Saturday, 6 May 2017

Whether parties to arbitration agreement can by consent can confer jurisdiction over court?

In         view       of     the     above      authoritative

pronouncements what emerges is that, by the operation of

Section 20 of the Act, the parties are free to confer

jurisdiction even on a Court that does not ordinarily have

                                

jurisdiction to entertain the matter.       Once the parties

exercise their right under Section 20 and confer jurisdiction

on a Court that does not have jurisdiction to entertain the

matter, such Court would also have jurisdiction, together

with the court/courts that would originally have jurisdiction

to try the matter. Therefore, the parties are at liberty to

exclude the jurisdiction of either of the said courts by

agreement. In the present case, though the cause of action

in this case has arisen within the jurisdiction of the Ist

additional District Court, N.Paravur, Ernakulam, the

jurisdiction of the said Court has been excluded by

agreement of the parties. Therefore, the parties have by

agreement confined jurisdiction over the subject matter,

only to the Courts at New Delhi. Consequently, the first

Additional District Court, North Paravur, Ernakulam does

not have jurisdiction to entertain the petition under Section

9 of the Act. For the above reason, it also lacked the power

to pass the orders appealed against.         As held by the

Supreme Court, to concede any such jurisdiction to the said

                             

Court would bring into operation, Section 42 of the Act

conferring jurisdiction for all further proceedings also on

the said Court thereby rendering Section 20 of the Act,

otiose.
IN THE HIGH COURT OF KERALA AT ERNAKULAM

                              PRESENT:

             MR.JUSTICE K.SURENDRA MOHAN
                                  &
             MR. JUSTICE K.ABRAHAM MATHEW

       17TH DAY OF OCTOBER 2016
                      Arb.A.No. 37 of 2016 

            ZILLION INFRA PROJECTS PVT. LTD.
          V

          A.I.KURIAKOSE
            
           Citation: AIR 2017(NOC) 209 Kerala


      Both these appeals are directed against orders passed

by the Ist Additional District Court, N.Paravur, Ernakulam in

two different Original Petitions, O.P.No.100 of 2016 and

O.P.No.101 of 2016. The parties are the same. The original

Petitions were filed by the first respondent under Section 9

of the Arbitration and Conciliation Act, 1996 (hereinafter

referred to as the Act for short) seeking interim orders of

attachment.     The District court has passed the orders

appealed against, issuing ex parte orders of attachment.

The appellant has filed these appeals challenging the said

orders. The contentions of the appellant in both these cases

is that, the Ist additional District Court, N.Paravur lacks

jurisdiction to entertain the Original Petitions. Since the

parties are the same and the issues that arise for

                            

consideration identical, both the appeals are heard and

disposed of together.

      2.    The appellant, a private limited company, has

entered into a contract with the second respondent, M/S

Bharat Petroleum Corporation limited, for the erection of

some plant and machinery. The appellant had given on sub

contract certain components of the work undertaken by it to

the first respondent herein under separate agreements

entered into between them for the purpose.                The

agreements in both these appeals are identical.        In the

contract, it has been agreed between the parties that

disputes if any that may arise between them shall be

referred to or resolved through arbitration in accordance

with the provisions of the Act. It has also been agreed upon

that, the seat of arbitration shall be at New Delhi. A further

clause confining the jurisdiction in respect of any

dispute/disputes arising out of the work order to the courts

at New Delhi also forms part of the agreement.            The

contention that is advanced before us is that, in view of the

                         

exclusion of jurisdiction of all other Courts with respect to

the disputes that may arise under the terms of the

agreement, the Ist Additional District Court, N.Paravur does

not have jurisdiction in the matter.       Consequently, the

orders appealed against are liable to be set aside, for want

of jurisdiction. In view of the limited question that arise for

consideration, other facts with respect to these cases are

not relevant.

