(Prayer: This Original Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 05.10.2015 passed by the second respondent in arbitration case 1 of 2014.)
1. This petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) challenging the award passed by the second respondent pursuant to the order of the Kerala High Court made in A.R.39 of 2014.
2. The background facts:-
The first respondent T.P.Akbar (hereinafter called as “Borrower”) availed loan facility from the petitioner - M/s.Sundaram Finance Ltd., having office at Ernakulam, Kerala (hereinafter called as “Financier”) for purchase of hydraulic crane. The Financier and Borrower entered into a loan agreement on 11.02.2010 wherein, Rs.7,50,000/- was advanced to the Borrower which shall be repayable in 35 monthly installments commencing from 11.02.2010 and ending with 10.12.2012. The Borrower committed default in payment of installment amount. Therefore, the Financier repossessed the Crane on 18.01.2013. The said vehicle was sold on 03.09.2015. The sale proceeds was adjusted towards the dues payable by the Borrower. In the meanwhile, the Borrower filed a Civil Suit before the District Munsif Court (D.M.C) Manjeri, Kerala in C.S.No.372 of 2013. The Financier filed an application under Section 8 of the Act, in the said suit to refer the dispute to an Arbitrator in view of the arbitration clause in the agreement. The said application was allowed. However, the Borrower moved the Kerala High Court under Section 11 of the Act for appointment of Arbitrator. The Kerala High Court nominated the second respondent herein as the Arbitrator vide order dated 18.08.2014. Pursuant to that, the Borrower who is the claimant before the Arbitrator sought for compensation of Rs.10,00,000/- for the alleged damage suffered by him due to the seizure of the vehicle by the Financier alleging that the seizure is illegal and the loan agreement does not confer any power of seizure to the Financier. The claim of the Financier that the vehicle was sold for Rs.6,10,000/- was on the lower side. He suffered loss of Rs.40,000/- per month due to illegal seizure of the vehicle and keeping it idle from the date of seizure (18.01.2013) till the date of sale (03.09.2015). The Financier appeared before the Arbitrator and contested the claim. However, the Arbitrator has passed award in favour of the Borrower on 05.10.2015 directing the Financier to pay a sum of Rs.1,19,000/- towards loss and a further sum of Rs.50,000/- as cost besides a sum of Rs.1,45,140/- being the excess sale consideration lying with the Financier.
3. The said award is challenged by the Financier in this Original Petition on various grounds. But the same is opposed by the Borrower on the ground that these grounds does not fall within the parameters prescribed under Section 34(2) of the Act and further more, this Court lack territorial jurisdiction to entertain the Original Petition since, the award was passed at Kerala pursuant to the direction of the Kerala High Court and if at all the petitioner/ Financier is aggrieved by the award, the forum to prefer petition under Section 34 of the Act, will only be the Court in Kerala.
4. A detailed written submissions also been filed by the Borrower/ first respondent herein raising preliminary objection as well as objection to the petition on merits.
5. The petitioner/Financier relied upon the Article 22 in the agreement which deals with the arbitration. The said Article 22 reads as below:-
“22.(a)All disputes, differences any/or claim arising out of this agreement whether during its subsistence o thereafter shall be settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996, or any statutory amendments thereof and shall be referred to the sole Arbitration of an Arbitrator nominated by the Managing Director/Joint Managing Director of the Lender. The award given by such an Arbitrator shall be final and binding on the Borrower to this agreement.
It is a term of this agreement that in the event of such an arbitrator to whom the matter has been originally referred dying or being unable to act for any reason, the Managing Director/Joint Managing Director of the Lender at the time of such death of the arbitrator or of his inability to act as arbitrator, shall appoint another person to act as arbitrator. Such a person shall be entitled to proceed with the reference from the stage which it was left by his predecessor.
(b) The venue of arbitration proceedings shall be at Chennai
(c) The arbitrator so appointed herein above, shall also be entitled to pass an award on the hypothecated asset and also on any other securities furnished by or on behalf of the Borrower.”
