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Smart Summary

Structured Summary of the Opinion — Judgment dated 31.05.2017 (Servesh Kumar Gupta, J.)

Factual and Procedural Background

A concession agreement dated 23.3.2013 was entered into between Nagar Palika Parishad, Kotdwar (the municipality) and Ramesth Construction Pvt. Ltd. (the contractor) for construction and development of a modern bus terminal-cum-multiplex commercial complex in Kotdwar under a build-operate-transfer (BOT) scheme. The contractual completion date was 22.3.2015 and the site was handed over to the contractor. Progress was impeded by encroachments on the site by private parties and some government concerns. The completion date was extended to 22.3.2016, but only around 15% of the work had been completed. The contractor contended that it was the municipality’s responsibility to hand over the site free of encroachments and that removal of encroachments required proceedings under the Public Premises Act, which only the municipality could initiate.

The municipality issued termination notices dated 31.12.2016 and 25.1.2017. The contractor sought relief from the District Judge, Pauri Garhwal under Section 9 of the Arbitration and Conciliation Act, 1996 (the Act). The municipality filed an application under Order 7 Rule 11 CPC (referred to as application 26C in the opinion), relying on arbitration clause 11.2(b) of the concession agreement (which designates the place of arbitration as ordinarily Dehradun) and on the definition of "Court" in Section 2(1)(e) of the Act. The District Judge rejected the 26C application but also granted an ad interim injunction directing preservation of the disputed property. The municipality appealed against the grant of the ad interim injunction and filed a revision against the rejection of its Order 7 Rule 11 CPC application. Both matters were heard together in this Court.

Legal Issues Presented

  1. Whether the courts territorially other than at the agreed seat of arbitration (Dehradun, as per clause 11.2(b) of the concession agreement) have jurisdiction to exercise powers under the Act (for example under Section 9 and Section 34), or whether fixing the seat of arbitration excludes the jurisdiction of other courts.
  2. Whether Section 9(3) of the Arbitration and Conciliation Act prevents a court from entertaining an application under Section 9(1) once the arbitral tribunal has been constituted (i.e., whether constitution of the tribunal bars the court from adjudicating the Section 9 application except in the limited circumstances specified in Section 9(3)).

Arguments of the Parties

Appellant / Revisionist (Municipality)

  • Argued that the seat of arbitration was fixed at Dehradun by clause 11.2(b) of the concession agreement, and therefore the District Judge, Dehradun would exclusively exercise jurisdiction under Sections 9, 34 and other relevant provisions of the Act; no other Court (including Pauri Garhwal) should exercise those powers.
  • Relied on the definition of "Court" in Section 2(1)(e) and on precedent (as advanced before the court) to support this territorial exclusivity arising from the chosen seat.

Respondent / Contractor

  • Argued that the subject-matter and site of the contract were in Kotdwar, and that the Nagar Palika Parishad is a local self-government body of Kotdwar; therefore, the courts of District Pauri Garhwal (having territorial jurisdiction over Kotdwar) could not be excluded by the seat stipulation.
  • Contended (as recorded) that the District Judge, Pauri Garhwal had already entertained the Section 9 application and passed an interim order on 14.2.2017.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., 2017 (5) Scale 60 Once the seat of arbitration is designated, it operates akin to an exclusive jurisdiction clause: the courts at the seat have exclusive supervisory jurisdiction over arbitral proceedings arising from the agreement, and parties can exclude other courts. The Court applied this authority to hold that the stipulation that the place of arbitration shall ordinarily be Dehradun ousted the jurisdiction of the District Judge, Pauri Garhwal; hence supervisory and interim powers under the Act should vest with the courts at Dehradun.

