Calcutta High Court
Hinduja Leyland Finance Ltd vs Debdas Routh & Anr on 15 December, 2017
Author: I.P. Mukerji
Bench: I.P. Mukerji
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
Original Side
A.P No. 145 of 2017
Hinduja Leyland Finance Ltd.
v.
Debdas Routh & Anr.
A.P. No. 181 of 2017
Hinduja Leyland Finance Ltd.
v.
Tarak Upadhyay & Anr.
A.P. No. 182 of 2017
Hinduja Leyland Finance Ltd.
v.
Prasad Mondal & Anr.
A.P. No. 535 of 2017
Tata Capital Finance Ltd.
v.
Bharat Prasad
G.A. No. 2964 of 2017
A.P. No. 180 of 2017
Hinduja Leyland Finance Ltd.
v.
Debdas Routh & Anr.
A.P. No. 331 of 2017
A.P. No. 180 of 2017
A.P. No. 330 of 2017
Tata Motors Finance Ltd.
v.
Tarak Upadhyay
For the petitioners : Mr. Swatarup Banerjee
Mr. Biplab Majumder
Ms. Priyata Chakraborty
Mr. Abhishek Bhattacharya
Mr. Shibnath Bhattacharya
Mr. Pijush Biswas
....Advocates
For the Respondent : Mr. Priyankar Saha
......Advocate
Judgement On : 15th December, 2017
I.P. MUKERJI, J.
In each of the above applications under Section 9 of the Arbitration and Conciliation Act, 1996, the respondent/respondents have taken the point that this Court is lacking in jurisdiction to determine it. The reason is that in each of the agreements between the parties, the venue of arbitration was specified.
It is now settled law that the venue of the arbitration specified in the arbitration agreement means the "seat" of arbitration. "Seat" is associated with English law. If a "venue" is mentioned in addition to the "seat" then it refers to a place for holding the arbitration, other than the venue. (See Shashour Sharma's case reported in (2009) 2 Lloyd's Report 376).
By operation of the judgment of the Supreme Court in Indus Mobile Distribution Private Limited Vs. Datawind Innovations Private Limited reported in (2017) 7SCC 678 only the Court/Courts in the place of seat have the determination to hear an application under Part-I of the said Act.
The relevant passage from the Supreme Court judgment is set out below:-
"19. A conspectus of all the aforesaid provisions shows that the moment the seat is designated, it is akin to an exclusive jurisdiction clause. On the facts of the present case, it is clear that the seat of arbitration is Mumbai and Clause 19 further makes it clear that jurisdiction exclusively vests in the Mumbai courts. 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. The neutral venue may not in the classical sense have jurisdiction - that, no part of the clause of action may have arisen at the neutral venue and neither would any of the provisions of Sections 16 to 21 of CPC be attracted. In arbitration law however, as has been held above, the moment "seat" is determined, the fact that the seat is at Mumbai would vest Mumbai Courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties.
20. It is well settled that where more than one court has jurisdiction, it is open for the parties to exclude all other courts. For an exhaustive analysis of the case law, see Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. This was followed in a recent judgment in B.E. Simoese Von Staraburg Niedenthal v. Chhattisgarh Investment Ltd. Having regard to the above, it is clear that Mumbai courts alone have jurisdiction to the exclusion of all other courts in the country, as the juridical seat of arbitration is at Mumbai. This being the case, the impugned judgment is set aside. The injunction confirmed by the impugned judgment will continue for a period of four weeks from the date of pronouncement of this judgment, so that the respondents may take necessary steps under Section 9 in the Mumbai Court. The appeals are disposed of accordingly."
In the said Act the reference to Court in Section 9 denotes the Court described in Section 2(1)(e)(i) of the Act. This sub-section describes Court as under:-
"2(1) (e) (i) - in the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject- matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes;"
In the Act there is no reference to the seat of arbitration but there is reference to a place of arbitration in Section 20 thereof. Section 20 is comprised in Part I which relates to arbitrations held in India. Section 2(1)(e)(i) has been interpreted in various decisions. It means that if a litigant has to choose a Court to institute a Section 9 application he would have to choose a Court where a suit could be filed in respect of the "subject matter of arbitration". The Court must not be inferior to the principal Civil Court including the High Court in the exercise of its original jurisdiction.
