By two recent decisions, the Delhi High Court and the Calcutta High Court, have turned the landscape with respect to the dispute between the forum and seat of arbitration in case of domestic arbitrations, murkier. Hence, it is imperative to highlight the conflict existing in the position of law with respect to the same.

Decision by the Delhi High Court:

A Single Bench of the Delhi High Court in the case of My Preferred Transformation and Hospitality Private Limited v. Sumithra Inn, [ARB.P. 269/2020, decided on January 5, 2021] (“Sumithra Inn”), was faced with the issue that, whether, it has the power to appoint an arbitrator as per Section 11(6) of the Arbitration and Conciliation Act, 1996 (“the Act”) when, the arbitration clause in the management services agreement (“MSA”) provides for the ‘place of arbitration’ to be in New Delhi and the exclusive jurisdiction clause provides that, the courts at Bengaluru will have, ‘exclusive jurisdiction in all matters arising out of the MSA’?

The court, thus, while analyzing the aforesaid situation wherein, the contract contains a seat of arbitration and an exclusive jurisdiction clause and the exclusive jurisdiction, vests jurisdiction on courts at a different territorial location, placed its` reliance on the decision of the Supreme Court in the case of Mankastu Impex Private Limited v. Airvisual Limited, [ARB.P. 269/2020, decided on March 5, 2020] (“Mankastu”). The Delhi High Court observed that, the facts in the case of Mankastu and the case in hand, are substantially similar and hence noted, in Mankastu, the Supreme Court had given preference to the seat of the arbitration i.e. Hong Kong instead of the court mentioned in the exclusive jurisdiction clause. Therefore, by analogy, in the instant case, the court held that, the fixation of the seat at New Delhi would result in vesting of exclusive jurisdiction to entertain the present petition for appointment of arbitrator with the Delhi High Court.

Further, while referring to the exclusive jurisdiction clause in question in the instant case, the court enunciated that, a generalised exclusive jurisdiction clause will not suffice in light of the decision of the Supreme Court in Mankastu. Thus, the court enumerated that, mere vesting of ‘exclusive jurisdiction in all matters arising out of the MSA’ on courts at Bengaluru, would not result in conferment of jurisdiction under Section 11 of the Act on the High Court of Karnataka at Bengaluru when, no such specific conferment of jurisdiction under Section 11 of the Act is found in the MSA. However, the court also observed that, had the exclusive jurisdiction clause in the MSA, specifically conferred jurisdiction under Section 11 of the Act on the High Court of Karnataka at Bengaluru, the position would have been different i.e. it would have been as per the ratio of the Single Bench of the Delhi High Court in the case of Cars24 Services Private Limited v. Cyber Approach Workspace LLP, [ARB.P. 269/2020, decided on November 17, 2020].

The Delhi High Court thus, in the instant case, summarised its findings, as mentioned hereunder:

“37. In the case of a domestic arbitration, therefore, I am of the opinion that the Court, having jurisdiction over the seat of arbitration, would be exclusively competent to entertain petitions under the 1996 Act, in exercise of its supervisory jurisdiction over the arbitral process, unless there is a separate clause conferring exclusive jurisdiction on a court in another territorial location, qua the particular provision which is in issue. If, in other words, in the present case, the MSA were to contain an exclusive jurisdiction clause, conferring exclusive section 11 jurisdiction on a court located elsewhere than at New Delhi, the situation may have been different. There is, however, no such specific exclusive jurisdiction clause; ergo, territorial jurisdiction, to entertain the present petition under Section 11 of the 1996 Act, thus, has to abide by the seat of arbitration which is, undisputedly, New Delhi.”                                          (emphasis supplied)

Decision by the Calcutta High Court:

A Single Bench of the Calcutta High Court in the case of, Bowlopedia Restaurants India Limited v. Devyani International Limited, [AP 399 of 2020, decided on January 21, 2020], was faced with a similar situation as in the case of Sumithra Inn, while adjudicating upon an application for interim relief under Section 9 of the Act.

In the instant case, the arbitration agreement prescribed the seat of arbitration to be at New Delhi whereas, the forum selection clause vested exclusive jurisdiction on the courts at Kolkata to try any dispute arising out of the leave and license agreement between the parties.

The Calcutta High Court, while upholding the principle of party autonomy, held that, in a domestic arbitration, it is just and proper that, when the parties have agreed to a selected forum, which otherwise has jurisdiction, then, such selected forum should have precedence over the seat of arbitration. Further, the court also observed that, the same is permissible on a harmonious construction of the contract and such a construction, will not vitiate the forum selection clause or render it otiose which would otherwise occur if, any other construction is rendered.

The court, thus, summarised its findings as set out hereunder:

“39. In the case of a domestic arbitration:

(i) Where the agreement has not prescribed the seat of arbitration and the parties have not selected any Court to try the disputes, then, the Court having jurisdiction over the subject matter of the arbitration will exercise jurisdiction;

(ii) Where the parties to the arbitration agreement have prescribed a seat of arbitration and such agreement does not have a forum selection clause, then, the Court having jurisdiction over the seat of arbitration, will have jurisdiction to try the arbitration petition;

(iii) Where the parties have prescribed the seat of arbitration as well as selected a forum, and there is no conflict between the two, then the Court having jurisdiction on the seat of arbitration, will exercise jurisdiction as there is no conflict;

(iv) Where the parties have selected a seat of arbitration which is in conflict with the jurisdiction of the Court selected under the forum selection clause, then, the Court selected under the forum selection clause will have jurisdiction provided such Court otherwise has jurisdiction akin to Section 20 of the Code of Civil Procedure, 1908…”

(emphasis supplied)

Conclusion:

Hence, the prevailing conflict in the position of law in case of a dispute between the forum and seat of arbitration in case of domestic arbitrations, is as follow:

1. As per the Delhi High Court: The courts at the seat of the arbitration shall have preference over the courts which have been conferred jurisdiction vide the exclusive jurisdiction clause except in situations wherein, the exclusive jurisdiction clause specifically stipulates the provision of the Act qua which such exclusive jurisdiction is vested on a court different from that at the seat of the arbitration;
2. As per the Calcutta High Court: The courts which have been conferred jurisdiction as per the exclusive jurisdiction clause shall have preference over the courts at the seat of arbitration provided, such courts otherwise has jurisdiction akin to Section 20 of the Code of Civil Procedure, 1908.

Please find attached a copy of the Calcutta High Court judgment.

This update has been contributed by Arka Majumdar (Partner) and Kunal Dey (Associate).