Home » Between The Lines » Delhi High Court: Designation of seat of arbitration is similar to an exclusive jurisdiction clause

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The Delhi High Court (“Delhi High Court”), in its judgement dated February 26, 2024, in the matter of My Preferred Transformation and Hospitality Private Limited v. Panchdeep Construction Limited [ARB.P. 847/2023], has held that the designation of seat of arbitration is akin to an exclusive jurisdiction clause. The Delhi High Court has emphasized that the clause in an agreement designating the seat of arbitration should take precedence and assume pre-eminence over the exclusive jurisdiction clause.

Facts

My Preferred Transformation and Hospitality Private Limited (“Petitioner”) entered into a management services agreement, dated August 28, 2019, with Panchdeep Construction Limited (“Respondent”) towards operating the Respondent’s hotel in Howrah, West Bengal (“Management Services Agreement”). The Management Services Agreement contained an arbitration clause which referred any disputes between the parties to arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The clause designated New Delhi as the seat of arbitration whereas the jurisdiction clause conferred exclusive jurisdiction to the courts in Kolkata in all matters arising out of the Management Services Agreement.

The relevant arbitration and jurisdiction clauses of the Management Services Agreement are reproduced below:

“10.1 Arbitration: Any dispute arising out of this Agreement and the obligation thereunder (“Dispute”) shall be finally settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force. The Parties agree that the Dispute shall be adjudicated by a mutually appointed single arbitrator. The arbitration proceedings shall be conducted in English language and seat of arbitration shall be New Delhi.

10.2 Jurisdiction: subject to foregoing courts at Kolkata shall have exclusive jurisdiction in all matters arising out of this Agreement.”

In response to the disputes that arose between the Petitioner and the Respondent, the Petitioner invoked arbitration by serving a legal notice, dated July 18, 2022, on the Respondent. The parties were unable to achieve consensus on the appointment of an arbitrator, therefore, Petitioner approached the Delhi High Court by filing an application under Section 11 (Appointment of arbitrators) of the Arbitration Act for the appointment of an arbitrator (“Section 11 Petition”).

Issue

Whether the designation of New Delhi as the seat of arbitration conferred jurisdiction on the Delhi High Court to entertain the Section 11 Petition.

Arguments

Contentions of the Petitioner:

The Petitioner submitted that clause 10.1 of the Management Services Agreement clearly designated New Delhi as the seat of arbitration. The Petitioner also contended that the exclusive jurisdiction clause contained in clause 10.2 of the Management Services Agreement began with the words “subject to foregoing”.

The Petitioner placed reliance on the decision of the division bench of the Bombay High Court (“Bombay High Court”) in the case of Aniket SA Investments LLC v. Janapriya Engineers Syndicate Private Limited [2021(4) Mh.L.J.] (“Aniket SA Case”), wherein the Bombay High Court vested jurisdiction over the seat court as opposed to the court in which the parties had vested exclusive jurisdiction.

Contentions of the Respondent:

The Respondent contended that the jurisdiction to entertain the Section 11 Petition vests in the Calcutta High Court and not the Delhi High Court. The Respondent submitted that while the court having jurisdiction over the seat of arbitration would normally have exclusive jurisdiction over all matters arising from the arbitration proceedings, the jurisdiction for appointment of an arbitrator under Section 11 of the Arbitration Act is not be covered by this principle.

The Respondent relied on the judgements of the Hon’ble Supreme Court (“SC”) in the cases of Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited [(2017) 7 SCC 678] (“Indus Mobile Case”) and BGS SGS Soma JV v. NHPC Limited [(2020) 4 SCC 234] (“BGS Soma Case”), whereunder the SC held that the principle that designation of seat of arbitration is akin to an exclusive jurisdiction clause applied only to petitions for interlocutory relief under Section 9 (Interim measures, etc., by Court) of the Arbitration Act and for challenging arbitral awards under Section 34 (Application for setting aside arbitral awards) of the Arbitration Act.

The Respondent submitted that the proceedings under Section 11 of the Arbitration Act stands on a different footing as they do not deal with the ‘subject matter of arbitration’ but rather merely deal with the appointment of the person tasked with resolving disputes.

