India: Supreme Court: An Application Under Section 11(6) Of The Arbitration Act Would Lie Before The ‘High Court' Which Exercises Supervisory Jurisdiction Over A ‘Court' Within The Meaning Of Section 2 (1) (e) Of The Arbitration Act

Ravi Ranjan Developers Pvt. Ltd. v. Aditya Kumar Chatterjee¹

Introduction

The Supreme Court determined whether Kolkata would be the ‘seat' of arbitration when the arbitration clause provided that “...the sitting of the said Arbitral Tribunal shall be at Kolkata” and admittedly, no part of the cause of action arose at Kolkata.

Background

Ravi Ranjan Developers Pvt. Ltd. (Appellant) and Aditya Kumar Chatterjee (Respondent) entered into a Development Agreement (Agreement) to develop a property situated in Muzaffarpur, Bihar (Property). Differences arose between the parties and consequently, the Respondent terminated the Agreement. On August 17, 2019, the Respondent filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (Act) before the District Court of Muzaffarpur (Muzaffarpur District Court) seeking interim protection of the Property (Section 9 Application). Thereafter, the Respondent invoked the arbitration clause in the Agreement² and addressed a notice to Appellant's registered office at Patna, Bihar.

On January 15, 2021, the Respondent filed an application under Section 11 (6) of the Act, before the Calcutta High Court (Calcutta HC) seeking court assistance to constitute the tribunal (Section 11 Application). The Appellant challenged the jurisdiction of the Calcutta HC. The Respondent submitted that although the place of execution of the Agreement and the location of the Property were both outside the jurisdiction of the Calcutta HC, the Calcutta HC derived its jurisdiction from the arbitration clause. By an Order dated August 13, 2018, the Calcutta HC allowed the Section 11 Application and appointed a sole Arbitrator (Order 1). Order 1 did not decide upon the issue of territorial jurisdiction and purportedly the counsel for the Appellant consented to the appointment without instructions from the Appellant.

While the Appellant filed for a review application against Order 1, by an Order dated 4 October 2021, the review petition was dismissed since the Appellant's counsel had consented to the appointment of the arbitrator (“Order 2”). On the same day, the arbitrator passed an interim order restraining the Appellant from creating any third-party interest in the Property. Aggrieved by Order 1 and Order 2, the Appellant preferred a special leave petition before the Supreme Court.

Submission and Findings

• The Appellant submitted that (i) the Agreement is executed in Muzaffarpur; (ii) the subject matter of the Agreement is in Muzaffarpur; (iii) the Appellant's registered office is in Patna, and (iv) the Appellant has no establishment/business within the jurisdiction of the Calcutta HC. Admittedly, no part of the cause of action arose within the jurisdiction of the Calcutta HC. Relying upon Kiran Singh³ , the Appellant submitted that a decree passed by a court without jurisdiction is a nullity and its invalidity can be set up at any stage, including at the stage of execution. The defect of jurisdiction i.e., territorial, pecuniary, or subject matter jurisdiction, cannot be cured by consent of parties.
• The Appellant submitted that that the Property was an immovable property situated in Muzaffarpur and therefore, was outside the territorial jurisdiction of the Calcutta HC. Subject to the pecuniary or other limitations in law, suits pertaining to immovable property can be instituted in a court within whose jurisdiction the immovable property is situated, or the defendant actually or voluntarily resides or carries on business.

• The Supreme Court observed that when two or more courts have jurisdiction to adjudicate upon disputes arising out of an arbitration agreement, parties may, by agreement, decide to refer all disputes to any one court to the exclusion of all other courts, which might otherwise have had jurisdiction the decide the disputes. However, the parties cannot by consent confer jurisdiction on a court which inherently lacked jurisdiction.

• Upon examining Section 2(1)(e), 11 (6) and 42 of the Act, the Supreme Court observed that an application under Section 11(6) of the Act has to be filed before a “High Court” irrespective of whether such court has original jurisdiction to decide suits or jurisdiction to decide a suit in respect of the subject matter of arbitration. Therefore, the definition of Section 2 (1)(e) of the Act would not be plainly applicable in the matter of a High Court exercising jurisdiction under Section 11(6). At the same time, the application under Section 11(6) cannot be moved in ‘any' High Court of India.
• The Supreme Court held that the intention of Section 11 (6) of the Act could not have been that arbitration proceedings should be initiated in any High Court, irrespective of whether the respondent resided/ carried on business within the jurisdiction of that High Court and irrespective of whether any part of the cause of action arose within the jurisdiction of that High Court. Section 11(6) shall be read harmoniously with Section 2(1)(e) and construed to mean, “a High Court which exercises superintendence/ supervisory jurisdiction over a ‘Court' within the meaning of Section 2 (1) (e) of the A&C Act.”

• Since the Section 9 Application was filed before the Muzaffarpur District Court, the application under Section 11(6) could not have been made before a district court. Therefore, Section 42 of the Act was not attracted. The Supreme Court held that there is no ambiguity regarding the mandatory nature of Section 42 of the Act. However, Section 42 would not be applicable if the court where the first application was instituted inherently lacked jurisdiction.

