w w w . L a w y e r S e r v i c e s . i n



M/s. Project Engineering Corporation Limited, Ernakulam, Represented by Manager (Administrations) Binu Jacob v/s M/s. Doshion Private Ltd., Ahmedabad, Represented by Its Director, Rakshit Doshi


    AR. No. 51 of 2019

    Decided On, 02 March 2020

    At, High Court of Kerala

    By, THE HONOURABLE MR. JUSTICE V. RAJA VIJAYARAGHAVAN

    For the Petitioner: S. Sujin, Advocate. For the Respondent: R1, Ajit Joy, Aneesh James, Advocates.



Judgment Text


1. This is an application filed under Sections 11 (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) for appointment of Arbitrator under the arbitration agreement entered into between the parties. This application has been placed before me as the person designated by the Chief Justice to Act under Section 11 (6) of the Act.

2. The facts necessary to decide this matter are as follows:

M/s.Project Engineering Corporation Limited is a company registered under the Companies Act, 1956 and is engaged in the business of contract works for construction of all civil structural works.The said company was formerly known as M/s. Kerala Project Engineering Corporation Ltd. It so happened that in the year 2005, the Kerala Minerals and Metal Ltd (“KMML” for short), an undertaking owned by the Government of Kerala, decided to build a 10 MLD Desalination Plant at the Titanium Dioxide Pigment Plant at Chavara, Kollam District, in the State of Kerala and they appointed “MECON Limited”, Bangalore as the consultant for the project. KMML and MECON thereafter entered into an agreement with M/s. Doshi Ion Exchange and Chemical Industries Ltd ( “Doshion Ltd” for short “), on 18.1.2005 for the setting up of the plant. The agreement permitted Doshion to engage sub contractors to carry out the work contracted by them. In terms of the agreement, Doshion entrusted a portion of the Engineering contract work involving supply and services to the petitioner, M/s.Project Engineering Corporation Limited. The understanding between the parties were reduced into writing and Annexure-A1 agreement was entered into on 28.02.2005 between M/s.Doshi Ion Exchange and M/s.Kerala Project Engineering Corporation.

3. Article 10 of Annexure A1 agreement reads as follows:

“All disputes or differences whatsoever, arising between the parties out of or in relation to the construction, meaning and operation or effect of this Contract or breach thereof shall be settled amicably. In case the same still persists the matter shall be referred to the OWNER for amicable settlement. If, however, the parties are still not able to resolve them amicably, the same shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration as per provisions of Arbitration and Reconciliation Act, 1996 and the award made in pursuance thereof shall be binding on the parties.

Work under the Contract shall be continued by the Contractor during the arbitration proceedings unless otherwise directed in writing by the PURCHASER/OWNER or unless the matter is such that the works are not possible to be continued until the decision of the arbitrators or of the Umpire, as the case may be, is obtained and save as those which are otherwise expressly provided in the contract, no payment due or payable by the PURCHASER/OWNER shall be withheld on arbitration proceedings unless it is the subject matter or one of the subject matter thereof.

Venue of Arbitration shall be Chennai, Tamil Nadu.”

4. Article 16 of the agreement deals with the jurisdiction of the Courts. It states as follows:

“This Contract shall be subject to the exclusive jurisdiction of courts in Chennai, Tamil Nadu, India.”

5. In terms of the agreement, the petitioner was bound to deposit security by way of bank guarantee for a total sum of Rs 40 lakhs to the respondents which was duly done.

6. Disputes arose between the parties in the manner of execution of the contract and it is stated that the work was abandoned. In terms of the provisions of the contract, an application seeking appointment of an arbitrator was filed under Section 11 of the Act by the petitioner before this Court. By order dated 12.09.2012, Justice K.K. Usha, former Judge of this Court, was appointed as sole arbitrator. An award dated 30.4.2016 was passed by the Arbitrator as per which, the petitioner was allowed to recover from the respondent a sum of Rs.2,25,54,494/- with future interest at 18% per annum on Rs.1,32,57,484/-. No relief was granted to the respondent. After passing off the award, the petitioner intimated the respondent and their Bank and gave instructions to refrain from invoking the bank guarantee.

