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Commercial Matters Involving Arbitration Disputes Can Only Be Heard By Commercial Court Of Status Of District Judge/Addl District Judge: MP HC

 

In a clear, cogent, composed, commendable and convincing judgment titled Yashwardhan Raghuwanshi Vs. District & Sessions Judge and another in WP-19656-2020 delivered on February 26, 2021, the Madhya Pradesh High Court has held that Commercial matters involving Arbitration disputes can only be heard by Commercial Court of the status of District Judge or Additional District Judge. It held that a Civil Judge would not be the competent authority to entertain cases under Sections 9, 14, 34 and 36 of the Arbitration and Conciliation Act, 1996. Very rightly so!

As we see, before dwelling on the judgment, it is pointed out uniquely in the “Law Laid Down” that, “As seen from the language employed in the definition clause of “Court” in Section 2(1)(c) of the Arbitration Act and Conciliation Act, 1996, the Legislature intended to confer power in respect of the disputes involving arbitration on the highest judicial Court of the District so as to minimize the supervisory role of the Courts in the arbitral process and, therefore, purposely excluded any Civil Court of a grade inferior to such Principal Civil Court, or any Court of Small Causes.

Thus, in respect of commercial disputes involving arbitration only the Commercial Court of the status of District Judge or Additional District Judge would be the competent court to entertain the matters under Sections 9, 14, 34 & 36 of the Arbitration Act and Conciliation Act, 1996. The impugned order to the extent of classifying the commercial disputes having arbitration as subject matter on the basis of mere valuation and conferring powers therefore on the Court of XX Civil Judge Class-I, Bhopal, would be violative of relevant provisions of law. However, it can be sustained in so far as distribution of the work of commercial disputes as per the value of the claim in cases other than arbitration matters are concerned.

The District Judge by virtue of Sections 7 & 15 of the Civil Courts Act of 1958 would be entitled to distribute such work amongst any of the Additional District Judges under his supervision, but not to any Court of Civil Judge Class-I or Senior Civil Judge, or any Court of Small Causes.

The court referred:

• Ess Kay Fincorp Limited and ors. vs. Suresh Choudhary and others AIR 2020 Raj 56.

• Fun N Fud vs. GLK Associates , 2019 SCC Online Guj 4236.

• Vijay Cotton and Fiber Company Vs. Agarwal Cotton Spinning Private Limited, R/Appeal No. 216 of 2018 decided on 11.02.2019.

• Kirtikumar Futarmal Jain vs. Valencia Corporation, in 2019 SCC Online Guj 3972.

• Kandla Export Corporation and another vs. OCI Corporation and another, (2018) 14 SCC 715.

• State of Maharashtra, through Executive Engineer vs. Atlanta Limited, (2014) 11 SCC 619.

The significant paras are 11, 12, 13, 14 and 15.”

To start with, this notable judgment authored by Chief Justice Mohammad Rafiq for himself and Justice Vijay Kumar Shukla sets the ball rolling by first and foremost observing in para 1 that, “This writ petition has been filed by Yashwardhan Raghuwanshi, who is an advocate practising law at Bhopal, assailing the validity of order dated 20th October, 2020 passed by the District and Sessions Judge, Bhopal, in exercise of powers conferred upon him by Section 15(1) of the Madhya Pradesh Civil Courts Act, 1958 (for short “the Civil Courts Act”) read with Sections 194, 381(1) & 400 of the Code of Criminal Procedure,1973 (for short “CrPC”), distributing civil and criminal business amongst the various  Additional District Judges and Subordinate Judges working under his supervision in the District of Bhopal. Challenge in particular is made to Entry No. 45 of the aforesaid order vide which the disputes/cases filed under the provisions of Sections 9, 14, 34 & 36 of the Arbitration and Conciliation Act, 1996 (for short “the Arbitration Act”) involving commercial disputes under the provisions of the Commercial Courts Act, 2015 (further be called as “the Commercial Courts Act”) of specified value between Rs. 3 1ac. to Rs. 1 crore, have been assigned to the Court of XX Civil Judge Class-I, Bhopal.”

