04/14/2024

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Section 42 of Arbitration and Conciliation Act, 1996

Section 42 of Arbitration and Conciliation Act, 1996

This article is written by Diksha Shastri. It attempts to decipher Section 42 of the Arbitration and Conciliation Act, 1996 by contemplating the scope of jurisdiction in arbitration agreements in India. This article explains the applicability of Section 42 with an emphasis on the landmark judgements surrounding this issue. 

It has been published by Rachit Garg.

Introduction

The Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) was introduced in India to govern and amend the laws related to domestic and international arbitration, conciliation and other connected matters. Both arbitration and conciliation are modes of resolving disputes without utilising the traditional ways of entering into lawsuits. Even though arbitration and conciliation happen outside the courts, there has to be an appropriate jurisdiction to regulate these grievance redressal mechanisms. That’s when Section 42 of the Act comes into the picture. In a broad aspect, Section 42 allows the parties to an arbitration agreement to request jurisdiction to a certain court. 

The term jurisdiction refers to the power of the court to hear and decide on a particular application or matter. Moreover, without appropriate jurisdiction, the decision of a court is not held valid. Hence, figuring out the appropriate jurisdiction is crucial to reaching a solution in case an application from an arbitration agreement arises. 

Let’s delve into the details of the provision.

All about Section 42 of Arbitration and Conciliation Act, 1996

Section 42 of the Act provides a clarification on the court’s jurisdiction for all matters pertaining to the arbitral proceedings. According to it, only one court has power over all different applications in an arbitral proceeding, once the initial application is made to that court. Simply put, irrespective of all other provisions in this Act, and other laws for the time being in force, when there exists an arbitration agreement between the parties, and either of the parties makes an application to a particular court under the terms of the arbitration agreement under Part 1 of the Act, then, that court shall have all the sole jurisdiction in hearing all matters and all other subsequent applications regarding that particular agreement., 

An application made under Section 42 shall also be valid and acceptable even in the below-mentioned circumstances: 

  • When the application is not heard on merits; or
  • When it is not registered; or 
  • When it faces rejection due to non-payment of processing fee to the court. 

Example of jurisdiction under Section 42 of Arbitration and Conciliation Act, 1996

A company (XYZ Pvt Ltd), based out of Delhi, India enters into a relationship with an individual software developer (Person A), residing in Ahmedabad, Gujarat to get CRM software for their business. The parties enter into a Service Level Agreement with an additional clause of arbitration including: 

  • That issues arising out of the agreement shall be resolved only through arbitration in Delhi, India; 
  • Moreover, the Jurisdiction was also conferred to the courts of Delhi, India. 

Four months after signing the agreement, a dispute regarding the ownership of intellectual property rights arose between the parties. Consequently, XYZ Pvt Ltd decided to file an application to hire an independent arbitrator in the court of Delhi, India. 

Filing an application for the appointment of an arbitrator here invoked the powers of Section 42 of the Arbitration and Conciliation Act. 

Consequences

Following are the effects of invoking Section 42 through making an application to the court in the present example: 

  • The matter of appointing an arbitrator will be handled by the Delhi court; 
  • All other matters related to this service agreement between the Company and Person A will also be handled by the Delhi court; and 
  • Even though Person A is based in Ahmedabad, Gujarat – they are not entitled to make an application for this matter to the courts of Gujarat, India. 

This example proves that the scope of Section 42 is to promote and maintain neutral decisions and clarity in arbitral proceedings. 

Understanding Section 42 of Arbitration and Conciliation Act, 1996 

According to Section 42 of the Act, when the parties to an arbitration agreement make an application in writing to a court under Part 1 (Section 1 to Section 43) of the Act. Then, that particular court shall have the jurisdiction to hear the matters arising from that arbitration agreement. Below are few circumstances under which an application under Part 1 can be made to a court with the exclusive jurisdiction under Section 42: 

To challenge the appointment of an arbitrator 

Once an arbitrator is appointed by the court, it is the duty of the arbitrator to possess relevant qualifications and stay impartial during the proceedings. So, during the proceedings, if either of the parties feels unfairness in the proceedings, they can challenge the appointment of an arbitrator. Under Section 42, an application can be made to the court to challenge the application of the arbitrator. The Act, under Section 12 also provides valid grounds to challenge an application for the appointment of an arbitrator. These include: 

  • existence of a direct or indirect relationship with any of the parties, strong enough to raise doubts regarding the impartiality of the arbitrator;
  • non-completion of arbitration within 12 months; and
  • lack of qualifications agreed upon by the parties.

