LEGAL ISSUE: Determining the correct jurisdiction for arbitration proceedings when prior applications have been filed in a different court.
CASE TYPE: Arbitration Law
Case Name: General Manager East Coast Railway Rail Sadan & Anr. vs. Hindustan Construction Co. Ltd.
Judgment Date: 22 July 2022
Date of the Judgment: 22 July 2022
Citation: (2022) INSC 649
Judges: M.R. Shah, J. and B.V. Nagarathna, J.
When a dispute arises between parties, determining the correct court to resolve the matter is crucial. The Supreme Court of India recently addressed this issue in an arbitration case, clarifying the jurisdictional rules when a prior application related to the same dispute has been filed in a different court. This judgment clarifies which court has the power to appoint an arbitrator when previous applications have been made in another court. The bench was composed of Justice M.R. Shah and Justice B.V. Nagarathna.
Case Background
The dispute arose from a contract/agreement dated 29 November 2018 between the General Manager, East Coast Railway (appellant) and Hindustan Construction Co. Ltd. (respondent). The respondent initiated proceedings under Section 9 of the Arbitration and Conciliation Act, 1996, before the Additional District Judge, Visakhapatnam, seeking an interim injunction against the encashment of a Performance Bank Guarantee and forfeiture of a security deposit. The Additional District Judge granted the injunction on 6 November 2019, restraining the appellants from forfeiting the security deposit for six months, except under special circumstances.
Subsequently, on 1 December 2019, the respondent requested the appellant to constitute an Arbitral Tribunal, raising five claims. The appellant appointed an arbitrator, and the arbitrator issued notices to both parties to submit their claims. The respondent sought time for filing the claim due to the Covid-19 pandemic, which was granted until 3 April 2020. Instead of submitting the claim, the respondent questioned the validity of the arbitral tribunal on 1 September 2020. Following this, the respondent filed an application before the High Court of Orissa at Cuttack under Section 11(6) of the Arbitration Act, seeking the appointment of an arbitrator. The appellant objected, citing Section 42 of the Arbitration Act, arguing that the High Court of Andhra Pradesh at Amaravati had jurisdiction since the respondent had previously filed a Section 9 application in Visakhapatnam.
Timeline
| Date | Event |
|---|---|
| 29 November 2018 | Contract/agreement signed between the parties. |
| 6 November 2019 | Additional District Judge, Visakhapatnam, grants interim injunction against forfeiture of security deposit. |
| 1 December 2019 | Respondent requests the appellant to constitute an Arbitral Tribunal. |
| 2 April 2020 | Respondent seeks time to file a claim due to the Covid-19 pandemic. |
| 1 September 2020 | Respondent questions the validity of the arbitral tribunal. |
| 2021 | Respondent files an application under Section 11(6) of the Arbitration Act before the High Court of Orissa at Cuttack. |
| 22 July 2022 | Supreme Court of India delivers judgment. |
Course of Proceedings
The respondent initially sought an interim injunction under Section 9 of the Arbitration Act before the Additional District Judge, Visakhapatnam, which was granted. Later, when disputes arose, the respondent filed an application under Section 11(6) of the Arbitration Act before the High Court of Orissa at Cuttack, seeking the appointment of an arbitrator. The appellant objected to this, arguing that the Orissa High Court lacked jurisdiction under Section 42 of the Arbitration Act, as the initial Section 9 application was filed in Visakhapatnam. Despite this objection, the High Court of Orissa appointed an arbitrator, stating that since the appellant did not oppose the appointment in principle, it would avoid delaying the adjudication of disputes.
Legal Framework
The Supreme Court considered Section 42 of the Arbitration and Conciliation Act, 1996, which states:
“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.”
This section establishes that if an application related to an arbitration agreement is made in a court, only that court has jurisdiction over subsequent applications and arbitral proceedings arising from that agreement. The purpose of this provision is to avoid conflicting decisions and ensure that all matters related to a single arbitration agreement are handled by one court.
Arguments
The appellant argued that the High Court of Orissa at Cuttack did not have jurisdiction to entertain the application under Section 11(6) of the Arbitration Act because the respondent had previously initiated proceedings under Section 9 of the Arbitration Act in the court at Visakhapatnam. The appellant contended that Section 42 of the Arbitration Act clearly stipulates that the court where the first application is made has exclusive jurisdiction over subsequent applications. The appellant also argued that the procedure dated 16.11.2016, relied upon by the respondent, was superseded by the General Conditions of Contract (GCC) issued by the Railway Board in November 2018.
The respondent argued that the High Court of Orissa was correct in appointing the arbitrator because the appellant had not opposed the appointment in principle. The respondent contended that relegating the matter to the Andhra Pradesh High Court would only delay the adjudication of the disputes.
| Main Submission | Sub-Submissions |
|---|---|
| Appellant’s Submission: The High Court of Orissa lacked jurisdiction. |
|
| Respondent’s Submission: The High Court of Orissa had jurisdiction. |
|
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
✓ Whether the High Court of Orissa at Cuttack had the jurisdiction to entertain an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, given that the respondent had previously initiated proceedings under Section 9 of the same Act in the court at Visakhapatnam.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the High Court of Orissa at Cuttack had jurisdiction to entertain an application under Section 11(6) of the Arbitration Act. | No. | Section 42 of the Arbitration Act stipulates that the court where the first application is made has exclusive jurisdiction over subsequent applications. Since the respondent had previously initiated proceedings under Section 9 of the Arbitration Act in the court at Visakhapatnam, the High Court of Andhra Pradesh at Amaravati alone had jurisdiction. |
Authorities
The Supreme Court relied on Section 42 of the Arbitration and Conciliation Act, 1996.
