The Hon’ble Supreme Court (“SC”) has in the judgement dated March 24, 2022 (“Judgement”), in the matter of M/s. Ravi Ranjan Developers Private Limited v. Aditya Kumar Chatterjee [Civil Appeal Nos. 2394-2395 of 2022 (Arising out of SLP (C) Nos. 17397-17398 of 2021)] held that an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Act”) for appointment of an arbitrator cannot be moved in any High Court in India, irrespective of its territorial jurisdiction.

Facts

The above case throws light on Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Act”). The said case is an appeal by M/s. Ravi Ranjan Developers Private Limited (“Appellant”) against the order dated August 13, 2021 (“Impugned Order”) passed by the Calcutta High Court (“CHC”) for the appointment of an arbitrator and an order passed on October 4, 2021 by the CHC rejecting a review application made by the Appellant in favour of Aditya Kumar Chatterjee (“Respondent”). Section 11(6) of the Act confers jurisdiction upon the court in case of non-compliance of the procedure for appointment of the arbitrator, as agreed upon by the parties.

The Appellant and the Respondent entered into a development agreement dated June 15, 2015 (“Development Agreement”) for the development of a property based in Muzaffarpur in Bihar outside the jurisdiction of the CHC. The Development Agreement contained an arbitration clause which stated clearly that in case of any dispute or difference between the Appellant and the Respondent arising out of the Development Agreement, the reference of such dispute would be made to an arbitrator appointed by both the Appellant and the Respondent and such arbitration would be conducted under the provisions of the Act and the sitting of the arbitral tribunal would be at Kolkata.

Due to differences between the Appellant and the Respondent, the Respondent terminated the Development Agreement on April 24, 2019, which was not accepted by the Appellant. The Respondent filed a petition under Section 9 (Interim measures, etc., by Court) of the Act in the Court of the District Judge, Muzaffarpur seeking interim protection in respect of the property.

The Respondent sent a notice to the Appellant invoking the arbitration clause under the Development Agreement. Further, the Respondent moved an arbitration petition in the CHC under Section 11(6) of the Act for the appointment of an arbitrator. In response to the same, the Appellant filed an Affidavit in Opposition questioning the territorial jurisdiction of the CHC to decide the application under Section 11(6) of the Act. By the Impugned Order, the CHC allowed the arbitration petition and appointed a sole arbitrator in the case. Subsequently, the Appellant filed an application for review of the Impugned Order, which was dismissed by the CHC. Aggrieved, the Appellant has brought the instant appeal before the SC.

Issue

Whether the CHC had jurisdiction to entertain the application filed by the Respondent and to appoint an arbitrator.

Arguments

Contentions raised by the Appellant:

The Appellant submitted that the counsel for the Appellant in the CHC gave consent without instructions from the Appellant. However, the CHC did not adjudicate the issue of territorial jurisdiction raised by the Appellant in its Affidavit in Opposition filed in the CHC.

The contentions that the Appellant raised in its application for review of the Impugned Order were as follows:

• In the Impugned Order the objections of the Appellant pertaining to the CHC not having jurisdiction in the matter and the objections regarding non-arbitrability of the disputes involved, have not been considered by the CHC;
• The CHC lacked jurisdiction to entertain the Respondent since the Hon’ble High Court at Patna had to be approached under Section 11 (Appointment of arbitrators) of the Act;
• The CHC proceeded on the concession of counsel which was contrary to the instructions of the Appellant. The Appellant had not instructed counsel to concede and had, to the contrary, instructed counsel to oppose the petition and, therefore, consent of the counsel was without jurisdiction and void.

It was argued before the SC that an order without jurisdiction can be questioned at any time at any stage irrespective of any consent given by the counsel, without instructions of the Appellant. The Appellant submitted that the word ‘Court’ has been defined, in case of an arbitration other than international commercial arbitration, to mean the principal Civil Court of original jurisdiction in a district and would include the High Court in exercise of its ordinary original jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration, if the same had been the subject matter of the suit, but it does not include any Civil Court of a grade inferior to such principal Civil Court or any Court of small causes.

