Exclusive Jurisdiction v. Forum Selection Clauses: What’s Brewing Amongst the High Courts?

Updated: Aug 29

-Rohan Gulati*

INTRODUCTION


The hotly debated and persisting conundrum of seat and venue of arbitration has been a canvas that has been painted with several strokes of paint [judgments]. Be that as it may, the fact that these paint strokes have been made by different brushes [different approaches and reasoning] is perhaps the perplexing aspect altogether. Somewhere between the fine margins, the enigma of exclusive jurisdiction clauses and forum selection clauses has garnered immense interest. Before deep-diving into the intricacies of the debate and a flood of judgments, it is indispensable to pause, take a step back, and highlight the most recognized principle of the seat of arbitration in the context of exclusive jurisdiction clauses.

Simply put, in cases where a seat of arbitration is designated by the parties, the courts at the seat of arbitration will have jurisdiction in respect of all cases arising out of or in relation to such arbitration.[1] Such jurisdiction has been referred to as the supervisory jurisdiction of the seat court since the seat has been considered to hold the center of gravity.[2]


Unfortunately, in the Indian jurisdiction, at times, contracts carry two different jurisdictional clauses, i.e., a clause that stipulates the seat of arbitration (commonly referred as the ‘exclusive jurisdiction clause’) and another clause that stipulates the courts that hold the jurisdiction in case of any dispute (commonly referred as the ‘forum selection clause’). These two jurisdiction clauses carry their distinct legal implications respectively but become dichotomous when included in the same contract.


In an attempt to decode the afore-stated dichotomy, three different High Courts in India hand-picked three different brushes [different approaches] and each of them painted a different stroke on a brand-new canvas. The purpose of this article is to go stroke-wise [judgment-wise], identify the best stroke [the ideal and correct judgment], and highlight the stroke that hand-picked the wrong brush [the judgment that did not follow the correct law].


[Note: The words ‘exclusive jurisdiction’ and ‘seat of arbitration’ will be used interchangeably in the article.]


THE FIRST STROKE


The Hon’ble Delhi High Court (“Delhi High Court”) in the case of My Preferred Transformation and Hospitality Pvt. Ltd. v. Sumithra Inn[3] was confronted with a situation where a Management Services Agreement (“MSA”) stipulated that the courts of New Delhi would have exclusive jurisdiction insofar as the arbitration proceedings were concerned but the courts at Bangalore would have jurisdiction for all matters arising out of the MSA.


The petitioner in the instant case had approached the Delhi High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“1996 Act”) and the respondent vehemently opposed the same on the ground that in accordance with the MSA, the courts at Bangalore had the appropriate jurisdiction to appoint an arbitrator under Section 11(6) of the 1996 Act. Thus, the Delhi High Court had to resolve the tussle between an exclusive jurisdiction clause and a forum selection clause, both stipulated under the MSA, and whether the Delhi High Court was forum conveniens. The Delhi High Court laid down 4 permutations and combinations that could arise in such situations (not limited to the MSA):


· Cases in which the contract only contained a ‘forum selection’ clause, but no ‘seat of arbitration’ clause;


· Cases in which the contract contained a ‘seat of arbitration’ clause but not a ‘forum selection’ clause;


· Cases in which the contract contained a ‘seat of arbitration’ and a ‘forum selection’ clause and both clauses vested jurisdiction in the same court, or courts at the same territorial location; or


· Cases in which the contract contained a ‘seat of arbitration’ and a ‘forum selection’ clause, vesting jurisdiction in courts at different territorial locations.


[Note: In the afore-stated four scenarios, the Delhi High Court had used the words ‘exclusive jurisdiction’ which have been replaced with the words ‘forum selection clause’ to maintain consistency in the language throughout the article.]


It was prima facie apparent that the instant case fell into the last category. The Delhi High Court then relied upon the judgment of the Hon’ble Supreme Court of India (“Supreme Court”), delivered in the case of Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.[4] (“Mankastu Impex”), wherein the Supreme Court was confronted with an identical set of facts, albeit regarding an international commercial arbitration. The Supreme Court there had opined that since Hong Kong was designated as the seat of arbitration, the same would have precedence over the forum selection clause.


Thus, following on the lines of Mankastu Impex, the Delhi High Court observed that merely conferring jurisdiction upon the courts at Bangalore would not mean that the Section 11 petition would lie before the High Court of Karnataka at Bangalore.[5] Additionally, by combining two pertinent aspects - first, there was no provision that specifically conferred jurisdiction, and second, the seat of arbitration was agreed to be New Delhi in the MSA - the Delhi High Court concluded that it would be vested with the jurisdiction under Section 11 of the 1996 Act.