To seek interim relief

While the arbitration proceedings are going on, either of the parties, if they feel aggrieved, can seek interim relief pertaining to the original issues, to the court with jurisdiction under Section 42 of the Arbitration and Conciliation Act. Simply put, an interim relief is a temporary solution that any of the parties can seek, during the continuance of arbitral proceedings. Moreover, Section 9 of the Act, also provides powers to the court to resort to the measure of granting an interim relief for the following reasons: 

  • for appointment of a guardian for a minor or unsound mind person;
  • preservation or custody of goods;
  • securing the amount in dispute;
  • inspection or disposal of property in subject matter;
  • for appointment of a receiver; and
  • other matters of protection as the court may deem fit. 

Enforcement of arbitral award

Once the independent arbitrator gives their award, sometimes a party may avoid acting on it. In such a case, the other party can file an application to the court to turn the arbitral award into a reality. There is a specific time limit under which an aggrieved party can file an application to set aside the award. However, once this time limit passes, the award can be enforced, in accordance with the terms of Section 36. According to the Section, the enforcement of an arbitral award happens in the same way a court decree is enforced by following the Civil Procedure Code. Moreover, the Court also has the power to stay the enforcement of arbitral awards at their own discretion. 

Recourse to revocation of arbitral award

Many times, a party may get aggrieved from the order passed by the arbitrator. In that situation, the aggrieved party can file an application to revoke or set aside the arbitral award. Section 34 gives the manner in which an application for setting aside an award can be made by the parties. Besides, it strictly defines the grounds for this application, which include: 

  • lack of a party’s capacity; 
  • invalidity of arbitration agreement; 
  • improper notice of appointment of arbitrator;
  • award is ultra vires (beyond the scope of its subject matter);
  • issues in the composition of arbitral tribunals or proceedings;
  • subject matter falls outside the ambit of arbitrable issues; or
  • the award is against the public policy of India;
  • involvement of fraud or corruption in the proceedings and/or award; and
  • conflicts with public morals at large. 

The time limit for filing such an application is 3 months from the date of receipt of award. 

Jurisdiction under Section 42 of Arbitration and Conciliation Act 

Jurisdiction means the power of a court to entertain a particular matter. In India, there are various types of jurisdiction applicable for different types of matters and issues. Moreover, even though the Act’s purpose is to reduce the burden of courts, there are still certain circumstances where the courts need to interfere. In those circumstances, it is vital to understand which courts shall have the jurisdiction. In this Act, Section 2(1)(e) defines the different courts that can have jurisdiction to handle matters in relation to the Act. 

Meaning of court

The term ‘court’ is defined in Section 2(1)(e). In this Section of the Act, the meaning of court is divided into two different segments of arbitration: 

Domestic arbitration

When all the parties to the arbitration agreement are based in India. Moreover, when the jurisdiction of an arbitration agreement is also within the territorial limit of India, it will invoke domestic arbitration. So, in cases of domestic arbitration, the meaning of court is either: 

  • The Principal Civil Court of original jurisdiction in a District; or 
  • The High Court within its ordinary original civil jurisdiction resolves such special issues of arbitration. 

The meaning of court in domestic arbitration does not include the following institutions: 

  • Civil Court of a grade inferior to Principal Civil Court; and 
  • Court of Small Causes. 

International commercial arbitration

All non-international commercial arbitrations are domestic arbitrations. Then, what is meant by international commercial arbitration? 

Section 2(1)(f) of the Act defines international commercial arbitration as the commercial disputes arising out of legal relationships between two or more parties when at least one of the parties fulfil any of the following conditions: 

  • a foreign national or a habitually resident in any other country apart from India; or 
  • a body corporate incorporated outside India; or 
  • an association or body of individuals managed outside the borders of India; or 
  • a foreign country’s government. 

In matters of international commercial arbitration, the meaning of ‘court’ refers to the following institutions: 

  • The High Court within its ordinary original civil jurisdiction to resolve such special issues of Arbitration; and
  • High courts with the jurisdiction to hear appeals.

Seat of arbitration and territorial jurisdiction of courts

Originally the Act does not mention any seat of arbitration. It only gives a provision for the place of arbitration. Moreover, there has been a confusion many times between configuring if the place and seat of arbitration are the same or not. At a glance, they may seem similar to a layman.  

