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Rajiv Bhatia v/s Indusind Bank Ltd. & Another

Company & Directors' Information:- INDUSIND BANK LTD. [Active] CIN = L65191PN1994PLC076333

Company & Directors' Information:- S N BHATIA AND CO PRIVATE LIMITED [Active] CIN = U99999DL1976PTC008293

Company & Directors' Information:- BHATIA AND COMPANY PRIVATE LIMITED [Strike Off] CIN = U70109DL1986PTC024822

Company & Directors' Information:- K. BHATIA AND COMPANY PRIVATE LIMITED [Strike Off] CIN = U51420MH1960PTC011708

    CMPMO No. 96 of 2016

    Decided On, 23 March 2017

    At, High Court of Himachal Pradesh


    For the Petitioner: Ajay Sharma, Advocate. For the Respondents: Ashwani Kaundal, Advocate.

Judgment Text

1. This petition, under Article 227 of the Constitution of India, takes exception to the order passed by the District Judge, Solan, whereby the objections filed by the petitioner, have been ordered to be dismissed and warrants of attachment of his property have been issued.

2. Brief facts of the case are that pursuant to the award passed by the Arbitrator in favour of the respondent/decree holder, an execution petition was filed before the court below. The petitioner primarily raised two objections; one with regard to the territorial jurisdiction of the Arbitrator and the other with regard to the amounts paid by him from time-to-time having not been accounted and reflected in the statement of accounts by the respondent.

3. It is vehemently argued by Mr. Ajay Sharma, Advocate that the entire loan was disbursed within the State of Himachal Pradesh and even the possession of the loaned vehicle was taken within the State, therefore, it was the Court/Arbitrator in Himachal Pradesh alone, which could have jurisdiction to entertain and adjudicate upon the proceedings and, therefore, the award being quorum non judice was liable to be set aside in the execution petition as it is settled law that a decision rendered without jurisdiction is a nullity. He would further contend that the petitioner has paid huge amount, but the same has not been accounted for by the decree holder.

4. I have heard the learned counsel for the parties and have gone through the record of the case.

5. The Clauses pertaining to law, jurisdiction and arbitration are contained in Clause 23.0 of the loan agreement dated 20.1.2006 (Annexure R-1/A) and reads thus:

"23.0 : Law, Jurisdiction, Arbitration

a) All disputes, differences and/or claim arising out of or touching upon this Agreement whether during its subsistence or 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 lender. The award given by such an Arbitrator shall be final and binding on the Borrower and Guarantor to this agreement.

b) Dispute for the purpose of Arbitration includes default committed by the Borrower as per Clause 14 of 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 to is dying or being unable to act for any reason, the lender, at the time of such death of the arbitrator or of his inability to act as arbitrator, shall appoint another prson to act as arbitrator. Such a person shall be entitled to proceed with the reference from the state at which it was left by his predecessor.

c) The venue of arbitration proceedings shall be at Chennai.

d) 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/Guarantor.

e) All notices and other communications on the lender and the borrowers shall be to the following address:

For Lender : Corp. Off - Retail: Indusind Bank Ltd., 86 Sudarsan Building, Chamiers Road, Chennai-600 018.

For Borrower: The residential address stated in the schedule or the property address described in the schedule.

6. It is trite and settled principle of law that parties by mutual consent cannot confer jurisdiction on a Court, which it does not have (Refer: A B C Laminart Pvt. Limited v. A. P. Agencies, Salem, AIR 1989 SC 1239 and Patel Roadways Limited v. Prasad Trading Company, 1991 (4) SCC 270 : (AIR 1992 SC 1514).

7. However, the moot question is: whether by referring the matter for arbitration at Chennai, has the respondent really violated territorial jurisdiction and conferred the same to an authority, which practically had no jurisdictional authority to adjudicate such claim.

8. In the given circumstances, it is necessary to once again advert to Clause 23 of the agreement, more particularly, sub-clause (c) of Clause 23 thereof, which is once again reproduced and reads as under:

"The venue of Arbitration proceedings shall be at Chennai."