The judgment in Indus has referred to Balco v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552. This judgment was delivered by a five Judge Bench of the Supreme Court headed by the Chief Justice. The judgment was delivered by Mr. Justice S.S. Nijjar with whom all the other Judges concurred. Unfortunately, in the case of Indus Mobile Distribution certain vital passages from this five Judge Bench judgment were not shown to their lordships. Those passages are as follows:-
"96...................We are of the opinion, the terms "subject-matter of the arbitration" cannot be confused with "subject-matter of the suit". The term "subject-matter" in Section 2(1)(e) us confined to Part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. In our opinion, the provision in Section 2(1) (e) has to be construed keeping in view the provision in Section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the learned counsel for the appellants would, in fact, render Section 20 nugatory. In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process. For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, (Delhi having been chosen as a neutral place as between a party from Mumbai and the other from Kolkata) and the tribunal sitting in Delhi passes an interim order under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order under Section 37 must lie to the courts of Delhi being the courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi. In such circumstances, both the courts would have jurisdiction i.e. the court within whose jurisdiction the subject-matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution i.e. arbitration is located."
My understanding of the law is as follows. The phrase "subject-matter of the arbitration" has to be given a liberal interpretation. The arbitration agreement is usually contained in a clause or in clauses in the main contract document. The arbitration agreement may also be contained in a separate document. The arbitration agreement may also state that the detailed terms and conditions may be found in some standard terms and conditions which are contained in a separate booklet. Suppose the main or underlying contract is about sale and delivery of goods, containing an arbitration clause. The subject-matter of the arbitration may be the claim by A for the price of those goods. This is a dispute arising out of the underlying contract. Mr. X may be appointed as the arbitrator of this dispute by consent of the parties. Although, the parties have appointed him by consent, one of them later discovers that he is biased towards the other party, the respondent. He does not start the arbitration reference at all and tries to delay it as long as possible. The aggrieved party approaches the arbitrator by way of an application under Section 13(2) of the Arbitration and Conciliation Act, 1996. The arbitrator rules that he is not biased and continues with the reference. The aggrieved party has got no remedy but to wait till the award is published. He then challenges the same under Section 13(5) of the said Act read with Section 34 thereof. This dispute arises out of the arbitration agreement. We have to assume that the seat of the arbitration, agreed to by the parties is in Bhubaneswar. The contract was executed and wholly performed within West Bengal. Nothing in relation to the underlying contract happened in Bhubaneswar or Orissa.
When one tries to ascertain the subject-matter of this particular arbitration it is not only the dispute which arises out of the underlying contract. It also involves the dispute of the parties with the arbitrator arising out of the arbitration agreement. The phrase "subject-matter of the arbitration" has to be given a purposive meaning by including within its field of operation disputes arising out of the underlying contract as well as disputes arising out of appointment, conduct of arbitration, application of the Rules relating to arbitration by the arbitrator and finally the publication of the award.
If we assume that the arbitrator was challenged regarding his impartiality at the seat of the arbitration where the sittings were held and he ruled on that challenge from this place, it is not difficult to hold that a part of the cause of action arose at the place where the seat of the arbitration is located. Therefore, the Court having jurisdiction over the seat of the arbitration i.e. Bhubaneswar in Orissa may be approached by way of a Section 34 application. Mr. Justice Nijjar has very poignantly observed "in such circumstances both the Courts would have the jurisdiction i.e. Court within whose jurisdiction the subject matter of the suit is situated and the Courts within which the jurisdiction of which the dispute resolution i.e. arbitration is located".
However, the case of Indus Mobile rules that the Court in the place where the seat of arbitration is located, have natural jurisdiction over any dispute.
I would very humbly like to say that nomination of a seat does not oust the courts in other places where part of the cause of action has arisen, of their jurisdiction, as such a proposition would be contrary to the five judge bench decision of the Supreme Court in Balco. Hence, in choosing a Court under Section 2(1)(e)(i) we have now an additional forum, that is, the courts at the seat of arbitration.