To put things in perspective, the Bench then envisages in para 2 that, “Mr. Deepesh Joshi, learned counsel for the petitioner submitted that allocation/distribution of the judicial work by the District Judge with regard to the commercial disputes filed under Sections 9, 14, 34 & 36 of the Arbitration Act to the Court of XX Civil Judge Class-l is wholly incompetent inasmuch as such allocation is based on wrongful interpretation of the legal provisions of the Arbitration Act, the Commercial Courts Act as well as the Civil Courts Act. It is contended that the District Judge has passed the aforesaid order in exercise of the powers conferred upon him under Sections 15(1) of the Civil Courts Act read with Sections 194, 381(1) and 400 of CrPC. The work distribution circular numbered as Q/EK/01/2020 dated 20.10.2020 at Paras – (C) & (D) of Entry No. 45 assigned power to undertake trial of commercial disputes for a specific category as per the Commercial Courts Act to the Court of XX Civil Judge Class-I, Bhopal, having pecuniary jurisdiction over matters valued between Rs. 3 1ac. and Rs. 1 crore, which also includes the matter that comes under the purview of the Arbitration Act. Learned counsel submitted that the term “specified value” is defined in Section 2(1)(i) of the Commercial Courts Act. It is evident from the aforesaid provision that “specified value” in relation to a commercial dispute is determined on the basis of the subject matter of the respective suit, appeal or application. Sub-section (3) of Section 10 of the Commercial Courts Act provides that all applications or appeals arising out of arbitration under the provisions of the Arbitration Act shall be tried before any Commercial Court having territorial jurisdiction. It is true that the Court of XX Civil Judge Class-I, Bhopal has been designated as a Commercial Court vide notification dated 02-03.04.2019 (Annexure-P/2), but the Arbitration Act is a consolidated statute for law relating to any form of arbitration dispute. The Legislature in so providing, intended to streamline the commercial disputes arising out of arbitration in speedy manner, for which purpose the Special Courts have been set up. With that end in view, the Parliament has time and again made amendments in tune with modern day developments.”

Needless to say, the Bench then observes in para 8 that, “We have given our anxious consideration to the submissions made at the Bar, studied the cited precedents and perused the material available on record.”

Be it noted, the Bench then while citing a relevant case law points out in para 11 that, “The question that cropped up for consideration before the Division Bench of the Rajasthan High Court in the case of Ess Kay Fincorp Limited (supra) was as to which of the two Courts, namely, Principal Civil Court having original jurisdiction in a district, as defined under Section 2(1)(e) of the Arbitration Act, or the Commercial Court constituted under Section 3(1) of the Commercial Courts Act, as defined under Section 2 (b) of that Act, would be competent to execute arbitral award on a “commercial dispute” passed under the Arbitration Act. The Rajasthan High Court on analysis of law held as under:

“17. A conjoint reading of Section 10(3) and 15(2) of the Commercial Courts Act makes it clear that an application under Section 36 of the Arbitration Act, seeking execution of award, satisfies the requirement of “being application arising out of such arbitration under the provisions of the Act of 1996”. If such application is pending before any Principal Civil Court of original jurisdiction in a district, the same shall be transferred to Commercial Court exercising territorial jurisdiction over such arbitration where such Commercial Court has been constituted. In view of Section 10(3) of the Commercial Courts Act, since the awards in the present set of cases have been rendered in arbitral proceedings, their execution applications filed under Section 36 of the Arbitration Act having regard to provisions of Section 15(3) of the Commercial Courts Act, which contemplates transfer of all such pending applications to Commercial Court, as a legal corollary thereto, would also be liable to be filed and maintained before the Commercial Court and not the ordinary Civil Court/Principal Court of District Judge.

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19. In view of above, we answer the question of law formulated in the beginning of this judgment in the terms that the Commercial Court constituted under Section 3(i) of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, as defined in Section 2(b) of that Act, would be the only competent Court to execute an arbitral award on a “commercial dispute” passed under the Arbitration and Conciliation Act, 1996 and not the Principal Civil Court having the original jurisdiction in the District i.e. the Court of District and Sessions Judge as defined under Section 2(1)(e) of the Arbitration and Conciliation Act, 1996.”

