The Unending Saga Of The Seat Of The Arbitration: Delhi High Court Disregards The Seat Of Arbitration And Favours The Exclusive Jurisdiction Clause In A Domestic Arbitration

CONTRACTUAL PROVISIONS:

In the present case, Clause 8.1 of the contract conferred exclusive jurisdiction for matters arising out of the agreement (subject to the arbitration clause), "especially for granting interim relief and enforcement of arbitral awards" at the place where the main premises of HPCL is located, i.e. Gurgaon. On the other hand, Clause 8.2 designated Delhi as the seat of arbitration.

ISSUE:

Whether the Delhi High Court could exercise jurisdiction under Section 11 of the Act and appoint an arbitrator in the present matter.

FINDINGS:

The Delhi High Court, relying upon its earlier decision in Cars 24 Services v. Cyber Approach^[2] ("Cars 24") held that "where the exclusive jurisdiction clause confers exclusive jurisdiction in respect of arbitral proceedings on a court located elsewhere, the Section 11 petition would have to be filed in the High Court having jurisdiction over that place". The Delhi High Court observed that since Clause 8.1 vested exclusive jurisdiction at the courts at Gurgaon, the instant petition seeking appointment of the arbitrator would also be required to be filed before the High Court of Punjab and Haryana.

The Delhi High Court further held that vesting the seat court, i.e. Delhi, with jurisdiction under the agreement would effectively amount to applications for interim reliefs and enforcement of the award being filed at the Punjab and Haryana High Court and applications for appointment of arbitrator being filed at the Delhi High Court. The Delhi High Court observed that such a situation would be in the teeth of Section 42 of the Act which provides that, when any application under Part I of the act has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.

RELEVANT JUDICIAL PRECEDENTS ON THE SUBJECT:

Before we analyse the impact of the ruling in Hunch Circle, it would be helpful to understand some relevant judicial precedents laid down by the Supreme Court on this subject.

In Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc^[3] ("BALCO"), the Supreme Court categorically held that courts at the seat of arbitration exercise exclusive and supervisory jurisdiction over the arbitral proceedings, establishing in unequivocal terms that the determination of a 'seat' is akin to an exclusive jurisdiction clause. However, it is pertinent to note that BALCO was rendered in the context of a foreign seated international commercial arbitration and did not deal with a situation that had arisen in Hunch Circle.

In Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd^[4] ("Indus Mobile"), the agreement stipulated that arbitration would be conducted at Bombay, which, according to the Supreme Court, made Bombay the "seat of arbitration and conferred exclusive jurisdiction, qua disputes under the agreement, on courts in Bombay". The jurisdiction of courts at Bombay to entertain the petition was, nevertheless, sought to be questioned by placing reliance on Section 2(1)(e) of the Act, as the cause of action had arisen outside the jurisdiction of courts at Bombay. The Supreme Court held that, once the agreement fixed the seat of arbitration at Bombay, the place where the cause of action arose, and Section 2(1)(e) of the Act, lost their relevance altogether. The Supreme Court held that designation of a seat of arbitration is itself akin to an exclusive jurisdiction clause.

The findings in Indus Mobile were subsequently confirmed in BGS Soma JV v. NHPC Ltd^[5] ("BGS Soma") wherein the Supreme Court once again clarified that "as the seat of the arbitration was designated as Mumbai, it would carry with it the fact that Courts at Mumbai alone would have jurisdiction over the arbitration process."

In Mankastu Impex Ltd. v. Airvisual Ltd^[6] ("Mankastu"), the Supreme Court was dealing with an arbitration clause which provided for jurisdiction at the courts in Delhi while the place of the arbitration was designated to be Hong Kong. The Supreme Court held that fixing Hong Kong as the "place of arbitration" resulted ipso facto in Hong Kong becoming the "seat of arbitration". On the attention of the Supreme Court being invited to the jurisdiction clause, conferring jurisdiction on courts at New Delhi, the Supreme Court observed that "If the arbitration agreement is found to have seat of arbitration outside India, then the Indian courts cannot exercise supervisory jurisdiction over the award or pass interim orders. It would have, therefore, been necessary for the parties to incorporate Clause 17.3 that parties have agreed that a party may seek interim relief for which the Delhi courts would have jurisdiction. Since the arbitration is seated at Hong Kong, the petition filed by the petitioner under Section 11(6) of the Act is not maintainable and the petition is liable to be dismissed". Since Hong Kong was designated as the seat of the arbitration, the Supreme Court held that it would amount to an exclusive jurisdiction clause.

