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M/s. Nandini Cold Storage Pvt. Ltd. v/s M/s. National Insurance Co. Limited & Others

    C.M.A. No. 378 & 380 of 2019

    Decided On, 29 February 2020

    At, High Court of Andhra Pradesh

    By, THE HONOURANBLE MR. JUSTICE C. PRAVEEN KUMAR & THE HONOURANBLE MR. JUSTICE BATTU DEVANAND

    For the Petitioner: P. Vinayaka Swamy, Advocate. For the Respondents: Sravan Kumar Mannava, Advocate.



Judgment Text

Common Order:

C. Praveen Kumar, J.

1) The short point that arises for consideration in the present Appeals is, whether the Civil Court at Guntur gets jurisdiction to entertain an application filed under Section 34 of the Arbitration and Conciliation Act, 1996 [the ‘Act’].

2) In order to decide the same, it would be useful to refer to few facts.

i. The Appellant Company was running a Cold Storage Plant situated at Ankireddypalem, Guntur Rural Mandal, Guntur District, to preserve all varieties of red chillies etc., by keeping them in cold storage. The first respondent herein i.e., M/s. National Insurance Company Limited, Guntur District, is said to have issued a policy covering the risk of chilli stocks kept in cold storage belonging to various farmers, for a sum of Rs.13,00,00,000/- [Rs. Thirteen Crores Only] in all, for which necessary premium was paid by the Appellant. The Policy was said to have been issued in the name of M/s. Indian Overseas Bank and the Appellant herein, covering the entire stocks.

ii. While things stood thus, a fire accident took place on 16.04.2011 in the cold storage. Immediately, thereafter, the same was reported to the Respondents who deputed field surveyors. Investigations were carried out including polygraph test etc., and found that the claim was tenable. The surveyors finally assessed the net loss to a tune of Rs.12,82,71,527/-. The same was accepted by the Respondents as well. It is said that, while settling the claim, the Respondents issued a voucher for Rs.4,15,08,976/- only, which was refused by the Appellant.

iii. The averments in the petition show that, though the Respondents have collected premium for the entire stock existing in the cold storage at the time of fire accident and having issued a policy, took a ‘U’ turn stating that the policy does not cover the risk of non-loanee stocks.

iv. Clause 13 of the Insurance Policy states that, “If any dispute or difference shall arise as to the quantum to be paid under this policy (liability being otherwise admitted) such difference shall independently of all other questions be referred to the decision of a sole arbitrator to be appointed in the same shall be referred to a panel of three arbitrators comprising of two arbitrators one to be appointed by each of the parties to the dispute / difference and the third arbitrator to be appointed by such two arbitrators and arbitration shall be conducted under and in accordance with the provision of the Arbitration and Conciliation Act, 1996”.

v. Having regard to the above, Sri. Hon’ble Dr. Justice Arjit Passayat, a retired Judge of the Hon’ble Supreme Court was appointed as a sole Arbitrator, who passed the Award on 07.06.2015. Challenging the same, an Application under Section 34 of the Arbitration and Conciliation Act, 1996 came to be filed before the court of The Principal District Judge, Guntur.

vi. By an Order, dated 28.02.2019 in A.A.O.P. No. 904 of 2015, the Principal District, Judge, Guntur, held that the said court has no jurisdiction to entertain the application in terms of Section 34 of the Arbitration and Conciliation Act, as the Award was passed by the Arbitral Tribunal with its seat at Hyderabad. Accordingly, returned the petition, for presentation before the proper forum / court. Challenging the same, the present Appeal is filed under Order XXXXIII Rule (1)(a) of the C.P.C. Though, initially an objection was raised as to its maintainability, the same was overruled by a Division Bench of this Court on 28.08.2019.