Section 20 of the Act provides the place of arbitration. As per the provision, the place of arbitration can be determined in the following manners: 

  • Any place of arbitration mutually agreed upon by the parties; or 
  • In case the parties fail to decide, an arbitral tribunal aware of the facts can determine the place of arbitration, after taking the convenience of the parties in mind; or 
  • The arbitral tribunal can decide and meet at any place of arbitration, on its own accord. 

Since the seat of arbitration is not clearly defined in the Act, the courts have given many interpretations on the issue of the seat of arbitration and place of arbitration. One such prominent case is BALCO vs. Kaiser Aluminium Technical Services Inc. (2012), where the court has pointed out that the seat of arbitration is the court with the legal jurisdiction to entertain all issues pertaining to the arbitration agreement. It further stated that Section 20(1) and (2) deal with the seat of arbitration and clause (3) of Section 20 deals with the venue of arbitration which is the geographical location where an arbitration proceeding has taken place or will take place.  

In a recent case of Southern Railway vs. MR Ramakrishnan (2023), the Kerala High Court, while dealing with an issue related to the determination of jurisdiction for an application for setting aside an arbitral award, reasoned that: 

  • The meaning of court includes courts having subject matter of the arbitration. Hence, the supervisory control of the court having jurisdiction in the location of the place of arbitration was emphasised. 
  • The court provided a difference between the legal interpretations of a juridical place of arbitration and a mere venue or location where arbitration took place. It emphasised further that the place of arbitration as per Section 20 was to be decided by the mutual agreement of the parties. Moreover, in case there is no agreement between the parties, the arbitral tribunal is the deciding authority. However, in the present case, the arbitration determined the venue of location of arbitral proceedings. 

With all the points in mind, the court held that the court having territorial jurisdiction in the location of the seat/place of arbitration shall have the power to decide a matter under Section 34. Hence, it was held that the District Court of Ernakulam, Kerala shall have jurisdiction to hear the matter. 

This recent judgement brings a lot of clarity on the point of the determination of appropriate jurisdiction between the place of arbitration and territorial jurisdiction of the arbitral proceedings. 

Essential elements of Section 42 of Arbitration and Conciliation Act

Every provision of the law has its own unique set of features that make it so integral to maintaining the relevancy of the law. With that being said, even Section 42 of the Arbitration and Conciliation Act has certain unique characteristics, which include: 

Existence of an arbitration agreement

Section 20 only applies to the parties of an arbitration agreement. Section 2(1)(b) of the Act defines a party as any party to an arbitration agreement. Moreover, the parties can either enter into a separate arbitration agreement or just add a clause of arbitration to their business agreement. However, to invoke the jurisdiction under section 42, the arbitration agreement must be legally binding and enforceable. 

An application under Part 1

Part 1 of the Act pertains to the arbitral proceedings in India. Hence, the parties need to make an application in relation to the arbitral proceedings. This application can range from an application to appoint an arbitrator to an application for setting aside the award of an arbitrator. However, as all rules, this Section has an exception that applications made under Sections 8 and 11 are exempt from falling under the exclusive jurisdiction clause.  

Exclusive jurisdiction

This Section confers exclusivity in jurisdictional powers to a specific court for all issues arising from an arbitration agreement. Moreover, it emphasises the fact that the first court having jurisdiction where the application was made will have exclusive jurisdiction over the issues in Part 1 of the Act. 

Importance of exclusive jurisdiction conferred by Section 42 of Arbitration and Conciliation Act

Arbitration happens to avoid interference of the courts. So, why is it that the courts are given jurisdiction when applications are brought to them? The importance of this provision and defining a jurisdiction for a single court is due to the following reasons: 

Avoids conflicts

When only one court has the power to deal with multiple issues arising from a single arbitration agreement, it helps in avoiding conflicts of jurisdiction among the various courts having territorial or any other scope of jurisdiction over the matter. 

Streamlines proceedings 

Arbitration is supposed to cut off the cons of a legal proceeding. However, when an arbitration agreement is the cause of a legislative action, this provision of jurisdiction under Section 42 streamlines the entire process. Consequently, maintaining the essence of arbitration. 

Eliminates the risk of biases

Due to the prevalence of Section 42, the parties do not get a chance to choose their jurisdiction once an application to a court is made. Hence, it eliminates the risk of biassed decisions of the parties in selecting a forum of their choice. 

