Saturday, 24 November 2018

Whether parties can waive forum selection clause in arbitration proceeding?

 The key question which arises for consideration in this case is whether the forum selection clause can be said to be effective and, if so, whether it is binding on the parties. The second aspect of the question may be answered first. Every clause in an agreement between the parties is binding on the parties, but any covenant is also capable of being waived. If the parties have agreed to go to a particular Court, but one party commits breach of such agreement and goes to another Court, unless an objection in such regard is raised at the earliest opportunity by the other party, the Court cannot suo motu enforce the forum selection clause on the parties to the contract. A forum selection clause, just like most other clauses contained in an agreement between two parties, is capable of being waived.

IN THE HIGH COURT OF CALCUTTA

GA 1329 of 2018, APO 163 of 2018 and AP 924 of 2017

Decided On: 06.09.2018

Hirok Chowdhury Vs. Khagendra Nath Mandal and Ors.

Hon'ble Judges/Coram:
Sanjib Banerjee and Abhijit Gangopadhyay, JJ.

Citation: AIR 2018 Cal 272

1. A recent judgment of the Supreme Court reported at MANU/SC/0456/2017 : (2017) 7 SCC 678 (Indus Mobile Distribution Private Limited vs. Datawind Innovations Private Limited) has given rise to a number of matters all over the country in Courts which may not otherwise possess the jurisdiction to receive such arbitration petitions or applications. It must be said that in most of such cases the ratio decidendi in Indus Mobile has been misunderstood, particularly as the dictum in Indus Mobile has to be read down in view of the longstanding rule enunciated in the judgment reported at MANU/SC/0001/1971 : (1971) 1 SCC 286 (Hakam Singh v. Gammon India Ltd), which was not noticed in Indus Mobile. The judgment in Indus Mobile, however, cannot govern the situation that has arisen in this case even if the dictum therein were to be applied since the agreement between the parties herein did not indicate a chosen seat for the arbitral reference.

2. In Indus Mobile, the agreement between the parties contained a forum selection clause and also a clause designating the seat of the arbitral reference. Both clauses identified Mumbai as the appropriate place. It was in such context that the Supreme Court held that when the Courts at a place are identified by a forum selection clause and such place is also the agreed seat of the arbitral reference, the Courts at such place would have exclusive jurisdiction to entertain all petitions and applications under Part I of the Arbitration and Conciliation Act, 1996 (except, for obvious reasons, matters under Sections 8 and 11 thereof) pertaining to the relevant arbitration agreement. So much is necessary to be seen of the judgment in Indus Mobile in the present context.

3. The parties herein entered into an agreement for the sale of shares in a company by the name of Khoribari Cold Storage Private Limited. The agreement was entered into on January 21, 2013 and the first page of the agreement indicated that the place of the agreement was Siliguri. The agreement envisaged the sale by the appellants of the entire shareholding in the relevant company and the take-over by the respondents of the relevant company together with its assets and liabilities. The agreed consideration was indicated in the agreement.

4. The agreement of January 21, 2013 contained an arbitration clause to the following effect:

"11. Arbitration:

11.1 Disputes and differences by and between the parties with regard to, arising out of or touching this Agreement shall be referred to the sole arbitration of Sri _________________ of ________ (Sole Arbitrator), being a referral within the meaning of the Arbitration and Conciliation Act, 1996. The Sole Arbitrator shall have the right to decide the venue and procedure of arbitration. The directions and award of the Sole Arbitrator shall be binding on the Parties."

5. The said agreement also contained a forum selection or jurisdiction clause to the following effect:

"12. Jurisdiction:

12.1 Only Courts having territorial jurisdiction over the Said Property shall be entitled to receive, try and entertain actions between the Parties arising out of the aforesaid arbitration proceedings."