9. It is not that the seat of the Arbitrator is at Chennai, rather it is only the venue of jurisdiction that is at Chennai. There is a marked difference between 'venue of the arbitration' and 'seat of arbitration'. It is only the seat of the arbitration which will give territorial jurisdiction and not the venue of the jurisdiction. "Seat" is place where the court or arbitration is located, which will have territorial jurisdiction with regard to the case or in the matter, whereas, "venue" is the place where the arbitral tribunal sits to hold the arbitration proceedings and this place need not essentially be the place "where the seat of the arbitration is located".

10. This distinction has been succinctly set out by the Hon'ble Supreme Court in Enercon (India) Limited and others v. Enercon GMBH and another (2014) 5 SCC 1 : (AIR 2014 SC 3152), wherein it was observed as under:

"[40] Mr. Nariman submitted that for the purposes of fixing the seat of arbitration the Court would have to determine the territory that will have the closest and most intimate connection with the arbitration. He pointed out that in the present case provisions of the Indian Arbitration Act, 1996 are to apply; substantive law of the contract is Indian law; law governing the arbitration is Indian Arbitration law; curial law is that of India; Patents law is that of India; IPLA is to be acted upon in India; enforcement of the award is to be done under the Indian law; Joint Venture Agreement between the parties is to be acted upon in India; relevant assets are in India. Therefore, applying the ratio of law in 'Naviera Amazonica Peruana S.A. v. Compania Internacional De Seguros Del Peru,1988 1 Lloyds Rep 116', the seat of arbitration would be India. The submission is also sought to be supported by the Constitution Bench decision of this Court in "Bharat Aluminium Company v. Kaiser Aluminium, 2012 9 SCC 552 : (2012 AIR SCW 5950) ("BALCO"). Mr. Nariman submitted that the interpretation proposed by the Respondents that the venue London must be construed as seat is absurd. Neither party is British, one being German and the other being Indian. He submits that the Respondents have accepted that the choice of law of the underlying agreement is Indian. But, if 'venue of arbitration' is to be interpreted as making London the seat of arbitration it would:

(a) make the English Act applicable when it is not chosen by the parties; (b) would render the parties' choice of the Indian Arbitration Act, 1996 completely nugatory and otiose. It would exclude the application of Chapter V of the Indian Arbitration Act, 1996 i.e. the curial law provisions and Section 34 of the Indian Arbitration Act, 1996. On the other hand, interpretation propounded by the Appellants would give full and complete effect to the entire clause as it stands.

[44] It was submitted on behalf of the Appellants that since the seat of arbitration is India, the Courts of England would have no jurisdiction. Appellants rely upon Oil and Natural Gas Commission v. Western Company of North America,1987 SCR 1024 : (AIR 1987 SC 674). Reliance was also placed upon Modi Entertainment Network and Anr. v. W.S.G. Cricket Pte. Ltd., 2003 (4) SCC 341 : (AIR 2003 SC 1177), in support of the submission that in exercising discretion to grant an anti-suit injunction, the Court must be satisfied that the defendant is amenable to the personal jurisdiction of the Court and that if the injunction is declined the ends of justice will be defeated. The Court is also required to take due notice of the principle of comity of Courts, therefore, where more than one forum is available, the Court would have to examine as to which is forum conveniens.

[97] In Balco, it has been clearly held that concurrent jurisdiction is vested in the Courts of seat and venue, only when the seat of arbitrations is in India (Para 96). Reason for the aforesaid conclusion is that there is no risk of conflict of judgments of different jurisdictions, as all courts in India would follow the Indian Law. Thus, the reliance placed by D. Singhvi on Balco in this context is misplaced.

[98] It is correct that, in virtually all jurisdictions, it is an accepted proposition of law that the seat normally carries with it the choice of that country's arbitration/curial law. But this would arise only if the curial law is not specifically chosen by the parties. Reference can be made to Balco , wherein this Court considered a number of judgments having a bearing on the issue of whether the venue is to be treated as seat.