Now, a little discussion on the effect of the forum selection clause. The law does not favour any contract ousting the jurisdiction of the Courts to try and determine the disputes between the parties. Such a contract is unlawful and against public policy. It is void under Sections 23 and 28 of the Indian Contract Act, 1872. But if more than one Court has jurisdiction to entertain, try and determine the suit, the parties may agree that one of these Courts can hear and decide their disputes. This kind of an agreement is perfectly lawful. It is implicit that if a Court does not have natural jurisdiction, the parties cannot confer jurisdiction on it by an agreement. I would like to quote a passage from Hakam Singh Vs. M/s. Gammon (India) Ltd reported in AIR 1971 SC 740:
'It is not open to the parties by agreement to confer by their agreement jurisdiction on a Court which it does not possess under the Code. But where two courts or more have under the Code of Civil Procedure jurisdiction to try a suit or proceeding an agreement between the parties that the dispute between them shall be tried in one of such Courts is not contrary to public policy. Such an agreement does not contravene Section 28 of the Contract Act.
I would like to also quote four paragraphs from A.B.C. Laminart Pvt. Ltd. and another v. A.P. Agencies, Salem reported in AIR 1989 SC 1239 which are as follows:-
"9. Section 28 of the Contract Act, 1872 provides that every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunal, or which limits the time within which he may thus enforce his rights, is void to that extent. This is subject to exceptions, namely, (1) contract to refer to arbitration and to abide by its award, (2) as a matter of commercial law and practice to submit disputes on or in respect of the contract to agreed proper jurisdiction and not other jurisdictions though proper. The principle of Private International Law that the parties should bound by the jurisdiction clause to which they have agreed unless there is some reason to contrary is being applied to municipal contracts. In Lee V. Showmen's Guild, (1952) 1 All ER 1175 at p. 1181 Lord Denning said: "Parties cannot by contract oust the ordinary courts from their jurisdiction. They can, of course, agree to leave questions of law, to the decision of the domestic tribunal. They can, indeed, make the tribunal the final arbiter on questions of fact, but they cannot make it the final arbiter on questions of law. They cannot prevent its decisions being examined by the courts. If parties should seek, by agreement to take the law out of the hands of the courts and put it into the hands of a private tribunal, without any recourse at all to courts in cases of error of law, then the agreement is to that extent contrary to public policy and void."
10. Under Section 23 of the Contract Act the consideration or object of an agreement is lawful, unless it is opposed to public policy. Every agreement of which the object or consideration is unlawful is void. Hence there can be no doubt that an agreement to oust absolutely the jurisdiction of the Court will be unlawful and void being against the public policy. Ex dolo malo non oritur actio. IF therefore it is found in this case that Clause 11 has absolutely ousted the jurisdiction of the Court it would be against public policy. However, such will be the result only if it can be shown that the jurisdiction to which the parties have agreed to submit had nothing to do with the contract. If on the other hand it is found that the jurisdiction agreed would also be a proper jurisdiction in the matter of the contract it could not be said that it ousted the jurisdiction of the Court. This leads to the question in the facts of this case as to whether Kaira would be proper jurisdiction in the matter of this contract. It would also be relevant to examine if some other courts than that of Kaira would also have had jurisdiction in the absence of Clause 11 and whether that would amount to ouster of jurisdiction of those courts and would thereby affect the validity of the clause.
20. When the Court has to decide the question of jurisdiction pursuant to an ouster clause it is necessary to construe the ousting expression or clause properly. Often the stipulation is that the contract shall be deemed to have been made at a particular place. This would provide the connecting factor for jurisdiction to the Courts of that place in the matter of any dispute on or arising out of that matter of any dispute on or arising out of that contract. It would not, however, ipso facto take away jurisdiction of other Courts. Thus, in Salem Chemical Industries v. Bird & Co., AIR 1979 Mad 16where the terms and conditions attached to the quotation contained an arbitration clause provided that : "any order placed against this quotation shall be deemed to be a contract made in Calcutta and any dispute arising therefrom shall be settled by an Arbitrator to be jointly appointed by us", it was held that it merely fixed the situs of the contract at Calcutta and it did not mean to confer an exclusive jurisdiction on the Court at Calcutta, and when a part of the cause of action had arisen at Salem, the Court there had also jurisdiction to entertain the suit under Section 20(c) of the Code of Civil Procedure.