6. It appears that upon disputes and differences arising between the parties in relation to the said agreement of January 21, 2013, the respondents herein carried AP 1224 of 2014 to this Court under Section 9 of the 1996 Act. However, before effecting service of a copy of such petition on the appellants herein, the petition was dismissed for default by an order dated August 25, 2014. A copy of the relevant petition has been produced by the department pursuant to a direction issued by this Bench and it is evident that such petition was filed under Section 9 of the 1996 Act.

7. Earlier, the respondents herein carried a request under Section 11 of the 1996 Act for the constitution of an arbitral tribunal since the arbitration agreement between the parties quoted above did not name any arbitrator. Such request was disposed of by the designate of the Chief Justice of this Court by an order of June 10, 2014, naming a then practising lawyer of this court as the sole arbitrator. The arbitrator has pronounced his award on July 10, 2017.

8. On September 21, 2017 the respondents herein applied to this Court under Section 9 of the 1996 Act for post-award interim measures. It is the order dated April 30, 2018 passed on the post-award petition under Section 9 of the 1996 Act, that is challenged herein.

9. In the meantime, on October 6, 2017 the appellants herein applied under Section 34 of the 1996 Act for setting aside the arbitral award of July 10, 2017. Such petition was carried to the District Judge, Darjeeling and is pending in such Court. On November 8, 2017 the respondents have applied under Section 34 of the 1996 Act, challenging a part of the arbitral award. The respondents' challenge to a part of the arbitral award has been filed in this Court.

10. In the second paragraph of the judgment and order impugned dated April 30, 2018, it was noticed that one of the legal issues involved in the matter was whether the seat of the arbitral proceedings conclusively decides the jurisdiction of the Court to entertain any application after the publication of the award. It is evident, therefore, that an objection as to jurisdiction had been raised by the appellants herein before the Single Bench. However, in view of the pendency of the legal issue in a batch of appeals before this Bench, the Single Bench did not embark on an exercise to assess the objection as to jurisdiction taken by the appellants before the Single Bench.

11. It is the contention of the appellants herein that by virtue of the forum selection clause contained in the agreement of January 21, 2013, only Courts in Siliguri or in the district of Darjeeling would have authority to receive any petition or application under Part I of the 1996 Act pertaining to the relevant arbitration agreement. In such context, the appellants refer to Section 2(1)(e) of the 1996 Act. The appellants also seek to rely on two judgments of the Supreme Court: the first of them reported at (2008) 6 SCC 741; and, the other reported at MANU/SC/0231/2015 : (2015) 9 SCC 172.

12. To deal with the two judgments cited by the appellants, it must be said that such authorities are completely inapposite in the context of the legal issue which has arisen herein. In the first of the two cases, a challenge to an arbitral award was sought to be carried directly to the Supreme Court on the ground that the Supreme Court had appointed the arbitrator. The Supreme Court, however, clarified that since the Supreme Court had exercised its appellate authority, the petition for challenging the award had to be carried to the original Court which was the Court of a District Judge. Nothing decided in such judgment has any bearing on the legal issue which is relevant in the present case. In the second of the judgments cited, the matter pertained to an international arbitration. The paragraphs from the judgment relied upon indicate that the seat of the arbitration was chosen to be London. It is elementary in international law that when the parties to an arbitration agreement chose a neutral country as the seat of the arbitral proceedings, they do not chose it because of the climate in such neutral country; it is the laws of the neutral country which are embraced by their choice, unless the agreement between the parties indicates otherwise. In other words, if a party in Mumbai and a party in Sydney agree to take their arbitral reference to Geneva in Switzerland, it does not mean that the parties are fond of the lake in that picturesque city or the background of the snowcapped Alps; it implies that the parties embrace Swiss Law as the curial law and it would be Swiss Law that would govern the adjudication of the procedure adopted at the arbitration reference and the outcome of the arbitral reference. Of course, such a choice of seat for the arbitral reference is subject to a contrary agreement between the parties. However, what is true for international law may not hold the good for domestic arbitration for one good reason: if a party in Mumbai were to agree with a party in Kolkata to take their arbitral reference to Delhi, the chosen seat would have no impact on the choice of Court since the lex arbitri in Kolkata, Mumbai and Delhi would be the same.

