The Delhi High Court in Bygging India Ltd. v. Lanco Infratech Ltd. held that an express contract clause naming Delhi as the venue of arbitration while granting sole jurisdiction to Delhi courts confers valid territorial authority under a Section 11 arbitration petition. Justice Vibhu Bakhru ruled that party autonomy enables commercial entities to select an exclusive forum, thereby excluding other courts that might otherwise claim jurisdiction over the underlying cause of action. Consequently, the High Court dismissed the jurisdictional objections of the respondent and referred the dispute to the Delhi International Arbitration Centre for the appointment of arbitrator proceedings.
Overview of the Dispute and Procedural History
The petitioner, Bygging India Ltd., approached the High Court of Delhi seeking the appointment of a sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The dispute arose out of a Settlement Agreement dated 19 February 2014 executed between Bygging India Ltd. and Lanco Infratech Ltd. following differences related to a prior construction work order.
The respondent had initially issued Work Order No. LITL/NPCL/Civil/CHY/WO/30 awarding civil construction works to the petitioner for building a 275-meter high twin flue RCC chimney at the Nagarjuna 2 x 507.5 MW Thermal Power Plant at Padubidri in Udupi District, Karnataka. When commercial disputes surfaced regarding performance, project execution, and outstanding payments, the parties negotiated and executed a binding Settlement Agreement to resolve their claims. However, subsequent disagreements concerning the implementation of the settlement led the petitioner to invoke the arbitration clause.
Dispute Resolution Clauses and the Exclusive Jurisdiction Clause
The central controversy turned on Clauses 6 and 7 of the Settlement Agreement dated 19 February 2014, which explicitly provided:
"6. Any dispute or claim arising out of this Agreement shall be referred to a sole arbitrator and the arbitration will be conducted under the Arbitration and Conciliation Act, 1996. The venue of arbitration shall be Delhi and the Courts of Delhi shall have the sole jurisdiction."
"7. All Disputes shall be governed exclusively by the Courts of Delhi."
These two provisions combined an arbitration reference, a designated location for arbitral hearings, and an unambiguous exclusive jurisdiction clause vesting sole legal authority in the courts of Delhi.
Jurisdictional Objections Raised by the Respondent
Learned counsel for the respondent did not dispute the existence of the Settlement Agreement or the valid arbitration clause contained therein. Instead, the respondent challenged the territorial jurisdiction of the Delhi High Court to entertain the petition. The respondent contended that:
- The Settlement Agreement was executed at Gurgaon in Haryana, outside the territorial boundaries of the National Capital Territory of Delhi.
- The underlying construction works were situated in Karnataka, and corporate interactions took place across other regional offices.
- No cause of action, whether in whole or in part, arose within the territory of Delhi.
- A designated venue does not automatically equate to the seat of arbitration when the underlying cause of action has no nexus with the venue.
The respondent placed reliance on decisions including A-One Granites v. V.V. Enterprises, Pillaiyar Match Company v. Container Corporation of India, and Datson Exports Ltd. v. V.M. Salgaocar and Bros. Pvt. Ltd. to argue that parties cannot confer jurisdiction on a court if no part of the cause of action arose within its territory. The respondent also cited Ion Exchange (India) Ltd. v. Panasonic Electric Works Co. Ltd. regarding the distinction between the seat and venue of arbitral proceedings.
Analysis of Seat Versus Venue and Precedents on Party Autonomy
Justice Vibhu Bakhru examined the distinction between the seat of arbitration and the place or venue of proceedings, analyzing the constitutional bench judgment of the Supreme Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. (BALCO). In BALCO, the Supreme Court clarified that Section 20 of the Act grants parties autonomy to determine the seat of arbitration, and the courts where the seat is situated exercise supervisory jurisdiction over the arbitral process.
The High Court reviewed recent jurisprudence concerning Delhi High Court arbitration disputes, noting that when parties choose a neutral venue and couple it with an exclusive jurisdiction clause, their intention is to establish that venue as the seat of arbitration. Just as established in Supreme Court civil jurisprudence, procedural agreements between parties establish binding frameworks. Furthermore, examining civil dispute resolution precedents reinforces how courts interpret contractual intention and jurisdictional clauses.
In distinguishing Ion Exchange, the court noted that in the present case, the agreement explicitly designated Delhi as the venue and conferred exclusive jurisdiction on Delhi courts. There was no ambiguity or competing clause pointing to another forum. Therefore, the express contract language governing seat versus venue must be enforced strictly.
