Monday, December 15, 2008

ARBITRAL PROCEEDINGS AND THE JURISDICTION OF COURTS

The case of Vijay Kumar Gupta v. Renu Malhotra, recently decided by the Delhi High Court, deals with the important issue of the definition of the word “Court” in the Arbitration and Conciliation Act, as well as the pecuniary jurisdiction of the High Court.

In 1998, the decree-holder filed a petition before the Delhi High Court for appointment of an arbitrator under Section 11 of the Arbitration Act. The petition was valued at Rs. 5 lakh, which was within the pecuniary jurisdiction of the High Court. While the arbitration proceedings were pending, the judgment debtor filed two petitions before the Court under Sections 27 and 37(2)(b) of the Act. During the pendency of the petition under Section 37(2)(b) the arbitrator passed an award in favour of the decree holder. The judgment debtor assailed this award under Section 34 of the Act, in the Delhi High Court. The question was whether the High Court had jurisdiction over the matter.

The relevant provision is Section 42 of the Arbitration and Conciliation Act. Section 42 of the Act provides for jurisdiction of Court to deal with arbitral proceedings. It states that only the Court to which an application has been previously made with respect to an arbitration agreement, will have jurisdiction over subsequent matters arising from the arbitration agreement and arbitral proceedings. The issue raised in the instant case was whether the appointment of the Arbitrator by the Delhi High Court clothed the High Court with the jurisdiction to deal with the execution proceedings following the arbitral award.

The decree-holder contended that since the High Court had appointed the arbitrator, it is vested with the jurisdiction to deal with subsequent matters by virtue of Section 42 of the Act. The judgment debtor raised the contention that the mere appointment of the arbitrator under Section 11, Arbitration & Conciliation Act, 1996 should not endow the Delhi High Court with the jurisdiction to deal with the execution petition. Relying on precedents, the judgment debtor contended that the execution petition can only be entertained by the Civil Court and not the High Court.

In this light, it is pertinent to cast a look at Section 2 (e) of the Arbitration Act. It states that for the purposes of the Arbitration Act, the word “Court” includes the principal Civil Court of original jurisdiction and the High Court in exercise of its original jurisdiction. The only precondition is that the Courts should have been of competent jurisdiction to deal with the subject-matter of the arbitration if the same would have arisen in a suit.

In the instant case, the decree-holder contended that the word “Court” under Section 2(e) of the Act refers to High Court. Rejecting this submission, the Court remarked that as has been well-established through precedents, ‘Chief Justice’ under Section 11 of the Act is not equivalent to “Court” under Section 2(e) of the Act. Therefore, the mere appointment of the Arbitrator does not vest the Delhi High Court with the jurisdiction to deal with execution proceedings. The Delhi High Court asserted that the meaning of the term “Court” under Section 42 must be read in conformity with Section 2(e).

It was also contended that by filing an application under Section 34 for setting aside the award, the judgment debtor had acquiesced to the jurisdiction of the Delhi High Court, and was therefore now barred from making a challenge about the same. However, the Court rejected this contention, and noted that acquiescence could not confer jurisdiction where none had existed.

In the instant case, the Court found that the Court lacked jurisdiction because of the pecuniary limits that had been placed upon it by a 1996 amendment to the Delhi High Court Act, which enhanced the ordinary civil jurisdiction of the Court from five lakhs to twenty lakhs. As no action on the part of the judgment debtor could confer jurisdiction upon the Court where it was clearly lacking, the Court held that it lacked the pecuniary jurisdiction to entertain the present execution petition. This judgment is especially relevant for clarifying doubts as to the jurisdiction of the High Court over execution matters, and also settles a controversial debate about the correct construction of Sections 11 and 42 of the Arbitration Act.

Gautam Bhatia & Venugopal Mahapatra

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