Promotes consistency

When all the details of a matter are available with a particular court, then, it doesn’t make any sense to go to another court in a subsequent matter. Hence, having this single and exclusive jurisdictional power, under Section 42 also helps in promoting consistency in arbitral proceedings and matters related thereto. 

Which court shall have jurisdiction to try subsequent arbitral issues?

A subsequent application means any application that is filed to the court after the preliminary application. This question has been prevalent in a lot of arbitration matters happening in India. Even after the existence of Section 42, the courts of India, on various occasions have interpreted its scope. To answer this question, as per the governing law, the court where the first application of an arbitral issue was made, will solely be responsible and empowered to hear and try all subsequent arbitral issues. 

This again proves that the purpose of Section 42 of the Act is to protect the interest of parties to an arbitration agreement, by avoiding or eliminating conflicts of jurisdiction. Moreover, the courts in India have made the applicability of Section 42 by accepting such applications on merit, even in cases of non-registration of application or rejection due to non-payment of processing fee. 

For example,

In case a company and its vendor sign an agreement with an arbitration clause. When the dispute arises, the company makes a preliminary application to the court in Delhi for the appointment of the arbitrator. An arbitrator is hired, and while the proceedings are ongoing if the company files an application for an interim order, it will be the subsequent application. The same court of Delhi shall have the authority to hear and deal with this subsequent application. 

Understanding Section 42 of Arbitration and Conciliation Act as a non-obstante clause

Many times in law, there are contradicting provisions. Hence, increasing the chances of conflict. To avoid those conflicts, non-obstante clauses come into the picture. There have been many interpretations of non-obstante clauses. However, to put it simply, it is a provision that overrides the effect of certain specific or contradicting provisions. This type of clause usually begins with the words “Notwithstanding”. 

It has been time and again witnessed that when it comes to an arbitral proceeding under Part I of the Act, the jurisdiction shall exclusively be dependent on the first application with respect to the arbitration agreement, notwithstanding anything else contained in the laws. This specificity in the provision is introduced to streamline the process and further avoid conflicts. 

Validity of Section 42 in dealing with the execution petition of an arbitral award

As far as the applicability of Section 42 of the Act is concerned, there was confusion that the court has the jurisdiction to deal with the enforcement of arbitral awards as under Section 36 of the Act. The judgments below are a few examples of the judicial interpretation in this context. 

In Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd. (2009) while determining the court’s territorial jurisdiction to entertain a petition of enforcement under Section 36, the Delhi High Court held that the court with the jurisdiction had passed no decree to be able to pass an order of transfer petition, to facilitate the execution petition by the Delhi High Court. With this reasoning, the court held that Section 42 does not apply to execution petitions. Moreover, it stated that this execution petition also does not form a part of the subsequent applications as provided in Section 42. 

Moreover, in Vijay Gupta v. Renu Malhotra (2008) the Delhi High Court had remarkably stated that the venue restriction provision of Section 42 was not applicable to execution and enforcement petitions. Relying on this judgement, the Delhi High Court, in Ramacivil India Constructions Pvt Ltd v. Union of India (2022), again allowed the hearing of an enforcement application. 

This helps in dealing with the execution petitions of arbitral awards swiftly without much hassle. Moreover, in Sundaram Finance v. Abdul Samad (2017), the Supreme Court, after reflecting on various precedents, held that the application for execution petition of an arbitral award did not fall within part 1. The Supreme Court further held that the application for enforcement of an award can be filed anywhere in the country.  Hence, Section 42 does not apply in dealing with the execution petitions. 

Exceptions to Section 42 of Arbitration and Conciliation Act 

The idea behind introducing Section 42 is to limit the issues related to jurisdiction in arbitral proceedings. It gives a single court the power to deal with the issues in arbitration proceedings. Section 42 applies to any application made under Part 1 of the Act. However, Sections 8 and 11 are beyond the purview of Section 42. 

Referring parties to arbitration

Under Section 8 of the Act, judicial authorities refer parties to an arbitration to a specific court, if an application is made to that authority before the commencement of the arbitration proceedings, even in cases when a valid arbitration agreement does not exist. Since this Section confers the power on the judicial authority before the arbitral proceedings start, it limits the applicability of Section 42 in such cases. This makes it clear that when an application before any court is made, the parties cannot back down to arbitration later. 

