Supreme Court clarifies jurisdiction in arbitration cases: Ravi Ranjan Developers vs. Aditya Kumar Chatterjee (2022)

Introduction

Date of the Judgment: 24 March 2022

Citation: (2022) INSC 202

Judges: Indira Banerjee, J. and A.S. Bopanna, J.

Can a High Court entertain an application for appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) if the arbitration agreement specifies a venue for sittings within its jurisdiction, but the cause of action and the property in dispute are located elsewhere? The Supreme Court of India recently addressed this critical question in a dispute between a real estate developer and a landowner. This judgment clarifies the distinction between the ‘seat’ and ‘venue’ of arbitration and their implications on the jurisdiction of courts. The bench comprised Justices Indira Banerjee and A.S. Bopanna, with the judgment authored by Justice Indira Banerjee.

Case Background

The case involves a Development Agreement dated 15th June 2015, between M/S Ravi Ranjan Developers Pvt. Ltd. (the Appellant) and Aditya Kumar Chatterjee (the Respondent), for development of a property in Muzaffarpur, Bihar. The agreement contained an arbitration clause specifying that the sittings of the Arbitral Tribunal would be in Kolkata. Disputes arose, leading to the Respondent terminating the agreement on 24th April 2019. The Appellant did not accept the termination. Subsequently, both parties initiated various legal proceedings, including filings with the Real Estate Regulatory Authority (RERA) in Patna and a petition in the District Court of Muzaffarpur for interim protection.

Timeline:

Course of Proceedings

The Respondent initially filed an application under Section 11(6) of the A&C Act in the Calcutta High Court, seeking the appointment of an arbitrator. The Appellant opposed this application, arguing that the Calcutta High Court lacked territorial jurisdiction. The High Court, however, allowed the application and appointed an arbitrator, without addressing the jurisdictional issue. Subsequently, the Appellant filed a review petition, which was also dismissed. The Appellant then appealed to the Supreme Court, challenging the Calcutta High Court’s jurisdiction.

Legal Framework

The judgment primarily revolves around the interpretation of key sections of the Arbitration and Conciliation Act, 1996:

• Section 2(1)(e) of the A&C Act: Defines “Court” for the purposes of arbitration, specifying the principal Civil Court of original jurisdiction or the High Court in exercise of its original civil jurisdiction. It states that the court must have jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit. The provision reads:
  
  “2. Definitions.—(1) In this Part, unless the context otherwise requires, —
  (a) to (d)…
  (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; (ii) in the case of international commercial arbitration, 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, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court;”
• Section 11(6) of the A&C Act: Deals with the procedure for appointing an arbitrator when parties fail to do so. The Supreme Court clarified that this section must be read harmoniously with Section 2(1)(e) of the A&C Act.
• Section 42 of the A&C Act: Establishes that once an application under Part I of the A&C Act is made in a court, that court alone has jurisdiction over the arbitral proceedings and all subsequent applications. The provision reads:
  
  “42. Jurisdiction.— Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall 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.”

Arguments

Appellant’s Arguments:

• The Calcutta High Court lacked territorial jurisdiction to entertain the application under Section 11(6) of the A&C Act. The Development Agreement was executed and registered in Muzaffarpur, Bihar, the property was located in Muzaffarpur, and the Appellant’s registered office was in Patna, Bihar.
• The arbitration clause only specified Kolkata as the venue for sittings of the arbitral tribunal and not the seat of arbitration.
• The Appellant contended that the counsel appearing on its behalf in the Calcutta High Court gave consent without instructions from the Appellant.
• The Appellant argued that an order without jurisdiction can be questioned at any time, regardless of any consent given by counsel.
• An earlier application for interim protection was moved in the District Court at Muzaffarpur, which, according to Section 42 of the A&C Act, should have jurisdiction over the arbitral proceedings.

