When Parties Decide The Place Of Arbitration, Only The HC Having Territorial Jurisdiction Over That Place Can Entertain Application U/S 11 Of Arbitration Act: Orissa HC [Read Order]

The Bench of Chief Justice Mohammad Rafiq was hearing an application filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 by the petitioner-M/s. SJ Biz Solutions Pvt. Ltd. filed an application (for short, "Act, 1996") seeking appointment of an independent arbitrator to arbitrate the disputes between the petitioner and the opposite party.

The matter before the Court

The case of the petitioner was that a dealership agreement (in January 2014, which was renewed from time to time) was entered into between the Petitioner - M/s. SJ Biz Solutions Pvt. Ltd. and the opposite party-M/s. Sany Heavy Industry India Pvt. Ltd., a manufacturer of heavy construction equipment. Lastly, the contract was extended on 01.01.2017 for a period of one year till 31.12.2017.

Pursuant to the agreement, the petitioner submitted Bank Guarantee for a sum of Rs.25,00,000/- drawn in the Bank of Baroda in favour of the opposite party.

It was alleged that even as the dealership agreement was subsisting, the opposite party (M/s. Sany Heavy Industry India Pvt. Ltd.), illegally terminated the agreement on 04.09.2017, much prior to the expiry of the period.

Both the parties on various occasions decided that the dispute would be settled, however, the Petitioner didn't get the payment as promised by the opposite party.

As the matter stood thus, the petitioner received a letter dated 05.04.2018 from Bank of Baroda, Barbil Branch, wherein it was intimated to the petitioner that they have received a notice dated 29.03.2018 from the opposite party invoking Bank guarantee in order to make payment of Rs.25,00,000/-.

The petitioner by its letter dated 23.07.2018 invoked the arbitration Clause 15.3 of the Dealership Agreement dated 17.01.2017 and requested the opposite party to appoint a sole Arbitrator.

The said letter was received by the opposite party on 01.08.2018. Since the opposite party failed to appoint the arbitrator within a period of 30 days, the petitioner was constrained to file this petition under Section 11(6) of the Act, 1996.

Arguments Put forth

Petitioner's Arguments - The counsel for the petitioner submitted that even if the parties in clause 15 of the Dealership Agreement (Annexure-1) agreed that the place of arbitration shall be at 'Pune', the jurisdiction of this Court to entertain the present application filed under Section 11(6) of the Act, 1996 is not excluded as the cause of action, wholly, or at least in part, has arisen in the territory of the State of Orissa.

It was contended that in view of Section 20(1) of the Act, 1996 the parties are free to choose the place of arbitration.

Importantly, it was argued that the word 'place' in Section 20 has been used in the sense of the word 'Venue'. Even if the parties in the present case in clause 15.3 of the Dealership Agreement agreed upon the place of arbitration at 'Pune', the word 'place' used therein only denotes the venue of arbitration proceedings, which can take place anywhere.

The Arguments of the Opposite Party - The counsel for the opposite party argued that Section 20 of the Act, 1996 has given the freedom to the parties to decide the place of arbitration.

Further, it was contended that if the parties in the agreement have chosen a particular place as the place of arbitration, only the High Court having territorial jurisdiction over that place would be competent to entertain and decide the application under section 11 for the appointment of the arbitrator.

Court's Analysis

The Orissa High Court relied on the Supreme Court's rulings in the case of Indus Mobile Distribution Pvt. Ltd. vs. Datawind Innovations Private Ltd. & Ors., (2017) 7 SCC 678, wherein, the Apex Court had revisited the 5-judge bench decision in the case Bharat Aluminium Company (BALCO) vs. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552.

In the Case of Indus Mobile (supra), the Supreme Court, while analyzing the definition of the 'Court' under Section 2 (1) (e) and Section 20 of the Act of 1996, had categorically held that the moment the seat (of arbitration) is designated; it is akin to an exclusive jurisdiction clause.

In that case, the seat of arbitration was decided by the parties to be Mumbai. The relevant clause of the agreement made it clear that the jurisdiction exclusively vests in the Mumbai courts.

