Between the Lines | Delhi High Court: Mere fixation of the place or the seat of arbitration outside India, will not divest the Court of its jurisdiction under Section 9 of the Arbitration and Conciliation Act, unless there is any agreement to the contrary December 23, 2020
Published in: Between The Lines
Disclaimer: While every care has been taken in the preparation of this Between the Lines to ensure its accuracy at the time of publication, Vaish Associates Advocates assumes no responsibility for any errors which despite all precautions, may be found therein. Neither this bulletin nor the information contained herein constitutes a contract or will form the basis of a contract. The material contained in this document does not constitute / substitute professional advice that may be required before acting on any matter. All logos and trademarks appearing in the newsletter are property of their respective owners.
The Hon’ble High Court of Delhi (“DHC”) has in its judgement dated October 23, 2020, in the matter of Big Charter Private Limited v. Ezen Aviation Pty. Ltd. and Others [O.M.P. (I) (COMM.) 112/2020] (“Judgement”), held that an agreement would be required to have a specific stipulation that the parties had agreed to exclude the applicability of Section 9 of the Arbitration and Conciliation Act, 1996 (“Act”) to the contract between them, and to disputes arising thereunder, and merely fixing a place of arbitration would not oust the Section 9 jurisdiction of the court in case of international commercial arbitration.
Big Charter Private Limited (“Petitioner”) provides scheduled air operator services under the name “Flybig”. The respondent is a private limited company registered in Australia and is engaged in the business and lease of aircrafts and other associated activities (“Respondent”). The subject matter of the dispute was an aircraft owned by the Respondent (“Aircraft”).
The Petitioner proposed to lease the Aircraft from the Respondent. Prior to issuing the Letter of Intent (“LOI”), the Respondent wrote to the Petitioner, acknowledging the desire of the Petitioner to lease the Aircraft with effect from October 1, 2019, for a period of 3 years. Lease rent was fixed at INR 37 lakhs per month plus 5% GST, for the first 18 months, and INR 40 lakhs per month plus 5% GST, for the remaining 18 months, with an additional payment of maintenance reserves to the Respondent at USD 400 (per flying cycle/ flying hour). The Petitioner covenanted to ensure that the Aircraft was registered with the Directorate General of Civil Aviation (“DGCA”). The term of lease was to commence with the delivery of the Aircraft and continue for 36 months. Additionally, the LOI set out various provisions pertaining to payment of lease rent, deposits to be made by the Petitioner and that the final lease agreement would supersede the LOI. The LOI, under its governing law clause, stated that “This Proposal and the underlying documents for the contemplated transaction shall be governed by the laws of India without regard to conflict of laws principles. Lessee and Lessor agree to submit to the exclusive jurisdiction of the courts located in Singapore with regard to any claim of matter arising under or in connection with this Proposal or the Lease Documentation…”. Subsequently, a lease deed was executed on November 12, 2019 (“First Lease Deed”) between the parties, which was superseded by a second lease deed dated December 9, 2019 (“Lease Deed”). Among other things, the LOI and subsequently the First Lease Deed and the Lease Deed set out schedules of payment of lease rent and deposits to be made by the Petitioner in tranches and format of the delivery acceptance certificate (“DAC”) to be executed for acceptance of the Aircraft (“Schedules”). On March 4, 2020, the Petitioner wrote to the Respondent, requiring for confirmation of the final date by which the Aircraft would be delivered. The Respondent alleged delay in delivery due to the delay caused by the Petitioner in painting and design, which the Petitioner argued was the Respondent’s duty. The request for handing over of the Aircraft, with all necessary documents, was reiterated, emphasising that Cockpit Door Surveillance System (“CDSS”) was required to be installed in the Aircraft, and that the Respondent was also required to provide necessary support towards acquiring of the Certificate of Registration (“COR”) and Certificate of Airworthiness (“COA”) from the DGCA. The Petitioner stated that if the DGCA were to reject the request for issuance of COA, the Respondent would be required to return to the Petitioner, all amounts paid by it, along with the cost for ferrying the Aircraft. Subsequently, on March 22, 2020, the Petitioner pointed out that during oral discussions, the Respondent had made it clear that it had no intention to deliver the Aircraft to the Petitioner. In the circumstances, the Petitioner called on the Respondent to refund to the Petitioner, an amount of USD 5,30,000, stated to be due from the Respondent. The communication by the Respondent to the Petitioner alleged delay due to the Petitioner, and default in payment of security deposit and advance lease rent, as per the terms of the Lease Deed. It was further alleged that the Petitioner had unilaterally terminated the Lease Deed, thereby obviating the necessity of any termination notice having to be issued by the Respondent. In these circumstances, it was alleged that the Petitioner was liable to pay INR 19,20,460/– to the Respondent. The Petitioner alleged that the Respondent had failed to perform its obligations under the Lease Deed, which included delivery of the Aircraft with a valid COA and reiterated the demand for a refund. Asserting the existence of a clear and undeniable breach by the Respondent of the Lease Deed, the Petitioner moved the DHC under Section 9 of the Act. The Petitioner prayed for:
Whether the DHC has territorial jurisdiction to pass interim relief under Section 9 of the Act when the place of arbitration has been agreed upon as Singapore.
