Exclusive jurisdiction of courts in arbitral matter: circumstances analyzed

 

Exclusive Territorial jurisdiction of court in Arbitration Matters: Distinction of “seat” and “venue” of Arbitration

Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. 2012(8) SCALE 333 and beyond;

                                                                                                Anil K Khaware

                                                                                                           Advocate

The issue of jurisdiction of courts in a matter arising out of arbitral dispute, particularly, with reference to the territorial jurisdiction of case continued tobe a vexed issue, until recently, and now the dust has settled as the issue appears to have attained finality by virtue of the recitations of hon’ble Supreme Court, while analyzing the finer details and intricacies involved in such matters.

Recently, hon’ble Delhi High Court has succinctly reinforced the dicta after closer analysis of the judicial precedents in this regard. The hon’ble Delhi High Court in a matter of VIRGO SOFTECH LTD v. NATIONAL INSTITUTE OF ELECTRONICS AND INFORMATION TECHNOLOGY (Arbitration Petition No. 753/2018), while applying the judicial precedents, with particular reference to the relevant clause of General Conditions of Contract (GCC) which specifies that seat for arbitration to be at New Delhi. It is no res integra that issues arising out of the decisions of Arbitral Tribunal shall have to be raised within the territorial limit of the court where seat of arbitration is located. In this context the judgment of the Supreme Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc (BALCO[1]); Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Anr., AIR 2017 SC 2105, Mr.Raman Deep Singh Taneja v. Crown Realtech Pvt. Ltd., 2017 SCC OnLine Del 11966; [2]and Rohit Bhasin and Anr. v. Nandini Hotels, 2013 SCC OnLine Del 2300 deals[3] with the issue and it is held that the seat of the arbitration being at New Delhi, the Court at New Delhi would have exclusive jurisdiction to entertain such petitions.

The hon’ble Delhi High court in Virgo Softech Ltd [4](Supra) has further held:

“I have considered the submissions made by the counsel for the petitioner, however, find no merit in the same. Clause 8.2(b) of the GCC which has been reproduced hereinabove, clearly provides that though the arbitration proceedings shall be conducted at New Delhi, the "courts in Aurangabad (MS) only shall have exclusive jurisdiction to try and entertain any disputes arising there from". The Agreement(s) therefore, clearly provides that all disputes, including those arising out of the arbitration proceedings; have to be necessarily tried by the Courts at Aurangabad alone. In view of the above specific Clause, the stipulation that the arbitration proceedings shall be held at New Delhi would make New Delhi only a “venue‟ of the arbitration and not the “seat‟ of the arbitration”.

The said test clearly means that the expression of determination signifies an expressive opinion. In the instant case, there has been no adjudication and expression of an opinion. Thus, the word 'place' cannot be used as seat. To elaborate, a venue can become a seat if something else is added to it as a concomitant. But a place unlike seat, at least as is seen in the contract, can become a seat if one of the conditions precedents is satisfied. It does not ipso facto assume the status of seat.

That in the aforesaid context it may be worthwhile to refer to a matter captioned as Union of India v. Hardy Exploration and Production (India) INC, 2018 SCC Online SC 1640. The Hon’ble Supreme Court while considering the law in relation to the distinction between the 'seat' and the 'venue' of arbitration has held as under:

"27. In view of the aforesaid development of law, there is no confusion with regard to what the seat of arbitration and venue of arbitration mean. There is no shadow of doubt that the arbitration clause has to be read in a holistic manner so as to determine the jurisdiction of the Court. That apart, if there is mention of venue and something else is appended thereto, depending on the nature of the prescription, the Court can come to a conclusion that there is implied exclusion of Part I of the Act. The principle laid down in Sumitomo Heavy Industries Ltd. (supra) has been referred to in Reliance Industries Limited (II) and distinguished. In any case, it has no applicability to a controversy under the Act. The said controversy has to be governed by the BALCO principle or by the agreement or by the principle of implied exclusion as has been held in Bhatia International”.

The Hon’ble Supreme Court has further held that:

“34. On a perusal of Articles 20 and 31(3) of the UNCITRAL Model Laws, we find that the parties are free to agree on the place of arbitration. Once the said consent is given in the arbitration clause or it is interpretably deduced from the clause and the other concomitant factors like the case of Harmony Innovation Shipping Ltd. which states about the venue and something in addition by which the seat of arbitration is determinable. The other mode, as Article 20 of the UNCITRAL Model Law provides, is that where the parties do not agree on the place of arbitration, the same shall be determined by the Arbitral Tribunal. Such a power of adjudication has been conferred on the Arbitral Tribunal. Article 31(3) clearly stipulates that the Award shall state the date and the place of arbitration as determined in accordance with Article 20(1)”.