Appointment of arbitrators

When an arbitral proceeding undergoes this, the power of Section 42 is limited. Moreover, as per Section 11 of the Act, any person irrespective of their nationality can be an arbitrator. Moreover, as per subsection 6 of Section 11, if the parties:

  • Fail to act in accordance with the procedure;
  • Parties and arbitrators fail to reach an agreement; and
  • The person or institution fails to perform their tasks as required

Then, they can file an application to the Supreme Court or High Court with jurisdiction for the appointment of arbitrators.  

To get a better understanding of this, let’s see the case of Indus Mobile Distribution Pvt. Ltd v. Datawind Innovations Pvt. Ltd. (2017), where the parties entered into an agreement with an arbitration clause which was invoked when disputes regarding payments arose between the parties. The place/seat of arbitration as per this clause was Mumbai, India. An interesting issue brought before the Supreme Court through this case, was about whether, when the seat of arbitration as per agreement was exclusively in Mumbai, it would oust all other jurisdictions including Delhi High Court or not. 

The order of the Delhi High Court was set aside by the Supreme Court. Moreover, the court emphasised the meaning of and the need for a neutral venue to be a place of arbitration for the parties. Hence, it was settled through the case, that, when more than one courts have jurisdiction, the parties can openly choose to exclude the others. Simply put, the moment a seat of arbitration is designated to the parties to an arbitration agreement, it is the same as invoking the jurisdiction clause. 

The Arbitration and Conciliation (Amendment) Act, 2015 inserted the terms “Supreme Court” and “High Court” replacing the Chief Justice of India and Chief Justice.

Hence, in the case of Rodemadan India Limited vs International Trade Expo Centre (2006) it was held that Section 11(6) did not include the Supreme Court within its purview. Hence, upholding that Section 42 would only apply if the court falls within the meaning of Section 2(1)(e). 

Moreover, in the Union of India Vs. S.R. Constructions Company and Another (2007) the courts held that just because a court has passed an order under Section 11(6) of the Act, would not confer on it the power of jurisdiction under Section 42, unless it also matches the financial jurisdictional cap. However, the ultimate decision was given in the case of State of West Bengal vs. Associated Contractors (2013) by the Supreme Court of India. 

Besides, after the 2015 amendment, the term Supreme Court was specifically introduced in these provisions. Hence, reliance was heavily placed on the Indus case thereafter. In the case of Dalim Kumar Chakraborty vs Smt. Gouri Biswas & Anr (2018) emphasis on the applicability of Section 42, in existence of the arbitration agreement, was given. Moreover, it was also held that Sections 8 and 11 are outside the ambit of Section 42, even after the amendment. 

Case laws on Section 42 of Arbitration and Conciliation Act, 1996

arbitration

As stated above, there are many different cases and differing interpretations of Section 42 of the Arbitration and Conciliation Act. Let’s see a few landmark case laws to understand Section 42. 

Gurumahima Heights cooperative housing society Ltd. v. Admirecon infrastructure pvt ltd (2023) 

Facts of the case 

In this case, the petitioner, a housing society, had entered into a business relationship for repairs and paint works with the respondent, contractor. They entered into an agreement, with an arbitration clause. With the passage of time, a dispute arose between the parties and the respondent filed an application under Section 9 for an interim order before the Principal District Court, Thane. The application was considered on merits and was dismissed. Consequently, the respondent moved to the High Court of Bombay and filed an application for appointment of arbitration under Section 11. After granting that application, the Bombay High Court appointed an arbitrator in Navi Mumbai. After the proceedings, in 2021, the solo arbitrator passed an order of award in favour of the respondent and asked the petitioner society to pay a certain amount with interest to the contractor. Aggrieved, the petitioner files an application to set aside the order of the sole arbitrator to the High Court of Bombay. 

Issues raised

The main issue raised in this case pertains to the jurisdiction. Specifically, deciding whether the High Court of  Bombay had jurisdiction or whether the Principal District Court, Thane had appropriate jurisdiction. 

Judgement of the case

After contemplating the various grounds, and arguments of the parties, the court made certain observations: 

  • It highlighted the lack of agreement between the parties in deciding the place of arbitration as they did not fulfil the criteria for place of arbitration as per Section 20(1) and Section 20(2). Hence, the court opined that there was a lack of agreement between the parties, due to a contradiction in terms of agreement;
  • The court contemplated the fact that out of a total of 24 arbitral hearings, 22 took place in Navi Mumbai and observed that as per Section 42, the first application under Section 9 by the respondent, was made to the Principal District Judge, Thane. 

