Introduction
In an arbitration agreement, parties can agree on a ‘seat’ and ‘venue’. The ‘seat’ in arbitration law refers to the legal jurisdiction governing the arbitration proceedings, while the ‘venue’ denotes the physical location where the arbitration hearings take place. If the agreement does not specify a ‘seat’ but clearly states a ‘venue’, then that ‘venue’ is considered the ‘seat’ of arbitration.
On the other hand, ‘jurisdiction’ relates to the legal authority and power of the court to hear and decide specific types of cases based on the subject matter and the applicable laws. In the context of a Writ Court[i], jurisdiction determines whether the court has the legal authority to hear and decide the specific type of case brought before it, such as constitutional or administrative matters (to read more on writs, please click here).
Complications can arise when a contract designates a specific ‘seat’ while at the same time, another court has ‘jurisdiction’ under constitutional law. In Durgapur Freight Terminal Pvt. Ltd. & Anr. v. Union of India Ministry of Railways & Ors. (Durgapur Freight Case), the Delhi High Court was faced with a similar controversy – whether a Writ Court can exercise jurisdiction over a matter solely based on a seat / venue stipulated in the arbitration agreement, even if the said seat / venue does not have jurisdiction in the traditional sense.
Background
In the present case, initially, the license for operation and management of a privately owned and operated facility providing logistics services at Durgapur, West Bengal (Durgapur PFT) was granted to Palogix Infrastructure Pvt. Ltd. (Palogix) by the Railway Board, Kolkata under a License Agreement (License Agreement). Thereafter, in 2017, a Memorandum of Understanding (MoU) was entered between Palogix and Durgapur Freight Terminal Pvt. Ltd. (DFTPL) under which, the license for operation and management of Durgapur PFT was to be transferred to DFTPL. However, before the transfer could be completed, corporate insolvency resolution process was initiated against Palogix in NCLT, Kolkata Bench.
Eventually, a resolution plan was accepted by the Committee of Creditors of Palogix, which was approved by the NCLT, Kolkata Bench. This resolution plan recognised the agreement between Palogix and DFTPL regarding the transfer of the license to operate and manage Durgapur PFT. In line with the aforementioned agreement, DFTPL commenced operations at Durgapur PFT.
However, certain disputes arose between shareholders / directors of Palogix leading to complaints being lodged with Railway Board, Kolkata and Calcutta High Court. Given the disputes, the Railway Board, Kolkata issued a letter dated 09 December 2022 (Letter No. 1) to Palogix stating that its operations at Durgapur PFT will be kept at abeyance till the internal disputes are resolved. Essentially, the operations performed by DFTPL under the MoU were stopped. A copy of Letter No. 1 was also communicated to Railway Board, Delhi. An advisory letter dated 26 December 2022 to this extent (Letter No. 2) was issued to Railway Board, Kolkata by the Railway Board, Delhi.
Feeling aggrieved by Letter No. 1 and Letter No. 2, DFTPL filed a writ petition in the Delhi High Court seeking directions refraining the Railway Boards from interfering in the operation and management of Durgapur PFT. The writ petition was filed in the Delhi High Court as it was the case of DFTPL that: (i) the arbitration clause under the License Agreement prescribes the seat as Delhi and (ii) the cause of action arose in Delhi. The Railway Board, Kolkata challenged the maintainability of the writ petition on the grounds that the Delhi High Court does not have the territorial jurisdiction to entertain the same. It was contended by the Railway Board, Kolkata that Delhi was merely a ‘seat’ or choice of parties, and the same cannot confer statutory jurisdiction over Delhi High Court.
