A.B.C. Agencies (1989) 2

SCC 163, R.S.D.V. Finance Corporation Private Limited v. Shree

Vallabh Glass Works Limited (1993) 2 SCC 130, Angile

Insulations v. Davy Ashomore India Limited (1995) 4 SCC 153,

Shriram City Union Finance Corporation Limited v. Rama Mishra

(2002) 9 SCC 613, Hanil Era Textiles Limited v. Puromatic Filters

Private Limited (2004) 4 SCC 671 and Balaji Coke Industry

Private Limited v. Maa Bhagwati Coke Gujarat Private Limited

(2009) 9 SCC 403.” [underlining added]

14. In Swastik, the Supreme Court held that clause like (18)

of the agreement will not be hit by Section 23 of the Contract

Act and it is not forbidden by law nor it is against public policy.

It was so held that as per Section 20 of the Act, parties are free

to choose the place of arbitration. This “party autonomy” has to

be construed in the context of choosing a court out of two or

more courts having competent jurisdiction under Section 2(1)

(e) of the Act.

15. The inter-play between “Seat” and “place of arbitration”

came up for consideration in the case of Indus Mobile

Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. and others

(2017) 7 SCC 678. After referring to BALCO, Enercon (India)

Limited and others v. Enercon GMBH and another (2014) 5

SCC 1 and Reliance Industries Limited and another v. Union of

India (2014) 7 SCC 603 and also amendment to the Act

pursuant to the Law Commission Report, speaking for the

Bench Justice Nariman held as under:-

“18. The amended Act, does not, however, contain the aforesaid

amendments, presumably because the BALCO (2012) 9 SCC

552 judgment in no uncertain terms has referred to “place” as

“juridical seat” for the purpose of Section 2(2) of the Act. It further

made it clear that Sections 20(1) and 20(2) where the word

“place” is used, refers to “juridical seat”, whereas in Section

20(3), the word “place” is equivalent to “venue”. This being the

settled law, it was found unnecessary to expressly incorporate

what the Constitution Bench of the Supreme Court has already

done by way of construction of the Act.

19. A conspectus of all the aforesaid provisions shows that the

moment the seat is designated, it is akin to an exclusive

jurisdiction clause. On the facts of the present case, it is clear

that the seat of arbitration is Mumbai and Clause 19 further

makes it clear that jurisdiction exclusively vests in the Mumbai

courts. Under the Law of Arbitration, unlike the Code of Civil

Procedure which applies to suits filed in courts, a reference to

“seat” is a concept by which a neutral venue can be chosen by

the parties to an arbitration clause. The neutral venue may not in

the classical sense have jurisdiction — that is, no part of the

cause of action may have arisen at the neutral venue and neither

would any of the provisions of Sections 16 to 21 of CPC be

attracted. In arbitration law however, as has been held above,

the moment “seat” is determined, the fact that the seat is at

Mumbai would vest Mumbai courts with exclusive jurisdiction for

purposes of regulating arbitral proceedings arising out of the

agreement between the parties.

20. It is well settled that where more than one court has

jurisdiction, it is open for the parties to exclude all other courts.

For an exhaustive analysis of the case law, see Swastik Gases

(P) Ltd. v. Indian Oil Corpn. Ltd. (2013) 9 SCC 32 This was

followed in a recent judgment in B.E. Simoese Von Staraburg

Niedenthal v. Chhattisgarh Investment Ltd. (2015) 12 SCC 225

Having regard to the above, it is clear that Mumbai courts alone

have jurisdiction to the exclusion of all other courts in the

country, as the juridical seat of arbitration is at Mumbai. This

being the case, the impugned judgment is set aside. …...”

[underlining added]

16. Where the contract specifies the jurisdiction of the court at