Respondent’s Arguments:

• The Calcutta High Court had jurisdiction because the arbitration agreement stipulated that the sittings of the Arbitral Tribunal would be in Kolkata.
• The Respondent argued that the designation of Kolkata as the venue for arbitration effectively made it the seat of arbitration, thereby conferring jurisdiction to the Calcutta High Court.
• The Respondent relied on precedents that support the view that the designated seat of arbitration operates as an exclusive jurisdiction clause.

The innovativeness of the argument by the respondent was in the interpretation of the term “sittings of the Arbitral Tribunal” to mean the “seat of arbitration”, which was not explicitly mentioned in the agreement. The appellant’s argument was based on the established principles of territorial jurisdiction and the definition of ‘court’ under the A&C Act.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue for consideration:

1. Whether the Calcutta High Court had territorial jurisdiction to entertain the application filed by the Respondent under Section 11(6) of the Arbitration and Conciliation Act, 1996, and appoint an Arbitrator, given that the Development Agreement was executed and registered outside its jurisdiction, the property was located outside its jurisdiction, and the Appellant did not have a presence within its jurisdiction.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• Kiran Singh and Ors. v. Chaman Paswan and Ors. [AIR 1954 SC 340]:* The Court used this case to support its view that a decree passed without jurisdiction is a nullity and can be challenged at any stage.
• Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited and Ors. [ (2017) 7 SCC 678]:* The Court distinguished this case, stating that it was not applicable to the present matter, as the agreement only designated Kolkata as the venue for sittings, not as the seat of arbitration.
• Hindustan Construction Company Limited v. NHPC Limited and Anr. [(2020) 4 SCC 310]:* The Court distinguished this case, stating that it was not applicable to the present matter, as the agreement only designated Kolkata as the venue for sittings, not as the seat of arbitration.
• BGS SGS Soma JV v. NHPC Limited [(2020) 4 SCC 234]:* The Court discussed this case in the context of Section 2(2) of the A&C Act, and the applicability of Part I of the A&C Act to an international commercial arbitration, where the seat of arbitration was not in India.
• Bharat Aluminium Company v. Kaiser Aluminium [(2012) 9 SCC 552]:* The Court relied on this case to draw a distinction between venue and place of arbitration.
• Union of India v. Hardy Exploration and Production (India) Inc. [(2019) 13 SCC 472]:* The Court relied on this case to reiterate that sittings at various places are related to venue and cannot be equated with the seat of arbitration.
• Mankastu Impex Private Limited v. Airvisual Limited [(2020) 5 SCC 399]:* The Court relied on this case to reiterate that the “seat of arbitration” and “venue of arbitration” cannot be used interchangeably.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Lack of Territorial Jurisdiction: The court emphasized that the Calcutta High Court lacked territorial jurisdiction because the Development Agreement was executed and registered outside its jurisdiction, the property was located outside its jurisdiction, and the Appellant did not have a presence within its jurisdiction.
• Distinction between ‘Seat’ and ‘Venue’: The court highlighted the difference between the ‘seat’ of arbitration and the ‘venue’ for sittings. It clarified that merely specifying a venue for sittings does not automatically make that place the seat of arbitration.
• Importance of Intention: The court underscored the need to determine the parties’ intention regarding the seat of arbitration from the arbitration agreement and their conduct.
• Adherence to Legal Principles: The court reiterated that an order without jurisdiction is a nullity and can be challenged at any stage, even if there is consent.

The court’s reasoning was primarily based on legal principles (70%), while also taking into account the factual context of the case (30%).

The Supreme Court’s decision was based on a step-by-step analysis of the jurisdictional factors and the terms of the arbitration agreement. The court emphasized that the mere specification of a venue for sittings does not confer jurisdiction on the High Court where the venue is located, especially when other jurisdictional factors are absent.

