Does Parties’ Subsequent Conduct Affect an Exclusive Jurisdiction Clause?

*Abhay Raj & Ajay Raj


Keywords: Section 9, Section 11, Section 4


Party autonomy is an intrinsic facet of arbitration that enables parties to opt for the seat of arbitration.[1] Resultantly, the courts at the seat have exclusive supervisory jurisdiction over the dispute. This is evident from the Supreme Court’s decision in Indus Mobile Distribution Pvt. Ltd. v. Datawind Innovations Pvt. Ltd. and Ors., wherein it was observed that parties’ designation of a seat of arbitration is akin to agreeing upon an exclusive jurisdiction clause. Herein, the term ‘exclusive’ signifies that one or more parties are obliged to only resort to the stated jurisdiction for disputes falling within the agreement.


Despite including an express clause on exclusive jurisdiction/seat of arbitration, at times, parties tend to deviate from the selected jurisdiction and initiate proceedings before a different court altogether. As such, a deviation can occur when the party, for a Section 9 application or for challenging an award obtained, initiates the said proceedings in a court which is different from the one mentioned in the exclusive jurisdiction clause. Prima facie, this is untenable owing to the inclusion of an exclusive jurisdiction clause, which as the word suggests, ousts the jurisdiction of all other courts. In other words, a party should ideally not, per that party’s whims, opt for a jurisdiction where they believe that the adjudication would be convenient. For the purpose of analysing the said scenario, the following legal issues ought to be assessed:


i. Whether the parties’ failure to assert an exclusive jurisdiction clause amounts to a waiver of the clause and acceptance of that court’s jurisdiction; and


ii. Whether making an application under Section 9 of the Arbitration and Conciliation Act 1996 (“Arbitration Act”) before court A would bar the jurisdiction of any or all other courts to entertain a Section 11 application arising out of the same arbitration agreement.


In this post, the author attempts to address both these issues. In order to do so, this piece first analyses how exclusive jurisdiction clauses have been perceived by the Indian courts over time, and assuming that a party initiates proceedings by ousting the exclusive jurisdiction clause and no objection is raised by the other party, whether that clause is waived off by the other party. The answer to it is ‘yes’. Thereafter, the authors specifically assess the jurisprudence vis-à-vis Section 9 and Section 11 of the Arbitration Act in order to identify whether these two applications—one pertaining to interim relief and the other to the appointment of arbitrator—in two different courts, disregard the exclusive jurisdiction clause. As will be demonstrated, the answer is not clear and warrants further scrutiny. To strengthen the regime, the authors propose certain amendments, thereby concluding the piece.


Exclusive jurisdiction clause and objection to another court’s jurisdiction


Section 4 of the Arbitration Act expressly provides that if a party is aware that the arbitration agreement has not been complied with and yet, it does not object to such non-compliance without undue delay, such would be deemed to have waived its right to object to such non-compliance. The effect of a party’s failure to object to a seat or venue of arbitration was discussed in the decision of Quippo Construction Equipment v. Janardhan Nirman, wherein the Court held that if an objection is not raised during the arbitral proceedings, a subsequent objection would be barred.


Based on Section 4, the Delhi High Court observed in AAA Landmark Pvt. Ltd. v. AKME Projects Ltd.& Ors., that where the parties agree to not insist upon the exclusive jurisdiction clause in an agreement or raise such objection, it amounts to waiver by the conduct of such condition. Thus, if the parties to an arbitration agreement neglect the exclusive jurisdiction clause contained therein by not objecting to the jurisdiction of another court, the parties will be deemed to have waived their right to object.


Separately, pursuant to Section 21 of the Code of Civil Procedure 1908 (“CPC”), no objection in respect of the “place of suing” can be allowed unless it was taken in the court of the first instance. This settles that a party may waive objections to the jurisdiction of a court by conduct. Taking a cue from this principle, the Supreme Court in Harshad Chiman Lal Modi v. DLF Universal Ltd., laid down that lack of territorial jurisdiction is a mere irregularity which may be remedied by the parties by a waiver of any objections thereto, but the lack of subject matter jurisdiction would ipso facto make the proceedings a nullity.


In Seth Hiralal Patni v. Sri Kali Nath,[2] the petitioner had filed a suit in the Bombay High Court for recovery of certain monies. The dispute was referred to arbitration. In execution proceedings, the respondent contended that the Bombay High Court had no jurisdiction as the cause of action did not arise in Mumbai. The court held that the respondent’s failure to object to the Bombay High Court’s jurisdiction amounted to its waiver of any right to objection at a later stage. Therefore, it is amply clear, that apart from subject matter jurisdiction, an objection to the territorial jurisdiction of the court, can be made only before the court of the first instance.


Very recently, the United Arab Emirates (UAE) also enacted the ‘UAE Arbitration Law’ based on the Model Law. Under Article 25 of the UAE Arbitration Law, it has been provided that “a party’s failure to make objections to jurisdiction within the prescribed date is evidence of the party’s consent to the counterparty’s actions.” Thus, taking a cue from the UAE in addition, the author submits that an objection to the jurisdiction of the court can be only made before the court of the first instance and otherwise, the parties would be deemed to have waived their right to object. Thus, while exclusive jurisdiction is regarded as paramount and ought to be necessarily adhered to by parties, the conduct of acquiescence from either party’s end would deem to effectuate a waiver of the said exclusive jurisdiction clause.


