Supreme Court Discusses Jurisdictional Aspect In Section 11(6) Applications

The Supreme Court, on July 22, set aside an order of the Orissa High Court appointing sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act 1996 (hereinafter referred to as the Act). A bench of Justices MR Shah and BV Nagarathna delivered the verdict and affirmed the effect and applicability of Section 42 of the Act.

ISSUE

A dispute arose between the appellant and the respondent with respect to the contract/agreement dated 29.11.2018. The respondent (original claimant) initiated proceedings under Section 9 of the Arbitration Act before the Additional District Judge in Visakhapatnam wherein interim   injunction against the encashment of performance bank guarantee and forfeiture of security deposit was sought. The application was eventually allowed on 06.11.2019 and the order restrained the appellants from forfeiting security deposit for period of six months except on the special circumstances. 

Thereafter, the respondent requested the appellant to constitute an Arbitral Tribunal raising five claims. As per the terms of the Arbitration Agreement, arbitration proceedings were initiated by the appellants by appointing an arbitrator to adjudicate the dispute between the parties. Subsequently, the Arbitrator issued notices and called upon the parties to submit their respective claims. Instead of submitting the claim, vide letter dated 01.09.2020 the respondent questioned the validity of arbitral tribunal.

The respondent filed an Arbitration Petition before the High Court of Orissa under Section 11(6) of the Act seeking appointment of an Arbitrator. The said application was opposed by the appellants having relied upon Section 42 of the Arbitration Act. It was the case on behalf of the appellants that in view of Section 42 of the Arbitration Act, the application under Section 11(6) of the Act shall lie before the High Court of Andhra Pradesh at Amaravati as the respondent itself earlier filed Section 9 application before the Court at Vishakhapatnam.

Section 42 of the Act, states that, "Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that, agreement and the arbitral proceeding shall be made in that Court and in no other Court.” 

Without addressing the jurisdictional issue, the Orissa High Court appointed the Arbitrator and observed that since the appellant did not not oppose the appointment of an Arbitrator, there was little purpose served in relegating the respondent to the appropriate High Court as that will only delay the adjudication of the disputes.

The question, therefore, before the apex court was, considering Section 42 of the Act, that, whether Orissa High Court had the jurisdiction to entertain an application under Section 11(6) of the Act when a Section 9 application was filed before the Andhra Pradesh High Court by the same applicant on an earlier occasion. 

OBSERVATIONS & DECISION

While setting aside the order of the Orissa High Court, the bench observed, "In that view of the matter considering Section 42 of the Arbitration Act, the High Court of Andhra Pradesh at Hyderabad alone would have jurisdiction to decide the subsequent applications arising out of the Contract Agreement and the further arbitral proceedings shall have to be made in the High court of Andhra Pradesh at Amaravati alone and in no other court." Noting that the High Court of Orissa at Cuttack had committed a serious error by having entertained the application under Section 11(6) of the Act before it and appointing the sole arbitrator, the apex court set aside the impugned order.