7. When it came to the notice of the petitioner that the respondent was proceeding to encash the bank Guarantee, they approached the Munsiff Court, Ernakulam and instituted O.S.No.789 of 17 seeking an order of injunction. The respondent appeared and filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, bringing to the notice of the learned Munsiff the arbitration clause as well as the earlier award and sought for relegating the parties to seek remedies by invoking the arbitration clause. During the pendency, the respondents encashed the bank guarantee as well. The learned Munsiff by Annexure-A6 order held that the suit was not maintainable in view of section 8 of the Act. The parties were ordered to take recourse to arbitration.

8. Immediately thereafter, the petitioner issued Annexure-A8 invoking the arbitration clause and nominated Sri. N. Sukumaran, retired District Judge as arbitrator to resolve the dispute. When the respondent did not respond to the said request, they have approached this Court with this application.

9. A counter affidavit has been filed by the respondent contending that the seat of Arbitration as per clause No.10 of the agreement being at Chennai and further as per clause 16, the Courts at Chennai having been granted exclusive jurisdiction, the application under Section 11 (6) cannot be entertained by this Court. They rely on a decision of the Hon’ble Supreme Court in Indus Mobile Distributors Private Limited v Datawind Innovations Private Limited (2017) 7 SCC 678) and it is contended that once the seat of arbitration has been agreed to by the parties, it is equivalent to an exclusive jurisdiction clause, and only courts having supervisory jurisdiction in the seat can exercise jurisdiction in matters of dispute.

10. I have heard Sri. S.Sujin, the learned counsel appearing for the petitioner and Sri. Ajit Joy, the learned counsel appearing for the respondent.

11. Sri.S.Sujin would contend that on an earlier occasion, when dispute arose between the parties, the petitioner had approached this Court with an application under Section 11 (6) of Act 26 of 1996. A Former Judge of this Court was appointed as sole arbitrator, who considered the issues raised and has passed an award. The respondent had no case then that the exclusive jurisdiction clause would apply and this Court will have no jurisdiction to entertain the application. Instead, they had submitted to the jurisdiction of this Court. Referring to Section 42 of the Act, it is contended that the earlier application having been entertained by this Court without any demur from either side, it cannot now be contended that this Court cannot entertain the same. All subsequent applications arising out of the agreement can be entertained only by this Court, contends the learned counsel. He would then urge that in the original agreement entered into between KMML with the contractor/consultant, it has been stated that the Courts in Kollam, Kerala will have exclusive jurisdiction to entertain and resolve disputes, if any, which may arise. The said agreement has been incorporated by reference in the agreement entered into between the petitioner and the respondent. If that be the case, the contention now taken that the seat of arbitration will be at Chennai, cannot be countenanced, submits the learned counsel. He would also point out that a different stand was taken in the counter affidavit filed before the learned Munsiff by the respondent.

12. Sri.Ajit Joy, the learned counsel appearing for the respondent, submitted that section 11 applications are not moved before the “Court” as defined under section 2(1) (e) of Act 26 of 1996, but before the Chief Justice of the Supreme Court or the High Court, as the case may be, or their delegates. According to the learned counsel, where the agreement between the parties restricted jurisdiction to only one particular court, that court alone would have jurisdiction and the mere fact that an earlier application under Section 11 was filed before the Chief Justice of a High Court, which had no jurisdiction to entertain the issue, will not confer any jurisdiction to entertain the application. Such applications made to a court without subject matter jurisdiction would be outside section 42 of the Act, contends the learned counsel.

