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Jurisdiction Of Courts In Arbitration Cases Where Place Of Arbitration Not Agreed Upon By Parties

Shambhu Sharan
3 Aug 2020 2:35 PM GMT
Jurisdiction Of Courts In Arbitration Cases Where Place Of Arbitration Not Agreed Upon By Parties
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In the recent trend of Judgments by various Courts in India, the autonomy of parties to decide about the seat/place of Arbitration have been upheld and they can even choose a neutral seat which has no connection with the cause of action. In such cases, it has been held that the court of such places would have exclusive jurisdiction over the matter.

In the case of Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited, (2017) 7 SCC 678, the arbitration agreement provided that the seat of the arbitration shall be at Mumbai. The agreement also provided for exclusive jurisdiction of Mumbai Courts. An application for appointment of an arbitrator was filed before Delhi High Court on the ground that part of the cause of action arose at Delhi and, therefore, the clause providing for seat of arbitration at Mumbai was not valid.

The Supreme Court held that Section 20 of the Arbitration and Conciliation Act 1996 (The Act) recognizes autonomy of the parties to choose a neutral seat of arbitration where no part of the cause of action arose. The Supreme Court further held that once the seat is determined, the Court of that place would have exclusive jurisdiction to regulate the arbitration proceedings arising out of the agreement between the parties. The Supreme Court also held that the neutral seat chosen by the parties may not have jurisdiction under any of the provisions of Section 16 to 21 of Code of Civil Procedure but still that court would have jurisdiction by virtue of seat of Arbitration chosen by parties. The Supreme Court held that Mumbai Courts alone had exclusive jurisdiction, as Mumbai was the seat of arbitration.

So the above settled position would apply in the set of cases where parties have chosen the seat of Arbitration. However, one needs to analyse as to which court would have jurisdiction where the Arbitration clause is silent about the seat of Arbitration. We often come across Arbitration clauses which are silent about the seat of Arbitration but yet confers exclusive jurisdiction to a place which otherwise has no connection with the matter. So the question that arises for consideration is whether such a clause which is silent about seat of Arbitration but yet confers exclusive jurisdiction to a court where no part of cause of action has arisen would be a valid Arbitration Clause or not.

In order to understand the above issue, one would have to take into consideration these provisions of The Act:-

Section 2(1)(e) of The Act defines "Court".

Court means 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

Section 20 of The Act defines "Place of Arbitration".

Place of arbitration.-

(1) The parties are free to agree on the place of arbitration.

(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the Arbitral Tribunal having regard to the circumstances of the case, including the convenience of the parties.

(3) Notwithstanding sub-section (1) or sub-section (2), the Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witness, experts or the parties, or for inspection of documents, goods or other property.

Section 31(4) of The Act provides that the arbitral award shall state its date and place of arbitration as determined in accordance with Section 20.

Section 31(4) of The Act is reproduced hereunder:-

Form and contents of arbitral award. –

(1)…………………………………………………………………

(2)…………………………………………………………………

(3)…………………………………………………………………

(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with Section 20 and the award shall be deemed to have been made at that place.

From the reading of the above provisions of The Act, it is evident that parties to the contract have been given the autonomy to choose a place of Arbitration in terms of section 20 (1) and this was the basis on which the Hon'ble Supreme Court in the case of Indus Mobile upheld the choice of parties to decide the place of Arbitration. However in case where there is no agreement between the parties, in terms of Section 20, it is the Arbitral Tribunal which decides the place of Arbitration having regard to the circumstances of the case, including the convenience of the parties. The question which arises for consideration is can parties without choosing the place of Arbitration confer jurisdiction to a court which otherwise does not have jurisdiction over the matter. In my considered view such clauses cannot be given effect to. It would be one thing to say that parties in terms of Section 20 have chosen a place of Arbitration and courtesy such choice, the court of such place would have exclusive jurisdiction but it would be completely against the law if parties without choosing the place of Arbitration confers jurisdiction to a place which has no connection with the cause of action or with the parties. The principles enshrined under section 16 to 20 of the Civil Procedure Code would come into play in such a situation and the Courts within whose jurisdiction part of cause of action have arisen or the Defendant carries out its business would have jurisdiction over the matter.

Even Section 2 (1)(e) of The Act recognises this principle and highlights that the court would mean a court having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit.

In fact recently the Delhi High Court in the case of Aarka Sports Management Pvt. Ltd Vs. Kalsi Buildcon Pvt. Ltd (ARB.P. 662/2019) decided on 06th July 2020 had faced with similar question. An application for appointment of arbitrator was filed by the Petitioner under Section 11 of The Act before the Delhi High Court. Under the Arbitration Clause exclusive jurisdiction was conferred upon the Courts at Delhi but the agreement was silent about the choice of parties about the seat of arbitration. The Respondent disputed the jurisdiction of the Delhi High Court to entertain the said petition. According to the respondent, Delhi was neither the seat of arbitration nor any cause of action arose at Delhi. The agreement was drawn at Ranchi; the agreement was signed at Lucknow and the place of performance/execution of the agreement was Patna, Bihar.

In the said case, it was held that if the parties have not agreed on the seat of the arbitration, the Court competent to entertain an application under Section 11 of The Act would be the "Court" as defined in Section 2(1) (e) of the Act read with Sections 16 to 20 of the Code of Civil Procedure.

Therefore where parties have not agreed for the seat of Arbitration, it cannot confer jurisdiction to a place where no part of cause of action has arisen or has no nexus with the parties.

Shambhu Sharan is the partner at Singhania & Partners. Views are personal.

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