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Section 2 in The Arbitration Act, 1940
Section 9 in The Arbitration Act, 1940
Section 42 in The Arbitration Act, 1940
Section 34 in The Arbitration Act, 1940
Section 37 in The Arbitration Act, 1940
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Delhi High Court
Ion Exchange (India) Ltd. vs Panasonic Electric Works Co. Ltd on 4 March, 2014
Author: Badar Durrez Ahmed
        THE HIGH COURT OF DELHI AT NEW DELHI
%                                      Judgment delivered on: 04.03.2014

+      OMP No.150/2014

ION EXCHANGE (INDIA) LTD.                                ...     Petitioner


                                         Versus


PANASONIC ELECTRIC WORKS CO. LTD. ...                            Respondent
Advocates who appeared in this case:
For the Petitioner    : Mr Amey Nargolkar, Adv. With Mr Aaditya Vijaykumar
For the Respondent    : Mr Vijay Kasana, Adv. for Mr Sumeet Pushkarna


CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED, ACTING
CHIEF JUSTICE
HON'BLE MR JUSTICE SIDDHARTH MRIDUL


                                   JUDGMENT

BADAR DURREZ AHMED, ACJ (Oral)

1. This petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as „the said Act‟) was, as per roster, heard by a learned single Judge of this Court. By an order dated 04.02.2014, the learned single Judge, because he felt that an earlier decision of a single Judge in Sai Consulting Engineers Pvt. Ltd. v. Rail Vikas Nigam Ltd. (OMP No.981/2012 decided on 18.02.2013) required re-consideration, OMP 150/2014 Page 1 of 11 referred the issue with regard to territorial jurisdiction for determination by a larger bench. That is how this petition is before us.

2. The question which needs resolution is whether this court would have territorial jurisdiction to hear the present petition under Section 9 of the said Act when neither the respondents reside in Delhi nor has any part of the cause of action arisen in Delhi, but the arbitration clauses provide that the arbitration proceedings shall be held in New Delhi ? In other words, is the agreed seat or place of arbitration alone sufficient to confer territorial jurisdiction on the courts of that place ?

3. A brief resume of facts would be necessary. The parties had executed two agreements - a Development Agreement and a Sales Agreement both dated 14.09.2011. The Development Agreement was executed between Panasonic Electric Works having its office in Japan and Ion Exchange having its office at Mumbai. By virtue of the Development Agreement, the petitioner was required to develop a water purifier (hereinafter referred to as the "Product") in terms of Annexure-A to the said agreement, by investing in research and development. Clause 11.6 of the Development Agreement stated that in case of any dispute or difference arising between the parties, the same would be referred to arbitration. It also stipulated that:-

"The seat or legal place of arbitration shall be New Delhi".

4. Similarly, the Sales Agreement also contained an Arbitration Clause (Clause 36.1) which, inter alia, provided that:-

OMP 150/2014 Page 2 of 11
"The arbitration proceedings shall be held in New Delhi in accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any amendment made thereto. The decision of the Arbitrators shall be final and binding upon the parties. The courts of Delhi shall have exclusive jurisdiction to deal with any issue arising out of execution of this Agreement."

The Sales Agreement was executed between Panasonic India Pvt. Ltd having its office at Gurgaon and Ion Exchange having its office in Mumbai.

5. It is alleged by the petitioner that, pursuant to the execution of the said Agreements, over a span of about 2 years, the petitioner developed the Product for and on behalf of the respondents and delivered all the components to the respondents. It is further alleged that the respondents with a dishonest intent, without making the agreed payments to the petitioner in terms of the Development Agreement, used the Product developed by the petitioner and started manufacturing the product, by engaging another manufacturer.

6. It is in this background that the petitioner filed this petition under Section 9 of the Act seeking interim measures against the respondents. As mentioned above, by an order dated 04.02.2014, the learned single Judge referred the question of jurisdiction to a larger Bench as he felt that the decision in Sai Consulting (supra) required re-consideration.

7. At this juncture, it would be appropriate to refer to the decision of a learned single Judge of this Court in the case of Sai Consulting (supra).

