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SEAT OF ARBITRATION IS TO BE BASE OF CONNECTION WITH ARBITRAITON PROCEEDINGS AND NOT WITH CAUSE OF ACTION

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SEAT OF ARBITRATION IS TO BE BASE OF CONNECTION WITH ARBITRAITON PROCEEDINGS AND NOT WITH CAUSE OF ACTION
Mr. M. GOVINDARAJAN By: Mr. M. GOVINDARAJAN
June 5, 2024
All Articles by: Mr. M. GOVINDARAJAN       View Profile
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In DELHI TOURISM AND TRANSPORTATION DEVELOPMENT CORPORATION VERSUS M/S SATINDER MAHAJAN - 2024 (6) TMI 34 - DELHI HIGH COURT, Satinder Mahajan, the respondent, in this case is registered under MSME Act.  The respondent made an agreement with the petitioner for the construction of bus depot at Kharkhari Nahar Village, New Delhi.  Disputes arised between the petitioner and the respondent in the construction.  The respondent made a claim for the payment of dues from the petitioner before the Facilitation Council under Section 18 of MSME Act.  The Facilitation Council arranged for conciliation for the parties but the conciliation failed.  Therefore, the matter was referred to arbitration.  Before the arbitrator the petitioner contended that the Facilitation Council has no jurisdiction to entertain the claim of the respondent.  The same was rejected by an order dated 26.10.2020.  The Council has awarded a sum of Rs.4.12 crore including interest to be collected till the date of the award.  The Facilitation Council made this award at Pathankot.

Against this order the petitioner filed the present petition before the High Court.  The respondent raised preliminary objection before the High Court as to the territorial jurisdiction of the High Court to entertain the petition.  The respondent submitted the following before the High Court-

  • Section 18(4) of the MSME Act, vests jurisdiction in a Micro and Small Enterprises Facilitation Council to act as an arbitrator or conciliator in disputes between a supplier located within its jurisdiction and a buyer located anywhere in India.
  • The respondent invoked Arbitration before the Facilitation Council in Pathankot, where it is located, and Pathankot was the seat of the arbitration proceedings.
  • A challenge to an award passed under the MSME Act would lie at the location of the Facilitation Council.

On the other hand, the petitioner submitted the following before the High Court-

  • The Delhi High Court has jurisdiction to entertain the petition under Section 34 of the Arbitration Act, as the Courts in Delhi are vested with exclusive jurisdiction under the Agreement.
  • An exclusive jurisdiction clause was contained in Article 7 of an ‘Integrity Pact’, which forms part of the tender documents.
  • The Integrity Pact was to be signed by the bidder and was to be read as an integral part of the tender document and the Agreement between the parties.
  • The Integral part contains certain commitments on part of the bidder to take measures to prevent malpractices, and provides for the consequences of breach thereof.
  • The Integrity Pact is part of the Agreement, and the exclusive jurisdiction clause contained therein, confers jurisdiction upon the Courts in Delhi for the purposes of the Agreement also.
  • Even where any arbitration, under the MSME Act, is conducted by a facilitation council situated outside Delhi, jurisdiction for the purposes of challenge to the award, would lie in the Court having exclusive jurisdiction in terms of the contract under consideration.
  • Even if the Court comes to the conclusion that there was no exclusive jurisdiction clause in the present case, the seat of arbitration is Delhi.
  • The cause of action in the arbitral proceedings arose entirely in Delhi, and no part of the cause of action arose at Pathankot.
  • The cause of action in the underlying dispute is determinative of the seat of arbitration.

The Delhi High Court considered the submissions put forth by the parties to the present case.  The High Court analyzed the provisions of Article 7 of the agreement.  Article 7(1) provides that jurisdiction in respect thereof is with the headquarters of the division of the owner/principal, being the petitioner and does not appear to deal with the jurisdiction of courts or resolution of disputes.  The High Court observed that this provision is therefore of little assistance in determining the question of exclusive jurisdiction for disputes under the main Agreement.  Clause 7(5) of the Integrity Pact makes it clear that disputes and differences arising under the Integrity Pact and questions of interpretation thereof, shall not be subject to arbitration.  Therefore, the dispute resolution mechanism under the main Agreement and the Integrity Pact were intended to be entirely different.  As far as the main Agreement is concerned, disputes as to contractual performance, which were admittedly the subject matter of arbitration proceedings, are not covered by Clause 7 of the Integrity Pact.   The parties did not expressly provide for the seat of the arbitration under the Agreement, and only provided that the venue would be at the discretion of the arbitrator. 

The Supreme Court observed that in the case of INDIAN OIL CORPORATION LTD. VERSUS FEPL ENGINEERING (P) LTD. AND ORS. - 2019 (9) TMI 1701 - DELHI HIGH COURT held that it had jurisdiction to entertain the petition under Section 34 the Arbitration Act, in view of an exclusive jurisdiction clause contained in the agreement between the parties therein.  In the case of IRCON INTERNATIONAL LIMITED. VERSUS PIONEER FABRICATORS PVT. LTD. - 2023 (3) TMI 1494 - DELHI HIGH COURT MSME Facilitation Council was located outside Delhi, but the agreement between the parties conferred exclusive jurisdiction upon the Courts in Delhi.  The High Court observed that both the judgments proceed on the basis that the exclusive jurisdiction clause in the agreements between the parties, would not be overridden by conferment of jurisdiction upon a particular MSME Facilitation Council under Section 18 of the MSME Act. For the reasons stated above, the High Court came to the conclusion that, in the present Agreement, there is no exclusive jurisdiction clause. The aforesaid judgments of the Division Bench are therefore inapplicable to the present case.

The High Court did not agree to the contentions of the petitioner that the cause of action arose entirely in Delhi, inasmuch as the work order was issued in Delhi, the Agreement was signed in Delhi, and the work was, in fact, done in Delhi as well.  It is settled law that the seat of the arbitration proceedings are to be determined on the basis of connection with the arbitral proceedings, and not with the cause of action for the underlying disputes.   The “seat” of arbitration is the place where the arbitral proceedings are anchored. 

In the present case, the proceedings were admittedly conducted exclusively in Pathankot and the award was made there. There being no contrary indication, in the form of an exclusive jurisdiction clause or otherwise, to suggest that the seat of the arbitration was at any place other than the venue which was, even contractually, left to the learned Arbitrator to decide, the High Court did not find any reason to depart from the general principle that, the seat of the arbitration was at the place where the arbitration was conducted, i.e., in Pathankot.  Section 18(4) of the MSME Act, which permits a medium or small enterprise to approach a facilitation council at the place where it is located.   In the absence of an exclusive jurisdiction clause, by which such an enterprise agrees to confer jurisdiction elsewhere, the legislative intent that the dispute will be resolved at the location of the said medium or small enterprise, is furthered by this interpretation.

The High Court held that this Court has no jurisdiction to entertain the present petition. 

 

By: Mr. M. GOVINDARAJAN - June 5, 2024

 

 

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