Parties Can Deviate From Terms Of Jurisdiction Under The Arbitration Clause Only Once: Madras High Court
The Madras High Court has ruled that the parties have got the liberty to deviate from the terms with respect to the jurisdiction, as contained in the Arbitration Clause; however, the number of such deviations is limited to only one. The Single Bench of Justice R.N. Manjula held that waiver of the jurisdiction clause contained in the arbitration agreement can be presumed from the...
The Madras High Court has ruled that the parties have got the liberty to deviate from the terms with respect to the jurisdiction, as contained in the Arbitration Clause; however, the number of such deviations is limited to only one.
The Single Bench of Justice R.N. Manjula held that waiver of the jurisdiction clause contained in the arbitration agreement can be presumed from the conduct of the parties. The Court added that if the parties have waived the earlier agreement on jurisdiction and have substituted a new jurisdiction by conduct, then, in view of Section 42 of the Arbitration and Conciliation Act, 1996 (A&C Act), the parties cannot make any further diversions with respect to the jurisdiction.
The petitioner Andal Dorairaj and the respondent- M/s. Hanudev Info Park P. Ltd., entered into a Joint Development Agreement. After certain disputes arose between the parties, the petitioner invoked the arbitration clause and filed an application under Section 11(6) of the A&C Act, seeking appointment of an Arbitrator before the Madras High Court. Since the Sole Arbitrator appointed by the High Court failed to complete the proceedings within the stipulated time, his mandate got terminated; thus, the respondents filed an application for appointment of a new Arbitrator under Section 11 of the A&C Act before the Madras High Court. Accordingly, an Arbitrator was appointed by the High Court.
Subsequently, the respondent filed another petition before the Madras High Court to terminate the mandate of the Arbitrator and to appoint a new Arbitrator, which was allowed by the Court and a Sole Arbitrator was appointed.
Thereafter, the respondent filed a preliminary objection before the Arbitral Tribunal disputing its jurisdiction, which was rejected by the Arbitrator. Against this, the respondents filed an appeal under Section 37 of the A&C Act before the Madras High Court, which was dismissed by the Court.
Consequently, an arbitral award was passed by the Sole Arbitrator. The respondent challenged the arbitral award by filing an application under Section 34 of the A&C Act, before the Principal District Court, Coimbatore. The petitioner filed a memo questioning the jurisdiction of the District Court at Coimbatore to entertain the application.
Thereafter, the petitioner filed a revision petition before the Madras High Court to strike off the petitions under Section 34 of the A&C Act on the file of the Principal District Court, Coimbatore.
The petitioner Andal Dorairaj submitted before the High Court that though as per the arbitration clause, the venue of arbitration was at Coimbatore, however, the parties, by their subsequent conduct, had waived their preference to have Coimbatore as the venue of arbitration.
The petitioner argued that it had filed an application for appointment of Arbitrator before the Madras High Court. The petitioner added that the respondent had also chosen to file the petitions under the A&C Act before the Madras High Court, including an appeal under Section 37 against the order of the Arbitrator dismissing the respondent's preliminary objection disputing the jurisdiction of the Arbitral Tribunal.
Thus, the petitioner averred that since the parties had subjected themselves to the jurisdiction of Chennai, and the respondent had waived the agreement with respect to the venue of arbitration being in Coimbatore, hence, the application under Section 34 challenging the arbitral award was not maintainable before the District Court at Coimbatore.
The petitioner, referring to Section 42 of the A&C Act, argued that since the arbitral proceedings were held at Chennai and all the applications under the A&C Act were filed before the Madras High Court, hence, the respondents were estopped from filing the application under Section 34 of the A&C Act before any Court other than the Courts at Chennai.
Section 42 of the A&C Act provides that where any application under Part I of the A&C Act has been made before the Court which has the jurisdiction over the arbitral proceedings, that 'Court' alone would have the jurisdiction to deal with the subsequent applications arising out of the same agreement.
To this, the respondent- M/s. Hanudev Info Park P. Ltd., contended that the petition filed by it under Section 34 of the A&C Act against the arbitral award was maintainable before the District Court at Coimbatore, since the Courts at Coimbatore alone had the supervisory jurisdiction over the arbitral proceedings.