The Respondent also relied upon the judgement of the Calcutta High Court in the case of Commercial Division Bowlopedia Restaurants India Limited v. Devyani International Limited [(2021) 1 Cal LT 138] (“Commercial Division Case”) to suggest that, in any event, a forum selection clause would prevail over a seat selection clause in the context of domestic arbitration.

Observations of the Delhi High Court

The Delhi High Court observed that a plain reading of clauses 10.1 and 10.2 of the Management Services Agreement made it clear that New Delhi had been designated as the seat of arbitration. Further, the exclusive jurisdiction clause vesting exclusive jurisdiction in the courts at Kolkata commenced with the words “subject to foregoing”. Therefore, there was no real conflict between the arbitration seat clause and the exclusive jurisdiction clause. The text of the Management Services Agreement itself made the exclusive jurisdiction clause subservient to the arbitration seat clause.

In Delhi High Court’s view, the settled position of law with regard to exclusive jurisdiction of the seat court in matters arising out of an arbitration agreement applies equally to the appointment of an arbitrator under Section 11 of the Arbitration Act and proceedings under Sections 9 or 34 of the Arbitration Act.

The Delhi High Court observed that in the Indus Mobile Case, the SC had held that unlike in a civil proceeding under the Code of Civil Procedure, 1908, the parties to an arbitration agreement have liberty to choose a neutral venue to be designated as the seat of arbitration. The SC also opined that in arbitration law, the moment the seat is determined, it would vest the seat courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of an agreement between the parties.

The Delhi High Court further observed that the contention of the Respondent, that the legal principle of exclusive jurisdiction being granted to the seat court was confined only to proceedings under Sections 9 and 34 of the Arbitration Act, was a wrong interpretation of the BGS Soma Case. Besides, the SC in the BGS Soma Case opined that “pride of place is given to the juridical seat of the arbitral proceedings.” The Delhi High Court also observed that the facts of the Commercial Division Case, whereunder the Calcutta High Court had opined that in the context of domestic arbitration, a forum selection clause would prevail over a seat selection clause, did not apply to the facts of the instant case.

In Delhi High Court’s view, to exempt proceedings under Section 11 of the Arbitration Act from the exclusive jurisdiction of the seat court, would be inconsistent with the concept of party autonomy and the availability of a neutral venue as the seat of arbitration. The Delhi High Court observed that to the extent that our jurisprudence recognizes that the parties can repose their faith in a seat, which would otherwise not have jurisdiction over the subject matter of the proceedings, it is imperative that the appointment of the arbitral tribunal must also be made by such a neutral court. Any other interpretation would denude the significance of the neutral venue, allowing parties to approach any court falling under the definition of “court”, as defined in Section 2(1)(e) (Definitions) of the Arbitration Act, for the fundamental task of appointing the arbitrator.

The Delhi High Court further observed that in the Aniket SA Case, the exclusive jurisdiction clause was expressly “subject to” provisions of the arbitration clause, which designated Mumbai as the seat of arbitration and accordingly, the division bench of the Bombay High Court held that Mumbai had jurisdiction over the subject matter of the proceedings.

Decision of the Delhi High Court

In light of the above-mentioned observations, the Delhi High Court held that it had jurisdiction to entertain Section 11 Petition and referred the dispute between the Petitioner and the Respondent to arbitration to be held under the aegis of the Delhi International Arbitration Centre.

VA View:

In this judgement, the Delhi High Court has rightly held that the exclusive jurisdiction of the seat court in matters arising from the arbitration agreement applies both to the appointment of an arbitrator under Section 11 of the Arbitration Act and to proceedings under Sections 9 and 34 of the Arbitration Act.

The Delhi High Court has rightly observed that as soon as the seat of arbitration has been designated, it is akin to an exclusive jurisdiction clause. This judgement has re-emphasized the well settled principle of law that an arbitration clause, pursuant to which a place has been determined as the ‘seat’, would vest the courts of such place with exclusive jurisdiction for the purpose of regulating the arbitral proceedings.

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

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