Courts in seat of arbitration alone can regulate arbitral proceedings: Supreme Court

The Supreme Court on Thursday held that once the seat of arbitration is determined, the jurisdictional courts of that seat alone have the power to regulate arbitral proceedings [M/s Arif Azim Co Ltd v. M/s Micromax Informatics FZE].

In doing so, the Court rejected the idea of concurrent jurisdiction.

"The moment ‘seat’ is determined, it would be akin to an exclusive jurisdiction clause whereby only the jurisdictional courts of that seat alone will have the jurisdiction to regulate the arbitral proceedings," the Court held.

The verdict was passed by a Bench of Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Manoj Misra in a dispute between mobile phone manufacturer Micromax and an Afghanistan-based distributor called Arif Azam and Co.

The dispute arose from a consumer distributorship agreement that authorised Arif Azam to distribute mobile handsets made by Micromax in Afghanistan. According to the agreement, in case of any dispute between the parties, it would be resolved in Dubai according to UAE Arbitration and Conciliation rules.

On September 14, 2022, Arif Azam sent a notice to Micromax to invoke arbitration for the claim of $88,425, including interest. The company nominated two arbitrators and asked Micromax to appoint one within 28 days.

In this notice, Arif Azam pointed out that the agreement did not designate a specific court for disputes, allowing the matter to be resolved in India as both jurisdictions (Afghanistan and India) were relevant. When there was no response from Micromax to the arbitration notice, Arif Azam filed a petition before the Supreme Court on April 19, 2023 seeking the appointment of an arbitrator due to Micromax's failure to nominate one.

The question before the Court was whether it could appoint an arbitrator to decide this dispute since the agreement explicitly stated that disputes would be resolved in Dubai, as per the laws of UAE.

In 2012, the Supreme Court in the BALCO case had clarified that Part 1 of the Arbitration and Conciliation Act, 1996, which dealt with domestic arbitration, would not apply to international arbitration. Section 11 of the Arbitration Act, which deals with powers of the court to appoint arbitrators, is covered in Part-1.

However, since the distributorship agreement was from 2010, the Court had to determine whether the law laid down in BALCO would apply to this agreement.

The Court, on analysing various principles on arbitration, concluded that Part I of the Act and its provisions only applies where the arbitration takes place in India - where either (I) the seat of arbitration is in India OR (II) the law governing the arbitration agreement are the laws of India.

"Arbitration agreements executed after 06.09.2012 (BALCO judgment) where the seat of arbitration is outside India, Part I of the Act, 1996 and the provisions thereunder will not be applicable and would fall beyond the jurisdiction of Indian courts."

It ruled that even in case of arbitration agreements that have been executed prior to 2012, Part 1 of the Act will not be applicable if its application has been excluded by the parties in the arbitration agreement either explicitly by designating the seat of arbitration outside India or implicitly by choosing the law governing the agreement to be any other law other than Indian law.

It also clarified that where there is an express designation of place of arbitration in an arbitration agreement, such place would be the ‘seat’ of arbitration even if it is designated as ‘venue’ in the arbitration agreement.

"Merely because the parties have stipulated a venue without any express choice of a seat, the courts cannot sideline the specific choices made by the parties in the arbitration agreement by imputing these stipulations as inadvertence at the behest of the parties as regards the seat of arbitration," the Court held.

The apex court further noted that since party autonomy is supreme, the courts will have to show deference to each and every choice and stipulation made by the parties.

It thus concluded that the plea is not maintainable, as neither the seat of arbitration is India nor is the arbitration agreement governed by laws of India.

Advocate R Satish appeared for Arif Azam.

Advocate Mudit Sharma represented Micromax.

[Read judgment]