      3.    According to Advocate Naveen Sharma who

appears for the appellant, in both these appeals, the parties

have, by entering into a contract evidenced herein by

Annexure A, agreed to the manner in which the disputes

between them are to be resolved.           Clause No.24 of

Annexure A in Aribtration Appeal No.38 of 2016 provides

that dispute/disputes arising out of the work order shall be

resolved by arbitration in accordance with the Act. The

venue for arbitration shall be at New Delhi. The clause

further provides that the Courts at New Delhi alone shall

have jurisdiction in respect of any dispute/disputes arising

                              

out of the work order in question.           Clause No. 23 of

Annexure A in Arb.Appeal No.37 of 2016 is similarly

worded. Therefore, according to the counsel, the parties

have agreed upon and decided on the manner in which their

disputes are to be resolved and also by agreement,

stipulated that the courts in New Delhi alone shall have

jurisdiction in the matter.         For the above reason, it is

contended that the District Court, Paravur does not have

jurisdiction in the matter and has erred in passing the

orders appealed against. The counsel places reliance on the

Constitutional Bench Decision of the Apex Court in Bharat

Aluminium Company v. Kaiser Aluminium Technical

Services Inc [(2012)9 SCC 552] as well as State of West

Bengal v. Associated Contractors [2015(1) SCC 32] and

a Division Bench Decision of the Andhra Pradesh High

Court in Jyothi Turbo Power Services Pvt Ltd v.

Shenzhen Shandong Nuclear Power Construction Co.

Ltd [2011 KHC 2499] to contend that once the parties have

chosen the venue of arbitration under Section 20 of the Act

                                

only the Courts at the said place would qualify as "Court"

under Section 2(1)(e) of the Act. Section 20, Section 2(i)(e)

as well as Section 42 of the Act have been considered,

interpreted and explained by the Apex Court in the said

manner, according to the counsel.           Therefore, it is

contended that, these appeals are only to be allowed by

setting aside the orders appealed against.

       4.   Advocate Vinod Bhat appears for the first

respondent. According to the learned counsel, the entire

cause of action has arisen within the jurisdiction of the

Additional District Court, N. Paravur. Since no part of the

cause of action has arisen within the jurisdiction of the New

Delhi Courts, according to the counsel, the parties cannot

confer jurisdiction on the courts at New Delhi. Section 20

confers a right on the parties only to choose the seat of

arbitration.      The seat of arbitration has no doubt been

chosen as New Delhi by the parties. However that does not

deprive the competent court of jurisdiction of its power to

entertain matters over which it has jurisdiction as per law.

                               

If at all, the appellant has any dispute regarding the

jurisdiction, it is contended that the same has to be raised

before the District Court, North Paravur itself. Therefore, it

is contended that these appeals are only to be dismissed.

      5.    Heard. As we have already noticed above, the

facts in these cases are not in dispute. For the purpose of

convenience of reference, we extract below clause No.24 of

of Annexure A agreement in Arb. Appeal No.38 of 2016.

             24) DISPUTES

             1.ARBITRATION:            In case of any dispute/

             disputes arising out of this work order, the same

             shall be referred and resolved only by way of

             arbitration in accordance with the provisions of the

             Arbitration and Conciliation Act, 1996 by a sole

             Arbitrator who shall be appointed by the Managing

             Director of the company Zillion Infraprojects

             Private Ltd and any award or final order passed by

             such appointed sole arbitrator shall not be

             questioned only on the ground that it was passed by

             an appointee of the Managing Director acting as

             such sole arbitrator. The procedure to be adopted

             for   such     arbitration   proceedings  shall   be

             determined by the sole Arbitrator at his sole

             discretion.    The fact that such sole arbitrator so

             appointed was in any manner connected with the

             subject matter of the dispute shall not be

                             

             considered      as  a   disqualification   for   such

             appointment.      The venue of the arbitration shall

             only be at New Delhi.

             2.JURISDICTION:         The courts at New Delhi

             alone shall have the exclusive jurisdiction in respect

             of any dispute/disputes arising out of this work

             order.

6.    A perusal of the above clause shows that -

i)    in case of any dispute/disputes arising out of the work

order, the same shall be referred and resolved by way of

arbitration in accordance with the provisions of the Act.

ii)   The sole Arbitrator shall be appointed by the Managing

Director of the appellant.

iii) Any Award or final order passed by such sole

Arbitrator shall not be questioned only on the ground that it

was passed by an appointee of the Managing Director

acting as such sole Arbitrator.

iv)   The procedure to be adopted for such arbitration

proceedings shall be determined by the sole arbitrator.

v)    The venue of arbitration shall only be at New Delhi.

      7.    It has been further agreed that the Courts at New

                                   

Delhi alone shall have exclusive jurisdiction in respect of

any dispute/disputes arising out of the work order.