Whilst the stroke painted by the Delhi High Court appears to be with the correct brush, there is certainly more than what meets the eye. While answering the issue of jurisdiction, the Delhi High Court observed the following (emphasis added):


“42. In the case of a domestic arbitration…the Court, having jurisdiction over the seat of arbitration, would be exclusively competent to entertain petitions under the 1996 Act, in exercise of its supervisory jurisdiction over the arbitral process, unless there is a separate clause conferring exclusive jurisdiction on a court in another territorial location, qua the particular provision which is in issue. If, in other words, in the present case, the MSA were to contain an exclusive jurisdiction clause, conferring exclusive section 11 jurisdiction on a court located elsewhere than at New Delhi, the situation may have been different. There is, however, no such specific exclusive jurisdiction clause; ergo, territorial jurisdiction, to entertain the present petition under Section 11 of the 1996 Act, thus, has to abide by the seat of arbitration which is, undisputedly, New Delhi.”[6]


From a bare perusal, the Delhi High Court essentially highlighted that if a clause conferred a ‘provision-specific’ jurisdiction upon a ‘particular’ court, it would prevail over and above the exclusive jurisdiction (that designates the seat of arbitration). This observation may be in conflict with the existing landscape and lead to an anomaly even in the instant case or where contracting parties may wish for the Delhi High Court to adjudicate a Section 11 petition and for the Madras High Court to adjudicate a Section 34 petition, even when the seat of arbitration is Bangalore. This would effectively turn the exclusive jurisdiction clause entirely redundant.


Therefore, the reasoning of the Delhi High Court that primarily conveys that a forum selection clause, if conferred with ‘provision-specific’ jurisdiction will supersede the courts at the seat of arbitration, seems to be largely flawed and inconsistent in light of the ratios in the case of BGS SGS Soma JV v. NHPC Ltd.[7] (“BGS Soma”) and Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd.[8] (“Indus Mobile”). Both BGS Soma and Indus Mobile had similar issues and held that if there exists a clause that designates the seat of arbitration, it implies that the courts at the seat of arbitration would have the jurisdiction and the clause would thereby be akin to an exclusive jurisdiction clause.


THE SECOND STROKE


The second stroke on the canvas came from the Hon’ble Calcutta High Court (“Calcutta High Court”) in the case of Bowlopedia Restaurants India Ltd. v. Devyani International Ltd.[9] (“Bowlopedia Restaurants”). The case concerned a Section 9 petition that involved the question of jurisdiction - the courts at Kolkata were vested with the jurisdiction but the seat of arbitration was agreed to be at New Delhi. The Calcutta High Court framed the issue as: when there is a forum selection clause that stipulates a different court over the seat of arbitration, whether it would override the latter?


Whilst answering the afore-stated issue in affirmative, the Calcutta High Court premised its ruling on two pillars viz., (i) the principle of party autonomy and (ii) a part of the cause of action arising within the territorial limits of the Calcutta High Court. That being said, the Court disregarded the essence and weight of the seat of arbitration in domestic cases and held that the significance of seat and venue is material to international commercial arbitration and not domestic arbitration. According to the Court, the seat of arbitration clause will be significant in a case where the forum selection clause is absent. In all other cases, party autonomy would dictate that the seat of arbitration clause be overridden by the forum selection clause as the courts at the forum will also hold jurisdiction over the subject matter.[10]


The above decision is a classic example of throwing the baby out with the bathwater. The judgment, is without an iota of doubt, a bad precedent in the current regime. The Court considered the principles of jurisdiction as established under Section 20 of the Code of Civil Procedure, 1908 (“CPC”) to hold that since a part of the cause of action arose within its territorial limits, the Calcutta High Court would have the appropriate jurisdiction. On the contrary, as per the authoritative judgments in BGS Soma and Indus Mobile as discussed above, the seat of arbitration clause would firstly prevail over the forum selection clause and secondly, the courts at the seat of arbitration would have supervisory jurisdiction over the arbitral process.


Pertinently, the principle of the cause of action is wholly irrelevant whilst determining a tussle between an exclusive jurisdiction and forum selection clause in an arbitration case.[11] The ethos of the decision in BGS Soma was primarily aimed at giving supremacy to the seat of arbitration over the traditional CPC approach of deeming the cause of action to be the center of gravity.


Therefore, the decision in the case of Bowlopedia Restaurants completely derails from the existing line of decisions and sets a bad precedent in law. The Calcutta High Court seems to have not only painted a bad stroke on the canvass but also picked the wrong brush in doing so. It is hoped that the decision is revisited by a Division Bench of the Calcutta High Court and the judgment of the learned single judge is set aside to keep at bay the ghosts of the past.


