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Citation Codes
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Case Number
Attorney(S)
  • Anirudh Sethi
  • Priyanjali Yadav
  • Bomi Patel
  • Shiraz Patodia
  • Atul Setalvad
  • S.Gautam
  • Rana Mukherjee
Judges
  • Mr. Justice J.D. Kapoor
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Citation Codes
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citation codes
Case Number
Attorney(S)
  • Anirudh Sethi
  • Priyanjali Yadav
  • Bomi Patel
  • Shiraz Patodia
  • Atul Setalvad
  • S.Gautam
  • Rana Mukherjee
Judges
  • Mr. Justice J.D. Kapoor
Acts
See more information ...
Smart Summary

Judgment Summary: D. Kapoor, J.

Factual and Procedural Background

The dispute arises from a 4 April 1991 agreement executed at Mumbai between petitioner No. 2 and respondent No. 1 for the sale of certain shares and Engineering Division properties. Differences were referred to the sole arbitration of Mr. Justice A.M. Ahmadi, resulting in an award dated 31 August 1999 which the petitioners challenged before this Court. Prior to that challenge, respondent No. 1 had filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 ("the Act") in the Mumbai High Court. The parties subsequently entered into Consent Terms filed in the Mumbai High Court, pursuant to which the petition under Section 34 before this Court was withdrawn. The Consent Terms included an arbitration clause providing for reference to the sole arbitrator again.

Despite the Consent Terms, disputes recurred and the petitioners referred fresh disputes to the same arbitrator, who made a subsequent award on 30 October 2001. The petitioners challenged that award by filing the instant petition under Section 34 in this Court. Respondent No. 1 raised a preliminary objection to this Court's territorial jurisdiction on the ground that neither party is resident or carrying on business in Delhi, the agreement was executed in Mumbai, the contract performance was not in Delhi, and the Consent Terms were filed in the Mumbai High Court. Although arbitration proceedings and the award occurred in Delhi, respondent No. 1 contended this did not confer territorial jurisdiction on the Delhi High Court.

The awards at issue involved (a) a prior award of approximately Rs. 1.08 crores in favour of the petitioners and (b) a claim of about Rs. 1.92 crores for a superannuation fund. The subsequent award (31.10.2001) rejected the petitioners' claim of Rs. 1,08,80,676 and settled the second claim; the petitioners have assaulted the rejection of the first claim by the instant petition.

Legal Issues Presented

  1. Whether this Court has territorial jurisdiction to entertain the petition under Section 34 of the Arbitration and Conciliation Act, 1996, given that the agreement and Consent Terms were executed/filed in Mumbai and neither party resides or carries on business in Delhi.
  2. Whether the holding of arbitration proceedings and the making of the award in Delhi by the sole arbitrator confers territorial jurisdiction on the courts of Delhi.
  3. Whether the filing of an application under Section 9 (or other applications) in Mumbai and the filing of Consent Terms in the Mumbai High Court confers exclusive jurisdiction on the Mumbai High Court under Section 42 of the Act.
  4. Whether the presence of properties in Delhi referred to in the Consent Terms renders Delhi the proper forum for challenging the award, even though the second arbitration concerned only set-off claims (money against money) and not transfer or possession of those properties.

Arguments of the Parties

Respondent No. 1's Arguments (as presented by Mr. Atul Setalvad)

  • Neither party is resident in Delhi, neither carries on business in Delhi, the agreement was not executed in Delhi, and performance was not to be in Delhi — therefore Delhi courts lack territorial jurisdiction.
  • The arbitration agreement embodied in the Consent Terms was filed in the Mumbai High Court and respondent No. 1 had filed an application under Section 9 in Mumbai; Section 42 of the Act requires that where an application under the Act has been made in a court, that court alone has jurisdiction over subsequent applications arising out of the arbitration agreement and arbitral proceedings.
  • The mere fact that the learned sole arbitrator chose to hold proceedings and make the award at Delhi does not confer territorial jurisdiction on the courts of Delhi.
  • Reliance was placed on the decision in Gulati Construction Co. Jhansi v. Betwa River Board and Anr. to support the proposition that an arbitrator's choice of venue where no suit could have been instituted does not give territorial jurisdiction to the courts of that venue.

