Only High Courts Can Entertain Section 34 Challenges In International Arbitration: Madras High Court

The Madras High Court on 21 April, held that Section 34 challenges arising from international commercial arbitration must be filed before the High Court and not District Courts, in view of Section 2(1)(e) of the Arbitration and Conciliation Act, 1996 as amended in 2015.

Justice Senthilkumar Ramamoorthy upheld the order of the Principal District Judge, Salem returning the Section 34 petition filed by Waterbury Farrel against Steel Authority of India Limited (SAIL) and Shriram EPC Limited for lack of jurisdiction, while setting aside the direction to re-present it before the New Delhi Court and permitting filing before the Madras High Court within 30 days. He held:

“As regards international commercial arbitration, only the High Court having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of the suit or the High Court having jurisdiction to hear appeals from decrees of courts subordinate to the High Court qualifies as Court for the purposes of the A & C Act. By virtue of this amendment, the Principal District Judge, Salem, no longer has jurisdiction in relation to an international commercial arbitration, such as in this case.”

The dispute arose out of a contract between Waterbury Farrel, a Canada-based industrial machinery manufacturer, SAIL and Shriram EPC Limited relating to industrial works. The contract contained an ICC arbitration clause, with New Delhi designated as the venue or, alternatively, a neutral country to be mutually agreed, and also conferred exclusive jurisdiction on courts at Salem/Chennai. Arbitral proceedings were conducted in New Delhi, culminating in an award dated 28 February 2019.

Waterbury Farrel challenged the award under Section 34 by filing a petition before the Principal District Judge, Salem in 2019. SAIL objected to maintainability, contending that the court lacked jurisdiction and sought return of the petition.

By order dated 2 December 2021, the Principal District Judge, Salem accepted the objection and returned the petition for presentation before a competent court in New Delhi.

The order was challenged before the High Court under Article 227 of the Constitution. Waterbury Farrel invoked Section 42, arguing that earlier interim proceedings in Tamil Nadu conferred continuing jurisdiction on Salem/Chennai courts, and that New Delhi was only a venue, not the seat.

SAIL contended that since the arbitration proceedings were conducted entirely in New Delhi and the award was rendered there, New Delhi constituted the seat of arbitration, conferring jurisdiction on courts there.

The Court held that the designation of New Delhi as venue was not determinative of the seat, particularly in light of the clause permitting arbitration in a neutral country. It held that this flexibility, along with the exclusive jurisdiction clause in favour of Salem/Chennai courts, constituted contrary indicia against New Delhi being the seat, and noted that no subsequent agreement fixed the seat.

It observed that the contract did not fix a single, definitive place of arbitration, as it contemplated multiple possible venues depending on mutual agreement.

The Court further held that the exclusive jurisdiction clause in favour of Salem/Chennai courts indicated that the parties did not intend to designate New Delhi as the seat of arbitration.

However, it held that after the 2015 amendment to Section 2(1)(e), only High Courts have jurisdiction over international commercial arbitration matters, and District Courts lack competence to entertain Section 34 petitions in such cases.

It rejected reliance on Section 42, clarifying that it only operates between competent courts and cannot confer jurisdiction where none exists.

Accordingly, the High Court upheld the return of the Section 34 petition for want of jurisdiction, set aside the direction to file it in New Delhi, and permitted Waterbury Farrel to re-present it before the Madras High Court within 30 days.

Appearances for petitioner (Waterbury Farrel): Advocate R. Vidhya Shankar.

Appearances for respondent (Steel Authority of India Limited & Anr.): Advocates T.M. Hariharan, Siddharth Khattar.