Where should you sue? Busting myths about jurisdictional clauses in commercial contracts
A recent judgement of the Hon’ble High Court of Delhi passed on 3rd March 2023 [Manmohan Kapani v. Kapani Resorts Pvt. Ltd. and Ors.] denotes the continuing conundrum about the ambiguities associated with determining the court wherein an application under the Arbitration and Conciliation Act, 1996, (“Arbitration Act”) ought to be preferred. The Hon’ble High Court did not particularly settle the res integra in the said judgement of Manmohan Kapani, rather placed reliance upon certain recently passed judgements which have settled the law on this subject. However, given the complexities associated with modern day contracts as well as the multifarious forms of commercial and corporate litigations, it becomes essential to revisit the relevant principles and settle the air once and for all.
To appreciate the legal principles one must firstly identify the nature and form of the dispute as well as the applicable dispute resolution mechanism; which is largely determinable by first identifying whether the parties had entered into an arbitration agreement as defined under Section 7 of the Arbitration Act or would be subject to an arbitration mechanism through application of a statute (such as Limited Liability Partnership Act, 2008 or Micro, Small and Medium Enterprises Development Act, 2006 or Multi-State Cooperative Societies Act, 2002), or otherwise through the group of companies doctrine.
By “nature and form of the dispute” as specified above it is meant to determine whether the dispute will qualify as a commercial dispute as defined under the Commercial Courts Act, 2015, for which a distinct dispute resolution method has been carved out, including mandatory pre-litigation mediation unless there exist circumstances leading to the requirement of urgently seeking interim reliefs.
Upon determining the applicable dispute resolution mechanism, it would be essential to (A) in case the Arbitration Act applies to ascertain the “seat” of arbitration; or (B) to ascertain the courts which shall possess the pecuniary as well as the territorial jurisdiction, subject to exclusivity of any jurisdiction having been confirmed and agreed upon by the parties. In the latter case, one must appreciate that it is only possible to confer exclusive jurisdiction upon a court that may as such possess the jurisdiction as denoted under Section 16 to Section 20 of the Code of Civil Procedure, 1908.
Speaking of arbitrations asking the following questions will help determine the jurisdiction accurately: (1) whether the arbitration qualifies as an “International Commercial Arbitration” as defined under the Arbitration Act or not? (2) whether the concerned High Court possesses the original jurisdiction or not? And if so, what is the pecuniary jurisdiction for the said High Court? (3) whether the dispute in question qualifies as a commercial dispute under the above-mentioned Commercial Courts Act, 2015 or not?
It must be noted that the above referred judgement Manmohan Kapani essentially confirms upon the principles laid down by the Hon’ble Supreme Court of India in Mankastu Implex Pvt. Ltd. v. Airvisual Ltd. wherein the Court clarified the distinction between the law governing the procedural aspects of the dispute resolution mechanism and the substantive law governing the contractual relationship on the basis of which the issues and merits of the matter are to be determined.
The ratio prescribed by the Hon’ble Supreme Court in Mankatsu was confirmed by the Hon’ble High Court of Delhi in Cars24 Services Pvt. Ltd. v. Cyber Approach Workspace LLP, wherein the Hon’ble High Court upon referring to the principles laid down by the Hon’ble Supreme Court of India noted that: “Where, therefore, the seat of arbitration is at place X, and exclusive jurisdiction over the subject-matter of the suit is conferred on courts at place Y, a petition under Section 11 would unquestionably lie before the courts at place X.”
Often times the autonomy conferred upon parties to determine exclusive jurisdiction by the Arbitration Act is muddled with the non-arbitral dispute resolution mechanisms. In this context, one must also be mindful of disputes which may be non-arbitrable as specified by the Hon’ble Supreme Court in Vidya Drolia v. Durga Trading Corporation, wherein disputes such as those emanating amongst landlords and tenants, when governed by specific legislation, such as a rent control legislation, may not be arbitrable.
Another aspect one must bear in mind specifically in the context of trademark disputes and especially those disputes concerning passing off of trademark are specifically governed by Section 134 of Trademark Act, 1999. An example was seen in HSIL Limited vs. Imperial Ceramic and Ors. wherein the Hon’ble High Court of Delhi ruled that an application challenging the maintainability of a suit shall be adjudicated prior to any other application, especially when the plaint of the plaintiff does not denote the territorial jurisdiction of the court before which the plaint has been filed.
Given the above web of principles to denote just the jurisdiction and where one must sue in a commercial or corporate dispute, it is more than essential to seek necessary counselling and advice prior to instituting any legal proceeding.
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