13. I have anxiously considered the submissions advanced and have carefully gone through the records made available.

14. Annexure-1 is the agreement entered into between the petitioner and the respondent. 13 schedules are appended to the contract and it is stated that it shall be deemed to form and be read and construed as part of the contract. Insofar as the parties to this petition are concerned, the dispute resolution clause is Article 10 and Article 16, which have been extracted in the earlier portion of this order. Article 10 emphatically states that the venue of Arbitration shall be at Chennai Tamil Nadu. Article 16 further states that the contract shall be subject to the exclusive jurisdiction of Courts in Chennai, Tamil Nadu.

15. In Indus Mobile Distribution (supra), the facts are that as per the arbitration agreement between the parties, the seat of arbitration was at Mumbai and the jurisdiction was to exclusively vest in the Courts in Mumbai. The contention taken by the contesting party was that since no cause of action had arisen in Mumbai, the Court will have no jurisdiction to entertain the dispute. While deciding the issue, the Apex Court relied on the decision in Enercon (India) Ltd. v. Enercon Gmbh (2014) 5 SCC 1) and held that an agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. The “juridical seat'' is nothing but the “legal place” of arbitration. It was held as follows in para 19 of the report.

“19. 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 Sections 16 to 21 of 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.

16. If the principles laid above are applied to the facts of the instant case, the seat of Arbitration will be at Chennai in the State of Tamil Nadu and only the Chief Justice of the High Court of Judicature at Madras or his delegate, who have supervisory Control over the Courts at Chennai, can entertain an application under Section 11 of the Act.

17. The contention of the petitioner is that as per the original contract between KMML and the consultant/contractor, the Courts at Kollam have been conferred with jurisdiction, and the said agreement having been incorporated in the agreement, this Court can assume jurisdiction cannot be accepted. The parties are clearly governed by the agreement entered into by them and they have unequivocally agreed that the Courts at Chennai will have exclusive jurisdiction. The original contract entered into between KMML and the consultant contractor was appended to the agreement entered into between the parties to this dispute for the purpose of understanding the scope of supply and services of the original contract. Even otherwise the concept of separability of the arbitration clause/agreement from the underlying contract is a necessity to ensure the intention of the parties to resolve the disputes relating to the contract through arbitration. Section 16 of the Arbitration Act accepts the concept that the main contract and the arbitration agreement form two independant contracts. [See Enercon (India) Ltd. (supra)].

18. Now the question is whether in view of Section 42 of the Act, this Court is bound to entertain this application, though it has no subject matter jurisdiction as concluded above, in view of the operation of Section 42 of the Act.

Section 42 of the Act 26 of 1996 reads as follows:-

“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.”

19. The issue posed above is no longer res integra and the same has been settled by the Hon'ble Apex Court in State of West Bengal vs Associated Contractors (2015) 1 SCC 32) . After clinically interpreting section 2 (1) (e) of the Act, it was observed that Section 11 applications are not to be moved before the “court” as defined but before the Chief Justice either of the High Court or of the Supreme Court, as the case may be, or their delegates. Therefore, Section 42 would not apply to applications made before the Chief Justice or his delegate for the simple reason that the Chief Justice or his delegate is not “court” as defined in section 2 (i)(e) of Act 26 of 1996. It will be relevant to extract paragraph Nos.22 to 25 of the report for easy reference.

22. One more question that may arise under Section 42 is whether Section 42 would apply in cases where an application made in a court is found to be without jurisdiction. Under Section 31(4) of the old Act, it has been held in F.C.I. v. A.M. Ahmed & Co. [(2001) 10 SCC 532] , and Neycer India Ltd. v. GMB Ceramics Ltd. [(2002) 9 SCC 489] that Section 31(4) of the 1940 Act would not be applicable if it were found that an application was to be made before a court which had no jurisdiction. In Jatinder Nath v. Chopra Land Developers (P) Ltd. [(2007) 11 SCC 453] , SCC at p. 460, para 9 and Rajasthan SEB v. Universal Petro Chemicals Ltd. [(2009) 3 SCC 107 and Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. [(2013) 9 SCC 32], it was held that where the agreement between the parties restricted jurisdiction to only one particular court, that court alone would have jurisdiction as neither Section 31(4) nor Section 42 contains a non obstante clause wiping out a contrary agreement between the parties. It has thus been held that applications preferred to courts outside the exclusive court agreed to by parties would also be without jurisdiction.