3) Sri. P. Vinayaka Swamy, learned Counsel for the Appellant mainly submits that the finding of the District Judge in holding that the Principal District Court at Guntur has no jurisdiction is totally illegal and incorrect. He would submit that, the court erred in proceeding on a footing that the Arbitral Tribunal is situated at Hyderabad and that the arbitration proceedings took place in Hyderabad. He further submits that, since the subject matter of the dispute is situated in Guntur District and as the policy was issued by the first Respondent, having its office at Guntur and in the absence of any clause in the agreement with regard to the place or venue of sitting, pleads that District Court at Guntur alone gets jurisdiction.

4) On the other hand, the Counsel appearing for the Respondents opposed the same contending that, though the subject matter of the dispute is situated in Guntur, but, since Award came to be passed at Hyderabad, and as the Policy was issued by the Regional Office at Secunderabad, only the Courts in Hyderabad would get jurisdiction.

5) In order to appreciate the rival contentions, it is to be noted here that the Insurance Policy issued by M/s. National Insurance Company does not refer to any seat of Arbitration or venue for arbitration though Clause 13, referred to above deals with referring the matter to an arbitrator in case of any difference in the quantum to be paid under the policy, it does not indicate the place of sitting by the Arbitrator. A reading of the Award shows that, the Respondents nominated Sri. Hon’ble Dr. Justice Arjit Passayat, (Retired) to act as a Sole Arbitrator to which the Claimant gave consent vide letter, dated 11.04.2014. Neither the claim policy which is sought to be relied upon nor the contents of the Award indicate the seat of arbitration as Hyderabad, except that the Award came to be passed in Hyderabad.

6) “Section 2(1)(e) of the Arbitration and Conciliation Act 1996 reads as under:-

“2. Definitions.—

(1) In this Part, unless the context otherwise requires—

a) x x x x x x x x x x

b) x x x x x x x x x x

c) x x x x x x x x x x

d) x x x x x x x x x x

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) x x x x x x x x x

7) Section 20 of the Arbitration and Conciliation Act, 1996 deals with “place of arbitration” which is as under:-

1) The parties are free to agree on the place of arbitration.

2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.

3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.

8) A reading of Section 20 of the Act along with Section 2 makes it clear that, “firstly, the parties are free to agree the place of arbitration. Secondly, if there is no agreement as referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties and thirdly, the arbitral tribunal may, unless otherwise agreed upon by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents etc.

9) In the instant case, both the Counsel failed to place on record any agreement arrived at by the parties fixing the place of arbitration. They also did not place on record any material to show that the Arbitral Tribunal has determined or fixed the place of arbitration.

10) Keeping these two circumstances in the background, it is now to be seen whether the District Court at Guntur gets jurisdiction to entertain the Petition filed under Section 34 of the Act, seeking to setaside the Arbitral Award.

11) In Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc. ((2012) 9 SCC 552)the Constitution Bench of the Hon’ble Supreme Court clarified the distinction between the “seat of arbitration” and “the jurisdiction of the courts”. The Apex Court held as under:-

“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 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.

12) The Two Judge Bench of the Hon’ble Apex Court in Brahmani River Pellets Ltd. vs Kamachi Industries Ltd (Civil Appeal No. 5850 of 2019 – Supreme Court of India), while referring to the BALCO case, held as under:-

“12. In BALCO, the court highlighted the distinction between the “Seat” and “Venue” in the context of Section 20(3) of the Act. Section 20(3) of the Act allows the parties to hold meetings, proceedings and hearings at any place agreed by the parties. In BALCO, the court has held that in an international commercial arbitration “seated” in India, parties may by mutual agreement, hold arbitral proceedings outside India. This, however, would not have the effect of changing the Seat of arbitration which would continue to remain in India. The court then envisages a situation where the arbitration agreement designates a foreign Seat and also selects Arbitration Act, 1996 as the law applicable to the conduct of arbitration proceedings and in such circumstances, hearing of the arbitration conducted at the venue fixed by the parties would not have the effect of changing the Seat of arbitration which would remain in India. In para (100), the Supreme Court held as under:-

“100. True, that in an international commercial arbitration, having a seat in India, hearings may be necessitated outside India. In such circumstances, the hearing of the arbitration will be conducted at the venue fixed by the parties, but it would not have the effect of changing the seat of arbitration which would remain in India. The legal position in this regard is summed up by Redfern and Hunter, The Law and Practice of International Commercial Arbitration (1986) at p. 69 in the following passage under the heading “The Place of Arbitration”: …….

