SEAT VS EXCLUSIVE JURISDICTION CLAUSES: A TALE OF THREE CITIES

Meenal Garg and Shubham Sharma*

Introduction

Territorial jurisdiction in traditional courtroom litigation is governed by provisions of the Civil Procedure Code, 1908 (hereinafter, the “CPC”). Secs. 15-20 of the CPC provide for multiple situses for filing a dispute. This causes uncertainty as either party could file a suit in a jurisdiction that is most convenient to it in the event of a dispute. Therefore, to avoid this uncertainty, the concept of exclusive jurisdiction clauses was evolved. To illustrate, suppose in case of a dispute, a party can file a suit in court A or B or C, all three having territorial jurisdiction under CPC. By means of an exclusive jurisdiction clause, the parties can agree that all disputes arising from a contract would be subject to the exclusive jurisdiction of courts at A. Thus, the object of an exclusive jurisdiction clause was to provide for one forum for the resolution of all disputes arising out of a contract provided that such forum has jurisdiction under any of the provisions of CPC.

With the increased usage of arbitration, the concept of seat took a front-row seat in the commercial dispute resolution game. The Supreme Court has, in a number of cases, held that the object of designating a seat of arbitration grants supervisory jurisdiction to the seat court to oversee all proceedings arising out of an arbitration.[1] Moreover, in Indus Mobile Distribution Pvt Ltd vs. Datawind Innovations Pvt Ltd, it has been held that it is not necessary that the seat court should have jurisdiction under the CPC as the objective may be to choose for a neutral place for resolution of disputes.

From the above discussion, it is clear that exclusive jurisdiction clauses and the seat of arbitration have two separate functions. However, in contemporary commercial contracts, broadly worded arbitration clauses give concurrent jurisdiction to seat court and exclusive jurisdiction court. This causes no problem as long as the seat court and exclusive jurisdiction court are one and the same. The controversy arises when the seat court and the exclusive jurisdiction court are different and the question arises as to which clause would supersede the other. In this respect, the Delhi, Bombay, and Calcutta High Courts have recently given verdicts on this question. Whilst the Delhi and Bombay high courts have given effect to the seat clause, the Calcutta high court has held the exclusive jurisdiction to be applicable. This article aims to analyze these recent verdicts and argues that generally, the seat clause would supersede the exclusive jurisdiction clause except in a few circumstances.

A Tale of Three Cities

The Delhi High Court in Sumithra Inn

The tale starts with a Sec. 11 application of the Arbitration and Conciliation Act, 1996 (hereinafter “the Act”) decided by the Delhi High Court in My Preferred Transformation and Hospitality Pvt Ltd v. Sumithra Inn (hereinafter, “Sumithra Inn”). The factual matrix of the case involved a Management Services Agreement (MSA) executed between the parties. The agreement interestingly designated New Delhi as the exclusive forum for resolving any disputes arising out of the agreement and also prescribed New Delhi as the seat of arbitration. However, the exclusive jurisdiction clause was later amended to change the exclusive jurisdiction from New Delhi to Bengaluru without amending the seat clause. The question before the High Court was whether the application filed under Sec. 11 of the Act is maintainable before the Delhi High Court i.e. the seat court or is it maintainable at the exclusive jurisdiction court i.e. courts at Bengaluru.

Relying upon the Apex Court’s decision of Mankastu Impex Pvt. Ltd. v. Airvisual Ltd, the court ruled that the arbitration clause specifying the seat of arbitration would override the exclusive jurisdiction clause. The Court further held that choosing the seat of arbitration would vest exclusive jurisdiction to the seat courts unless there is an additional clause specifically conferring exclusive jurisdiction to a different court. Specific jurisdiction would mean for instance, conferring the jurisdiction to only hear applications pertaining to Sec 11 of the Act. In other words, an exclusive jurisdiction clause would only override the seat clause if it specifically confers a specified jurisdiction to a territory which was not the case in the present matter.

