Ge Countrywide Consumer Financial Services Limited Vs. Surjit Singh Bhatia and Jaspal Kaur - Court Judgment

Badar Durrez Ahmed, J.

1. Although this petition is styled as a petition under Section 11(5) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the said Act'), in fact, it is an application under Section 11(6) thereof. This petition has come to this Court by way of transfer consequent upon the decision of the Supreme Court in the case of S.B.P. & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 : 2005(3) A. LR 285 . Initially when this matter had come up before the district court, notice of the petition had been issued to the respondents on 05.10.2005. In the order sheet of 23.11.2005, which was the returnable date, it is recorded that the respondents had refused the process and were thus found to have been served. By said order dated 23.11.2005, the respondent nos. 1 and 2 were, thereforee, proceeded with ex parte. This petition was continuing before the district court up to 02.03.2006 when the same was transferred to this Court as indicated above.

2. Despite the fact that the respondent nos. 1 and 2 have already been directed to be proceeded with ex parte, I find that there is a difficulty with regard to entertaining this petition on the ground of lack of territorial jurisdiction. To consider this aspect of the matter, it would be necessary to examine the facts of the case in brief.

3. The petitioner's case is that the petitioner company is engaged, inter alia, in the business of providing financial/credit facilities, in the form of auto loans, personal loans, home equity loans, etc. to its borrowers. It is stated by the petitioner that the respondents approached the petitioner company seeking the grant of a loan against their immovable property. It is important to note that the respondents are both residents of B-10, Sohan Avenue, Newar Vastrapur Fountain, Vastrapur, Ahmedabad, Gujarat - 380 015. The respondents approached the petitioner company in Gujarat itself and in pursuance of a loan application, a loan of Rs. 3,75,000 was sanctioned. The loan agreement between the petitioner and the respondents was entered into at Ahmedabad. The disbursements under the loan were also made to the respondents at Ahmedabad. The loan amount was supposed to be repaid by way of cheques, which, the respondents are said to have issued in favor of the petitioner. Some of those cheques on presentation at Ahmedabad, were returned dishonoured by the petitioner's bankers at Ahmedabad. Considering all these factors, it becomes clear that apart from the fact that the petitioner has its registered office in Delhi, nothing has happened with regard to the contractual relationship between the petitioner and the respondents within the territory of Delhi. The entire cause of action has accrued to the petitioner in Ahmedabad, Gujarat. No part of the cause of action has arisen in Delhi. The respondents also do not reside in Delhi. They are residents of Ahmedabad, Gujarat. thereforee, considering the provisions of Section 20 of the Code of Civil Procedure, 1908, this Court would not have jurisdiction to entertain the present petition.

4. The learned Counsel for the petitioner submitted that the petition under Section 11(6) for appointment of an arbitrator was filed in the court in Delhi because the agreed place of arbitration was Delhi as indicated by Clause 18 of the schedule attached to the loan agreement between the petitioner and the respondents. In terms of Section 20 of the said Act, the parties are free to agree on the place of arbitration. Since the parties have agreed on Delhi, as the place of arbitration, this Court would have jurisdiction to entertain the petition under Section 11(6) for appointment of an arbitrator. In other words, what the learned Counsel for the petitioner is submitting is that the agreed venue of arbitration would confer the jurisdiction on the court for the purposes of an application under Section 11(6) of the said Act.

5. To examine this proposition advanced by the learned Counsel for the petitioner, it would be necessary to consider the provisions of Sections 11(6) and 11(12)(b) as well as Section 2(1)(e) of the said Act. These provisions are set out hereinbelow:

11(6) Where, under an appointment procedure agreed upon by the parties,--

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

11(12)(b) Where the matters referred to in Sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to 'Chief Justice' in those sub-sections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal civil court referred to in Clause (e) of Sub-section (1) of Section 2 is situate and, where the High Court itself is the court referred to in that clause, to the Chief Justice of that High Court.

2(1)(e) 'Court' means the principal civil court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal civil court, or any court of small causes;

Reading the aforesaid provisions, it becomes clear that when a party to an arbitration clause fails to act as required under the agreed procedure for appointment of an arbitrator then the other party may request the 'Chief Justice' or any person or institution designated by him to take the necessary measure for appointment of an arbitrator. The expression 'Chief Justice' appearing in Section 11(6) has been explained in Section 11(12)(b) as a referring to the Chief Justice of the High Court within whose local limits the principal civil court referred to in Clause (e) of Sub-section (1) of Section 2 is situate and, where the High Court itself is the court referred to in that clause, the Chief Justice of that High Court. Section 2(1)(e) provides that the 'court' means the principal civil court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of the suit, but does not include any civil court of a grade inferior to such principal civil court, or any court of small causes.