21. From the foregoing decisions it can be reasonably deduced that where such an ouster clause occurs, it is pertinent to see whether there is ouster of jurisdiction of other Courts. When the clause is clear, unambiguous and specific accepted nations of contract would bind the parties and unless the absence of ad idem can be shown, the other Courts should avoid exercising jurisdiction. As regards construction of the ouster clause when words like 'alone', 'only', 'exclusive' and the like have been used there may be no difficulty. Even without such word in appropriate cases the maxim 'expressiounius est exlusio alterius' - expression of one is the exclusion of another may be applied. What is an appropriate case shall depend on the facts of the case. In such a case mention of one thing may imply exlution of another. When certain jurisdiction is specified in a contract an intention to exclude all others from its operation may in such cases be inferred. It has therefore to be properly construed." Let us assume there is a contract between X and Y under which X is to supply machinery to Y at an agreed price from X's is factory in Kolkata to Y in Kanpur, Uttar Pradesh. The contract was executed in the factory of X at Kolkata. The contract has an arbitration clause stating that the seat of arbitration will be at Allahabad, Uttar Pradesh.
Now, under Section 2(1)(e)(i) of the Arbitration and Conciliation Act, 1996 the principal civil court having jurisdiction to try a suit with regard to the "subject-matter of arbitration" would have the jurisdiction. The territorial jurisdiction of the Civil Courts to try a case is embodied in Sections 16 to 20 of the Code of Civil Procedure and in the Letters patent of the High Courts having original jurisdiction. In the hypothetical case above the Courts at Kolkata, Kanpur and Allahabad would have jurisdiction under Sections 16 to 20 of the Code of Civil Procedure.
The principle of law laid down by our Courts, is that out of the several potential Courts with natural jurisdiction in which the suit can be instituted, the parties may agree that it shall be instituted in only one of these Courts. In other words, one that is chosen from all the potential courts should have natural jurisdiction to determine the case. (See Hakam Singh Vs. M/s. Gammon (India) Ltd reported in AIR 1971 SC 740 and ABC Laminart Pvt. Ltd. and another Vs. A. P. Agencies, Salem reported in AIR 1989 SC 1239. If this Court is chosen it excludes all other Courts. The seat of arbitration has also the natural jurisdiction to try a case as held in Indus Mobile and Balco, The summary of my views is as follows;-
i. The definition of Court in Section 2(1)(e)(i) has to be given a purposive interpretation. When it refers to the subject-matter of arbitration it is to mean that the subject-matter of dispute will not only comprise of disputes arising out of the underlying contract but also disputes arising out of the conduct of the arbitral proceedings making, publication of the award and so on. ii. If the dispute between the parties is with regard to the conduct of the arbitration or with the arbitrator or the making and publication of the award, the Court situated in the seat of arbitration has natural jurisdiction.
iii. Even otherwise, the courts in the seat of arbitration have natural jurisdiction over any dispute, whether it stems from the underlying contract or from the arbitration, as per the Indus case. iv. An application under Part I of the Arbitration and Conciliation Act, 1996, lies before any Court which has natural jurisdiction over the subject-matter of arbitration.
v. If the seat of arbitration and the place chosen by the parties as the place where litigation is to be instituted, by virtue of the forum selection clause, is the same, then the Courts of that place only have exclusive jurisdiction to try the case.
vi. A forum selected by the parties will only have jurisdiction if it also has natural jurisdiction over the subject-matter of the arbitration. Therefore, I do not think that the decision in the case of Indus Mobile Distribution Private Limited Vs. Datawind Innovations Private Limited and Others reported in (2017) 7 SCC 678 read with the Balco case [2012] 9 SCC 552 has so changed the law so as to oust the jurisdiction of this Court which is invoked, inter alia, on the ground that part of the cause of action has arisen within the jurisdiction of this Court. Therefore, the plea taken by the respondents in each of the applications fails.
Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(I.P. MUKERJI, J.)