Petitioners' Arguments (as presented by Mr. Rana Mukherjee)

  • Mere filing of an application under Section 9 in Mumbai (by respondent No. 1) does not automatically confer exclusive jurisdiction to Mumbai courts or preclude the petitioners from invoking jurisdiction in Delhi under Section 42.
  • Reliance on P. Anand Gajapathi Raju v. P.V.G. Raju (Dead) and Ors., where it was held that filing an application under Section 8 does not confer jurisdiction under Section 42, was advanced to argue that the Mumbai filing did not determine jurisdiction in this case.
  • Some of the properties referred to in the Consent Terms are located in Delhi and the petitioners contend they are entitled to recover possession of those properties if respondent No. 1 fails to adjust Rs. 1.8 crores — this, the petitioners argued, gives Delhi jurisdiction.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Gulati Construction Co. Jhansi v. Betwa River Board and Anr. Principle that an arbitrator's choice to hold proceedings and make an award at a place where no suit could have been instituted does not confer territorial jurisdiction on the courts of that place. The Court relied on this principle to support the conclusion that the arbitrator having conducted proceedings and made the award in Delhi does not, by itself, confer territorial jurisdiction on the Delhi courts.
P. Anand Gajapathi Raju and Ors. v. P.V.G. Raju (Dead) and Ors. Held that mere filing of an application under Section 8 of the Act is not an "application" within the meaning of Section 42 and therefore does not confer jurisdiction under Section 42. The Court considered this authority but held its ratio inapplicable to the present case because Section 8 is not the same kind of application as Section 9 or Section 34; the Court concluded that applications under Section 9 or Section 34 fall within the ambit of Section 42 and thus the precedent was misplaced for the respondent's purpose.

Court's Reasoning and Analysis

The Court proceeded by identifying the governing statutory definitions and provisions and by applying the established test for territorial jurisdiction in arbitration matters. The key legal points and analytical steps were:

  1. Statutory definitions (Section 2(e)) and the jurisdiction provision (Section 42) were considered: Section 2(e) defines "Court" for the purposes of the Act, and Section 42 provides that where an application under the Act has been made in a court, that court has exclusive jurisdiction over the arbitral proceedings and subsequent applications arising out of that agreement.
  2. The Court identified the controlling test for territorial jurisdiction: the decisive factor is the court within whose jurisdiction a suit could have been instituted for the claim raised in the reference. Venue chosen by the arbitrator for conducting proceedings is immaterial to this inquiry.
  3. The Court examined the facts: the original agreement and the Consent Terms were made/filed in Mumbai; an application under Section 9 had been filed in the Mumbai High Court; the claims in the second reference were claims for set-off (money against money), not claims for transfer or recovery of the properties in Delhi.
  4. The petitioners' argument that the presence of properties in Delhi (referred to in the Consent Terms) conferred jurisdiction on this Court was analysed. The Court held that those properties were part of the adjustment mechanism under the Consent Terms but were not themselves the subject-matter of the second reference: (a) the second reference concerned set-off of money and not transfer or recovery of property, and (b) the properties were held by way of permissive occupation rather than by transfer of title or sale.
  5. Applying the principle from Gulati and the statutory framework, the Court concluded that allowing the properties to be treated as giving Delhi jurisdiction would circumvent the actual subject-matter of the arbitration (set-off claims) and improperly expand the scope of the reference to include property-related relief that was not part of the arbitration.
  6. The Court rejected the petitioners' reliance on P. Anand Gajapathi Raju as inapposite: Section 8 applications differ in kind from applications under Section 9 or Section 34, which are substantive applications falling within the ambit of Section 42.

Holding and Implications

Holding: The Court concluded that it has no territorial jurisdiction to entertain the petition under Section 34 in the present facts. As a consequence, the petition is returned to the petitioners for presentation before the court of competent jurisdiction, and the entire record is returned to the petitioners.

