Polybond Organics Private Ltd @APPELLANT@Hash Era Infra Engineering Ltd

By way of this application under Section 11 of the Arbitration and Conciliation Act, 1996 (‘the Act of 1996’), the petitioner has made the

request for appointment of Arbitrator to adjudicate upon and decide all its disputes with the respondent, arising out of, and relating to, the Work Order

dated 08.12.2009.

The case of the petitioner is that the respondent, being a contractor under the Airports Authority of India, entrusted him with the work of metal ceiling

pertaining to Raipur Airport under Work Order dated 08.12.2009. Subsequent to the completion of project, dispute arose between the parties with

regard to payment. Hence, the petitioner issued a notice on 05.01.2017 invoking the arbitration clause but the respondent did not take any step to

constitute the Arbitration Panel.

It is submitted that in view of the respondent having failed to nominate the Arbitrator as per the agreement, this Court may appoint an independent

Arbitrator to adjudicate upon the disputes between the parties.

The existence of Arbitration Agreement is not denied by the respondent but then, it is contended that as per clause 2.7 relating to ‘Jurisdiction,’

the parties had agreed that only the Court at Delhi shall have jurisdiction in all the matters arising out of the Work Order in question and hence, this

application is not maintainable before this Court at Bengaluru. The said clause 2.7 reads as under:

“2.7 Jurisdiction

a) This Work Order is governed by the Indian Laws for time being in force. The court of Delhi alone shall have exclusive jurisdiction in all matters

arising out of this Work Order.â€​

The learned counsel for the respondent, with reference to the decisions of the Hon'ble Supreme Court in the case of Indus Mobile Distribution Private

Limited v. Datawind Innovations Private Limited & others: (2017) 7 SCC 678 and Swastik Gases Private Limited v. Indian Oil Corporation Limited:

(2013) 9 SCC 32 submits that such an exclusion clause in the agreement is valid and enforceable, and hence, the application of the present nature

could have only been filed in the Court at Delhi.

Per contra, learned counsel for the petitioner submits that neither the parties are situated at Delhi nor even a part of the cause of action arose within

the territorial jurisdiction of the Courts at Delhi. Hence, according to the learned counsel, the said clause relating to the jurisdiction is rather redundant

and in any case, is inapplicable to the present petition. The learned counsel has referred to and relied upon an Order dated 22.03.2017 passed by this

Court in the case of M/s Nagardas Kanji Shah v. M/s Nagarjuna Oil Corporation Limited : C.M.P. No.88 of 2016.

Having heard learned counsel for the parties and having examined the record, this Court is clearly of the view that the objection regarding jurisdiction,

as raised in this matter, sans merit and deserves to be rejected.

The decision of the Supreme Court in the case of Indus Mobile (supra) was rendered on the issue regarding jurisdiction under entirely different

circumstances. Therein, the arbitration proceedings were conducted with the seat of arbitration being at Mumbai, though no part of cause of action

had otherwise arisen at Mumbai.

Section 20 of the Act of 1996, clearly provides that the parties are free to agree on the place of arbitration and failing the agreement between the

parties, the place of arbitration is to be determined by the Arbitral Tribunal. In view of the scheme of the Act of 1996 and in view of the departure

therein from the classical concept of jurisdiction, the Supreme

Court observed in the case of Indus Mobile (supra) as under:

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. Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to ""seat"" is a

concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have

jurisdiction- that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Section 16 to 21 of

the CPC be attracted. 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.

It is well settled that where more than one court has jurisdiction, it is open for parties to exclude all other courts. For an exhaustive analysis of the

case law, see Swastik Gases Private Limited v. Indian Oil Corporation Limited, (2013) 9 SCC 32. This was followed in a recent judgment in B.E.

Simoese Von Staraburg Niedenthal v. Chhattisgarh Investment Limited, (2015)12 SCC 225. 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. This being the case, the

impugned judgment is set aside. The injunction confirmed by the impugned judgment will continue for a period of four weeks from the date of

pronouncement of this judgment, so that the respondents may take necessary steps under Section 9 in the Mumbai Court. Appeals are disposed of

accordingly.

(underlining supplied for emphasis)

The above-quoted paragraphs make the position clear that in the case of Indus Mobile (supra), the Courts at Mumbai were held having jurisdiction

essentially for the reason that the seat of arbitration had been at Mumbai. In the very context, the Supreme Court referred to the other settled

principles that when more than one Court are having jurisdiction, it is open for the parties to exclude all but one of them.