OMP 150/2014 Page 3 of 11

After considering the Supreme Court decision in Bharat Aluminium Co. Ltd. v. Kaiser Aluminium Technical Services: 2012 (9) SCC 552, the learned single Judge in Sai Consulting (supra) held as under:-

"17. Clause 16.01 of the contract provides that the arbitration shall take place in New Delhi. The seat of arbitration confers jurisdiction on the courts situated there. This is the view taken by the latest judgment of the Hon‟ble Supreme Court in Bharat Aluminium Company (supra). This judgment has held that the courts where the seat is situated will have supervisory jurisdiction and this would be irrespective of whether the contract has to be performed somewhere else.
After having considered the rival submissions of the parties and the latest decision of the Apex Court i.e. Bharat Aluminium Company (supra), I do not find any merit in the objection raised by the respondents on the issue of territorial jurisdiction."
(Underlining added)
8. Before we analyse the view taken by the learned single Judge in the present case, it would be necessary to examine the observations of the Supreme Court in Bharat Aluminium (supra). Paragraph 96 and 97 of that decision are relevant and they read as under:-
"96. Section 2(1)(e) of the Arbitration Act, 1996 reads as under:-
"2. Definitions. - (1) In this Part, unless the context otherwise requires -
(a) - (d)
(e) „Court' means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject OMP 150/2014 Page 4 of 11 matter of the arbitration if the same had been the subject matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;"
We are of the opinion, the term "subject matter of the arbitration" cannot be confused with "subject matter of the suit". The term "subject matter" in Section 2(1)(e) is confined to Part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. In our opinion, the provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the learned counsel for the appellants would, in fact, render Section 20 nugatory. In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process. For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, (Delhi having been chosen as a neutral place as between a party from Mumbai and the other from Kolkata) and the tribunal sitting in Delhi passes an interim order under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order under Section 37 must lie to the Courts of Delhi being the Courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi. In such circumstances, both the Courts would have OMP 150/2014 Page 5 of 11 jurisdiction, i.e., the Court within whose jurisdiction the subject matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution, i.e., arbitration is located.
97. The definition of Section 2(1)(e) includes "subject matter of the arbitration" to give jurisdiction to the courts where the arbitration takes place, which otherwise would not exist. On the other hand, Section 47 which is in Part II of the Arbitration Act, 1996 dealing with enforcement of certain foreign awards has defined the term "court" as a court having jurisdiction over the subject-matter of the award. This has a clear reference to a court within whose jurisdiction the asset/person is located, against which/whom the enforcement of the international arbitral award is sought. The provisions contained in Section 2(1)(e) being purely jurisdictional in nature can have no relevance to the question whether Part I applies to arbitrations which take place outside India."
9. Construing Section 2(1)(e) of the said Act, the Supreme Court clearly observed that "the legislature has intentionally given jurisdiction to two Courts, i.e., the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place." This is reinforced by the Supreme Court by observing that "[t]he definition of Section 2(1)(e) includes „subject matter of the arbitration‟ to give jurisdiction to the courts where the arbitration takes place, which otherwise would not exist."

10. The learned single Judge, however, disagreed with the view taken in Sai Consulting (supra) and sought to distinguish the Supreme Court decision in Bharat Aluminium (supra) in the following manner:-

OMP 150/2014 Page 6 of 11
"11. ... Therefore, the observations made by the Supreme Court in the aforesaid extract, in my view, have to be understood in the context that the Supreme Court was examining as to which Court would have "supervisory control over the arbitral process". The Supreme Court held that the Court having jurisdiction over the place where the seat of arbitration is located, would have jurisdiction to supervise and control the arbitral process. This would be independent of, and in addition to the Court, which would have jurisdiction on account of its being a Court which could entertain a suit, if there was no arbitration agreement at the instance of the petitioner.
12. This is clear from the example given by the Supreme Court in BALCO (supra). The Supreme Court observed that if the seat of arbitration is Delhi „where neither parties are from Delhi, and the Tribunal, sitting in Delhi passes an interim order under Section 17 of the Act, the appeal against such an interim order would lie before the Courts in Delhi under Section 37 of the Act‟ the Court of Delhi being the Court having supervisory jurisdiction over the arbitration proceedings and the Tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata (In the example given by the Supreme Court, the two parties were assumed to be located at Mumbai and Kolkata). The Supreme Court observed that in such circumstances, both the Courts would have the jurisdiction, i.e. the Court within whose jurisdiction the subject matter is situated, and the Court within the jurisdiction of which the dispute resolution, i.e. the arbitration, is located. While dealing with the above situation, I may firstly observe that the Supreme Court does not appear to have in mind the existence of a clause in the agreement, limiting the jurisdiction to one of the Courts having jurisdiction. The Supreme Court also did not consider the effect of section 42 of the Act while making the said observation.
OMP 150/2014 Page 7 of 11
13. There can be no doubt that if the seat of arbitration is Delhi, this Court would have supervisory jurisdiction over the arbitration proceedings, as it is the act/ omission of the Arbitral Tribunal, which has its seat in Delhi, which would give rise to a cause of action to a party to approach this Court in the exercise of its supervisory jurisdiction. Under the scheme of the Act, the Supervisory jurisdiction would be exercised under Sections 14, 15, 16 (if the Arbitral Tribunal holds that it does not have jurisdiction, in which case the order would be assailable as an award under Section 34), 27, 34 and 37 of the Act. However, even this would be subject to an agreement limiting the jurisdiction to courts at a particular place (if that court, otherwise, has jurisdiction) and to section 42 of the Act."
xxxx xxxx xxxx xxxx "16. In my view, the statutory scheme contained in Section 42 has an overriding effect. It begins with a non- obstante clause. The difficulty pointed out by Mr. Nigam cannot be a consideration for exercise of jurisdiction by this Court, if it otherwise does not have jurisdiction. Supposing, the petitioner, or the respondent, were to initiate proceedings under Section 9 in Gurgaon or Mumbai, as the case may be, could either of the parties have approached this Court under any of the aforesaid provisions, namely, Sections 14, 15, 16, 27, 34 and 37 on the ground that the seat of Arbitration is in Delhi? In my view, the answer is in the negative in view of the peremptory language of Section 42, which begins with - "notwithstanding anything contained elsewhere in this part or in any other law for the time being in force ... ...". If the intendment of the Act were to vest jurisdiction in the Court, within whose jurisdiction the seat of Arbitration is agreed to be located by the parties for the purpose of invoking Sections 9 and 11 of the Act, the same would have been so provided in the definition of the expression, „Court‟ as defined in Section 2(1)(e) of the Act. However, proceeding under Section 9 before a Court cannot OMP 150/2014 Page 8 of 11 be said to be a proceeding in exercise of supervisory jurisdiction over the arbitral proceedings."

