Delhi District Court
Gajender Kumar vs Kotak Mahindra Bank Ltd on 21 November, 2022
IN THE COURT OF SHRI PANKAJ GUPTA:
DISTRICT JUDGE, (S/W) (COMMERCIAL COURT)-01,
DWARKA COURTS : DELHI.
OMP (COMM) NO. 5/20
In the matter of :
1. Gajender Kumar
S/o Shari Raghuvir Singh
House No. 221, Vill-Bamnoli
2. Ramesh Kumar Kataria
S/o Shri Neki Ram,
RZ-F1/24, Gali No. 2,
Mahavir Enclave, New Delhi-110045.
...........PETITIONERS
Versus
1. Kotak Mahindra Bank Ltd.
(As Assignee of Magma Fincorp Ltd.)
2, BKC, C-27, G Block,
Bandrakurla Complex, Bandra (E),
Branch Office At:-
7th Floor, Plot No. 7,
Sector-125, Noida, UP -132020
2. Sh. Pulin Behari Das
(Sole Arbitrator)
9, 2nd Floor, Old Post Office Street,
Kolkata-700001.
........RESPONDENTS
Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.
OMP (Comm) No. 5/20 Page No. 1 of 12
Date of Institution : 02.07.2018
Date when the case reserved
for Judgment : 21.11.2022
Date of Judgment : 21.11.2022
JUDGMENT
1. This is the petition under section 34 of the Arbitration and Conciliation Act, 1996 (the Act) filed by the petitioner being aggrieved by the arbitration award dated 17.03.2008 (the impugned award) passed by the sole arbitrator/the respondent no. 2 (the Arbitrator).
2. Brief facts leading to filing of the present petition are that Magma Shrachi Finance Limited (MSFL) filed the statement of claim before the Arbitrator stating that the petitioner no. 1 approached MSFL for grant of financial assistance and MSFL agreed to the same. Consequently, MSFL vide hire purchase finance agreement dated 11.02.2005 let out on hire and the petitioner no. 1 took as hirer the vehicle TATA LPT 2515 bearing registration no. HR55C/5067. The petitioner no. 2 stood as guarantor to secure the said loan. The petitioners executed the requisite loan documents in favour of MSFL. However, the petitioners failed to adhere to the financial discipline and consequently, their account became irregular. Left with no option, MSFL got issued the loan recall notice dated 13.10.2007 upon the petitioners calling upon them to pay the outstanding amount, but of no use. As such, the disputes arose between the parties and MSFL invoked the arbitration clause and appointed the respondent no. 2 as the arbitrator. Consequently, the arbitration proceedings were commenced.
Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.
OMP (Comm) No. 5/20 Page No. 2 of 12As revealed from the impugned award, the petitioners failed to participate in the arbitration proceedings and therefore, the said proceedings were conducted ex-parte. The arbitrator conducted the arbitration proceedings and passed the impugned award. Being aggrieved by the impugned award, the petitioners filed the present petition.
3. Subsequently, MSFL was taken over by the respondent no. 1 and the subject loan account was transferred to it. As such, the respondent no. 1 stepped into the shoes of MSFL.
4. Notice of the petition was issued to the respondent no.1. The respondent no. 1 contested the petition and prayed for its dismissal.
5. Notice sent to the respondent no. 2 calling upon him to file the original arbitral record received back with the report "Deceased".
6. I have heard the counsel for the petitioner and respondent and have perused the material available on record.
7. Admittedly, in the present case, the arbitration proceedings were conducted at Kolkatta. Hence, on 08.07.2022, this court raised a query as to whether this court has the territorial jurisdiction to entertain the present petition.
8. In para 12 of the petition, the petitioners pleaded that Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.
OMP (Comm) No. 5/20 Page No. 3 of 12they came to about the impugned award once they received the summons in the execution petition for execution of the award from the court of Shri Kawaljeet Arora, ld. ADJ Dwarka, filed by the respondent no. 1. During the course of arguments, it was revealed that the said execution petition bearing no. 242/18 was tiled as "Kotak Mahindra Bank vs. Gajender and another" and was subsequently withdrawn by the respondent no. 1 due to pendency of the present petition.