Further, the position in the present case is that the matter is at the very initial stage and by way of this application, request is made for the appointment

of Arbitrator under Section 11 of the Act of 1996. It is not the case where arbitration has commenced and the parties have agreed to a particular seat

or place for arbitration. Until such application is allowed, an Arbitrator is appointed, and the Arbitrator enters the reference, the principles enunciated

in the case of Indus Mobile (supra) would not apply.

The decision in the case of SWASTIK GASES (supra) is essentially an authority on the principle that the use of expressions like ‘alone’,

‘only’, ‘exclusive’ etc., is not necessary in the exclusion clause to exclude the jurisdiction of the Court; and it is held that when the

contract specifies the jurisdiction of a Court at a place, such Court will have jurisdiction and the inference is that the parties intended to exclude all

other Courts. However, the significant feature had been that in the said case, the appellant did not dispute that part of cause of action had arisen in

Kolkata. What the appellant contended was that the part of cause of action had also arisen in Jaipur and therefore, the Chief Justice of the Rajasthan

High Court or his designate Judge has jurisdiction to consider the application under Section 11 of the Act. This contention was rejected by the

Supreme Court after finding that the parties had provided that their agreement shall be subject to jurisdiction of the Court at Kolkata; and such a

clause was held to be of conferring the exclusive jurisdiction on the Courts at Kolkata. The fact that there was no dispute about the part of cause of

action having arisen in Kolkata, is specifically noticed in the opening lines of paragraph No.31 of the decision in Swastik Gases (supra), that read as

under:

“31. In the instant case, the appellant does not dispute that part of cause of action has arisen in Kolkata. What appellant says is that part of cause

of action has also arisen in Jaipur and, therefore, the Chief Justice of the Rajasthan High Court or the designate Judge has jurisdiction to consider the

application made by the appellant for the appointment of an arbitrator under Section 11…..â€​

However, in the very same decision in Swastik Gases (supra), the subtle distinction is also indicated, of the cases where the parties provide for the

jurisdiction of a particular Court, but if the said Court is otherwise having no jurisdiction then the clause remains unenforceable. This distinctive

principle has been noticed by the Supreme Court with reference to its decision in the case of Harshad Chiman Lal Modi .v. DLF Universal Ltd.:(2005)

7 SCC 791, in the following:

“21. In Harshad Chiman Lal Modi .v. DLF Universal Ltd., the clause of the plot buyer agreement read, “Delhi High Court or courts subordinate

to it, alone shall have jurisdiction in all matters arising out of, touching and/or concerning this transaction.†This Court held that the suit related to

specific performance of the contract and possession of immovable property and the only competent court to try such suit was the court where the

property was situate and no other court. Since the property was not situated in Delhi, the Delhi Court had no jurisdiction though the agreement

provided for jurisdiction of the court at Delhi. This Court found that the agreement conferring jurisdiction on a court not having jurisdiction was not

legal, valid, and enforceable.â€​

(underlining supplied for emphasis)

In view of the above, while enforcing the exclusion clause 2.7 of the agreement of the parties, the first requirement is to examine the place of accrual

of the cause of action, wholly or in part. This Court in CMP No.88 of 2016 has indicated this aspect as follows:

However, the position will be different in respect of a petition to be filed under Section 11 of the Act seeking appointment of an Arbitrator. The

consideration of such petition will have to be made on various aspects by the Hon'ble Chief Justice or his designate as held in the case of Patel

Engineering Ltd. (supra). Therefore, until the petition under Section 11 of the Act is allowed, the Arbitrator is appointed and the Arbitrator so

appointed enters reference, the 'subject matter of Arbitration' as enunciated in the case of Bharat Aluminum Company (supra) will not come into

existence and the question of exercising supervisory jurisdiction will not arise. It is only after the subject matter of the arbitration comes into existence

and the arbitration proceeding commences or proposes to commence the supervisory control over such proceedings would arise. In such

circumstance, the proceedings under Sections 9, 34 and 37 of the Act, will arise and all proceedings relating to arbitration will be maintainable before

the Court at the place where it is only the seat of arbitration. If the same principle is made applicable to the proceedings under Section 11 of the Act, it

will amount to the situation of putting the cart before the horse since that Court will not have territorial jurisdiction before an Arbitrator is appointed as

such proceeding will be an original proceeding. The crucial test therefore to determine whether there is territorial jurisdiction for a Court to entertain a

petition under Section 11 of the Act is the same as determining whether there will be territorial jurisdiction to entertain a civil suit based on the place of

cause of action as on the date of the petition. If a civil suit is not maintainable based on such test, a petition under Section 11 of the Act also will not be

maintainable.