However, the court was not required to decide any controversy akin to the one this court is considering in the present case. The cases were examined only to demonstrate the difficulties that the court will face in a situation similar to the one which was considered in Naviera Amazonica .

[99] We also do not agree with Dr. Singhvi that parties have not indicated they had chosen India to be the seat of arbitration. The judgments relied upon by Dr. Singhvi do not support the proposition canvassed. In fact, the judgment in the case Braes of Doune Wind Farm (Scotland) Limited v.. Alfred McAlpine Business Services Limited, 2008 EWHC 426, has considered a situation very similar to the factual situation in the present case.

[100] In Braes of Doune, the English and Wales High Court considered two applications relating to the first award of an arbitrator. The award related to an EPC (Engineering, Procurement and Construction) contract dated 4th November, 2005 (the EPC contract) between the claimant (the employer) and the defendant (the contractor), whereby the contractor undertook to carry out works in connection with the provision of 36 WTGs at a site some 18 km. from Stirling in Scotland. This award dealt with enforceability of the clauses of the EPC contract which provided for liquidated damages for delay. The claimant applied for leave to appeal against this award upon a question of law whilst the defendant sought, in effect, a declaration that the court had no jurisdiction to entertain such an Application and for leave to enforce the award. The Court considered the issue of jurisdiction which arose out of application of Section 2 of the English Arbitration Act, 1996 which provides that:

"2. Scope of application of provisions.- (1) The provisions of this part apply where the seat of the arbitration is in England and Wales or Northern Ireland."

[101] The Court notices the singular importance of determining the location of juridical seat in terms of Section 3, for the purposes of Section 2, in the following words of Akenhead, J.:

"15. I must determine what the parties agreed was the 'seat' of the arbitration for the purposes of Section 2 of the Arbitration Act, 1996. This means by Section 3 what the parties agreed was the 'juridical' seat. The word 'juridical' is not an irrelevant word or a word to be ignored in ascertaining what the 'seat' is.

It means and connotes the administration of justice so far as the arbitration is concerned. It implies that there must be a country whose job it is to administer, control or decide what control there is to be over an arbitration."

[104] Upon consideration of the entire material, the Court formed the view that it does have jurisdiction to entertain an Application by either party to the contract in question under Section 69 of the English Arbitration Act, 1996. The Court gave the following reasons for the decision:

"(a) One needs to consider what, in substance, the parties agreed was the law of the country which would juridically control the arbitration.

(b) I attach particular importance to Clause 1.4.1. The parties agreed that essentially the English (and Welsh) courts have 'exclusive jurisdiction' to settle disputes. Although this is 'subject to' arbitration, it must and does mean something other than being mere verbiage. It is a jurisdiction over disputes and not simply a court in which a foreign award may be enforced. If it is in arbitration alone that disputes are to be settled and the English courts have no residual involvement in that process, this part of Clause 1.4.1 is meaningless in practice. The use of the word 'jurisdiction' suggests some form of control.

(c) The second part of Clause 1.4.1 has some real meaning if the parties were agreeing by it that, although the agreed disputes resolution process is arbitration, the parties agree that the English court retains such jurisdiction to address those disputes as the law of England and Wales permits. The Arbitration Act, 1996 permits and requires the court to entertain applications under Section 69 for leave to appeal against awards which address disputes which have been referred to arbitration. By allowing such applications and then addressing the relevant questions of law, the court will settle such disputes; even if the application is refused, the court will be applying its jurisdiction under the Arbitration Act, 1996 and providing resolution in relation to such disputes.

