Court’s Decision
The Delhi High Court set aside the order of the District Judge (Commercial Court), Patiala House, which had returned a petition under Section 34 of the Arbitration and Conciliation Act, 1996, on the ground of lack of territorial jurisdiction. The Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar held that Delhi courts have jurisdiction to entertain challenges under Section 34, even though the arbitration was held in Chennai, as the loan agreement was executed in Delhi, and the lender’s registered office was located in Delhi.
The Court clarified that “mere designation of Chennai as the venue of arbitration does not make it the juridical seat”, and thus, Delhi retained jurisdiction under Section 42 of the Act since the first application under Section 9 was filed there. The impugned order was consequently set aside, and the Section 34 petition was restored before the District Judge, Delhi.
Facts
The dispute arose from a loan agreement executed between a Delhi-based borrower and a financial company for ₹54.9 lakhs to purchase heavy construction equipment. The borrower defaulted after paying over ₹35 lakhs, citing financial distress following the collapse of Infrastructure Leasing & Financial Services (IL&FS).
The lender invoked arbitration as per Clause 31 of the loan agreement, which provided that “the venue for conducting arbitration proceedings shall be Chennai.” The arbitrator, unilaterally appointed by the lender, passed an ex parte award directing repayment of ₹30.9 lakhs with 18% interest per annum.
The borrower filed objections under Section 34 before the Delhi Commercial Court. However, the lender moved an application under Order VII Rule 10 CPC, arguing that only courts at Chennai had jurisdiction since arbitration proceedings were held there. The District Judge accepted this contention, returning the petition. Aggrieved, the borrower appealed under Section 37(1)(c) before the Delhi High Court.
Issues
- Whether the District Judge, Delhi, had jurisdiction to entertain a Section 34 petition challenging an arbitral award where the arbitration was conducted at Chennai.
- Whether the term “venue” mentioned in the arbitration clause constituted the “seat” of arbitration.
- Whether filing an earlier Section 9 petition before the Delhi court confers exclusive jurisdiction under Section 42 of the Arbitration and Conciliation Act, 1996.
Petitioners’ Arguments
The appellants contended that the loan agreement was executed in Delhi and that the respondent’s lending office was situated in Delhi. Therefore, the Delhi courts had territorial jurisdiction over disputes arising under the agreement.
They argued that the respondent had already invoked the jurisdiction of the Delhi court under Section 9, seeking appointment of a receiver to repossess the construction equipment. This, according to the appellants, triggered the exclusive jurisdiction of Delhi courts under Section 42, which provides that once an application under Part I of the Act is made to a court, all subsequent applications must be filed in that same court.
The appellants further argued that the venue clause specifying Chennai did not automatically make it the “seat” of arbitration. They relied upon the Supreme Court’s rulings in State of West Bengal v. Associated Contractors (2014) 1 SCC 32 and Naresh Kanayalal Rajwani v. Kotak Mahindra Bank Ltd. (2019), emphasizing that “seat” and “venue” are distinct concepts, and jurisdiction cannot be ousted merely by mentioning a venue.
The appellants also challenged the arbitral proceedings as biased and procedurally unfair, asserting that they were denied copies of the claim, adequate notice, and the opportunity to present their defence.
Respondent’s Arguments
The financial company argued that the loan agreement’s arbitration clause designated Chennai as the venue, and the award was passed there. Relying on Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. (2017) 7 SCC 68 and Hindustan Construction Co. Ltd. v. NHPC Ltd. (2020) 4 SCC 310, it contended that once a seat of arbitration is designated, the courts at that seat have exclusive jurisdiction to the exclusion of all others.
It was submitted that since the arbitration was conducted in Chennai, and the award was made there, only the courts at Chennai could entertain a challenge under Section 34. The respondent further claimed that the earlier Section 9 petition filed in Delhi could not confer jurisdiction because the seat doctrine supersedes Section 42.
Analysis of the Law
The Court examined the interplay between Sections 20, 34, and 42 of the Arbitration and Conciliation Act, 1996, along with the seat–venue distinction clarified by the Supreme Court in BGS SGS Soma JV v. NHPC Ltd. (2020) 4 SCC 234
INFRASTRUCTURE
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In BGS SGS Soma, the Supreme Court held that the designation of a “seat” is equivalent to an exclusive jurisdiction clause, whereas a mere “venue” is not. For a venue to be construed as the seat, three conditions must be satisfied:
- The agreement must designate only one place;
- The arbitral proceedings must be anchored to that place; and
- There must be no contrary indicators showing the venue was merely convenient.
