"Venue" Of Arbitration Not Essentially Equivalent To "Seat": Delhi High Court Restores Challenge To Arbitral Award

The Court was hearing an appeal under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996, challenging an order of the Commercial Court which had dismissed a petition under Section 34 and returned it for lack of jurisdiction on the ground that the arbitral proceedings were held in Chennai.

A Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar, while citing the Supreme Court's decision in BGS SGS SOMA JV v. NHPC Ltd. (2020), set aside the order of the District Judge, stating that “though the agreement specifies Chennai as the venue, the learned District Judge held it to be the seat, and by applying the law laid down by the Supreme Court, directed return of the petition under Order VII Rule 10 of the CPC, which is clearly erroneous and liable to be set aside.”

The Apex Court in BGS SGS SOMA had held that “the earliest application having been made to a court in which a part of the cause of action arises would then be the exclusive court under Section 42, which would have control over the arbitral proceedings.”

The appellants were represented by Advocate Manoj Kumar Sahu, while the respondent was represented by Advocate Amit Sinha.

Background

The matter arose from a financing agreement between a borrower and a financial institution concerning the purchase of construction equipment. The lender initiated arbitral proceedings in Chennai following defaults in repayment, and a sole arbitrator passed an award directing payment of dues along with interest and costs.

The borrower filed objections under Section 34 of the Arbitration Act before the Commercial Court at Delhi, contending that the arbitral award was illegal and that the proceedings were conducted in violation of natural justice. However, the District Judge dismissed the petition and allowed an application under Order VII Rule 10 of the Code of Civil Procedure, holding that only courts at Chennai, where the arbitral proceedings were held, had jurisdiction to hear the matter.

Aggrieved, the borrower approached the High Court under Section 37, arguing that since the lender had previously invoked Section 9 of the Arbitration Act before the Delhi courts to seek interim relief, jurisdiction under Section 42 of the Act remained with the Delhi courts for all subsequent applications arising out of the same arbitration agreement.

Court’s Observation

The Delhi High Court noted that the central issue was whether the use of the term “venue” in the arbitration clause amounted to the “seat” of arbitration, thereby conferring exclusive jurisdiction on the courts at Chennai as per the arbitration agreement signed between the parties.

Citing BGS SGS Soma JV v. NHPC Ltd. (2020), the Court observed that Section 42 of the Arbitration and Conciliation Act was enacted to prevent conflicting jurisdictional claims by ensuring that once an application under Part I of the Act is filed before a competent court, that court retains supervisory jurisdiction over all subsequent proceedings arising from the same arbitration agreement.

The Bench further referred to Arif Azim Co. Ltd. v. Micromax Informatics FZE (2024), wherein the Supreme Court clarified that a designated venue can be treated as the seat of arbitration only when three conditions are satisfied, namely that “the arbitration agreement or Clause in question should designate or mention only one place, such place must have anchored the arbitral proceedings i.e., the arbitral proceedings must have been fixed to that place alone without any scope of change, and that there must be no other significant contrary indicia to show that the place designated is merely the venue and not the seat.”

Applying these principles, the High Court held that Chennai was referred to only as the venue for arbitration, while all other material connections of the dispute, including execution of the agreement, offices of the parties, and filing of the Section 9 petition by the respondent, were situated in Delhi.

Accordingly, the Court concluded that the facts failed to satisfy the conditions necessary to treat Chennai as the arbitral seat and that the District Judge had erred in equating venue with seat.

Conclusion

Allowing the appeal, the High Court set aside the District Judge’s order returning the Section 34 petition and restored it to the file of the Commercial Court at Delhi.

Cause Title: M/s KCA Infrastructure & Another v. HDB Financial Services Ltd (Neutral Citation: 2025:DHC:8811-DB)

Appearances:

Petitioner: Advocates Manoj Kumar Sahu and Anushree Priya

Respondent: Advocates Amit Sinha, S.P.M. Tripathi, Rahul Poonia, and Gaurav Tripathi

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