13. The key question which arises for consideration in this case is whether the forum selection clause can be said to be effective and, if so, whether it is binding on the parties. The second aspect of the question may be answered first. Every clause in an agreement between the parties is binding on the parties, but any covenant is also capable of being waived. If the parties have agreed to go to a particular Court, but one party commits breach of such agreement and goes to another Court, unless an objection in such regard is raised at the earliest opportunity by the other party, the Court cannot suo motu enforce the forum selection clause on the parties to the contract. A forum selection clause, just like most other clauses contained in an agreement between two parties, is capable of being waived.

14. The respondents here question the efficacy of the forum selection clause on the ground that it does not indicate any place. They submit that the clause is vague and, as such, incapable of being implemented.

15. The significant words used in the forum selection in this case are "the said property". However, "the said property" is not defined in the agreement. An easy way to assess the matter would be to say that since the relevant expression which governs the situs of the forum is not defined in the agreement between the parties, the forum selection clause must be found to be ineffective and inoperative. However, that is not the way an agreement or a clause in an agreement is read, even by a Court.

16. When parties to a contract incorporate a particular clause, the intention behind the clause is of paramount importance. The parties to an agreement or any party thereto may act in breach of any covenant and face the consequence of the action, but a Court cannot disregard a clause on the ground that it is vague or meaningless without making any effort to ascertain the meaning that the parties may have intended to ascribe to such clause when they incorporated the same in the agreement. The legal principle is that a Court will not easily infer or conclude that any clause in a contract is meaningless or inoperative, unless it is very obviously so.

17. In the present case, the transfer that was intended to be obtained under the agreement of January 21, 2013 was of a lot of shares and also of a company together with its assets and properties. Seen from either perspective, both the shares in a company and the assets and properties of a company can be regarded as properties. The situs of the shares in a company is the registered office of the company. The situs of the assets and liabilities of the company is partly the registered office of the company and partly where any manufacturing or similar facility or office of such company may be situate. It is further evident from the agreement that the registered office of the concerned company is situate in Siliguri in the district of Darjeeling. It is equally apparent from the agreement itself that the manufacturing facility or cold storage of the company is also situate in the district of Darjeeling. Since both the registered office and the manufacturing facility of the company are situated within the district of Darjeeling, by virtue of Section 2(1)(e) of the 1996 Act, the principal Civil Court in the district of Darjeeling would have the authority to entertain any petition or application (except, for obvious reasons, under Sections 8 and 11) under Part I of the 1996 Act in terms of such forum selection clause. Thus, it is evident that the Court of the District Judge in Darjeeling is the Court identified by the forum selection clause and such Court has exclusive authority to receive any petition or application under Part I of the Act pertaining to the agreement of January 21, 2013 since it is a Court empowered under Section 2(1)(e) of the Act.

18. The next aspect of the matter is the impact of the first petition pertaining to the agreement of January 21, 2013 being filed on the Original Side of this Court in the context of Section 42 of the 1996 Act.

19. The word "Court" as contained in Section 42 of the 1996 Act has to be read in conjunction with the definition of the word "Court" in Section 2(1)(e) of the Act. On a reading of Section 42 of the 1996 Act, it cannot be said that notwithstanding a Court otherwise not having jurisdiction to entertain a petition or an application under Part I of the 1996 Act, if a matter is carried to such Court, such Court would be clothed with the jurisdiction to entertain all future petitions and applications under Part I of the 1996 Act pertaining to the same arbitration agreement. It must also be kept in mind that by virtue of the principle recognised in Section 21 of the Civil Procedure Code, an objection as to the jurisdiction of a Court has to be taken at the first instance. Further, a forum selection clause, just like any other clause in an agreement between the parties is also capable of being waived. Thus, even if a wrong forum is approached, but no objection as to such forum is taken, by virtue of Section 42 of the Act even such wrong forum becomes the exclusive forum to entertain all subsequent petitions and applications under Part I of the 1996 Act pertaining to the same arbitration agreement.

