1. Dispute over credit balance under a distributorship agreement — Petition under Section 11, Arbitration and Conciliation Act, 1996 for appointment of arbitrator. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 )
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2024 Supreme(SC) 1004
SUPREME COURT OF INDIA
Dr. Dhananjaya Y. Chandrachud, CJI., J.B. Pardiwala, Manoj Misra, JJ.
M/s Arif Azim Co. Ltd – Petitioners
Versus
M/s Micromax Informatics Fze – Respondents
Arbitration Petition No. 31 of 2023
Decided On : 07-11-2024
Important Points
The seat of arbitration is determined by the explicit terms of the arbitration agreement, and the designation of a venue as the seat excludes jurisdiction of Indian courts when the seat is outside India.
Subject
Arbitration Law - International Commercial Arbitration
Act Referred
ARBITRATION ACT: S.14, S.17, S.20(3), S.3, S.30, S.33, S.47, S.60, S.9
ARBITRATION AND CONCILIATION ACT: S.11(12)(a), S.2(2), S.21
CONTRACT ACT: S.23, S.28
FOREIGN AWARDS ACT: S.9(b)
ARBITRATION AND CONCILIATION ACT: S.11(12)(a), S.2(2), S.21
CONTRACT ACT: S.23, S.28
FOREIGN AWARDS ACT: S.9(b)
Headnote
(A) Arbitration and Conciliation Act, 1996 – Sections 11(6)(a) and 11(12)(a) – Distributorship Agreement – Petition for appointment of arbitrator – Dispute arose between parties regarding credit balance and payment obligations under the agreement – The court found that the seat of arbitration was Dubai, UAE, as per the agreement, and thus, Indian courts lacked jurisdiction to appoint an arbitrator – The agreement was governed by UAE laws, and the arbitration clause designated Dubai as the venue, which was interpreted as the seat of arbitration – The court emphasized that the doctrine of concurrent jurisdiction was overruled and that the seat of arbitration determines the jurisdiction of the courts – Petition dismissed. (Paras 71-73)
(B) Jurisdiction – The determination of the seat of arbitration is crucial as it dictates the jurisdiction of the courts overseeing the arbitration process – The court held that the designation of Dubai as the venue in the arbitration clause was sufficient to establish it as the seat, thus excluding Indian courts from jurisdiction. (Paras 56-60)
(B) Jurisdiction – The determination of the seat of arbitration is crucial as it dictates the jurisdiction of the courts overseeing the arbitration process – The court held that the designation of Dubai as the venue in the arbitration clause was sufficient to establish it as the seat, thus excluding Indian courts from jurisdiction. (Paras 56-60)
Judgement Key Points
Key Points: - The designation of a specific place as the 'venue' of arbitration, where the proceedings are anchored to that location with no other significant contrary indicia, is construed as the 'seat' of arbitration. (!) (!) (!) (!) - Part I of the Arbitration and Conciliation Act, 1996 applies only to arbitrations where the seat is in India; it does not apply to international commercial arbitrations seated outside India. (!) (!) (!) (!) - The doctrine of concurrent jurisdiction is overruled, and the determination of the seat dictates the exclusive jurisdiction of the courts at that seat, excluding Indian courts if the seat is abroad. (!) (!) - If the seat is outside India, Indian courts lack jurisdiction to appoint arbitrators under Section 11 of the Act, 1996. (!) (!) (!) - The 'Closest Connection Test' is no longer the primary criterion for determining the seat; instead, the express designation of the venue/seat and the curial law are decisive. (!) (!) (!) - A stipulation of 'non-exclusive jurisdiction' of foreign courts does not prevent the place designated as 'venue' from being the 'seat' or oust the jurisdiction of courts at the seat. (!) (!) (!) - The agreement to arbitrate under UAE rules and Dubai as the venue establishes Dubai as the seat, excluding Indian court jurisdiction. (!) (!) - The petitioner's petition under Section 11 was dismissed because the seat of arbitration was determined to be Dubai, UAE, not India. (!) (!)
What is the criterion for determining whether a designated 'venue' of arbitration constitutes the 'seat' of arbitration under Indian law?
What is the applicability of Part I of the Arbitration and Conciliation Act, 1996 to international commercial arbitrations seated outside India?
What are the rights of Indian courts regarding jurisdiction over arbitrations where the seat is designated as a foreign country?
Legal Category Hierarchy
- practice and procedure
- private international law
Advocates appeared:
For the Petitioner(s): Mr. R. Sathish, AOR Mr. Rajesh Kumar, Adv. Mr. Mohan Das K. K., Adv. Mr. Mathan Joseph, Adv. Mrs. S. Geetha, Adv.
For the Respondent(s): Mr. Mudit Sharma, AOR Ms. Nandini Sharma, Adv. Mr. Mohammad Faiz, Adv.
For the Petitioner(s): Mr. R. Sathish, AOR Mr. Rajesh Kumar, Adv. Mr. Mohan Das K. K., Adv. Mr. Mathan Joseph, Adv. Mrs. S. Geetha, Adv.
For the Respondent(s): Mr. Mudit Sharma, AOR Ms. Nandini Sharma, Adv. Mr. Mohammad Faiz, Adv.
