In arbitration, the ‘seat’ mentioned in the arbitration agreement determines the court that would exercise supervisory jurisdiction over the arbitral proceedings. As parties may be required to approach a court for appointment of arbitrator or for seeking interim relief or for taking directions to seek evidence, etc., the ‘seat’ is an important facet of the arbitration agreement. Indian Courts have held that if the parties have chosen a ‘seat’ in the agreement, then such courts will have exclusive jurisdiction. On the other hand, where the agreement does not specify a ‘seat’ of the arbitration, then the language of the arbitral agreement is to be interpreted to determine the ‘seat’.
The Kerala High Court in M.A. Hakkim v. Patanjali Agro India Pvt. Ltd. & Anr. (Hakkim v. Patanjali Case) was faced with an issue of determination of ‘seat’ where complementary agreements between the same parties provided for a different ‘seat’ in their respective arbitration clauses. In the present article, we discuss the findings of the court.
Facts of the case
Certain proprietary firms (collectively Hakkim) entered into a contract (Sales Contract) with Patanjali Agro India Pvt. Ltd. (Patanjali) for the sale of raw cashew nuts. Hakkim and Patanjali later entered into a High Sea Sale Agreement under which Patanjali sold to Hakkim certain quantity of cashew nuts at a specified rate. The Sales Contract as well as the High Sea Sale Agreement had separate arbitration clauses for resolution of disputes. The Sales Contract provided that the seat of arbitration was Haridwar in the State of Uttarakhand, while the High Sea Sale Agreement specified Kollam, in the State of Kerala as the seat.
Certain disputes arose between the parties with regards to the quality of cashew nuts leading to Hakkim invoking the arbitration clause and eventually approaching the Kerala High Court under the High Sea Sale Agreements seeking appointment of an arbitrator. In the High Court, Patanjali argued that the seat of arbitration is Haridwar which is beyond the territorial limits of Kerala, and therefore the Kerala High Court did not have jurisdiction to appoint the arbitrator.
Ruling of the Court
The Court noted that the Sales Contract provided that that the contract is contingent upon the parties signing a mutually acceptable High Sea Sales Agreement. Therefore, the parties had to enter into the High Sea Sales Agreement to give effect to the Sales Contract. Purposively interpreting the two agreements, the Court ruled that the underlying purpose of the Sales Contract was to give effect to the subsequent High Sea Sales Agreement, which provided for Kollam seated arbitration. The Court held that the intention of the parties to choose Kollam as the seat of arbitration was clearly understood from the language of the Sales Contract and the High Sea Sales Agreement and therefore it had jurisdiction to hear the matter. The Court, taking note of the context and object of both the contracts ruled that the intention of the parties was always to fix the seat of arbitration for all disputes as Kollam. Accordingly, an arbitrator was appointed by the Court to adjudicate and resolve the dispute between the parties.
Our Thoughts
Indian Courts have long recognised that contractual purposes play an important role in the construction of contracts. Further, in Bihar State Electricity Board v. Green Rubber Industries, Bank of India and Anr. v. K. Mohandas and DLF Universal Ltd. and Ors. v. Director, T. and C. Planning Haryana, it was held that the intention of the contracting parties must be understood from the language used in the contract, the object of the contract and must be considered in the light of the surrounding circumstances. In Hakkim v. Patanjali Case, the Kerala High Court has purposively interpreted the two contracts to determine that the ultimate purpose of a Sales Contract primarily was to allow the parties to execute the High Sea Sale Agreement, and it was reasonable that the parties intended that all disputes be resolved by Kollam seated arbitration.
It should be noted that courts construe a contract based on its literal interpretation i.e., if a word used in a contract is not defined in the contract, it should be interpreted in its plain, ordinary and literal meaning. However, only where the literal interpretation fails to give the result intended by the parties would courts apply the rule of purposive interpretation. Therefore, the judgment in Hakkim v. Patanjali Case should not be viewed as a precedent for parties to enter into multiple contracts with arbitration clauses providing for different seats. If the purpose of the contract is different and the dispute arises from one of the contracts only, then arbitration under that particular contract is required to be invoked. Therefore, to avoid unnecessary litigation, parties should be cautious about including conflicting arbitration clauses in related agreements and must ensure that the purpose behind a contract is comprehensible with no ambiguity.
Authors: Renjith Nair, Altamash Qureshi and Janhavi Sawant
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