Jurisdiction of a court in arbitration proceedings

By Krrishan Singhania and Ranbir Krishan, Singhania & Co
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Arecent judgment by the Supreme Court of India has raised an interesting issue of jurisdiction based on the case of Shivnath Rai Harnarain (India) Ltd v M/s AG Abdul Rehman.

The parties had entered into an agreement which contained a clause that provided for the settlement of disputes through the Indian Council of Arbitration in Delhi. Both parties agreed that if a dispute were to arise, they would resolve it either in Singapore or the UK, and allow the arbitration agreement to be governed by Indian law.

Krrishan Singhania Partner Singhania & Co
Krrishan Singhania
Partner
Singhania & Co

In an attempt to resolve a dispute that had arisen, the parties, through a settlement agreement, mutually appointed Samuel J Marshall as the sole arbitrator and further agreed that the agreement would be governed by Indian law.

Rehman did not participate in the arbitration proceedings, however, the arbitrator proceeded with the case in Singapore and passed an award in favour of Harnarain. Rehman challenged the award before the High Court of Singapore, which set aside the award of the arbitrator, giving the parties the liberty to apply for a fresh arbitration.

Harnarain then filed an application under section 11(6) of the Arbitration and Conciliation Act, 1996, before the Supreme Court of India, for the appointment of a new arbitrator.

The Supreme Court of India dismissed Harnarain’s application, stating that since the award was passed in Singapore and was set aside by the High Court of Singapore, Harnarain would have to approach the Singapore court for the appointment of a new arbitrator.

This decision was based on section 42 of the arbitration act, which maintains that where any application under Part I of the act has been made to one court, that court alone will have jurisdiction over the arbitral proceedings. All subsequent applications arising out of the agreement and the arbitral proceedings could therefore be made solely in that court and in no other court.

The petitioner had relied on the judgment of the Supreme Court in National Agricultural Coop. Marketing Federation India Ltd v Gains Trading Ltd. In that case the arbitration was held in Hong Kong.

The question raised in that case was whether section 11 of the act would apply with regards to arbitrations which are scheduled to take place outside India.

The Supreme Court held that merely because the parties had agreed that Hong Kong would be the venue of the arbitration, it did not follow that the laws in force in Hong Kong would apply.

The arbitration clause provided that the Indian Arbitration and Conciliation Act would govern the appointment of an arbitrator, the reference of disputes and the entire procedure of arbitration.

Ranbir Krishan Attorney Singhania & Co
Ranbir Krishan
Attorney
Singhania & Co

In Harnarain’s case, the Supreme Court stated that the facts of the National Agriculture case were not applicable. The award in relation to Harnarain’s matter was passed in Singapore and was also set aside by the High Court of Singapore.

With utmost respect, the apex court failed to consider that the settlement agreement was governed by Indian law and, therefore, the provisions of the act would govern the appointment of the arbitrator, the reference of disputes and the entire process and arbitration procedure.

The parties by mutual consent had appointed Marshall in Singapore as the sole arbitrator. That arbitration having failed by virtue of the award being set aside, Indian law had to be applied to the disputes. The Indian courts automatically acquired jurisdiction in the absence of an agreement between the parties to refer the arbitration to a named arbitrator, and could direct the process of appointing an arbitrator.

Further, it is not clear from the judgment why the clause regarding the settlement of disputes through the arbitration council in Delhi would not apply. The court should have directed the parties to approach the Indian Council of Arbitration for the appointment of an arbitrator.

Following a thorough analysis, it is clear that this judgment requires greater review as considerations for the challenge of an award are different from considerations for the appointment of arbitrator.

Foreign awards can be challenged under the New York Convention, which states that an award can be challenged either at the place where it is made (in this case in Singapore) or alternatively, in the country in which the contract is governed by law. Therefore the court should have considered the application based on the agreement between the parties.

This case highlights the importance of proper drafting where arbitration clauses are concerned to ensure the parties are agreed on the question of the procedure to be followed in the appointment of arbitrator.

Krrishan Singhania is the managing partner and Ranbir Krishan is an attorney at Singhania & Co, a Mumbai-based law firm. Singhania has 20 years of experience in some of the firm’s core practice areas, which include arbitration, litigation and dispute resolution, aviation, and intellectual property.

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