Wednesday, May 17, 2017

BALCO’s ‘Error’ Amplified: The Supreme Court in Indus Mobile - Part I

[The following post is contributed by Puneet Dinesh, who is a III year student at the  National Law University, Delhi. He can be reached at puneetdin@gmail.com.]

The Supreme Court’s and the High Court’s approach to ‘arbitral seat’ vis-à-vis exclusive jurisdiction to courts has generated both controversies and analyses. The Delhi High Court (in NHPC Limited, Rohit Basin and Ion Exchange) and the Bombay High Court (in Konkola Copper Mines, previously covered here) have consistently reiterated BALCO’s logic found in paragraphs 96/97 of the Supreme Court’s judgment. In a two-part series of posts, I argue that the Supreme Court in Indus Mobile (April 2017) continues to commit the error that BALCO left us with in 2012 and might have also shifted the position of law in the process.

Brief Facts of Indus Mobile

The respondent (Datawind Innovations Private Limited) was engaged in the manufacture of mobile phone and tablets and its registered office was at Amritsar, Punjab. Certain goods were supplied to the appellant (Indus Mobile Distribution Private Limited), which was based in Chennai. The dispute pertained to a default in payment by Indus Mobile to the tune of Rs. 5 crores which it had to pay within seven days.

Clauses 18 and 19 of the agreement between the parties are relevant for our discussion:

Clause 18 of the agreement

‘… Dispute shall be finally settled by arbitration conducted under the provisions of the Arbitration & Conciliation Act 1996 by reference to a sole Arbitrator which shall be mutually agreed by the parties. Such arbitration shall be conducted at Mumbai, in English language’ (emphasis added)

Clause 19 of the agreement

‘All disputes & differences of any kind whatever arising out of or in connection with this Agreement shall be subject to the exclusive jurisdiction of courts of Mumbai only’ (emphasis added)

Datawind approached the Delhi High Court for reliefs under sections 9 and 11 of the Arbitration and Conciliation Act, 1996 (the ‘Arbitration Act’). The Court exercised jurisdiction as the place of business was in Delhi and disposed of both the applications. The High Court, therefore did not think (and as I will show, rightly) that this conclusion was affected by the language of clauses of 18 and 19 of the agreement. Indus Mobile challenged the judgment which was heard by a division bench of the Supreme Court.

Brief issue before the Supreme Court

The Court in Indus Mobile was called upon to determine whether a court at the arbitral seat in a domestic arbitration can have exclusive jurisdiction over all disputes arising out of the agreement. The decision has direct impact on a host of critical issues: role of ‘arbitral seat’ in domestic arbitration, idea of ‘party autonomy’ (and its limitations) under the Arbitration Act and the role of Civil Procedure Code, 1908 (‘CPC’) in arbitral proceedings.

Judgment and analysis

In paragraph 21, the Supreme Court sets aside the judgment of the Delhi High Court to hold that ‘Mumbai courts alone have jurisdiction to the exclusion of all other courts in the country, as the juridical seat of arbitration is at Mumbai’. I will cover my arguments suggesting that Indus Mobile was wrongly decided at two levels. First, the Court’s misunderstanding of BALCO’s objective. Second, the deviation from rules of the CPC and the misplaced reliance of the Report of the Law Commission of India. (The author refrains from reiterating the ‘error’ that BALCO left us with, as it has been covered through a series of interesting academic debates here and here)

Paragraph 20 of Indus Mobile and its attendant difficulties

The Court, while not explicitly recognizing it, attempts to conflate two different positions of law which have varying influences with the theory of ‘arbitral seat’ accepted internationally. Firstly, the ABC Laminart position, and secondly the Paramita Constructions (or Balaji Coke) position of law. I will argue that both these positions of law and the theory of ‘arbitral seat’ they carry are parallel and therefore they cannot be reconciled internally.

First Idea

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. (emphasis supplied)

Second Idea

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.’ (emphasis supplied)

First Idea (aligning with the A.B.C. Laminart position)

A.B.C. Laminart stands for the settled principle that courts shall entertain matters unless jurisdiction is expressly excluded by the contract. The agreement provided for the dispute to be subject to the jurisdiction at Kaira. The Court while giving effect to the jurisdiction clause made some important observations:

‘…where the parties to a contract agreed to submit the disputes arising from it to a particular jurisdiction which would otherwise also be a proper jurisdiction under the law their agreement to the extent they agreed not to submit to other jurisdictions cannot be said to be void as against public policy. If on the other hand the jurisdiction they agreed to submit to would not otherwise be proper jurisdiction to decide disputes arising out of the contract it must be declared void being against public policy’ (emphasis added)

The moot issue here turns around one’s interpretation of the term ‘proper jurisdiction’. I have previously maintained (by subscribing to V. Niranjan’s argument here) that the court at the ‘arbitral seat’ is not a valid or a proper jurisdiction, as BALCO holds it to be. My position is buttressed by the policy argument that conferment of jurisdiction is only a legislative act and not a judicial act. I make specific reference to a line of Supreme Court decisions upholding this position from Natraj Studios (1981) and Kondiba Dagadu Kadam (1999) to Jagmittar Sain Bhagat (2012). However, assuming that BALCO’s addition of another court is valid, parties can agree to submit the disputes to courts at Mumbai. Therefore, Indus Mobile correctly notes the position of law in the First Idea through a combined reading of both BALCO and A.B.C Laminart. BALCO provides for three concurrent ‘proper’ jurisdictions available to the parties and A.B.C Laminart helps the parties to direct the litigation to a single court among the courts possessing ‘proper’ jurisdiction.

There is one more idea in this part that merits discussion. The court specially notes ‘in the present case’ and ‘clause 19’. Both these terms indicate towards the fact that the agreement extends the concept of ‘arbitral seat’ (Mumbai) to the ‘courts at the arbitral seat’ (courts of Mumbai). It will be noted that the linkage between the place of arbitration and the exclusive jurisdiction of the court at the place of arbitration is extremely crucial in conforming to the theory of ‘arbitral seat’ applied in international commercial arbitration. However, in the present case, the court is not situated in a position where it has to make this linkage as the agreement already makes this extension.

Where can we then look to appreciate the Court’s understanding of the relationship between ‘place’ of arbitration and the ‘court’ at the place of arbitration? The answer, lies in the peculiarity of the arbitration clause and the decision, in Paramita Constructions (or Balaji Coke). I will analyze Paramita Constructions and whether it rescues Indus Mobile in the subsequent post as it is closely linked to the Second Idea.

In conclusion, Indus Mobile gets the First Idea right due to (a) combined (and, implicit) reading of the BALCO and A.B.C Laminart principles, and (b) specific reference to the language in the agreement. In the subsequent post, I will examine the position that the Second Idea proposes and the resultant tensions in reconciling the First and the Second Idea.


- Puneet Dinesh

[The second post in the series is available here.]

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