      8.    The contentions of the parties have to be

considered in the context of the above clause. It is clear

from the above clause that the parties have unequivocally

agreed to have their disputes settled through arbitration, to

be held at New Delhi. It has also been agreed that, only the

Courts at New Delhi shall have jurisdiction in respect of the

disputes arising out of the work order.                Section 2(1)(e)

defines the expression "Court" as follows:-

      2(1)(e)              "Court" means--

      (i)    in   the   case   of  an    arbitration  other    than

             international commercial arbitration, the principal

             Civil Court of original jurisdiction in a district, and

             includes the High Court in exercise of its ordinary

             original civil jurisdiction, having jurisdiction to

             decide the questions forming the subject- matter of

             the arbitration if the same had been the subject-

             matter of a suit, but does not include any Civil

             Court of a grade inferior to such principal Civil

             Court, or any Court of Small Causes;

      (ii)   in the case of international commercial arbitration,

             the High Court in exercise of its ordinary original

             civil jurisdiction, having jurisdiction to decide the

             questions forming the subject-matter of the

                                  

             arbitration if the same had been the subject-matter

             of a suit, and in other cases, a High Court having

             jurisdiction to hear appeals from decrees of courts

             subordinate to that High Court.

The above provision had come up for consideration before

the Apex Court in Bharat Aluminium Company vs.

Kaiser Aluminium Technical Services Inc. (Supra). It

has been noticed by the Court that Section 20 confers a

right on the parties to agree on the place of arbitration.

Therefore, whether the expression "Court" was controlled

by the expression "subject-matter of the arbitration" or "

subject- matter of the suit" has been considered and

explained at paragraph 96 of the said judgment in the

following words:-

      96. Section 2(1)(e) of the Arbitration Act, 1996 reads as under:

       "2.   Definitions.--(1) In this Part, unless the context

       otherwise requires--

             (a)-(d)       *         *           *

             (e) 'Court' means the Principal Civil Court of

       Original Jurisdiction in a district, and includes the High

       Court in exercise of its ordinary original civil jurisdiction,

       having jurisdiction to decide the questions forming the

       subject-matter of the arbitration if the same had been the

       subject-matter of a suit, but does not include any civil

                          

       court of a grade inferior to such Principal Civil Court, or

       any Court of Small Causes;"

       We are of the opinion, the term "subject-matter of the

       arbitration" cannot be confused with             " subject-

       matter of the suit". The term "subject-matter" in Section

       2(1)(e) is confined to Part I.   It has a reference and

       connection with the process of dispute resolution. Its

       purpose is to identify the courts having supervisory

       control over the arbitration proceedings. Hence, it refers

       to a court which would essentially be a court of the seat

       of the arbitration process. In our opinion, the provision

       in Section 2(1)(e) has to be construed keeping in view

       the provisions in Section 20 which give recognition to

       party autonomy. Accepting the narrow construction as

       projected by the learned counsel for the appellants

       would, in fact, render Section 20 nugatory. In our view,

       the legislature has intentionally given jurisdiction to two

       courts i.e. the courts which would have jurisdiction

       where the cause of action is located and the courts where

       the arbitration takes place. This was necessary as on

       many occasions the agreement may provide for a seat of

       arbitration at a place which would be neutral to both the

       parties.    Therefore, the courts where the arbitration

       takes place would be required to exercise supervisory

       control over the arbitral process. For example, if the

       arbitration is held in Delhi, where neither of the parties

       are from Delhi, (Delhi having been chosen as a neutral

       place as between a party from Mumbai and the other

       from Kolkata) and the tribunal sitting in Delhi passes an

       interim order under Section 17 of the Arbitration Act,

                                  

       1996, the appeal against such an interim order under

       Section 37 must lie to the courts of Delhi being the

       courts    having     supervisory    jurisdiction over   the

       arbitration proceedings and the tribunal. This would be

       irrespective of the fact that the obligations to be

       performed under the contract were to be performed

       either at Mumbai or at Kolkota, and only arbitration is to

       take place in Delhi.     In such circumstances, both the

       courts would have jurisdiction i.e. the court within whose

       jurisdiction the subject-matter of the suit is situated and

       the courts within the jurisdiction of which the dispute

       resolution i.e. arbitration is located.

      9.    In paragraph 97, the Court has gone on to

categorically lay down as follows:-

             97.   The definition of Section 2(1)(e) includes

      "subject-matter of the arbitration" to give jurisdiction to

      the courts where the arbitration takes place, which

      otherwise would not exist.