Contentions raised by the Petitioner:
The Petitioner argued that the Aircraft was located at Hyderabad. It was required to be registered with the DGCA and operated in accordance with the Aircraft Act, 1934, Aircraft Rules, 1937 and the civil aviation requirements issued by the DGCA. The most efficacious remedy available to the Petitioner was, therefore, by means of recourse to the jurisdiction of the DHC under Section 9 of the Act. Meaningful provisional relief, such as attachment of the defendant’s properties, could be granted only by the court within whose territorial jurisdiction the properties were located, and not by a foreign court having jurisdiction over the situs of the arbitral proceedings. Articles 9 and 17J of the UNCITRAL Model also vested jurisdiction in courts outside the seat of arbitration to grant interim relief. Though the exclusive jurisdiction vested with courts at Singapore, it was only with respect to the application of the governing law and adjudication of disputes pertaining to substantive rights and obligations of the parties but not to grant of interim relief even before the constitution of the arbitral tribunal. The jurisdiction of the court was to be determined as per the curial law governing the conduct of the arbitral proceedings, that is, the Singapore International Arbitration Centre (“SIAC”) Rules, which permitted parties to approach any judicial authority for interim relief, before the constitution of the arbitral tribunal, and not merely judicial authorities located in Singapore. The courts in Singapore exercised the jurisdiction to secure assets located abroad only if they had in personam jurisdiction over the parties, that is, where the parties had presented themselves before the courts in Singapore. It was also argued that Section 12A of the International Arbitration Act (“IAA”) did not apply at the pre-arbitration stage.
The Petitioner argued that the Aircraft has not been delivered by the Respondent in accordance with the Lease Deed. Execution of the DAC, in the manner provided in the Schedules, was conditional on delivery of the Aircraft in accordance with the covenants of the Lease Deed. In the absence of the certificate of deregistration, certifying that the Aircraft was no longer registered with any foreign authority, there was no “delivery” of the Aircraft within the meaning of the Lease Deed. Hence, the Petitioner did not execute any DAC, certifying delivery of the Aircraft, either. By not delivering the Aircraft with all requisite documents, the Respondent breached the Lease Deed. Without delivery of the Aircraft in accordance with the covenants of the Lease Deed, no liability to pay rent could be fastened on the Petitioner. Petitioner submitted that the plea of “unilateral termination” of the Lease Deed was a smokescreen created by the Respondent to wriggle out of its obligations under the Lease Deed. The maintenance reserves need not be paid if the Aircraft was not flown, since it was not delivered. Since the Respondent is located outside India, permitting the Respondent to alienate the corpus of the arbitral proceeding, that is, the Aircraft, would render the arbitral proceedings futile. The balance of convenience would be in favour of grant of interim reliefs, as sought in the petition.