In Bharat Aluminium Company Case (supra), the Supreme Court has held that the 'seat' of the arbitration shall determine the jurisdiction of the Court. In the present case, as the Agreement(s) only provide for 'venue' of arbitration at New Delhi, the said judgment is not applicable. Similar is the position with respect to the judgments of Supreme Court in Indus Mobile Distribution [5](supra).

The Supreme Court has held that when a place is agreed upon, it gets the status of seat. It was also held that the terms, "place" and seat are used interchangeably and when only the term, "place" is stated or mentioned and no other condition is postulated it is equivalent to a seat and that finalizes the facet of jurisdiction.  It is further held that t he word 'determination' has to be contextually determined. When a 'place' is agreed upon, it gets the status of seat which means the juridical seat. We have already noted that the terms 'place' and 'seat' are used interchangeably. When only the term 'place' is stated or mentioned and no other condition is postulated, it is equivalent to 'seat' and that finalises the facet of jurisdiction. But if a condition precedent is attached to the term "place", the said condition has to be satisfied so that the place can become equivalent to seat. In the instant case, as there are two distinct and disjunct riders, either of them have to be satisfied to become a place.

The Bombay High Court in a matter captioned as Aniket SA Investments LLC Vs Janapriya Engineers Syndicate Pvt. Ltd. & Ors COMMERCIAL ARBITRATION PETITION (L) NO.1244 OF 2019[6] have dealt with the issue while adjudicating upon a petition u/s 9 of The Arbitration & Conciliation Act. The clause 20.3 dealt with the arbitration clause and was couched in following manner: 

(a) The parties shall mutually appoint a sole arbitrator to resolve the aforesaid disputes or differences. In the event that the parties fail to mutually appoint a sole arbitrator within 15 days, the Promoter and the Investor shall appoint one arbitrator each and the two arbitrators so appointed shall appoint the presiding arbitrator.

(b). All proceedings in any such arbitration shall be conducted in English.

(c). the seat of the arbitration proceedings shall be Mumbai.

(d) The arbitration award shall be final and binding on the parties, and the parties agree to be bound thereby and to act accordingly."

The clause 20.3 in the above case by use of the words "subject to the provisions of Article 20.4 4 of Courts of Hyderabad shall have exclusive jurisdiction to try and entertain disputes arising out of the agreement",

Thus, an exception was carved out the parties mean that they have made an exception to clause 20.3 which would be secondary to clause 20.4

The hon’ble Bombay High court while relying upon the judgment reported as Union of India v. Hardy [7](supra) has held that based on the aforesaid clause the Bombay High Court had no exclusive jurisdiction and the only courts of Hyderabad alone had jurisdiction.

It needs to be observed that by now the law is well settled that party autonomy in arbitral agreements is required to be recognized and would be paramount. It is well settled that where two or more courts have jurisdiction to entertain a suit, parties may by agreement submit to the jurisdiction of one Court to the exclusion of the other Court or Courts. Such agreement is not hit by Section 28 of the Contract Act and such a contract would not be against public policy and becomes legal and enforceable... This is the position which was initially recognized in Hakam Singh Vs. Gammon India Ltd[8]. This legal position is also recognized even in the context of the arbitration law as can be seen from the decision of the Constitution Bench of the Supreme Court in BALCO (supra).

The legislative recognition of party autonomy which enables the party to agree to a place of arbitration or for the arbitral tribunal to decide the place of arbitration can be seen from the provisions of Section 20  of the Act read thus:

Section 2(1) (e) of the Arbitration Act, 1996 reads as under:

"2. Definitions (1) in this Part, unless the context otherwise requires - .........................

(e) "Court" means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes."

