1. Introduction

It is settled law that the designation of a place as the seat of arbitration in an arbitration agreement, vests the courts at such place with exclusive supervisory jurisdiction over the arbitration proceedings arising from said arbitration agreement. However, what happens when the contract between the parties also contains a forum selection clause, in addition to the clause designating the seat of arbitration? Of course, in cases where both the aforesaid clauses designate the same place, there would be little cause for conflict.

A conflicting situation arises when the seat of arbitration and the forum selected by the parties are two different places. In a recent decision of the High Court at Calcutta ("CHC") in Bowlopedia Restaurants India Ltd v. Devyani International Ltd1 ("Devyani"), it was held that a forum selection clause overrides the jurisdiction of the seat of arbitration, in a domestic arbitration. This article aims to analyse the reasoning and assesses the correctness of Devyani in light of the leading decisions of the SC of India ("SC") with respect to the effect of designation of a place as the seat of arbitration.

  1. Decision in Devyani
  1. Factual background

In Devyani, the parties had entered into a leave and license agreement ("the Agreement"). Clause 16.6 of the Agreement provided that "The courts of Kolkata shall have exclusive jurisdiction to try dispute, if any, arising out of or in relation to this Agreement". On the other hand, Clause 16.7 provided that "Any dispute or difference arising between the parties shall be resolved amicably at the first instance. Unresolved disputes, controversies, contests, disputes, if any shall be submitted to arbitration... The seat of the arbitration shall be at New Delhi" (emphasis supplied).

Bowlopedia Restaurants India Ltd ("the Petitioner")had preferred an application under Section 9 of the Arbitration and Conciliation Act, 1996 ("the Act") for interim protection before the CHC. The arbitration proceedings had not been commenced yet, and no arbitrator had been appointed. Devyani International Ltd ("the Respondent") had challenged this application, arguing that since the parties agreed that the seat of arbitration shall be at New Delhi, the courts at New Delhi have exclusive jurisdiction to try, entertain and determine any proceeding under the Act. The Petitioner, on the other hand, argued that when there is a conflict between the forum selected by the parties and the seat of arbitration, in the case of a domestic arbitration, then, the forum selection clause will prevail.

The CHC had to consider the following question: "when there is a forum selection clause conferring exclusive jurisdiction to a specific court, which is different from the court having jurisdiction over the seat of arbitration, in a domestic arbitration, which court will have jurisdiction over the arbitration proceedings?"

  1. Forum selection clause trumps seat of arbitration clause

The CHC observed that in a domestic arbitration, wherein the parties have not specified a particular forum for resolution of disputes in the contract, the courts having jurisdiction over the seat of arbitration will be construed as the chosen forum of the parties. However, it was held that if the parties have specified a particular forum for resolution of disputes, which even otherwise has jurisdiction over the subject matter of the arbitration, then such specified forum will have jurisdiction over the subject arbitration, notwithstanding the seat of arbitration. The CHC held that in the interest of party autonomy, the forum selected by the parties should be preferred over the seat of arbitration.

  1. Four possible scenarios

The CHC listed the following possible scenarios involving a seat of arbitration and a forum selection clause:

  1. If the contract is silent on both the seat of arbitration and the selected forum, then the court having jurisdiction over the subject matter of the arbitration will exercise jurisdiction.
  2. If the contract specifies the seat of arbitration but not a selected forum, then the court at the seat of arbitration will exercise jurisdiction over the arbitration.
  3. If the contract specifies both the seat of arbitration and the selected forum, and there is no conflict between the two, then the court at the seat of arbitration will exercise jurisdiction over the arbitration.
  4. If the contract specifies a seat of arbitration which is in conflict with the selected forum, then the selected forum will have jurisdiction, provided that such forum otherwise has jurisdiction akin to Section 20 of the Code of Civil Procedure, 1908 ("CPC").

Accordingly, it was held that the CHC had jurisdiction to entertain the Petitioner's application under Section 9 of the Act.

  1. Analysis of SC decisions on seat of arbitration
  1. Supremacy of seat of arbitration

Various rulings of the SC have fortified the principle that the designation of a place as the seat of arbitration vests the court at the seat with exclusive jurisdiction over the arbitral proceedings. In Enercon (India) Limited and Others v. Enercon GMBH and Another,2 it was held that the location of the seat will determine the courts that will have exclusive jurisdiction to oversee the arbitration proceedings.

In Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. and Others,3 ("Datawind") the SC held that the moment the seat is designated, it is akin to an exclusive jurisdiction clause, irrespective of the fact that no part of the cause of action had arisen at the seat. In Datawind, Mumbai was the seat of arbitration, and it was held that Mumbai courts would have exclusive jurisdiction over the arbitral proceedings. Thus, the CHC in Devyani ought not to have considered where the cause of action arose while determining the appropriate forum, as the designation of the seat of arbitration, renders the aforesaid question redundant.

Furthermore, in BGS SGS SOMA JV v. NHPC Ltd,4 a three-judge bench of the SC has categorically held that where a seat of arbitration is designated, all applications under Part I of the Act would be required to be made only at the seat. Therefore, an application under Section 9 of the Act (which is under Part I of the Act), can only be filed at the seat of arbitration, and nowhere else.