The Court noticed that after the mandate of the Sole Arbitrator, initially appointed by the High Court, got terminated when it failed to complete the proceedings within the stipulated time, the respondent filed a petition under Section 11 of the A&C Act before the Madras High Court seeking appointment of a new Arbitrator. While noting that though the said petition was alleged to have been filed under Section 11 of the A&C Act, the Court ruled that the said petition ought to have been filed under Section 14 (2) of the A&C Act.
Observing that in view of Section 14(2) of the A&C Act, it is obligatory for the parties to file any petition seeking to terminate the mandate of an Arbitrator before the 'Court', as defined in Section 2 (1)(e) of the A&C Act, the Court added that since the parties had agreed that the place of arbitration would be at Coimbatore, hence, the word 'Court' under Section 2 (1)(e) of the A&C Act would only refer to the Principal District Court at Coimbatore.
The Court accepted the contention of the petitioner that the Court referred to under Section 14(2) of the A&C Act would only mean the Principal District Court at Coimbatore and hence, the respondents by initiating proceedings under the A&C Act seeking termination of the mandate of the Arbitrator before the Madras High Court instead of the Courts in Coimbatore, had waived the jurisdiction of the Courts at Coimbatore.
Further, the Bench observed that the respondents had filed a preliminary objection before the Arbitral Tribunal disputing its jurisdiction, which was rejected by the Arbitral Tribunal, and against this the respondent had filed an appeal under Section 37 of the A&C Act before the Madras High Court. While ruling that the Principal District Court at Coimbatore was also an authorised Court to hear the appeal under Section 37 against the order passed by the Arbitral Tribunal of rejecting the respondent's preliminary objection, the Court observed that the respondents, however, chose to invoke the jurisdiction of the Madras High Court and not the jurisdiction of the Principal District Court at Coimbatore.
"As stated already, as per Section 14(2) of the Act, the controversy with regard to the termination of the mandate of the arbitrator has to be settled by way of filing an application before the Court having jurisdiction and not by way of filing any appeal. However, the respondents have filed applications twice and also an appeal one under Section 37 of the Act before the High Court of Madras and hence by their conduct they had chosen to waive the reservation made with regard to the jurisdiction of Coimbatore.", the Court said.
While ruling that if the parties have chosen to deviate from the terms of the agreement, the said terms would be waived by conduct, the Court held that the parties cannot later insist on compliance with the jurisdiction clause contained in the arbitration agreement if they have chosen not to object during the earlier instances when the jurisdiction clause was waived.
"The revision petitioners and the respondents did not comply to the requirement of Clause 18 of the Joint Development Agreement, so far it relates to both place and jurisdiction and they continued to file applications and appeal before the High Court of Madras. Thus they substituted an implied new term on jurisdiction between themselves by their own conduct. The parties who have subjected themselves to a new jurisdiction by waiving the earlier agreement about jurisdiction can have no more diversions, in view of Section 42 of the Act."
While holding that the liberty of the parties to deviate from the terms on jurisdiction is limited to only one, the Court ruled that since the respondents had subjected themselves to the jurisdiction of the Courts in Chennai by their own conduct, the application under Section 34 of the A&C Act against the arbitral award ought to have been filed only before the Courts at Chennai and not at Coimbatore.
Thus, the Court allowed the revision petition and directed the Principal District Court, Coimbatore to return the petition filed by the respondent under Section 34 so as to be presented before the appropriate Court.
Case Title: Andal Dorairaj & Ors. versus M/s. Rithwik Infor Park Pvt. Ltd. & Ors.
Dated: 02.09.2022 (Madras High Court)
Citation: 2022 LiveLaw (Mad) 398
Counsel for the Petitioners: Mr. M.S. Krishnan, Senior Advocate for Mr. K.S. Karthik Raja; Mr. Ar. L. Sundaresan, Senior Advocate for Mr. Sundara Kadeswaran; Mr. K.S. Karthik Raja
Counsel for the Respondents: Mr. N. Sridhar for R. Bharath Kumar