M/s. Inox Renewables Ltd. v. Jayesh Electricals Ltd.
Background
A 2012 purchase order between Gujarat Fluorochemicals Ltd. (GFL) and Jayesh Electricals Ltd. for power transformers designated Jaipur as the arbitration venue and Rajasthan courts as having jurisdiction over any disputes. GFL later transferred its entire business to Inox Renewables Ltd. (the appellant) under a separate agreement naming Vadodara as the seat, but Jayesh Electricals was not a party to that agreement. When a dispute arose, the Gujarat High Court appointed a sole arbitrator, and the arbitration proceedings were in fact conducted entirely at Ahmedabad by mutual consent of the parties, with the arbitrator expressly recording that the venue had shifted from Jaipur to Ahmedabad. After the arbitrator's award, Inox's challenge petition filed in Ahmedabad was rejected by the Commercial Court and then the High Court, both holding that courts in Vadodara or Rajasthan, not Ahmedabad, had jurisdiction.
Decision Breakdown
The Supreme Court, applying its earlier landmark ruling in BGS SGSOMA JV v. NHPC, held that once parties mutually shift the actual place where arbitration proceedings are conducted, that shifted place becomes the arbitration's legal "seat" (not merely a convenient "venue"), which in turn vests exclusive jurisdiction in the courts of that seat: here, Ahmedabad. It distinguished the Respondent's reliance on Videocon Industries v. Union of India, noting that case involved a contract with an explicit clause requiring any amendment to be in a signed written instrument, which this contract lacked. Since the arbitrator had recorded, without challenge, that both parties mutually agreed to shift proceedings to Ahmedabad, the Court held courts at Ahmedabad, not Rajasthan or Vadodara, had exclusive jurisdiction to hear the challenge to the award, set aside the High Court's judgment, and sent the matter to Ahmedabad for the Section 34 challenge to be decided there.
Lesson Learnt
Where parties to an arbitration agreement mutually and consistently conduct all proceedings at a different place than originally specified, that place can become the legal "seat" of arbitration by conduct, shifting which courts have the power to hear any later challenge to the award, making it important for parties to formally record (or object to) any such practical shift in real time.