(underlining supplied for emphasis)

In the present case, admittedly, the petitioner company is situated at Bengaluru in the State of Karnataka whereas, the respondent company is situated

at Noida in the State of Uttar Pradesh. The respondent issued the Work Order in question on 08.12.2009 from Noida to the petitioner at Bengaluru.

The work in question, of metal ceiling of Airport was to be executed at Raipur in the State of Chhattisgarh.

This Court is unable to find any fact or factor, which may show that even a fraction of cause of action has arisen within the jurisdiction of the Courts

at Delhi. That being the position, this Court finds substance in the submissions of the counsel for the petitioner that the jurisdiction clause in the Work

Order in question is of no avail as the parties, by their agreement, cannot confer jurisdiction on a Court which is otherwise not having any jurisdiction

over the matter.

In other words, no part of cause of action having arisen within the territorial jurisdiction of the Court at Delhi, it cannot be said that only the Court at

Delhi shall have jurisdiction to deal with the application under Section 11 of the Act of 1996.

On the other hand, where it appears that the Work Order in question was accepted by the petitioner at Bengaluru, accrual of a part of cause of action

at Bengaluru cannot be denied. That being the position, the objection regarding the jurisdiction stands rejected.

The limited aspect required to be considered in this application now is, as to whether there exists an arbitration agreement between the parties?

In fact, the existence of arbitration agreement in this matter is apparent on the face of the record. The arbitration clause, being Clause 2.6 in the Work

Order, reads as under:

“a) Any disputes arising out of this Contract shall be referred to the sole arbitrator i.e. Managing Director of Era Infra Engineering Ltd. who may

further appoint any person not below the rank of General Manager and there shall be no objection if arbitrator so appointed is an employee of Era

Infra Engineering Ltd.

In case the Arbitrator to whom the matter is originally referred get transferred or vacates his office or unable to act for any reason as aforesaid at the

time of such transfer, vacation of office or inability to act, Managing Director, EIEL shall appoint another person to act as Sole Arbitrator in

accordance with the provisions of Arbitration & Conciliation Act 1996.â€​

From the material placed on record, it is evident that the petitioner issued notice proposing for appointment of Arbitrator but the respondent did not

respond to the said notice and did not take steps for appointment of Arbitrator as required by the aforesaid arbitration agreement between the parties.

When the parties stand at conflict and the disputes do exist, which have not been resolved; and for the reason of failure of the procedure for

appointment of Arbitrator, it is just and proper that an independent arbitrator be appointed to adjudicate upon and decide the disputes between the

parties, including their claims, counter claims and objections.

Now, learned counsel for the parties have fairly agreed to the appointment of a Former Judge of this Court, namely, Hon’ble Shri Justice

K.N.Keshavanarayana to act as an Arbitrator to resolve the disputes between the parties under the provisions of the Act of 1996, as per the Rules

governing the Arbitration Centre at Bengaluru.

Accordingly, this petition is disposed of by appointing Hon’ble Shri Justice K.N.Keshavanarayana, a Former Judge of this Court, to enter into the

said reference and to act as an Arbitrator in the present case in the Arbitration Centre, Bengaluru, as per the Rules governing the said Arbitration

Centre.

In the interest of justice, it is made clear that the Arbitrator shall adjudicate upon and decide all the disputes between the parties including their claims,

counter claims and objections relating to the agreement in question. The requirements of the Arbitration and Conciliation Act, 1996, [as amended by

the Arbitration and Conciliation (Amendment) Act, 2015], shall be complied with by all the concerned.

Needless to observe that all the questions arising between the parties in this matter shall remain open for determination in the arbitration proceedings.

A copy of this order be sent to the Arbitration Centre, Khanija Bhavan, Bengaluru, for proceeding further in the matter on administrative side and also

to Hon’ble Shri Justice K.N.Keshavanarayana, on the address available with the said Arbitration Centre, Bengaluru.