Supreme Court Rules on Jurisdiction in Arbitration: Inox Renewables vs. Jayesh Electricals
The case of M/s. Inox Renewables Ltd. vs. Jayesh Electricals Ltd. pertains to the jurisdictional issue concerning arbitration under the Arbitration and Conciliation Act, 1996. The key question was whether the jurisdiction to hear challenges against an arbitration award lies in the courts of Ahmedabad or Jaipur. The Supreme Court ruled that the courts at Ahmedabad had exclusive jurisdiction after the arbitration venue was changed by mutual agreement.
Background of the Case
The dispute arose from a purchase order dated January 28, 2012, executed between M/s. Gujarat Fluorochemicals Ltd. (GFL) and Jayesh Electricals Ltd. for the manufacture and supply of power transformers. The purchase order included an arbitration clause stating:
“The venue of the arbitration shall be Jaipur. In the event of arbitrators’ award being not acceptable to either party, the parties shall be free to seek lawful remedies under the law of India, and the jurisdiction for the same shall be courts in the State of Rajasthan.”
Transfer of Business
On March 30, 2012, GFL transferred its entire business to Inox Renewables Ltd. through a business transfer agreement (BTA). The BTA included an exclusive jurisdiction clause assigning all disputes to Vadodara courts. However, the respondent (Jayesh Electricals Ltd.) was not a party to this agreement.
Arbitration Proceedings
When disputes arose, the respondent initiated arbitration proceedings under Section 11 of the Arbitration and Conciliation Act, 1996. The Gujarat High Court appointed a sole arbitrator, who eventually delivered an award dated July 28, 2018, directing the appellant (Inox Renewables Ltd.) to pay:
- Rs. 38,97,150 as principal amount
- Rs. 31,32,650 as interest from March 10, 2017
- Future interest at 15% per annum
- Rs. 2,81,000 as litigation costs
Jurisdictional Dispute
The appellant challenged the arbitration award under Section 34 of the Arbitration Act before the Ahmedabad Commercial Court. The respondent opposed this, arguing that jurisdiction was vested in Vadodara (as per the BTA) or in Rajasthan (as per the purchase order). The Commercial Court at Ahmedabad ruled in favor of the respondent, stating that the appropriate jurisdiction was Vadodara.
High Court Decision
The Gujarat High Court upheld the Commercial Court’s ruling, stating that Jaipur was the designated arbitration venue in the purchase order. The High Court ruled:
“If one is to go by clause 8.5 of the purchase order, exclusive jurisdiction being vested in the courts at Rajasthan, the appropriate court would be the court at Jaipur.”
Petitioner’s Arguments
The appellant, Inox Renewables Ltd., argued:
- The business transfer agreement (BTA) is irrelevant as the respondent was not a party to it.
- The arbitration venue was mutually shifted from Jaipur to Ahmedabad, making Ahmedabad the seat of arbitration.
- Under the Supreme Court’s ruling in BGS SGS SOMA JV vs. NHPC Ltd. (2020), once a venue is designated as the seat, it carries exclusive jurisdiction.
- The Gujarat High Court erroneously upheld Rajasthan’s jurisdiction despite the arbitration being conducted in Ahmedabad.
Respondent’s Arguments
The respondent, Jayesh Electricals Ltd., contended:
- The purchase order specified Jaipur as the arbitration venue and Rajasthan as the jurisdiction for disputes.
- The arbitration venue can only be changed by written agreement between the parties, which was not done.
- Reliance on BGS SGS SOMA JV is misplaced as there was no formal agreement changing the seat.
- The arbitrator’s finding that Ahmedabad was chosen by mutual agreement does not override the written contract.
Supreme Court’s Findings
The Supreme Court, comprising Justices Rohinton Fali Nariman and Hrishikesh Roy, made the following key observations:
1. Effect of Changing the Arbitration Venue
The Court noted that the arbitrator specifically recorded that the parties had mutually agreed to shift the arbitration venue from Jaipur to Ahmedabad. This change was accepted by both parties and was reflected in the arbitral award.
“The arbitrator has recorded that by mutual agreement, Jaipur as a venue has gone and has been replaced by Ahmedabad.”
2. Jurisdiction Based on the Seat of Arbitration
The Court relied on its ruling in BGS SGS SOMA JV and Indus Mobile Distribution Pvt. Ltd. (2017), emphasizing:
“The moment a seat is designated, it is akin to an exclusive jurisdiction clause, vesting the courts at that place with exclusive jurisdiction.”
3. Rajasthan Courts No Longer Have Jurisdiction
The Court rejected the respondent’s claim that Rajasthan courts retained jurisdiction independent of the arbitration venue. The Court ruled:
“As clause 8.5 of the purchase order must be read as a whole, the jurisdiction of courts in Rajasthan was tied to Jaipur being the venue. Once Ahmedabad became the agreed venue, jurisdiction shifted.”
4. No Need for a Written Agreement to Change Venue
The Court distinguished the case from Videocon Industries Ltd. vs. Union of India (2011), stating:
“The parties may mutually agree to change the seat of arbitration without a formal written agreement, provided this is recorded and accepted.”
Judgment and Conclusion
The Supreme Court ruled:
- The impugned judgment of the Gujarat High Court is set aside.
- The Section 34 petition should be heard in Ahmedabad.
- The execution proceedings against Inox Renewables Ltd. will remain stayed until the Section 34 petition is resolved.
The Court concluded:
“The parties are now referred to the courts at Ahmedabad for the resolution of the Section 34 petition.”
This ruling reinforces the principle that once parties mutually agree to shift the seat of arbitration, it automatically confers exclusive jurisdiction to the courts of that location.
Petitioner Name: M/s. Inox Renewables Ltd..Respondent Name: Jayesh Electricals Ltd..Judgment By: Justice Rohinton Fali Nariman, Justice Hrishikesh Roy.Place Of Incident: Ahmedabad, Gujarat.Judgment Date: 13-04-2021.
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