RECENT JUDICIAL TRENDS:

• A. Bombay High Court:

In Aniket SA Investments LLC v. Janapriya Engineers Syndicate^[7] ("Aniket SA"), a division bench of the Bombay High Court held that in an agreement with a different forum selection and seat clause, the seat clause assumes pre-eminence. The contract in dispute consisted of an exclusive jurisdiction clause conferring jurisdiction upon Hyderabad whereas the arbitration clause mentioned Mumbai as the seat of arbitration. Relying on BGS Soma and BALCO, the Bombay High Court held that "A choice of seat, as the Supreme Court has explained, is itself an expression of party autonomy and carries with it the effect of conferring exclusive jurisdiction on the Courts of the seat".

• B. Delhi High Court:

In Cinepolis India Pvt. Ltd. v. Celebration City Projects Pvt. Ltd. and Anr.^[8], ("Cinepolis"), the agreement conferred exclusive jurisdiction on the courts at Ghaziabad and designated Delhi to be the place of the arbitration. Relying on BGS Soma and Indus Mobile, the Delhi High Court held that "While it is true that the arbitration clause does not specifically use the word "seat", but it is no longer res integra that the term "place" would be the "juridical seat" for the purpose of Section 2(2) of the Act". Pertinently, the judgement in Hunch Circle did not consider the judgment in Cinepolis.

In a departure from the Cinepolis view, the Delhi High Court in Cars 24^[9] was dealing with a dispute resolution clause that provided for exclusive jurisdiction for an application for appointment of an arbitrator before the courts at Haryana whereas the seat was designated to be Delhi. The Delhi High Court, giving priority to the exclusive jurisdiction clause, distinguished Indus Mobile and observed that while several Supreme Court judgements have accorded pre-eminence to the seat of the arbitration, none of those judgements involved a case in which the contract contained an exclusive jurisdiction clause separate from the seat of arbitration.

In My Preferred Transformation and Hospitality Pvt Ltd v. Sumithra Inn^[10] ("Sumithra Inn"), the Delhi High Court confirmed the Cars 24 position. The agreement designated Delhi as the seat and the amended jurisdiction clause conferred the courts in Bengaluru to have exclusive jurisdiction. Relying on Mankastu, the Delhi High Court correctly held that the designation of seat is akin to an exclusive jurisdiction clause. However, the Delhi High Court qualified its finding by holding that in the event the exclusive jurisdiction clause conferred jurisdiction specifically for section 11 applications on a different court, that court would override the seat clause.

• C. Calcutta High Court:

The Calcutta High Court, confirming the Cars 24 and Hunch Circle view, held in Bowlopedia Restaurants India Ltd v. Devyani International Ltd^[11] ("Bowlopedia") that, interim relief can be granted by the courts exercising exclusive jurisdiction, notwithstanding the seat of the arbitration being situated elsewhere. The agreement vested exclusive jurisdiction upon Kolkata and fixed the seat of arbitration at New Delhi. Relying on Cars 24, the Calcutta High Court held that notwithstanding the seat of the agreement, the conferment of exclusive jurisdiction on the courts in Calcutta impliedly excluded the jurisdiction of all other courts.

OUR COMMENT:

The decision in Hunch Circle (following the ratio in Cars 24) appears to be setting a dangerous trend in motion, where courts have made the seat of the arbitration redundant in the event there is a conflicting exclusive jurisdiction clause, vesting jurisdiction on a different court for specific applications/petitions under the Act (such as Section 9, Section 11, Section 34, etc).

It is settled law that the seat of the arbitration is the anchor of an arbitration proceeding. However, by granting primacy to exclusive jurisdiction clauses, the courts seem to have imported principles of the Civil Procedure Code, 1908 ("CPC") regarding territorial jurisdiction under the aegis of the Act. While the principles of the CPC can be used as a guiding principle in determining issues of jurisdiction under the Act, the foundation of the Act is premised on allowing parties the autonomy to select a neutral seat of the arbitration, notwithstanding the fact that no cause of action might have arisen within the territorial jurisdiction of such courts. In the absence of an authoritative ruling by the Supreme Court, it is our opinion that the view of the Bombay High Court in Aniket SA appears to be more plausible and correct in light of the principles enunciated in Indus Mobile and BGS Soma.

While these judicial precedents have confounded scholars and practitioners alike, it would be worthwhile to mention that the primary reason for such an anomaly is poor drafting of dispute resolution and governing law clauses. In our view, suitable amendments to the Act reflecting a consistent view on identifying the seat of the arbitration would go a long way in settling the issues surrounding the seat of arbitration. This will also prevent the Courts from encroaching upon the legislature's domain by attempting to plug the apparent gaps in the Act.