Implications:

  • Direct effect: The petitioners must present their challenge to the award before the court having jurisdiction where a suit for the claim raised in the reference could be instituted (as indicated in the opinion, that would be the Mumbai forum). The Delhi proceedings do not and cannot be sustained on the basis that the arbitrator held proceedings and made the award in Delhi.
  • The presence of properties mentioned in the Consent Terms located in Delhi did not, in the Court's view, render Delhi a proper forum because those properties were not the subject-matter of the second arbitration, which dealt only with set-off of monetary claims.
  • The Court did not record the setting of any new legal precedent; it applied existing statutory provisions and established principles (including authority cited) to the facts and returned the matter to the appropriate forum.

Order: Petition returned for presentation before the court of competent territorial jurisdiction; record returned to the petitioner.

Show full summary ...

    Hmp Engineers Ltd. And Ors. v. Rallis India Ltd. And Anr.

    D. Kapoor, J.

    1. Respondent No. 1 has at the threshold challenged the territorial jurisdiction of this court to entertain the petition under Section 34 of Arbitration and Conciliation Act, 1996 (in short the 'Act') as according to Mr. Atul Setalvad, learned senior counsel for respondent No. 1 neither of the parties is either living in Delhi or works for gains in Delhi nor was the agreement between the parties executed in Delhi nor was the contract to be performed at Delhi. It is contended by Mr. Setalvad that apart from this, arbitration agreement that is embodied in the 'Consent Terms' between the parties was also filed in Mumbai High Court and merely because the learned sole Arbitrator Hon'ble Mr. Justice A.M. Ahmadi, Retd. Chief Justice of India chose to hold the proceedings at Delhi and made the award at Delhi would not provide territorial jurisdiction to this court.

    2. The facts germane for determining the contentious question of jurisdiction need to be recapitulated in brief.

    An agreement dated 4.4.1991 was entered into between petitioner No. 2 and respondent No. 1 at Mumbai for sale of shares of petitioner nos.7 & 8 and the properties of Engineering Division. Disputes and differences arose between the parties which were referred to the sole arbitration of Mr. Justice A.M.Ahmadi. Proceedings culminated in award dated 31.8.1999. Same was challenged by the petitioners before this court. Prior to the said challenge by the petitioners, respondent No. 1 had already filed application under Section 9 of the Act before Mumbai High Court. However, parties entered into compromise and Consent Terms were signed by both the parties and filed in Mumbai High Court. In view of consent terms, application under Section 34 of the Act filed by the petitioners in this court was withdrawn as one of the Consent Terms was that petitioner shall withdraw petition under Section 34 of the Act filed in this court. Another term of consent terms was arbitration clause whereby parties were given liberty to refer the disputes arising from the consent terms to the sole arbitration of Mr. Justice A.M.Ahmadi. However, inspite of consent terms, disputes arose and the petitioner referred the disputes to Mr. Justice A.M.Ahmadi for fresh arbitration. Mr. Justice A.M.Ahmadi made the award on 30.10.2001. The said award has been again challenged by the petitioners by way of instant petition.

    3. As per this award, petitioners were required to pay respondent No. 1 approximately sum of Rs. 11 crores and respondent No. 1 was required to pay sum to Rs. 1.8 crores to the petitioners. As per Consent Terms, sum of Rs. 11 crores were set of to Rs. 6 crore upon petitioners transferring certain properties to respondent No. 1, some of which are in Delhi. Consent Terms did not provide for payment of Rs. 1.8 crores by respondent No. 1 to the petitioners. When the petitioners claimed Rs. 1.8 crore from sum of Rs. 6 crores, respondent No. 1 refused to set off the said amount and this gave rise to the disputes for arbitration. The claims made by the petitioners are as follows:-

    a) Claim for an amount of Rs. 1,08,80,676/- (Rupees One Crore Eight Lakhs Eighty Thousand Six Hundred and Seventy Six- along with interest, on the basis that the said amount was awarded in favor of the petitioners by the learned Arbitrator by his award dated 31st August, 1999; and

    b) Claim for an amount of Rs. 1,92,33,011/- (Rupees One Crore Ninety Two Lakhs Thirty Three Thousand and Eleven) or such other amount towards Superannuation fund, which Respondent No. 1 had failed to transfer in favor of the Petitioners along with interest @ 24% per annum.

