Territorial Jurisdiction of 'Court' on applications u/s 9 of domestic Arbitration

Introduction:-

Section 9 of 'The Arbitration and Conciliation Act, 1996' stipulates that a party may approach the Court for interim measures at any stage before or during the arbitral process. The Section, however, does not specify the territorial jurisdiction of the Court that is empowered to grant such interim measures. Thus far, applications have been filed in Courts under whose Jurisdictions part cause of action has arisen or in the Court where the parties have conferred Jurisdiction upon; leading to various interpretations on the definition of 'Court' under Section 2(i)(e) that can be approached for the filing of a Section 9 application.

Section 2(1)(e)(i) reads as follows:

(e) "Court" means-

(i) in the case of an arbitration other than international commercial arbitration, 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;

Two scenarios frequently arise whilst choosing the territorial Jurisdiction of a Court:

  1. Where the Contract between the parties is silent on the Seat of Arbitration
  2. Where the Contract between the parties designate a Seat of Arbitration.

Scenario 1: Where the contract between the parties is silent on the Seat of Arbitration:-

This scenario is pretty much forthright as Section 9 applications can be preferred in the territorial Jurisdiction of any Court where part cause of action had arisen. However, once a competent Court having jurisdiction has been approached, all subsequent applications are to be filed in the same Court. All other Courts are thereon excluded by an embargo caused by Section 42 of the act. See: Executive Engineer v. Atlanta Limited [Civil Appeal No. 673/2014 dated 16.01.2014 (Arising out of SLP (C) No.18980/2013)].

However, if the relief claimed relates to a controversy in title or delivery of possession of an immovable property, then it would only be the Court having Jurisdiction over the property that can entertain an application and not the other Courts despite them possessing part cause of action. See: Sumer Builders Private Limited v. Narendra Gorani [2016 (2) SCC 582], Excel Dealcomm Pvt. Ltd v. Asset Reconstruction Company (India) Ltd [2015 (8) SCC 219], M/s Indian Oil Corporation v. Commissioner, Udumalpet Municipality [Original Application No.586/2016 dated 28.11.2016 – Madras High Court]

Scenario 2: Where the contract between the parties designate a Seat of Arbitration:-

In this scenario, two situations arise:-

1) Where there is cause of action in the place designated as the Seat of Arbitration:-

This situation is no longer res integra in view of the settled proposition that where there might be two or more competent Courts that can entertain a suit consequent upon a part cause of action having arisen; if the parties to the contract unambiguously agreed to vest jurisdiction in one of such 'proper' Courts to try any dispute which might arise between themselves, the agreement would be valid as “expression of one is the exclusion of another”. As a corollary, all other Courts despite possessing 'proper' Jurisdiction would stand excluded by the agreement between the parties.

Refer: Hakam Singh vs. Gammon (India) Ltd. [AIR 1971 SC 740], A.B.C. Laminart (P) Ltd. v. A.P. Agencies [1989 (2) SCC 163],  Shriram City Union Finance v. Rama Mishra [2002 (9) SCC 613], Balaji coke v. Maa bhagwati coke [2009 (9) SCC 403], A.V.M. Sales Corporation. v. Anuradha Chemicals  [2012 (2) SCC 315],  Swastik Gases (P) Ltd v. Indian Oil Corp [2013 (9) SCC 32]

No controversy arises in this possibility as the parties have designated a Seat of Arbitration under the Jurisdiction of a Court which would also possess 'proper' Jurisdiction. Therefore, it would be the Court under which the Seat of Arbitration is situated to have territorial Jurisdiction to entertain an application under Section 9 in exclusion to all other Courts despite them possessing 'proper' Jurisdiction.

2) Where the designated seat has been fixed by the parties to be a neutral place and no cause of action arises in the said place:-

There has been various pro and contra deliberations on this situation, whether a Section 9 application can be maintained before a Court where the parties designate the Seat of Arbitration at a 'neutral' place where no cause of action arises in the said place.