Court's Reasoning and Analysis

The Court proceeded in two main analytical strands:

  1. Jurisdictional effect of the seat of arbitration:
    • The Court examined clause 11.2(b) of the concession agreement (the place of arbitration shall ordinarily be Dehradun) and the definition of "Court" under Section 2(1)(e) of the Act (principal civil court of original jurisdiction in a district, and the High Court in its ordinary original civil jurisdiction).
    • Relying primarily on the Supreme Court's decision in Indus Mobile Distribution v. Datawind, the Court accepted the principle that designation of the seat of arbitration has the effect of an exclusive jurisdiction clause: once the seat is fixed, the courts at that seat have exclusive jurisdiction to regulate arbitral proceedings arising out of the agreement and parties can exclude other courts that might otherwise have territorial jurisdiction.
    • On this basis the Court concluded that the District Judge, Pauri Garhwal's jurisdiction had been ousted by the parties' stipulation that the place of arbitration is Dehradun, even though the clause did not expressly state that Dehradun courts shall have exclusive jurisdiction; the implicative effect of choosing Dehradun was held sufficient to confer exclusive supervisory jurisdiction on the courts of Dehradun under the Act.
  2. The bar in Section 9(3) once the arbitral tribunal is constituted:
    • The Court considered Section 9(3), which provides that once the arbitral tribunal has been constituted the Court shall not entertain an application under subsection (1) unless it finds circumstances making remedies under Section 17 inefficacious.
    • The appellant stressed that since the arbitral tribunal had been constituted on 13.5.2017 (and its first meeting held at Doon on that date), the Court should be barred from entertaining the contractor’s pending Section 9 application.
    • The respondent countered that the District Judge, Pauri Garhwal had already "entertained" the application and passed an order on 14.2.2017. The Court rejected that contention, explaining that "entertain" in Section 9(3) requires adjudication of the application, not merely filing, notice or preliminary cognizance; because the District Judge had not finally adjudicated the Section 9 application (it remained pending), the statutory bar now applied once the tribunal was constituted.
    • Given that the tribunal had been constituted, the Court found that the District Judge should not continue to adjudicate the Section 9 application; the combination of the seat stipulation and Section 9(3)'s bar led to setting aside the impugned order of the District Judge, Pauri Garhwal.

The Court also directed that status quo be maintained for four months to enable the arbitral tribunal to adjudicate the question of interim relief after hearing both parties.

Holding and Implications

Core Ruling: The appeal and the revision are allowed; the impugned judgment and order of the District Judge, Pauri Garhwal dated 14.2.2017 is set aside.

Direct consequences for the parties:

  • The municipality’s application under Order 7 Rule 11 CPC (application 26C) is allowed.
  • The contractor’s application under Section 9 of the Arbitration and Conciliation Act, 1996 is rejected by this Court (on the combined basis that the seat of arbitration designates Dehradun as vesting exclusive supervisory jurisdiction there and that the constitution of the arbitral tribunal invokes the bar under Section 9(3)).
  • The parties are directed to maintain the status quo for a period of four months to enable the arbitral tribunal to consider the prayer for interim relief after giving both parties an opportunity to be heard.

Broader implications (as stated or reflected in the opinion):

  • The judgment applies and follows the principle in Indus Mobile Distribution v. Datawind that fixing the seat of arbitration confers exclusive supervisory jurisdiction on the courts of the seat and can exclude other courts.
  • The opinion emphasizes that once an arbitral tribunal is constituted, Section 9(3) restricts courts from entertaining fresh or pending Section 9 applications except in narrowly defined circumstances, and that "entertain" means actual adjudication rather than mere filing or preliminary action.

(Summary prepared strictly from the text of the provided opinion; no information has been added or inferred beyond that text.)