While citing yet another relevant case law, the Bench then holds in para 12 that, “The Gujarat High Court in the case of Fun N Fud (supra) was examining the validity of the order passed by the 2nd Additional District Judge, Dahod by which it declined to hear an application preferred by the applicant therein under Section 9 of the Arbitration Act on the ground that it has no jurisdiction to hear and entertain such application and, therefore, returned the application to be presented before the Court of Principal Senior Civil Judge. It was argued that Section 2(1)(c) of the Arbitration Act, expressly excludes any Civil Court of a grade inferior to such Principal Civil Court, or any Court of Small Causes. In view of Section 11 of the Commercial Courts Act, which bars a Commercial Court from deciding any suit, application or proceedings relating to any commercial dispute in respect of which the jurisdiction of the Civil Court is either expressly or impliedly barred under any other law for the time being in force, the Commercial Court which is a Civil Court of a grade inferior to such Principal Civil Court, or any Court of small causes, would be barred from exercising jurisdiction under Section 9 or any provision of the Arbitration Act.”

What’s more, it is then stated in para 13 that, “In Kirtikumar Futarmal Jain vs. Valencia Corporation reported in 2019 SCC Online Guj 3972 challenge was made to the order passed by the Principal District Judge, Surat in the Commercial Appeal preferred by the respondents against the order passed by the Arbitral Tribunal on the application made by the applicant under Section 17 of the Arbitration Act. The Commercial Court allowed the application filed under Section 37(2) of the Arbitration Act. The applicant in those facts approached the Commercial Court at Vadodara by way of application under Section 9 of the Arbitration Act with the prayer that the respondents be restrained from transferring or alienating the properties of the Firm or creating any right in favour of any third party. On behalf of the petitioner it was argued that the impugned order passed by the Principal District Judge was without jurisdiction inasmuch as the Principal District Judge had no power to entertain an application under Section 37 of the Arbitration Act. The Gujarat High Court in Paras- 16.1, 16.2 & 20.6 held as under:

“16.1  Insofar as the jurisdiction of the learned principal District Judge to entertain the appeal under section 37 of the Arbitration Act is concerned, the learned counsel invited the attention of the court to subsection (2) of section 37 of the Arbitration Act to submit that the appeal in the present case is preferred under clause (b) of sub-section (2) of section 37, which provides for an appeal to a court from an order of an Arbitral Tribunal granting or refusing to grant an interim measure under section 17 of that Act. It was submitted that the expression employed in sub-section (2) of section 37 is “court”. Reference was made to clause (e) of section 2 of the Arbitration Act, which defines “court” to mean, in the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the question forming the subject matter of the arbitration if the same had been the subject matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes. It was submitted that therefore clause (e) of section 2 of the Arbitration Act lays down that “court” shall mean the principal Civil Court of original jurisdiction in a district, and specifically excludes any civil court of a grade inferior to such principal Civil Court or any court of Small Causes.

16.2 Reference was made to section 12 of the Gujarat Civil Courts Act, 2005, which provides for jurisdiction of a court of District Judge and postulates that a court of District Judge shall be the principal Civil Court of original jurisdiction within the local limits of its jurisdiction. It was submitted that the word “court” used under section 37(2)(b) of the Arbitration Act is the District Court. Moreover, section 2(e) of the Arbitration Act, specifically excludes any court of a grade inferior to such principal Civil Court or any Court of Small Causes from the ambit of the expression “court”. It was submitted that source of appeal in this case is under section 37 of the Arbitration Act and the right flows from section 37. It was submitted that access to such appeal can be channelised through the concerned section of the Commercial Courts Act, but the right to appeal does not flow from the Commercial Courts Act.

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20.5 In this regard it may be noted that section 11 of the Commercial Courts Act provides that a Commercial Court or a Commercial Division shall not entertain or decide any suit, application or proceedings relating to any commercial dispute in respect of which the jurisdiction of the civil court is either expressly or impliedly barred under any law for the time being in force. Clause (i) of section 2(e) of the Arbitration Act which defines the expression ‘court’ not only vests jurisdiction in the principal Civil Court of original jurisdiction in a district, including the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit, but it expressly excludes any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes.

20.6 Thus, section 2(e)(i) of the Arbitration Act expressly excludes any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes. Therefore, in view of section 11 of the Commercial Courts Act, which bars a Commercial Court from deciding any suit application or proceedings relating to any commercial dispute in respect of which the jurisdiction of the civil court is either expressly or impliedly barred under any other law for the time being in force; read with the provisions of section 37(2)(b) of the Arbitration Act, any Commercial Court which is a civil court of a grade inferior to such principal Civil Court or any Court of Small causes, would be barred from exercising jurisdiction under section 37(2) (b) of the Act. The Supreme Court in State of West Bengal v. Associated Contractors (supra), has held that section 2(1)(e) contains an exhaustive definition marking out only the Principal Civil Court of original jurisdiction in a district or a High Court having original civil jurisdiction in the State, and no other court as ‘court’ for the purpose of Part 1 of the Arbitration Act,1996.”