    4. The learned Arbitrator by his award dated 31.10.2001 dismissed the claim of the petitioners for an amount of Rs. 1,08,80,676/- (Rupees One Crore Eight Lakhs Eighty Thousand Six Hundred and Seventy Six) whereas second claim was settled in the course of arbitration proceedings. Rejection of claim of the petitioners has been assailed through this petition.

    5. According to Mr. Setalwad, Section 2(e) of the Act debars the jurisdiction of this court for deciding the questions forming the subject matter of arbitration.

    6. Section 2(e) of the Act defines the court where parties to arbitration agreement or any action against the award can initiate their remedy as under:-

    (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-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil of a grade inferior to such principal Civil Court, or any Court of small Causes."

    7. Mr. Setalwad has also placed reliance upon Section 42 of the Act relating to jurisdiction. According to this section where with respect to an arbitration agreement any application under this part has been made in a court that court alone have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that court and in no other court.

    8. It is contended by Mr. Setalwad that not only application under Section 9 of the Act was filed in Mumbai High Court by respondent No. 1 but also Consent Terms arrived at between the parties were placed before Mumbai High Court and merely because sole Arbitrator was stationed at Delhi and chose to conduct the proceedings at Delhi would not provide jurisdiction to Delhi Courts particularly when subject matter of arbitration was ascertained as subject matter of suit and further none of the parties are residents of Delhi nor have they registered offices at Delhi nor any part of cause of action had arisen at Delhi.

    9. In support of the contention that merely because the Arbitrator chooses to hold proceedings in a place where no suit could be instituted the place chosen by the Arbitrator would not confer territorial jurisdiction on the court of that place, Mr. Setalwad placed reliance upon judgment of this court in Gulati Construction Co. Jhansi v. Betwa River Board and Anr. where contract was awarded to the petitioner on a tender enquiry having been floated respondent from Jhansi and it was at that place that the tender was accepted. The contract was also concluded at Jhansi, the place where the acceptance of tender took place though work was carried out in District Guna (M.P.). The sole arbitrator held the arbitration proceedings in Delhi and made and signed his award at New Delhi. Thereupon objections under section 30 & 34 of the old act (wherein section 2(c) defined the court as defined by Section 2(a) of the new Act) were filed in this court by the respondent.

    10. The preliminary objection was taken that this court has no territorial jurisdiction to decide the disputes between the parties. It was held that in order to decide which is the Court that has jurisdiction in the matter to which a reference relates, what has to be ascertained id the Court within whose jurisdiction the suit could have been instituted for the claim which was raised in the reference. Merely because the arbitrator chose to hold the proceedings in a place where admittedly no suit could be instituted and chose to make and publish an award at that place it would not give the Courts of that place territorial jurisdiction to decide the matters arising under the Arbitration Act.

    11. On the contrary Mr. Rana Mukherjee, learned counsel for the petitioners contended that merely because an application under Section 9 of the Act was filed by the respondent at Mumbai would not provide either jurisdiction to Mumbai courts or preclude the petitioner under Section 42 of the Act to move the instant petition. Mr. Mukherjee tried to draw support from P. Anand Gajapathi Raju and Ors. v. P.V.G. Raju(Dead) and Ors. wherein it was held that mere filing of application under Section 8 of the Act would not provide jurisdiction to the court. In the aforesaid case, the petitioner took the plea that application under Section 8 was within the meaning of application referred in Section 42 of the Act but it was held that Section 8 is not such an application which comes within the admit of Section 42 and therefore mere filing of such an application would not provide jurisdiction to the court.

    12. It is needless to say that application under Section 8 is merely an application seeking stay of civil suit where parties had agreed for deciding their disputes by way of arbitration. The reference of application under Section 42 of the Act is with regard to the arbitration agreement and arbitral proceedings. For instance, application under Section 9 of the Act can be termed as an application under Section 42 of the Act. Application under Section 8 is not a substantive application whereby a party can claim any relief either in terms of arbitration agreement or seel remedy against the arbitral proceedings or the award whereas application under Section 9 or for that purpose, Section 34 or under any other provision where parties seek some remedy either against the terms of arbitration agreement or arbitral proceedings or the award are the applications which come within definition and ambit of Section 42 of the Act. Thus ratio of aforesaid authority is not applicable in the instant case and reliance is misplaced.

