Introduction
The Hon’ble Delhi High Court, in its recent Judgment in ‘Faith Constructions v. N.W.G.E.L Church [Arb. P. No. 1318/2024 – 2025:DHC:1806]’, has provided important an unambiguous clarity on the contentious issue of determining the appropriate jurisdictional Court for arbitration-related matters where the Arbitration Agreement remains silent regarding the ‘seat’, ‘venue’ or, ‘place’ of Arbitration.
Facts of the case
The Petitioner (Faith Constructions) and the Respondent (N.W.G.E.L Church) entered into a construction agreement that contained an arbitration clause for adjudication of disputes, but interestingly, the said clause did not specify the seat, venue, or place of arbitration.
Disputes arose between the parties regarding alleged breaches of contractual obligations, constraining the Petitioner to invoke arbitration by issuing a notice under Section 21 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). Thereafter, Petitioner approached the Delhi High Court under Section 11 of the Arbitration Act seeking appointment of an Arbitral Tribunal for adjudication of disputes.
The Respondent opposed this petition, challenging the very jurisdiction of the Delhi High Court on grounds that the construction agreement was executed and notarized in Odisha, the subject property where construction has to be undertaken was situated in Odisha, the actual work was performed there, payments were made in/ from Odisha, and the Respondent itself operated from Odisha. Thus, according to the Respondent, no integral part of the cause of action arose in Delhi.
Issue and Court’s Analysis
The central issue for consideration before the Court was clear yet significant: “When the arbitration clause is silent on the seat, venue, or place of arbitration, how should the jurisdictional court for arbitration applications be determined?”
The High Court addressed this jurisdictional dilemma by emphasizing the provisions under the Arbitration Act (as amended up to date). The Court unequivocally clarified that in the absence of a specified seat or venue in an arbitration agreement, the jurisdiction of the Court must be determined by applying Section 2(1)(e) of the Arbitration Act read harmoniously with Sections 16 to 20 of the Code of Civil Procedure, 1908 (“CPC”).
Under Section 2(1)(e) of the Arbitration Act, a “Court” refers to the principal civil court having jurisdiction over the subject matter if it were the subject of a suit.
Further, Sections 16 – 20 of the CPC specify criteria for determining the territorial jurisdiction, primarily based upon:
- Where the Respondent voluntarily resides or carries on business; and/or
- Where the cause of action, wholly or in part, arises.
Applying these principles, the Delhi High Court found that the Respondent admittedly resided and carried out its business activities in Odisha. Concerning the second criterion; cause of action, the Court highlighted an important distinction: Only those facts that form a material and integral part of the cause of action, directly connected to the core dispute between the parties, should influence jurisdiction. In contrast, incidental or peripheral facts, such as partial payments being received in the Petitioner’s Delhi bank account, raising invoices from Delhi, or sending arbitration notices from Delhi, would not, by themselves, establish territorial jurisdiction.
To substantiate this reasoning, the High Court relied on the Judgment passed by the Supreme Court of India in ‘Ravi Ranjan Developers Pvt. Ltd. v. Aditya Kumar Chatterjee [Civil Appeal No. 2394-2395/2022 – 2022 INSC 1299]’, where the Supreme Court explicitly held:
“27. At the same time, an application under Section 11(6) of the A&C Act for appointment of an Arbitrator/Arbitral Tribunal cannot be moved in any High Court in India, irrespective of its territorial jurisdiction. Section 11(6) of the A&C Act has to be harmoniously read with Section 2(1)(e) of the A&C Act and construed to mean, a High Court which exercises superintendence/supervisory jurisdiction over a Court within the meaning of Section 2(1)(e) of the A&C Act.
- It could never have been the intention of Section 11(6) of the A&C Act that arbitration proceedings should be initiated in any High Court in India, irrespective of whether the Respondent resided or carried on business within the jurisdiction of that High Court, and irrespective of whether any part of the cause of action arose within the jurisdiction of that Court, to put an opponent at a disadvantage and steal a march over the opponent.”
Decision
Based on this thorough analysis, the High Court unequivocally concluded that the material facts constituting the substantial cause of action arose entirely in Odisha, not in Delhi. Consequently, it dismissed the Petitioner’s Section 11 Petition for want of territorial jurisdiction.
Conclusion and Practical Implication
This judgment by the Delhi High Court in Faith Constructions v. N.W.G.E.L Church significantly clarifies the position of law regarding jurisdictional determination when arbitration agreements remain silent regarding seat or venue. The position settled by the Court is succinctly summarized as under.
Where the arbitration agreement does not specify a seat, venue, or place, the territorial jurisdiction for arbitration-related applications/ petitions under Section 11 of the Arbitration Act must be decided according to traditional principles of territorial jurisdiction set out in the CPC.
As far as the territorial jurisdiction is concerned, only integral and material facts directly contributing to the cause of action can determine jurisdiction in such a case. Peripheral or incidental occurrences, such as banking or administrative activities performed from a particular location, are insufficient and immaterial.
This reasoning given by the High Court would ideally be applicable even in traditional civil cases, apart from those falling within the purview of the Arbitration Act. Hence, the judgment essentially paves way to clearly resolve on the aspect of territorial jurisdiction in cases where specific jurisdictional clauses/ inferences are absent.
Thus, parties drafting arbitration agreements, and even other agreements etc., must remain cautious and proactive, expressly specifying the seat of arbitration to avoid costly and time-consuming jurisdictional disputes and dilemmas. This judgment serves as a critical reminder to contractual parties and their legal advisors to ensure clarity on jurisdictional aspects in arbitration clauses, thereby facilitating smoother, quicker, and more efficient dispute resolution.