Exclusive Jurisdiction Clause in Arbitration Agreements

On April 1, 2024, a Division Bench of the Allahabad High Court (“Court”) held that Section 6 of the Commercial Courts Act, 2015 (“Commercial Courts Act”) is only an enabling provision and cannot prevail over the agreed clauses in an arbitration agreement.

Section 6 of the Commercial Courts Act provides that the Commercial Court shall have jurisdiction over all suits and applications relating to a commercial dispute of a specified value arising in the entire territory of the State over which they have been vested territorial jurisdiction.

The appellant had filed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) challenging an order dated October 20, 2023, passed by the Commercial Court, Gorakhpur (“Order”) in a petition filed by the appellant under Section 34 of the Arbitration Act (“34 Petition”).

The respondent objected primarily on the ground that the tender was issued in New Delhi in 2007 and the respondent’s bid, which was accepted vide Letter of Acceptance in September 2008, was also issued by the Railway Board, New Delhi (“Letter of Acceptance”). Further, under clause 23 and 24 of the Letter of Acceptance (“Jurisdiction Clause”), it has been specified, inter alia, that the courts of place from where the tender documents and acceptance of tender has been issued shall alone have jurisdiction to decide any disputes. Therefore, the courts of New Delhi alone had jurisdiction to adjudicate this dispute.

The appellant countered the same by submitting that the cause of action has partly risen at Gorakhpur as the main party, North-Eastern Railways, was headquartered in Gorakhpur and the payment under the contract was also made at Gorakhpur.

The Commercial Court heard both parties and passed an order holding that as part of the cause of action had arisen in New Delhi and the parties had agreed to exclude the jurisdiction of other courts vide the jurisdiction clause, courts of New Delhi alone had jurisdiction.

The respondent placed reliance on the judgment in Indus Mobile Distribution Private Limited vs. Datawind Innovations Private Limited & Ors, which has established the position on the aspect of the juridical seat of arbitration chosen by parties.

In the Indus Mobile Judgment, a plethora of judgments including Swastik Gases Private Limited vs. Indian Oil Corporation Limited and B.E. Simoes Von Straraburg Niedenthal and Anr. vs.. Chattisgarh Investment Limited, were analyzed and the Hon’ble Supreme Court held that where more than one court has jurisdiction, it is open for the parties to limit jurisdiction to one of those courts, and exclude other courts [Para 20, Indus Mobile Judgment]. An appreciation of the provisions of the Arbitration Act [Sections 2 (e), 20 and 31 (4) of the Act] would also signify that once the ‘seat’ is designated, it is analogous to an exclusive jurisdiction clause in an arbitration agreement.

Based on the judicial precedents and the presence of the words ‘shall alone’ in the jurisdiction clause, the Hon’ble Court observed that the intention of the parties is clear, viz., courts of New Delhi alone will have the jurisdiction.

The reliance on Section 6 of the Commercial Courts Act cannot override the inter se agreement between the parties. Section 6 is merely an enabling provision and cannot be construed to mean that the courts of Gorakhpur will have jurisdiction in the present case.

Courts are interpreting the intention of the parties to an arbitration agreement as demonstrated by the specific wording used in the jurisdiction clause in the agreements.

The Arbitration Act is a self-contained code which operates on a distinct and separate footing from Section 20 of the Civil Procedure Code, 1908 [Section 20 mandates the filing of suits to be instituted where defendants reside or cause of action arises].

About the authors: Samit Shukla is a Partner and Saloni Shah is a Principal Associate at DSK Legal.