Hence, in the end, the court partly allowed the appeal by asking the petitioner to make an application to the Court of Competent Jurisdiction, ie., the court of the Principal District Judge at Thane. Moreover, the High Court of Bombay did not have the jurisdiction to entertain this matter. 

State of West Bengal & Ors. v. Associated Contractors (2013)

Facts of the case

In this case, the petitioner and respondent were associated in a work of excavation, through a tender duly executed in 1995-96. The contract between these parties contained an arbitration clause. Consequently, when a dispute arose between the parties, associated contractors filed an application to the Supreme Court of India requesting interim orders. The order was passed in their favour, without hearing the other party (ex-parte). 

The execution of this order continued while an arbitrator was appointed to resolve the disputes. Later, an appeal re-confirming the interim order was stayed.  The arbitration proceedings ended in 2004 when a hefty amount was awarded to the claimant. The petitioner herein challenged this award to the learned district judge at Jalpaiguri, West Bengal. When the respondents were notified of this, they filed an application to the Hon’ble High Court Calcutta challenging their jurisdiction. This application was accepted by the Hon’ble High Court. 

Issues Raised

The three main issues raised in this case are as follows: 

  • Whether the High Court of Calcutta have jurisdiction to decide on this matter?
  • Whether SC falls within the ambit of “court” under Section 2(1)(e)?
  • Whether Section 42 would apply in cases where an application made in a court is found to be without jurisdiction?

Judgement of the case

While deciding on the first issue of whether the High Court of Calcutta has jurisdiction, the court stated that the meaning of court as per Section 2(1)(e) also included the original jurisdiction of a High Court. With this reasoning, the court concurred and held that nothing was proved to show that Calcutta High Court does not have the jurisdiction to entertain this case.  

Moreover, it stated that in no circumstances would the Supreme Court be a court within the meaning of Section 2(1)(e), the reasoning for this was on the ground that the first application was to be made in the High Court of original jurisdiction in that state, or the Principal Civil Court. 

Then, with reference to the final issue, the court held that Section 42 would apply to all applications as long as there was an arbitration agreement and that the application was made under Part 1 of the Act. However, since the application is supposed to be made in a court as per Section 2(1)(e), it was also held that an application filed without the subject matter, would not fall in the scope of Section 42.

Union Of India v. S.R. Construction Co. and Anr (2007)

Facts of the case

In this case, the petitioner had filed an application to set aside the arbitral award issued between the two parties in arbitral proceedings. The respondent had challenged the court’s jurisdiction to try the case of setting aside the order of arbitration on two grounds:

  • First ground: The arbitrator was appointed by the Additional District Judge. Hence, it was his jurisdiction to deal with this matter under Section 42. 
  • Second Ground: Based on the amount of award, the High Court shall not have jurisdiction either.

Issues of the case

Two main issues were discussed in this matter. Additionally, both were pertaining to clarification: 

  • First, to check the jurisdiction under Section 42 of the Arbitration and Conciliation Act
  • Second, to check the jurisdiction on the basis of the monetary value. 

Judgement

The Delhi High Court cleverly pointed out that when the arbitrator is appointed by the Chief Justice, it is not covered under the meaning of ‘court’ in Section 42 of the Act. Hence, in the present case, the order of appointment of the director was considered to be passed by a representative of the Chief Justice. Hence, invalidating the purview of Section 42. 

Moreover, with reference to the second issue, the court considered the amount of monetary value as the amount claimed before the arbitral proceedings. Which, in this case, was more than Rs. 20 Lakhs. Hence, giving the High Court of Delhi appropriate jurisdiction to decide on the application of setting aside of the arbitral award. 

However, you need to note that in this case, the scope of Section 42 was extended only if they were covered in Part I. The actual conflict in views arises when the issue of enforcement of arbitral proceedings comes along. 

Sunandram Finance v. Abdul Samad and anr (2018)

Facts of the case

In this case, the respondent had filed an application for a loan to the petitioner’s finance company. The loan was granted and the parties entered into a loan agreement in 2005. The other respondent was a guarantee under this agreement. Moreover, the loan had to be repaid in instalments by the end of January 2009. The first 19 instalments were paid properly. However, soon the appellant alleged that the respondent made defaults in payments from then on. This led to arbitration proceedings between these parties, in accordance with the clause of the loan agreement. 

A sole arbitrator was appointed in 2011. When the respondents failed to appear to the proceedings, or even respond to the notices, an ex parte arbitration award was passed. In this award, the claimant was awarded a decent sum with an annual interest of 18% till realisation. As a result, the petitioner would first have to go to the court of competent jurisdiction in Tamil Nadu. 

