[Shaneen Parikh is the Partner and Head of International Arbitration at Cyril Amarchand Mangaldas. Amoga Krishnan is a Senior Associate at Cyril Amarchand Mangaldas]
Can an exclusive jurisdiction clause be treated as one which also determines the seat of arbitration? In May 2024, the Delhi High Court (“DHC”) in Kings Chariot v. Tarun Wadhwa ruled in the negative. This post is a comment on the Court’s decision.
In this case, the arbitration clause in the parties’ contract specified: “[i]n case of any dispute between the parties, the matter will be referred to arbitration, arbitrator to be mutually agreed upon by the parties.” Another clause contained in an annexure of the contract specified: “[a]ll disputes subjected to Delhi jurisdiction only.” Disputes arose between the parties, and the Petitioner invoked arbitration. It then applied to the DHC under section 11 of the Arbitration and Conciliation Act, 1996 (“A&C Act”) seeking an arbitrator’s appointment. The Respondent argued that the DHC did not have jurisdiction because the cause of action arose in Madhya Pradesh where the contract was signed and where the Respondent had its place of business.
The DHC declined to exercise jurisdiction on the basis that the jurisdiction clause in the contract was a “general jurisdictional clause” and could not “be read to define the seat or venue for the purpose of the arbitration.” The parties’ contract did not otherwise specify any seat of arbitration.
The DHC said while parties can agree on a place of arbitration even if no part of cause of action would arise there, in the absence of such agreement (as was the case here), the relevant “Court” for the purpose of section 2(1)(e) of the A&C Act would be determined on the basis of the principles set out in sections 16 to 20 of the Code of Civil Procedure Code, 1908 (“CPC”). These sections help determine the territorial jurisdiction of a civil court based on the location of immoveable property, where the defendant resides or carries business, where the cause of action arose, etc.
Applying the above principles, as the contract was signed in Madhya Pradesh and the Respondent carries on business there, and because the contract did not specify a seat of arbitration, the DHC ruled that the relevant courts in Madhya Pradesh would have jurisdiction over the application for the appointment of an arbitrator.
Comment
In our opinion, the exclusive jurisdiction clause in Kings Chariot could have been seen as a sufficient expression of party autonomy designating New Delhi as the seat of arbitration. We come to this conclusion on the basis of various judicial precedents and logic.
In Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. the Supreme Court (“SC”) ruled that the meaning of “Court” under section 2(1)(e) of the A&C Act has to be construed with section 20 in mind. Section 20 recognises party autonomy in choosing both the seat and the venue of arbitration.
Where there is a specified seat, as ruled by the SC in BGS SGS Soma JV v. NHPC Limited, courts at the seat would have exclusive jurisdiction over the arbitral process. Other SC judgments have reiterated this principle (see for example Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited), which leads to the conclusion that under Indian law, parties’ specification of the seat is akin to an exclusive jurisdiction clause in favour of the seat court over the arbitral proceedings.
With the above position in mind, there is compelling reason to argue that even the reverse should hold true, i.e., a clause conferring a court with exclusive jurisdiction, should be seen as the parties having also designated the seat of arbitration (as being within the jurisdiction of such court). This is because the primary effect of the seat is that it confers jurisdiction on a particular court (which then has supervision over the arbitral proceedings and any challenge to the award). To that extent, it should make no difference if the parties express that choice by designating, say, New Delhi as the seat or by specifying that all disputes would be subject to the jurisdiction of courts in New Delhi.
Additionally, BGS Soma also ruled that parties’ expression of “venue” can sometimes be read as “seat”, subject to any “significant contrary indicia”. If venue—a term which in normal course is distinct from seat—can be given the import of ‘seat’, then parties’ clearer expression in conferring exclusive jurisdiction on a particular court ought to have greater force.
One of the benefits of arbitration over civil litigation is that arbitration allows parties to exclusively confer jurisdiction on a ‘neutral’ court which would not have ordinarily had jurisdiction over the matter if it were a civil suit. This is not permissible in civil litigation. In Kings Chariot, although courts in Madhya Pradesh (and not New Delhi) would have had jurisdiction over the dispute if it were a civil suit, it was open for the parties to select New Delhi as the seat of their arbitration, which is what they did, in our view, by virtue of their exclusive jurisdiction clause.
