Court rules arbitration clause limited to Lucknow, setting aside arbitrator's expansive jurisdiction on unpaid invoices from other districts
In a significant decision, the Allahabad High Court's Lucknow Bench has set aside an arbitration award that had granted substantial sums to Siyogi Enterprises in a dispute with Regenvo Mobile Private Limited. The court ruled that the arbitration clause in the agreement between the parties was strictly limited to disputes concerning work performed in the city of Lucknow, and any claims arising from work done outside this jurisdiction were beyond the arbitrator's remit.
The case revolved around an agreement dated August 1, 2016, wherein Regenvo Mobile engaged Siyogi Enterprises for advertising services exclusively in Lucknow. Disputes arose when Siyogi Enterprises raised invoices for services rendered not only in Lucknow but also in other districts of Uttar Pradesh. The arbitrator had awarded Siyogi Enterprises Rs. 5.55 crore, including interest and costs, for unpaid invoices.
Regenvo Mobile challenged the arbitrator's award, arguing that the arbitration clause confined disputes to those arising within Lucknow. The company contended that the arbitrator, along with the Commercial Court, exceeded their jurisdiction by adjudicating claims related to other districts.
The High Court emphasized that arbitration clauses must be strictly construed and reaffirmed the principle of party autonomy. The judgment underscored that the scope of arbitration cannot be presumed to extend beyond what is explicitly agreed upon by the parties. The court found no evidence or agreement indicating that the parties intended to extend the arbitration clause beyond Lucknow.
The bench, comprising Chief Justice Arun Bhansali and Justice Jaspreet Singh, highlighted the patent illegality in the arbitrator's decision. The judgment reiterated that while arbitration is a favored mode of dispute resolution due to its finality and party autonomy, it must adhere to the terms agreed upon by the parties.
The court directed that disputes related to work conducted within Lucknow should proceed through arbitration as per the original agreement. However, claims concerning other districts must be pursued in appropriate legal forums. This judgment is a crucial reminder of the boundaries within which arbitration clauses operate, ensuring that arbitral decisions align with the agreed contractual terms.
Bottom Line:
Arbitration clause in an agreement is to be strictly construed and disputes beyond the agreed scope of arbitration cannot be presumed to be arbitrable unless explicitly agreed by the parties.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 34, 37
