Madhya Pradesh High Court
V.E. Commercial Vehicles Ltd. Thr. J.S. ... vs Grand Motors Sales And Services ... on 13 May, 2020
Author: Prakash Shrivastava
Bench: Prakash Shrivastava
1 AC No.16/19
HIGH COURT OF MADHYA PRADESH
BENCH AT INDORE
(SB: HON. SHRI JUSTICE PRAKASH SHRIVASTAVA)
AC No.16/2019
V.E. Commercial Vehicles Ltd. .... Applicant
Versus
Grand Motor Sales & Services Pvt. Ltd. ... Respondent
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Ms. Gunjan Sinha Jain with Shri Manish Verma, learned
counsel for the applicant.
Shri Shashwat Seth, learned counsel for the respondent.
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Whether approved for reporting :
ORDER
(Passed on 13th May, 2020) 1/ By this application under Section 11(5) of the Arbitration and Conciliation Act, 1996 read with Rule 2 of the Scheme for Appointment of Arbitrator by the Chief Justice of Madhya Pradesh High Court Rules, 1996, applicant has made a prayer for appointment of the independent arbitrator to adjudicate the dispute between the parties.
2/ The case of the applicant is that the respondent had entered into the dealership agreement dated 1.4.2017 with the applicant granting dealership of VE Commercial Vehicles Ltd. for the region of Trivandrum, Kerala. Under the said agreement, the respondent was to place order for vehicle and spares with the applicant in advance and was required to make payment against the order through cash or Cheque or Bank Draft or 2 AC No.16/19 irrevocable guarantee. Further case of the applicant is that the respondent had committed default in clearing the payments due to the applicant against the vehicles and spares supplied by it, and the respondent had involved itself in siphoning of the money by collecting the same from the third parties against the booking of the vehicle and not making the payment of it to the applicant. According to the applicant, the default of payment of Rs.3,29,24,424/- was made by the respondent and the Form-C under the Sales Tax Act was also not provided and the list of customers and financiers was not shared in terms of the agreement. Hence, the applicant had issued the termination notice dated 25.5.2018 terminating the dealership agreement dated 1.4.2017 and requiring the respondent to clear the aforesaid outstanding amount. The respondent had given three cheques for a sum of Rs.2,05,00,000/- to the applicant towards the partial discharge of the liability, but the cheques were dishonoured. On the assurance of the respondent, the cheques were re-represented and they were again dishonoured. Hence the proceedings under Section 138 of the Negotiable Instruments Act were initiated against the respondent. The applicant had also issued notice dated 5.9.2018 invoking the arbitration clause and proposing the name of the sole arbitrator, but the said request was not acceded to. Hence, he has filed the present AC.
3/ The respondents have filed their reply taking the stand that the notice dated 25.5.2018 for terminating the dealership agreement was duly replied and detailed response was sent by email dated 15.6.2018 and since there was no response to the said reply, therefore, it can be inferred that the allegation made therein stood withdrawn. A further stand has 3 AC No.16/19 been taken that the applicant has not adhered to the terms of the agreement and that this Court has no jurisdiction to entertain the application under Section 11(5) of the Act, as by the agreement the seat of arbitration has been fixed by the parties at Delhi. An objection has also been raised that no cause of action has arisen within the territorial jurisdiction of this Court and no case for appointment of arbitrator is made out.
4/ The objections have been duly replied by way of rejoinder by the applicant.
5/ The arbitration case has been opposed by the counsel for the respondent on the sole ground that this Court does not have jurisdiction to appoint arbitrator under Section11 of the Act.
6/ The objection is that in terms of the arbitration clause the jurisdiction lies with the Delhi Court and that no cause of action has arisen within the territorial jurisdiction of this Court.
7/ Heard counsel for the parties.
