Determination of jurisdiction when an arbitration clause is part of a contract
28 February 2021
Arbitration provides an alternative dispute resolution mechanism to contracting parties without the interference of the court. The contract or the agreement drawn between the parties defines the terms of arbitration in case a dispute arises. These terms define the place where the arbitration shall take place, the method of appointment of an arbitrator, etc. In the case of Siddhast Intellectual Property Innovations Pvt. Ltd v. The Controller General of Patents Designs Trademarks (CGPDTM), the Delhi High Court deliberated on the exclusivity of jurisdiction during arbitral proceedings as well as the competence of the court to entertain an arbitration petition.
The respondent, CGPDTM, through the Ministry of Commerce and Industry, Government of India, had issued a request for proposal (RFP) inviting proposals for providing access to patent database and development of a customized integrated search platform (ISP), termed as IPATS. The petitioner, Siddhast Intellectual Property Innovations Pvt. Ltd, pursuant to the RFP, submitted their proposal, which was examined by a committee constituted to check these proposals. The committee in its report accepted the petitioner’s proposal and declared them as a successful bidder, which was communicated to the petitioner through letter and a work order was placed on it.
The parties had also entered into an agreement, and the contract included an arbitration clause. The petitioner claimed that disputes had arisen in connection with the contract and the same ought to be referred to arbitration. The respondent, in a letter dated March 8, 2018, alleged that the IPATS applications executed by the petitioner had failed to comply with the requirements that had been set. It was also further alleged that the requisite test reports were unsatisfactory, and the petitioner was given a final opportunity to rectify the same. The petitioner contended that the assertions made by the respondent were untrue.
The petitioner, through a notice dated March 23, 2018, invoked the provisions of Clause 31 (the arbitration clause) of the contract and nominated one of its directors as its nominee for resolution of the dispute. The petitioner had also called upon the respondent to nominate their representative for the same. Pursuant to which, a committee was constituted of the senior representatives of the respective parties to resolve the disputes amicably. The committee held a few meetings, but the disputes remain unresolved.
On April 4, 2019, the petitioner sent another letter invoking the arbitration clause. The respondent replied to the said notice and alleged that the petitioner had not been keen to resolve the dispute and that the petitioner had quit the resolution process and thus breached the agreement. The petitioner sent another letter dated April 18, 2019, once again to set out its claims and invoke the arbitration clause. On January 11, 2020, the petitioner issued a formal notice for referring the dispute to arbitration. The petitioner claimed that a sum of US$1.3 million along with interest at 18% was owed by the respondent to them. Pursuant to the notice invoking the arbitration clause, the respondent, admittedly, did not take any steps for the constitution of an arbitral tribunal.
However, the respondent once again alleged that the petitioner had quit the resolution proceedings for which the committee had been formed.
The respondent opposed the arbitration petition on the ground that the Delhi High Court had no jurisdiction to entertain the petition. The respondent contended that in terms of the contract between the parties, the courts at Mumbai would have had exclusive jurisdiction in respect of any disputes inter se between the parties. They referred to Clause 40 of the RFP and further submitted that according to the terms of the said clause, the parties had agreed that the courts in Mumbai would have had exclusive jurisdiction. Also, it was submitted that the head office of the respondent was in Mumbai; the work order had been issued to the respondent from Mumbai; all the payments were made to the petitioner from Mumbai. The respondent argued that in view of the above, only the courts in Mumbai would have had the jurisdiction to entertain the application under Section 11 of the Arbitration and Conciliation Act, 1996.
The petitioner, however, refuted these claims made by the respondent and stated that the works in terms of the contract and the performance of the same took place in New Delhi. They also pointed out that the letter which alleged a deficiency in the performance of the contract was issued by the respondent’s office in New Delhi.
The Delhi High Court held that the contract between the parties provided that the RFP was a part of the contract. However, Clause 40 of the RFP cannot be considered as a part of the contract as the contract already had a dispute resolution mechanism that did not contemplate the disputes between the parties to be adjudicated in courts. Thus, Clause 40, which provided for adjudication of disputes by arbitration or in the alternative in courts in Mumbai, stood overridden by Clause 31 of the contract.
The court further opined that, even if it were to be assumed that Clause 40 of the RFP were applicable, the clause did not support the contention that the parties had agreed that the courts at Mumbai would have had exclusive jurisdiction in respect of the arbitral proceedings. Rather, the clause indicated that the parties had agreed that the disputes would be resolved through arbitration and in the alternative, in the courts in Mumbai. The contract did not mention that the seat of arbitration would be Mumbai or that the courts at Mumbai would have had exclusive jurisdiction in respect of the arbitral proceedings.
The meetings of the committee constituted to resolve the disputes, in terms of Clause 31 of the contract, had taken place in New Delhi. It is, thus, clear that part of Clause 31 of the contract, had been performed in Delhi. In view of the above, the contention that the court did not have jurisdiction to entertain the petition was rejected. The court appointed a sole arbitrator and allowed the arbitration petition.
In conclusion, since the contract between the petitioner and the respondent already included an arbitration clause, and the RFP formed a part of the contract, Clause 40 of the RFP stood overridden by Clause 31 of the said contract. An arbitration clause included in the contract is to be treated as a separate and independent agreement of the other terms of the contract. Therefore, the respondents could not maintain adjudication of disputes by arbitration or in the alternative in courts in Mumbai. The meetings of the committee to resolve the disputes between the parties had taken place in New Delhi according to the terms of Clause 31 of the contract, which indicated that part of the clause had been performed in New Delhi. This stipulated that the court had jurisdiction to entertain and allow the arbitration appeal.