The Supreme Court held that under the Law of Arbitration, unlike the code of Civil Procedure, which applies to suits filed in courts, a reference to "seat" is a concept by which a neutral venue can be chosen by the parties to an arbitration clause.

Further, the Orissa High Court in the present matter also observed that the Supreme Court, in a recently delivered decision in Brahmani River Pellets Limited vs. Kamachi Industries Ltd., (2020) 5 SCC 462, had considered the question as to whether the Madras High Court could exercise jurisdiction under Section 11(6) of the Act, 1996 to appoint the sole arbitrator at the instance of the respondent,? (Despite the fact that the agreement contained the clause that the venue of arbitration shall be 'Bhubaneswar').

Notably, the appellant in the case had challenged the said order (of the Madras HC) by questioning the jurisdiction of the Madras High Court on the ground that since the parties had agreed that the seat of arbitration shall be at Bhubaneswar, only the Orissa High Court has exclusive jurisdiction to appoint the arbitrator and not the Madras HC.

The respondent in the matter argued before the Supreme Court that since the cause of action arose at both the places, i.e., Bhubaneswar and Chennai, both Madras High Court, as well as Orissa High Court, will have the supervisory jurisdiction (However, this argument was not accepted by the Apex Court).

The Apex Court in Brahmani (supra) had observed,

"Where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter and parties intended to exclude all other courts. In the present case, the parties have agreed that the "venue" of arbitration shall be at Bhubaneswar. Considering the agreement of the parties having Bhubaneswar as the venue of arbitration, the intention of the parties is to exclude all other courts. As held in Swastik, non-use of words like "exclusive jurisdiction", "only", "exclusive", "alone" is not decisive and does not make any material difference." (emphasis supplied)

Significantly, in Brahmani (Supra), the Supreme Court (bench comprising of Justice R. Banumathi and Justice AS Bopanna) held that - when the parties agreed to have the "venue" of arbitration at a particular place, only the High Court which has jurisdiction over the said place can entertain the petition seeking appointment of Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.

Notably, the Orissa High Court in the present matter, cited the ruling of the Supreme Court in BGS SGS Soma JV vs. NHPC Limited, (2020)4 SCC 234 as well, wherein the Apex Court examined Sections 20 and 2(1)(e) of the Act of 1996, in the context of clause 67.3(vii) of the agreement executed between the parties in that case which provided that "Arbitration proceedings shall be held at New Delhi/Faridabad, India".

Following the ratio of the Constitution Bench decision in BALCO case (supra), it was held in BGS SGS Soma (supra) that the test for determination of juridical seat, wherever there is an express designation of a "venue", and no designation of any alternative place as the "seat", the seat of arbitration, where alternative venues for the conduct of proceedings are mentioned in the arbitration agreement, shall be determined on the basis of venue chosen for conducting arbitration proceedings, to the exclusion of all other courts, even the courts where part of the cause of action may have arisen.

It may be noted that, taking a different view from the Apex Court's ruling in the case of Union of India v. Hardy Exploration and Production (India) Inc 2018 SCC Online SC 1640, the Supreme Court in BGS SGS Soma (supra) has held that the venue of arbitration will be the juridical seat of arbitration in the absence of contrary intention of the parties.

In the Hardy Exploration case (supra), while explaining the difference between 'Venue', 'Place' and 'Seat' of Arbitration, the Supreme Court had held that place of arbitration does not ipso facto assume the status of its seat.

A three-judge bench comprising the then Chief Justice Dipak Misra, Justice AM Khanwilkar and Justice DY Chandrachud had observed that 'venue' cannot be equated with the seat of arbitration or place of arbitration which has a different connotation.

It may be noted that in BGS SGS Soma (supra), it was also observed that the Hardy Exploration case (supra) was not a good law.

In view of the above discussion, the Orissa High court in the present matter held that it does not have the territorial jurisdiction to entertain the present petition filed under Section 11 (6) of the Act, 1996, which was accordingly dismissed as not maintainable.