• The Respondent contended that the arbitration clause fixed the ‘seat' of arbitration as Kolkata. Relying upon Indus Mobile Distribution Pvt. Ltd.⁴, Hindustan Construction Co. Ltd.⁵ and BGS SGS Soma JV⁶, the Respondent submitted that once a ‘seat' of arbitration is designated, the clause designating the seat becomes an exclusive jurisdiction clause. Thus, only those courts that fall within the territorial limit of the seat would have jurisdiction to the exclusion of all other courts.
• The Supreme Court inter alia referred to Hardy Exploration and Production (India) Inc.⁷, and concurred that there may be various ‘venues' but these cannot be equated with the ‘seat' or place of arbitration. Relying upon Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.⁸, the Supreme Court reiterated that the ‘seat' and ‘venue' cannot be used interchangeably. The intention of the parties regarding the ‘seat' has to be determined from other clauses in the agreement and conduct of the parties.
• The Supreme Court observed that the parties did not intend for Kolkata to be the seat of arbitration since the Respondent himself filed the Section 9 Application before the Muzaffarpur District Court, thereby, ousting the jurisdiction of Calcutta HC.
• The Apex Court examined the Agreement and held that the parties only agreed that the “sittings” of the arbitral tribunal would be in Kolkata and therefore, Kolkata was the venue for holding the sittings. Parties neither agreed to Kolkata as the seat of arbitration nor did they submit to the jurisdiction of the Calcutta HC.

Conclusion and Analysis

The Supreme Court dismissed the appointment of the sole arbitrator by the Calcutta HC as the appointment was without jurisdiction. With the consent of parties, the Supreme Court appointed a fresh arbitrator to decide upon the disputes. The apex court directed parties to maintain status quo with respect to the Property for two weeks to allow the parties to approach the arbitrator for interim relief.

Route Section 11 Applications through Section 2 (1) (e) of the Act

In the above backdrop, an application under Section 11(6) would now have to be made before the High Court which exercises supervisory jurisdiction over the ‘Court' within the meaning of Section 2 (1) (e) of the Act. Assuming the arbitration clause designated the ‘seat' of arbitration, the same would be rendered irrelevant for the purpose of identifying the appropriate high court that will have jurisdiction under section 11 (6) if the High Court within the jurisdiction of the designated seat did not have inherent jurisdiction. By doing so, seemingly the Supreme Court has ruled that parties can no longer designate a neutral ‘seat' of arbitration, where absolutely no cause of action has arisen, or which does not fit within the ambit of section 2(1)(e). Consequently, party autonomy, the very foundation of arbitration, would run the risk of being diluted.

The Supreme Court observed that when two or more courts have jurisdiction to adjudicate upon disputes arising out of an arbitration agreement, parties may agree to refer all disputes to any one court which might otherwise have had jurisdiction the decide the disputes. However, the Supreme Court conditioned this finding by adding that parties cannot by consent confer jurisdiction on a court which inherently lacked jurisdiction. Therefore, it remains to be seen whether the Supreme Court has implied that - in context of domestic arbitrations (arbitrations other than international commercial arbitrations), parties cannot designate the “seat” of arbitration when there is no territorial, pecuniary or subject matter jurisdiction arising from the proposed seat.

Diverging from Indus Mobile

Contrastingly, in Indus Mobile, the Supreme Court applied the concept of ‘juridical seat' in a domestic arbitration and ruled that once the seat of arbitration is designated under a contract, it is akin to an exclusive jurisdiction clause. Moreover, the apex court held that “under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to “seat” is a concept by which a neutral venue can be chosen by the parties to an arbitration clause.” Therefore, it remains to be seen if the findings in Indus Mobile will no longer hold ground. Although the Supreme Court addressed Indus Mobile in the present decision, it did so from a different perspective.

The potential confusion stemming from the present judgment seems to be brewing already. Recently, in Sikka Motors Pvt Ltd.⁹ , in an application under Section 9 of the Act before the Delhi High Court, the court determined whether it would have jurisdiction when the arbitration clause provided that the venue was Chennai and the courts at Chennai had exclusive jurisdiction. While the respondent contended that the courts at Delhi lacked jurisdiction, the petitioner relied upon Ravi Ranjan. Although Sikka Motors did not detail the petitioner's contentions vis-à-vis Ravi Ranjan, in any event, the Delhi High Court ruled out its applicability since the clause provided for “sitting” of the tribunal at Kolkata and did not even provide for “exclusive jurisdiction”. The court continued to apply Indus Mobile and held that even if no cause of action arose in Chennai, it can be concluded that the courts at Chennai have exclusive jurisdiction¹⁰ .

Footnotes

1 Arising out of SLP (C) No. 17397-17398 of 2021.

2 “37. That in case of any dispute or difference between the parties arising out of and relating to this development agreement, the same shall be settled by reference of the disputes or differences to the Arbitrators appointed by both the parties and such Arbitration shall be conducted under the provisions of the Indian Arbitration and Conciliation Act, 1996 as amended from time to time and the sitting of the said Arbitral Tribunal shall be at Kolkata.”

3 Kiran Singh and Ors. v. Chaman Paswan and Ors., (1955) SCR 117.

4 Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. & Ors., (2017) 7 SCC 678.

5 Hindustan Construction Co. Ltd. v. NHPC Ltd. & Anr., (2020) 4 SCC 310.

6 BGS SGS Soma JV v. NHPC Ltd. (2020) 4 SCC 234.

7 Union of India v. Hardy Exploration and Production (India) Inc., (2019) 13 SCC 472.

8 Mankastu Impex Pvt. Ltd. v. Airvisual Ltd., (2020) 5 SCC 399.

9 Sikka Motors Pvt Ltd. v. Hyundai Motor India Ltd., 2022 SCC OnLine Del 1187

10 Sikka Motors Pvt Ltd., “20. Even if assuming that no part of cause of action has arisen in Chennai, applying the ratio of the judgment in Indus Mobile (supra), it can safely be concluded that the courts at Chennai would have exclusive jurisdiction to entertain any proceedings arising under the Arbitration Act.”

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