23. Even under Section 42 itself, a Designated Judge has held in HBM Print Ltd. v. Scantrans India (P) Ltd. [(2009) 17 SCC 338], that where the Chief Justice has no jurisdiction under Section 11, Section 42 will not apply. This is quite apart from the fact that Section 42, as has been held above, will not apply to Section 11 applications at all.

24. If an application were to be preferred to a court which is not a Principal Civil Court of original jurisdiction in a district or a High Court exercising original jurisdiction to decide questions forming the subject matter of an arbitration if the same had been the subject matter of a suit, then obviously such application would be outside the four corners of Section 42. If, for example, an application were to be filed in a court inferior to a Principal Civil Court, or to a High Court which has no original jurisdiction, or if an application were to be made to a court which has no subject matter jurisdiction, such application would be outside Section 42 and would not debar subsequent applications from being filed in a court other than such court.

25. Our conclusions therefore on Section 2(1)(e) and Section 42 of the Arbitration Act, 1996 are as follows:

(a) Section 2(1)(e) contains an exhaustive definition marking out only the Principal Civil Court of Original Jurisdiction in a district or a High Court having original civil jurisdiction in the State, and no other court as “court” for the purpose of Part I of the Arbitration Act, 1996.

(b) The expression “with respect to an arbitration agreement” makes it clear that Section 42 will apply to all applications made whether before or during arbitral proceedings or after an award is pronounced under Part I of the 1996 Act.

(c) However, Section 42 only applies to applications made under Part I if they are made to a court as defined. Since applications made under Section 8 are made to judicial authorities and since applications under Section 11 are made to the Chief Justice or his designate, the judicial authority and the Chief Justice or his designate not being court as defined, such applications would be outside Section 42.

(d) Section 9 applications being applications made to a court and Section 34 applications to set aside arbitral awards are applications which are within Section 42.

(e) In no circumstances can the Supreme Court be “court” for the purposes of Section 2(1)(e), and whether the Supreme Court does or does not retain seisin after appointing an arbitrator, applicat

Please Login To View The Full Judgment!

ions will follow the first application made before either a High Court having original jurisdiction in the State or a Principal Civil Court having original jurisdiction in the district, as the case may be. (f) Section 42 will apply to applications made after the arbitral proceedings have come to an end provided they are made under Part I. (g) If a first application is made to a court which is neither a Principal Court of Original Jurisdiction in a district or a High Court exercising original jurisdiction in a State, such application not being to a court as defined would be outside Section 42. Also, an application made to a court without subject-matter jurisdiction would be outside Section 42. 20. In the case on hand the matter was initially referred to Arbitration on an application under Section 11 of the Act much prior to the coming into force of the amendment Act 33 of 2019 which came into effect from 30.8.2019. Prior to the amendment, the power to appoint the Arbitrator was vested in the Chief Justice of the Supreme Court or the High Court or any person or institution designated by him. If that be the case the principles laid in Associated Contractors will apply on all fours . In that view of the matter, the bar under section 42 of the Act will not be applicable to applications made before judicial authorities under section 8, applications filed before the Chief Justice or his delegate under section 11, application filed before Court inferior to Principal Civil Court or to High Court having no original jurisdiction and application filed in a court that has no subject matter jurisdiction. In that view of the matter, the contention of the petitioner based on section 42 of the Act cannot be accepted. The long and short of the discussion above is that this application is not maintainable before this Court. Without prejudice to the right of the petitioner to move the appropriate court for reliefs, this petition will stand dismissed.
O R