THE THIRD STROKE


A Division Bench of the Hon’ble Bombay High Court (“Bombay High Court”) in the case of Aniket SA Investments LLC v. Janapriya Engineers Syndicate Private Limited[12] (“Aniket Investments”) delivered a landmark judgment and held that a choice of seat is in itself an expression of party autonomy and carries the effect of conferring exclusive jurisdiction to the courts at the seat of arbitration. The judgment arose as a result of an appeal from the decision rendered by the learned single judge and under a Section 9 petition filed before the Bombay High Court.


The arbitration agreement stipulated that the seat of arbitration would be Mumbai. However, the forum selection clause stipulated that ‘subject to’ the arbitration clause, the courts at Hyderabad shall have exclusive jurisdiction. The learned single judge, the forum selection clause took precedence over the seat of arbitration, and whilst dismissing the petition, held that the courts at Hyderabad will be forum conveniens. Aggrieved, the petitioner appealed to a Division Bench that set aside the order of the learned single judge.


Relying on the Supreme Court’s decision in Bharat Aluminum Company v. Kaiser Aluminum Technical Services Inc.[13](“BALCO”) and BGS Soma and approving the reasoning adopted in Indus Mobile, the Division Bench ruled that once the parties have selected a seat of arbitration, it would carry with it a conferment of exclusive jurisdiction over the entire arbitral process. The Bombay High Court categorically noted that one of the most pertinent aspects of BGS Soma was its clarification of the judgment in BALCO. Interestingly, the Bombay High Court also noted[14] that BALCO was often misconstrued in the sense that two courts at different locations could exercise jurisdiction i.e., concurrent jurisdiction however, BGS Soma authoritatively clarified this point that neither did BALCO promote concurrent jurisdiction of the courts nor did it divide two different courts as the cause of action court and seat court.[15] In accordance with BGS Soma, the Bombay High Court ultimately opined that since Mumbai was fixed as the seat of arbitration and the forum selection clause only being ‘subject to’ the arbitration agreement, courts at Mumbai would hold precedence in jurisdiction over the Hyderabad courts.


Thus, the judgment of the Bombay High Court is perhaps the most lucid and authoritative insofar as the debate at hand is concerned. Not only does the judgment reflect a stance friendly to party-autonomy, it also follows the correct law and disregards any misinterpretations. As discussed, due to the conflicting nature of the judgments rendered by the Delhi High Court and the Calcutta High Court, it is imperative that the judgment of the Bombay High Court is followed as the proper precedent. In sum, the Bombay High Court seems to have hand-picked the best brush and painted the best stroke on the canvas.


CONCLUSION


Despite the landmark Supreme Court judgments and given the three conflicting precedents of different High Courts in India, the conundrum remains far from being settled at the moment. On one hand, the courts must take note of the interpretations that must be consistently followed after BALCO and then BGS Soma. On the other hand, arguing the conundrum between exclusive jurisdiction and forum selection clauses may be a litigating lawyer’s delight, albeit the outcome of such decisions may yield a bad precedent, as observed in the case of Bowlopedia Restaurants.


Post the BGS Soma judgment, it had become amply clear that there remained no room for concurrent jurisdiction being exercised by two different courts with different territorial limits. The regime had always been structured to provide the courts at the seat of the arbitration the exclusive jurisdiction over the arbitral process. However, what has gone around has certainly come around. In the meantime, it is vital that the judgment in Aniket Investments is treated as the most valuable precedent concerning the dichotomy between exclusive jurisdiction and forum selection clauses. It would be appropriate to end with an observation made by the Bombay High Court in the case of Aniket Investments:

It is too late in the day, to contend that the seat of arbitration is not analogous to an exclusive jurisdiction clause.[16]


* Rohan Gulati is a Junior Staff Editor for the Arbitration Workshop Blog. He is currently a fourth-year law student pursuing B.B.A. LL.B. at Symbiosis Law School, Hyderabad. His primary area of interest is Alternative Dispute Resolution (ADR) with a specific focus on arbitration law. He can be contacted at rohan.gulati@student.slsh.edu.in

[1] BGS SGS Soma JV v. NHPC Ltd., (2020) 4 SCC 234. [2] Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552. [3] 2021 SCC OnLine Del 1536. [4] (2020) 5 SCC 399. [5] Supra note 3 at ¶ 40. [6] Id, ¶ 42. [7] (2020) 4 SCC 234. [8] (2017) 7 SCC 678. [9] 2021 SCC OnLine Cal 103. [10] Supra note 9 at ¶ 36. [11] Supra note 1 at ¶ 49. [12] 2021 SCC OnLine Bom 919. [13] (2012) 9 SCC 552. [14] Supra note 12 at ¶ 24. [15] Supra note 1 at ¶ 57. [16] Reliance Industries Ltd. v. Union of India, (2014) 7 SCC 603 at ¶ 45.


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