20. However, waiver is an overt act in the sense that waiver has been described to be the conscious relinquishment of a known right. In a case where a petition or application under Part I of the 1996 Act is filed by one of the parties to an agreement contrary to the forum selection clause contained in the agreement and the petition is not served on the other party and is dismissed for default, the question of waiver does not arise. This is exactly what happened in respect of AP No. 1224 of 2014 in this case. The respondents carried such petition under Section 9 of the 1996 Act, did not serve a copy thereof on the appellants herein and chose not to appear when the matter was taken up for hearing and suffered an order of dismissal for default. In the consideration as to whether merely by virtue of first petition under Part I of the 1996 Act being carried to this Court, this Court was the identified Court under Section 42 of the 1996 Act for receiving all future petitions and applications pertaining to the same arbitration agreement, it must be said that it would have been so, if this Court was competent to receive the first petition or if despite the incompetency of this Court the objection was not raised by the appellants herein. In the appellants not having a chance to raise such objection, if it is subsequently discovered that this Court may not have been the appropriate Court to receive a petition pertaining to the agreement of January 21, 2013 in view of the forum selection clause contained therein, the mere filing of the Section 9 petition in this Court first in point of time would be of no relevance.

21. It is also apparent that the second petition in point of time was the petition under Section 9 of the 1996 Act which has given rise to the present appeal. Such petition was filed a few days before the appellants carried their Section 34 petition to the District Judge, Darjeeling. It is here that the objection of the appellants assumes significance in the context of the forum selection clause and the authority of this Court to receive the petition. It is evident from the order impugned dated April 30, 2018 that such objection was, indeed, raised. The appellants did not waive their right to specifically enforce the forum selection clause contained in the agreement of January 21, 2013, but the Single Bench did not address the issue in view of the pendency before this Bench of the legal issue pertaining to the Indus Mobile judgment.

22. Not only did the appellants canvass the objection before the Single Bench, but the appellants have also carried the present appeal to vindicate their stand that this Court could not have received any petition or application under Part I of the 1996 Act pertaining to the agreement of January 21, 2013. As discussed above, the forum selection clause in clause 12 of the agreement of January 21, 2013 indicates that only a Court having jurisdiction over the property covered by such agreement would be authorised to receive any matter under Part I of the 1996 Act. As more fully discussed above, the only properties that could have been covered by the expression "the said property" used in clause 12 of the agreement between the parties could have been the shares in the company or the assets and liabilities of the company. Since both sets of such properties were situated in the district of Darjeeling, by virtue of Section 2(1)(e) of the 1996 Act the Court of the District Judge, Darjeeling is the exclusive forum chosen by the parties.

23. Accordingly, the judgment and order impugned dated April 30, 2018 is set aside on the ground that this Court had no jurisdiction to receive any petition or application pertaining to the agreement of January 21, 2013 by virtue of the forum selection clause contained therein. However, to the extent that the respondents herein enjoy an interim order by virtue of the order impugned, the tenure of such interim order is extended for a period of four weeks from date whereupon it will lapse unless expressly continued by the Court of the District Judge, Darjeeling to which the respondents have to carry their petition under Section 9 of the 1996 Act.

24. After the order is pronounced, the respondents seek a transfer of the petition under Section 34 of the 1996 Act to the Court of the District Judge, Darjeeling.

25. Instead of the cumbersome procedure that is involved in transferring the petition, the respondents are given liberty to file a fresh petition before the District Judge, Darjeeling under Section 34 of the 1996 Act, but the date of filing of such petition will be reckoned to be the date when it was filed in this Court, provided the petition before the District Judge, Darjeeling is filed within a period of four weeks from date.

26. In view of this order, AP No. 978 of 2017 and AP No. 924 of 2017 stand disposed of. The computer department should be informed accordingly so that the appropriate status of such matters is recorded.

27. APO No. 163 of 2018 and GA No. 1329 of 2018 are allowed as above.

28. There will be no order as to costs.


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