Arbitration In IndiaArbitration Agreement with No Seat – Where to file Section 11 Application?

HIGH COURT OF DELHI

Aarka Sports Management Pvt. Ltd. Vs. Kalsi Buildcon Pvt. Ltd.

 Arb. P 662/2019 | Date: 06.07.2020

FACTS 

The Parties had entered into an operation, maintenance and management agreement. Dispute arose therein which was first referred to mediation. When resolution through mediation failed, the arbitration clause was invoked.

The arbitration clause is valid and undisputed. 

“15. Governing Law, Jurisdiction And Dispute Resolution

15.1   This Agreement shall be governed by and construed in accordance with the laws of India and subject to clauses 15.2 and 15.3, the jurisdiction of this Agreement shall be exclusively in the courts of New Delhi, India.

 …

15.3.  …If the Parties are unable to reach an agreement on the choice of an arbitrator within 30 days of the Notice of Arbitration by either Party, the Parties shall approach the court of proper jurisdiction for appointment of arbitrator.”

The Petition had been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) for appointment of arbitration. However, the Respondent has challenged the jurisdiction of the Court to entertain the petition.

ISSUE BEFORE THE HIGH COURT OF DELHI

The following issues were considered by the Delhi High Court:

Whether the Court had the jurisdiction to entertain the petition when neither the seat of arbitration not any cause of action had arisen in Delhi?

OBSERVATION 

The Respondent highlighted that the agreement was drawn in Ranchi, signed in Lucknow and executed in Patna. Further, the parties have not agreed on a seat of arbitration under the arbitration clause. Thus, the Delhi High Court do not have the jurisdiction as there was no cause of action in Delhi, Respondent did not have place of business in Delhi and also the seat of arbitration was not agreed to be Delhi.

It was submitted that the parties cannot be permitted confer jurisdiction on a court that otherwise do not have the jurisdiction. The Clause 15.1 conferring exclusive jurisdiction to Courts in Delhi is subject to Clause 15.3 that renders a provision for the parties to approach the “Courts of proper jurisdiction” in case of failure to agree on appointment of arbitrator. Further, it averred that the Delhi High Court is not the proper and competent court under Section 2 (1) (e) of the Act since no cause of action arose therein nor have they agreed on the seat of the arbitration to be in Delhi.

On the other hand, the Petitioner primarily premised this Petition on Clause 15.1 that governs the jurisdiction of the Agreement and grants exclusive jurisdiction to the courts in Delhi. It placed heavy reliance on Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited, (2017) 7 SCC 678, wherein it was 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. 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 Sections 16 to 21 of 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.”

However, the above case and other cases relied by the Petitioner cannot be applied in the instant case as all the cases had a agreed seat of arbitration whereas the parties to the Agreement in the instant case has not determined the seat of arbitration.

The Respondent citied judgments wherein jurisdiction was conferred on the Court were the cause of action had arisen, regardless of an agreed seat of arbitration. However, the court observed that these cannot be relied on since the judgments were prior to the decision in Indus Mobile Distribution Private Limited that has clearly established that the seat of arbitration would have the exclusive jurisdiction.

On perusal of the Act and the cited precedents, the Court made the following observations:

1. Section 20 (1) of the Act bestows the power on the parties to choose the seat of arbitration including a neutral seat where no cause of action arose and neither of the parties reside or have place of business. In such a case, Section 16 to 20 of CPC will not be applied.

2. Once the parties have selected the seat of arbitration, it would have an exclusive jurisdiction over the entire arbitration proceedings.

3. Incase parties fail to select a seat of arbitration, then it would be determined by the Arbitral Tribunal in accordance to Section 20 (2) of the Act.

4. Further, in case of failure to agree on the seat of arbitration, the proper and competent court to entertain the application under Section 11 of the Act would be the Court under Section 2 (1) (e)  of the Act read with Section 16 – 20 of CPC.

CONCLUSION 

The Parties have failed to determine the seat of the arbitration under the arbitration clause of the Agreement, thereby the Court held that the seat shall be determined by the Arbitral Tribunal under Section 20 (2) of the Act. Further, the Parties have failed to agree on the seat of arbitration, thereby the Court under Section 2 (1) (e)  of the Act read with Section 16 – 20 of CPC has the competent jurisdiction to entertain the application under Section 11 of the Act for appointment of arbitrator.

The Court held Clause 15.1 to be no valid as parties cannot confer jurisdiction on the courts that would otherwise not have the jurisdiction. The Court did not have jurisdiction to entertain the petition as there was no cause of action in Delhi, Respondent did not have place of business in Delhi and also the seat of arbitration was not agreed to be Delhi.

AMLEGALS REMARKS 

The lack of determination or absence of agreement on the seat of arbitration can be commonly observed in the arbitration agreements. With the plethora of judgments coming up on various issues of seat of arbitration, parties should exercise their autonomy and define a certain and simple arbitration clause with determined seat of arbitration in order to avoid excessive involvement of judiciary in the arbitration process.

Court herein has peculiarly established an interplay between the provision of the Act and CPC to determine the competent court for appointment of arbitration in case where no seat of arbitration has been agreed on in the arbitration clause.

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