High Courts Without Original Civil Jurisdiction Require Commercial Division For International Arbitration: Karnataka High Court

The Bench, consisting of Chief Justice Ritu Raj Awasthi and Justice Suraj Govindaraj, held that though Section 4 of the Commercial Courts Act, 2015 provides for the establishment of a Commercial Division in the High Court that exercises an Ordinary Original Civil Jurisdiction, it does not bar the establishment of a Commercial Division in a High Court that does not exercise the said jurisdiction.

A dispute had arisen out of a Technology Collaboration Agreement (TCA) executed between the appellant ITI Limited and the 1^st respondent Alphion Corporation. The dispute was referred for arbitration and an arbitral award was passed. The appellant filed a commercial appeal under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Karnataka High Court challenging the arbitral award.

Upon filing of the said appeal under Section 34 of the A&C Act, the registry raised an objection that a Commercial Appeal (COMAP) was not maintainable.

The appellant thereafter filed a memo stating that the Commercial Division of the Karnataka High Court would have the jurisdiction to hear the challenge against the arbitral award passed in an International Commercial Dispute.

The appellant ITI Limited submitted before the High Court that the proceedings under Section 34 of the A&C Act should be heard by a Single Bench since the appellant would otherwise lose the forum of an appeal under Section 37 of the A&C Act.

The appellant averred that the dispute between the parties was a commercial dispute in terms of Section 2 of the Commercial Courts Act, 2015 and the value of the said dispute was more than the specified value of Rs. 3 Lakhs. The appellant added that the arbitral proceedings conducted between the parties was an International Commercial Arbitration since the respondent no.1/claimant company is registered in the United States. The appellant submitted that as per the Arbitration Clause, the seat of the arbitration was in Bangalore, India.

The appellant added that as per the provisions of Section 10(1) of the Commercial Courts Act, the Commercial Division of the High Court would have the jurisdiction to decide the applications or appeals arising out of an International Commercial Arbitration. The appellant averred that though a Commercial Appellate Division had been established by the High Court of Karnataka, a Commercial Division was not yet constituted and established.

The appellant submitted that the jurisdiction of the Commercial Appellate Division of a High Court is restricted to the proceedings under Section 37 of the A&C Act. The appellant added that after the enforcement of the Commercial Courts Act, no separate classification exists with respect to an International Commercial Arbitration in regard to the proceedings initiated under Section 34 of the A&C Act.

The appellant added that it was left with no classification under which it could institute proceedings under Section 34 of the A&C Act with the Commercial Division of the High Court.

The appellant averred that the registry had classified the appellant's appeal under Section 34 of the A&C Act as a Commercial Appeal (COMAP), which lies before the Division Bench of the High Court. Thus, the appellant contended that since no intra court appeal is available against the judgement of the Division Bench of the Karnataka High Court rendered in a Commercial Appeal (COMAP), the appellant would not be able to take the benefit of an appeal provided under Section 37 of the A&C Act against an order passed in an application under Section 34 of the A&C Act.

The Court observed that the arbitration between the parties was held in India and the venue as well as the seat of arbitration was in Bangalore. Thus, the Court held that the High Court would have the jurisdiction to entertain the challenge made to the said International Commercial Arbitral Award.

The Court noted that as per the provisions of Section 2(e)(ii) of the A&C Act, with respect to an International Commercial Arbitration, the term 'Court' means the High Court exercising its Ordinary Original Civil Jurisdiction and having the jurisdiction to decide the questions forming the subject-matter of the arbitration. The Court noted that in all other cases, the term 'Court' under Section 2(e)(ii) would mean the High Court having the jurisdiction to hear appeals from decrees of subordinate courts.

The Court held that since the High Court of Karnataka does not exercise Ordinary Original Civil Jurisdiction, therefore, the later portion of Section 2(e)(ii) would be attracted and the Roaster Judge of the Karnataka High Court, having jurisdiction to hear appeals from decrees of subordinate Courts, would have the jurisdiction to consider any aspect relating to the International Commercial Arbitration.

The High Court added that in an International Commercial Arbitration, only the High Court can exercise jurisdiction and not the District Court or a Commercial Court constituted under the Commercial Courts Act.

The Court noted that Section 4 of the Commercial Courts Act provides that a Commercial Division is required to be constituted in all High Courts exercising Ordinary Original Civil Jurisdiction.

The Court observed that as per the provisions of the Commercial Courts Act, if a Commercial Court is created at a level below that of a District Judge, the commercial proceedings must be initiated and filed before the said Commercial Court, against whose order the appeal would lie to the District Court exercising appellate Jurisdiction. Similarly, the Court noted that where a Commercial Court is created at the level of a District Judge, the initial filing would be made before the said Commercial Court and an appeal against the order would lie before the Commercial Appellate Division of the High Court.

The Court added that with respect to a High Court exercises Ordinary Original Civil Jurisdiction, the initial filing would be required to be made before the Commercial Division of a Single Judge of the High Court. The Court ruled that an appeal against the order of the Single Judge shall lie before the Commercial Appellate Division of the said High Court, consisting of a Division Bench.

The Court observed that Section 10(1) of the Commercial Courts Act provides that where a Commercial Division is constituted in the High Court, the said Commercial Division would have the jurisdiction to decide the applications or appeals arising out of an International Commercial Arbitration.