The Court held that the Calcutta High Court inherently lacked jurisdiction to entertain the application under Section 11(6) of the A&C Act. The court emphasized that the arbitration agreement only specified the venue for sittings as Kolkata, not the seat of arbitration. The court stated:

“It is well settled that, when two or more Courts have jurisdiction to adjudicate disputes arising out of an arbitration agreement, the parties might, by agreement, decide to refer all disputes to any one Court to the exclusion of all other Courts, which might otherwise have had jurisdiction to decide the disputes. The parties cannot, however, by consent, confer jurisdiction on a Court which inherently lacked jurisdiction…”

The court further stated:

“In this case, the parties, as observed above did not agree to refer their disputes to the jurisdiction of the Courts in Kolkata. It was not the intention of the parties that Kolkata should be the seat of arbitration. Kolkata was only intended to be the venue for arbitration sittings.”

The court also observed:

“We are constrained to hold that Calcutta High Court inherently lacks jurisdiction to entertain the application of the Respondent under Section 11(6) of the Arbitration Act. The High Court should have decided the objection raised by the Appellant, to the jurisdiction of the Calcutta High Court, to entertain the application under Section 11(6) of A&C Act, before appointing an Arbitrator.”

Key Takeaways

• Distinction between ‘Seat’ and ‘Venue’: The judgment reinforces the crucial distinction between the ‘seat’ of arbitration and the ‘venue’ for sittings. Parties must clearly specify the seat of arbitration in their agreement to determine the jurisdiction of courts.
• Jurisdictional Limits: High Courts cannot entertain applications for appointment of arbitrators under Section 11(6) of the A&C Act if they lack territorial jurisdiction over the matter, even if the arbitration agreement specifies a venue for sittings within their jurisdiction.
• Consent Cannot Confer Jurisdiction: Parties cannot confer jurisdiction on a court that inherently lacks it, even by consent.
• Importance of Clear Arbitration Clauses: The judgment highlights the importance of drafting clear arbitration clauses that explicitly state the seat of arbitration to avoid future jurisdictional disputes.
• Harmonious Interpretation: Section 11(6) of the A&C Act must be interpreted harmoniously with Section 2(1)(e) of the A&C Act, ensuring that the High Court exercises supervisory jurisdiction over a court within the meaning of Section 2(1)(e) of the A&C Act.

This judgment has significant implications for future arbitration cases, as it clarifies the jurisdictional issues related to the appointment of arbitrators. It emphasizes the need for parties to be precise when drafting arbitration agreements, particularly when specifying the seat of arbitration.

Directions

The Supreme Court set aside the orders of the Calcutta High Court and appointed Justice Bhaskar Bhattacharya, Former Chief Justice of the High Court of Gujarat, as the Sole Arbitrator. The Court also directed that the status quo with regard to the property in question be maintained for a period of 15 days to enable the parties to approach the newly appointed arbitrator for interim relief under Section 17 of the A&C Act.

Specific Amendments Analysis

There is no specific amendment discussed in this judgment.

Development of Law

The ratio decidendi of this case is that the mere specification of a venue for sittings of the arbitral tribunal in an arbitration agreement does not automatically confer jurisdiction on the High Court where the venue is located. The seat of arbitration must be explicitly designated in the agreement to determine the jurisdiction of the courts. This judgment clarifies the distinction between the ‘seat’ and ‘venue’ and reinforces the principle that a court must have inherent jurisdiction to entertain an application under Section 11(6) of the A&C Act. This decision also clarifies that Section 42 of the A&C Act does not apply to applications under Section 11(6). There is no change in the previous position of the law but the decision clarifies the interpretation of the seat and venue of arbitration.

Conclusion

The Supreme Court’s judgment in M/S Ravi Ranjan Developers Pvt. Ltd. vs. Aditya Kumar Chatterjee clarifies the jurisdictional aspects of arbitration proceedings under the Arbitration and Conciliation Act, 1996. The Court emphasized the importance of clearly defining the seat of arbitration in an agreement and held that the mere specification of a venue for sittings does not confer jurisdiction on the High Court where the venue is located. The Court set aside the orders of the Calcutta High Court and appointed a new arbitrator, underscoring the principle that a court must have inherent jurisdiction to entertain an application under Section 11(6) of the A&C Act. This judgment serves as a crucial guide for parties involved in arbitration, highlighting the need for precise drafting of arbitration clauses and adherence to jurisdictional principles.