Applying this “three-condition test” (reaffirmed in Arif Azim Co. Ltd. v. Micromax Informatics FZE, 2024), the High Court observed that although the arbitration clause referred to Chennai as the venue, several contrary indicators existed:
- The agreement was executed in Delhi;
- Both parties maintained offices in Delhi; and
- The first application under Section 9 was filed in Delhi.
Hence, Chennai was merely a venue, not the juridical seat, and Delhi retained jurisdiction.
Precedent Analysis
- BGS SGS Soma JV v. NHPC Ltd. (2020) 4 SCC 234 – Established that when a seat is designated, it operates as an exclusive jurisdiction clause; however, when only a venue is mentioned, courts must determine the true intention of parties. The Delhi High Court applied this to conclude Chennai was a venue, not the seat.
- Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. (2017) 7 SCC 68 – Clarified that a chosen seat equals exclusive jurisdiction; distinguished here since the agreement never designated Chennai as the seat.
- Hindustan Construction Co. Ltd. v. NHPC Ltd. (2020) 4 SCC 310 – Reiterated the exclusive jurisdiction of the seat, but distinguished on facts as the present case lacked explicit seat designation.
- State of West Bengal v. Associated Contractors (2014) 1 SCC 32 – Applied to reinforce the Section 42 principle, that once a court is approached under Part I, it gains exclusive jurisdiction over all subsequent proceedings.
Court’s Reasoning
The Bench found that the District Judge misconstrued Clause 31 of the agreement by equating “venue” with “seat.” The Court emphasized:
“Though the agreement specifies Chennai as the venue, the learned District Judge treated it as the seat. By applying the law laid down by the Supreme Court without delineating seat and venue, the court erred in returning the petition under Order VII Rule 10.”
It further observed that the respondent had acquiesced to Delhi’s jurisdiction by filing a Section 9 petition before the same court, where it had declared that its lending office was within Delhi’s territorial limits. Once the respondent invoked Delhi’s jurisdiction, Section 42 mandated that all subsequent applications arising out of the arbitration agreement must also lie before the same court.
The High Court thus concluded that the District Judge’s reasoning was perverse and contrary to settled law, as the arbitral clause only mentioned Chennai as a venue, not the seat.
Conclusion
The Delhi High Court allowed the appeal, holding that:
- The impugned order dated 29.08.2022 was unsustainable and was set aside;
- The petition under Section 34 challenging the arbitral award was restored before the District Judge, Patiala House; and
- The parties were directed to appear before the District Court for further proceedings.
The Court reiterated that Delhi courts have jurisdiction, as the cause of action arose there, and the respondent had earlier invoked the same forum.
Implications
This decision is significant for arbitration jurisprudence as it clarifies that:
- Mere mention of a venue does not oust territorial jurisdiction where substantive parts of the cause of action arise.
- Filing an application under Section 9 anchors jurisdiction under Section 42, ensuring consistency across arbitral proceedings.
- Courts must scrutinize contractual language carefully to distinguish between “seat” and “venue,” especially in finance and construction contracts.
This judgment provides much-needed clarity for borrowers and lenders engaged in multi-jurisdictional financing agreements, ensuring that parties cannot selectively alter jurisdiction after having invoked one court’s authority.
FAQs
1. What is the difference between ‘seat’ and ‘venue’ in arbitration?
The “seat” determines the court having supervisory jurisdiction over arbitration proceedings, while the “venue” is merely the geographical location where hearings are held.
2. Can filing a Section 9 petition fix jurisdiction for future arbitration challenges?
Yes. Under Section 42, once any Part I application (including Section 9) is filed before a court, that court has exclusive jurisdiction over all subsequent arbitration-related applications.
3. Does mentioning a venue in an arbitration clause automatically give that place jurisdiction?
No. Unless parties expressly designate it as the “seat,” mere mention of a venue does not oust jurisdiction of other courts where part of the cause of action arises.