11. The learned single Judge agreed that if the seat of arbitration was Delhi, this court would have "supervisory" jurisdiction over the arbitration proceedings, but, he qualified this by observing that a proceeding under Section 9 of the said Act cannot be said to be a proceeding in exercise of supervisory jurisdiction over the arbitral proceedings. He further observed that the supervisory jurisdiction could be exercised under Sections 14, 15, 16 (if the Arbitral Tribunal holds that it does not have jurisdiction, in which case the order would be assailable as an award under Section 34), Section 27, 34 and 37 of the said Act.

12. We are unable to agree with the view taken by the learned single Judge in his order dated 04.02.2014. Section 2(1)(e) of the Act defines the meaning of "Court" as, inter alia, the High Court exercising original civil jurisdiction to decide questions forming the subject matter of arbitration if the same had been the subject matter of a suit. As per Section 2(2) of the said Act, Part I is applicable where the arbitration is held in India. Further, Section 9 of the said Act, which falls in Part I of the said Act, sets out the various interim measures that the "Court" may direct either before, during or at any time after the making of the arbitral award. Section 20 of the Act gives the parties to the arbitration, the freedom to choose not only the seat of arbitration but also gives the parties the right to choose the venue of the arbitration. Section 42 of the said Act, which starts with a non obstante clause, states that where any application under Part I has been made to a OMP 150/2014 Page 9 of 11 Court, that Court alone will have jurisdiction over the arbitration proceedings and subsequent applications arising out of the Agreement.

13. In this backdrop, let us take an example where the cause of action has arisen in place „A‟ and the place of arbitration is place „B‟. If a party to the arbitration agreement were to move an application under Section 9 of the said Act, he could not file it in place „B‟, if the view of the learned single Judge were to be accepted as, according to him, an application under Section 9 does not invoke the „supervisory jurisdiction‟. And, because of Section 42, no other application under the said Act could ever be filed in place „B‟ (i.e. the place of arbitration). So, the occasion to exercise supervisory jurisdiction would never accrue to the Courts at place „B‟. This would run counter to the decision of the Supreme Court in Bharat Aluminium (supra) where, at the cost of repetition, it was observed that:-

"The legislature has intentionally given jurisdiction to two courts, i.e., the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place."

14. In these circumstances, we find ourselves unable to agree with the view of the learned single Judge expressed in his order dated 04.02.2014. We agree with the view taken in Sai Consulting (supra) and hold that the Courts at the seat or place of arbitration would have territorial jurisdiction to entertain an application under the said Act subject to the provisions of Section 42 thereof, irrespective of the fact that the cause of action arose elsewhere and / or the respondent resides elsewhere.

OMP 150/2014 Page 10 of 11

15. As such, we direct that this matter be placed before the learned single Judge on 11.03.2014, in the first instance, for hearing the same on merits. The reference stands answered as above.

BADAR DURREZ AHMED, ACJ SIDDHARTH MRIDUL, J MARCH 04, 2014 pmc OMP 150/2014 Page 11 of 11