TERRITORIAL JURISDICTION for objection to
arbitral award
The “seat” and “venue” of Arbitration is defined
The
Arbitration & Conciliation Act 1996, with a view to make the proceedings
more effective, have undergone changes and several and successive amendments
are carried out and the glitches, if found existing, nevertheless, are settled
by judicial pronouncements. The issues of exclusive jurisdiction clause in an
agreement and seat of arbitration are often found interlinked and the
same caused ambiguity as regards jurisdiction in respect of courts for civil
disputes or arbitral disputes. It is however, now, become clear that as regards
arbitration clause, irrespective of jurisdiction clause, the seat of
arbitration shall mandate that the arbitral proceedings shall be conducted in
the location of seat of arbitration itself and the courts located at seat of
arbitration shall have the jurisdiction so far as issue of arbitrability are
concerned. Recently, Delhi High Court has again
dealt with the aforesaid aspect in a matter captioned as DELHI TOURISM AND
TRANSPORTATION DEVELOPMENT CORPORATION versus M/S SATINDER MAHAJAN reported as 2024 SCC Online Del 3206.
FACTUAL MATRIX
1.
The
respondent is located in Pathankot, Punjab and is registered as a Medium Enterprise under the
MSME Act. The respondent entered into an agreement dated 21.01.2016 with the
petitioner – Delhi Tourism and Transportation Development Corporation, for
construction of a bus depot at Kharkhari Nahar Village, New Delhi. As disputes arose
between the parties, the respondent made a claim for payment of its alleged
dues under the Agreement before the Facilitation Council. For this purpose, it
invoked jurisdiction of the Facilitation Council under Section 18 of the MSME
Act.
2.
The
Facilitation Council first adopted conciliation proceedings. The conciliation proceedings
were closed on 15.10.2020, and the reference was taken up for arbitration. The
petitioner also raised an objection as to the jurisdiction of the Facilitation
Council, which was rejected by an order dated 26.10.2020.
3.
The
award was published by the Facilitation Council and that was impugned before
the Delhi High Court. It is undisputed that the Facilitation Council had conducted
its proceedings, and made its award, in Pathankot.
4.
The
Agreement contains an arbitration clause [Clause 25 of the General Conditions
of Contract (“GCC”)] which reads as,
“Settlement of Disputes & Arbitration”. The detailed provisions were
stipulated in it with regard to resolution of disputes between the parties by
way of arbitration, in the event, the parties
are not able to resolve their disputes as per the mechanism provided
therein. The GCC did not contain an exclusive jurisdiction clause, nor was the
seat of the arbitration stipulated. Though, Clause 25, provided the venue of
the arbitration which reads as “shall be such place as may be fixed by the
arbitrator in his sole discretion”.
5. The Article 7(1) of a document attached
to the tender, entitled “Integrity Pact”.
The Integrity Pact was to be signed by the bidder and was to be read as an
integral part of the tender document and the Agreement between the parties. It
contains certain commitments on part of the bidder to take measures to prevent malpractices,
and provides for the consequences of breach thereof.
6. Two provisions in Article 7 of the
Integrity Pact are relevant for adjudication of this contention:
“Article 7- Other Provisions
1) This Pact is subject to Indian Law, place of performance
and jurisdiction is the Head quarters of the Division of the Principal/Owner,
who has floated the Tender.
xxxx xxxx xxxx
5) It is agreed term and condition that any dispute or
difference arising between the parties with regard to the terms of this
Integrity Agreement / Pact. Any action taken by the Owner/Principal in accordance
with this Integrity Agreement/ Pact or interpretation thereof shall not be
subject to arbitration.”
The following two issues had emerged
for the Delhi High Court to decide:
I. Whether
the Agreement between the parties contains an exclusive jurisdiction clause for
the purposes of the present petition?
II. Whether the
seat of the arbitration was, in any event, in Delhi?
Thus, what is relevant is that Article
7(1) of the Integrity Pact, provides that jurisdiction in respect thereof is
with the headquarters of the division of the owner/principal, being the
petitioner. It does not appear to deal with the jurisdiction of courts or
resolution of disputes. This provision does not in any way help in determining
the question of exclusive jurisdiction for disputes under the main Agreement. The
Clause 7(5) of the Integrity Pact is more relevant for this purpose. The said
provision makes it clear that disputes and differences arising under the
Integrity Pact and questions of interpretation thereof, shall not be subject to
arbitration. Thus, it is apparent that the dispute resolution mechanism under
the main Agreement and the Integrity Pact were intended to be entirely
different for disputes under the main Agreement. Clause 7 of the Integrity Pact
was not intended to deal with disputes arising under the underlying Agreement
at all. The two documents have to be read together, but such reading must be
harmonious and reconcilable. As far as the main Agreement is concerned,
disputes as to contractual performance, which were admittedly the subject
matter of arbitration proceedings, are not covered by Clause 7 of the Integrity
Pact.
The High Court had referred to various
judgments of Supreme Court and Division Bench judgments of Delhi High Court and
other high court before arriving at conclusion i.e whether the Delhi High Court
can entertain the objection under Section 34 of Arbitration & Conciliation
Act against the award that was published at Pathankot.
