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The post is authored by Garv Sood, fourth-year student of B.A. LL.B (Hons.) at the University Institute of Legal Studies, Panjab University, Chandigarh.
1. INTRODUCTION
The domestic arbitration regime in India has for long, been plagued by the contentious issue of incompatibility between the seat of arbitration and forum selection clauses. A consequence of improper drafting of arbitration agreements or mere inadvertence, this conflict for primacy has kept the Courts divided. While in some cases courts have given precedence to the seat of arbitration over forum selection clauses, in others, courts have held that exclusive jurisdiction clauses ought to prevail over generic clauses designating seat of arbitration, since they signify the will of the parties at the time of entering into the agreement.
With the jurisprudence surrounding arbitration still developing and at a nascent stage, the Delhi High Court’s judgement in the case of Hunch Circle v. Futuretimes Technology India 2022 SCC OnLine Del 361 can be considered an anomaly. Justice Hari Shankar set a rather piquant precedent in his judgement wherein he was ruling on an application under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) seeking the appointment of an Arbitrator.
2. FACTS
The factual matrix of the case was such that the parties had entered into a contract which contained an arbitration clause designating the seat of arbitration as Delhi. In addition, the Governing Law clause of the contract envisaged that the courts at the ‘place where the main premises were located’ i.e. Gurugram, would have exclusive jurisdiction over the matters arising out of the agreement and especially so to grant interim relief and for enforcement of arbitral awards.
The petitioner had filed an application before the Delhi High Court for the appointment of an arbitrator. The question before the Court was whether the High Court, by virtue of Delhi being the seat of arbitration, was competent to appoint an Arbitrator under Section 11(6) of the Arbitration Act or not. Placing reliance on the fact that the agreement specifically vested jurisdiction for granting interim relief and enforcement of arbitral award with the courts at Gurugram, the Delhi High Court ruled that only the Court exercising territorial jurisdiction over Gurugram would be competent to appoint an Arbitrator. Therefore, the Court dismissed the application and held that the same ought to have been filed before the Punjab & Haryana High Court.
The Court reasoned that if it were to pass an order exercising jurisdiction under Section 11(6) by virtue of Delhi being the seat of arbitration, it would lead to a situation wherein applications under Section 9 and 34 would have to be filed before the competent courts at Gurgaon, as per the arbitration agreement, and that such a situation would run contrary to the scheme of Section 42 of the Arbitration Act which mandates that when any application is filed under Part-I of the Act before a court, that court alone shall have jurisdiction over the arbitral proceedings.
3. ANALYSIS
The rationale provided by the Court appears to be prima facie logical but becomes untenable in light of the fact that applications under Section 11 are not considered to be filed before a ‘court’, as per the definition provided under Section 2 (i)(e) of the Arbitration Act and thus cannot be considered for applying the statutory bar under Section 42. The Apex Court has affirmed, through a catena of judgements, that while exercising the power to appoint an Arbitrator under Section 11, the Chief Justice of a High Court or his designate is not considered to be acting as a ‘court’.
In Rodemadan India Ltd. v. International Trade Expo Centre Ltd., the Supreme Court rejected the argument that since a Section 9 application for interim relief had been filed before the Delhi High Court, an application under Section 11 was also required to be filed before the same court to abide by the exclusivity rule enshrined under Section 42. While rejecting the contention, the Court held that a Section 11 application is not to be taken into consideration while adjudicating upon the applicability of the bar of Section 42.
In the landmark judgement of State of West Bengal v. Associated Contractors, the Supreme Court reiterated that the exercise of jurisdiction under Section 11 does not fall within the ambit of the term ‘court’ as defined under Section 2(1)(e) of the Arbitration Act and thus does not attract the jurisdictional bar enshrined under Section 42. However, applications under Sections 9 and 34 are to be filed before the principal civil courts of original jurisdiction and thus fall within the definition of ‘court’. Simply put, if an application for interim relief under Section 9 has been filed before a court competent to adjudicate on the subject matter therein, no application can be filed before any court other than the one where the Section 9 application has been filed.
