Intent Of S.11(6) Of Arbitration Act Is Not To Confer Jurisdiction On Courts Incompetent To Entertain Such Applications: Delhi High Court

Brief Facts:

The present petitions arise from two Home Loan Agreements dated 31.03.2018 between the petitioner and respondents. Under these agreements, the petitioner sanctioned loans of Rs. 1,24,00,000/- (Loan Account No. 833321 in Arb. P. 827/2024) and Rs. 2,76,00,000/- (Loan Account No. 830976 in Arb. P. 828/2024) to the respondents. The loans were disbursed against the mortgage of property Flat No. 702, measuring 272.31 sq. meters, 7th Floor, Survey No. 86/1/112, CTS No. 2024 Part, Building No. D, Montecito, Parvati, Pune, Maharashtra, 411009.

Disputes arose between the parties on account of alleged default on the part of the respondents in paying the requisite instalments. The respondents failed to make the payment despite being granted opportunities to clear the outstanding dues.

As the disputes between the parties continued, the petitioner issued demand notices dated 09.03.2023 and 04.07.2023 invoking arbitration. Due to the respondents' failure to respond, the petitioner, by letter dated 20.07.2024, appointed Mr. Mithilesh Jha [District Judge (Retd.)] as Sole Arbitrator to adjudicate the disputes. The learned Sole Arbitrator has since taken up the reference.

It is submitted that although the respondents appeared, they filed an application before the Sole Arbitrator challenging his jurisdiction to adjudicate the disputes. Subsequently, the petitioner sought withdrawal of the arbitration proceedings, which the Sole Arbitrator allowed vide order dated 20.04.2024, granting the petitioner liberty to approach the High Court for dispute resolution.

In the above circumstances, the petitioner has approached this Court, through the present petition, seeking the appointment of a sole arbitrator to adjudicate the dispute/s.

Observations:

The court noted that section 3 of the Arbitration Act provides that a written communication is deemed received if sent to the addressee's last known business or mailing address by any method that records the delivery attempt. In this case, the petitioner has made multiple attempts to serve the respondents, thereby fulfilling its duty to effect service.

It further observed that the arbitration clause in the Standard Terms and Conditions governing the parties' agreements is silent on the “seat and venue of arbitration.” The Supreme Court, in Ravi Ranjan Developers (P) Ltd. v. Aditya Kumar Chatterjee (2022), held that Section 11(6) of the Arbitration Act cannot be interpreted to empower a High Court lacking territorial jurisdiction to entertain an application for the appointment of an arbitrator.

The Delhi High Court in Aarka Sports Management Pvt. Ltd vs Kalsi Buildcon Pvt. Ltd, 2020 held that section 20(1) of the Arbitration Act empowers parties to determine the seat of arbitration, including the option to choose a neutral seat where neither the cause of action arose nor the parties reside, in which case Sections 16 to 20 of the Code of Civil Procedure (CPC) do not apply.

It further added that once the seat is fixed, the court at that location has exclusive jurisdiction over all matters related to the arbitration agreement. If the parties do not agree on the seat, it shall be determined by the Arbitral Tribunal under Section 20(2). In the absence of an agreed seat, the court competent to hear an application under Section 11 is the “court” defined under Section 2(1)(e) of the Act, read with Sections 16 to 20 of the CPC.

The court noted that the Delhi High Court in Faith Constructions vs N.W.G.E.L Church, 2025 held that at the stage of determining the Court's jurisdiction to entertain a petition under Section 11 of the Arbitration Act, where the parties have not agreed on the arbitration seat or venue, the Court must refer to Sections 16 to 20 of the Code of Civil Procedure.

The court further observed that the two relevant factors are: (i) where the respondent resides or carries on business, and (ii) where the cause of action, wholly or partly, arises. Since the respondent resides and operates in Odisha, the focus shifts to the location of the cause of action.

The court in the above case further held that the Supreme Court decisions establish that territorial jurisdiction depends on the accrual of cause of action—a bundle of material and integral facts giving rise to the right to sue. Insignificant or irrelevant facts do not form part of the cause of action.

It further held that territorial jurisdiction is based on where the cause of action accrues. Key principles include that contract formation is part of the cause of action, facts essential to the dispute must arise wholly or partly within the Court's jurisdiction, and trivial or incidental facts do not confer jurisdiction.

Based on the above, the court concluded that the loan agreements between the parties were executed in Pune, Maharashtra, and the mortgaged property is also located there. The respondents reside in Pune, while the petitioner's head office is in Gurugram, Haryana, and its registered office is in Mumbai, Maharashtra. The material on record clearly shows that no part of the cause of action has arisen within this Court's jurisdiction.

Accordingly, the present petition was dismissed.

Case Title: IIFL HOME FINANCE LTD versus PUNKAJ BHAGCHAND CHHALLANI & ORS

Citation: 2025 LiveLaw (Del) 583

Case Number: ARB.P. 827/2024

Judgment Date: 13/05/2025

For Petitioner: Mr. Niraj Kumar and Ms. Kirti Raj, Advs.

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