When the petitioner sought the execution of this order before a Trial Court, Madhya Pradesh it was held that there was a lack of jurisdiction. The court held that in order to initiate the execution petition in Morena, the petitioner would have to obtain the requisite transfer decree from a court with competent jurisdiction. Aggrieved by this order, the petitioners filed this  Special Leave Petition to the Supreme Court of India. 

Issues of the case

Whether or not a petition of enforcement of an arbitral award is required to be first filed in the courts having jurisdiction over the arbitral proceedings, and later obtaining a transfer decree or an application can directly be filed in the Court where assets are located. 

The conflicting views of the High Courts

The judgement itself states that the issue reached there because of the diverging views of the different High Courts.

The view of the Himachal Pradesh High Court in Jasvinder Kaur and Anr v. M/s Tata Motors Finance Ltd. (2013) and Madhya Pradesh High Court in Computer Sciences Corporation India Pvt. Ltd. v. Harishchandra Lodwal & Anr (2005) was that an order of transfer from the competent court was mandatory before the execution could take place. 

However, the Delhi High Court in Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd (as referred above) had held that the rule of jurisdiction under Section 42 did not extend till the issue of the execution of the order. More specifically, its view supported that the application for execution can be directly filed without waiting to apply for a transfer order to the court with jurisdiction under Section 42. 

Even a single judge bench of the  Kerala High Court in the case of Maharashtra Apex Corporation Limited v. V. Balaji G. & Anr (2011). had the view that the court could not insist on transfer orders in such cases. The certified copy of the arbitration award would suffice for accepting an application for enforcing that award. 

Moreover, the  Madras High Court in Kotak Mahindra Bank Ltd. v. Sivakama Sundari & Ors (2011). stated that the need for such an order from the competent court under Section 42  was a misconception. Whereas, the Allahabad High Court, Lucknow bench, in GE Money Financial Services Ltd. v. Mohd. Azaz & Anr (2013), considering the award of an arbitrator as a decree, held that the execution application could be made in the jurisdiction of residence, business or location of property of the debtor. Lastly, even the Punjab and Haryana High Court in Indusind Bank Ltd. v. Bhullar Transport Company (2012), and Karnataka High Court in Sri Chandrashekhar v. Tata Motor Finance Ltd. & Ors. (2014) opined the same.

Judgement

The Hon’ble Supreme Court held that the application for enforcement of an award can be filed anywhere in the country, as long as it can be executed there. This Act would not require a transfer order from the court having jurisdiction for arbitral proceedings under Section 42 of the Arbitration and Conciliation Act. Moreover, the Supreme Court also held that the jurisdiction of courts under Section 42 is over after the issuance of a final arbitral award by that court. 

Finance Company Limited v. Uma Earth Movers and Anr  (2024)

Facts of the case

This is a recent case brought before the High Court of Calcutta. The facts of this case are as follows.

The petitioner, finance company and respondent had entered into a loan agreement, with respect to a certain asset. When disputes arose between the parties, the finance company moved to the Calcutta High Court to appoint a receiver to obtain the asset back, and to pass an interim order to restrict the respondent from selling off the asset. 

However, the respondents take a stand over the maintainability of this petition on the following grounds:

  • That the application is barred according to Section 42;
  • That the application was also barred by the Order XXIII Rule 1 Civil Procedure Code, 1908 under withdrawals of suit or abandonment of a part of a claim; and
  • The application was not filed in the appropriate court that has jurisdiction with respect to the arbitration agreement. 

The respondents also argued that in the loan agreement, the exclusive jurisdiction was conferred on the city civil courts at Calcutta, especially considering that the first application for appointing the arbitrator was made there. Moreover, looking at the claimed amount, they also argue that the jurisdiction of the High Court is ousted. Lastly, they even argue that as per the clause of the arbitration agreement, the courts in Chennai should have exclusive jurisdiction. 

In reply to this, the petitioner opposes all these contentions, by stating that the Act is a complete code in itself, ie., it also provides provisions for how a proceeding will take place. Moreover, the petitioner also states that there’s a heavy reliance on Section 2(1)(e) of the Act, and only such courts are concerned, that fall within this meaning. Hence, as per them, when there’s a contradiction between two courts, the superior court is chosen. Moreover, they point out the lack of any financial or claim restriction in the Act. Hence, it confirms that the city civil court will not be the superior court to entertain this matter, even if it had pecuniary jurisdiction. 