8/ It is not in dispute that the dealership agreement
dated 1.4.2017 containing the arbitration clause was executed between the parties. Clause 32 of the agreement relating to resolution of dispute through arbitration as also jurisdiction reads as under:-
"32. Dispute Resolution and Jurisdiction The parties hereto shall endeavor to settle by mutual conciliation any claim, dispute, or controversy ("Dispute") arising out of, or in relation to, this Agreement, including any Dispute with respect to the existence or validity hereof, the interpretation hereof, the activities performed hereunder, or the breach hereof. Any Dispute which cannot be so resolved through such conciliation within 30 days or such extended period as the parties may 4 AC No.16/19 agree, shall be finally settled under the provisions of the Indian Arbitration and Conciliation Act, 1996 and Rules made thereunder and any statutory amendments/modifications thereof, in Delhi. The seat of arbitration shall always be at Delhi. The Courts of Indore shall have exclusive jurisdiction in all matters arising under the Agreement."
9/ A bare reading of the aforesaid clause reveals that the parties had mutually agreed that the courts of Indore shall have exclusive jurisdiction in all matters arising under the agreement. So far as the mention that "the seat of arbitration shall always be at Delhi" in the arbitration clause is concerned, the word "seat" has been used in this clause in reference to the place of holding the sitting of the arbitration tribunal and not for determining the jurisdiction of the Court.
10/ Similar issue came up before the court of appeal in England in Naviera Amazonica Peruana.A. wherein the arbitration clause contained the provision for jurisdiction of the Court in Lima Peru in the event of judicial dispute and at the same time it also contained the provision that the Arbitration would be governed by the English Law and procedural law of arbitration shall be the England Law. The Court of Appeal held that the parties intended that the dispute should be arbitrated at London, but it would always be open to the Arbitral Tribunal at London to hold hearing in Lima Peru if this would thought to be convenient even though the Seat of Forum of the Arbitration would remain in London.
11/ The same issue again came up before the High Court of Justice Queen Bench Division, Technology and Construction Court in Braus of Doume Wind Farm (Scotland) Ltd. Vs. Alfred McAFILEINE Business Services Ltd. In that 5 AC No.16/19 case the arbitration clause provides that "this arbitration agreement is subject to English Law and the Seat of Arbitration shall be Glasgow, Scotland.
12/ The Court held that the parties agreed that essentially the English Courts had exclusive jurisdiction to settle the dispute.
13/ The Supreme Court in the matter of Bharat Aluminium Company Vs. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552 has taken note of the judgment in the case of NAVIERA (supra) and ALFRED (supra) in this regard as under:-
"104.The Court in Naviera Amazonica case also recognized the proposition that "there is equally no reason in theory which precludes parties to agree that an arbitration shall be held at a place or in country X but subject to the procedural laws of Y".
But it points out that in reality parties would hardly make such a decision as it would create enormous unnecessary complexities. Finally it is pointed out that it is necessary not to confuse the legal "seat" of an arbitration with the geographically convenient place or places for holding hearings.
105. On examination of the facts in that case, the Court of Appeal observed that there is nothing surprising in concluding that these parties intended that any dispute under this policy, should be arbitrated in London. But it would always be open to the Arbitral Tribunal to hold hearings in Lima Peru if this were thought to be convenient, even though the seat or forum of the arbitration would remain in London.
106. A similar situation was considered by the High Court of Justice Queen's Bench Division Technology and Construction Court in Braes of Doune Wind Farm (Scotland) Limited v Alfred McAlpine Business Services Limited (supra). In this case the Court considered two applications relating to the First Award of an arbitrator. The award related to an EPC (Engineering, Procurement and Construction) 6 AC No.16/19 Contract dated 4th November, 2005 ("the EPC Contract") between the Claimant ("the Employer") and the Defendant ("the Contractor") whereby the Contractor undertook to carry out works in connection with the provision of 36 wind turbine generators (the "WTGs") at a site some 18 kilometres from Stirling in Scotland. This award dealt with enforceability of the clauses of the EPC Contract which provided for liquidated damages for delay. The claimant applied for leave to appeal against this award upon a question of law whilst the Defendant sought, in effect, a declaration that the Court had no jurisdiction to entertain such an application and for leave to enforce the award. The Court considered the issue of jurisdiction which arose out of application of Section 2 of the (English) Arbitration Act, 1996 which provides that - "2. Scope of application of provisions.-(1) The provisions of this Part apply where the seat of the arbitration is in England and Wales or Northern Ireland."