9. Counsel for the petitioners pleaded that before filing the present petition, the respondent no. 1 has filed the execution petition no. 242/2018 in South-West District, Dwarka Court Delhi and the subject agreement was executed in Delhi. Hence, in view of Section 42 of the Arbitration and Conciliation Act, 1996, this court has the territorial jurisdiction to entertain the present petition.
10. The onus was upon the petitioner to establish that the subject agreement was executed in Delhi. However, neither it is the case of the petitioner nor they have filed any document to substantiate the said fact.
11. On the other hand, counsel for the respondent no. 1 pleaded that though MSFL was taken over by the respondent no. 1 and the subject loan account was transferred to it but the subject loan record could not be traced out. However, he has filed 04 draft agreements to show in those cases the place of the arbitration fixed between the concerned parties was at Kolkotta.
Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.
OMP (Comm) No. 5/20 Page No. 4 of 1212. Now according to counsel for the petitioners, since, the respondent no. 1 filed the execution petition no. 242/2018 in South-West District, Dwarka Court Delhi, hence, in view of Section 42 of the Act, this court has the territorial jurisdiction to entertain the present petition.
13. In the judgment titled as "Sundaram Finance Ltd. v. Abdul Samad", reported in (2018) 3 SCC 622, the Hon'ble supreme Court held:
14. We would now like to refer to the provisions of the said Act, more specifically Section 36(1), which deals with the enforcement of the award:
"36. Enforcement.--(1) Where the time for making an application to set aside the arbitral award under Section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 to 1908), in the same manner as if it were a decree of the court."
The aforesaid provision would show that an award is to be enforced in accordance with the provisions of the said Code in the same manner as if it were a decree. It is, thus, the enforcement mechanism, which is akin to the enforcement of a decree but the award itself is not a decree of the civil court as no decree whatsoever is passed by the civil court. It is the Arbitral Tribunal, which renders an award and the tribunal does not have the power of execution of a decree. For the purposes of execution of a decree the award is to be enforced in the same manner as if it was a decree under the said Code.
15. Section 2(e) of the said Act defines "court" as under:
"2.Definitions.--
***
(e)"court" means--
(i) in the case of an arbitration other than Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.OMP (Comm) No. 5/20 Page No. 5 of 12
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;
(ii) in the case of international commercial arbitration, 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, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court;"
16. The line of reasoning supporting the award to be filed in a so-called court of competent jurisdiction and then to obtain a transfer of the decree is primarily based on the jurisdiction clause found in Section 42, which reads as under:
"42. Jurisdiction.--Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a court, that court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that court and in no other court."
The aforesaid provision, however, applies with respect to an application being filed in court under Part I. The jurisdiction is over the arbitral proceedings. The subsequent application arising from that agreement and the arbitral proceedings are to be made in that court alone.
17. However, what has been lost sight of is Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.
OMP (Comm) No. 5/20 Page No. 6 of 12Section 32 of the said Act, which reads as under:
"32. Termination of proceedings.--(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the Arbitral Tribunal under sub-section (2).
(2) The Arbitral Tribunal shall issue an order for the termination of the arbitral proceedings where
--
(a) the claimant withdraws his claim, unless the respondent objects to the order and the Arbitral Tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute;
(b) the parties agree on the termination of the proceedings; or
(c) the Arbitral Tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible. (3) Subject to Section 33 and sub-section (4) of Section 34, the mandate of the Arbitral Tribunal shall terminate with the termination of the arbitral proceedings."
The aforesaid provision provides for arbitral proceedings to be terminated by the final arbitral award. Thus, when an award is already made, of which execution is sought, the arbitral proceedings already stand terminated on the making of the final award. Thus, it is not appreciated how Section 42 of the said Act, which deals with the jurisdiction issue in respect of arbitral proceedings, would have any relevance. It does appear that the provisions of the said Code and the said Act have been mixed up.
