Arbitration In IndiaTerritorial Jurisdiction for Writ Courts cannot be decided on the basis of Seat/Venue of Arbitration

The Delhi High Court in the matter of Durgapur Freight Terminal Pvt Ltd v Union of India [WP(C) 395 of 2023 dated 28.02.2023], has held that an arbitration clause providing for seat / venue would not be a determinate factor for conferring jurisdiction on a writ court, if the court otherwise lacks territorial jurisdiction in the conventional sense.

FACTS

Durgapur Freight Terminal Pvt Ltd (hereinafter referred to as the “Petitioner”) is a private limited company engaged in the business of providing logistic services. The Respondents in the matter were, Union of India which was represented through the Ministry of Railways (hereinafter referred as the “Respondent No. 1”), the functionaries of Railway Board, Delhi (hereinafter referred as the “Respondent Nos. 2 to 4”), the Executive Director (RM) & CFTM/ER, Railway Board, Kolkata (hereinafter referred as the “Respondent No. 5”) and M/s Palogix Infrastructure Private Limited (hereinafter referred as the “Respondent No. 6”).

The license for operation and management of Durgapur Private Freight Terminal (hereinafter referred as the “Durgapur PFT”) was granted by Respondent 5 to Respondent 6. On January 5, 2017, Petitioner and Respondent 6 signed a Memorandum of Understanding (“MoU“) under which Petitioner would receive the aforementioned licence for a consideration of Rs. 15,00,00,000/- to be paid in two instalments of Rs. 1,50,00,000/- and Rs. 13,50,00,000/-.

Once the licence was transferred, the second instalment was due to be paid. However, Corporate Insolvency Resolution Process (“CIRP“) was initiated against Respondent no. 6 before NCLT, Kolkata Bench via Application no. C.P.(IB) No.37/KB/2017 before the second instalment transfer could take place.

By order dated 12.02.2018, the NCLT, Kolkata Bench approved a Resolution Plan dated 30.01.2018 that had been accepted by the Committee of Creditors. This order recognised the agreement between Petitioner and Respondent no. 6 with regards to the transfer of the licence to operate and manage Durgapur PFT.

In accordance with the agreement between Petitioner and Respondent no. 6, Petitioner began operating Durgapur PFT. However, differences amongst a few of Respondent 6’s shareholders/directors resulted in complaints being filed with Zonal Railways and the matter was brought before the Calcutta High Court.

The Respondent nos. 1 to 4 decided to put the process of loading and unloading on hold until their disputes were settled and informed  the Respondent no. 6  vide  letter dated 09.12.2022 (hereinafter referred as the “Impugned Letter“). The Petitioners being aggrieved by the Impugned Letter, preferred the writ petition for directing Respondents 1 to 5 to not interfere in their operation and management of Durgapur PFT.

ISSUE BEFORE THE DELHI HIGH COURT

Whether a Writ Court possesses Territorial Jurisdiction, to adjudicate on a matter merely due to an arbitration clause determining seat/venue is within the territory of the Writ Court, even if it lacks jurisdiction in conventional sense?

CONTENTION OF THE PARTIES

The Petitioner submitted that Respondent no. 5, who had its office in Delhi, had sent the Impugned Letter to Respondent no. 6 on behalf of Respondent nos. 1 to 4, and that it would also store the records of the decision the Railway Board made or would make in the future in Delhi.

Insofar as the decision that resulted in the issuance of the Impugned Letter, they stated that it was made in Delhi. They relied upon the Impugned Letter which was marked for “further guidance” to the Railway Board, Delhi, and moreover, a letter dated 26.12.2022 was issued to Respondent 5 by the Railway Board, Delhi, which the Petitioner had utilised to claim that the cause of action had arisen in Delhi. They also cited the License Agreement, which stated that the arbitration will take place in Delhi which was dated 10.09.2012.

In support of the contention, reliance was placed on the decisions in BGS SGS Soma JV v. NHPS Limited, (2020) 4 SCC 234, Brahmani River Pellets Limited v. Kamachi Industries Limited, (2020) 5 SCC 462 and Inox Renewables Ltd. v. Jayesh Electricals Ltd, 2021 SCC OnLine SC 448.

The Respondent nos. 1 to 5 had submitted that the Petitioners requested directions regarding the operation and management of the Durgapur PFT, which was located outside of Delhi (i.e., in Durgapur). The Petitioner, Respondents 5 and 6 are not based in Delhi. Hence the Respondent nos. 1 to 5 disputed the contention of the Petitioner by arguing that the cause of action couldn’t be said to have arisen in Delhi because the Impugned Letter under the signatures of Respondent no.5 was issued was in Kolkata.

Moreover, the License Agreement dated 19.09.2012 between Respondent nos. 5 and 6 was not executed in Delhi. Furthermore, it was the Kolkata Bench of NCLT that had passed the order dated 12.02.2018, which was being relied upon by the Petitioner in this matter. Finally, all other litigations between the parties, pending or disposed, were before Courts/Tribunals outside Delhi.