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    NAGAR PALIKA PARISHAD KOTDWAR v. RAMESTH CONSTRUCTION PVT LTD

    Judgement delivered on : 31.05.2017 Honble Servesh Kumar Gupta, J. The aforetitled appeal and revision assail the same judgment and order dated 14.2.2017 rendered by the District Judge, Pauri Garhwal, hence are being taken up together for adjudication. Having heard learned Counsels of either party, it transpires that a concession agreement dated 23.3.2013 was entered into between the Nagar Palika Parishad, Kotdwar and the Ramesth Construction Pvt. Ltd. for construction and development of the modern bus terminal- cum-multiplex commercial complex in Kotdwar town under build, operate and transfer back (BOT) scheme. The work had to be completed by 22.3.2015 and the site was handed over to the contractor, but due to several constraints like encroachment of not only the private people but also by some government concerns on the site, such work could not be so completed within the stipulated time. So, it was extended for one year more, i.e. uptill 22.3.2016. Yet, only the 15 per cent work could have been done. It has been the case of contractor that it was the accountability of Nagar Palika Parishad to hand over the site without any encroachment and such task could not have been done by the contractor because to remove the encroachments, institution of the proceedings under the Public Premises Act could have been initiated only by the Nagar Palika Parishad, and not by the contractor. In this period of 3 years, the contractor invested huge money towards the development of the site, but the work could not be completed for the reasons, as have been highlighted above. As a consequence, the municipality issued the termination notice of the work on 31.12.2016 and thereafter on 25.1.2017. So in the above backdrop, the contractor invoked the interference of the Court of District Judge, Pauri Garhwal under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter for brevity called as the Act). The notices were issued to the Nagar Palika Parishad, Kotdwar, which moved an application 26C under Section 7 Rule 11 of the Civil Procedure Code read with Arbitration Clause No. 11.2(b) of the concession agreement and Section 2(1)(e) of the Act. The learned Judge not only rejected the 26C application, but also passed an ad interim injunction against the municipality directing the preservation of the disputed property/subject-matter of the dispute. The appeal has been filed challenging the issuance of the ad interim injunction part, while the revision has been preferred before this Court against the rejection of the application 26C. It would be relevant to have note of the clause 11.2(b) of the concession agreement entered into between the parties which reads as under: (b) Place of Arbitration The place of arbitration shall ordinarily be Dehradun but by agreement of the Parties, the arbitration hearings, if required, may be held elsewhere. At the same time, it would also be relevant to note the meaning of the word Court, as envisaged under Section 2(I)(e) of the Act. It reads as under: (e) Court means

    Judgement delivered on : 31.05.2017 Honble Servesh Kumar Gupta, J. The aforetitled appeal and revision assail the same judgment and order dated 14.2.2017 rendered by the District Judge, Pauri Garhwal, hence are being taken up together for adjudication. Having heard learned Counsels of either party, it transpires that a concession agreement dated 23.3.2013 was entered into between the Nagar Palika Parishad, Kotdwar and the Ramesth Construction Pvt. Ltd. for construction and development of the modern bus terminal- cum-multiplex commercial complex in Kotdwar town under build, operate and transfer back (BOT) scheme. The work had to be completed by 22.3.2015 and the site was handed over to the contractor, but due to several constraints like encroachment of not only the private people but also by some government concerns on the site, such work could not be so completed within the stipulated time. So, it was extended for one year more, i.e. uptill 22.3.2016. Yet, only the 15 per cent work could have been done. It has been the case of contractor that it was the accountability of Nagar Palika Parishad to hand over the site without any encroachment and such task could not have been done by the contractor because to remove the encroachments, institution of the proceedings under the Public Premises Act could have been initiated only by the Nagar Palika Parishad, and not by the contractor. In this period of 3 years, the contractor invested huge money towards the development of the site, but the work could not be completed for the reasons, as have been highlighted above. As a consequence, the municipality issued the termination notice of the work on 31.12.2016 and thereafter on 25.1.2017. So in the above backdrop, the contractor invoked the interference of the Court of District Judge, Pauri Garhwal under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter for brevity called as the Act). The notices were issued to the Nagar Palika Parishad, Kotdwar, which moved an application 26C under Section 7 Rule 11 of the Civil Procedure Code read with Arbitration Clause No. 11.2(b) of the concession agreement and Section 2(1)(e) of the Act. The learned Judge not only rejected the 26C application, but also passed an ad interim injunction against the municipality directing the preservation of the disputed property/subject-matter of the dispute. The appeal has been filed challenging the issuance of the ad interim injunction part, while the revision has been preferred before this Court against the rejection of the application 26C. It would be relevant to have note of the clause 11.2(b) of the concession agreement entered into between the parties which reads as under: (b) Place of Arbitration The place of arbitration shall ordinarily be Dehradun but by agreement of the Parties, the arbitration hearings, if required, may be held elsewhere. At the same time, it would also be relevant to note the meaning of the word Court, as envisaged under Section 2(I)(e) of the Act. It reads as under: (e) Court means (i) in the case of an arbitration other than international commercial arbitration, 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 Court of a grade inferior to such principal Civil Court, or any Court of Small Causes. This definition of the Court is for the purpose of intra-national arbitrations, like the case in hand. Learned Counsel of the appellant/revisionist has vehemently argued that where the seat of arbitral tribunal has been settled by way of a stipulation between the parties and that was the city of Dehradun, then it was the Court of District Judge, Dehradun, who would have exercised the jurisdiction under Section 9, 34 and other relevant provisions of the Act, and no other Court. On the other hand, learned Senior Counsel on behalf of the contractor has argued that the subject-matter of the contract was at Kotdwar. One of the parties, i.e. Nagar Palika Parishad, is also local self government body of Kotdwar town. Therefore, the Courts of District Pauri Garhwal having its territorial jurisdiction over Kotdwar cannot be excluded. Both the parties have relied upon several judgments of Honble Apex Court, but I think the controversy has been set at naught by the latest judgment of the Honble Apex Court rendered in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd., 2017(5) Scale 60. In this judgment, Honble Supreme Court has taken note of all other several cases, which have also been referred by both the parties before me. The Apex Court reiterated that once the seat of arbitration has been fixed, it would have in the nature of exclusive jurisdiction clause as to the courts which exercise supervisory powers over the arbitration. In paragraphs 20 and 21 of such judgment, the Honble Apex Court has further held as under:

    20. 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.

    21. It is well settled that where more than one court has jurisdiction, it is open for parties to exclude all other courts. Citing many other cases, the Honble Apex Court further made it clear that since the juridical seat of arbitration was at Mumbai, hence the Mumbai courts alone were having jurisdiction to the exclusion of all other courts in the country. Being so, the judgment of the Delhi High Court exercising the powers under the Act vis--vis to the dispute between the parties was set aside. In view of what has been set forth above, I am not convinced with the arguments of the learned Senior Counsel of the respondent that the place of arbitration has been chosen ordinarily at Dehradun, so the jurisdiction of the Court of District Judge, Pauri Garhwal cannot be excluded. In my opinion, the jurisdiction of the District Judge, Pauri Garhwal had been ousted at the strength of the stipulation 11.2(b), disregard of the fact that the exclusive jurisdiction to the courts of Dehradun had not been conferred specifically, but when the place of arbitration was intended to be at Dehradun by the parties, its implicative effect will certainly be that the court of District Judge, Dehradun alone has jurisdiction under the Act over all disputes which are settled by the arbitral tribunal between the parties. Learned Counsel on behalf of the appellant has stressed and drawn attention of this Court towards the provision of Section 9(3) of the Act, which reads as under: Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious. He has contended that since the arbitral tribunal has been constituted on 13.5.2017 and its first meeting has also been held at Doon on such date, therefore, it is prohibited for any Court to entertain the application under Section 9(1) of the Act. This argument has been refuted by the learned Senior Counsel on behalf of the respondent that the application under Section 9 has already been entertained by the District Judge, Pauri Garhwal and the impugned order was passed almost three months ago on 14.2.2017. I am unable to agree with the contention of learned Counsel of the respondent for the reason that the application moved under Section 9(1) of the Act is still pending for adjudication because by passing the impugned order, he has merely disallowed the objections of the municipality for rejecting such application under Order 7 Rule 11 CPC. There is no room for doubt that the word entertain does not mean simply the moving of an application to the Court and taking cognizance of the same, but it entails the proper adjudication of such application. Therefore, the entertainment of an application would mean the adjudication of that application, which is still pending in the Court. Since the tribunal now has been constituted, as indicated above, hence, the applicability of the bar provided under Section 9(3) of the Act cannot be gainsaid. For the reasons mentioned hereinbefore, I set aside the impugned judgment and order rendered by the District Judge, Pauri Garhwal. At the same time, I direct both the parties to maintain status quo for a period of next four months so that the prayer of interim relief be adjudicated by the arbitral tribunal after rendering opportunity to both the parties. Thus the appeal and the revision, both are hereby allowed. As a consequence, application of the municipality under Order 7 Rule 11 CPC stands allowed and the application under Section 9 moved by the contractor thus rejected. (Servesh Kumar Gupta, J.) Prabodh

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    NAGAR PALIKA PARISHAD KOTDWAR v. RAMESTH CONSTRUCTION PVT LTD
    (May 31, 2017)