| Authority | How it was used |
|---|---|
| Section 42 of the Arbitration and Conciliation Act, 1996 | The court relied on this provision to determine that the High Court of Andhra Pradesh at Amaravati, where the first application under Section 9 was filed, had exclusive jurisdiction over subsequent applications under Section 11(6). |
Judgment
| Submission | Court’s Treatment |
|---|---|
| Appellant’s submission that the High Court of Orissa lacked jurisdiction. | Accepted. The Supreme Court held that the High Court of Orissa did not have the jurisdiction to entertain the application under Section 11(6) of the Arbitration Act. |
| Respondent’s submission that the High Court of Orissa had jurisdiction because the appellant did not oppose the appointment of an arbitrator in principle. | Rejected. The Supreme Court held that the appellant’s lack of opposition to the appointment of an arbitrator did not confer jurisdiction on the High Court of Orissa. |
The Supreme Court considered Section 42 of the Arbitration and Conciliation Act, 1996, and stated that the High Court of Orissa at Cuttack had no jurisdiction to entertain the application under Section 11(6) of the Act. The court held that the High Court of Andhra Pradesh at Amaravati alone would have jurisdiction to decide the subsequent applications arising out of the contract agreement.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the clear language of Section 42 of the Arbitration and Conciliation Act, 1996, which mandates that the court where the first application is made has exclusive jurisdiction over subsequent applications arising from the same arbitration agreement. The court emphasized the importance of adhering to this provision to maintain consistency and avoid jurisdictional conflicts. The court also noted that the High Court of Orissa had erred by not addressing the jurisdictional issue raised by the appellant, which went to the root of the matter.
| Sentiment | Percentage |
|---|---|
| Adherence to Section 42 of the Arbitration Act | 60% |
| Importance of Jurisdictional Consistency | 30% |
| Error by High Court of Orissa | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
Respondent files Section 9 application in Visakhapatnam Court
Dispute arises; Respondent files Section 11(6) application in Orissa High Court
Appellant objects, citing Section 42 of the Arbitration Act
Orissa High Court appoints arbitrator
Supreme Court overturns Orissa High Court decision
Supreme Court directs respondent to file Section 11(6) application in Andhra Pradesh High Court
The Supreme Court stated, “In that view of the matter considering Section 42 of the Arbitration Act, the High Court of Andhra Pradesh at Amravati alone would have jurisdiction to decide the subsequent applications arising out of the Contract Agreement and the further arbitral proceedings shall have to be made in the High court of Andhra Pradesh at Amaravati alone and in no other court.”
The Supreme Court further observed, “the High Court of Orissa at Cuttack has committed a serious error in entertaining the application under Section 11(6) of the Act before it and appointing the sole arbitrator.”
The Supreme Court also noted, “the appellants might not have opposed the appointment of an arbitrator (though the fresh appointment of an Arbitrator was also opposed by the appellants herein) by that itself it will not confer the jurisdiction upon the High Court if otherwise, the High Court had no jurisdiction.”
The Supreme Court set aside the High Court of Orissa’s decision and allowed the appeal. The court clarified that the respondent could file an application under Section 11(6) of the Arbitration Act before the High Court of Andhra Pradesh at Amaravati, which would be considered on its merits.
Key Takeaways
- ✓ When an application related to an arbitration agreement is filed in a court, that court alone has jurisdiction over all subsequent applications arising from that agreement.
- ✓ The court’s decision emphasizes the importance of adhering to the jurisdictional rules outlined in Section 42 of the Arbitration and Conciliation Act, 1996.
- ✓ Parties must ensure that all subsequent applications related to an arbitration agreement are filed in the court where the first application was made.
- ✓ The lack of opposition to the appointment of an arbitrator does not confer jurisdiction on a court that otherwise lacks it.
Directions
The Supreme Court allowed the respondent to file an application under Section 11(6) of the Arbitration Act before the High Court of Andhra Pradesh at Amaravati within four weeks. The High Court of Andhra Pradesh was directed to consider the application on its merits at the earliest.
Development of Law
The ratio decidendi of this case is that Section 42 of the Arbitration and Conciliation Act, 1996, is to be strictly adhered to, and the court where the first application is filed has exclusive jurisdiction over subsequent applications arising from the same arbitration agreement. This judgment reinforces the principle that jurisdictional issues must be addressed before any further proceedings are initiated, thus ensuring consistency and avoiding conflicting decisions.
Conclusion
The Supreme Court’s judgment in General Manager East Coast Railway vs. Hindustan Construction Co. Ltd. clarifies the jurisdictional rules under Section 42 of the Arbitration and Conciliation Act, 1996. The court held that the High Court of Orissa at Cuttack did not have the jurisdiction to entertain the application under Section 11(6) of the Act. The court emphasized that the High Court of Andhra Pradesh at Amaravati, where the initial Section 9 application was filed, had exclusive jurisdiction. This decision ensures that all subsequent applications related to the same arbitration agreement are handled by one court, avoiding confusion and conflicting decisions.