We are of the opinion; the term "subject matter of the arbitration" cannot be confused with "subject matter of the suit". The term "subject matter" in Section 2(1) (e)  is confined to Part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. In our opinion, the provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20,  which give recognition to party autonomy. Accepting the narrow construction as projected by the learned counsel for the appellants would, in fact, render Section 20  nugatory. In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process. For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, (Delhi having been chosen as a neutral place as between a party from Mumbai and the other from Kolkata) and the tribunal sitting in Delhi passes an interim order under Section 17 of the Arbitration & Conciliation Act, 1996, the appeal against such an interim order under Section 37 must lie to the Courts of Delhi, being the Courts having supervisory jurisdiction over the arbitration proceedings and the Tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi. In such circumstances, both the Courts would have jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution, i.e., arbitration is located.

The definition of Section 2(1) (e) includes "subject matter of the arbitration" to give jurisdiction to the courts where the arbitration takes place, which otherwise would not exist. On the other hand, Section 47 which is in Part II of the Arbitration Act, 1996 dealing with enforcement of certain foreign awards has defined the term "court" as a court having jurisdiction over the subject-matter of the award. This has a clear reference to a court within whose jurisdiction the asset/person is located, against which/whom the enforcement of the international arbitral award is sought. The provisions contained in Section 2 (1) (e) being purely jurisdictional in nature can have no relevance to the question whether Part I applies to arbitrations which take place outside India.

However, if the place is specified, then, the issue of jurisdiction of court shall arise as regards the location where the jurisdiction of courts could be invoked and in this backdrop, the aforesaid judgments have settled the issue succinctly.

It is well settled that where more than one court has jurisdiction, it is open for parties to exclude all other courts. For an exhaustive analysis of the case law, Ref: Swastik Gases Pvt Ltd Vs Indian Oil Corporation Ltd, (2013) 9 SCC 32. This was followed in a recent judgment in B.E. Simoese Von Staraburg Niedenthal and Another v. Chhattisgarh Investment Limited, (2015) 12 SCC 225.

In a recent decision of the Supreme Court in Bhahmani River River Pellates Ltd. Vs. Kamachi Industries Ltd[9]., following the law as laid down in BALCO as also referring to the decision in Swastik Gases Pvt. Ltd. Vs. Industries Oil Corporation Ltd.16 reiterated 15 2019 SCC Online SC 929 16 2013 (9) SCC recognized party autonomy and the intention of the parties to confer jurisdiction on the courts as agreed. In this case, the parties had agreed that the venue of the arbitration shall be at Bhuwaneshwar. In the facts of the case, the Court in the absence of any other intention of the parties, the Supreme Court recognized the exclusivity of jurisdiction as agreed between the parties namely to confer jurisdiction on the courts at Bhuwaneshwar. The Supreme Court in this context made the following observations:-

“As per Section 20 of the Act, parties are free to agree on the place of arbitration. Party automony has to be construed in the context of parties’ choosing a court which has jurisdiction out of two or more competent courts having jurisdiction. This has been made clear in the three Judges Bench decision in Swastik Gases (P) ltd Case [10](Supra). in the said case, respondent Indian Oil Corporation Ltd. Had appointed M/s. Swastik Gases Pvt. Ltd. Situated at Jaipur, Rajasthan as their consignment agent. The dispute arose between the parties as huge quantity of stock of lubricants could not be sold by the applicant and they could not be resolved amicably. In the said matter, clause 18 of the agreement between the parties provided that the agreement shall be subject to the jurisdiction of the courts at Kolkata. The appellant - Swastick invoked clause 18 i.e  arbitration clause and filed application under Section 11(6) of the Act before the Rajasthan High Court for appointment of arbitrator. The respondent contested the application made by Swastik inter alia by raising the plea of lack of territorial jurisdiction of the Rajasthan High Court in the matter. The plea of Indian Oil Corporation was that the agreement has been made subject to jurisdiction of the courts at Kolkata and Rajasthan High Court lacks the territorial jurisdiction in dealing with the application under Section 11(6) of the Act. The designated judge held that Rajasthan High Court did not have territorial jurisdiction to entertain the application under Section 11(6) of the Act and gave liberty to Swastik to file the arbitration application in Calcutta High Court which order came to be challenged before the Supreme Court. Pointing out that the words like "alone", "only", "exclusive" or "exclusive jurisdiction" have not been used in the agreement and use of such words is not decisive and non-use of such words does not make any material difference as to the intention of the parties by having clause 18 of the agreement that the courts at Kolkata shall have the jurisdiction, the Supreme Court held as under:

"31. In the instant case, the appellant does not dispute that part of the cause of action has arisen in Kolkata. What appellant says is that part of cause of action has also arisen in Jaipur and, therefore, the Chief Justice of the Rajasthan High Court or the designate Judge has jurisdiction to consider the application made by the appellant for the appointment of an arbitrator under Section 11. Having regard to Section 11 (12) (b)  and Section 2 (e) of the 1996 Act read with Section 20(c) of the Code, there remains no doubt that the Chief Justice or the designate Judge of the Rajasthan High Court has jurisdiction in the matter. The question is whether parties by virtue of Clause 18 of the agreement have agreed to exclude the jurisdiction of the courts at Jaipur or, in other words, whether in view of Clause 18 of the agreement, the jurisdiction of the Chief Justice of the Rajasthan High Court has been excluded?

32. For answer to the above question, we have to see the effect of the jurisdiction clause in the agreement which provides that the agreement shall be subject to jurisdiction of the courts at Kolkata. It is a fact that whilst providing for jurisdiction clause in the agreement the words like "alone", "only", "exclusive" or "exclusive jurisdiction" have not been used but this, in our view, is not decisive and does not make any material difference. The intention of the parties--by having Clause 18 in the agreement-- is clear and unambiguous that the courts at Kolkata shall have jurisdiction which means that the courts at Kolkata alone shall have jurisdiction. It is so because for construction of jurisdiction clause, like Clause 18 in the agreement, the maxim expressio unius est exclusio alterius comes into play as there is nothing to indicate to the contrary. This legal maxim means that expression of one is the exclusion of another. By making a provision that the agreement is subject to the jurisdiction of the courts at Kolkata, the parties have impliedly excluded the jurisdiction of other courts. Where the contract specifies the jurisdiction of the courts at a particular place and such courts have jurisdiction to deal with the matter, we think that an inference may be drawn that parties intended to exclude all other courts. A clause like this is not hit by Section 23 of the Contract Act at all. Such clause is neither forbidden by law nor is it against the public policy. It does not offend Section 28 of the Contract Act in any manner.

33. The above view finds support from the decisions of this Court in Hakam Singh Vs Gammon India Ltd (1971) 1 SCC 286,  A.B.C Laminart Pvt Ltd Vs ABC Agencies (1989) 2 SCC 163[11], R.S.D.V R.S.D.V. Finance Co. Pvt. Ltd Vs Vallabh Glass Works Ltd (1993) 2 SCC 130[12], Angile Insulations vs Davy Ashmore India Ltd. And Anr on 18 April, 1995, (1995) 4 SCC 153[13], Shriram City Union Finance Corporation Pvt Ltd Vs Rama Mishra  (2002) 9 SCC 613[14], M/S Hanil Era Textiles Ltd vs M/S Puromatic Filters (P) Ltd on 16 April, 2004 (2004) 4 SCC 671 [15]and Balaji Coke Industry Pvt Ltd Vs Maa Bhagwati Coke Gujarat Private Ltd (2009) 9 SCC 403[16].

The common thread which is discernible from these decisions of the Supreme Court, is the recognition of the principle that the law acknowledges that two courts would have jurisdiction, firstly where the cause of action is located and secondly the court where the arbitration takes place. It would be permissible for the parties to confer jurisdiction on one of these courts. Once the parties in the agreement confer jurisdiction upon one of the courts, such agreement conferring jurisdiction on one of the Courts would be required to be recognized in terms of Section 20 of the one of the Act applying the Hakam Singh (supra) and the Swastik Gases Pvt. Ltd. (supra) principle. In my opinion a plain commercial meaning is required to be attributed to the said clauses of the agreement when the parties agree to confer exclusive jurisdiction on the courts at Hyderabad, applying these principles as laid down in the said decisions of the Supreme Court. The principle of party autonomy is well recognized in the successive decisions of the Supreme Court as noted above. It is also well settled that the words "seat" and "venue" are interchangeably used and the true intention of the parties in agreeing to the clauses of the agreement, like the one in question would be required to be derived from the combination of these clauses and the real meaning the parties intend to attribute from a holistic reading of these clauses. It may not be possible to read the clauses of the agreement in a manner which would render nugatory, the plain commercial meaning and intention of the parties to incorporate the specific clauses. Applying these norms, in my opinion when the parties in the present case intended to confer exclusive jurisdiction on the courts at Hyderabad, by clause 20.3, it will have to be given a proper commercial meaning as intended by the parties, without rendering the clause otiose. In this context the observations of the Supreme Court in M/S Swastik Gases P.Ltd vs Indian Oil Corp.Ltd on 3 July, 2013 are required to be noted. Mr.Justice R.M.Lodha (as His Lordship then was) observed thus:-