    13. It is beyond the pale of controversy that the determining criteria for jurisdiction of a court is as to within whose jurisdiction suit is to be instituted for the claim which is raised in the reference. The venue of arbitration proceedings is immaterial. The Arbitrator may choose place for arbitration which is more convenient for efficacious and expedient disposal of reference. Thus, choice of venue by the Arbitrator is not the governing or determining criteria.

    14. In the face of aforesaid principle also learned counsel for the petitioner has tried to invoke jurisdiction of this court on the ground that some of the properties under first arbitration award and the Consent Terms are situated in Delhi and these properties were part of discussion of the first award as well as Consent Terms.

    15. For that purpose, Consent Terms have to be taken into consideration in entirety. One of the terms of Consent Terms pertains to the transfer of valuable properties in Delhi by way adjusting the claim awarded in favor of respondent No. 1. The relevant clauses are as under:-

    4(a) Rs. 6,00,00,000/- (Rupee Six Crores) in the aggregate shall be paid by the Respondent Group (read petitioner) to RIL strictly as set out in Schedule annexed hereto.

    (b) Declared and confirmed that RIL have all along been and continue to be in juridical possession of the following offices and Godowns (hereafter called the said offices and Godowns) of which HMP Engineers Ltd. has been in permitted occupation.

    xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

    5. The Respondent Group Declare and Undertake to this Hon'ble Court that they have not created, or purported to create or permitted the creation of or permitted the use of (and further that they will not hereafter create or purport to create or permit the creation of) any right, title or interest or any type whatsoever in, to or relating to the whole or any part of the said offices and/or Godowns as set out in Clause 4(b) or permit the use thereof to any third party and have not done or omitted to do and will not hereafter do any act which would in any manner jeopardise or adversely affect RIL's right, title and interest therein or relating thereto.

    6. On or before 31st July, 2000 (time being of the essence) the Respondent Group will ensure that HMP Engineers Ltd. shall entirely remove themselves and all their belongings and all persons claiming under or through the Respondent Group from all the aforesaid 11 Offices and Godowns and the Respondent Group shall give to RIL vacant, peaceful and exclusive occupation of the same together with fittings and fixtures thereof.

    16. It is vehemently contended by Mr. Mukherjee that in view of Consent Terms and aforesaid clauses, this court has jurisdiction inasmuch as though the aforesaid properties were not subject matter of reference but the petitioner was entitled to recover possession of these properties from respondent No. 1 on failure of respondent No. 1 to adjust Rs. 1.8 crores and therefore jurisdiction of this court has been rightly invoked.

    17. I am afraid this argument is self-defeating as terms of reference in second arbitration were regarding the claim to set off money against money. There was no alternative or return of any property. The disputes before the Arbitrator were altogether different and did not involve the properties in question. Properties were subject matter of discussion and not of reference. Moreover these properties were not transferred by way of sale. There was only permissive occupation.

    18. There is no doubt if the petitioner was to institute a suit for recovery, it has to be instituted at Mumbai. Unless and until, the properties were the subject matter of reference, the Consent Terms did not provide jurisdiction to this court and to the petitioner for challenging the award. It is apparent that these properties can by no stretch of imagination become subject matter of the suit to be instituted by the petitioner. Subject matter of arbitration was claims of set off. It would be circumventing the reference and the subject matter of arbitration if the aforesaid properties are deemed to be subject matter of arbitration or reference merely because one of the Consent Terms said that transfer of properties of the petitioner would reduce the claim of the respondent against the petitioner.

    19. For the aforesaid reasons, I find that this court has no territorial jurisdiction. As a consequence petition is returned to the petitioners for presenting it before the court competent jurisdiction.

    The entire record pertaining to the petitioner be returned to the petitioner.

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    Comments

    Hmp Engineers Ltd. And Ors. v. Rallis India Ltd. And Anr.
    (Apr 18, 2002)