Certain Courts following ABC Laminart have held that only 'proper' Jurisdictional courts where the cause of action has arisen could be approached and not the Courts which do not possess Jurisdiction. That, any agreement by the parties contrary to the same would be hit by public policy.

A seven-Judge Constitution bench of the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services [2012 (9) SCC 552] while considering the applicability of Part I of the Act to Arbitrations seated/held outside India and explaining 'party autonomy' had an occasion to consider Section 2(1)(e) and Section 20 of the act wherein it was held as follows:-

96. 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 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.

97. 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.

In the above paragraphs, the Supreme Court has interpreted Section 2(1)(e) and held that the legislative intent of “subject matter of the arbitration”  was to identify Courts having supervisory control over the seat of Arbitration and this provision was to provide for an additional Jurisdiction [in addition to the courts exercising 'proper' Jurisdiction] upon a Court at the 'seat' of the arbitration which otherwise would not possess Jurisdiction in the matter.

This is in harmony with the consistent proposition laid down by the Supreme Court in ABC Laminart & the other citations mentioned supra and does not fly in the face of public policy as the choice to designate a Seat of Arbitration is vested with the parties by the provisions of a statute [Section 20] and once the same has been mutually designated, it would be the Court having territorial Jurisdiction over the said 'Seat' [Section 2(1)(e)] which could entertain applications.

However, there have been instances where some Courts have sought to distinguish Balco and ABC Laminart and held that exclusive Jurisdiction clause would not apply to Courts which do not possess 'proper' Jurisdiction.

The Supreme Court in Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited  [2017 (7) SCC 678]  has provided the much required clarity by expounding Balco  &   Enercon (India) Ltd. v. Enercon Gmbh  [2014 (5) SCC 1] and has categorically held :

20. A conspectus of all the aforesaid provisions shows that the moment the seat is designated, it is akin to an exclusive jurisdiction clause. On the facts of the present case, it is clear that the seat of arbitration is Mumbai and Clause 19 further makes it clear that jurisdiction exclusively vests in the Mumbai courts. 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. The neutral venue may not in the classical sense have jurisdiction that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Section 16 to 21 of the CPC be attracted. In arbitration law, however, as has been held above, the moment seat is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.

Therefore, once the Juridical seat of arbitration is designated, it would be akin to conferment of exclusive Jurisdiction and only the court at that seat which exercises supervisory powers over the Arbitral process can grant Interim measures under S.9 even if no cause of action has arisen at that seat. All other Courts would stand excluded to the effect.

Author's Note:-

The 'neutral' place/seat of Arbitration in a contract is fixed by the parties to a contract after taking into a host of considerations that is mutually agreeable between them (irrespective of whether the cause of action arises or not in the 'neutral' seat). It should therefore pragmatically follow that once such a seat has been designated, all litigations arising out of the said contract should be instituted by the parties in the Court having Jurisdiction over such designated seat to the exclusion of all other Courts.

1) The power to designate a place / seat of choice by the parties to a contract; and 2) The Jurisdiction of Court at the seat of arbitration has been conferred by statute on a conjoint reading of Section 2(1)(e), Section 20 and Section 28 respectively as has been read into by Balco and Indus Mobile. Without such legislative conferment, it would render the act of the parties conferring Jurisdiction upon a 'neutral' place to be against public policy.

Therefore, the 1996 act confers exclusive Jurisdiction on the Court where the Seat of Arbitration is located. The decisions in Balco and Indus Mobile pertaining to territorial Jurisdiction, in my opinion, is progressive, 'arbitration friendly', in-line with the UNCITRAL model law and advances the cause of domestic Arbitration in the country by lending support to party autonomy – a key driver of alternate dispute resolution in comparison to rigid standard litigation. The said decisions have to be read to be in harmony with ABC Laminart and its supporting citations.

 

Vignesh Venkat 
on 02 February 2018
Published in Civil Law
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