Bombay High Court in Aniket SA

The issue of conflicting seat and exclusive jurisdiction clauses also found its way, recently, to the Bombay High Court in Aniket SA Investments LLC v. Janapriya Engineers Syndicate (hereinafter “Aniket SA”). The contract in dispute consisted of an exclusive jurisdiction clause conferring jurisdiction to Hyderabad whereas the arbitration clause mentioned Mumbai as the seat of arbitration. Notably, the exclusive jurisdiction clause also provided that it is ‘subject to’ the arbitration clause. The learned Single Judge held that the mere fact that the seat is mentioned in an agreement would not automatically confer exclusive jurisdiction on the Courts of the seat and therefore, exclusive jurisdiction clause (Hyderabad) should prevail in the interest of party autonomy. The single bench, therefore, denied interim relief under Sec 9 of the Act on account of lack of jurisdiction and the parties approached the division bench under Sec 37 of the Act.

The division bench set aside the decision of the single judge and upheld the seat jurisdiction. The division bench observed that the issue at hand falls squarely within the interpretation of seat as held in BGS SGS SOMA JV v. NHPC Ltd. (hereinafter “BGS SGS”). It was held that concurrent jurisdiction by the exclusive jurisdiction court and the seat court is impermissible as choosing the seat is an expression of party autonomy conferring exclusive jurisdiction on the seat court. The division bench further held that by using the phrase ‘subject to’ in the exclusive jurisdiction clause, there is no doubt that on a plain reading, the seat court would supersede the exclusive jurisdiction clause.

Calcutta High Court in Bowlopedia

The jurisprudence around the issue took a different route inBowlopedia Restaurants India Ltd v. Devyani International Ltd, wherein the Calcutta High Court granted interim relief based on the exclusive jurisdiction clause. The dispute involved a Leave & License agreement designating exclusive jurisdiction to Kolkata and prescribing the seat of arbitration at New Delhi. The Court held that where the parties have selected a seat of arbitration which is in conflict with the jurisdiction of the Court under the exclusive jurisdiction clause, then, the Court having exclusive jurisdiction will prevail in the interest of party autonomy provided such Court otherwise has jurisdiction akin to Section 20 of the CPC.

Upon closer inspection, a number of discrepancies emerge out of the reasoning adopted by the Calcutta High Court which are discussed below:

  1. With reference to the predominance of the exclusive clause, the Court placed reliance on Swastik Gases Pvt. Ltd. v. Indian Oil Corporation Ltd. (hereinafter “Swastik”) which was clearly misplaced. The Apex Court held in Swastik that an exclusive jurisdiction clause implies that the parties intended to confer exclusive jurisdiction to that court and exclude all other courts. However, the decision of Swastik did not involve a question of concurrent jurisdiction clause such as the seat of arbitration and was based on the maxim ‘expressio unius est exclusio alterius’ meaning ‘as there is nothing to indicate the contrary’. Therefore, reliance on Swastik is placed as the same is distinguishable on facts and contrary to subsequent pro-arbitration judgments of the Hon’ble Apex Court.
  2. The Court further relied upon the decision of Bombay High Court in Aniket SA Investments LLC v. Janapriya Engineers Syndicate. However, as already noted above, this decision has been set aside in appeal by the division Bench of Bombay High Court in Aniket SA. Hence, reliance on this decision is also misplaced.
  3. The court has further noted that autonomy in arbitration is imperative and therefore, the exclusive jurisdiction clause selected by the parties should be given effect or else the same would be rendered “otiose”. However, the court has ignored the principle that a specific clause of contract supersedes a general clause of contract. Moreover, by upholding the exclusive jurisdiction clause which has jurisdiction under CPC, the court has rendered the seat clause completely otiose. Thus, the findings of the court are self contradictory as the court itself has trampled party autonomy under the garb of protecting party autonomy.

Thus, it appears that the Calcutta High Court has erred in its approach and the same is contrary to established law and principles of party autonomy. On the other hand, the Delhi High Court and Bombay High Court have laid down the correct position of law by giving priority to seat clauses over the exclusive jurisdiction clause.

