High Court Doesn't Qualify As Civil Court Under Section 2(1)(e) Of Arbitration Act, Has Jurisdiction Under Section 11(6): Punjab And Haryana High Court

Consequently, the High Court held that it has jurisdiction under Section 11(6) of the Arbitration Act, which grants it authority where the principal Civil Court of original jurisdiction would have the power to address the issues that are subject to arbitration, if those issues were to be considered in a suit.

Brief Facts:

I Care Consultancy (Applicant) filed an application in the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 and sought the appointment of an arbitrator. The Applicant, engaged in the business of recovering vehicles, equipment, products, and assets from defaulting customers on behalf of various finance companies and banks, entered into an agreement with L & T Finance Ltd (Respondent). This agreement stipulated that the Applicant would take possession of vehicles from the Respondent's defaulting customers. The agreement contained an arbitration clause (Clause 14) specifying that disputes between the parties should be resolved through arbitration conducted in accordance with the Arbitration Act. The clause further stated that the venue of arbitration shall be Mumbai.

A dispute arose between the parties which prompted the Applicant to issue a legal notice demanding payment of outstanding dues. The Respondent responded by requesting the applicant to submit the bills which were submitted on September 30, 2022. Despite this, the Respondent did not take any further action. Subsequently, the Applicant issued a notice which requested the Respondent to appoint an arbitrator by mutual consent. When the Respondent failed to resolve the issue or appoint an arbitrator within the stipulated 30-day period, the Applicant approached the court for relief under Section 11(6) of the Arbitration Act.

The Respondent contended that the court lacked the authority to appoint an arbitrator since the agreement specified Mumbai as the venue for arbitration. It argued that the parties had the freedom to select the venue of arbitration, and the venue cannot be overridden by the provisions of the Civil Procedure Code.

The relevant arbitration clause is reproduced below:

“Any dispute and/or difference and/or claim that arises between parties or any of them touching or concerning this Agreement or any condition herein/therein contained or as to the rights, duties or liabilities of parties hereto or any of them either during the continuance of the Agreement or after the completion or termination or purported termination hereof shall be referred to the sole Arbitrator to be appointed by LTF, according to the provisions of Arbitration & Conciliation Act, 1996 and rules thereunder and any amendment thereto from time to time. The Service Provider shall not have any dispute relating to the appointment of such Sole Arbitrator for any reason whatsoever. It is agreed between the parties hereto that nothing contained in Section 17 of Arbitration & Conciliation Act, 1996, shall in any way, affect the right of any of or preclude the parties to/from seek/seeking such interim relief/s in any Court of competent jurisdiction, including interim relief u/s 9 of the Arbitration & Conciliation Act, 1996, and the rules framed thereunder. The decision of the Arbitrator whether on questions of law or of fact shall be final and binding on the parties. The venue of arbitration shall be Mumbai or such other place that LTF may at its sole discretion determine and courts in Mumbai or such other place shall have exclusive jurisdiction.”

Observations by the High Court:

The High Court considered the definition of 'Court' under Section 2(1)(e) of the Arbitration Act. This section defines 'Court' to include the principal Civil Court of original jurisdiction and the High Court, which, in its ordinary original civil jurisdiction, could decide matters that would have been the subject of a suit. The High Court noted that it does not possess ordinary original civil jurisdiction over such matters, as all civil suits within its territorial jurisdiction are filed before the District Court. Consequently, the High Court held that it does not fall within the definition of 'Court' under Section 2(1)(e) of the Arbitration Act. Therefore, it cannot entertain civil suits or arbitration matters on its original side.

The High Court further examined Section 42 of the Arbitration Act, which stipulates that if an application under Part I of the Arbitration Act is made to a particular court concerning an arbitration agreement, that court alone will have jurisdiction over all subsequent applications related to that agreement and arbitration proceedings. Since the High Court does not fit the definition of 'Court' under Section 2(1)(e), it held that it would not have jurisdiction under Section 42 for matters arising from an arbitration agreement. Additionally, it noted that Section 42 does not apply to applications under Section 11(6) of the Arbitration Act which must be made before a High Court.

