July 14 2009
The Delhi High Court recently issued a landmark decision in Max India Ltd v General Binding Corporation (OMP NO 136/2009) on whether Indian courts have jurisdiction to entertain and grant interim relief in petition under Section 9 of the Arbitration and Conciliation Act 1996 in cases where the agreement between the parties provides that the law governing the contract, the court's jurisdiction and the place of arbitration are all outside India.(1)
The High Court held that the parties had specifically excluded the Indian courts' jurisdiction and agreed to exclude the application of Part I of the Arbitration and Conciliation Act by including a dispute resolution clause in their agreement which provided that:
In view of this, the petition under Section 9 of the Arbitration and Conciliation Act was held not to be maintainable and liable to be dismissed.
Max India Ltd filed a petition under Section 9 of the Arbitration and Conciliation Act which sought to restrain General Binding Corporation (GBC) from implementing the terms of an agreement that it had entered into directly or through its holding company with Cosmo Films regarding the sale of its commercial prints finishing business.
The governing law and dispute resolution clause in the agreement between the parties read as follows:
"19. Governing Law and Dispute Resolution
19.1 This Agreement shall be governed and construed in accordance with the laws of Singapore and subject to Article 19.2, the courts of Singapore shall have jurisdiction to settle any disputes that may arise out of or in connection with this Agreement.
19.2 Any dispute between the Parties arising out of or in connection with this Agreement shall be referred to and finally resolved by arbitration under the Singapore International Arbitration Center Rules (SIAC Rules) as in force at the time of the dispute, which SIAC Rules shall be deemed to be a part of this Agreement by reference. The arbitration shall be conducted before one (1) arbitrator mutually appointed by the Parties, failing which Max India shall be entitled to appoint one (1) arbitrator and GBC shall be entitled to appoint one (1) arbitrator and the two (2) arbitrators so appointed shall jointly appoint a third arbitrator who shall preside as the chairman. Such arbitrations shall be conducted in the English language. The venue of the arbitration shall be Singapore."
In view of this clause, GBC filed an application challenging the Indian courts' jurisdiction to entertain the petition under Section 9 of the Arbitration and Conciliation Act.
While accepting GBC's plea, the High Court distinguished between the Supreme Court judgments relied upon by Max India in Laxman Prasad(2) and Venture Global(3) for invoking the Indian courts' jurisdiction. The High Court considered and clarified the Supreme Court decision in Bhatia International,(4) wherein it had been held that Part 1 of the Arbitration and Conciliation Act would apply to all arbitrations, including international commercial arbitrations held outside India, unless the parties by express or implied agreement excluded all or any of its provisions.
The High Court observed that it was clear that the parties knew at the time of entering into the agreement that the Indian courts' jurisdiction and the application of Part I of the Arbitration and Conciliation Act were excluded, since the specific clause of the contract as entered into between the parties provided that:
The High Court relied on the Supreme Court decision in ABC Laminart(5) when ruling that where parties to a contract agree to submit any dispute arising from the contract to a particular jurisdiction, it is unnecessary to use such words as 'alone', 'only' and 'exclusive'. When parties agree to specify the jurisdiction of one court, this implies the exclusion of other courts.
The High Court held that since the parties had specifically agreed that in the event of disputes between the parties, the Singapore courts would have jurisdiction, the contract would be governed in terms of Singapore law and the arbitration would take place in Singapore, the parties had specifically excluded the Indian courts' jurisdiction and had also agreed to exclude the application of Part I of the Arbitration and Conciliation Act.
The High Court concluded that Max India's petition under Section 9 of the Arbitration and Conciliation Act was not maintainable and liable to be dismissed.
This decision clarifies the law laid down by the Supreme Court in Bhatia International with regard to the Indian courts' jurisdiction to grant interim relief in international commercial arbitrations. Where parties have chosen all four elements (ie, the law governing the contract, the rules governing the arbitration, the court's jurisdiction and the place of arbitration) to be outside India, this amounts to specific exclusion of the Indian courts' jurisdiction and the applicability of Part I of the Arbitration and Conciliation Act.
(1) An appeal against this decision has been filed before the Division Bench of the Delhi High Court, in which the final judgment was reserved on May 26 2009. However, no interim orders have been passed (FAO (OS) 193/2009).
(2) Laxman Prasad v Prodigy Electronics Ltd; AIR (2008) SC 685, (2008) 1 SCC 618.
(3) Venture Global Engineering v Satyam Computer Services Ltd; AIR (2008) SC 1061, (2008) 4 SCC 190.
(4) Bhatia International v Bulk Trading SA; AIR 2002 SC 1432, (2002) 4 SCC 105.
(5) ABC Laminart Pvt Ltd v AP Agencies, Salem; AIR 1989 SC 1239, (1989) 2 SCC 163.
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