The conundrum surrounding Section 9 vs Section 11


It is conspicuous that parties are vested with the competence to opt for an exclusive jurisdiction clause, which is regarded paramount while deciding jurisdiction. This brings us to analyse whether it is imperative to initiate proceedings/ relief under Section 9 and Section 11 of the Arbitration Act in the same ‘court’ as similar to the exclusive jurisdiction clause and whether that clause or for that matter any other court in case the exclusive jurisdiction clause has been waived, requires parties to file the applications in the same court. In AAA Landmark Pvt. Ltd. v. AKME Projects Ltd.& Ors., a similar question arose where the court held that only the authority which has been conferred the exclusive jurisdiction would have the jurisdiction to entertain an application under Section 11 of the Arbitration Act. This would not be barred by an application under Section 9 of the Arbitration Act in another court. However, still, a question has been raised about whether a Section 11 application is one preferred before a “court”.


Ex-facie, the designation of ‘seat’ is analogous to an exclusive jurisdiction clause and ousts the jurisdiction of all other courts. However, interestingly, in the case of Brahmani River Pellets Ltd. v. Kamachi Industries Ltd., the court has held that only the court exercising jurisdiction over the ‘venue’ of arbitration can appoint an arbitrator under Section 11(6) of the Arbitration Act. Thus, it can be construed that notwithstanding Section 20 of the CPC, the parties’ consent to decide on a place of arbitration would oust the jurisdiction of all other courts.


For understanding whether the position adopted is in conformation to the arbitration jurisprudence in India, it is imperative to analyse it in light of the statutory provisions. Section 42 of the Arbitration Act expressly provides that where an application has been made under Part I of the Arbitration Act in any court, only that court would have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings. The provision is preceded by a non-obstante clause that gives priority to the section over other provisions of Part I and any other laws in force.


“Court” is defined under Section 2(1)(e) of the Arbitration Act to mean “a civil court of original jurisdiction in a district or a High Court having ordinary original civil jurisdiction to decide the questions forming the subject-matter of the suit” in case of domestic arbitration. Under Section 11, an application is to be preferred before the Chief Justice of the court. As per a literal interpretation of this, an application under Section 11 would not fall within the purview of Section 42. This approach was followed in State of West Bengal v. Associate Contractor, where the court held “Section 42 would not apply to applications made before the Chief Justice or his delegate for the simple reason that the Chief Justice or his delegate is not “court” as defined by Section 2(1)(e).” The same view was taken in Pandey & Co. Builders (P) Ltd. v. State of Bihar & Another.


The 176th and 238th Law Commission Reports suggested a change in this approach and the section was amended in 2015 to replace “Chief Justice” with “the Supreme Court” or the “High Court” or the “institution designated by such court”. Thus, an application under Section 11 would also have been an application to the court.


However, the section was further amended by the Arbitration and Conciliation (Amendment) Act, 2019 to provide that the appointment would be made by the arbitral institution designated by the Supreme Court in case of international commercial arbitration or by the High Court in case of other arbitrations. This further raises concerns as an institution appointed by the court is not a court. Section 11(6B) of the Arbitration Act expressly provides that the designation of any institution by the court shall not be regarded as a delegation of judicial power. Hence, now if an application for appointment of arbitrators is made under Section 11, it should not attract Section 42.


A conjoint reading of these provisions and precedents provide that a Section 9 application before court A would not require a Section 11 application to be in the same court. It is noteworthy that the stated position seems to have been affected by the Brahmani Pellets case. But, at the same time, it is also imperative to note that in Brahmani Pellets case, the Supreme Court did not determine the ‘seat’ of the arbitration and placed reliance only on the ‘venue’ of the arbitration. Moreover, it failed to appreciate the precedents such as Indus v. Datawind. This is, thus, an aspect that certainly needs to be considered in the context of the issue at hand as Section 11 is not essentially in coincidence with Section 42 of the Act, whereas the Section 9 is.


Concluding remarks


In view of the aforesaid analysis, it can be deduced that an exclusive jurisdiction clause ousts the jurisdiction of all other courts. However, in case the parties seek to assert an exclusive jurisdiction clause, such assertion must be made in a timely manner. As seen, Indian courts are unlikely to allow parties to raise a challenge based on jurisdiction if they fail to object at the first instance. An exclusive jurisdiction clause cannot, therefore, be used as a tool for disruption and delay if it is not asserted at the earliest by the objecting party. Such an approach would help in achieving the speedy resolution of the dispute and would further assist in escalating the ethical obligation on the parties, i.e., to always act in good faith. Moreover, the jurisprudence post the Section 11 amendment, in particular, seems to be blemished. In order to strengthen the regime, the author recommends the following-


Firstly, taking the cue from UAE, Section 4 of the Arbitration Act should be amended to specifically include within its ambit automatic waiver of objection to the jurisdiction of a court where such objection is not taken without undue delay.


Secondly, ex facie, Section 42 of the Act does not include the amended Section 11 of the Arbitration Act. However, in the context of future amendments to the Arbitration Act, an attempt must be made to determine if Section 42 of the Arbitration Act needs to be amended to include Section 11 applications within its ambit and restrict the scope of forum shopping.

*Abhay Raj is a 3rd Year Student of Jindal Global Law School (a constituent of O.P. Jindal Global University) and Ajay Raj is a 4th Year Student of Symbiosis Law School, Pune, India. [1] Robert Merkin and Louis Flannery, Arbitration Act 1996 (5th edn, Informa Law from Routledge 2014) 234 [2] Seth Harilal Patni v Sri Kali Nath [1961] 1962 SCR (2) 747

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