6. Contending that in the loan agreement, the venue of arbitration proceedings has been agreed as Chennai by both the parties, the first respondent/Borrower suppressing several facts, approached the Civil Court at Manjeri, Kerala and filed petition under Section 9 of the Act and obtained an interim order, knowing fully well the vehicle hypothecated already sold in auction. The Financier has already invoked the arbitration clause and has initiated arbitration proceedings on 01.03.2012. Any order passed by the Kerala High Court is non est in law since, the definition of “Court” under Section 2(1)(e) of the Act refers only the Court which has jurisdiction to decide the questions forming the subject matter of the arbitration. Referring the provisions under the Arbitration Act which deals with jurisdiction and the judgment of the Hon’ble Supreme Court rendered in BGS SGS Soma JV versus NHPC Limited (CDJ 2019 SC 1402) the learned counsel for the petitioner would contend that only the High Court of Madras has jurisdiction over the subject matter in view of the exclusive determination of jurisdiction under the loan agreement.
7. Per contra, the learned counsel for the first respondent/Borrower would submit that the present petition has been filed before this Court contrary to the provisions of Section 42 of the Act. The borrower and the guarantor are residents of Kerala and the loan transaction between the Borrower and the Financier took place at the office of the Financier situated in Ernakulam. When there was illegal seizure of the vehicle, the Borrower initiated suit before the Manjeri Court, Kerala since, as per the Arbitration Act, the Court which has original jurisdiction over the dispute shall be the District Munsif Court at Manjeri, Ernakulam.
8. The issue of jurisdiction based on the determination of venue of arbitration has been dealt with by the Hon’ble Supreme Court recently at length in BGS SGS Soma JV versus NHPC Limited case (cited supra). The relevant portions of the judgment are extracted below:-
“59. This court is of opinion that, holding otherwise would in effect render Section 42 of the Arbitration Act ineffective and useless. Section 42 of the Act presupposes that there is more than one competent forum to hear applications under the Arbitration Act, and hence to ensure efficacy of dispute resolution, this provision enacts that the court, which is first seized of any such application under the Act, would be the only court possessing jurisdiction to hear all subsequent applications. If seat were equivalent to an exclusive forum selection clause in Part-I arbitrations, then every time parties would designate a seat, that would in effect mean that Section 42 would have no application. Thus, only those few situations where parties do not actually designate any seat (and thus no exclusive competence is conferred on one forum) would Section 42 have any role. In fact, often, when parties do not agree upon a seat in the arbitration agreement, for convenience, the arbitral tribunal designates a particular seat of the arbitration, or the agreement vests the discretion in the tribunal to decide the seat (and not just the “venue”). In all those circumstances then as well, the decision of the tribunal to agree upon a “seat” would amount to an exclusive jurisdiction clause and Section 42 would have no application. This would dilute Section 42 and would accordingly, be contrary to Parliamentary intent. Undoubtedly, in the present case, the parties have only chosen the seat as New Delhi and have not specified an exclusive forum selection clause. Therefore, it cannot be said that the courts in Delhi have exclusive competence to entertain applications under the Arbitration Act in the present dispute. The jurisdiction of the courts where the cause of action arises, which in this case, is the Bangalore City Civil Court, cannot be said to have been excluded therefore. Accordingly, question (ii) is also answered in favour of Antrix...”
59. The view of the Delhi High Court in Antrix Corporation Ltd. (supra), which followed judgments of the Bombay High Court, does not commend itself to us. First and foremost, it is incorrect to state that the example given by the Court in paragraph 96 of BALCO (supra) reinforces the concurrent jurisdiction aspect of the said paragraph. As has been pointed out by us, the conclusion that the Delhi as well as the Mumbai or Kolkata Courts would have jurisdiction in the example given in the said paragraph is wholly incorrect, given the sentence, “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”. The sentence which follows this is out of sync with this sentence, and the other paragraphs of the judgment. Thus, BALCO (supra) does not “unmistakably” hold that two Courts have concurrent jurisdiction, i.e., the seat Court and the Court within whose jurisdiction the cause of action arises. What is missed by these High Court judgments is the subsequent paragraphs in BALCO (supra), which clearly and unmistakably state that the choosing of a “seat” amounts to the choosing of the exclusive jurisdiction of the Courts at which the “seat” is located.
