Only Court Having Territorial Jurisdiction Over Seat Has Jurisdiction Over Arbitral Proceedings

Summary:

[1]A Single Judge Bench consisting of Hon’ble Mr. Justice C. Hari Shankar dealt with the present case. In the present case, the dispute arose from a Dealership Agreement dated 01.04.2020, which was subject to arbitration. The matter was adjudicated by the Delhi High Court, with the sitting judges being Hon’ble Ms. Justice Prathiba M. Singh and Hon’ble Mr. Justice Suresh Kumar Kait. The Court addressed issues related to the exclusive jurisdiction clause in the arbitration agreement, ultimately ruling on September 20, 2024, regarding the enforcement of the arbitral award and the jurisdictional implications arising from the agreement. The legal contention was over jurisdiction, as the dealership agreement had set the arbitration seat in Delhi, while Grand Motors argued that the Madhya Pradesh court had no territorial jurisdiction. The court ultimately ruled in favour of V.E. Commercial, permitting arbitration under the Arbitration and Conciliation Act, 1996.

Facts:

A dispute arose between the parties in a Dealership Agreement, and subsequently, they were referred to arbitration by an order of the Indore Bench of the High Court of Madhya Pradesh dated 13th May 2020. Clause 32 of the Agreement dealt with dispute resolution and granted exclusive jurisdiction in all matters arising from the agreement to the Courts of Indore. The said clause also designated the seat of the arbitration exclusively at Delhi. At the Section 11 stage, the petitioner raised the issue of the High Court of Madhya Pradesh not having jurisdiction over arbitral proceedings. The same was rejected by observing that the parties have conferred exclusive jurisdiction to the Courts in Indore and designated Delhi as the venue of the arbitration. The parties did not confer any power to the Courts in Delhi to adjudicate the arbitral proceedings.

Issue:

Which court would exercise supervisory jurisdiction over the arbitral proceedings in the present case?

Judgment:

The Bench held that the decision of the High Court of Madhya Pradesh cannot be treated as laying down the correct position of law. The High Court proceeded on an erroneous premise that the arbitration agreement had fixed the venue or place of sitting at Delhi when, in reality, the agreement had fixed the seat of the arbitration at Delhi. The Supreme Court in BGS SGS Soma JV has laid down the law relating to which court would have the curial territorial jurisdiction over arbitral proceedings. The court distinguished between sub-sections (1) and (2) and sub-section (3) of Section 20 in the context of the seat and venue of the arbitration. The court also considered the decision rendered in BCC Developers & Promoters Pvt Ltd v. UOI, where the court cited BBR (India). The position of law emerging from BBR (India), which relies upon BGS SGS Soma JV, is clear. Sub-sections (1) and (2) of Section 20 refer to the “seat” of the arbitration, and sub-section (3) refers to the venue of the arbitration.

Clause 32 of the agreement fixed Delhi as the seat of the arbitration. When the seat of arbitration is fixed by the contract, the courts at Indore would not have the curial jurisdiction over the arbitral proceedings. The courts that have territorial jurisdiction over the seat of arbitration are the courts that can exercise supervisory jurisdiction over the arbitral proceedings, including jurisdiction under Section 34 of the Arbitration Act.

The Bench further held that a mere dismissal in limine of the SLP filed against the decision of the High Court of Madhya Pradesh does not amount to an approval of the decision. The Supreme Court did not lend its approval to the correctness of the decision of the High Court under challenge, nor does the decision merge with the order passed by the Supreme Court. Therefore, the said dismissal of the SLP cannot restrict the petitioner from approaching the High Court of Delhi on the principle of res judicata.

On the touchstone of Section 42, the law laid down in BGS SGS Soma JV regarding this is clear. If the court first approached does not have jurisdiction to deal with the arbitral proceedings, Section 42 cannot apply to confer that court the jurisdiction to deal with matters arising out of the said proceedings. Applicability of Section 42 is restricted to the courts initially approached having the jurisdiction.

The aspect of BGS SGS Soma JV and BBR (India) altering the position of law, the court held that these judgments do not offer any clarificatory caveat regarding the overruling of earlier view as that in BALCO. By virtue of Article 141 of the Constitution, the decisions rendered by the Supreme Court become the law. Therefore, it cannot be said that BGS SGS Soma JV and BBR (India) altered the position of law regarding.

In light of the BGS SGS Soma JV and BBR (India) rulings, the order passed by the High Court of Madhya Pradesh cannot be passed within the lawful exercise of jurisdiction. Therefore, the petitioner cannot be denied the jurisdiction of the High Court of Delhi based on the impugned order passed by the High Court of Madhya Pradesh. The seat of the arbitration, being fixed at Delhi, clocks curial and supervisory jurisdiction over the arbitration proceedings only on the court at Delhi.

Analysis:

This judgment serves as an important clarification on the issue of territorial jurisdiction in arbitration proceedings under the Arbitration and Conciliation Act, 1996. It delineates the role of a designated “seat” in determining which court holds jurisdiction for applications made under Section 9 of the Act, establishing that such applications must be filed in the court located at the “seat.” Furthermore, the judgment reinforces that, in the absence of an agreed-upon “seat,” the court where the earliest application is filed can assume exclusive jurisdiction, thereby ensuring effective control over arbitration proceedings. This clarity not only aids legal practitioners in strategizing the initiation of arbitration-related processes but also enhances the predictability of jurisdictional outcomes for parties entering arbitration agreements.

[1] https://ksandk.com/wp-content/uploads/grand-motors-sale-and-services-pvt-ltd-v-ve-commercial-vehicles-ltd-561720.pdf

BEFORE THE HON’BLE HIGH COURT OF DELHI AT NEW DELHI

M/S GRAND MOTORS SAKES AND SERVICES PVT LTD. V. M/S VE COMMERCIAL VEHICLES LTD.

O.M.P. (COMM) 248/2023, I.A. 12798/2023 & I.A.12801/2023

JUDGMENT DATED 9TH SEPETEMBER 2024