This, in our view, is the correct depiction of the practical considerations and the distinction between “seat” [Sections 20(1) and 20(2)] and “venue” [Section 20(3)]. We may point out here that the distinction between “seat” and “venue” would be quite crucial in the event, the arbitration agreement designates a foreign country as the “seat”/“place” of the arbitration and also selects the Arbitration Act, 1996 as the curial law/law governing the arbitration proceedings. It would be a matter of construction of the individual agreement to decide whether:

i. the designated foreign “seat” would be read as in fact only providing for a “venue”/“place” where the hearings would be held, in view of the choice of the Arbitration Act, 1996 as being the curial law, OR

ii. the specific designation of a foreign seat, necessarily carrying with it the choice of that country’s arbitration/curial law, would prevail over and subsume the conflicting selection choice by the parties of the Arbitration Act, 1996.

Only if the agreement of the parties is construed to provide for the “seat”/“place” of arbitration being in India — would Part I of the Arbitration Act, 1996 be applicable. If the agreement is held to provide for a “seat”/“place” outside India, Part I would be inapplicable to the extent inconsistent with the arbitration law of the seat, even if the agreement purports to provide that the Arbitration Act, 1996 shall govern the arbitration proceedings.”

13. As pointed out earlier, Section 2(1)(e) of the Act defines the “Court” with reference to the term “subject-matter of the suit”. As per Section 2(1)(e) of the Act, if the “subject-matter of the suit” is situated within the arbitral jurisdiction of two or more courts, the parties can agree to confine the jurisdiction in one of the competent courts. In para (96) of BALCO, the Supreme Court held that the term “subject-matter” in Section 2(1)(e) of the Act is to identify the court having supervisory control over the arbitral proceedings. The Supreme Court held that the provisions in Section 2(1)(e) of the Act has to be read in conjunction with Section 20 of the Act which give recognition to the autonomy of the parties as to “place of arbitration”. The observations in para No. (96) in BALCO pertaining to arbitrations governed by Part-I of the Act i.e. where the “place of arbitration” in India read as under:-

“96. …….We are of the opinion, the term “subject-matter of the arbitration” cannot be confused with “subject-matter of the suit”. The term “subjectmatter” 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 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.”

13) The judgment of the Hon’ble Apex Court in BALCO case came up for consideration in Brahmani River Pellets Limited [supra]. The issue before the court was, whether the Madras High Court could exercise jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996 despite the fact that the agreement contains the clause that venue of arbitration shall be Bhubaneswar. After referring the judgment in BALCO case and referring to the meaning of word “court” and the judgment of Swastik Gases (P) Ltd vs. Indian Oil Corporation Limited ((2013) 9 SCC), the Apex Court held that, the courts in Madras would not get jurisdiction when the parties have agreed to have the ‘venue’ of arbitration at Bhubaneswar and it is only the Orissa High Court will have the jurisdiction to entertain the petition filed under Section 11(6) of the Act.

14) Similarly in Indus Mobile Distribution Pvt. V. Datawind Innovations Pvt. Ltd. ((2017) 7 SCC 678), the question that arose was, “when the seat of arbitration is in Mumbai and when there is an exclusive jurisdiction clause stating that the courts at Mumbai alone would have jurisdiction in respect of disputes arising under the agreement, whether it oust all other courts including the High Court of Delhi, whose judgment is appealed against”. Referring to the judgment in BALCO case and Section 2(1)(e) and Clause 20 of the Act, the Hon’ble Apex Court held that the courts in Mumbai alone would get jurisdiction.

