Supreme Court: An application under Section 11(6) of the Arbitration Act would lie before the ‘High Court’ which exercises supervisory jurisdiction over a ‘Court’ within the meaning of Section 2 (1) (e) of the Arbitration Act
Ravi Ranjan Developers Pvt. Ltd. v. Aditya Kumar Chatterjee
The Supreme Court determined whether Kolkata would be the ‘seat’ of arbitration when the arbitration clause provided that “…the sitting of the said Arbitral Tribunal shall be at Kolkata” and admittedly, no part of the cause of action arose at Kolkata.
Ravi Ranjan Developers Pvt. Ltd. (Appellant) and Aditya Kumar Chatterjee (Respondent) entered into a Development Agreement (Agreement) to develop a property situated in Muzaffarpur, Bihar (Property). Differences arose between the parties and consequently, the Respondent terminated the Agreement. On August 17, 2019, the Respondent filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (Act) before the District Court of Muzaffarpur (Muzaffarpur District Court) seeking interim protection of the Property (Section 9 Application). Thereafter, the Respondent invoked the arbitration clause in the Agreement and addressed a notice to Appellant’s registered office at Patna, Bihar.
On January 15, 2021, the Respondent filed an application under Section 11 (6) of the Act, before the Calcutta High Court (Calcutta HC) seeking court assistance to constitute the tribunal (Section 11 Application). The Appellant challenged the jurisdiction of the Calcutta HC. The Respondent submitted that although the place of execution of the Agreement and the location of the Property were both outside the jurisdiction of the Calcutta HC, the Calcutta HC derived its jurisdiction from the arbitration clause. By an Order dated August 13, 2018, the Calcutta HC allowed the Section 11 Application and appointed a sole Arbitrator (Order 1). Order 1 did not decide upon the issue of territorial jurisdiction and purportedly the counsel for the Appellant consented to the appointment without instructions from the Appellant.
While the Appellant filed for a review application against Order 1, by an Order dated 4 October 2021, the review petition was dismissed since the Appellant’s counsel had consented to the appointment of the arbitrator (“Order 2”). On the same day, the arbitrator passed an interim order restraining the Appellant from creating any third-party interest in the Property. Aggrieved by Order 1 and Order 2, the Appellant preferred a special leave petition before the Supreme Court.
Submission and Findings
Parties cannot confer jurisdiction by consent upon a court that inherently lacks jurisdiction
An application under Section 11 (6) of the Act ought to be filed before the High Court which exercises supervisory jurisdiction and not “any” High Court
Section 42 would not be applicable if the court where the first application was instituted inherently lacked jurisdiction
Venue cannot be equated with seat of arbitration
Conclusion and Analysis
The Supreme Court dismissed the appointment of the sole arbitrator by the Calcutta HC as the appointment was without jurisdiction. With the consent of parties, the Supreme Court appointed a fresh arbitrator to decide upon the disputes. The apex court directed parties to maintain status quo with respect to the Property for two weeks to allow the parties to approach the arbitrator for interim relief.
Route Section 11 Applications through Section 2 (1) (e) of the Act
In the above backdrop, an application under Section 11(6) would now have to be made before the High Court which exercises supervisory jurisdiction over the ‘Court’ within the meaning of Section 2 (1) (e) of the Act. Assuming the arbitration clause designated the ‘seat’ of arbitration, the same would be rendered irrelevant for the purpose of identifying the appropriate high court that will have jurisdiction under section 11 (6) if the High Court within the jurisdiction of the designated seat did not have inherent jurisdiction. By doing so, seemingly the Supreme Court has ruled that parties can no longer designate a neutral ‘seat’ of arbitration, where absolutely no cause of action has arisen, or which does not fit within the ambit of section 2(1)(e). Consequently, party autonomy, the very foundation of arbitration, would run the risk of being diluted.
The Supreme Court observed that when two or more courts have jurisdiction to adjudicate upon disputes arising out of an arbitration agreement, parties may agree to refer all disputes to any one court which might otherwise have had jurisdiction the decide the disputes. However, the Supreme Court conditioned this finding by adding that parties cannot by consent confer jurisdiction on a court which inherently lacked jurisdiction. Therefore, it remains to be seen whether the Supreme Court has implied that – in context of domestic arbitrations (arbitrations other than international commercial arbitrations), parties cannot designate the “seat” of arbitration when there is no territorial, pecuniary or subject matter jurisdiction arising from the proposed seat.
Diverging from Indus Mobile
Contrastingly, in Indus Mobile, the Supreme Court applied the concept of ‘juridical seat’ in a domestic arbitration and ruled that once the seat of arbitration is designated under a contract, it is akin to an exclusive jurisdiction clause. Moreover, the apex court 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.” Therefore, it remains to be seen if the findings in Indus Mobile will no longer hold ground. Although the Supreme Court addressed Indus Mobile in the present decision, it did so from a different perspective.
The potential confusion stemming from the present judgment seems to be brewing already. Recently, in Sikka Motors Pvt Ltd., in an application under Section 9 of the Act before the Delhi High Court, the court determined whether it would have jurisdiction when the arbitration clause provided that the venue was Chennai and the courts at Chennai had exclusive jurisdiction. While the respondent contended that the courts at Delhi lacked jurisdiction, the petitioner relied upon Ravi Ranjan. Although Sikka Motors did not detail the petitioner’s contentions vis-à-vis Ravi Ranjan, in any event, the Delhi High Court ruled out its applicability since the clause provided for “sitting” of the tribunal at Kolkata and did not even provide for “exclusive jurisdiction”. The court continued to apply Indus Mobile and held that even if no cause of action arose in Chennai, it can be concluded that the courts at Chennai have exclusive jurisdiction.
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