Judgment of the Court and Referral to DIAC
The High Court rejected the jurisdictional challenge, holding that the express choice of Delhi as the arbitral venue, combined with the sole jurisdiction clause, gave the Delhi High Court full authority to appoint an arbitrator under Section 11. With the consent of both parties, the court directed the appointment of a sole arbitrator under the Rules of the Delhi International Arbitration Centre (DIAC).
Full Text of the High Court Order: ARB.P. 479/2016
IN THE HIGH COURT OF DELHI AT NEW DELHI
CORAM: HON BLE MR. JUSTICE VIBHU BAKHRU
07.10.2016
ARB.P. 479/2016
BYGGING INDIA LTD. ..... Petitioner Through: Mr S.K. Maniktala and Mr Swetab Kumar, Advocates.
Versus
LANCO INFRATECH LTD. ..... Respondent Through: Mr Deepak Khurana and Ms Aditi Sharma, Advocates.
ORDER
VIBHU BAKHRU, J
1. The petitioner has filed the present petition under Section 11 of the Arbitration and Conciliation Act, 1996 (hereafter "the Act") praying that an arbitrator be appointed for adjudicating the disputes that have arisen between the parties in relation to the "Settlement Agreement" (hereafter "the Agreement") dated 19.02.2014 entered into between the parties.
2. Clause 6 and 7 of the Agreement are relevant and are set out below:
"6. Any dispute or claim arising out of this Agreement shall be referred to a sole arbitrator and the arbitration will be conducted under the Arbitration and Conciliation Act, 1996. The venue of Arbitration shall be Delhi and the Courts of Delhi shall have the sole jurisdiction."
"7. All Disputes shall be governed exclusively by the Courts of Delhi."
3. The learned counsel for the respondent does not dispute the existence of the Agreement or the arbitration clause. The only objection taken by the respondent is regarding jurisdiction of the court to entertain the present petition; the Agreement was executed in Gurgaon, Haryana and according to respondent, no part of cause of action has arisen in Delhi.
4. The respondent had issued a Work Order No. LITL/NPCL/Civil/CHY/WO/30 and awarded certain works to the petitioner for the purposes of construction of 275M High Twin Flue RCC Chimney, which was to be constructed in Nagarjuna 2 x 507.5 MW Thermal Power Plant at Padubidri, Udupi District, Karnataka. Certain disputes arose between the parties in relation to the said work order which were settled in terms of the Agreement.
5. Mr. Khurana, the learned counsel appearing for the respondent submitted that even though the parties have agreed that the venue of arbitration would be Delhi, the same does not confer any jurisdiction on this court. He submitted that Delhi was chosen only as a convenient place for holding arbitration proceedings and was not the seat of arbitration. He submitted that in terms of Section 2(1)(e) of the Act, Court means the principal Civil Court of original jurisdiction in a district having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit. He contended that since no part of cause of action had arisen in Delhi, the courts in Delhi would have no jurisdiction to decide any question forming the subject matter of arbitration and therefore, this court would not be a Court within the meaning of Section 2(1)(e) of the Act.
6. He has also relied upon the decision of the Supreme Court in A-One Granites v. V.V. Enterprises and Ors.: (1999) 3 SCC 61; the decision of a Coordinate Bench of this Court in Pillaiyar Match Company v. Container Corporation of India: 2011 (1) Arb. LR 547 (Delhi); the decision of the Calcutta High Court in Datson Exports Ltd. and Anr. v. V.M. Salgaocar and Bros. Pvt. Ltd. and Anr.: 2003 (1) Arb. LR 277 (Cal); and the decision of a Division Bench of this Court in Ion Exchange (India) Ltd. v. Panasonic Electric Works Co. Ltd.: 208 (2014) DLT 597 (DB) in support of his contentions.