15) All the judgments referred to above contain a clause in the agreement as to the seat of arbitration or the venue of arbitration. But, in the instant case, there is no agreement fixing the venue or seat of arbitration. In-fact, no document has been placed before the court about the existence of any such agreement between the parties fixing the seat of arbitration. The only document which is placed before the court is insurance policy, which only speaks about adjudicating the dispute by an arbitrator.

16) During the course of argument, it is stated that, the proceedings were mainly held in Visakhapatnam, Delhi, Hyderabad and ultimately the Award was passed in Hyderabad, which is evident from the Award itself. By this argument of the learned Counsel for the Respondents that courts in Hyderabad alone would get jurisdiction cannot be accepted. Things would have been different had there been any material to show that the parties or the arbitral tribunal has agreed to fix the seat of arbitration at Hyderabad. Therefore, one has to fall back on Section 2(1)(e) of the Act to decide the issue involved, namely, whether the Principal Civil Court in Guntur would get jurisdiction to deal with the matter, as the subject property is within the limits of said court.

17) A reading of Section 2(1)(e) of the Act would clearly indicate that in case of arbitration other than commercial arbitration, the Principal Civil Court of regional jurisdiction in a district will have jurisdiction to decide the issues forming subject matter of the arbitration if the same had been the subject matter of suit, but, however, does not include the civil court inferior to such Principal Civil Court or any Small Causes. The term ‘subject matter’ of arbitration cannot be confused with subject matter of the suit. As held by the Hon’ble Apex Court in BALCO’s case [supra], the term subject mater under Section 2(1)(e) is confined to Part I. The purpose is to identify the courts having supervisory control over the arbitration proceedings. Therefore, the word “Court” referred to would essentially mean a court having supervisory control over the arbitration proceedings. In the said case, the Apex Court held that, Section 2(1)(e) has to be construed keeping in view Section 20, which gives recognition to party autonomy. Having regard to the above, the Hon’ble Apex Court held 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 within the jurisdiction of which the dispute resolution i.e. arbitration is located.

18) A reading of Section 2(1)(e) also indicates that, in case of arbitration other than commercial arbitration, the Principal Civil Court of regional jurisdiction in a district would be having jurisdiction to decide the questions forming subject matter of the arbitration if the same had been the subject matter o

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f suit. 19) In A.B.C. Laminart Pvt. Ltd. and Ors. v. A.P. Agencies, Salem (1989 (2) SCC 163), the Hon’ble Apex Court held as under:- “16. So long as the parties to a contract do not oust the jurisdiction of all the Courts which would otherwise have jurisdiction to decide the cause of action under the law it cannot be said that the parties have by their contract ousted the jurisdiction of the Court. If under the law several Courts would have jurisdiction and the parties have agreed to submit to one of these jurisdictions and not to other or others of them it cannot be said that there is total ouster of jurisdiction. In other words, where the parties to a contract agreed to submit the disputes arising from it to a particular jurisdiction which would otherwise also be a proper jurisdiction under the law their agreement to the extent they agreed not to submit to other jurisdictions cannot be said to be void as against public policy. If on the other hand the jurisdiction they agreed to submit to would not otherwise be proper jurisdiction to decide disputes arising out of the contract it must be declared void being against public policy. 20) From a reading of Section 34 of the Act, it is clear that, any application to set-aside an arbitral award has to be decided by a court only on an application made for setting aside such award in accordance with sub-section (2) and sub-section (3) of section 34. 21) A joint reading of Section 2(1)(e) and Section 34 of the Act would makes it clear that in the absence of any agreement between the parties fixing the seat of arbitration and as the seat of arbitrator is not fixed [no material to that effect is placed on record] then it is only the court within whose jurisdiction the subject matter of the arbitral dispute is situated shall entertain an application under Section 34, seeking to set aside the arbitration award. Since the property which is subject matter of dispute is situated in Guntur district, we feel that filing of an application under Section 34 before the District Court at Guntur cannot be said to be illegal or incorrect. 22) Accordingly the Civil Miscellaneous Appeals are allowed. No order as to costs. 23) Consequently, miscellaneous petitions pending, if any, shall stand closed.
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