The SC has considered the effect of an exclusive jurisdiction clause where the contract did not mention a seat, place, or venue of arbitration, in various cases. For instance, in Swastik Gases Private Limited v. Indian Oil Corporation Limitedthe arbitration clause did not specify a seat. The ‘Jurisdiction’ clause said “the agreement shall be subject to jurisdiction of the courts at Kolkata”. Swastik Gases applied to the Rajasthan High Court for the arbitrator’s appointment. The Court rejected jurisdiction in view of the exclusive jurisdiction clause. On appeal, the SC relied on the maxim expressio unius est exclusion alterius (‘the expression of one thing is the exclusion of the other’), and said the intention of the parties was “clear and unambiguous” that “the courts at Kolkata alone shall have jurisdiction”, i.e., exclusive jurisdiction.
Unfortunately, the SC did not go so far in Swastik Gases to say that an exclusive jurisdiction clause is akin to the parties’ selection of the seat of arbitration. The issue did not come up. In similar cases, such as B.E. Simoese Von Staraburg Niedenthal v. Chhattisgarh Investment Limited where the contract stipulated that “[t]he courts at Goa shall have exclusive jurisdiction” and did not specify a seat of arbitration, the SC, relying on Swastik Gases, ruled that the jurisdiction of other courts was ousted. However, in Sanjay Kumar Verma v. Planning and Infrastructural Development Consultants Pvt. Ltd. the DHC held that a clause in a contract stipulating that “[a]ny disputes … will be referred to a recognized Arbitrator of company’s choice … the same are subject to Patna jurisdiction” unambiguously indicated the parties’ intent to establish Patna as the seat of arbitration even though no part of the cause of action arose there. The Court further said that the “absence of the explicit term seat … does not diminish the clarity of the agreement that Patna is the designated place of arbitration.”[1]
In Paul Smith Ltd. v. H&S International Holding Inc. the dispute resolution clause provided for arbitration but did not specify a seat. The ‘Language and Law’ clause stipulated that “[t]he Courts of England shall have exclusive jurisdiction over [the agreement]”. The Queen’s Bench Division (Commercial Court) read this as specifying the lex arbitri or the law governing the arbitration, observing that the lex arbitri would, amongst others, provide for the exercise by the court of its supervisory jurisdiction over the arbitration. In effect, the Court read this clause as specifying the seat of arbitration, by virtue of recognising that the lex arbitri would be that of the jurisdiction in which the Court were seated.
Both Sanjay Kumar Verma and Paul Smith should have been on all fours in Kings Chariot. Yet, the DHC’s decision to disregard the exclusive jurisdiction clause renders it somewhat otiose, though the clause said “all disputes” would be within “Delhi jurisdiction only”.
Drafting Takeaways
The first takeaway is that parties should expressly stipulate their seat or place of arbitration (an oft quoted rule while drafting any arbitration agreement). A jurisdiction clause such as “courts of ‘X’ will have jurisdiction over this agreement” may be generic, as it does not refer to the court’s jurisdiction over disputes or arbitral proceedings. As Kings Chariot shows, even a more specific clause referring to “all disputes” may not be enough.
If parties intend to designate a seat and also include a jurisdiction clause, then care must be taken to make sure that the jurisdiction clause does not confer jurisdiction on courts of another territory in respect of the same matters which will be submitted to arbitration. This will make help prevent ambiguity (against which we caution in rule no. 1 above).
Further, in the context of cross-border contracts with international parties, it is particularly important for the parties to clearly delineate the law governing the arbitration, i.e., the seat, and the law of the arbitration agreement. These two laws are often overlooked, with parties only specifying the law governing the contract. This may result in litigation later.
– Shaneen Parikh & Amoga Krishnan
[1] See also Virgo Softech Ltd. v. National Institute of Electronics & Information 2018 SCC OnLine Del 12722. Confirmed on appeal SLP(C) 5063-5064/2019, where the arbitration agreement stipulated that “arbitration proceedings shall be held in New Delhi” but also stipulated that “courts in Chandigarh only shall have exclusive jurisdiction to try and entertain any dispute arising there from.” A single judge of the DHC ruled that the agreement “clearly confers exclusive jurisdiction in the Court at Chandigarh to entertain all disputes arising out of or in relation to the arbitration proceedings.”
In CVS Insurance and Investments v. Vipul IT Infrasoft Pvt. Ltd. 2017 SCC OnLine Del 12149, the arbitration agreement specified that the “venue of arbitration shall be Noida / New Delhi” but also stated that “arbitration proceedings and all other matters connected to arbitration and any disputes, suits, complaints, litigation, claim or any other matter arising out of or in relation to this Agreement, shall be subject to the exclusive jurisdiction of Courts at Noida.” The DHC ruled that in view of the exclusive jurisdiction clause, an application under Section 11 would lie before the High Court exercising jurisdiction over Noida and not the DHC.