The doings and undoings of the Indian Judiciary: Arbitration and its Seat

Bar & Bench June 5 2018

Divyanshu Kumar Srivastava

Last week, a Division Bench of the Delhi High Court rendered its decision in Antrix Corporation Ltd. v Devas Multimedia Pvt Ltd (hereinafter, Antrix v Devas). As this piece will reveal, the judgment in Antrix v Devas marks a low point in the development of arbitration jurisprudence in India.

Contesting the Arbitral award, Antrix filed a Section 34 petition before the Bangalore City Civil Court. Devas filed a post-award Section 9 petition in the Delhi High Court (Commercial Division) for a direction to Antrix to secure the amount awarded in favour of Devas either by furnishing a bank guarantee or by attaching the bank accounts, receivables, other movable or immovable assets of Antrix.

In the Section 9 petition, the Single Judge passed an ad-interim order dated February 28, 2017, directing Antrix to file its balance sheets and profit and loss accounts for the past three years. Against this, Antrix filed a Section 37 Appeal.

Dealing with the first issue, which relates to maintainability of the appeal under S.13 of the Commercial Courts Act, the Division Bench held that the appeal is maintainable because the Single Judge’s order is in aid or a step towards ordering the final relief of attachment or bank guarantee in Devas’ favour and hence would qualify as a Section 9 order.

The Division Bench, other than not realizing that (a) a “Section 9” order, as contemplated under “Section 37” is a final order which ultimately disposes of the Section 9 Petition and not an ad-interim order and (b) that no prejudice was caused to Antrix at least in so far as direction to file balance sheets and profit and loss accounts for the past three years, was concerned, erred in presuming that immediately after filing balance sheets and profit and loss accounts, attachment order against Antrix would be passed, as a matter of course. This presumption is erroneous, as the law requires Devas to first discharge its obligation under Order 38 Rule 5 of CPC, in proving that Antrix is trying to dispose of or dissipate its assets.

Be that as it may, we are primarily concerned with the treatment of the second issue.

Grappling with the second issue, the Division Bench had to essentially answer this question: In absence of “exclusive jurisdiction clause” and because the parties have designated Delhi as the “seat” of arbitration, can Devas’ contention that only Delhi High Court would have jurisdiction with regard to the arbitral award be allowed? Or is Antrix’s contention that because a substantial part of cause of action has arisen, Bangalore Court will also have jurisdiction correct?

The Division Bench, in trying to harmonize two Supreme Court decisions (BALCO v. Kaiser Aluminium Technical Service and IndusMobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd.) when there was no grave conflict between the two, and in trying to find out the so called “ratio-decidendi” in IndusMobile, which Devas relied upon, answered the issue completely erroneously holding that designation of “Delhi” as “seat” alone, would not confer Delhi courts with exclusive jurisdiction, in absence of an “exclusive jurisdiction clause” to that effect.

The Constitution Bench decision in BALCO v. Kaiser Aluminum, at para 96, completely as an obiter, declares that under the Arbitration Act, two courts will have jurisdiction – (a) court of the seat of arbitration and (b) court where cause of action is located (or where the defendant resides as per the CPC). The intent behind para 96, is that theoretically speaking, other than the courts of natural jurisdiction under CPC (Section 16-20), the Arbitration Act bestows jurisdiction on one more Court - court of the seat of arbitration.

In the same paragraph, the decision relies upon an illustration to emphasize that court of the seat will have jurisdiction. But immediately thereafter, it creates confusion in concluding that both the Courts will have jurisdiction- court of the seat of arbitration and court where the cause of action is located, contrary to the depiction in illustration. Now, despite the fact this confusion being created through obiter dicta, the Division Bench in Antrix v. Devas relies upon the same.

The author believes that the decision in BALCO talks about jurisdiction of two courts only in theory. It does not talk about the two courts having jurisdiction “concurrently” in practice and definitely not anything about the designation of “seat” not being akin to “exclusive jurisdiction clause”.

Thereafter, the Supreme Court has in a catena of decisions, in context of foreign seated arbitration, held that designation of a seat is akin to “exclusive jurisdiction clause”.

This principle was applied by a two-judge bench of the Supreme Court in a case concerning domestic arbitration in IndusMobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd.where it was held as follows:

"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...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...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."

It is clear from the above-highlighted portion that the Supreme Court decision in IndusMobile unambiguously holds that designation of “seat” alone is analogous to “exclusive jurisdiction clause” and only courts of “seat” will have jurisdiction. The existence of “exclusive jurisdiction clause” was only an additional and ancillary factor and not the imperative factor.

The Division Bench in Antrix v. Devas erroneously holds that the decision in Indus Mobile is an authority only for a situation wherein both “seat” and “exclusive jurisdiction clause” are provided. Admittedly, in the agreement between Antrix and Devas, there was no “exclusive jurisdiction clause” in favour of Courts in Delhi. There was only a clause designating Delhi to be the seat of arbitration.

The Division Bench read the otherwise unambiguous decision in IndusMobile, in such fashion, primarily for avoiding its conflict with BALCO. In doing this, the Division Bench failed to remember that the part of BALCO it was relying upon was not the ratio decidendi itself. And in trying to avoid conflict, it found a “ratio decidendi” in the decision of IndusMobile, which simply was not there.

The apparent conflict which the Division Bench found between BALCO and IndusMobile could have been simply overlooked by understanding that the concerned para of BALCO is an obiter. Therefore, instead of relying on a particular line in para 96 in BALCO, the Division Bench should have followed IndusMobile, which itself follows BALCO and settles the confusion created by BALCO.

The author personally does not agree either with BALCO or IndusMobile. The determination of seat has never been about which Court will have jurisdiction but about finding law of arbitration of which place will be applicable. And therefore, the principle of territoriality and concept of “seat” is best understood in the context of arbitration seated abroad as in domestic arbitration, irrespective of the place of arbitration, the law of Arbitration remains the same.

But here, the concern is more for certainty as an important factor for the growth of arbitration law jurisprudence in the country, and not with the correctness of a particular decision.

In the backdrop of the already beleaguered arbitration landscape in India, which is rife with far too many contradictions and quandaries, it would be interesting to see how the Supreme Court deals with Division Bench order.

 

The author is a Delhi-based lawyer and is associated with the chambers of Mr. Neeraj Kishan Kaul, Senior Advocate. He is a 2015 graduate of GNLU.

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