– Dhruv Wadhwa, Partner, AWM Legal
Introduction
In a recent ruling, the Hon’ble Allahabad High Court (Lucknow Bench), delivered a significant judgment in the matter titled “Devi Prasad Mishra v. M/s Nayara Energy Limited (earlier Essar Oil Limited) [CIVIL MISC. ARBITRATION APPLICATION No. 2 of 2024]”, providing crucial clarity on the distinction between the ‘seat’ and ‘venue’ of arbitration.
The Court has essentially held that when an arbitration agreement designates a specific place/ venue for proceedings and there is no other significant contrary indicia to show that the place designated is merely the venue and not the seat, it effectively establishes the ‘seat’ of arbitration, thereby ousting the jurisdiction of all other courts.
Brief Facts and Dispute
The case arose from a Franchisee Agreement dated 18.01.2018, between the Petitioner and the Respondent. Under this agreement, the Petitioner invested a significant sum to establish a petrol pump in Amethi, Uttar Pradesh. Disputes emerged when the Respondent unilaterally terminated the Agreement in August 2023. In response, the Petitioner invoked the arbitration clause by issuing a letter and suggested the name of a former Judge to act as the sole Arbitrator.
When the Respondent failed to reply, the Petitioner filed a petition under Section 11(6) of the Arbitration & Conciliation Act, 1996, before the Allahabad High Court, seeking appointment of an Arbitrator.
The Respondent raised a preliminary objection, challenging the territorial jurisdiction of the Allahabad High Court. It was argued that despite the agreement being signed in NOIDA and the dealership being located in Amethi (both in Uttar Pradesh), the arbitration clause specified that proceedings would be held in Mumbai and granted exclusive jurisdiction to the courts at Mumbai. The Respondent contended that this made Mumbai the designated ‘seat’ of arbitration, vesting exclusive jurisdiction in the courts of Mumbai.
While the Petitioner argued that Mumbai was merely the ‘venue’ and the seat would have to be determined by seeing where the cause of action actually arose.
Question of Law
The central issue before the Court was to determine the appropriate Court for entertaining a petition for appointment of an Arbitrator when the arbitration clause only explicitly designates a ‘venue’ for the proceedings, and not the ‘seat’.
Discussion by Court
The High Court’s analysis was based on the interpretation of Clauses 21 and 22 of the Franchisee agreement. Relevant parts of the said Clause are reproduced hereunder:
“
Clause 21. Dispute Resolution
… The arbitration proceedings shall be held in Mumbai and shall be conducted in the English language. The award rendered by the arbitration panel shall be final, conclusive and binding on all parties to this agreement and shall be subject to enforcement in any court of competent jurisdiction. …
Clause 22. Governing laws and jurisdiction
…this agreement will be governed by and construed in accordance with the laws of India and shall be subject to the exclusive jurisdiction of the courts at Mumbai only. ”
The Petitioner argued that since the cause of action, including the signing of the agreement and the location of the dealership, was in Uttar Pradesh, the courts of Mumbai had no connection to the dispute. However, the High Court essentially emphasized that party autonomy is a cornerstone of arbitration.
As arbitration is a creature of contract, parties are free to choose a neutral seat/ venue for dispute resolution, which may not have a classical connection to the cause of action as required under the Code of Civil Procedure, 1908.
The court relied on the Supreme Court’s judgment in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. & others, (2017) 7 SCC 678, which held that the designation of a ‘seat’ is equivalent to an exclusive jurisdiction clause. The Apex Court in that case clarified:
“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 the 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. ”
Distinguishing ‘Seat’ and ‘Venue’
The High Court further elaborated on the legal principles distinguishing ‘seat’ from ‘venue’ by referring to the decision of the Hon’ble Supreme Court in B.G.S. S.G.S. Soma JV v. NHPC Limited, (2020) 4 SCC 234. In the said Judgment, the Hon’ble Supreme Court held that where an agreement specifies a ‘venue’ without any contrary indications, then in that case the venue is considered the juridical ‘seat’ of the arbitration.
Relevant paragraphs from B.G.S. S.G.S. Soma JV v. NHPC Limited are quoted hereunder:
“61. It will thus be seen that wherever there is an express designation of a “venue”, and no designation of any alternative place as the “seat”, combined with a supranational body of rules governing the arbitration, and no other significant contrary indicia, the inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding.
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82. On a conspectus of the aforesaid judgments, it may be concluded that whenever there is the designation of a place of arbitration in an arbitration clause as being the “venue” of the arbitration proceedings, the expression “arbitration proceedings” would make it clear that the “venue” is really the “seat” of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. This language has to be contrasted with language such as “tribunals are to meet or have witnesses, experts or the parties” where only hearings are to take place in the “venue”, which may lead to the conclusion, other things being equal, that the venue so stated is not the “seat” of arbitral proceedings, but only a convenient place of meeting. Further, the fact that the arbitral proceedings “shall be held” at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a “venue” and not the “seat” of the arbitral proceedings, would then conclusively show that such a clause designates a “seat” of the arbitral proceedings. In an international context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that “the venue”, so stated, would be the seat of the arbitral proceedings. In a national context, this would be replaced by the Arbitration Act, 1996 as applying to the “stated venue”, which then becomes the “seat” for the purposes of arbitration. ”
The High Court also noted that this reasoning was subsequently approved by the Hon’ble Supreme Court in Arif Azeem Company Ltd. vs. Micromax Informatics FZE, 2024 SCC OnLine SC 3212, solidifying the legal position.
Conclusion and Decision
Applying these established legal principles, the Hon’ble Allahabad High Court found that the Agreement between the parties clearly identified Mumbai as the place where arbitration proceedings “shall be held”. This, combined with the exclusive jurisdiction clause vesting jurisdiction in the Courts at Mumbai, and the absence of any contrary indicators, led to the definitive conclusion that the parties had chosen Mumbai as the ‘seat’ of arbitration, even though the word ‘seat’ was not specifically mentioned.
The Court held that even if the clause had used the word ‘venue’, it would still be treated as the ‘seat’ in the absence of any conflicting clauses. Once the ‘seat’ is determined, only the Courts of that place have the jurisdiction over the Arbitration proceedings.
For these reasons, the High Court concluded that the Petition was not maintainable before it at Lucknow, Uttar Pradesh. It dismissed the petition, leaving it open for the Petitioner to approach the appropriate jurisdictional Court at Mumbai for relief(s).