Brahmani River Pellets Limited v. Kamachi Industries Limited

Judgement Name: Brahmani River Pellets Limited v. Kamachi Industries Limited

Citation: AIR 2019 SC 3658

Coram: R. Banumathi and A.S Bopanna

Date: 25.07.2019

Facts: The appellant entered into an agreement with respondent for the sale of 40,000 wet metric tonne of iron ore pellets. The iron pellets had to be delivered from Odisha to Chennai. The dispute arose between the parties with respect to goods and the appellants did not deliver the goods due to the such dispute.

The respondent claimed damages later as they had to procure the iron pellets at a higher price. The appellants denied paying any such damages and contented that the contract had been modified and the respondents had also breached the material substance of the contract. The respondents invoked the arbitration clause (clause 18) of the contract and moved to the Madras High Court for the appointment of sole arbitrator.

Clause 18 of the contract reads as follows:

“18. Arbitration shall be under Indian Arbitration and Conciliation Act, 1996 and the venue shall be Bhubaneshwar.”

The appellants contested the petition by arguing that parties have agreed the seat of arbitration to be Bhubaneshwar and only Orissa High Court can exercise its jurisdiction in the present case. The Madras High Court appointed a retired high court judge to be the sole arbitrator and also held that mere designation of ‘seat’ by the parties does not oust the jurisdiction of other courts other than the seat of arbitrator. It further went on to hold that unless there is an express clause ousting the jurisdiction of all the courts, both Madras and Orissa High court shall have jurisdiction over such a case.

The Appellants filed an appeal to the Supreme Court against the above-mentioned order passed by the Madras High Court. The question of law that the Supreme Court was approached to answer is as follows-

Whether the Madras High Court could exercise its jurisdiction under section 11(6) of the Arbitration & Conciliation Act, 1996 despite the fact that the agreement contains the clause and venue of arbitration shall be Bhubaneshwar.

Rules applied: Section 2(2), 2(1)(e) and section 20

The court held that where the contract specifies the jurisdiction of a place, only such court would have jurisdiction to deal with the matter and the parties intended to exclude all the other courts. Since the parties had identified Bhubaneshwar as the ‘venue’ of arbitration, Madras High Court had wrongly assumed jurisdiction under section 11(6) of the Act.

An important point to note here is that the court did not apply the distinction that it drew between ‘seat and venue’. The seat of arbitration was not specified in the arbitration clause. The court assumed that the seat of arbitration will be the same as the venue of arbitration and therefore, by deciding so it reignited the issue of seat v venue. The issue that was supposed to be answered in this context has already been decided by the court in Enercon v Enercon Gmbh.

In Enercon, the court held that when the ‘seat’ of arbitration has not been specified in the contract, the courts must apply the ‘closest connection’ test to determine the same. If the court applied the ‘closest connection test’, it would arrive at the conclusion that it reached by applying the incorrect rationale. This case only reaffirms the importance of drafting clear and precise arbitral clauses to nullify the scope of any ambiguity.

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