Delhi High Court: Arbitration Clause Offering Multiple Seat Choices Not Void Under Section 29 of Contract Act

Delhi High Court: Arbitration Clause Offering Multiple Seat Choices Not Void Under Section 29 of Contract Act

The Delhi High Court held that an arbitration agreement with multiple seats, providing a choice to the parties, is not rendered void under Section 29 of the Indian Contract Act, 1872, which declares agreements uncertain in meaning or incapable of being made certain as void.

The case involved a Purchase Order between the Petitioner Vedanta Limited and the Respondent Shreeji Shipping for transporting coal from Kandla Port to Bhachau Plant and from Bedi Port to Khambalia Plant, along with the execution of Standard Terms and Conditions for a Transport Agreement attached to the Purchase Order. Following discrepancies in the transported amounts and disputes arising from the contract, the petitioner invoked the arbitration clause. Consequently, the petitioner filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") for the appointment of an arbitrator in the Delhi High Court.

The respondent challenged the existence of an arbitration agreement, asserting that the purchase order was never accepted by them. He emphasized that they began handling and delivering coal upon the arrival of the first vessel within the specified time frame outlined in the purchase order, but without formally signing it. The respondent argued that they did not agree to the arbitration clause included in the Standard Terms and Conditions of the Purchase Order.

The respondent argued that the services were rendered based on a Letter of Intent (LoI) dated 17.06.2021, which was intended to be converted into a formal purchase order. He highlighted Clause 14.10 of the Appendix, which stated that the purchase order would only be valid and binding upon signature by both parties, a condition that was never fulfilled. Additionally, he contested the jurisdiction of the arbitration agreement, claiming that Clause 10.1(ii), which specified the seat of arbitration, was void under Section 29 of the Indian Contract Act, 1872. The respondent advocated for the application of Section 20 of the Civil Procedure Code to determine jurisdiction, arguing that the courts in Gujarat, where the cause of action arose, should have jurisdiction.

The petitioner contended that the purchase order was issued via email and that mediation proceedings were commenced by sending a mediation notice to the respondent, as per the terms of the arbitration agreement. He emphasized that the respondent's invoices made reference to the purchase order, demonstrating a clear recognition of the contract and the arbitration agreement contained within it.

The High Court observed that in a Section 11 petition, the courts' role is restricted to determining the prima facie existence of an arbitration agreement rather than delving into the merits of the case. It acknowledged that although the respondent denied receiving the purchase order, it was sent via email by the petitioner to the respondent, with the respondent's email address clearly stated. Furthermore, the court noted that the respondent's invoices made reference to the purchase order, indicating a clear acknowledgment of the contract and the arbitration agreement therein. Therefore, it concluded that there was indeed an arbitration agreement existing between the parties under Section 7 of the Arbitration Act.

The High Court determined that the arbitration clause in the present case was not subject to Section 29 of the Indian Contract Act, 1872. Section 29 renders agreements uncertain in meaning or incapable of being made certain as void. However, the High Court clarified that the arbitration clause in question distinctly specified that the seat of arbitration could be Goa, Karnataka, or Delhi, thereby granting a choice to the parties. The court concluded that there was no ambiguity in the clause, as it presented clear options for jurisdiction, thus not falling within the scope of Section 29.

The High Court, citing the Supreme Court's ruling in Indus Mobile Distribution (P) Ltd. v. Datawind Innovations (P) Ltd. , established that designating the seat of arbitration is similar to an exclusive jurisdiction clause. It clarified that once the seat is designated, exclusive jurisdiction is conferred upon the courts of that seat to regulate arbitral proceedings stemming from the agreement between the parties. Therefore, given that the arbitration clause outlined three potential seats, the High Court affirmed its jurisdiction to entertain and decide the Section 11 petition.

The High Court granted the petition and designated Mr. Abhijat as the sole arbitrator to resolve the dispute between the parties.