The Supreme Court had the opportunity to undertake an exercise to determine the objective of Section 42 in BGS SGS Soma JV v. NHPC Ltd. wherein it stated that the object of Section 42 was to prevent conflicts of jurisdictions of courts by placing the supervisory jurisdiction over all arbitration proceedings with one court exclusively.
Applying the principles laid down in the aforementioned cases, it can be logically concluded that even if applications under Section 9 and 34 were to be filed before the competent courts of Gurugram, as per the agreement between the parties, the Delhi High Court could still have exercised its jurisdiction under Section 11 without violating the provision laid down in Section 42. Therefore, the Delhi High Court erroneously placed reliance on the exclusivity rule under Section 42 to dismiss the application for the appointment of the arbitrator and directed the petitioner to file the same before the Punjab & Haryana High Court.
4. PRECEDENTS CITED
While passing the judgement, the Court primarily placed reliance on its judgement in the case of CARS24 Services (P) Ltd. v. Cyber Approach Workspace Ltd. wherein, the arbitration agreement designated Delhi to be the seat of arbitration with a specific stipulation that the parties would approach the competent courts at Haryana for the appointment of the arbitrator. Failing to reach a consensus on the appointment of an arbitrator, the petitioner filed an application under Section 11 before the Delhi High Court. The bench dismissed the application for want of jurisdiction and held that party autonomy could not be compromised and thus directed the petitioner to approach the competent court as per the terms of the arbitration agreement.
While the judgement of the court in CARS24 was justified and in line with the basic principles of arbitration, its application to Hunch Circle is somewhat flawed. The court in the present case, could have upheld party autonomy by simply recognising that the courts at Gurugram were competent to rule on applications under Sections 9 and 34. The conferment of such jurisdiction, however, would not have had the effect of overriding the supervisory jurisdiction vested in the Delhi High Court as the court at the seat of arbitration and hence, the court would have had the authority to pass an order on the Section 11 application.
Justice Hari Shankar also placed limited reliance on Mankastu Impex (P) Ltd. v. Airvisual Ltd. with respect to the principle laid therein, that when a seat is designated in the agreement and parties wish to confer jurisdiction to courts other than those of the seat for a specific purpose, the agreement between the parties must specifically so state since the courts at the seat are usually vested with supervisory jurisdiction over arbitration proceedings and requisite contrary indicia is required to override such jurisdiction.
In the present case, the agreement specifically vested jurisdiction to hear and decide Section 9 and 34 applications in the courts of Gurugram. However, extending that stipulation to the extent that Section 11 powers would also vest in the courts of Gurugram and not with those of the seat is untenable and would have the effect of making the seat of arbitration redundant since the courts at Delhi would be left with no jurisdiction over the arbitral proceedings whatsoever.
5. COMMENTS
The judgement of the court in Hunch Circle exhibits the recent judicial trend of conferring primacy to specific forum selection clauses to the extent that they override clauses designating the seat of arbitration. The Calcutta High Court even gave a ruling to the effect that the selection of a seat in domestic arbitrations only assumes significance in the absence of forum selection clauses, thereby setting a dangerous precedent that exclusive jurisdiction clauses would prevail over the seat by default and is sufficient contrary indicium to negate the same.
While party autonomy must be given primacy in arbitration, courts should exercise caution in passing judgements that entail the inevitable consequence of reducing the seat of arbitration to a mere redundancy. Ultimately, the designation of a particular place as the seat is also an expression of party autonomy. While choosing a place as the seat, the parties agree to confer supervisory jurisdiction over all matters pertaining to the arbitral proceedings to the courts exercising jurisdiction over the seat. Thus, the will of the parties cannot be categorised into a hierarchy and hence both, the specific forum selection clause and the seat of arbitration clause, need to be considered on the same footing.
If the parties, by mutual consent, add specific stipulations in the arbitration agreement, such conditions must be harmoniously construed with the powers of the courts at the seat until not possible. For instance, in the given case the Delhi High Court should have appointed an arbitrator being the court at the seat of arbitration and further, because there was no legal impediment in it making such an appointment since the bar of exclusivity under Section 42 was not applicable.
Given the complexities associated with incompatible clauses in an arbitration agreement, it will prove to be an uphill task for the judiciary to come up with standardised principles which can aid the decision-making process when the subject matter of controversy is of such nature.
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