However, the Court added that Section 10 of the Commercial Courts Act does not contain any provision with respect to a situation where a Commercial Division has not been constituted in the High Court. Also, the Court noted that Section 4 of the Commercial Courts Act, or any other provision of the Commercial Courts Act, does not provide for the constitution of a Commercial Division by the High Court not having an Ordinary Original Civil Jurisdiction.

The Court noted that since the High Court of Karnataka does not exercise Ordinary Original Civil Jurisdiction thus no Commercial Division has been established. However, the Court added that a Commercial Appellate Jurisdiction has been established in the Karnataka High Court under Section 5 of the Commercial Courts Act. The Court observed that it is because of the said reason that all challenges made to an International Commercial Arbitral Award were being posted before the Division Bench of the Karnataka High Court, which is exercising the jurisdiction of a Commercial Appellate Division. Thus, the Court noted that the said proceedings had been classified as a Commercial Appeal (COMAP) since they lie before the Division Bench of the Karnataka High Court which is exercising the powers of a Commercial Appellate Division.

Therefore, the Court observed that the applications under Section 34 of the A&C Act, challenging the International Commercial Arbitral Award, were being heard and disposed of by a Division Bench.

The Court noted that Section 37 of the A&C Act provides that an appeal shall lie from an order, setting aside or refusing to set aside an arbitral award under Section 34 of the A&C Act, to the Court authorised to hear appeals from the original decrees of the Court who has passed the said order.

The Court added that a Single Judge of the Karnataka High Court is authorised to hear appeals from original decrees upto a pecuniary limit of Rs. 15 Lakhs and that a Division Bench of the Karnataka High Court is authorised to hear appeals from original decrees if the pecuniary value is beyond Rs. 15 Lakhs.

Thus, the Court ruled that consequentially an anomaly was created since the order passed by the Division Bench of the Commercial Appellate Division of the High Court under Section 34 of the A&C Act would have to be challenged before a Single Judge of the High Court, if the pecuniary value was less than 15 lakhs, or before a Division Bench of the High Court, if the pecuniary value was more than Rs. 15 Lakhs. The Court held that this was completely illogical.

Therefore, the High Court held that if the challenge to an International Commercial Arbitral Award is required to be considered by the Commercial Appellate Division consisting of a Division Bench of the Karnataka High Court, the provisions of Section 37 of the A&C Act would get frustrated.

The Court thus noted that though Section 4 of the Commercial Courts Act provides for the establishment of a Commercial Division in the High Court exercising Ordinary Original Civil Jurisdiction, it does not bar the establishment of a Commercial Division in a High Court that does not exercise Ordinary Original Civil Jurisdiction. The Court added that Section 10 of the Commercial Courts Act, that provides for filing an application or an appeal with respect to an International Commercial Arbitration before the Commercial Division of the High Court, does not distinguish between a High Court that exercises Ordinary Original Civil Jurisdiction from a High Court that does not exercise the said jurisdiction.

Thus, the Court held that even with respect to a High Court not exercising Ordinary Original Civil Jurisdiction, a Commercial Division is required to be established for the purpose of considering applications and appeals arising out of an International Commercial Arbitration. The Court added that the said Commercial Division must comprise of a Single Judge.

The Court thus ruled that any application or appeal in respect of an International Commercial Arbitration would be filed before the Commercial Division of the Karnataka High Court and any appeal against the order passed by the said Commercial Division would lie before the Commercial Appellate Division of the High Court, as constituted under Section 5 of the Commercial Courts Act. The Court added that consequently the parties would not be deprived of the statutory appellate remedy available to them under Section 37 of the AC Act.

The Court held that the bifurcation of appeals between the Single Bench and the Division Bench of the High Court, on the basis of pecuniary value of Rs. 15 Lakhs and below or Rs. 15 Lakhs and above respectively, would not apply to a Commercial Division.

The Court thus ruled that an application, appeal or a petition arising out of an International Commercial Arbitration would have to be placed before the Commercial Division of a Single Judge Bench of the Karnataka High Court. The Court added that an appeal against an order setting aside or refusing to set aside an International Commercial Arbitral Award under Section 34 of the A&C Act, and an appeal against an order granting or refusing to grant any interim measure under Section 9 of the A&C Act, would lie before the Commercial Appellate Division of the High Court.

Thus, the Court held that a challenge to an International Commercial Arbitral Award would have to be considered by a Commercial Division of the Karnataka High Court consisting of a Single Judge. The Court added that since the Commercial Divisions are constituted as a special Division, the ordinary limitation of the pecuniary jurisdiction would not apply and the pecuniary jurisdiction of the said Commercial Divisions would be unlimited.

The Court ruled that a fresh classification was required to be made with respect to the proceedings under Section 34 of the A&C Act challenging the International Commercial Arbitral Award. The Court added that any proceedings seeking the execution of an International Commercial Arbitral Award or seeking an interim relief in respect of an International Commercial Arbitration would also lie within the jurisdiction of the Commercial Division comprising of a Single Judge.

Thus, the High Court directed that the proceedings pending before the Commercial Appellate Division were to be reclassified and transferred to the Commercial Division of the Karnataka High Court, comprising of a Single Judge.

Case Title: ITI Limited versus Alphion Corporation & Anr.

Citation: 2022 LiveLaw (Kar) 183

Dated: 16.02.2022 (Karnataka High Court)

Counsel for the Appellant: Mr. Raghuram Cadambi, Ms. Varsha Hittihalli and Mr. Shyam Harindra, Advocates

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