The Kerala High Court has rendered a
judgment, albeit in a writ petition under Article 226 of Constitution of India,
in a matter captioned as Shreyas
Marketing v. Micro and Small
Enterprises Facilitation Council 2023
SCC OnLine Ker 4206. In paragraph 7 of the judgment, it is referred that an
award under Section 18 of the MSME Act, which is deemed to be an award under
the Arbitration Act, can be challenged in the appropriate court at the seat of
the concerned facilitation council. This observation was made in the context of
determining whether the Kerala High Court was forum conveniens for the
purposes of the writ petition.
The Madhya Pradesh High Court, in Madhya Pradesh Purv Kshetra Vidhyut
Vitran Company Ltd. v. Ami Tech India Pvt. Ami Tech Ltd 2023:MPHC-JBP:44566.has also followed the aforesaid judgment of the Kerala High
Court.
The two division benches of Delhi High
Court in Indian Oil Corporation Ltd. v. FEPL Engineering (P) Ltd 2019 SCC
OnLine Del 10265
and IRCON International Ltd v. Pioneer Fabricators Pvt. Ltd. 2023
SCC OnLine Del 1811, has held that even where any arbitration, under the
MSME Act, is conducted by a facilitation council, situated outside Delhi,
jurisdiction for the purposes of challenge to the award, would lie in the Court
having exclusive jurisdiction in terms of the contract under consideration.
Venue and Seat
(1) It is the settled law that the “seat”
of the arbitration proceedings are to be determined on the basis of connection
with the arbitral proceedings, and not with the cause of action for the
underlying disputes. The “seat” of arbitration is the place where the arbitral
proceedings are anchored; the determination of jurisdiction under Sections 16
to 20 of the CPC for the purposes of filing a suit has no relevance as is held
in Indus Mobile Distribution Pvt.
Ltd. v. Datawind Innovations Pvt. Ltd. [(2017) 7 SCC 678].
(2) In BGS SGS SOMA JV v. NHPC (2020) 4 SCC 234, the Supreme Court
has clearly held that in the absence of any significant contrary indicia, “the
inexorable conclusion is that the stated venue is actually the juridical seat
of the arbitral proceeding”. The aforesaid view has subsequently been
followed by the Supreme Court inter alia in Inox Renewables Ltd. v. Jayesh Electricals Ltd (2023) 3
SCC 733. The Supreme Court has consistently held that the “seat” court
alone has jurisdiction to decide a petition under Section 34 of the Arbitration
Act. The reference to cause of action was for the purposes of determining the
court which a party may approach in anticipation of arbitration proceedings, by
way of an application under Section 9 of the Arbitration Act. In fact, the
Court, in BBR (India) (P) Ltd. v.
S.P. Singla Constructions (P) Ltd (2023) 1 SCC 693, held that Section
42 of the Arbitration Act would not confer jurisdiction in a court which had
entertained a Section 9 application, if the seat of the arbitration had, in
fact, been changed during the arbitral proceedings. In this context following
judgments shall be relevant:
(i)
IRCON International Ltd v. Pioneer
Fabricators Pvt. Ltd. 2023 SCC OnLine Del 1811
In the above case, the
concerned MSME Facilitation Council was located outside Delhi, but the
agreement between the parties conferred exclusive jurisdiction upon the Courts
in Delhi.
(ii)
BGS SGS SOMA JV v. NHPC (2020)
4 SCC 234
(iii)
Hindustan Construction Co. Ltd. v.
NHPC Ltd.(2020) 4 SCC 310
(iv)
Gujarat State Civil Supplies Corpn.
Ltd. v. Mahakali Foods (P) Ltd.(2023) 6 SCC 401
(v)
Silpi Industries v. Kerala SRTC (2021) 18 SCC
790
(vi)
Gammon Engineers & Contractors
(P) Ltd. v. Sahay Industries 2023 SCC OnLine Del 518
(vii) Ahluwalia Contracts (India) Ltd. v. Ozone
Research & Applications (I) (P) Ltd.2023 SCC OnLine Del 518
The Delhi High Court in Delhi Tourism
(Supra) has held that aforesaid judgments of the Division Bench are applicable
in cases where parties agree to confer exclusive jurisdiction for supervision
of the arbitration proceedings, upon a particular Court in their contract. The
judgments proceed on the basis that the exclusive jurisdiction clause in the
agreements between the parties, would not be overridden by conferment of
jurisdiction upon a particular MSME Facilitation Council under Section 18 of
the MSME Act. For the reasons stated above, the Court had come to the
conclusion, that in DELHI
TOURISM (Supra) in the Agreement, there is no
exclusive jurisdiction clause. The aforesaid judgments of the Division Bench
were therefore held to be inapplicable to Delhi Tourism (Supra).
In Para 24 of Delhi Tourism (Supra) the
Delhi high Court has held as under:
“24. This also accords with the objective of Section
18(4) of the MSME Act, which permits a medium or small enterprise to approach a
facilitation council at the place where it is located. In the absence of an
exclusive jurisdiction clause, by which such an enterprise agrees to confer
jurisdiction elsewhere, the legislative intent that the dispute will be
resolved at the location of the said medium or small enterprise, is furthered
by this interpretation”.
The objection under section 34 of the
Arbitration & Conciliation act 1996 was therefore dismissed for want of
jurisdiction.
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Anil K Khaware
Founder & Senior Associate
Societylawandjustice.com
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