18. It is in the aforesaid context that the view adopted by the Delhi High Court in Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd. [Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd., 2009 SCC OnLine Del 511 : (2009) 159 DLT 579] records that Section 42 of the Act would not apply to an execution application, which is not an arbitral proceeding and that Section 38 of the Code would apply to a decree passed by the court, while in the case of an award no court has passed the decree.
Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.
OMP (Comm) No. 5/20 Page No. 7 of 1220. We are, thus, unhesitatingly of the view that the enforcement of an award through its execution can be filed anywhere in the country where such decree can be executed and there is no requirement for obtaining a transfer of the decree from the court, which would have jurisdiction over the arbitral proceedings.
14. In view of the above cited judgment, it can be held that the enforcement of an award through its execution can be filed anywhere in the country where such a decree can be executed and there is no requirement for obtaining a transfer of decree from the court, which would have jurisdiction over the arbitral award and section 42 of the Act will not get attracted in case of execution proceedings. Further, when the final award is made, of which execution is sought, the arbitral proceedings already stand terminated in view of section 32 and thus, section 42 of the Act, which deals with jurisdiction issue in respect of arbitral proceedings, will have no relevance. Therefore, section 42 of the Act is not relevant to decide the territorial jurisdiction of the court to entertain the petition under section 34 of the Act.
15. The Hon'ble Supreme Court, in the judgment titled as "BBR (INDIA) Private Limited vs. S.P. Singla Constructions Private Limited", reported in 2022 LiveLaw (SC) 493, held:
"20. BGS SGS Soma (supra) extensively refers to the judgment of this Court in Indus Mobile Distribution Private Limited v. Datawind Civil and Others, which decision refers to the legislative history of Section 2(1)(e) and Section 20 of the Act and the recommendations of the 246th Law Commission Report, 2014. These recommendations, it is observed, were not Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.OMP (Comm) No. 5/20 Page No. 8 of 12
implemented in consonance with the decision in BALCO (supra), which, in no uncertain terms, refers to the 'place' as the 'jurisdictional seat' for the purpose of clause (e) to sub-section (2) of Section 2 of the Act. This judgment was subsequently followed in Brahmani River Pellets Limited v. Kamachi Industries Limited. It may, however, be noted that clause (e) to sub-section (1) of Section 2 was amended by inserting sub-
clause (ii) with the specific objective to solve the problem of conflict of jurisdiction that would arise in cases where interim measures are sought in India in cases of arbitration seated outside India. In the context of domestic arbitrations it must be held that once the 'seat of arbitration' has been fixed, then the courts at the said location alone will have exclusive jurisdiction to exercise the supervisory powers over the arbitration. The courts at other locations would not have jurisdiction, including the courts where cause of action has arisen. As observed above and held in BGS SGS Soma (supra), and Indus Mobile (supra), the moment the parties by agreement designate 'the seat', it becomes akin to an exclusive jurisdiction clause. It would then vest the courts at 'the seat' with exclusive jurisdiction to regulate arbitration proceedings arising out of the agreement between the parties.
22. BGS SGS Soma (supra) also refers to decision of this Court in Union of India v. Hardy Exploration and Production (India) Inc., which had held that the choice of the venue of arbitration did not imply that it had become the 'seat of arbitration' and that the venue could not by itself assume the status of 'the seat'; instead a venue could become 'the seat' only if "something else is added to it as a concomitant". According to BGS SGS Soma (supra), the reasoning given in Hardy Exploration (supra) is per incuriam as it contradicts the ratio and law laid down in BALCO (supra). Hence, BGS SGS Soma (supra) holds that it would be correct to hold that while exercising jurisdiction under sub-section (2) of Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.
OMP (Comm) No. 5/20 Page No. 9 of 12Section 20 of the Act, an arbitrator is not to pass a detailed or a considered decision. The place where the arbitral tribunal holds the arbitration proceedings would, by default, be the venue of arbitration and consequently the 'seat of arbitration'.
