In the recent decision of Axalta Coating Systems v. Madhuban Motors, the Hon’ble High Court of Delhi (“Delhi HC”) while allowing a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) reiterated that in the absence of any other contrary indicia, the ‘venue’ mentioned in the arbitration clause would amount to the ‘seat’ of the arbitral proceedings. In the facts of the case, the Delhi HC found that the provision for exclusive jurisdiction of the courts at New Delhi, coupled with the provision designating New Delhi as the venue, clearly evinced the parties’ intention to anchor the arbitral proceedings in New Delhi, which would thus be the seat of arbitration.
Brief Facts
The disputes raised by Axalta Coating Systems (“Petitioner”) arose out of a supply agreement. After a demand raised by the Petitioner under the supply agreement was rejected by Madhuban Motors (“Respondent”), the Petitioner invoked arbitration under the supply agreement. Since the parties failed to agree on the appointment of the sole arbitrator, the Petitioner approached the Delhi HC under Section 11 of the Arbitration Act.
The sole issue of contention before the Delhi HC was whether it had the requisite jurisdiction to appoint the sole arbitrator.
The Petitioner argued that the Delhi HC had jurisdiction, since (a) the supply agreement provided for exclusive jurisdiction of courts at New Delhi; and (b) the arbitration clause provided that “the venue for the arbitration proceedings shall be New Delhi, India”.
Contesting the jurisdiction of the Delhi HC, the Respondent contended that in the absence of a specifically designated ‘seat’, the competent court to exercise powers under Section 11 of the Arbitration Act would be the court in whose jurisdiction the cause of action had arisen. It was further contended that the Delhi HC would not have jurisdiction since no part of the cause of action arose in Delhi. Reliance was placed inter alia on the Hon’ble Supreme Court’s decision in Ravi Ranjan Developers v. Aditya Kumar Chatterjee.
In rejoinder, the Petitioner submitted that where the designation of a place as the venue had the effect of anchoring the arbitral proceedings to that place, such a venue would really be the seat of arbitration. Reliance was placed inter alia on Reliance Infrastructure v. Madhyanchal Vidyut Vitran Nigam and Sikka Motors v. Hyundai Motor India.
Findings
The Delhi HC found that it had the requisite jurisdiction to entertain the petition under Section 11 of the Arbitration Act and appointed a sole arbitrator for resolution of disputes.
The decision of the Delhi HC was guided by the following principles:
- The Hon’ble Supreme Court in BGS SGS Soma v. NHPC Ltd. found that in the absence of any other contrary indicia, the ‘venue’ mentioned in an arbitration clause would amount to the ‘seat’ of arbitral proceedings.
- As per the Hon’ble Supreme Court in Mankastu Impex v. Airvisual Ltd., the determination of what the parties intended to be the ‘seat’ should be made “from other clauses in the agreement and the conduct of the parties”.
Applying the above principles, the Delhi HC distinguished the Hon’ble Apex Court’s decision in Ravi Ranjan Developers (supra) that the Respondent had relied upon. The Delhi HC noted that in Ravi Ranjan Developers (supra), the contract merely provided that “the sitting of the said Arbitral Tribunal shall be at Kolkata”, apart from which, there were no other contractual clauses to demonstrate the intention of the parties. The Delhi HC also noted that the case of Ravi Ranjan Developers (supra) had also been distinguished in the cases of Reliance Infrastructure (supra) and Sikka Motors (supra), which the petitioner had relied upon.
Therefore, the Delhi HC concluded that:
- The decision in Ravi Ranjan Developers (supra) proceeded on its own facts. There, the arbitration agreement was not supplemented by any other provision, which was not the case in the present matter.
- Since the parties had agreed to subject all disputes to the exclusive jurisdiction of courts at New Delhi, and since the parties had agreed that the venue for the arbitration will be New Delhi, the parties’ intention was for New Delhi to be designated not only as the place for some of the hearings (i.e., as the venue) but as “the place where the arbitration proceedings would be conducted as a whole”.
- The language used signified that the parties intended to anchor the arbitral proceedings to New Delhi, which would be the seat of arbitration.
- There was no other significant indicia in the arbitration agreement to suggest that the ‘venue’ stipulated was merely a convenient place for meeting for arbitration.
- Thus, the Delhi HC had the territorial jurisdiction to entertain and decide the Section 11 petition.
JSA Analysis and Conclusion
Where the contract specifically provides for a seat of arbitration, it is settled that courts at the seat alone would exercise supervisory jurisdiction over the arbitration, and that the jurisdiction of courts in other places would be ousted, even if part or the whole of the cause of action arose outside the place designated as seat. However, where such an express provision is not agreed in the contract, the issue of determining the seat causes controversy.
The decision in Axalta Coating Systems (supra) follows a spate of decisions holding that in the absence of a specifically prescribed ‘seat’ of arbitration, the place agreed as the ‘venue’ would also be the ‘seat’, even if the contract confers exclusive jurisdiction to courts at a different place (though in Axalta Coating Systems (supra), there was no conflict between the exclusive jurisdiction clause and the designation of venue). However, another line of decisions endorses the diametrically opposite view, holding that the designation of venue would be controlled and superseded by the exclusive jurisdiction clause.
In view of the seemingly endless divergence of opinion on the issue, in spite of jurisprudence and scholarship on the topic being ubiquitous, it would be apposite for the Hon’ble Supreme Court to once again intervene and settle the law on the point. We feel that a clarification on what constitutes “significant contrary indicia” under the tests laid down by BGS SGS Soma (supra) would be decisive in clearing much, if not all, of the existing confusion.
JSA – Divyam Agarwal and Aniket Aggarwal