6. The question as to whether situs of arbitration confers jurisdiction on the court was considered by a learned Single Judge of this Court on the case of Sushil Ansal v. Union of India AIR 1980 Del 43. In Sushil Ansal it was clearly held that the situs of arbitration did not confer jurisdiction in the courts and that while considering the question of territorial jurisdiction, it is vital to consider the competency of the court for deciding the subject-matter of the dispute had a suit been filed instead of invocation of arbitration. In Sushil Ansal the court, after examining the provisions of Sections 41, 31 and 2(c) of the Arbitration Act, 1940 held that:

Thus one has to ascertain what are the questions forming the subject-matter of the reference to arbitration which resulted in the award. Suppose those questions arise in a suit then find out which would be the competent court to decide such suit. The court competent to decide such questions in the suit would be the court having jurisdiction to decide the present petition under the Arbitration Act for making the award a rule of the court.

This decision makes it clear that one has to first ascertain at the subject-matter which is sought to be referred to arbitration. Then, taking that subject-matter, it has to be presumed that there is no arbitration clause. And, upon such presumption, it is then to be seen as to where a suit could be filed with regard to the subject-matter. If the suit could be filed at a place where the parties had agreed to hold the arbitration proceedings then, obviously, the courts at such place would have jurisdiction. But, if the suit cannot be filed at a place where the parties had agreed to hold the arbitration proceedings then the courts at such a place would not have jurisdiction. If this was not the case, then any application under the Act would be maintainable at a place where the parties had agreed to hold the arbitration proceedings, even though no part of the cause of action arose at that place.

7. The decision in the case of Sushil Ansal was followed by another learned Single Judge (Justice B.N. Kirpal as he then was) of this Court in the case of Gulati Construction Company, Jhansi v. Betwa River Board and Anr. AIR 1984 Del 299, wherein he observed as under: . Merely because the arbitrator chooses to hold the proceedings in a place, where admittedly no suit could be instituted, and chooses to make and publish an award at that place it would not give the courts of that place territorial jurisdiction to decide the matters arising under the Arbitration Act.

I also had occasion to deal with a similar contention raised in the case of Apparel Export Promotion Council v. Prabhati Patni, Proprietor Comfort Furnishers and Anr. : 125(2005)DLT511 . In Apparel Export Promotion Council one of the contentions raised by the parties was that the appropriate court would be the court within whose territorial limits, the arbitration proceedings were conducted and the award was made. Repelling these arguments and following the earlier decisions in the cases of Sushil Ansal and Gulati Construction Company it was concluded in Apparel Export Promotion Council as under (para 20 of Arb. LR):

Although the decisions in Sushil Ansal, AIR 1980 Delhi 43 and Gulati Construction, : AIR1984Delhi299 , were under the Arbitration Act, 1940, the position would not be different under the Arbitration and Conciliation Act, 1996 because the definition of 'court' in Section 2(1)(e) of the new Act is not materially different from the definition given in Section 2(c) of the old Act. Here too, 'court' would mean that the court having 'jurisdiction to decide the questions forming subject-matter of the arbitration if the same had been the subject-matter of a suit'. Reading this definition of 'court' in Section 2(1)(e) of the 1996 Act into Section 34 thereof would obviously mean that expression 'recourse to a court against an arbitral award' appearing in the said Section 34 would have reference to a court having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit. thereforee, to determine the jurisdiction of a court for the purposes of Section 34, one has to look at the subject-matter of the arbitration and not at the situs of arbitration because that is wholly irrelevant. The situs of arbitration or the fact that the award was made at a particular place, would not be relevant for conferring jurisdiction. It is only the subject-matter of the arbitration construed in a manner as if the arbitration proceeding was a suit that would be determinative of a court having jurisdiction to entertain and hear a petition under Section 34 of the Arbitration and Conciliation Act, 1996.

(underlining added)

8. While in Apparel Export Promotion Council the word 'court' was considered in the context of Section 34 of the said Act, that would have equal application to the present case. This is because in the present case also the meaning of the word 'court' as appearing in Section 11(12)(b) is up for consideration. The word 'court' has been ascribed a specific meaning by the said Act as indicated by Section 2(1)(e) thereof and has the same meaning whether it appears in Section 34 or Section 11(12)(b) read with Section 11(6). thereforee, I find that the present case is entirely covered by the ratio of the decision in the case of Apparel Export Promotion Council and this Court would not have territorial jurisdiction to entertain this petition under Section 11(6) of the said Act. Accordingly, this petition is dismissed for want of territorial jurisdiction.

9. However, liberty is granted to the petitioner to file an application under Section 11(6) for appointment of the arbitrator before an appropriate court in accordance with law.