106.1. The Court notices the singular importance of determining the location of "juridical seat" in terms of Section 3, for the purposes of Section 2, in the following words:-
"I must determine what the parties agreed was the "seat" of the arbitration for the purposes of Section 2 of the Arbitration Act 1996. This means by Section 3 what the parties agreed was the "juridical" seat. The word "juridical" is not an irrelevant word or a word to be ignored in ascertaining what the "seat" is. It means and connotes the administration of justice so far as the arbitration is concerned. It implies that there must be a country whose job it is to administer, control or decide what control there is to be over an arbitration."
106.2. Thus, it would be evident that if the "juridical seat" of the arbitration was in Scotland, the English Courts would have no jurisdiction to entertain an application for leave to appeal. The Contractor argued that the seat of the arbitration was Scotland whilst the Employer argued that it was England. There were to be two contractors involved with the project.
106.3. The material Clauses of the EPC Contract were:
1.4.1. The Contract shall be governed by and 7 AC No.16/19 construed in accordance with the laws of England and Wales and, subject to Clause 20.2 (Dispute Resolution), the Parties agree that the courts of England and Wales have exclusive jurisdiction to settle any dispute arising out of or in connection with the contract.
a) ... any dispute or difference between the Parties to this Agreement arising out of or in connection with this Agreement shall be referred to arbitration.
b) Any reference to arbitration shall be to a single arbitrator... and conducted in accordance with the Construction Industry Model Arbitration Rules February 1998 Edition, subject to this Clause (Arbitration Procedure)...
c) This arbitration agreement is subject to English Law and the seat of the arbitration shall be Glasgow, Scotland. Any such reference to arbitration shall be deemed to be a reference to arbitration within the meaning of the Arbitration Act, 1996 or any statutory re-enactment."
106.4. The Arbitration was to be conducted under the Arbitration Rules known colloquially as the "CIMAR Rules". Rule 1.1 of the Rules provided that:
"These Rules are to be read consistently with the Arbitration Act 1996 (the Act), with common expressions having the same meaning." Rule 1.6 applied:
a) a single arbitrator is to be appointed, and
b) the seat of the arbitration is in England and Wales or Northern Ireland.
106.5. The court was informed by the parties in arguments that Scottish Court's powers of control or intervention would be, at the very least, seriously circumscribed by the parties' agreement in terms as set out in paragraph 6 of the judgment. It was further indicated by the counsel that the Scottish Court's powers of intervention might well be limited to cases involving such extreme circumstances as the dishonest procurement of an award.
106.6. In construing the EPC, the court relied upon the principles stated by the Court of Appeal in Naviera Amazonica Peruana SA (supra).
106.7. Upon consideration of the entire material, the Court formed the view that it does have jurisdiction to entertain an application by either party to the contract 8 AC No.16/19 in question under Section 69 of the (English) Arbitration Act, 1996. The court gave the following reasons for the decision:-
(a) One needs to consider what, in substance, the parties agreed was the law of the country which would juridically control the arbitration.
(b) I attach particular importance to Clause 1.4.1. The parties agreed that essentially the English (and Welsh) Courts have "exclusive jurisdiction" to settle disputes. Although this is "subject to" arbitration, it must and does mean something other than being mere verbiage. It is a jurisdiction over disputes and not simply a court in which a foreign award may be enforced. If it is in arbitration alone that disputes are to be settled and the English Courts have no residual involvement in that process, this part of Clause 1.4.1 is meaningless in practice. The use of the word "jurisdiction" suggests some form of control.
(c) The second part of Clause 1.4.1 has some real meaning if the parties were agreeing by it that, although the agreed disputes resolution process is arbitration, the parties agree that the English Court retains such jurisdiction to address those disputes as the law of England and Wales permits. The Arbitration Act, 1996 permits and requires the Court to entertain applications under Section 69 for leave to appeal against awards which address disputes which have been referred to arbitration. By allowing such applications and then addressing the relevant questions of law, the Court will settle such disputes;
even if the application is refused, the court will be applying its jurisdiction under the Arbitration Act, 1996 and providing resolution in relation to such disputes.