Contentions raised by the Respondent:
The primary contention of the Respondent was that the DHC did not have territorial jurisdiction to deal with this petition. The contractual position that emerges is that the Petitioner and Respondent have agreed to subject themselves to the jurisdiction of courts at Singapore, the seat of arbitration is Singapore, and the arbitration proceedings are to be in accordance with the Arbitration Rules of the SIAC. The Respondent argued that since the
parties have agreed to submit themselves to the jurisdiction of the courts at Singapore, the DHC is proscribed from entertaining the present matter. The proviso to Section 2(2) of the Act is categorical and unequivocal. It provides that, irrespective of the location of the place of arbitration, Part I of the Act, which includes Section 9 of the Act, would apply to all international commercial arbitrations, subject to an agreement to the contrary. In the instant case, Clause 23.4 of the Lease Deed fixes both the place as well as the seat of arbitration, as Singapore. The arbitration being an international commercial arbitration, the proviso to Section 2(2) of the Act would make Part I of the Act applicable, subject to an agreement to the contrary. The governing law clause of the Lease Deed, that is, Clause 22.1, falls under the category of “agreement to the contrary”. Further, the parties reside in Mumbai and Australia, and no cause of action arose in Delhi. The Petitioner is not without a remedy in Singapore as Section 12A of the IAA empowers the court to order interim measures. The Lease Deed was invalid as Clause 32 thereof terminated all prior agreements or understandings pertaining to matters covered by the said Lease Deed.
The Respondent contended that the Schedules to the Lease Deed were not signed and hence the Lease Deed was invalid, and refuted the submission of the Petitioner that there was an implicit agreement to consider the Schedules to the First Lease Deed as part of the Lease Deed. The Respondent alleged that the Petitioner unilaterally terminated the Lease Deed by an e-mail concluding with the words, “Demand full refund and close”. Delay in securing registration of the Aircraft in India was attributable to the non-completion of import formalities by the Petitioner and delay in delivery of the Aircraft after executing the DAC, was attributable to the Petitioner’s insistence that the Respondent comply with conditions, that it was not obligated to perform in terms of the Lease Deed.
Observations of the Delhi High Court
With respect to the Schedules to the Lease Deed not being duly signed, the DHC observed that lack of proper signature was not fatal to the validity of the Lease Deed, on account of the Schedules to the Lease Deed being identical to the Schedules of the First Lease Deed, which were duly signed by the parties. Addressing the primary contention of the Respondent that the DHC does not possess the jurisdiction to hear this matter and is coram non judice, the DHC observed that jurisdiction is always a matter of competence, in that want of jurisdiction renders a judicial authority incompetent to adjudicate on a claim. A plea of alternate remedy, on the other hand, involves an element of discretion. Alternate remedy is never a bar to adjudication of the claim, especially in original civil jurisdiction. If the DHC does not have jurisdiction to entertain this petition, it cannot assume such jurisdiction merely because the Petitioner has no other remedy available with it. To understand the issue related to jurisdiction in its entirety, the DHC relied on various case laws.
In Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. [(2012) 9 SCC 552] (“BALCO”), the Supreme Court held that Part I of the Act is limited in its application to arbitrations taking place in India. It also held that the “seat of the arbitration” was the “centre of gravity” thereof. At the same time, it was clarified that the arbitral proceedings were not required, necessarily, to be conducted at the “seat of arbitration”, as the arbitrators were at liberty to hold meetings at different, convenient, locations. The law governing the arbitration was, however, normally the “law of the seat or place where the arbitration is held”. The Constitution Bench went on, thereafter, to underscore the importance of the distinction between the “seat” and the “venue” of arbitration, in the context of international commercial arbitration, where it would be quite crucial in the event the arbitration agreement designates a foreign country as the “seat”/“place” of the arbitration and also selects the Act as the curial law or the law governing the arbitration proceedings. It notably held that only if the agreement of the parties is construed to provide for the “seat”/ “place” of arbitration being in India – would Part I of the Act be applicable. If the agreement is held to provide for a “seat”/ “place” outside India, Part I of the Act would be inapplicable to the extent inconsistent with the arbitration law of the seat, even if the agreement purports to provide that the Act shall govern the arbitration proceedings. It was held that the choice of another country as the seat of arbitration inevitably imports an acceptance that the law of that country relating to the conduct and supervision of arbitrations will apply to the proceedings. It would, therefore, follow that if the arbitration agreement is found or held to provide for a seat/place of arbitration outside India, then the provision that the Act would govern the arbitration proceedings, would not make Part I of the Act applicable or enable Indian courts to exercise supervisory jurisdiction over the arbitration or the award. Thus, in BALCO, the Constitution Bench of the Supreme Court held, in unmistakable terms, that Section 2(2) of the Act resulted in complete exclusion of jurisdiction of courts in India, in respect of foreign seated arbitrations, even for the purpose of obtaining interim reliefs, whether at the pre-arbitral stage or otherwise, and also went on to clarify that this position was not affected by Section 2(1)(e) of the Act.
