Inox Renewables Ltd v. Jayesh Electricals Ltd

Civil Appeal No. 1556 of 2021 (Arising out of SLP (C) No.29161 of 2019)

Background facts

  • A Purchase Order (PO) dated January 28, 2012 was entered into between Gujarat Fluorochemicals Ltd (GFL) and Jayesh Electricals Ltd (Respondent) for the manufacture and supply of power transformers at wind farms. Clause 8.5 of the PO states that all disputes arising out of the PO would be referred to arbitration by a three-member tribunal. Further, it was stated that the venue of the arbitration would be Jaipur and the exclusive jurisdiction would lie with the courts in Rajasthan.
  • By way of a Business Transfer Agreement (Agreement), a slump sale of the entire business of GFL took place in favor of Inox Renewables Ltd (Appellant). It is pertinent to note that the Respondent was not a party to the aforesaid Agreement. Clauses 9.11 and 9.12 of the Agreement designated Vadodara as the seat of the arbitration between the parties, vesting the courts at Vadodara with exclusive jurisdiction qua disputes arising out of the Agreement.
  • Thereafter, disputes arose between the parties and the Respondent filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (Act) before the High Court of Gujarat (HC) who passed an Order appointing Justice CK Buch (Retd.) to act as the Sole Arbitrator to resolve all disputes arising between the parties out of the PO.
  • Subsequently, on July 28, 2018, the Arbitrator passed an award in favor of the Respondent, awarding a sum of INR 38,97,150 plus INR 31,32,650 as the interest on the awarded amount from March 10, 2017 till the date of the Award as well as INR 2,81,000 as quantified costs. Future interest was also awarded at 15% from the date of Award till the date of payment. Dissatisfied by the Award, the Appellant challenged the same by instituting a Petition under Section 34 of the Act in the Commercial Court at Ahmedabad. Vide an Order dated April 25, 2019, the Court disposed of the same, thereby accepting the case of the Respondent by referring to Clauses 9.11 and 9.12 of the Agreement and stated that the courts at Vadodara alone would have exclusive jurisdiction.
  • Aggrieved by the Order dated April 25, 2019, the Appellant filed a Special Civil Application before the HC. In its judgment dated October 9, 2019, the HC referred to Clause 8.5 contained in the PO and held that as the exclusive jurisdiction is presented to the courts at Rajasthan, the appropriate court would be the court at Jaipur. However, despite this finding, it found no error in the Commercial Court's decision dated April 25, 2019 and dismissed the Special Civil Application (Impugned Judgment).
  • The Appellant filed an Appeal challenging the aforesaid Order of the HC before the Supreme Court (SC).

Issue at hand?

  • Whether the change in venue/place in arbitration by mutual agreement would result in the said changed venue becoming the seat of arbitration?

Decision of the Court

  • The Appellant relied upon the principles laid down by SC in BSG SGS SOMA JV v. NHPC Ltd1 (BGS SGS) and stressed that the arbitrator had confirmed in the arbitral award that the venue/place of arbitration was shifted by mutual consent to Ahmedabad, because of which the place of arbitration or seat of arbitration became Ahmedabad, resulting in the courts at Ahmedabad having exclusive jurisdiction. The Respondent averred to this by stating that in the absence of a written agreement between the parties, the place of arbitration cannot be switched even by mutual agreement and leaned on Videocon Industries Ltd v. Union of India & Anr2 (Videocon) and Indus Mobile Distribution Pvt Ltd v. Datawind Innovations Pvt Ltd3 (Indus Mobile).
  • Further, the Respondent strongly insisted that the Sole Arbitrator's finding that the venue was shifted by mutual consent from Jaipur to Ahmedabad had reference only to Section 20(3) of the Act and thus, the seat of the arbitration was always secured at Jaipur. The Respondent also stated that as per Clause 8.5, the jurisdiction of Courts in Rajasthan is independent of the venue being at Jaipur.
  • At the outset, the SC perused Clause 12.3 of the Award which explicitly spells out that by mutual agreement, parties have specifically shifted the venue/place of arbitration from Jaipur to Ahmedabad. Thus, the SC held that the Respondent's submissions that this could only have been done by written agreement and that the Arbitrator's finding refers only to a convenient venue and not the seat of arbitration, does not hold much water.
  • The SC carefully browsed through BGS SGS (supra) and concluded that since the seat is chosen as Ahmedabad in the instant case, it is equivalent to an exclusive jurisdiction clause, thereby conferring the courts at Ahmedabad with exclusive jurisdiction to deal with the arbitration. The SC also referred to the judgements relied on by the Respondent and held that the parties may commonly arrive at a seat of arbitration and may change the seat of arbitration by mutual consensus which is recorded by the Ld. Sole Arbitrator in his Award to which no challenge is made by either party.
  • The SC dismissed the argument of the Respondent that the Sole Arbitrator's finding that the venue was shifted by mutual consent from Jaipur to Ahmedabad had reference only to Section 20(3) of the Act by advancing that the 'venue' being shifted from Jaipur to Ahmedabad is really a shifting of the venue/place of arbitration with reference to Section 20(1), and not with reference to Section 20(3) of the Act.
  • With regards to the Respondent's argument that the courts at Rajasthan alone would have exclusive jurisdiction, the SC clarified that Clause 8.5 must be read as whole as the Courts in Rajasthan have been vested with jurisdiction only because the seat of arbitration was to be at Jaipur. Furthermore, once the seat of arbitration is substituted to be at Ahmedabad by mutual agreement, the Courts at Rajasthan are no longer vested with jurisdiction as exclusive jurisdiction is now vested in the Courts at Ahmedabad, given the change in the seat of arbitration.
  • In light of the above, the SC set aside the Impugned Judgment and referred the parties to the courts at Ahmedabad for the adjudication of the Section 34 petition.

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Footnotes

1 (2020) 4 SCC 234

2 (2011) 6 SCC 161

3 (2017) 7 SCC 678

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