They added that Respondent no. 5 is one of the “Zonal Railway” out of numerous “Railway Administrations” that made the decision expressed in the Impugned Letter at Kolkata. The Railway Board in Delhi only received a copy of the Impugned Letter for information; this does not, in any way, imply that Respondent nos. 1 to 4 made the decision. While the Railway Board, Delhi had only suggested that prior authorization letter from the Board of Directors of Respondent no. 6 “may be taken,” they claimed that the communication of letter dated 26.12.2022 did not result in accrual of any cause of action. The arbitration clause in the License Agreement did not further the cause of the Petitioners as no arbitration proceedings had been initiated and the venue remained undecided.

DECISION AND FINDINGS

The Delhi High Court ruled that they lacked Territorial Jurisdiction to entertain the matter. They stated that the letter dated 26.12.2022, sent to Respondent no. 5, was issued by the Railway Board of Delhi upon the receipt of Respondent No. 5’s Impugned Letter, dated 9.12.2022. As a result, it was untenable to assume that Respondents 1 to 4 took the decision that led to the Impugned Letter being sent.

It was further observed that the internal communications between the two departments of Railways cannot be used as a ground to invoke the jurisdiction of the High Court. There is no evidence to suggest that decisions made by zonal offices must be approved by Railways Headquarters in Delhi. It was held that there is no evidence that the letter of Respondent no. 5 was sent on behalf of Respondents nos.1 to 4 or was simply a means of communicating the decision taken by them.

The Delhi High Court further noted that the Petitioner was misleading and just attempting to establish the Delhi High Court’s jurisdiction, which is otherwise not made out, by impleading Respondent nos. 1 to 4 as parties to the case and implying that they made the impugned decision. All the parties reportedly did not reside within the Delhi High Court’s territorial jurisdiction. It was noted that the internal emails sent and received by Respondent no. 5 and the Railway Board have no bearing on determining the territorial jurisdiction of a Writ Court in this case.

The attempt of the Petitioner to invoke the jurisdiction of Delhi High Court by relying on Clause 26.4.1 of the License Agreement was likewise denied. It was observed that the contracts’ jurisdiction clauses would determine the venue for resolving contractual disputes. Yet, it is important to note that party autonomy is the reason why contracting parties are given the option to select a forum of their choosing for resolving legal issues. Thus, the jurisdiction clause in the contract cannot be a guiding factor when a party decides to invoke an extraordinary writ jurisdiction of a Constitutional Court.

Regardless, even in contracts, one cannot confer jurisdiction by way of jurisdiction clauses on a Court that does not have one. It was noted that one of the two competent Courts will enjoy jurisdiction, thus limiting jurisdiction.  Even under Section 26.4.1 of the licence agreement, the High Court did not have jurisdiction since, as has already been demonstrated, it lacked jurisdiction to begin with. The entire argument of the Petitioner on “seat versus venue” was unfounded. Clause 26.4.1 of the License Agreement dated 19.09.2012 was not required to be examined in order to determine whether the Delhi High Court would have jurisdiction. There had been no partial cause of action, much less a material cause of action, within the Delhi High Court’s jurisdiction.

Furthermore, the Court expressly said that they lacked the authority to decide the case in the first place, therefore they were unable to address the issue of whether the High Court is the forum conveniens or not. In this matter, proceedings were already ongoing between the parties before the NCLT and Courts in Kolkata, wherein similar issues, grounds, and prayers had been raised/sought, so it is not the forum conveniens because courts where proceedings have been conducted in the past or where a significant portion of the cause of action had arisen were to be prioritised.

In this regard, it was mentioned that WPA No. 23309/2022, to which the Petitioner and Respondent nos. 5 and 6 were all parties, was still ongoing before the Calcutta High Court. In support of the contention, reliance was placed on the decisions in Amit Kumar & Ors. v. Union of India & Ors. reported as 2016 SCC OnLine Del 3312, Neetu v. Department of Financial Services and Ors 2016 SCC OnLine Del 3549 and Rio Tinto Orissa Mining P. Ltd. v. Mines Tribunal MANU/DE/3435/2014.

The Delhi High Court has extensively analysed the Article 226 of the Constitution of India while drawing from several legal precedents surrounding the subject of the territorial jurisdiction of the High Court to issue writs namely, Oil and Natural Gas Commission v. Utpal Kumar Basu and Others (1994) 4 SCC 711, Kusum Ingots & Alloys Ltd. v. Union of India and Another (2004) 6 SCC 254, Nawal Kishore Sharma v. Union of India and Others (2014) 9 SCC 329, Sterling Agro Industries Ltd. v. Union of India & Ors 2011 SCC OnLine Del 3162, M/s Kwality Caterers v. Union of India 2011 SCC OnLine Del 5503, Money Market Services (India) Private Ltd. v. Union of India MANU/DE/1633/2020, Sachin Hindurao Waze v. Union of India and Others 2022 SCC OnLine Del 3287.

AMLEGALS REMARKS

This judgment by the Delhi High Court is a positive step towards understanding the powers and jurisdiction of Writ Courts while deciding Arbitration Matters. It has also analysed various judicial precedents while answering the question of the territorial jurisdiction of the High Court and the concept of forum convenience.

The Court has quintessentially reiterated that if a Writ Court does not have Territorial Jurisdiction in the conventional sense under Article 226 of the Constitution of India, the parties cannot confer jurisdiction upon them by way of making them seat/venue under the arbitration clause.

– Team AMLEGALS assisted by Ms. Maneesha S (Intern)

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