What is also missed are the judgments of this Court in Enercon (India) Ltd. (supra) and Reliance Industries (supra).
60. Equally, the ratio of the judgment in Indus Mobile Distribution Private Ltd. (supra), is contained in paragraphs 19 and 20. Two separate and distinct reasons are given in Indus Mobile Distribution Private Ltd. (supra) for arriving at the conclusion that the Courts at Mumbai alone would have jurisdiction. The first reason, which is independent of the second, is that as the seat of the arbitration was designated as Mumbai, it would carry with it the fact that Courts at Mumbai alone would have jurisdiction over the arbitration process. The second reason given was that in any case, following the Hakam Singh (supra) principle, where more than one Court can be said to have jurisdiction, the agreement itself designated the Mumbai Courts as having exclusive jurisdiction. It is thus wholly incorrect to state that Indus Mobile Distribution Private Ltd. (supra) has a limited ratio decidendi contained in paragraph 20 alone, and that paragraph 19, if read by itself, would run contrary to the 5 Judge Bench decision in BALCO (supra).
61. Equally incorrect is the finding in Antrix Corporation Ltd. (supra) that Section 42 of the Arbitration Act, 1996 would be rendered ineffective and useless. Section 42 is meant to avoid conflicts in jurisdiction of Courts by placing the supervisory jurisdiction over all arbitral proceedings in connection with the arbitration in one Court exclusively.
This is why the section begins with a non-obstante clause, and then goes on to state “……where with respect to an arbitration agreement any application under this Part has been made in a Court……” It is obvious that the application made under this part to a Court must be a Court which has jurisdiction to decide such application. The subsequent holdings of this Court, that where a seat is designated in an agreement, the Courts of the seat alone have jurisdiction, would require that all applications under Part I be made only in the Court where the seat is located, and that Court alone then has jurisdiction over the arbitral proceedings and all subsequent applications arising out of the arbitral agreement. So read, Section 42 is not rendered ineffective or useless. Also, where it is found on the facts of a particular case that either no “seat” is designated by agreement, or the so called “seat” is only a convenient “venue”, then there may be several Courts where a part of the cause of action arises that may have jurisdiction. Again, an application under Section 9 of the Arbitration Act, 1996 may be preferred before a court in which part of the cause of action arises in a case where parties have not agreed on the “seat” of arbitration, and before such “seat” may have been determined, on the facts of a particular case, by the Arbitral Tribunal under Section 20(2) of the Arbitration Act, 1996. In both these situations, the earliest application having been made to a Court in which a part of the cause of action arises would then be the exclusive Court under Section 42, which would have control over the arbitral proceedings. For all these reasons, the law stated by the Bombay and Delhi High Courts in this regard is incorrect and is overruled.”
“83. Most recently, in Brahmani River Pellets (supra), this Court in a domestic arbitration considered clause 18 - which was the arbitration agreement between the parties - and which stated that arbitration shall be under Indian Arbitration and Conciliation Act, 1996, and the venue of arbitration shall be Bhubaneswar. After citing several judgments of this Court and then referring to Indus Mobile Distribution (supra), the Court held:
18. Where the contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter and parties intended to exclude all other courts. In the present case, the parties have agreed that the “venue” of arbitration shall be at Bhubaneswar. Considering the agreement of the parties having Bhubaneswar as the venue of arbitration, the intention of the parties is to exclude all other courts. As held in Swastik, non-use of words like “exclusive jurisdiction”, “only”, “exclusive”, “alone” is not decisive and does not make any material difference.
19. When the parties have agreed to the have the “venue” of arbitration at Bhubaneshwar, the Madras High Court erred in assuming the jurisdiction under Section 11(6) of the Act. Since only the Orissa High Court will have the jurisdiction to entertain the petition filed under Section 11(6) of the Act, the impugned order is liable to be set aside.