  1. Conflict between seat and selected forum

In Mankastu Impex Private Limited v. Airvisual Limited,5 ("Mankastu") a three-judge bench of the SC held that the seat of arbitration determined which court would have supervisory power over the arbitration proceedings. In Mankastu, the contract between the parties specified New Delhi as the selected forum. The said contract also designated Hong Kong as the seat of arbitration. The SC herein held that once the parties had chosen Hong Kong as the seat of arbitration, Indian courts would have no jurisdiction for appointment of the arbitrator. Thus, in Mankastu, the SC gave preference to the seat of arbitration instead of the forum selected in the contract.

The decision in Mankastu was considered by the CHC in Devyani, and it was held that Mankastu was passed specifically in the context of an international commercial arbitration. The CHC observed that in an international commercial arbitration, the seat of arbitration would be of significance as it would determine the law governing the arbitral proceedings. Since Devyani was in the context of a domestic arbitration, wherein the Indian laws would apply,6 the CHC concluded that the ratio of Mankastu was not applicable to the facts in Devyani.

  1. Application of Mankastu in domestic arbitrations

A recent decision of the High Court of Delhi ("DHC"), having facts similar to Devyani, has taken a different approach to this issue, and has applied the decision of Mankastu in a domestic arbitration. In My Preferred Transformation and Hospitality Pvt Ltd v. Sumithra Inn7 ("Sumithra Inn"), the parties had entered into a Management Services Agreement ("MSA"). Article 10.1 of the MSA provided that the courts at New Delhi shall have exclusive jurisdiction in all matters arising out of the MSA, while Article 10.3 of the MSA stipulated that New Delhi would be the seat of arbitration. Article 10.1 of the MSA was subsequently amended, and "New Delhi" was substituted by "Bengaluru". No similar amendment was made to Article 10.3 of the MSA. The question before the DHC was whether an application under Section 11 of the Act should be filed in Bengaluru or New Delhi.

Similar to Devyani, the DHC envisaged four possible scenarios involving a seat of arbitration and a forum selection clause, with the facts of Sumithra Inn falling within the fourth category (seat of arbitration being different from the selected forum). The DHC observed that in Mankastu, which also fell in the fourth category of cases, the SC had given preference to the seat of arbitration over the selected forum. The DHC thus held that by analogy, the fixation of the seat of arbitration at New Delhi would vest courts at New Delhi with exclusive jurisdiction to entertain an application under Section 11 of the Act.

  1. Relevant principles of CPC

Sections 15 to 20 of the CPC determine the place of instituting a civil suit. Section 20 of the CPC inter-alia provides that a suit has to be instituted in a court within whose jurisdiction the cause of action of a suit has arisen.8 However, as far as the law of arbitration is concerned, the designation of a place as the seat of arbitration vests the courts at that place with exclusive jurisdiction for regulating the arbitral proceedings.9 In such a scenario, it becomes irrelevant where the cause of action has arisen, as the seat of arbitration will always take precedence over any other court.10 Thus, Devyani does not lay down the correct law, in so far as it takes into account where the cause of action has arisen, which would be wholly irrelevant when a seat of arbitration has been designated.

  1. Conclusion

Due to the conflicting decisions in Devyani (CHC) and Sumithra Inn (DHC), there is lack of clarity on whether a forum selection clause or a seat of arbitration clause would be given priority in deciding the appropriate court under the Act. The unintended consequence of either of the aforementioned two approaches is that preference to one clause would render the other clause nugatory. For example, in Devyani, by allowing an application under Section 9 of the Act to be filed at the selected forum, the seat of arbitration clause was rendered redundant. On the other hand, in Sumithra Inn, the DHC has held that courts at the seat of arbitration would have exclusive jurisdiction over the arbitration proceedings, and thus the forum selection clause became inconsequential as a result.

Sumithra Inn is in line with multiple rulings of the SC,11 which have repeatedly emphasized that the seat of arbitration clause is akin to an exclusive jurisdiction clause, ousting the jurisdiction of courts other than courts at the seat. Therefore, in so far as applications under the Act are concerned, the courts at the seat of arbitration must take precedence over the any selected forum, in case of a conflict between the two.

In any case, it would be advisable for contract drafters to avoid clauses which can be subject to such contradictory interpretations. Therefore, designating the courts at the seat of arbitration, as the courts having exclusive jurisdiction over all matters arising out of a contract, would prevent such contentious issues from arising in the first place.

Footnotes

1 2021 SCC OnLine Cal 103.

2 (2014) 5 SCC 1.

3 (2017) 7 SCC 678.

4 (2020) 4 SCC 234.

5 (2020) 5 SCC 399.

6 The Arbitration and Conciliation Act, Section 28(1)(a).

7 2021 (1) ArbLR 59 (Delhi).

8 The Code of Civil Procedure, 1908, Section 20(c).

9 BGS SGS SOMA JV v. NHPC Ltd, (2020) 4 SCC 234.

10 Brahmani River Pellets Ltd. v. Kamachi Industries Ltd., (2020) 5 SCC 462; Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. and Others, (2017) 7 SCC 678.

11 BGS SGS SOMA JV v. NHPC Ltd, (2020) 4 SCC 234; Union of India v. Hardy Exploration and Production (India) Inc, (2019) 13 SCC 472; Enercon (India) Limited and Others v. Enercon GMBH and Another, (2014) 5 SCC 1.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.