Issues raised

Three main issues were dealt with in the case. These issues pertained to the following: 

  • Whether the High Court of Calcutta have jurisdiction to entertain the matter?
  • Whether application to Calcutta High Court was barred under Section 42 of the Arbitration and Conciliation Act and the Civil Procedure Code, 1908? And
  • Whether the Calcutta High Court have the power to deal with this application? 

Judgement

After careful consideration of all the facts and issues the High Court of Calcutta accepted the objections of the respondent and dismissed this petition. It emphasised on the following admitted facts: 

  • The arbitration agreement was entered into at Chennai;
  • Termination of the agreement took place at Chennai; and
  • The registered office of the petitioner was also in Chennai. 

The Calcutta High Court observed that the petitioner was trying to take advantage of the “or any other place as mutually agreed by parties” to get a decision in their favour. Hence, for the purpose of deciding the matter, both clauses of the arbitration agreement were read together by the court. 

While deciding the issue of the lack of jurisdiction of Calcutta High Court, the court emphasised the meaning of court as per section 2(1)(e) and stated that the definition preserves the hierarchy of courts by excluding certain courts. However, it also stated that the choice of the court was not limited by the pecuniary limit. It stated that Section 42 has a non-obstante clause in Part 1.
While deciding on the jurisdictional power in the context of the arbitration agreement, reading the two contradicting clauses together, the court held that it pointed towards Chennai being the relevant jurisdiction. Hence, they accepted all the preliminary objections of the respondents in this matter.

However, the core focus here is how the court again protected the scope of Section 42 and considered the bar on jurisdiction with respect to the arbitration agreement. 

Conclusion

The Arbitration and Conciliation Act of 1996, is enforced to reduce the burden of the courts. Moreover, Part 1 of this Act pertains to the place of arbitration in India. Further, to make it even easier for the parties to resolve their disputes, Section 42 confers exclusive jurisdiction to a single court. 

Today, with such high development of the Indian business economy, almost all business agreements and contracts have a clause of arbitration. To ensure that this clause of arbitration completes the objective that it’s supposed to meet, Section 42 of the Act factors in. Being a non-obstante clause, Section 42 gives the power of maintaining a single jurisdiction in the entire arbitral proceedings, irrespective of all other existing and enforceable laws in the country. 

Even with such a broad scope and clear purpose of Section 42 of the Act, there have still been many occasions of disputes regarding jurisdiction in matters of arbitration. In this blog, by using a wide variety of landmark and recent judgements, we have tried to cover the differing perspectives of the Indian Judiciary on this matter. However, it is notable that even with the differing views of the courts, based on the situations, the literal meaning of the Section or its validity has never been brought into question. 

The reason is, the fact that the provision has been specifically curated to avoid confusion and disputes in the arbitration proceedings happening within the territorial jurisdiction in India. Moreover, the main focus of this provision is to provide a single place of resolution for all applications and all the queries two parties may have with respect to their arbitration proceedings taking place validly under part I of the Act. 

Frequently Asked Questions (FAQs)  

What is included in Part I of the Arbitration Act?

The part I of the Arbitration and Conciliation Act consists of Sections 2 to 43. It mostly talks about domestic arbitration and helps in deciding the place of arbitration in India. Moreover, it also contains provisions for deciding the manner of appointment of arbitrators, arbitral proceedings, jurisdiction of the courts and more. 

What types of applications are included in Section 42 of the Arbitration Act?

Applications made to the courts, within part 1 of the Act are included in the scope of Section 42 of the Arbitration Act. This ranges from appointment to arbitrator to application for setting aside an order of the arbitration. 

Is an application for passing an interim order during the Arbitral proceedings covered by Section 42 Jurisdiction?

Yes, the applications for interim relief are also covered by the Section 42 jurisdiction. 

What is the applicability of Section 42 of the Arbitration and Conciliation Act?

Section 42 of the Arbitration Act applies when either of the parties to an arbitration agreement makes an application to the court for matters pertaining to part I of the Arbitration Act. 

References

  • https://www.scconline.com/blog/post/2023/12/20/bombay-high-court-clarifies-jurisdiction-in-view-of-Section42-arbitration-act-legal-news/ 
  • https://www.scconline.com/blog/post/2023/12/20/bombay-high-court-clarifies-jurisdiction-in-view-of-Section42-arbitration-act-legal-news/ 

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