7. I have heard the learned counsel for the parties.
8. At the outset, it is relevant to refer to paragraph 96 of the decision of the Supreme Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc.: (2012) 9 SCC 552 (BALCO), wherein the Supreme Court held as under:
"96. We are of the opinion, the term 'subject-matter of the arbitration' cannot be confused with 'subject-matter of the suit'. The term 'subject-matter' in Section 2(1)(e) is confined to Part I. It has a reference and connection with the process of litigation. The purpose of Section 2(1)(e) is to define the 'Court' as the supervisory court for the arbitration proceedings. The supervisory court will have the jurisdiction over the arbitration process. In other words, the legislature has permitted the parties to agree on the seat of arbitration. The seat of arbitration would determine the court which will have the supervisory jurisdiction over the arbitration proceedings. The court where the arbitration took place would be the required court for the purpose of the Act. Section 20 of the Act gives the parties the freedom to choose the seat of arbitration. The freedom can be exercised by the parties even to choose the seat of arbitration as a place which has no connection with the parties or the cause of action. The seat of arbitration can be a neutral place chosen by the parties. Once the seat of arbitration is chosen, it is that court which will have the supervisory jurisdiction over the arbitration proceedings."
9. A plain reading of the aforesaid paragraph clearly indicates that the Supreme Court has distinguished between the subject matter of arbitration and the subject matter of a suit. The Supreme Court has held that the seat of arbitration can be a neutral place chosen by the parties and the court exercising jurisdiction over the seat would be the court having supervisory jurisdiction over the arbitration process.
10. The reliance placed by the learned counsel for the respondent on the decision of the Division Bench in Ion Exchange is misplaced. In that case, the arbitration agreement between the parties read as under:
"14. Applicable Law and Jurisdiction. (1) This Agreement shall be governed by and construed in accordance with the laws of India. (2) All disputes, controversies or differences which may arise between the parties hereto, out of or in relation to or in connection with this Agreement shall be finally settled by arbitration in New Delhi, India in accordance with the UNCITRAL Arbitration Rules."
11. The Division Bench of this Court held that the clause designating New Delhi as the place of arbitration did not mean that the seat of arbitration was New Delhi. In that case, there was no exclusive jurisdiction clause conferring jurisdiction on the courts in Delhi. The Division Bench referred to the decision of the Supreme Court in Reliance Industries Ltd. v. Union of India: (2014) 7 SCC 603, and observed as under:
"12. In the present case, the arbitration clause does not state that New Delhi shall be the seat of arbitration. It only states that the disputes shall be settled by arbitration in New Delhi. There is no other clause conferring exclusive jurisdiction on the courts in New Delhi. In the absence of an express clause choosing New Delhi as the seat of arbitration or conferring exclusive jurisdiction on the courts in New Delhi, it cannot be said that New Delhi was chosen as the seat of arbitration."
12. In the present case, the parties have not only agreed that the venue of arbitration shall be Delhi, but have further expressly agreed in Clause 6 and 7 that the Courts of Delhi shall have the sole jurisdiction and that all disputes shall be governed exclusively by the Courts of Delhi.
13. In Swastik Gases Private Limited v. Indian Oil Corporation Limited: (2013) 9 SCC 32, the Supreme Court held that where the parties had agreed that the agreement was subject to the jurisdiction of the courts at Kolkata, the courts in Kolkata alone had jurisdiction to entertain an application under Section 11 of the Act, to the exclusion of all other courts.
14. The decision in Pillaiyar Match Company was rendered prior to the decision of the Supreme Court in BALCO and Swastik Gases and cannot be considered as an authority for the proposition that a court where the seat of arbitration is located has no jurisdiction to entertain a Section 11 application.
15. The decision in A-One Granites was rendered in a case where the dispute related to a contract for sale of granite blocks and the question was whether the High Court of Madras had jurisdiction to appoint an arbitrator. The Supreme Court found that no part of cause of action arose within the jurisdiction of the High Court of Madras and there was no agreement between the parties choosing Madras as the venue or seat of arbitration. The said decision is wholly inapplicable to the facts of the present case.
16. In Datson Exports Ltd., the agreement provided that the disputes were to be settled by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. The Calcutta High Court held that the mere fact that the parties had agreed to arbitrate under ICC Rules did not confer jurisdiction on the Calcutta High Court when no cause of action arose in Calcutta. In the present case, the parties have expressly chosen Delhi as the venue and conferred exclusive jurisdiction on Delhi courts.
17. In the circumstances, the contention of the respondent that this Court lacks territorial jurisdiction cannot be accepted.
18. Accordingly, with the consent of the parties, it is directed that an Arbitrator be appointed under the Rules of the Delhi International Arbitration Centre (DIAC). The representatives of the parties shall appear before the Coordinator, DIAC on 02.11.2016 at 11.00 a.m. The arbitration shall be conducted under the aegis of DIAC and in accordance with its Rules.
19. The petition is disposed of in the above terms with no order as to costs.