Madras High Court rules parties can deviate from terms only once under A&C Act

Madras High Court rules parties can deviate from terms only once under A&C Act

Cannot insist on compliance if they chose not to object during the earlier instances when the jurisdiction clause was waived

The Madras High Court has ruled that the parties are at liberty to deviate from the terms of jurisdiction. However, under the Arbitration and Conciliation (A&C) Act, 1996, the number of such deviations is limited to only one.

The single-judge bench of Justice R.N. Manjula held that the waiver of the jurisdiction clause contained in the arbitration agreement could be presumed from the conduct of the parties. If they waived the earlier agreement and substituted a new jurisdiction, the parties cannot make any further diversions.

The petitioner Andal Dorairaj and the respondent Hanudev Info Park Pvt. Ltd. had entered into a Joint Development Agreement.

But as disputes arose between them, the petitioner invoked the arbitration clause and filed an application under the A&C Act, seeking the appointment of an arbitrator before the high court. Since the arbitrator appointed by the court failed to complete the proceedings within the stipulated time, his mandate was terminated.

Thereafter, the respondent filed an application for the appointment of a new arbitrator, which was done. But subsequently, the respondent filed another petition to terminate the mandate of the arbitrator and to appoint a new arbitrator, which was allowed by the court.

The respondent then filed a preliminary objection before the Arbitral Tribunal disputing its jurisdiction. The arbitrator rejected it. The respondent filed an appeal, but the court dismissed the same. Consequently, an arbitral award was passed by the sole arbitrator.

The respondent challenged the arbitral award by filing an application before the Principal District Court, Coimbatore.

The petitioner filed a memo questioning the jurisdiction of the district court to entertain the application. Thereafter, the petitioner filed a revision petition before the high court to strike off the petitions under the A&C Act from the file of the district court.

The petitioner submitted that though as per the arbitration clause, the venue of arbitration was Coimbatore, the parties had waived their preference.

It further argued having filed an application for the appointment of an arbitrator before the high court. The petitioner added that the respondent had also chosen to file the petitions under the A&C Act before the high court, including an appeal against the order of the arbitrator dismissing the respondent's preliminary objection disputing the jurisdiction of the tribunal.

The petitioner averred that since the parties had subjected themselves to the jurisdiction of Chennai, the application challenging the arbitral award was not maintainable before Coimbatore's district court.

However, the respondent contended that the petition filed by it against the arbitral award was maintainable before the district court, as that court alone had supervisory jurisdiction over the arbitral proceedings.

Justice Manjula noted that after the mandate of the sole arbitrator appointed initially by the high court got terminated, the respondent filed a petition seeking the appointment of a new arbitrator. The judge noted that though the petition was allegedly filed under Section 11 of the A&C Act, it ought to have been filed under Section 14 (2).

Therefore, it was obligatory for the parties to file any petition seeking to terminate the mandate of an arbitrator before the 'court', as defined in Section 2 (1)(e) of the A&C Act. The bench added that since the parties agreed that the place of arbitration would be Coimbatore, the word 'court' would only refer to Coimbatore's district court.

It further observed that the respondent had filed a preliminary objection before the Arbitral Tribunal disputing its jurisdiction, which was rejected. Against that, the respondent filed an appeal before the high court. While ruling that the district court at Coimbatore was also an authorized court, Justice Manjula observed that the respondent chose to invoke the jurisdiction of the high court and not of the district court.

The court ruled that if the parties chose to deviate from the terms of the agreement, the terms would be waived by conduct. It held that the parties could not later insist on compliance with the jurisdiction clause contained in the arbitration agreement if they chose not to object during the earlier instances when the jurisdiction clause was waived.

The bench held that the liberty of the parties to deviate from the terms of jurisdiction was limited to only one. Since the respondent subjected itself to the jurisdiction of the courts in Chennai, the application against the arbitral award should have been filed only before the courts in Chennai and not at Coimbatore.

The court allowed the revision petition and directed the district court to return the petition filed by the respondent to be presented before the appropriate court.