      10. Therefore, the Court that has been defined by

Section 2(1)(e) has been unmistakably held to be the Court

having supervisory control over the Arbitration proceedings

or the Court at the seat of the arbitration process. In the

present case, the court of the arbitration process is at New

Delhi. The above aspect has been reiterated and affirmed

by a three Judge Bench of the Apex Court in State of West

                               

Bengal v. Associated Contractors (Supra).

      11. Rohinton Fali Nariman, J. has after considering

the question in the context of the applicability of Section 42

of the Act concluded the issue at paragraph 25 of the

judgment as follows:-

             25.   Our conclusions therefore on Section 2(1)(e) and

      Section 42 of the Arbitration Act, 1996 are as follows:-

             (a)   Section     2(1)(e)   contains   an   exhaustive

             definition marking out only the Principal Civil Court

             of Original Jurisdiction in a district or a High Court

             having original civil jurisdiction in the State, and no

             other court as "court" for the purpose of Part I of

             the Arbitration Act, 1996.

             (b) The expression "with respect to an arbitration

             agreement" makes it clear that Section 42 will apply

             to all applications made whether before or during

             arbitral   proceedings     or   after  an   award    is

             pronounced under Part I of the 1996 Act.

             (c )  However,      Section   42    only   applies   to

             applications made under Part I if they are made to a

             court as defined.     Since applications made under

             Section 8 are made to judicial authorities and since

             applications under Section 11 are made to the Chief

             Justice or his designate, the judicial authority and

             the Chief Justice or his designate not being court as

             defined, such applications would be outside Section

             42.

                          

             (d)   Section 9 applications being applications

             made to a court and Section 34 applications to set

             aside arbitral awards are applications which are

             within Section 42.

             (e)   In no circumstances can the Supreme Court

             be "court" for the purposes of Section 2(1)(e), and

             whether the Supreme Court does or does not retain

             seisin after appointing an arbitrator, applications

             will follow the first application made before either a

             High Court having original jurisdiction in the State

             or a Principal Civil Court having original jurisdiction

             in the district, as the case may be.

             (f)   Section 42 will apply to applications made

             after the arbitral proceedings have come to an end

             provided they are made under Part I.

             (g)   If a first application is made to a court which

             is neither a Principal Court of Original Jurisdiction

             in a district    or a High Court exercising original

             jurisdiction in a State, such application not being to

             a court as defined would be outside Section 42.

             Also, an application made to a court without

             subject-matter jurisdiction would be outside Section

             42.

      12. In         view       of     the     above      authoritative

pronouncements what emerges is that, by the operation of

Section 20 of the Act, the parties are free to confer

jurisdiction even on a Court that does not ordinarily have

                                

jurisdiction to entertain the matter.       Once the parties

exercise their right under Section 20 and confer jurisdiction

on a Court that does not have jurisdiction to entertain the

matter, such Court would also have jurisdiction, together

with the court/courts that would originally have jurisdiction

to try the matter. Therefore, the parties are at liberty to

exclude the jurisdiction of either of the said courts by

agreement. In the present case, though the cause of action

in this case has arisen within the jurisdiction of the Ist

additional District Court, N.Paravur, Ernakulam, the

jurisdiction of the said Court has been excluded by

agreement of the parties. Therefore, the parties have by

agreement confined jurisdiction over the subject matter,

only to the Courts at New Delhi. Consequently, the first

Additional District Court, North Paravur, Ernakulam does

not have jurisdiction to entertain the petition under Section

9 of the Act. For the above reason, it also lacked the power

to pass the orders appealed against.         As held by the

Supreme Court, to concede any such jurisdiction to the said

                             

Court would bring into operation, Section 42 of the Act

conferring jurisdiction for all further proceedings also on

the said Court thereby rendering Section 20 of the Act,

otiose.

      For the foregoing reasons, these appeals are allowed.

The order dated 04.08.2016 of the Ist Additional District

Court, N.Paravur in I.A.No.711 of 2016 in Arbitration

O.P.No.101 of 2016 and the order dated 04.08.2016 in

I.A.No.709 of 2016 in Arbitration O.P.No.100 of 2016 are

set aside.


                                           Sd/-
                                    K.SURENDRA MOHAN
                                         JUDGE


                                           Sd/-
                                    K. ABRAHAM MATHEW
                                          JUDGE


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