The Appellant emphasized on the mandatory nature of Section 42 (Jurisdiction) of the Act to argue that an earlier application for interim protection having been moved at the District Court at Muzaffarpur, the Respondent could not have invoked the jurisdiction of the CHC. It was submitted that the parties cannot by consent confer jurisdiction on a court which inherently lacked jurisdiction.

Contentions raised by the Respondent:

The Respondent contended that the CHC had the territorial jurisdiction to entertain the application under Section 11(6) of the Act as the seat of arbitration was Kolkata. The Respondent admitted to the fact that the above application was in relation to a property in Muzaffarpur and that the Development Agreement was executed outside the territorial jurisdiction of the CHC and, thus, the CHC had no jurisdiction in this regard. However, it was further submitted that though the Development Agreement was executed outside the jurisdiction of the CHC, the Development Agreement contained the fact that if any dispute arises then the seat of arbitration would be at Kolkata and thus the CHC could exercise territorial jurisdiction.

The Respondent submitted that the word ‘Court’ has been defined in case of an arbitration other than international commercial arbitration to mean the principal Civil Court of original jurisdiction, having jurisdiction to decide the questions forming subject matter of the arbitration.

The Respondent argued that the initial order of appointment of arbitrator was passed by the CHC with consent of the Appellant, since the Appellant appeared in the arbitration proceedings. Therefore, the Appellant acquiesced to the reference of the disputes to the arbitrator appointed by the CHC.

Observations of the Supreme Court

The SC observed that the minutes of the proceedings before the arbitrator appointed by the CHC does not indicate that the Appellant willingly submitted to arbitration by the learned arbitrator. The Appellant only agreed to the fees of the arbitrator appointed by the CHC. The SC concurred with the argument made by the Appellant that an order without jurisdiction can be questioned at any time at any stage irrespective of any consent that may have been given by the counsel, without instructions of the Appellant.

Answering the issue about whether the CHC had territorial jurisdiction to pass the Impugned Order, in negative, the SC observed that the Development Agreement was admittedly executed and registered outside the jurisdiction of the CHC and the Development Agreement pertains to development of property located in Muzaffarpur, outside jurisdiction of the CHC. The Appellant has its registered office in Patna, outside the jurisdiction of CHC. The Appellant has no establishment and does not carry on any business within the jurisdiction of the CHC. Further, as admitted by the Respondent, no part of the cause of action had arisen within the jurisdiction of the CHC.

In case of an arbitration other than international commercial arbitration, ‘Court’ would mean the principal Civil Court of original jurisdiction in a district and would include the CHC in exercise of its ordinary original jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration, if the same had been the subject matter of the suit, but it does not include any Civil Court of a grade inferior to such principal Civil Court or any court of small causes. Subject to the pecuniary or other limitations prescribed by any law, suits for recovery of immovable property or determination of any other right to or interest in an immovable property or compensation for wrong to immovable property, is to be instituted in the court, within the local limits of whose jurisdiction, the property is situated. Certain specific suits relating to immovable property can be instituted either in the court within the limits of whose jurisdiction the property is situated, or in the court within the local limits of whose jurisdiction, the defendant actually or voluntarily resides or carries on business. All other suits are to be instituted in a court, within the local limits of whose jurisdiction, the defendant voluntarily resides or carries on business. Where there is more than one defendant, a suit may be instituted in the court within whose jurisdiction any of the defendants voluntarily resides or carries on business. A suit may also be instituted in a court within whose jurisdiction the cause of action arises either wholly or in part.

The SC observed that no suit could have been filed in any court over which the CHC exercises jurisdiction, since the suit pertains to immovable property situated at Muzaffarpur in Bihar, outside the territorial jurisdiction of the CHC. The Appellant neither resides not carries on any business within the jurisdiction of the CHC. It was observed that Section 11(6) of the Act has to be harmoniously read with Section 2(1)(e) of the Act and construed to mean, a High Court which exercises superintendence/supervisory jurisdiction over a court within the meaning of Section 2(1)(e) of the Act.