Table of Contents
2. Petitioner claims Indian jurisdiction via non-exclusive clause and closest connection; Respondents argue the seat is Dubai, rendering Part I of the Act inapplicable. (Para 18 , 19 )
3. The court analyzed the territorial principle, the distinction between venue and seat, and the application of the Shashoua Principle to determine the juridical seat. (Para 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 , 63 , 64 , 65 , 66 , 67 , 68 , 69 , 70 )
4. Part I of the 1996 Act applies only if the seat of arbitration is in India or the arbitration agreement is governed by Indian law. (Para 39 , 71 )
5. Petition for appointment of arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 dismissed. (Para 72 , 73 )
6. When is Part I of the Arbitration and Conciliation Act, 1996 applicable to international commercial arbitrations?
Part I applies only where the seat of arbitration is in India or the law governing the arbitration agreement is Indian law. For agreements executed after 06.09.2012, if the seat is outside India, Part I is inapplicable. (Para 37 , 39 , 71 )
7. When can a designated 'venue' be construed as the 'seat' of arbitration?
A venue is construed as the seat if the agreement designates only one place, anchors the proceedings to that place, and contains no significant contrary indicia. (Para 52 , 53 , 56 )
8. What is the Shashoua Principle regarding the determination of the seat of arbitration?
It posits that an express designation of venue, combined with a supranational body of rules and no contrary indicia, indicates that the venue is the juridical seat. (Para 50 , 51 , 57 )
9. Does a non-exclusive jurisdiction clause confer supervisory jurisdiction on courts other than the seat of arbitration?
No. Once the seat is determined, it acts as an exclusive jurisdiction clause for regulating proceedings. A non-exclusive jurisdiction clause relates to the substantive agreement, not the arbitration's supervisory control. (Para 59 , 60 , 62 , 63 , 64 )
10. How does the doctrine of forum non conveniens apply to the appointment of an arbitrator?
A court may decline jurisdiction if another forum is more appropriate, considering the interests of the parties and the ends of justice, especially when the seat and governing law are foreign. (Para 65 , 66 , 67 , 68 , 69 , 70 )
JUDGMENT
J.B. PARDIWALA, J.:
For the convenience of exposition, this judgment is divided into the following parts: -
| INDEX |
| A. FACTUAL MATRIX |
| B. SUBMISSIONS OF THE PARTIES |
| i. Submissions on behalf of the Petitioner. |
| ii. Submissions on behalf of the Respondent. |
| C. ISSUES FOR DETERMINATION |
| D. ANALYSIS |
| i. The Notional Doctrine of Concurrent Jurisdiction and Applicability of Part I of the Arbitration & Conciliation Act, 1996 |
| a. Pre-BALCO Regime. |
| b. Post BALCO Regime. |
| ii. Criterion or Test for Determination of Seat of Arbitration: Conflict of ‘Venue’ versus ‘Seat’ of Arbitration. |
| a. Closest Connection Test – Place of Arbitration to be ascertained by the Law governing the Arbitration Agreement and not the Place of Arbitration |
| b. The Shashoua Principle – ‘Venue’ to be construed as ‘Seat’ |
| iii. Whether the Seat of Arbitration in the underlying Distributorship Agreement is in India? |
| iv. Doctrine of Forum non Conveniens |
| E. CONCLUSION |
1. The present petition has been filed under Section 11 sub-section (6)(a) read with Section 11 sub-section (12)(a) of the Arbitration and Conciliation Act, 1996 (for short, the “Act, 1996”) seeking a referral of the disputes that have arisen between the parties to arbitration and consequent appointment of an arbitrator by this Court in terms of clauses 26 and 27 of the Consumer Distributorship Agreement respectively dated 09.11.2010 (hereinafter referred to as the “Agreement”) entered into between the petitioner and the respondent herein.
2. The petitioner, ‘M/s Arif Azim Co. Ltd.’, is a company based in Afghanistan, having its registered office at 1st Floor, Zarnigar Hotel, Mohammed Jan Khan Watt, Kabul, Afghanistan and is inter-alia engaged in the business of distribution of handsets which are manufactured by the respondent no. 1 in the territory of Kabul, Afghanistan. The respondent no. 1, ‘M/s Micromax Informatics FZE’ is a Free Zone Establishment company incorporated under the laws of United Arab Emirates having its office at 28, Shed No. 18, Technology Park, Free Trade Zone, Ras-Al-Khaimah, UAE. Whereas, the respondent no. 2, ‘M/s Micromax India’ is a public limited company incorporated in India having its registered office at Block A, Plot No. 21/14, Naraina Industrial Area, Phase-II New Delhi. The respondent no. 1 company is a wholly owned subsidiary of the respondent no. 2 company with the same Board Members in both the companies, and together they are engaged in the business of manufacturing, importing and supplying various mobile handsets under its brand name ‘Micromax’ worldwide. We may clarify at the outset, that the respondent no. 2 company herein is a non-signatory to the arbitration agreement in respect of which the present Section 11 petition has been filed.
A. FACTUAL MATRIX
3. The petitioner herein and the respondent no. 1 company entered into a Consumer Distributorship Agreement dated 09.11.2010 (for short, the “Distributorship Agreement”) inter-alia for the distribution of handsets which are manufactured by the respondent no. 1 and the same was executed by the parties in Kabul, Afghanistan. As per the terms of the aforesaid agreement, the petitioner herein became the authorized distributor of the respondent’s products including mobile handsets and was granted a non- exclusive right to market and distribute the same under its own account in the territory of Afghanistan as allotted and delineated under the said agreement.
4. Before proceeding further, it would be apposite to first highlight some of the salient features of the aforesaid Distributorship Agreement which are relevant to the case at hand. Under the terms of the aforesaid Distributorship Agreement, it is stipulated that all payments shall be made by the distributor in full before the physical delivery of the products, and it further specifies that the mode of such payment shall be through a letter of credit (L/C). The Distributorship