(d) This reading of Clause 1.4.1 is consistent with Clause 20.2.2(c) which confirms that the arbitration agreement is subject to English law and that the 'reference' is 'deemed to be a reference to arbitration within the meaning of the Arbitration Act, 1996'. This latter expression is extremely odd unless the parties were agreeing that any reference to arbitration was to be treated as a reference to which the Arbitration Act, 1996 was to apply. There is no definition in the Arbitration Act, 1996 of a 'reference to arbitration', which is not a statutory term of art. The parties presumably meant something in using the expression and the most obvious meaning is that the parties were agreeing that the Arbitration Act, 1996 should apply to the reference without qualification.

(e) Looked at in this light, the parties' express agreement that the 'seat' of arbitration was to be Glasgow, Scotland must relate to the place in which the parties agreed that the hearings should take place. However, by all the other references the parties were agreeing that the curial law or law which governed the arbitral proceedings establish that, prima facie and in the absence of agreement otherwise, the selection of a place or seat for an arbitration will determine what the curial law or 'lex fori' or 'lex arbitri' will be, [we] consider that, where in substance the parties agree that the laws of one country will govern and control a given arbitration, the place where the arbitration is to be heard will not dictate what the governing or controlling law will be.

(f) In the context of this particular case, the fact that, as both parties seemed to accept in front of me, the Scottish courts would have no real control or interest in the arbitral proceedings other than in a criminal context, suggests that they can not have intended that the arbitral proceedings were to be conducted as an effectively 'delocalised' arbitration or in a 'transnational firmament', to borrow Kerr, L.J.'s words in Naviera Amazonica.

(g) The CIMAR Rules are not inconsistent with my view. Their constant references to the Arbitration Act, 1996 suggest that the parties at least envisaged the possibility that the courts of England and Wales might play some part in policing any arbitration. For instance, Rule 11.5 envisages something called 'the court' becoming involved in securing compliance with a peremptory order of the arbitrator. That would have to be the English court, in practice."

[105] In our opinion, Mr. Nariman has rightly relied upon the ratio in Braes of Doune case. Learned senior counsel has rightly pointed out that unlike the situation in Naviera Amazonica , in the present case all the three laws: (i) the law governing the substantive contract; (ii) the law governing the agreement to arbitrate and the performance of that agreement

(iii) the law governing the conduct of the arbitration are Indian. Learned senior counsel has rightly submitted that the curial law of England would become applicable only if there was clear designation of the seat in London. Since the parties have deliberately chosen London as a venue, as a neutral place to hold the meetings of arbitration only, it cannot be accepted that London is the seat of arbitration. We find merit in the submission of Mr. Nariman that businessmen do not intend absurd results. If seat is in London, then challenge to the award would also be in London. But the parties having chosen Indian Arbitration Act, 1996 - Chapters III, IV, V and VI; Section 11 would be applicable for appointment of arbitrator in case the machinery for appointment of arbitrators agreed between the parties breaks down. This would be so since the ratio laid down in Bhatia will apply, i.e., Part I of the Indian Arbitration Act, 1996 would apply even though seat of arbitration is not in India. This position has been reversed in Balco, but only prospectively. Balco would apply to the agreements on or after 6th September, 2012. Therefore, to interpret that London has been designated as the seat would lead to absurd results.

[106] Learned senior counsel has rightly submitted that in fixing the seat in India, the court would not be faced with the complications which were faced by the English High Court in the Braes of Doune . In that case, the court understood the designation of the seat to be in Glasgow as venue, on the strength of the other factors intimately connecting the arbitration to England. If one has regard to the factors connecting the dispute to India and the absence of any factors connecting it to England, the only reasonable conclusion is that the parties have chosen London, only as the venue of the arbitration. All the other connecting factors would place the seat firmly in India.