Can Exclusive Jurisdiction Clause Supersede Seat Clause?

The above discussion has shown that generally, seat clauses would supersede the exclusive jurisdiction clause irrespective of the drafting of the latter. However, there are a few instances in which the exclusive jurisdiction clause could supersede the seat clause.

  1. Waiver: It may so happen that a party files an arbitration related petition before the exclusive jurisdiction court instead of seat court. In such a scenario, if the opposite party does not object to jurisdiction of such court or waives the applicability of the seat, the exclusive jurisdiction clause takes effect. Moreover, in such a scenario Sec. 42 of the Act would take effect and all subsequent proceedings would have to be filed before such court. Furthermore, the Apex Court in Quippo Construction Equipment Limited Vs. Janardan Nirman Pvt. Limited has held that objection as to the applicability of seat has to be taken before the court or before submission of statement of defence. Therefore, once such objection is not taken, the seat clause is deemed to have been waived and the exclusive jurisdiction clause would take effect.
  2. Non-Arbitrable Disputes: In case of non-arbitrable disputes, a distinct seat clause would not have any effect and the exclusive jurisdiction clause would supersede the seat clause. To illustrate, the Supreme Court in M/S Emaar Mgf Land Limited v. Aftab Singh has held that consumer disputes are non-arbitrable. Furthermore, consumer courts in Ajmer Kaur v. Super Realtech Pvt Ltd have upheld exclusive jurisdiction clauses in limiting the jurisdiction of consumer courts as long as the selected forum has jurisdiction under CPC. Therefore, consumer disputes arising out of contracts would be subject to the exclusive jurisdiction clause and not the seat clause.
  3. Interpretation clauses: Usually in complex commercial contracts like construction contracts, the contract consists of a number of documents (like main agreement, special conditions of the contract, general conditions of the contract, etc.). In such a scenario, the exclusive jurisdiction clause may be located in one part of the contract and the seat clause may be contained in another part of the contract. In such a case, the interpretation clause may give priority to the part containing the exclusive jurisdiction clause over the part containing the seat clause. In such a case, the exclusive jurisdiction clause would supersede the seat clause by operation of interpretation clause.
  4. Carve-out Exceptions: The Delhi High Court in Cars24 Services Pvt Ltd v. Cyber Approach Workspace LLP has held that an exclusive jurisdiction clause conferring exclusive jurisdiction on a court with regards to appointment of arbitrator, then such clauses would supersede the seat of arbitration. At the outset, it is imperative to mention here that the authors are doubtful of the ratio of this decision as the court did not discuss the effect of Sec. 42 of the Act in such cases. Nevertheless, this case law continues to be good law and is a valid exception where exclusive jurisdiction clause supersedes seat clause.

Conclusion: Lessons Learnt

The discussion above has shown that generally, the seat clause would supersede exclusive jurisdiction clause. However, the draftsman may use phrases like “subject to” or “notwithstanding” to make the intention of the parties amply clear. Another alternative could be to narrow down the scope of reference for arbitration. For instance, in an insurance contract generally only disputes relating to the quantum of claim are subject to arbitration but the remaining disputes are subject to ordinary court process. In such a case, the draftsman may consciously provide for a different seat court and exclusive jurisdiction court for various disputes arising out of such contracts. Lastly, the draftsman should be mindful of the nature of dispute and structure of contract to ensure that the intended forum selection clauses take full effect within the established parameters of law.

*Meenal Garg is an Advocate at Punjab and Haryana High Court and Shubham Sharma is a student at Delhi Metropolitan Education. They can be reached at Meenal Garg- LinkedIn. Shubham Sharma- LinkedIn


[1] Roger Shashoua v. Mukesh Sharma, (2017) 14 SCC 722; Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc, (2012) 9 SCC 552.



One thought on “SEAT VS EXCLUSIVE JURISDICTION CLAUSES: A TALE OF THREE CITIES

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.