Most significantly, what forms the real cornerstone of this elegantly, eloquently and effectively written judgment is thus stated in para 14 as thus: “It would be thus evident from the language employed by the Legislature in the definition clause of “Court” in Section 2(1)(c) of the Arbitration Act that it intended to confer power in respect of the disputes involving arbitration on the highest judicial Court of a District so as to minimize the supervisory role of the Courts in the arbitral process and, therefore, purposely excluded any Civil Court of grade inferior to such Principal Civil Court, or any Court of Small Causes. The Court of superior most jurisdiction in a District is the Court of District Judge as interpreted by the Supreme Court in the case of Atlanta Limited (supra). The jurisdiction in respect of arbitration matter is provided in Section 10 of the Commercial Courts Act and Section 15 thereof contemplates transfer of all suits and applications including the application under the Arbitration Act pending in Civil Courts in any district or pending in High Court where Commercial Division is constituted or area in respect of which the Commercial Courts have been constituted. While Section 11 of the Commercial Courts Act bars the jurisdiction of a Commercial Court or a Commercial Division to entertain or decide any suit, application or proceedings relating to any commercial dispute in respect of which the jurisdiction of the Civil Court is either expressly or impliedly barred under any other law for the time being in force, Section 21 of the Commercial Courts Act stipulates that save as otherwise provided, the provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law for the time being in force other than this Act. Segregation of an arbitration matters on the basis of a pecuniary limit is not what the law provides for. All the arbitration matters, irrespective of the value of claim, are required to be adjudicated by Principal Civil Court of original jurisdiction. Therefore, it is clear that in respect of commercial disputes involving an arbitration dispute only the Commercial Court of the status of District Judge or Additional District Judge would be the competent court to entertain the matters under Sections 9, 14, 34 & 36 of the Arbitration Act. Although, the impugned order can be sustained in so far as the distribution of the commercial disputes of the value of the claim in cases other than arbitration matters are concerned. The impugned order to the extent of classifying the commercial disputes having subject matter of arbitration on the basis of valuation and conferring powers therefore on the Court of XX Civil Judge Class-I, Bhopal, would be violative of relevant provisions of law.”

Finally, it is then held in the last para 15 that, “In view of the above discussions, the present petition deserves to succeed. The Entry No.45 of the impugned order dated 20.10.2020 is set aside. It is hereby declared that the Court of District Judge as the Principal Civil Court of original jurisdiction would be competent to decide the matters/disputes filed under the provisions of Sections 9, 14, 34 & 36 of the Arbitration Act and also under the provisions of the Commercial Courts Act regardless of the value of claim. However, the District Judge by virtue of Section 7 read with Section 15 of the Civil Courts Act would be entitled to distribute such work amongst any of the Additional District Judges under his supervision, but not to any Court of Civil Judge Class-I or Senior Civil Judge, or any Court of Small Causes. The writ petition is accordingly allowed. A copy of this order be endorsed to the Registrar General of the High Court for being circulated amongst all the District & Sessions Judges of the State.”

Before parting, it would be useful to again state at the cost of repetition what is most importantly stated in the beginning of para 14 that, “It would be thus evident from the language employed by the Legislature in the definition clause of “Court” in Section 2(1)(c) of the Arbitration Act that it intended to confer power in respect of the disputes involving arbitration on the highest judicial Court of a District so as to minimize the supervisory role of the Courts in the arbitral process and, therefore, purposely excluded any Civil Court of grade inferior to such Principal Civil Court, or any Court of Small Causes. The Court of superior most jurisdiction in a District is the Court of District Judge as interpreted by the Supreme Court in the case of Atlanta Limited (supra).” This is the real crux of this commendable judgment! We thus see that the Madhya Pradesh High Court has made the legal position on Commercial matters involving arbitration disputes extremely clear which holds that such disputes can only be heard by Commercial Court of status of District Judge/Additional District Judge! Very rightly so!

Sanjeev Sirohi

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