Turning to the determination of the place of arbitration, the High Court interpreted Sections 20 and 31(4) of the Arbitration Act. Section 20 allows parties to agree on the place of arbitration. If they do not agree, the arbitral tribunal determines the place of arbitration considering the circumstances of the case. The High Court held that the place of arbitration is decided by the parties or, in their absence, by the tribunal. If an arbitrator is appointed by a High Court or in another manner, the tribunal may set the place of arbitration beyond the jurisdiction of the appointing court if it is more convenient for the parties.

Section 11 of the Arbitration Act details the procedure for appointing an arbitral tribunal. Sub-sections (4), (5), and (6) outline the High Court's role in appointing arbitrators when there is no agreed procedure or when parties fail to appoint or agree on an arbitrator. In such cases, the High Court intervenes to ensure the appointment of an arbitral tribunal.

The High Court referred to Brahmani River Pellets Ltd. v. Kamachi Industries Ltd. where the Supreme Court held that the Madras High Court could not exercise jurisdiction under Section 11(6) if the arbitration agreement specified Bhubaneshwar as the venue. Similarly, in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., it was held that determining the 'seat' of arbitration in the agreement ousts the jurisdiction of other courts. These judgments were based on the Constitution Bench decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO), which clarified the distinction between 'seat' and 'venue' of arbitration and the jurisdictional implications.

The High Court held that Section 2(1)(e) was amended in 2015 to explicitly exclude international commercial arbitration from its ambit. According to Section 2(2) of the Arbitration Act, Part I applies only when the place of arbitration is in India. For international commercial arbitrations, the jurisdiction is based on the location of the arbitration and the subject matter of the dispute. The High Court held that jurisdiction is determined by the location of the arbitration and the nature of the dispute.

The High Court noted that it possesses jurisdiction to entertain an application under Section 11(6) of the Arbitration Act. This conclusion arose from the fact that the Court does not fall within the definition of a Civil Court as specified in Section 2(1)(e) of the Arbitration Act. As such, the jurisdiction for this Court is derived from the provisions of Section 11(6), which allow it to act where the principal Civil Court of original jurisdiction would have the authority to resolve issues forming the subject matter of arbitration.

The core of the dispute revolved around the venue of arbitration. The Respondent contended that, according to the arbitration agreement, Mumbai has exclusive jurisdiction. However, based on the judgment of the Supreme Court in the case of BALCO, the High Court held that both the Civil Court at Karnal and Mumbai possess jurisdiction in terms of Section 2(1)(e) read with Section 20 of the Arbitration Act.

Additionally, Clause 14 of the arbitration agreement indicated that the venue of arbitration could be either Mumbai or another location determined by the Respondent. This clause implied that Mumbai is not necessarily the exclusive venue for arbitration. The High Court held that this interpretation aligned with a previous decision by a Coordinate Bench of the High Court in the case of M/s Green Global Energy Vs. G.R. Infra Projects Ltd., where the Court ruled that despite an agreement stipulating exclusive jurisdiction in Udaipur, jurisdiction could still be exercised elsewhere.

Given these findings, the High Court held that it has jurisdiction to entertain the application under Section 11(6) of the Arbitration.

Consequently, the petition was granted. S.P. Singh, a retired District & Sessions Judge, was appointed as the sole Arbitrator to adjudicate the dispute between the parties.

Case Title: M/S I Care Consultancy Vs L & T Finance Ltd And Ors

Case Number: ARB-57-2023

Advocate for the Applicant: Ms. Shairon Tyagi, Advocate for Mr. Kartik Yadav, Advocate for the applicant.

Advocate for the Respondent: Mr. Gaurav Sharma, Advocate for the respondents.

Date of Judgment: 06.08.2024

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