Seat vs Venue Debate: The Saga Continues

M/s Ravi Ranjan Developers Pvt. Ltd. (“Appellant”) and Aditya Kumar Chatterjee (“Respondent”) had entered into a Development Agreement (“contract”) dated June 15, 2015, to develop a propertylocated in Muzaffarpur, Bihar. The contract contained an arbitration clause which provided that “the sitting of the said Arbitral Tribunal shall be at Kolkata”.

 

When disputes arose between the parties, the Respondent terminated the contract on April 24, 2019. In response to the termination of the contract, the Appellant filed a Petition before the Real Estate Regulatory Authority on May 15, 2019. Following this, the Respondent filed an Application for interim protection under Section 9 of the Arbitration Act at the District Court of Muzaffarpur, and sent a notice to the Appellant invoking the arbitration clause contained in their contract. Thereafter, the Respondent also approached the Calcutta High Court under Section 11(6) of the Arbitration Actfor appointment of an Arbitrator. In response, the Appellant challenged the territorial jurisdiction of the High Court to decide the Petition under Section 11(6) in the present case.

 

Proceedings before the High Court

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By an order dated August 13, 2021, the High Court allowed the Petition under Section 11(6) of the Arbitration Act and appointed a retired High Court judge as the sole arbitrator. The said order of the High Court was challenged in review by the Appellant. However, the High Court rejected the same by an order dated October 4, 2021. Aggrieved by the same, the Appellant approached the SupremeCourt.

 

Issue before the Supreme Court

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Whether the High Court had jurisdiction to decide the Application filed by the Respondent under Section 11(6)?

 

Decision of the Supreme Court

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The Respondent submitted that the judgement of the Calcutta High Court was passed with theconsent of the parties. Furthermore, the Respondent also contended that the Appellant hadacquiesced to the same by appearing in the arbitration proceedings.

 

At the outset, the Supreme Court noted that the Appellant did not accept the order of the Calcutta High Court. In fact, the Appellant had filed a Review Petition which was dismissed on October 4, 2021. Even during the arbitration proceedings, there was nothing in the opinion of the Supreme Court which showed that the Appellant willingly submitted to arbitration. Rather, the Appellant had only agreed to the fees of the arbitrator, which would not prove anything.

 

The Supreme Court agreed with the Appellant that an order passed without jurisdiction can be questioned at any stage. In the opinion of the Supreme Court, the Calcutta High Court did not have territorial jurisdiction to appoint an arbitrator. Placing reliance on Section 2(1)(e) of the Arbitration Act, the Supreme Court noted that in the present case, no proceedings could have been initiated “inany Court over which the Calcutta High Court exercises jurisdiction”, because the dispute pertains to an immovable property situated outside the territorial jurisdiction of the Calcutta High Court. Further, the contract between the parties was executed and registered in Muzaffarpur and, no cause of action had arisen within the territorial jurisdiction of the Calcutta High Court. Finally, the Appellant “neither resides nor carries on any business within the jurisdiction of the Calcutta High Court”.

 

The Supreme Court observed that Sections 2(1)(e) and 11(6) of the Arbitration Act cannot be read in isolation. Thus, an application for the appointment of an arbitrator under Section 11(6) of the Arbitration Act cannot be moved in any High Court, and only the High Court which has territorial jurisdiction can appoint an arbitrator. Harmoniously reading Section 11(6) with Section 2(1)(e), the Supreme Court observed that it is the High Court having supervisory jurisdiction over the jurisdictional civil court under Section 2(1)(e), which would also be the jurisdictional High Court under Section 11(6).

 

Placing reliance on Section 42 of the Arbitration Act, the Appellant submitted that since an Application under Section 9 was filed at the District Court of Muzaffarpur, the Respondent cannot invoke the jurisdiction of the Calcutta High Court. Rejecting this argument, the Supreme Court noted that the said provision cannot have any bearing to an application made under Section 11(6) as an application under Section 11(6) can only be made before a High Court. Therefore, Section 42 is inapplicable to an application under Section 11(6), except where the previous proceedings were also instituted in a High Court.

 

On the issue of the seat of arbitration, the Respondent submitted that the seat as contemplated in the arbitration agreement was Kolkata, and therefore the Calcutta High Court had jurisdiction to decide the Section 11(6) Application. To buttress this submission, the Respondent relied on Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited (“Indus Mobile”), Hindustan Construction Company Limited v. NHPC Limited (“Hindustan Construction”) and BGS SGS Soma JV v. NHPC Limited (“BGS SGS Soma”).

 

In Hindustan Construction, the Supreme Court observed that once a seat of arbitration has been designated, the same is equivalent to an exclusive jurisdiction clause and only the Courts “within whose jurisdiction the seat was located, would have jurisdiction to the exclusion of all other courts”. However, the Supreme Court in the present case distinguished the ruling in Hindustan Construction, observing that the judgement therein was rendered in light of its peculiar facts and circumstances.  The Supreme Court also distinguished the judgement in BGS SGS Soma, observing that it was in the context of an international arbitration seated outside India. In contrast, on a perusal of the contract in the present dispute, the Supreme Court held that Kolkata was only “the venue for holding the sittings of the Arbitral Tribunal” and not the seat of arbitration.

 

The Supreme Court placed reliance on Union of India v. Hardy Exploration and Production (India) INC (“Hardy Exploration”) andMankastu Impex Private Limited v. Airvisual Limited (“Mankastu”), which laid down that the seat of arbitration and venue of arbitration are not interchangeable concepts, and the seat of arbitration can be determined only by looking at the other clauses of the agreement and the parties conduct.

 

The Supreme Court observed that in the present contract, the parties did not choose Kolkata as the seat of arbitration. Rather, Kolkata was only opted as a venue of arbitration. This was also evident from the fact that the Respondent themselves approached the Muzaffarpur District Court under Section 9 of the Arbitration Act. In the opinion of the Supreme Court, as neither any cause of action arose in Kolkata, nor was it the seat of Arbitration, the Calcutta High Court lacked jurisdiction to decide the application under Section 11(6).

 

Therefore, the Supreme Court allowed the appeal and set aside the order of the High Court appointing an arbitrator.