BALCO’s ‘Error’ Amplified: The Supreme Court in Indus Mobile – Part I

[The
following post is contributed by Puneet
Dinesh
, who is a III year student at the  National Law University, Delhi. He can be
reached at
[email protected].]
The Supreme Court’s and the High Court’s
approach to ‘arbitral seat’ vis-à-vis exclusive jurisdiction to courts has
generated both controversies and analyses. The Delhi High Court (in NHPC Limited, Rohit Basin and Ion Exchange) and the Bombay High Court (in Konkola Copper Mines,
previously covered
here)
have consistently reiterated BALCO’s logic found in paragraphs 96/97 of the Supreme
Court’s judgment.
In a two-part series of posts, I argue that the
Supreme Court in Indus
Mobile
(April 2017) continues
to commit the error that BALCO left
us with in 2012 and might have also shifted the position of law in the process.
Brief
Facts of Indus Mobile
The respondent (Datawind Innovations Private
Limited) was engaged in the manufacture of mobile phone and tablets and its registered
office was at Amritsar, Punjab. Certain goods were supplied to the appellant
(Indus Mobile Distribution Private Limited), which was based in Chennai. The
dispute pertained to a default in payment by Indus Mobile to the tune of Rs. 5
crores which it had to pay within seven days.
Clauses 18 and 19 of the agreement between the
parties are relevant for our discussion:
Clause
18 of the agreement
‘… Dispute
shall be finally settled by arbitration conducted under the provisions of the
Arbitration & Conciliation Act 1996 by reference to a sole Arbitrator which
shall be mutually agreed by the parties. Such
arbitration shall be conducted at Mumbai, in English language

(emphasis added)
Clause
19 of the agreement
‘All
disputes & differences of any kind whatever arising out of or in connection
with this Agreement shall be subject
to the exclusive jurisdiction of courts of Mumbai only
’ (emphasis
added)
Datawind approached the Delhi High Court for reliefs
under sections 9 and 11 of the Arbitration and Conciliation Act, 1996 (the ‘Arbitration
Act’). The Court exercised jurisdiction as the place of business was in Delhi
and disposed of both the applications. The High Court, therefore did not think
(and as I will show, rightly) that this conclusion was affected by the language
of clauses of 18 and 19 of the agreement. Indus Mobile challenged the judgment
which was heard by a division bench of the Supreme Court.
Brief
issue before the Supreme Court
The Court in Indus
Mobile
was called upon to determine whether a court at the arbitral seat in
a domestic arbitration can have exclusive jurisdiction over all disputes
arising out of the agreement. The decision has direct impact on a host of
critical issues: role of ‘arbitral seat’ in domestic arbitration, idea of
‘party autonomy’ (and its limitations) under the Arbitration Act and the role
of Civil Procedure Code, 1908 (‘CPC’) in arbitral proceedings.
Judgment
and analysis
In paragraph 21, the Supreme Court sets aside
the judgment of the Delhi High Court to hold 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
’.
I will cover my arguments suggesting that Indus
Mobile
was wrongly decided at two levels. First, the Court’s misunderstanding
of BALCO’s objective. Second, the
deviation from rules of the CPC and the misplaced reliance of the Report of the
Law Commission of India. (The author
refrains from reiterating the ‘error’ that BALCO left us with, as it has been
covered through a series of interesting academic debates
here and here)
Paragraph
20 of Indus Mobile and its attendant
difficulties
The Court, while not explicitly recognizing it, attempts
to conflate two different positions of law which have varying influences with
the theory of ‘arbitral seat’ accepted internationally. Firstly, the ABC
Laminart
position, and secondly the Paramita Constructions
(or Balaji Coke) position of law. I will argue that both these
positions of law and the theory of ‘arbitral seat’ they carry are parallel and therefore
they cannot be reconciled internally.
First
Idea
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
.
(emphasis supplied)
Second
Idea
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
.’ (emphasis supplied)
First
Idea
(aligning with the A.B.C. Laminart position)
A.B.C. Laminart
stands for the settled principle that courts shall
entertain matters unless jurisdiction is expressly excluded by the contract.
The agreement provided for the dispute to be subject to the jurisdiction at
Kaira. The Court while giving effect to the jurisdiction clause made some
important observations:
‘…where the parties to a
contract agreed to submit the disputes arising from it to a particular
jurisdiction which would otherwise also be a proper jurisdiction under
the law their agreement to the extent they agreed not to submit to other
jurisdictions cannot be said to be void as against public policy. If on
the other hand the jurisdiction they agreed to submit to would not otherwise
be proper jurisdiction
to decide disputes arising out of the contract it
must be declared void being against public policy
’ (emphasis added)
The moot issue here turns around
one’s interpretation of the term ‘proper jurisdiction’. I have previously
maintained (by subscribing to V. Niranjan’s argument
here) that the court at the ‘arbitral seat’ is not a valid or a
proper jurisdiction, as BALCO holds
it to be. My position is buttressed by the policy argument that conferment of
jurisdiction is only a legislative act and not a judicial act. I make specific
reference to a line of Supreme Court decisions upholding this position from
Natraj Studios (1981) and Kondiba Dagadu Kadam (1999) to Jagmittar Sain Bhagat (2012).
However, assuming that BALCO’s
addition of another court is valid, parties can agree to submit the disputes to
courts at Mumbai. Therefore, Indus Mobile
correctly notes the position of law in the First
Idea
through a combined reading of both BALCO
and
A.B.C Laminart. BALCO
provides for three concurrent ‘proper’ jurisdictions available to the parties
and A.B.C Laminart helps the parties
to direct the litigation to a single court among the courts possessing ‘proper’
jurisdiction.
There is one more idea in this part that merits
discussion. The court specially notes ‘in
the present case
’ and ‘clause 19’.
Both these terms indicate towards the fact that the agreement extends the
concept of ‘arbitral seat’ (Mumbai)
to the ‘courts at the arbitral seat’ (courts of Mumbai).
It will be noted that the linkage between the place of arbitration and the exclusive jurisdiction of the court at the place of arbitration is
extremely crucial in conforming to the theory of ‘arbitral seat’ applied in international
commercial arbitration. However, in the present case, the court is not situated
in a position where it has to make this linkage as the agreement already makes
this extension.
Where can we then look to appreciate the Court’s understanding of the
relationship between ‘place’ of arbitration and the ‘court’ at the place of
arbitration? The answer, lies in the peculiarity of the arbitration clause and
the decision, in
Paramita Constructions (or Balaji Coke). I will
analyze
Paramita Constructions and whether it
rescues Indus Mobile in the
subsequent post as it is closely linked to the Second Idea.
In conclusion, Indus Mobile
gets the First Idea right due to (a)
combined (and, implicit) reading of the BALCO
and A.B.C Laminart principles, and
(b) specific reference to the language in the agreement. In the subsequent
post, I will examine the position that the Second
Idea
proposes and the resultant tensions in reconciling the First and the Second Idea.

– Puneet Dinesh


[The second post in the series is available here.]

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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