The Seat Of Arbitration Is The Place Where Arbitral Proceedings Are Anchored

^[1]In a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) filed to challenge an arbitral award passed by the District Level Micro and Small Enterprises Facilitation Council, Pathankot (‘Facilitation Council’) constituted under the Micro, Small and Medium Enterprises Development Act, 2006 (‘MSME Act’), a Single Judge Bench of Prateek Jalan, J. rejected the petition while stating that the circumstances of the case do not suggest that the seat of arbitration was at any place other than the venue.

Facts:

The respondent was a registered medium enterprise under the MSME Act. It entered into an agreement dated 21-01-2016 with Delhi Tourism and Transportation Development Corporation (DTTDC), the petitioner, for the construction of a bus depot at Kharkhari Nahar Village, New Delhi. After a few disputes arose between the parties, the respondent claimed payment of its alleged dues under the agreement before the Facilitation Council, because of which, the jurisdiction of the Federation Council was invoked under Section 18 of the MSME Act. The conciliation proceedings were adopted by the Facilitation Council which were closed on 15-10-2020 and the reference was taken up for arbitration. By the impugned award, the Facilitation Council awarded a sum of Rs. 4,11,55,845/- to the respondent. The respondent objected to the territorial jurisdiction of the present Court to entertain this petition by mentioning that since Section 18(4) of the MSME Act vests jurisdiction in a Facilitation Council to act as an arbitrator or conciliator in disputes between suppliers located within its jurisdiction and a buyer located anywhere in India, Pathankot would be the seat of arbitration proceedings. DTTDC relied on an exclusive jurisdiction clause contained in Article 7 of an ‘Integrity Pact’, which formed part of the tender documents. It was contended that because of this clause in the agreement, jurisdiction was conferred upon the Courts in Delhi.

Issue:

The following issues were framed for consideration by the court:

1. Whether the Agreement between the parties contain an exclusive jurisdiction clause for the purposes of the present petition?

1. Whether the seat of arbitration was, in any event, in Delhi?

Judgment:

The Court noted that the General Conditions of Contract did not contain an exclusive jurisdiction clause and the seat of arbitration was also not stipulated. However, Clause 25 provided that the venue of the arbitration “shall be such place as may be fixed by the arbitrator in his sole discretion”. Further, the Court noted that the dispute-resolution mechanism under the main agreement and the integrity pact were intended to be entirely different since Clause 7(5) of the pact stated that disputes and differences arising under the pact and questions thereof, shall not be subject to arbitration. After properly interpreting the contractual terms, the Court stated that the parties did not expressly provide for the seat of the arbitration under the Agreement, and only provided that the venue would be at the discretion of the arbitrator. The Court referred to Indian Oil Corporation Ltd. v. FEPL Engineering (P) Ltd., 2019 SCC OnLine Del 10265 wherein the Division Bench held that the present Court had the jurisdiction to entertain the petition under Section 34 of the Arbitration Act, due to an exclusive jurisdiction clause contained in the agreement. This judgment was subsequently followed in IRCON International Ltd. v. Pioneer Fabricators Pvt. Ltd., 2023 SCC OnLine Del 1811. Further, the Court stated that both the above judgments were on the basis that the exclusive jurisdiction clause would not be overridden by the conferment of jurisdiction upon a particular MSME Facilitation Council, which is why it was concluded that there was no exclusive jurisdiction clause present. The Court also stated that the above judgments were not applicable in the present case.

The Court stated that it was settled law that the seat of arbitration proceedings is to be determined based on connection with the arbitral proceedings, and not with the cause of action for the underlying disputes. Further, the Court reiterated that in the absence of any significant contrary indicia, “the inexorable conclusion is that the stated venue is actually the juridical seat of the arbitral proceeding”, as was said by the Supreme Court in BGS SGS SOMA JV v. NHPC, (2020) 4 SCC 234. The Court stated that it found no reason to depart from the general principle that the seat of arbitration was at the place where the arbitration was conducted since the proceedings were admittedly conducted exclusively in Pathankot and the award was also made there. Thus, the Court held that it did not have the jurisdiction to entertain the petition, which is why the same was rejected.

Analysis

In this judicial decision, the Court tackled the complex nature of arbitration clauses within a contract where neither an exclusive jurisdiction clause nor a specific seat of arbitration were stipulated. The prevailing issue was the interpretive challenge concerning Clause 25, which granted an arbitrator the unilateral authority to fix the arbitration venue, contrasting with the explicit non-arbitration stance on disputes arising under the integrity pact per Clause 7(5). Despite referencing precedents such as Indian Oil Corporation Ltd. v. FEPL Engineering and IRCON International Ltd. v. Pioneer Fabricators Pvt. Ltd., which dealt with explicit exclusive jurisdiction clauses and their non-pre-emption by MSME Facilitation Councils’ jurisdiction, the Court found these inapplicable in the current scenario due to the absence of a similar clause. Furthermore, the Court leaned on the doctrine established in BGS SGS SOMA JV v. NHPC by the Supreme Court, emphasizing the arbitration ‘venue’, as frequently utilized, serves legally as the ‘seat’, and thus represents the appropriate jurisdiction for dispute resolution actions. This was supported by the facts that the proceedings and the final award issuance occurred exclusively in Pathankot. Therefore, acknowledging Pathankot as the juridical seat of the arbitration, the Court ruled it lacked the jurisdiction to entertain the petition, leading to its dismissal. This case underlines the crucial importance of clearly delineating arbitration parameters within contracts to avoid jurisdictional ambiguities.

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BEFORE THE HON’BLE DELHI HIGH COURT

DELHI TOURISM & TRANSPORTATION DEVELOPMENT CORPN. v. SATINDER MAHAJAN

O.M.P. (COMM) 337 of 2021

Judgment dated 1st MAY, 2024