Arbitration Clause Is Not Void U/S 29 Of Contact Act, For Stipulating Multiple Choices Of Seats; Delhi High Court Allows Section 11 Petition

Brief Facts:

The matter pertained to a Purchase Order between Vedanta Limited (“Petitioner”) and Shreeji Shipping (“Respondent”) for the transportation of coal from Kandla Port to Bhachau Plant and Bedi Port to Khambalia Plant, along with the execution of Standard Terms and Conditions for Transport Agreement appended to the Purchase Order. The Petitioner invoked the Arbitration Clause due to shortfalls in transported amounts and disputes arising from the Contract. The Petitioner filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for appointment of arbitrator in the Delhi High Court (“High Court”).

The Respondent contested the existence of an arbitration agreement, claiming the Purchase Order was never accepted by the Respondent. It emphasized that it commenced handling and delivery of coal upon the arrival of the first vessel within the time frame specified in the Purchase Order but without signing it. It argued that the arbitration clause included in the Purchase Order's Standard Terms and Conditions was not agreed to by the Respondent.

The Respondent asserted that the services were provided based on a Letter of Intent (LoI) dated 17.06.2021, which was to be converted into a formal Purchase Order. It pointed out that Clause 14.10 of the Appendix stated that the Purchase Order would be valid and binding only upon signature by both parties, which never occurred. It also challenged the jurisdiction of the arbitration agreement, contending that Clause 10.1(ii) specifying the seat of arbitration was void under Section 29 of the Indian Contract Act, 1872. It argued that for the application of Section 20 of the Civil Procedure Code to determine jurisdiction, asserting that the courts in Gujarat, where the cause of action arose, should have jurisdiction.

The Petitioner argued that the Purchase Order was issued via email and that mediation proceedings were initiated by sending a mediation notice to the Respondent, in accordance with the arbitration agreement. It highlighted that the Respondent's invoices referenced the Purchase Order, indicating a clear acknowledgment of the Contract and the arbitration agreement therein.

Relevant portion of the arbitration clause is reproduced below:

(ii) The language of the mediation and arbitration proceedings shall be English. The seat of arbitration shall be [Local Jurisdiction in Goa / Local Jurisdiction Karnataka /Delhi], India.

Observations by the High Court:

The High Court noted that in Section 11 petition the courts' role is limited to ascertain the prima facie existence of an arbitration agreement rather than delving into the merits of the case. It noted that the Purchase Order, albeit denied by the Respondent, was sent via email by the Petitioner to the Respondent, with the Respondent's email address clearly stated. Additionally, it held that the Respondent's invoices referenced the Purchase Order, indicating a clear acknowledgment of the Contract and the arbitration agreement therein. Therefore, it held that there was an arbitration agreement under Section 7 of the Arbitration Act which existed between the parties.

Regarding the applicability of Section 29 of the Indian Contract Act, 1872, the High Court held that it was not related to the arbitration clause in the present case. Section 29 declares agreements uncertain in meaning or incapable of being made certain as void. However, the High Court held that the arbitration clause in question clearly stipulated that the seat of arbitration could be Goa, Karnataka, or Delhi, offering a choice to the parties. The High Court found no ambiguity in the clause, as it provided clear options for jurisdiction, thereby not falling under the purview of Section 29.

The High Court referred to the decision of the Supreme Court in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., [(2017) 7 SCC 678], and held that designating the seat of arbitration is akin to an exclusive jurisdiction clause. It clarified that once the seat is determined, it vests exclusive jurisdiction with the courts of that seat for regulating arbitral proceedings arising from the agreement between the parties. Hence, considering that the arbitration clause specified three potential seats, the High Court upheld its jurisdiction to entertain and decide the Section 11 petition.

Consequently, the High Court allowed the petition and appointed Mr. Abhijat as a sole arbitrator to adjudicate the dispute between the parties.

Case Title: Vedanta Limited vs Shreeji Shipping

Citation: 2024 LiveLaw (Del) 171

Case Number: ARB.P. 342/2023

Advocate for the Petitioner: Mr. Krishendu Dutta, Sr. Adv. with Mr. Anurag Tandon, Mr. Rajat Sinha, Mr. Shiva Pande, Advs.

Advocate for the Respondent: Mr. Navin Pahwa, Sr. Adv. with Ms. Aastha Mehta, Mr. Yash Goyal, Ms. Prerna Mohapatra, Advs.