There's been a longstanding dichotomy around the jurisdiction of courts for litigation arising out of arbitration agreements, i.e. the courts at the seat of arbitration and courts where the cause of action has arisen, as per the Civil Procedure Code.
From the bare perusal of the existing definition of "court" stipulated in Section 2(1)(e) of the Arbitration and Conciliation Act, 1996, it is manifest that any court which has jurisdiction to decide the questions forming the 'subject-matter of the arbitration, if the same had been the 'subject-matter of a suit', shall be considered as a 'court' for the purpose of the Arbitration Act.
It's been a matter of concern as to whether the "seat" of the arbitration is the only place where the parties can seek reliefs or does the "cause of action" also entails territorial jurisdiction as per Sections 16 to 20 of the Civil Procedure Code?
The Apex Court in the constitutional bench judgment of BALCO, discussed the issue of 'jurisdiction' of courts qua domestic arbitration. Para 96 of BALCO stated that Section 2(1)(e) of the Arbitration Act confers jurisdiction on two courts concurrently i.e., 1) where the cause of action arose and 2) where the seat of arbitration lies. A similar issue was dealt in Antrix Corpn. Ltd. v Devas Multimedia (P) Ltd. before the division bench of Delhi High Court wherein Antrix contended that courts at Bangalore have concurrent jurisdiction as the cause of action has arisen in Bangalore whilst Devas argued that parties have a designated seat of arbitration as New Delhi, hence New Delhi courts shall have exclusive jurisdiction. Division Bench while referring to BALCO had concluded that Section 2(1)(e) confers jurisdiction on two courts. First is where the courts have a subject matter of jurisdiction and the other is courts of the seat. A similar view was also taken by Bombay High Court in Konkola Copper Mines v Stewarts and Lloyds of India Limited.
However, a subsequent decision of a 3-judges bench in BGS SGS Soma established a different position, ruling that courts at the "seat" of arbitration shall be the only place, wherein the parties can file an application arising out of an arbitration agreement, and no other place. The Apex Court reiterated the Shashoua principle laid down in the case of Shashoua v. Sharma, wherein it was held that an agreement as to the seat of arbitration was analogous to an exclusive jurisdiction clause. Apex Court held that once the parties agreed to a place of arbitration, it amounted to foisting jurisdiction on the Court which exercised jurisdiction qua the place of arbitration and excluded jurisdiction of all other Courts.
Apex Court further tried to clarify para 96 of BALCO's judgment, as the Court acknowledged the fact that para 96 speaks of the concurrent jurisdiction of courts. The Court has also acknowledged that from a bare perusal of para 96, it is evident that there seems to have some conflict in the view of the Apex Court with regard to the territorial jurisdiction of the place where the cause of action has arisen, in an arbitration matter.
The 3-judges bench of Supreme Court in BGS SGS has held in para 59 of its judgment that in the case where there is no "seat" designated by an agreement, in such a case, there may be several courts that may have jurisdiction wherein the cause of action or part of it may have arisen. However, Apex Court in the concluding para of BGS SGS case has failed to clarify the above position and only limited its conclusion to "Seat" and "Venue" dichotomy, which existed earlier. The seat versus cause of action conundrum still continued. Finally Delhi High Court in its recent judgment of M/S Kings Chariot Vs Mr. Tarun Wadhwa ruled that where no seat has been specified in the agreement, jurisdiction of court shall be determined as per Sections 16 to 20 of CPC.
The latest 2024 bill of the Arbitration Act, inter alia, has tried to simplify the issue by addressing the controversey when there is no seat/place designated in the agreement, by proposing to replace the existing defintion of "court" with a new definition which reads as follows:
"2A. (1) In case of arbitration other than international commercial arbitration:
(i) where seat of arbitration has been agreed by the parties or determined by the arbitral tribunal as per Section 20, the court means the court having pecuniary and territorial jurisdiction over the seat of arbitration. (ii) in all other cases, the court means the court having pecuniary and territorial jurisdiction to decide the disputes forming the subject- matter of the arbitration if the same had been the subject-matter of a suit."
Post the insertion of proposed Section 2A, the controversey will be put to final rest and is a welcome move.
However, another question that needs to be looked into by the stakeholders is in cases where albeit the seat has been specified, there are cases, especially pre- BGS SGS Soma era, where parties had already and bonafidely invoked the jurisdiction of courts having subject-matter jurisdiction, i.e., the jurisdiction where some cause of action has arisen, as the same was considered tenable by courts earlier, especially in view of para 96 of BALCO judgment.
Recent rulings by various courts are suggesting that courts have taken a restrictive approach post-BGS SGS Soma ruling and have relegated the parties to the court of seat, despite the same court having admitted the matter earlier, in view of BALCO in Section 34 cases as well, even at the stage of its finality. Therefore, after having spent years, being directed to file the matter afresh before the seat court, has caused significant delays in the execution of the awards to a great extent deprived the award creditor from reaping the benefits of the award.
In one of the instances, while deciding the case of Naresh Kanayalal, the Single Bench of Bombay High Court accepting the argument of the Respondent held that the position in BGS SGS Soma cannot be relied upon by the court to oust the jurisdiction of the court having a cause of action, in view of the fact that the Petitioner did not raise the objection on the point of maintainability at the first instance and have thus waived their right, and by virtue of Section 42 of the Arbitration Act, any other court, including the court in whose jurisdiction the seat of arbitration exists, is barred from entertaining any application arising out of that arbitration agreement. Infact, the court has reiterated the position set out by Apex Court in BALCO as discussed above.
The views of the courts have, thus, been divergent, resulting in several anomalies with regard to the jurisdiction of courts qua arbitration agreement. What was the intention of the legislature in the first place? The answer to this question probably lies in Section 42 of the Arbitration Act which states that the court, jurisdiction of which has been invoked first, shall alone have jurisdiction over the arbitral proceedings and applications arising out of that agreement. If the "seat" was the only jurisdiction applicable, the purpose of Section 42 gets redundant.
In the recent amendment bill of 2024, the legislature has infact proposed omission of Section 42 altogether, which shall definitely fill the gaps. However, it would have been both time and cost efficient for the litigants, if the bonafide applications that have been filed pre-BGS SGS ruling, at the cause of action jurisdiction per paragraph 96 of BALCOruling, which being a constitutional bench judgment still holds good, be held to be maintainable, failing which, several applications are now being directed to be filed afresh at the jurisdiction of the seat and defeating the purpose of alternative dispute resolution.
The above article is authored by Khushboo Kataruka(Partner).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. This article was oginially published in Mondaq(https://www.mondaq.com/india/arbitration-dispute-resolution/1544404/meaning-of-court-in-domestic-arbitration-a-conundrum-that-needs-to-be-simplified).
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