84. On a conspectus of the aforesaid judgments, it may be concluded that whenever there is the designation of a place of arbitration in an arbitration clause as being the “venue” of the arbitration proceedings, the expression “arbitration proceedings” would make it clear that the “venue” is really the “seat” of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. This language has to be contrasted with language such as “tribunals are to meet or have witnesses, experts or the parties”where only hearings are to take place in the “venue”, which may lead to the conclusion, other things being equal, that the venue so stated is not the “seat” of arbitral proceedings, but only a convenient place of meeting. Further, the fact that the arbitral proceedings “shall be held” at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a “venue” and not the “seat” of the arbitral proceedings, would then conclusively show that such a clause designates a “seat” of the arbitral proceedings. In an International context, if a supranational body of rules is to govern the arbitration, this would further be an indicia that “the venue”, so stated, would be the seat of the arbitral proceedings. In a national context, this would be replaced by the Arbitration Act, 1996 as applying to the “stated venue”, which then becomes the “seat” for the purposes of arbitration.
9. This is the latest judgment on this issue which has considered the earlier judgments and has categorically held that when the parties have decided about the jurisdiction and venue of arbitration is fixed, the same shall be the seat of arbitration unless contrary is mentioned. However, this shall always be subject to Section 42 of the Act, which reads as under:-
“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.”
10. As pointed out by the Hon’ble Supreme Court in BGS SGS Soma JV versus NHPC Limited case (cited supra), when any Court has seized of the matter under Part I of this Act, then, Section 42 of the Act clearly confers the jurisdiction over the arbitration proceedings and all other subsequent applications/petitions in that Court and no other Court.
11. Admittedly, in this case, the Arbitrator was appointed by the Kerala High Court pursuant to the application filed under Section 11 of the Act. The petitioner/Financier herein was as a party to the proceedings before the Kerala High Court. It is admitted by the petitioner/Financier that they participated in the proceeding in A.R.39 of 2014 but due to communication gap, entire facts were not properly placed before the Kerala High Court. Therefore, the order appointing Arbitrator was passed.
12. Having allowed the Kerala High Court to appoint an Arbitrator in an application filed by the Borrower under the Arbitration Act and having participated in the proceedings before the Arbitrator, the petitioner herein/Financier cannot turn back and say that the Kerala High Court has no jurisdiction over the matter but only the High Court of Madras since, the arbitration clause say the venue of arbitration will be Chennai.
13. Section 20 of the Act gives the liberty to the parties to agree the place of arbitration. Accordingly, in this case, the parties have agreed Chenn
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ai as the venue of arbitration. However, this will not exclude the jurisdiction of the Civil Court, where the cause of action arisen. If the parties have conceded to the Court where part cause of action has arisen despite different venue or seat of arbitration is expressly mentioned in the agreement, the judicial propriety requires that when an Arbitrator has been appointed pursuant to the judicial order, the matter gets seized and fall within the territorial jurisdiction of that Court and as per Section 42 of the Act all other subsequent proceedings shall only be within the jurisdiction of that Court and not to any other Court. 14. The Hon’ble Supreme Court in the above judgment, had specifically pointed out that Section 42 of the Act starts with non-obstante clause, and it is obvious to state that the application made under Part I of the Act to a Court must be a Court which has jurisdiction to decide such application. The Hon’ble Supreme Court has concluded that an application under Section 9 of the Act may be preferred before a Court in which part cause of action arisen (as in this case). 15. In this case, earliest application is by the borrower before the Court at Manjeri, Ernakularm, Kerala and the same has been entertained despite objection by the Financier and the High Court of Kerala has also taken cognizance of the dispute and has appointed the Arbitrator. Any challenge to the award of the Arbitrator so appointed by the Kerala High Court shall be only before the Court within the jurisdiction of the Kerala High Court and not elsewhere. This is not only based on the law declared by the Hon’ble Supreme Court but also judicial discipline requires to direct the parties to approach the Court at Kerala which has appointed the Arbitrator. 16. In the result, the Original Petition is dismissed with liberty to the parties to approach the Kerala High Court, if they so desired and the time consumed between the filing of this Original Petition (18.01.2016) and the disposal of this petition (...02.2020) shall be excluded from reckoning the period of limitation.