[107] The submission made by Dr. Singhvi would only be worthy of acceptance on the assumption that London is the seat. That would be to put the cart before the horse. Surely, jurisdiction of the courts cannot be rested upon unsure or insecure foundations. If so, it will flounder with every gust of the wind from different directions. Given the connection to India of the entire dispute between the parties, it is difficult to accept that parties have agreed that the seat would be London and that venue is only a misnomer. The parties having chosen the Indian Arbitration Act, 1996 as the law governing the substantive contract, the agreement to arbitrate and the performance of the agreement and the law governing the conduct of the arbitration; it would, therefore, in our opinion, be vexatious and oppressive if Enercon GMBH is permitted to compel EIL to litigate in England. This would unnecessarily give rise to the undesirable consequences so pithily pointed by Lord Brandon and Lord Diplock in Abidin v. Daver., 1984 AC 398. It was to avoid such a situation that the High Court of England and Wales, in Braes of Doune, construed a provision designating Glasgow in Scotland as the seat of the arbitration as providing only for the venue of the arbitration.

[115] In Shashoua, such an expression was understood as seat instead of venue, as the parties had agreed that the ICC Rules would apply to the arbitration proceedings. In Shashoua, the ratio in Naviera and Braes Doune has been followed. In this case, the Court was concerned with the construction of the shareholders' agreement between the parties, which provided that "the venue of the arbitration shall be London, United Kingdom". It provided that the arbitration proceedings should be conducted in English in accordance with the ICC Rules and that the governing law of the shareholders' agreement itself would be the law of India. The claimants made an Application to the High Court in New Delhi seeking interim measures of protection under Section 9 of the Indian Arbitration Act, 1996, prior to the institution of arbitration proceedings. Following the commencement of the arbitration, the defendant and the joint venture company raised a challenge to the jurisdiction of the Arbitral Tribunal, which the panel heard as a preliminary issue. The Tribunal rejected the jurisdictional objection.

[116] The Tribunal then made a costs award ordering the defendant to pay $140,000 and 172,373.47. The English Court gave leave to the claimant to enforce the costs award as a judgment. The defendant applied to the High Court of Delhi under Section 34(2)(a)(iv) of the Arbitration Act, 1996 to set aside the costs award. The claimant had obtained a charging order, which had been made final, over the defendant's property in UK. The defendant applied to the Delhi High Court for an order directing the claimants not to take any action to execute the charging order, pending the final disposal of the Section 34 petition in Delhi seeking to set aside the costs award. The defendant had sought unsuccessfully to challenge the costs award in the Commercial Court under Section 68 and Section 69 of the English Arbitration Act, 1996 and to set aside the order giving leave to enforce the award.

[131] This conclusion is reiterated in paragraph 46 in the following words:-

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/>"46. The proposition that when a choice of a particular law is made, the said choice cannot be restricted to only a part of the Act or the substantive provision of that Act only. The choice is in respect of all the substantive and curial law provisions of the Act. The said proposition has been settled by judicial pronouncements in the recent past ." [134] In A v. B, 2007 1 Lloyds Rep 237 again the Court of Appeal in England observed that:- "..an agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. Any claim for a remedy as to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of arbitration." [135] In our opinion, the conclusion reached by Justice Savant that the Courts in England would have concurrent jurisdiction runs counter to the settled position of law in India as well as in England and is, therefore, not sustainable. The Courts in England have time and again reiterated that an agreement as to the seat is analogous to an exclusive jurisdiction clause. This agreement of the parties would include the determination by the court as to the intention of the parties. In the present case, Savant, J. having fixed the seat in India erred in holding that the courts in India and England would exercise concurrent jurisdiction. The natural forum for all remedies, in the facts of the present case, is only India. 11. It is thus clear from the aforesaid judgment that there is a difference between venue and seat and that merely because the arbitrator itself may choose to hold the arbitration at a venue, which is different than the seat of the Arbitration where the court situate, it cannot be said that Arbitrator has exercised jurisdiction not vested in it. 12. Adverting to the other contention of the petitioner that the amounts paid by him from time-to-time have not been accounted and reflected in the statement of accounts by the decree holder, I am afraid that these were the matters, which were required to be adjudicated before the learned Arbitrator and are not open to challenge in the execution petition as the executing court is bound by the decree/award of the Arbitrator and cannot go beyond it. 13. Having said so, I find no merit in the petition and the same is dismissed leaving the parties to bear their own costs.