(d) This reading of Clause 1.4.1 is consistent with Clause 20.2.2 (c) which confirms that the arbitration agreement is subject to English Law and that the "reference" is "deemed to be a reference to arbitration within the meaning of the Arbitration Act, 1996." This latter expression is extremely odd unless the parties were agreeing that any reference to arbitration was to be treated as a reference to which the Arbitration Act, 1996 was to apply. There is no definition in the Arbitration Act, 1996 of a "reference to arbitration", which is not a statutory term of art.
9 AC No.16/19The parties presumably meant something in using the expression and the most obvious meaning is that the parties were agreeing that the Arbitration Act, 1996 should apply to the reference without qualification.
(e) Looked at in this light, the parties' express agreement that the "seat" of arbitration was to be Glasgow, Scotland must relate to the place in which the parties agreed that the hearings should take place. However, by all the other references the parties were agreeing that the curial law or law which governed the arbitral proceedings establish that, prima facie and in the absence of agreement otherwise, the selection of a place or seat for an arbitration will determine what the curial law or "lex fori" or "lex arbitri" will be, we consider that, where in substance the parties agree that the laws of one country will govern and control a given arbitration, the place where the arbitration is to be heard will not dictate what the governing or controlling law will be.
(f) In the context of this particular case, the fact that, as both parties seemed to accept in front of me, the Scottish Courts would have no real control or interest in the arbitral proceedings other than in a criminal context, suggests that they can not have intended that the arbitral proceedings were to be conducted as an effectively "delocalized" arbitration or in a "transnational firmament", to borrow Lord Justice Kerr's words in the Naviera Amazonica case.
(g) The CIMAR Rules are not inconsistent with my view. Their constant references to the Arbitration Act, 1996 suggest that the parties at least envisaged the possibility that the Courts of England and Wales might play some part in policing any arbitration. For instance, Rule 11.5 envisages something called "the Court" becoming involved in securing compliance with a peremptory order of the arbitrator. That would have to be the English Court, in practice."
114. These observations clearly demonstrate the detailed examination which is required to be undertaken by the court to discern from the agreement and the surrounding circumstances the intention of the parties as to whether a particular place mentioned refers to the "venue" or "seat" of the arbitration. In that case, the Court, upon 10 AC No.16/19 consideration of the entire material, concluded that Glasgow was a reference to the "venue" and the "seat" of the arbitration was held to be in England. Therefore, there was no supplanting of the Scottish Law by the English Law, as both the seat under Section 2 and the "juridical seat" under Section 3, were held to be in England. Glasgow being only the venue for holding the hearings of the arbitration proceedings. The Court rather reiterated the principle that the selection of a place or seat for an arbitration will determine what the "curial law" or "lex fori" or "lex arbitri" will be. It was further concluded that where in substance the parties agreed that the laws of one country will govern and control a given arbitration, the place where the arbitration is to be heard will not dictate what the governing law or controlling law will be. In view of the above, we are of the opinion that the reliance placed upon this judgment by Mr.Sundaram is wholly misplaced."
14/ In the case of BE Simoese Von Staraburg, Niendenthal Vs. Chattisgarh Investment Ltd. (2015) 12 SCC 225 the clause in the agreement was "the Court at Goa shall have exclusive jurisdiction". The Hon'ble Supreme Court considering the aforesaid clause held that jurisdiction of all other courts is excluded and the Court at Goa will have the exclusive jurisdiction.
15/ In the case of Indus Mobile Distribution Private Limited Vs. Datawind Innovations Pvt. Ltd. and others (2017) 7 SCC 678 though the Court has taken the view that an agreement as to the Seat of an Arbitration is analogous to an exclusive jurisdiction clause but for the purpose of determining the Seat of Arbitration entire arbitration clause is required to be read as a whole.
16/ In the case of Emkay Global Financial Services Ltd. Vs. Girdhar Sondhi (2018) 9 SCC 49 though the sitting of the arbitration proceedings were held at Delhi, but in the 11 AC No.16/19 arbitration clause exclusive jurisdiction was given to the courts in Mumbai, therefore, the Hon'ble Supreme court taking note of the exclusive jurisdiction clause has held that the Court at Mumbai alone will have the jurisdiction.
