2019 (9) TMI 1701 - HC - Indian Laws

Interpreting arbitration clauses: Delhi High Court's jurisdiction upheld despite supplier's location.

Indian Oil Corporation Ltd. Versus FEPL Engineering (P) Ltd. and Ors.

The appellate court held that the Delhi High Court had territorial jurisdiction based on the interpretation of arbitration clauses in the General Purchase ... Validity of Arbitral Award - petition dismissed on the ground that this Court does not have the territorial jurisdiction to entertain the petition - Section 34 of the Arbitration Act. HELD THAT:- It is a well-settled principle of interpretation that the clauses of the Contract have to be read and interpreted upon a plain reading. The explicit terms of a contract are always the final word with regards to the intention of the parties and the multi-clause contract inter se the parties has to be understood and interpreted in a manner that any view, on a particular Clause of the contract, should not do violence to another part of the contract - It is also to be noted that filling in the name of another city before conjunction 'or' would have rendered the exclusivity of jurisdiction ambiguous. 'New Delhi' was certainly one of the firmed-up choice of venue and seat, agreed between the parties. Introduction of another place was certainly a selection that the parties could have made, but since parties did not avail this opportunity, it only means that the agreed place was preserved as final. In the case of M/S. SWASTIK GASES P. LTD. VERSUS INDIAN OIL CORP. LTD. [2013 (7) TMI 642 - SUPREME COURT], the Supreme Court held that where the ouster is included in an agreement between the parties, it conveys the intention to exclude the jurisdiction of Courts other than those mentioned in the agreement. The Supreme Court also held that absence of the use of words like 'alone', 'only', 'exclusive' or 'exclusive jurisdiction' is not decisive, and does not make any material difference in deciding the jurisdiction of a Court. The intention of the parties has to be gathered from the Clauses appearing in the agreement. In view of the aforesaid decisions of the Supreme Court and the principles laid down therein, it clearly emerges that Section 20 (1) and Section 20 (2) of the Arbitration Act, would be applicable to the place where seat/place of arbitration is fixed under the Contract. The venue relates to convenience of parties, and in such a case, Section 20 (3) of the Arbitration Act is applicable - even if there was any element of ambiguity or doubt with respect to intention of the parties regarding 'exclusivity', the same gets settled by conscious decision of the parties not to fill in the blank. In this case the venue shifted to Thane not on account of an agreement between the parties, but just because the supplier was located in a jurisdiction that fell with the domain of the regional MSME council. That does not however mean that the arbitration was seated at Thane. For jurisdiction, the clause agreed between the parties continues to be valid and binding. In the present case, both the VENUE as well as the SEAT (by way of the jurisdiction clause) has been agreed to be at New Delhi. There are no hesitation to say that the Courts at Delhi would have the jurisdiction to entertain the petition challenging the award passed by the MSME Council. Since the parties agreed to confer exclusive jurisdiction to Courts at New Delhi, notwithstanding the fact that the purchase order in question dated 10th March 2016, was issued by the Petitioner from its Vadodara Office to the Respondent at Navi Mumbai, and even if no cause of action has arisen in Delhi, the Courts of Delhi would have jurisdiction to entertain the petition under Section 34 of the Arbitration Act. Undoubtedly, the MSME Act is a special legislation dealing with Micro, Small and Medium Enterprises and would have precedence over the general law. There are decisions of several Courts holding that the provisions of MSME Act would override the provisions of the Contract between the parties - the jurisdiction of the MSME Council which is decided on the basis of the location of the supplier, would only determine the 'VENUE', and not the 'SEAT' of arbitration. The 'SEAT' of arbitration would continue to be governed in terms of the arbitration agreement between the parties, which in the present case as per jurisdiction Clause No. 35 is New Delhi. The writ petition filed by the Appellant before the Bombay High Court was against the MSME Council, and filing of the said petition would not oust the jurisdiction of the Court to deal with petition under Section 34 of the Amendment Act and accordingly, the contention of the Respondent that the filing of the aforesaid writ petition bars the Appellant to approach this Court is rejected. The present petition restored to its original number. Issues Involved:1. Territorial Jurisdiction of the Court.2. Interpretation of arbitration clauses in the General Purchase Conditions (GPC).3. Applicability of MSME Act provisions.4. Overriding effect of the MSME Act on contractual agreements.Issue-wise Detailed Analysis:1. Territorial Jurisdiction of the Court:The primary issue in the appeal was whether the Delhi High Court had the territorial jurisdiction to entertain the petition under Section 34 of the Arbitration and Conciliation Act, 1996. The learned Single Judge dismissed the petition on the grounds that the clauses in the General Purchase Conditions (GPC) did not provide an exclusive seat of arbitration or vest exclusive jurisdiction in the courts of Delhi. The Judge concluded that the MSME Council at Thane, Maharashtra, had jurisdiction because the supplier was located there. However, the appellate court disagreed, stating that the blanks in the GPC clauses indicated that the parties intended to confer exclusive jurisdiction to the courts at New Delhi by not choosing any other venue.2. Interpretation of Arbitration Clauses in the General Purchase Conditions (GPC):The appellate court analyzed Clauses 34 and 35 of the GPC, which dealt with arbitration and jurisdiction. The court held that the failure to fill in the blanks in these clauses meant that the parties had agreed to New Delhi as the venue and seat of arbitration. The court emphasized that the explicit terms of a contract should be interpreted plainly and that the blanks did not render the clauses unworkable. The court concluded that the parties had intended to confer exclusive jurisdiction on the courts at New Delhi.3. Applicability of MSME Act Provisions:The MSME Act provides that the MSME Council where the supplier is located has jurisdiction over disputes. The learned Single Judge had held that the MSME Council at Thane had jurisdiction and that this would be the seat of arbitration. However, the appellate court clarified that while the MSME Council's jurisdiction determines the venue of arbitration, the seat of arbitration is governed by the agreement between the parties. In this case, the seat was agreed to be New Delhi, thus giving exclusive jurisdiction to the courts at New Delhi.4. Overriding Effect of the MSME Act on Contractual Agreements:The appellate court acknowledged that the MSME Act is a special legislation and has precedence over general law. However, it clarified that the MSME Act's provisions do not nullify the terms of the contractual agreement between the parties. The jurisdiction clause in the contract, which conferred exclusive jurisdiction to the courts at New Delhi, remained valid and binding. The court held that the overriding effect of the MSME Act pertains to the venue of arbitration but does not affect the agreed seat of arbitration.Conclusion:The appellate court set aside the impugned judgment and restored the petition to its original number, directing the learned Single Judge to decide the petition on merits. The court emphasized that the jurisdiction of the MSME Council to act as an arbitrator does not override the contractual agreement regarding the seat of arbitration. The parties were directed to appear before the learned Single Judge on a specified date for further proceedings.