Seat Of Arbitration To Be Determined On Basis Of Connection With Arbitration Proceedings, Not With Cause Of Action: Delhi High Court

Brief Facts:

The matter pertained to a dispute between the Respondent, registered as a medium enterprise under the MSME Act and based in Pathankot, Punjab, and the Petitioner, Delhi Tourism and Transportation Development Corporation. The dispute arose from an agreement where the Respondent was contracted to construct a bus depot in New Delhi. Disputes between the parties led the Respondent to claim its alleged dues under the Agreement before the Facilitation Council, invoking jurisdiction under Section 18 of the MSME Act. Conciliation proceedings ensued, followed by arbitration, resulting in an award of Rs. 4,11,55,845/- by the Facilitation Council, conducted in Pathankot. Feeling aggrieved, the Petitioner approached the Delhi High Court (“High Court”) and appealed the decision of the Facilitation Council.

In response, the Respondent challenged the territorial jurisdiction of the court to entertain the petition against the arbitral award, arguing that the Facilitation Council in Pathankot had jurisdiction as per Section 18(4) of the MSME Act.

On the contrary, the Petitioner contended that the court had jurisdiction under Section 34 of the Arbitration Act, emphasizing an exclusive jurisdiction clause in the Agreement's Integrity Pact, which designates Delhi courts. It further argued that even if arbitration occurs outside Delhi, jurisdiction for challenging the award should align with the contract's exclusive jurisdiction clause.

Observations by the High Court:

The High Court referred to the arbitration clause within the Agreement, specifically outlined in Clause 25 of the GCC. This clause, titled "Settlement of Disputes & Arbitration," delineated the procedures for resolving disputes between the involved parties. It established arbitration as the recourse should they fail to resolve disputes through the provided mechanism. Notably, the GCC lacked an exclusive jurisdiction clause, and neither did it specify the seat of arbitration. However, Clause 25 did stipulate that the arbitrator holds the discretion to determine the venue of arbitration.

The Petitioner referred to the existence of an express exclusive jurisdiction clause centered on Article 7(1) of the Integrity Pact. The Integrity Pact, integral to the tender document and the Agreement, outlined certain commitments by the bidder to prevent malpractices and details the consequences of breaches.

Article 7(1) specified that jurisdiction lay with the headquarters of the division of the owner/principal, without addressing court jurisdiction or dispute resolution. Conversely, Article 7(5) explicitly stated that disputes and differences arising under the Integrity Pact, including questions of interpretation, shall not be subject to arbitration. Hence, the High Court held that the dispute resolution mechanisms outlined in the main Agreement and the Integrity Pact were intended to be distinct. While the documents must be read in conjunction, such reading must harmonize their provisions. The High Court noted that the parties did not expressly designate the seat of arbitration in the Agreement, leaving the venue at the arbitrator's discretion.

The Petitioner contended that since the entire cause of action transpired in Delhi — from the issuance of the work order to the signing of the Agreement and the actual work conducted — Delhi should be considered the seat of arbitration. However, the High Court held that the seat of arbitration is determined based on its connection with the arbitral proceedings, rather than the underlying disputes' cause of action. It held that the seat of arbitration is where the arbitral proceedings are anchored (referred to BGS SGS Soma JV vs NHPC and Inox Renewables Ltd. v. Jayesh Electricals Ltd.)

Further, the High Court referred to the decision of the Kerala High Court in Shreyas Marketing v. Micro and Small Enterprises Facilitation Council where it was held that awards under Section 18 of the MSME Act, deemed to be under the Arbitration Act, can be challenged in the appropriate court at the seat of the concerned facilitation council.

The High Court noted that the proceedings were exclusively conducted in Pathankot, and the award was rendered there. It held that absent any contrary indication, such as an exclusive jurisdiction clause, the seat of arbitration remains at the venue where the arbitration was conducted. This interpretation is consistent with Section 18(4) of the MSME Act, which enables medium or small enterprises to approach a facilitation council at their location for dispute resolution.

Therefore, the petition was dismissed.

Case Title: Delhi Tourism And Transportation Development Corporation Vs M/S Satinder Mahajan

Citation: 2024 LiveLaw (Del) 597

Case Number: O.M.P. (COMM) 337/2021 & I.As. 14635/2021, 14862/2022

Advocate for the Petitioner: Mr. Suresh Tripathy, Ms. Puja Dewan, Mr. Uday Seth, Advocates.

Advocate for the Respondent: Mr. Sameer Chandwani, and Mr. Parivesh Singh, Advocates.

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