LI Network
Published on: 29 September 2023 at 15:20 IST
The Calcutta High Court has underscored the importance of considering the parties’ intent when incorporating an arbitration clause.
In this case, the petitioner filed an application under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an injunction to prevent Bharat Heavy Electricals Limited (BHEL) from invoking and encashing the performance bank guarantee issued by Punjab and Sind Bank (P&S Bank) and the modified performance bank guarantee.
A Single Bench, presided over by Justice Moushumi Bhattacharya, observed, “In the present case, the arbitration clause in the GCC and in the Work Order specifies that the seat of arbitration shall be Kolkata but clarifies that the seat will be the place from where the contract is issued.
The latter part is within brackets. The ordinary and plain meaning of this clause, with due weight given to the intention of the parties while inserting this clause, post-amendment, cannot and would not point to any other construction besides holding that the parties intended to ‘seat’ the arbitration at the place from where the contract is issued.”
The Court explained that interpreting an agreement involves principles of contract construction and requires ascertaining the meaning that the document would convey to a reasonable person with knowledge of the background reasonably available to the parties when the contract was formed.
Background:
The dispute arose from a contract containing an arbitration agreement. BHEL contended that the seat of arbitration would be the location from which the contract was issued, giving precedence to the bracketed portion.
In contrast, the petitioner argued that the parties intended the seat of arbitration to be in Kolkata, with the bracketed portion inserted solely to determine the venue for the convenience of the parties/arbitrator.
The key issue for consideration regarding maintainability was whether the parties intended the seat of arbitration to be the place where the contract was issued, specifically Salt Lake City, Kolkata, or the Kolkata courts in general. If the respondent’s position was correct, the High Court would lack jurisdiction, and the application would be referred to the Commercial Court at Rajarhat.
The High Court, considering the factual context, noted, “The entire contract documents, including the NIT and the correspondence between the parties, including the termination letter, specify at the bottom of each page the place of issue of the contract, which is ‘Power Sector Eastern Region (PSER), DJ-9/1, Salt Lake City, Kolkata – 700091.’ This is the place from where the tender has been issued.”
The Court concluded that the agreed seat of arbitration falls within the metropolitan area of Kolkata, within the jurisdiction of the Commercial Court at Rajarhat. Consequently, the original territorial jurisdiction of the Calcutta High Court would not apply in this case.
The Court upheld the respondent’s argument regarding non-maintainability and dismissed the application accordingly.
Case Title: Harji Engineering Works Pvt. Ltd. v. Bharat Heavy Electricals Limited & Anr.
Also Read: A Study of Appeals under Arbitration and Conciliation Act, 1996 – Law Insider India