17/ Same issue as involved in the present case came up for consideration before the Bombay High Court in the matter of Aniket SA Investments LLC Vs. Janapriya Engineers Syndicate Pvt. Ltd. 2019 SCC Online Bombay 3187 wherein the arbitration clause provided that the Courts of Hyderabad will have exclusive jurisdiction to try and entertain the dispute arising out of the agreement and at the same time it has provided that the Seat of Arbitration proceeding will be Mumbai. The Bombay High Court considering the principle of Party Autonomy and also taking note of the words "Seat" and "Venue" are interchangeably used and true intention of the Party is required to be derived from the combined reading of the clauses and inferring the real meaning of the parties intended to attribute from a holistic reading of these clauses. Applying the above principle, Mumbai High Court held that the Courts at Hyderabad would have exclusive jurisdiction to entertain the petition and the parties agreeing to the Seat of Arbitration to be at Mumbai would be required to be accepted as Venue of the arbitration and the said Clause cannot be held to be a clause conferring jurisdiction on the Court at Mumbai.
18/ Similar issue also came up before the Delhi High Court in the case of Virgo Softech Ltd. Vs. National Institute of Electronics and Information Technology 2018 SCC Online Delhi 12723 wherein the Arbitration clause provided that the arbitration proceedings shall be held in New Delhi and it also contain a Clause that the Court in Aurangabad only shall 12 AC No.16/19 have exclusive jurisdiction to try and entertain any dispute arising there from. The Clause relating to holding the proceedings in New Delhi is held to be a Clause providing for Venue of arbitration at New Delhi and it has been held that the Court at Aurangabad were conferred exclusive jurisdiction. Against this judgment of the Delhi High Court SLP(Civil) No.5063-5064/19 was dismissed by the Hon'ble Supreme Court by order dated 25/3/2019.
19/ Having examined the arbitration clause in the light of the aforesaid pronouncements and considering the Arbitration Clause as a whole, it is clear that the parties has conferred exclusive jurisdiction to the Indore Court and the intention of the parties was to have venue or place of sitting at Delhi without conferring any jurisdiction to the Court at Delhi.
20/ The material on record also reveals that part of cause of action arose within the territorial jurisdiction of this Court. The uncontroverted plea of the applicant in the rejoinder is that as per the dealership agreement, the ETB products were to be delivered from the workshop of the applicant at Pithampur, District Dhar. The invoices for supply of ETB products were also raised from Pithampur by the applicant to the respondent. Upon the delivery of the consignment, the respondent was required to make payment in advance for the ETB products, either by cheque or cash or by bank draft or by an irrevocable bank guarantee payable at Pithampur. Therefore, the place of payment due and payable was fixed which is within the territorial jurisdiction of this Court. The respondent in way bill/e-consignment declaration filed before the Kerala Commercial Taxes Department had mentioned that the name and address of supplier was VE Commercial Vehicles 13 AC No.16/19 Limited and 102, Industrial Area, Plot No.1, Pithampur. The invoices delivery and payment with respect to ETB product was required to be done from Pithampur. The price was also payable within the jurisdiction of this Court. The aforesaid facts also reveal that part of cause of action had arisen within the territorial jurisdiction of this Court, hence this Court has territorial jurisdiction.
21/ The record further reflects that a dispute has arisen between the parties, which is required to be settled by appointing the independent arbitrator. Hence I propose to appoint Hon'ble Mr. Justice K.K. Lahoti, Retired Judge, High Court of M.P. to be the learned Arbitrator for resolving the dispute.
22/ Let the declaration in terms of Section 11(8) and 12(1) of the amended Arbitration Act in the prescribed form as contained in the 6th Schedule of the Act be obtained from the proposed Arbitrator by the Principal Registrar of this Court before the next date of hearing.
List on 29.6.2020.
(PRAKASH SHRIVASTAVA) Judge VM Digitally signed by Varghese Mathew Varghese DN: c=IN, o=High Court of Madhya Pradesh Bench Indore, postalCode=452001, st=Madhya Pradesh, 2.5.4.20=b06e85e8115fd7cc0bb34a0888d1 d430f979382d4c898692d55d8dbb4d9b937 Mathew e, serialNumber=4e90d922e5a5064a0914c5b c5199c144bc261ee38c4cbe410b3b325ebd 82325a, cn=Varghese Mathew Date: 2020.05.13 18:25:02 +05'30'