The High Court of Delhi has ruled that the determination of jurisdiction under Section 11 of the Arbitration and Conciliation Act  is not contingent upon where the cause of action accrues for initiating a substantive legal action.

Justice Manoj Kumar Ohri's bench reaffirmed that in the absence of any indications to the contrary in the agreement, the location of arbitration would be considered as the arbitration's seat. It clarified that specifying the seat of arbitration implies granting exclusive jurisdiction to the courts at that seat to handle all applications related to the arbitration agreement. In such cases, the location where the cause of action originated would not be pertinent, provided a different place has been designated as the seat of arbitration.

The respondent issued a Letter of Intent (LOI) on March 19, 2021, in favor of the petitioner for specific civil and structural works. This agreement included an arbitration clause, and it specified that Faridabad would be the designated location for conducting arbitration proceedings.

In the case, a dispute emerged between the parties concerning the work carried out by the petitioner as per the agreement. On April 7, 2023, the petitioner sent a legal notice, requesting payment for the final bill. In response to this notice, the respondent informed the petitioner about the appointment of a sole arbitrator. However, in a subsequent rejoinder notice, the petitioner raised objections to the respondent's appointment of the sole arbitrator. Ultimately, the petitioner filed an application under Section 11 of the A&C Act to seek the appointment of the arbitrator.

The respondent raised objections to the maintainability of the petition based on the following grounds: according to Clause 31.16 of the agreement, Faridabad was clearly designated as the place of arbitration which is akin to specifying the seat of arbitration since there were no contrary indications in the agreement. Therefore, Faridabad should be considered the seat of arbitration by default. Another objection raised by him was that, the High Court of Delhi lacks territorial jurisdiction to appoint the arbitrator and thus, according to Clause 31 of the agreement, only the Punjab and Haryana High Court is authorized to appoint the arbitrator in this matter and lastly that the agreement was signed and executed in Faridabad, and furthermore, the project in question is physically located in Faridabad. 

On the contrary the petitioner submitted that the agreement was signed and executed in New Delhi, which means that a part of the cause of action has arisen in New Delhi. Additionally, they point out that the arbitrator appointed by the respondent is based in New Delhi, and the preliminary hearing also occurred in New Delhi. As a result, they contend that the High Court at New Delhi has jurisdiction to decide the dispute based on the principle of cause of action.

The court analyzed that Clause 31.16 of the agreement clearly specifies Faridabad as the designated place of arbitration. Furthermore, the court noted that there were no other indications or clauses in the agreement that would contradict or negate Faridabad's status as the seat of arbitration.

The Court also restated that if there are no contradictory indications in the agreement suggesting that the designated place of arbitration was not meant to be the seat of arbitration, then that place shall indeed be considered as the seat of arbitration. The Court emphasized that designating the seat of arbitration carries with it the grant of exclusive jurisdiction to the courts located at the seat of arbitration to adjudicate on all applications related to the arbitral agreement. In such cases, the location where the cause of action originated becomes irrelevant when another place has been specified as the seat of arbitration.

The Court ruled that the location where a cause of action arises for initiating a substantive legal action is not a relevant factor for determining jurisdiction under Section 11 of the Arbitration and Conciliation (A&C) Act.

Therefore, the Court concluded that it lacks the territorial jurisdiction to consider the petition for the appointment of the arbitrator. The Court granted the parties the freedom to approach the appropriate court that does have jurisdiction in this matter.

Case: GR Builders Vs. Metro Speciality Hospitals Pvt Ltd, ARB. P. 628/2023 & I.A. 11633/2023