"37. In my opinion, the very existence of the exclusion of jurisdiction clause in the agreement would be rendered meaningless were it not given its natural and plain meaning. The use of words like "only", "exclusively", "alone" and so on are not necessary to convey the intention of the parties in an exclusion of jurisdiction clause of an agreement. Therefore, I agree with the conclusion that jurisdiction in the subject-matter of the proceedings vested, by agreement, only in the courts in Kolkata."

In the concurring judgment of His Lordship Shri. Justice Madan B.Lokur (as His Lordship then was) while agreeing with the observations of Mr.Justice R.M.Lodha, that the absence of the words 'alone', 'only', 'exclusive jurisdiction' in the jurisdiction clause is neither decisive nor does it make any material difference in deciding the jurisdiction of a court and that the existence of a jurisdiction clause in an agreement makes the intention of the parties to an agreement quite clear. His Lordship was pleased to take note of the decision in " A.B.C. Laminart (P) Ltd. Vs. A.P. Agencies, ((1989)2 SCC 163)" to observe that when the parties have agreed to an ouster clause in the agreement, the parties convey their clear intention to exclude jurisdiction of the Court other than those mentioned in the clause concerned. In holding so, after taking into consideration several decisions on the issue.

The aforesaid decisions have clearly settled the dust as regards the “Venue” of arbitration and “seat” of arbitration and consequent territorial jurisdiction and clear distinction is made out as regards the implication of the same and on the touchstone of law, the territorial jurisdictional aspects of courts are ascertained and particular emphasis in this regard may be have to a matter captioned as Union of India v. Hardy Exploration and Production (Supra) as the said judgment has categorically defined the difference between “Venue” and “seat” and the inherent distinction.

 

References:-

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[1]Bharat Aluminium Company Vs Kaiser Aluminium Technical Services Inc.,2012(8) SCALE 333;

[2] Mr.Raman Deep Singh Taneja Vs Crown Realtech Pvt. Ltd., 2017 SCC OnLine Del 11966;

[3] Rohit Bhasin and Anr. Vs Nandini Hotels, 2013 SCC OnLine Del 2300

[4]  Virgo Softech Ltd Vs National Institute Of Electronics And Information Technology , Arb. Petn. No. 749 of 2018 (Delhi High Court, 2019);

[5] Indus Mobile Distribution Pvt. Ltd. Vs. Datawind Innovations Pvt. Ltd. and Anr., AIR 2017 SC 2105

[6] Aniket SA Investments LLC Vs Janapriya Engineers Syndicate Pvt. Ltd. & Ors COMMERCIAL ARBITRATION PETITION (L) NO.1244 OF 2019 2020 (1) , ABR 398 (Bombay High Court, 2019).

[7] Union of India Vs Hardy Exploration and Production (India) INC, 2018 SCC Online SC 1640

[8] Hakam Singh Vs. Gammon India Ltd (1971) 1 SCC 286

[9] Brahmani River River Pellates Ltd. Vs. Kamachi Industries Ltd,  2019 SCC Online SC 929

[10] Swastik Gases Pvt. Ltd. Vs. Industries Oil Corporation Ltd.16 reiterated 15 2019 SCC Online SC 929 16 2013 (9) SCC

[11] A.B.C Laminart Pvt Ltd Vs ABC Agencies (1989) 2 SCC 163

[12] R.S.D.V. Finance Co. Pvt. Ltd Vs Vallabh Glass Works Ltd (1993) 2 SCC 130, 

[13] Angile Insulations Vs Davy Ashmore India Ltd. And Anr on 18 April, 1995,  (1995) 4 SCC 153

[14] Shriram City Union Finance Corporation Pvt Ltd Vs Rama Mishra  (2002) 9 SCC 613

[15] M/S Hanil Era Textiles Ltd Vs M/S Puromatic Filters (P) Ltd on 16 April, 2004 (2004) 4 SCC 671

[16] Balaji Coke Industry Pvt Ltd Vs Maa Bhagwati Coke Gujarat Private Ltd (2009) 9 SCC 403.