In Swastik Gases Private Limited v. Indian Oil Corporation Ltd [(2013) 9 SCC 32], the Supreme Court held that nonuse of words like “alone”, “only”, “exclusive” or “exclusive jurisdiction” in the jurisdiction clause is not decisive and does not make any material difference. For construction of jurisdiction clause, the maxim expression uniusest exclusion alterius comes into play as there is nothing to indicate to the contrary. This legal maxim means that expression of one is the exclusion of another. By making a provision that the agreement is subject to a particular territorial jurisdiction, the parties have impliedly excluded the jurisdiction of other courts. A clause like this is not hit by Section 23 of the Indian Contract Act, 1872 at all and such clause is neither forbidden by law nor is it against the public policy.
In Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited [(2017) 7 SCC 678], the Supreme Court endorsed the view that once the seat of arbitration has been fixed, it would be in the nature of an exclusive jurisdiction clause as to the courts which exercise supervisory powers over the arbitration.
These judgements were howeverrendered prior to the insertion of the proviso to Section 2(2) of the Act. Section 2(2) of the Act states that, “This Part shall apply where the place of arbitration is in India:
“Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.” Thus, the said proviso inserted by the Arbitration and Conciliation (Amendment) Act, 2015 stipulates that, unless there is an agreement to the contrary, even if the place of arbitration were outside India, the provisions of Sections 9 (Interim measures, etc., by court), 27 (Court assistance in taking evidence), 37(1)(a) (Refusal to refer the parties to arbitration) and 37(3) (Second appeal from order passed in an appeal) of the Act would continue to apply to international commercial arbitration and an arbitral award made or to be made in such place would be enforceable and recognized under Part II of the Act. Thus, the beneficial reach of this proviso is conditioned by the caveat that there should be no “agreement to the contrary”. In Mankastu Impex Private Limited v. Airvisual Limited [2020 SCC OnLine SC 301], the question that arose before the Supreme Court was whether the DHC lacked jurisdiction to entertain the petition filed under Section 11 (Appointment of arbitrators) of the Act as the parties have agreed that the seat of arbitration is in Hong Kong. This judgment was made in light of the proviso to Section 2(2) of the Act. The Supreme Court held 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. However, since Section 11 of the Act did not come under the ambit of the proviso to Section 2(2) of the Act, it was finally held that the application was not maintainable.
The DHC observed that de hors the proviso to Section 2(2) of the Act, there can be little doubt that once the “seat of arbitration” has been fixed as Singapore, courts at Singapore would have exclusive jurisdiction to supervise the arbitral proceedings. However, the proviso to Section 2(2) of the Act, which came into effect on October 23, 2015, changes the goalpost. Effectuating the proviso, Section 9 of the Act would also apply to international commercial arbitration, where the place of arbitration is outside India.
The DHC noted that unlike Sections 11, 34 and 36 of the Act, Section 9 of the Act is available at the pre-arbitration stage, before any arbitral proceedings have commenced, and could be subject to supervision by any judicial forum. It observed that the rationale of the Law Commission behind including Section 9 of the Act in the ambit of the proviso to Section 2(2) of the Act is that, where the assets were located in India and there is a likelihood of dissipation thereof, the party seeking a restraint there against would lack an efficacious remedy if the seat of the arbitration is abroad. Endorsing the views of the Law Commission, the DHC agreed that alternative reliefs in such a situation are likely to be more chimerical than substantial. The DHC endorsed the view that interim injunctive relief should not be granted if it requires an unacceptable degree of supervision in a foreign land. It observed that Section 12A of the IAA would not readily enable the Petitioner to seek interim relief at the pre arbitral stage from Singapore courts. Section 12A of the IAA does not indicate, expressly or by necessary implication, that it would apply at the pre-arbitral stage.