Section 42 of the Act is mandatory and has been enacted to prevent the parties to an agreement from being dragged into proceedings in different courts, when more than one court has jurisdiction. However, Section 42 of the Act cannot possibly have any impact on an application under Section 11(6) of the Act, which necessarily has to be made before a High Court, unless the earlier application was also made in a High Court. In the instant case, the earlier application under Section 9 of the Act was made in the District Court at Muzaffarpur and not in the High Court of Judicature at Patna. An application under Section 11(6) of the Act for appointment of Arbitrator, could not have been made in the District Court of Muzaffarpur. Therefore, Section 42 of the Act is not attracted.

The SC observed that the Appellant and the Respondent had not agreed to submit to the jurisdiction of the CHC, but had only agreed that the sittings of the arbitral tribunal would be in Kolkata. The SC relied on Union of India v. Hardy Exploration and Production (India) Inc. [13 SCC 472] wherein the SC had held that the sittings at various places are relatable to venue. It cannot be equated with the seat of arbitration or place of arbitration, which has a different connotation.

In the instant case, Kolkata was only the venue for sittings of the arbitral tribunal. It is well settled that, when two or more courts have jurisdiction to adjudicate disputes arising out of an arbitration agreement, the parties to such agreement might, decide to refer all disputes to any one court to the exclusion of all other courts, which might otherwise have had jurisdiction to decide the disputes. The SC agreed with the argument of the Appellant that parties to an agreement cannot, by consent, confer jurisdiction on a court which inherently lacked jurisdiction.

In the instant case, the Appellant and the Respondent did not agree to refer their disputes to the jurisdiction of the courts in Kolkata. Kolkata was only intended to be the venue for arbitration sittings. Accordingly, the Respondent approached the District Court at Muzaffarpur, and not a court in Kolkata for interim protection under Section 9 of the Act. The Respondent having invoked the jurisdiction of the District Court at Muzaffarpur, is estopped from contending that the parties had agreed to confer exclusive jurisdiction to the CHC to the exclusion of other courts. Neither of the parties to the Development Agreement construed the arbitration clause to designate Kolkata as the seat of arbitration.

Decision of the Supreme Court

The SC held that the CHC inherently lacks jurisdiction to entertain the application of the Respondent under Section 11(6) of the Act. The CHC should have decided the objection raised by the Appellant, to the jurisdiction of the CHC, to entertain the application under Section 11(6) of the Act, before appointing an arbitrator. Thus, the SC allowed the appeal and set aside the Impugned Order and dismissal of the review application. The SC held that the appointment of the arbitrator was without jurisdiction and was therefore set aside.

Appointing a sole arbitrator to decide the disputes between the Appellant and the Respondent, the SC called for the status quo with regards to the property in question to be maintained for a period of 15 days from the date of the order so as to enable the respective parties to approach the arbitrator under Section 17 (Interim measures ordered by arbitral tribunal) of the Act, for interim relief in accordance with law.

VA View:

The SC through this Judgement threw light on the legislative intent of Section 11(6) of the Act. It has rightly held that an application under Section 11(6) of the Act for the appointment of an arbitrator or arbitral tribunal cannot be moved in any High Court in India, if such High Court lacks territorial jurisdiction. It could never have been the intention of Section 11(6) of the Act that arbitration proceedings should be initiated in any High Court in India, irrespective of whether the respondent resided or carried on business within the jurisdiction of that High Court, and irrespective of whether any part of the cause of action arose within the jurisdiction of that court, to put an opponent at a disadvantage and steal a march over the opponent.

Moreover, the SC has reiterated the well settled law that sittings at various places are relatable to venue, and cannot be equated with the seat of arbitration or place of arbitration, which has an entirely different connotation.

For any query, please write to Mr. Bomi Daruwala at [email protected]

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