India: Case Analysis: Cars24 Services Pvt. Ltd. vs Cyber Approach Workspace LLP

INTRODUCTION

In the case of Cars24 Services Pvt. Ltd. vs Cyber Approach Workspace Lip, the Hon'ble High Court of Delhi has set forth an important legal principle in answering the question of whether the seat of Arbitration could exercise jurisdiction to appoint an arbitrator even though the lease deed in question vested the power to appoint Sole Arbitrator with another court.

BRIEF FACTS OF THE CASE

In this matter, Cyber Approach Workspace LLP (the respondent) executed a lease deed under which an interest-free refundable security deposit of Rs. 52,80,000/ was paid by Cars24 Services Pvt. Ltd. (the petitioner) for the leased premises. Because of COVID-19, the petitioner invoked the force majeure clause to terminate the lease deed and subsequently claimed the refundable security deposit. The respondent denied any liability toward the petitioner. According to the deed, if any dispute arose between the parties, then it shall be referred to a Sole Arbitrator who shall be mutually appointed by them. The deed also provided that if the parties fail to appoint the arbitrator, either party may approach a court of competent jurisdiction at Haryana i.e., the High Court of Punjab and Haryana, for appointment of the Sole Arbitrator, but the seat of Arbitration will be at New Delhi. Since there was no consensus ad idem regarding the arbitrator who will decide the disputes, the petitioner approached the High Court of Delhi, instead of the High Court of Punjab and Haryana, under Section 11(5) of the Arbitration and Conciliation Act, 1996 (Act) for the appointment of the Sole Arbitrator. It is pertinent to note that the counsels for both the parties agreed that the High Court of Delhi had the jurisdiction to entertain the Section 11 petition.

THE CONTENTION OF THE PARTIES

The learned counsels for both the parties whilst placing its reliance on the judgment of the Supreme Court in Bhandari Udyog Limited v. Industrial Facilitation Council², of the High Court of Delhi in Devyani International Ltd v. Siddhivinayak Builders and Developers³, N.J. Construction v. Ayursundra⁴ Healthcare Pvt. Ltd. and Aarka Sports Management Pvt. Ltd. v. Kalsi Buildcon Pvt. Ltd⁵ and of a coordinated Single Bench of the High Court of Delhi in Ramandeep Singh Taneja v. Crown Realtech Pvt. Ltd.⁶ submitted that a clause fixing the seat of arbitration is akin to an exclusive jurisdiction clause. Therefore, the court having jurisdiction over the seat thus fixed would ex facie also have jurisdiction in all matters relating to the arbitral proceedings, including Sections 9, 11 and 34 of the Act. There was no dispute between the parties in respect of the appointment of Sole Arbitrator by the High Court of Delhi.

JUDGMENT OF THE HIGH COURT OF DELHI

The High Court of Delhi acknowledged that it is a settled principle of the Supreme Court⁷ that a clause fixing the seat of arbitration is akin to an exclusive jurisdiction clause and therefore, courts having jurisdiction over the seat so fixed would possess jurisdiction over the arbitral proceedings in their entirety, including matters relating to Section 9, 11 and 34 of the Act. However, the High Court of Delhi dismissed the application made by the petitioner for the appointment of Sole Arbitrator due to lack of jurisdiction, as in the present case there was a clause for the appointment of an arbitrator in the lease deed, which was separate from the seat clause. The Court, accordingly, held that as exclusive jurisdiction pertaining to the appointment of the Sole Arbitrator under Section 11 of the Act has been conferred upon the High Court of Punjab and Haryana, that clause must be accorded due respect.

The High Court of Delhi distinguished the present situation from the cases cited by the parties to show that none of those decisions pertain to a situation in which the arbitration agreement contained a separate exclusive jurisdiction clause, conferring jurisdiction on a court in another territorial location for appointment of an arbitrator under Section 11.

The High Court of Delhi then referred to the decision of Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.⁸ in which the Supreme Court held that once the seat of arbitration was fixed as Hong Kong but exclusive jurisdiction for obtaining interim relief was vested in the courts at New Delhi, the High Court of Delhi had the exclusive jurisdiction to determine Application under Section 9 of the Act. Applying the same reasoning to the instant case, once Section 11 jurisdiction had contractually been conferred on the High Court of Punjab and Haryana, it would be vested with exclusive jurisdiction to the extent of entertaining an application for the appointment of the Sole Arbitrator. The High Court of Delhi held that arriving at any other conclusion would amount to re-writing the contract between the parties. Therefore, it refrained to exercise Section 11 jurisdiction in the matter and dismissed the petition.

DECISION

The Court summarised its findings by observing that "Where, therefore, the seat of arbitration is at place X, and exclusive jurisdiction over the subject matter of the suit is conferred on courts at place Y, a petition under Section 11 would unquestionably lie before the courts at place X. The present case, however, is different, as the exclusive jurisdiction conferred by the arbitration agreement is not in respect of the subject matter of the suit but specifically for appointment of an arbitrator. It would be doing violence to the said clause, therefore, if this Court were to treat the exclusive jurisdiction clause as limited to the subject matter of the suit, and exercise Section 11 jurisdiction contrary to the mandate thereof".

ANALYSIS

In this decision, the High Court of Delhi after going against the submissions of both the parties, went ahead and attached due importance to the contractual agreement. Based on the interpretation of agreed contractual clauses" between the parties, the High Court of Delhi set out the principle that the exclusive jurisdiction clause can supersede the seat clause. The decision highlights the importance of an agreement between the parties and reinstates the legal principle that the Court cannot decide beyond the four walls of a contract. Moreover, the judgment highlights that the parties should exercise due diligence and word their intentions clearly while drafting an agreement, as the general principles of arbitration are subject to the specific clauses of the agreement.

Footnotes

1 ARB. Petition 328/2020

2 AIR 2015 SC 1320

3 MANU/DE/4153/2017

4 2020 (4) ARBLR 117 (Delhi)

5 2020 (4) ARBLR 117 (Delhi)

6 ARB.P. 444/2017

7 BALCO v. Kaiser Aluminium Technical Services, (2012) 9 SCC 552

8 SCC OnLine SC 301

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.