A Section 9 petitioner is required to demonstrate that, if urgent interim reliefs were not granted, there is a chance of the arbitral proceedings being frustrated, and the award (if any) being rendered futile. A court under Section 9 of the Act is concerned with protecting the corpus of the arbitral dispute, so that the arbitration can take off and fructify.
Once a dispute, amenable to and deserving of resolution by arbitration is found to exist, and the apprehension of dissipation of the assets forming the corpus of the dispute is found to be real and subsisting, or where the circumstances indicate that enforcement of the award as and when delivered would otherwise be hindered, Section 9 of the Act can grant “interim measures of protection”.
Decision of the Delhi High Court
The proviso to Section 2(2) of the Act makes Section 9 of the Act applicable even in the case of foreign seated arbitrations, unless there is an “agreement to the contrary”. Here, any “agreement to the contrary” would, therefore, have to expressly stipulate that Section 9 of the Act would not apply in that particular case. If such a specific stipulation is absent, the beneficial dispensation contained in the said proviso cannot stand excluded. Mere submission by the parties to the jurisdiction of Singapore courts in the “Governing Law” clause in the Lease Deed, cannot suffice to operate as “agreement to the contrary”, excluding the applicability of Section 9 of the Act. The agreement would be required to have a specific stipulation that the parties had agreed to exclude the applicability of Section 9 of the Act to the contract between them, and to disputes arising thereunder. Since there is no such express provision, the argument that the parties had agreed to submit themselves to the jurisdiction of Singapore courts, would not suffice as an “agreement to the contrary”.
The Respondent did not deny that the parties had agreed to treat the Schedules to the First Lease Deed, as Schedules to the Lease Deed. Since the Lease Deed was signed by the parties at New Delhi, it could not be justifiably contended by the Respondent that no part of the cause of action arose within the jurisdiction of the DHC and hence, there is no want of jurisdiction in relation to the DHC.
Moreover, it was held that the CDSS was not provided for by the Respondent, which was a pre-requisite for the DAC to be executed and the delivery of the Aircraft, and hence the Respondent was in violation of the Lease Deed. With respect to the contention of liability on the Petitioner to pay maintenance reserves, the DHC held that, as the Aircraft had never been flown, there could be no question of the Petitioner being required to pay any maintenance reserves. Further, the Court did not agree with the contention of unilateral termination of agreement and held that the agreement had not been unilaterally terminated. The petition was disposed of with a direction that the amount of INR 4,30,00,000 shall remain deposited with the Registry of the DHC by the Respondent, in an interest bearing fixed deposit, pending further orders.
Vaish Associates Advocates View:
The DHC, through its detailed Judgement, has highlighted the law on interim relief in case of International Commercial Arbitration and has laid down an important law that mere submission to exclusive jurisdiction of a foreign court does not oust the jurisdiction of the Indian courts under Section 9 of the Act. While acknowledging the laws laid down by the Supreme Court in various judgements that if the agreement clearly lays down the seat of arbitration, it ousts the jurisdiction of other courts, the DHC highlighted the proviso to Section 2(2) of the Act.
The DHC held that fixation of a “place” or the “seat” of arbitration would not, ipso facto, divest the DHC of Section 9 jurisdiction. Such divestiture would occur only if there is any “agreement to the contrary”. The agreement would be required to have a specific stipulation that the parties had agreed to exclude the applicability of Section 9 of the Act to the contract between them, and to disputes arising thereunder.
Through this Judgement, the DHC has upheld the intent of the Law Commission behind the proviso to Section 2(2) of the Act, that is, courts in the foreign country would not efficaciously be in a position to grant pre-arbitral interim relief to secure assets which may be located in India.
For more information please write to Mr. Bomi Daruwala at [email protected]DOWNLOAD NEWSLETTER