Delhi High Court’s view
The Delhi High Court held that the prescribed seat of arbitration in the License Agreement, even if it was Delhi, does not affect the statutory jurisdiction of a Writ Court. Jurisdiction clauses i.e., seat / venue clauses in a contract merely determine the jurisdiction for resolving contractual disputes arising from that specific contract. However, when it comes to invoking the extraordinary writ jurisdiction of a constitutional court, the jurisdiction clause in the contract cannot be considered as a guiding factor. The determination of extraordinary writ jurisdiction is based on norms established under constitutional law. Therefore, in the present case, the seat of arbitration specified in the License Agreement cannot be used as a basis to invoke the extraordinary writ jurisdiction of the Delhi High Court; instead, it depends on the merits of the case.
Even on the merits of the case, the Delhi High Court found that its jurisdiction was misplaced. Citing precedents, the Delhi High Court explained that under Article 226 of the Indian Constitution, a High Court has territorial jurisdiction in two situations: (i) jurisdiction based on the situs (location) and (ii) jurisdiction based on the cause of action. While DFTPL had approached the Delhi High Court under both categories, the Delhi High Court noted that it should be satisfied, based on the pleaded facts, that the cause of action, either wholly or in part, arises within its jurisdiction, which was not the case in the present matter.
At this point, drawing on precedents, the Delhi High Court emphasised that even if the cause of action is deemed to have arisen in Delhi, the doctrine of forum conveniens[ii] cannot be disregarded. In the Court’s view, the mere existence of some evidence suggesting that the cause of action potentially arises within a court’s jurisdiction should not lead the court to accept jurisdiction without considering the forum conveniens. The doctrine of forum conveniens refers to the most appropriate court or forum for the parties involved in the dispute. In light of this, the Delhi High Court noted that in the present case, proceedings are already pending between the parties before the NCLT, Kolkata Bench and the High Court at Kolkata, wherein similar issues, grounds and prayers have been raised / sought. Therefore, the Delhi High Court cannot be said to be the forum conveniens merely because Letter No. 2 was issued from Delhi.
Our thoughts
The judgment of the Delhi High Court in Durgapur Freight Case serves as a reminder that seat / venue agreed upon by parties in an arbitration agreement does not supersede the statutory jurisdiction of another court. The extraordinary jurisdiction of a Writ Court is derived from the constitutional provisions and is subject to specific criteria outlined in legal precedents laid down by Indian Courts. Hence, even if the parties reach an agreement on jurisdiction, the statutory jurisdiction of a Writ Court prevails over such an agreement.
Indian Courts have consistently held that parties cannot confer jurisdiction on a court that lacks it. This means that unless a court has jurisdiction as per the law, parties cannot unilaterally grant jurisdiction to such a court. While it is common for multiple courts to have jurisdiction over a particular matter, parties can choose one jurisdiction to the exclusion of others. However, they cannot assign jurisdiction to a court that is violative of the law itself.
The Delhi High Court in Durgapur Freight Case decision reinforces this understanding. Although the case specifically addresses the distinction between writ jurisdiction of a court and contractually agreed jurisdiction, the underlying principle remains the same: a court lacking jurisdiction as prescribed by law cannot be granted jurisdiction through a contractual agreement. Therefore, when drafting arbitration clauses, it is crucial for parties to be aware that the agreed-upon jurisdiction only applies to disputes arising from the contract and does not extend beyond its scope.
By highlighting the significance of statutory jurisdiction and the limitations on conferring jurisdiction through agreements, the Delhi High Court’s decision clarifies the boundaries within which the courts operate. It reaffirms that the jurisdiction of a court is a legal construct and cannot be unilaterally altered by the parties involved.
Authors: Renjith Nair, Altamash Qureshi and Richa Phulwani
The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident, or any other cause.
[i] In the context of Indian laws, a writ is a legal remedy that can be sought from the higher courts to protect fundamental rights or challenge the actions of government authorities. It is a written order issued by the court commanding a public official or body to act in a particular way or refrain from taking certain actions.
[ii] Forum conveniens refers to the determination of the most appropriate court or jurisdiction for the resolution of a legal dispute based on factors such as convenience, fairness, and practicality.