2023 (3) TMI 1494 - HC - Indian Laws

Exclusive jurisdiction clauses in contracts determine territorial jurisdiction for challenging MSMED Act arbitration awards under Section 34

Ircon International Limited. Versus Pioneer Fabricators Pvt. Ltd.

Delhi HC held that territorial jurisdiction for challenging MSMED Act arbitration awards under Section 34 of Arbitration and Conciliation Act, 1996 is ... Lack of territorial jurisdiction to entertain the petition - an overriding effect of MSMED Act has over Arbitration and Conciliation Act, 1996 - whether the learned District Judge was right in rejecting the petition filed by the appellant on the ground that the learned District Judge does not have the territorial jurisdiction to entertain the petition? - HELD THAT:- It is a settled law that a place which is provided under the exclusive jurisdiction clause agreed between the parties determines the territorial jurisdiction of the Court to entertain a petition under Section 34 of the Act of 1996. Though in the present case, there was no arbitration clause, but still the parties have conferred exclusive jurisdiction to the Courts in Delhi. The same shall mean that any challenge to the arbitration award in terms of Section 19 of the MSMED Act would necessarily lie before the Court in Delhi. So, it follows that a challenge to the award passed under the MSMED Act shall necessarily be in terms of Section 34 of the Act of 1996 and surely the principles as governed under the Act of 1996 shall apply to such challenge. It may be stated here that a learned Single Judge of this Court in the case of AHLUWALIA CONTRACTS (INDIA) LTD. VERSUS OZONE RESEARCH & APPLICATIONS (I) PVT. LTD. AND ORS. [2023 (1) TMI 1377 - DELHI HIGH COURT], is of the view that the seat of arbitration shall be the place where Facilitation Council is situated (Nagpur in that case). Hence, a petition filed before this Court under Section 34 of the Act of 1996, shall not be maintainable. The impugned order passed by the learned District Judge rejecting the petition filed by the appellant herein under Section 19 of the MSMED Act read with Section 34 of the Act of 1996, on the ground that the Court has no territorial jurisdiction is contrary to the settled position of law and the same is liable to be set aside. The objections filed by the appellant, are restored on the file of the learned District Judge (Commercial Court), Shahdara, Delhi, for adjudication of the same on merits in accordance with law. Issues involved:1. Territorial jurisdiction for challenging an arbitral award.2. Overriding effect of MSMED Act over Arbitration and Conciliation Act, 1996.3. Interpretation of exclusive jurisdiction clause in agreements.Summary:Issue 1: Territorial Jurisdiction for Challenging an Arbitral AwardThe High Court of Delhi addressed whether the learned District Judge was correct in rejecting the petition filed by the appellant challenging the award dated January 09, 2022, passed by the Facilitation Council at Kanpur, on the grounds of lack of territorial jurisdiction. The District Judge concluded that the arbitration proceedings under the MSMED Act, held at Kanpur, determined the jurisdiction. However, the High Court disagreed, stating that the 'seat of arbitration' as per the agreement between the parties, which conferred exclusive jurisdiction to the courts in Delhi, should govern the territorial jurisdiction. The Court relied on the judgment in *Indian Oil Corporation Ltd. v. FEPL Engineering (P) Ltd.* and held that the jurisdiction clause in the agreement determines the territorial jurisdiction, not the venue of arbitration proceedings.Issue 2: Overriding Effect of MSMED Act over Arbitration and Conciliation Act, 1996The appellant argued that the MSMED Act, being a special statute, overrides the provisions of the Arbitration and Conciliation Act, 1996. The Court acknowledged this but clarified that the overriding effect pertains to the conduct of arbitration proceedings and not to the jurisdiction clause agreed upon between the parties. The Court cited the judgment in *Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd.* to support the view that the MSMED Act does not nullify the jurisdiction clause in the agreement.Issue 3: Interpretation of Exclusive Jurisdiction Clause in AgreementsThe Court emphasized that the exclusive jurisdiction clause in the agreement, which conferred jurisdiction to the courts in Delhi, remains valid despite the arbitration proceedings being conducted under the MSMED Act at Kanpur. The Court referred to the judgment in *Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd.*, which held that the designated 'seat' of arbitration determines the territorial jurisdiction of courts for challenging arbitral awards. The Court concluded that the proceedings held at Kanpur were the 'venue' and not the 'seat' of arbitration, thus upholding the jurisdiction of Delhi courts as per the agreement.Conclusion:The High Court set aside the impugned order of the District Judge and restored the objections filed by the appellant under Section 19 of the MSMED Act read with Section 34 of the Arbitration and Conciliation Act, 1996, for adjudication on merits by the District Judge (Commercial Court), Shahdara, Delhi. The Court reiterated that the jurisdiction clause in the agreement conferring exclusive jurisdiction to the courts in Delhi should prevail.