24. ........................ This, in the context of the decision in Inox Renewables Ltd (supra), is undoubtedly correct, but the aforesaid decision cannot be read as a precept in cases governed by sub section (2) of Section 20 of the Act. Inox Renewables (supra) was a case governed under sub-section (1) of Section 20 of the Act, that is, where parties by the agreement had fixed the jurisdictional 'seat' at Jaipur, Rajasthan, but thereafter, by mutual consent, had decided to change the venue of proceedings to Ahmedabad prior to the commencement of the arbitration. This evidently resulted in the decision of this Court accepting that the jurisdictional 'seat of arbitration' was Ahmedabad. This decision would apply in case the parties, by consent, agree mutually that the 'seat of arbitration' would be located at a particular place. The said exercise would be in terms of sub-section (1) of Section 20 of the Act, which endorses and emphasises on party autonomy and choice that determines the 'seat of arbitration'. It would not apply when the arbitrator fixes 'the seat' in terms of sub-section (2) of Section 20 of the Act. Once the arbitrator fixes 'the seat' in terms of subsection (2) of Section 20 of the Act, the arbitrator cannot change 'the seat' of the arbitration, except when and if the parties mutually agree and state that the 'seat of arbitration' should be changed to another location, which is not so in the present case.
25. ........................... 'The seat' once fixed by the arbitral tribunal under Section 20(2), should remain static and fixed, whereas the 'venue' of arbitration can change and move from 'the seat' to a new location. Venue is not constant and stationary and can move and change in terms of sub-section (3) to Section 20 of the Act. Change Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.
OMP (Comm) No. 5/20 Page No. 10 of 12of venue does not result in change or relocation of the 'seat of arbitration'.
28. ........................................For clarity and certainty, which is required when the question of territorial jurisdiction arises, we would hold that the place or the venue fixed for arbitration proceedings, when sub-section (2) of Section 20 applies, will be the jurisdictional 'seat' and the courts having jurisdiction over the jurisdictional 'seat' would have exclusive jurisdiction. This principle would have exception that would apply when by mutual consent the parties agree that the jurisdictional 'seat' should be changed, and such consent must be express and clearly understood and agreed by the parties."
16. In view of the forgoing discussions, it can be held that in terms of section 20 (2) of the Act, the seat of the arbitration was fixed at Kolkatta. Therefore, in view of the judgment BBR (India) Private Limited (supra), it can be held that once the parties have not fixed the seat for arbitration proceedings and the arbitrator has fixed the seat of arbitration, then sub-section (2) of section 20 of the Act applies and that seat will be the jurisdictional 'seat' and the courts having jurisdiction over the jurisdictional 'seat' would have exclusive jurisdiction. This principle would have exception that would apply when by mutual consent the parties agree that the jurisdictional 'seat' should be changed, and such consent must be express and clearly understood and agreed by the parties. However, as evident from the record that subsequently, the parties by their mutual consent had not changed the seat of arbitration to deal with the subject dispute. Therefore, once the arbitrator fixes the seat, then in the terms of section 20(2) of the Act, that shall be the jurisdictional seat and the courts having the Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.
OMP (Comm) No. 5/20 Page No. 11 of 12jurisdiction over the jurisdictional seat would have the exclusive jurisdiction. Admittedly, the area where the jurisdictional seat was fixed does not fall in the South West District Delhi. Therefore, I am of the opinion that this court does not have the territorial jurisdiction to entertain the present petition. Liberty is granted to the petitioner to file the petition in the court of competent jurisdiction. No order as to the cost. Petition is disposed of accordingly.
File be consigned to Record Room.
ANNOUNCED IN THE OPEN COURT, On this 21st day of November, 2022 PANKAJ GUPTA District Judge (Commercial Court)-01, (SW)/Dwarka Courts, New Delhi Gajender Kumar Vs. Kotak Mahindra Bank Ltd. & Anr.
OMP (Comm) No. 5/20 Page No. 12 of 12