Home Legal News Only the HC Having Territorial Jurisdiction Over Place of Arbitration Can Entertain Application U/S 11 Of Arbitration Act: Orissa HC

Only the HC Having Territorial Jurisdiction Over Place of Arbitration Can Entertain Application U/S 11 Of Arbitration Act: Orissa HC

by Shreya
Orrisa HC NRI quota
The Bench of Chief Justice Mohammad Rafiq  of Orissa High Court refused to entertain a petition filed under Section 11 (6) of the Arbitration and Conciliation Act of India, 1996 observing that “the Court does not have the territorial jurisdiction to entertain the petition

Case Background

The case of the petitioner was that a dealership agreement (in January 2014, which was renewed from time to time) was entered into between the Petitioner – M/s. SJ Biz Solutions Pvt. Ltd. and the opposite party-M/s. Sany Heavy Industry India Pvt. Ltd., a manufacturer of heavy construction equipment. Lastly, the contract was extended on 01.01.2017 for a period of one year till 31.12.2017.

Pursuant to the agreement, the petitioner submitted Bank Guarantee for a sum of Rs.25,00,000/- drawn in the Bank of Baroda in favour of the opposite party.

Also Read: Vodafone Wins Rs 20,000 Crore Against Indian Government in Tax Arbitration Case

It was alleged that even as the dealership agreement was subsisting, the opposite party (M/s. Sany Heavy Industry India Pvt. Ltd.), illegally terminated the agreement on 04.09.2017, much prior to the expiry of the period.

Both the parties on various occasions decided that the dispute would be settled, however, the Petitioner didn’t get the payment as promised by the opposite party.

As the matter stood thus, the petitioner received a letter dated 05.04.2018 from Bank of Baroda, Barbil Branch, wherein it was intimated to the petitioner that they have received a notice dated 29.03.2018 from the opposite party invoking Bank guarantee in order to make payment of Rs.25,00,000/-.

The petitioner by its letter dated 23.07.2018 invoked the arbitration Clause 15.3 of the Dealership Agreement dated 17.01.2017 and requested the opposite party to appoint a sole Arbitrator.

The said letter was received by the opposite party on 01.08.2018. Since the opposite party failed to appoint the arbitrator within a period of 30 days, the petitioner was constrained to file this petition under Section 11(6) of the Act, 1996.

Court’s Analysis and Judgement

The Orissa High Court relied on the Supreme Court’s rulings in the case of Indus Mobile Distribution Pvt. Ltd. vs. Datawind Innovations Private Ltd. & Ors., (2017) 7 SCC 678, wherein, the Apex Court had revisited the 5-judge bench decision in the case Bharat Aluminium Company (BALCO) vs. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552.

In the Case of Indus Mobile (supra), the Supreme Court, while analyzing the definition of the ‘Court’ under Section 2 (1) (e) and Section 20 of the Act of 1996, had categorically held that the moment the seat (of arbitration) is designated; it is akin to an exclusive jurisdiction clause.

In that case, the seat of arbitration was decided by the parties to be Mumbai. The relevant clause of the agreement made it clear that the jurisdiction exclusively vests in the Mumbai courts.

The Supreme Court held that under the Law of Arbitration, unlike the code of Civil Procedure, which applies to suits filed in courts, a reference to “seat” is a concept by which a neutral venue can be chosen by the parties to an arbitration clause.

Further, the Orissa High Court in the present matter also observed that the Supreme Court, in a recently delivered decision in Brahmani River Pellets Limited vs. Kamachi Industries Ltd., (2020) 5 SCC 462, had considered the question as to whether the Madras High Court could exercise jurisdiction under Section 11(6) of the Act, 1996 to appoint the sole arbitrator at the instance of the respondent,? (Despite the fact that the agreement contained the clause that the venue of arbitration shall be ‘Bhubaneswar’).

Notably, the appellant in the case had challenged the said order (of the Madras HC) by questioning the jurisdiction of the Madras High Court on the ground that since the parties had agreed that the seat of arbitration shall be at Bhubaneswar, only the Orissa High Court has exclusive jurisdiction to appoint the arbitrator and not the Madras HC.

The respondent in the matter argued before the Supreme Court that since the cause of action arose at both the places, i.e., Bhubaneswar and Chennai, both Madras High Court, as well as Orissa High Court, will have the supervisory jurisdiction (However, this argument was not accepted by the Apex Court).

The Apex Court in Brahmani (supra) had observed,

Where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter and parties intended to exclude all other courts. In the present case, the parties have agreed that the “venue” of arbitration shall be at Bhubaneswar. Considering the agreement of the parties having Bhubaneswar as the venue of arbitration, the intention of the parties is to exclude all other courts. As held in Swastik, non-use of words like “exclusive jurisdiction”, “only”, “exclusive”, “alone” is not decisive and does not make any material difference.” (emphasis supplied)

Significantly, in Brahmani (Supra), the Supreme Court (bench comprising of Justice R. Banumathi and Justice AS Bopanna) held that – when the parties agreed to have the “venue” of arbitration at a particular place, only the High Court which has jurisdiction over the said place can entertain the petition seeking appointment of Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.

Notably, the Orissa High Court in the present matter, cited the ruling of the Supreme Court in BGS SGS Soma JV vs. NHPC Limited, (2020)4 SCC 234 as well, wherein the Apex Court examined Sections 20 and 2(1)(e) of the Act of 1996, in the context of clause 67.3(vii) of the agreement executed between the parties in that case which provided that “Arbitration proceedings shall be held at New Delhi/Faridabad, India“.

Following the ratio of the Constitution Bench decision in BALCO case (supra), it was held in BGS SGS Soma (supra) that the test for determination of juridical seat, wherever there is an express designation of a “venue”, and no designation of any alternative place as the “seat”, the seat of arbitration, where alternative venues for the conduct of proceedings are mentioned in the arbitration agreement, shall be determined on the basis of venue chosen for conducting arbitration proceedings, to the exclusion of all other courts, even the courts where part of the cause of action may have arisen.

It may be noted that, taking a different view from the Apex Court’s ruling in the case of Union of India v. Hardy Exploration and Production (India) Inc 2018 SCC Online SC 1640, the Supreme Court in BGS SGS Soma (supra) has held that the venue of arbitration will be the juridical seat of arbitration in the absence of contrary intention of the parties.

The Orissa High court in the present matter held that it does not have the territorial jurisdiction to entertain the present petition filed under Section 11 (6) of the Act, 1996, which was accordingly dismissed as not maintainable.

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