Delhi High Court Dismisses Arbitration Petition For Lack Of Jurisdiction | Cause Of Action Must Have Nexus With Dispute To Confer Territorial Jurisdiction
Isabella Mariam
The High Court of Delhi Single Bench of Justice Sachin Datta dismissed two arbitration petitions, holding that the Court lacked territorial jurisdiction to entertain the matters. The petitions sought the appointment of a sole arbitrator under Section 11(5) of the Arbitration and Conciliation Act, 1996. The Court stated that "no part of the cause of action has arisen within the jurisdiction of this Court" and consequently dismissed the petitions. The Court allowed liberty to the petitioner to approach the appropriate jurisdictional court. The dismissal was issued despite the respondents’ non-appearance, based on a detailed examination of the underlying agreements, statutory provisions, and judicial precedents.
The petitions arose from disputes related to two home loan agreements dated 31.03.2018 between the petitioner and the respondents. As per the agreements, the petitioner sanctioned loans of Rs.1,24,00,000 (Loan Account No. 833321) and Rs.2,76,00,000 (Loan Account No. 830976) in favour of the respondents. These were disbursed against a mortgaged property identified as Flat No. 702, admeasuring 272.31 sq. meters, located on the 7th floor of Montecito Building, Parvati, Pune, Maharashtra.
The agreements were governed by a standard set of terms and conditions, including an arbitration clause which stated:
"The Borrower and IIFL HFC agrees that agreement shall be construed in accordance with the laws in force in India and in the event that any dispute or difference should arise between the parties in performance, interpretation and/or application with respect to the present agreement including but not limited as to any amount outstanding and/or on any matter relating to or arising out of the present agreement the same shall be referred to the Sole Arbitration of an Arbitrator to be appointed by IIFL HFC whose decision shall be final and binding upon the Parties.”
The dispute arose due to alleged defaults by the respondents in repayment of EMIs. Despite repeated opportunities, the dues remained unpaid. Consequently, the petitioner-initiated recovery proceedings under Section 13(2) of the SARFAESI Act, 2002. The mortgaged property was eventually auctioned. After adjusting the auction proceeds, Rs.1,16,13,945.79 (ARB.P. 827/2024) and Rs.33,72,850.11 (ARB.P. 828/2024) remained outstanding.
Subsequently, the petitioner issued arbitration invocation notices on 09.03.2023 and 04.07.2023, and unilaterally appointed Mr. Mithilesh Jha, District Judge (Retd.), as the Sole Arbitrator through a letter dated 20.07.2024. The arbitrator entered reference, but objections were raised by the respondents regarding jurisdiction.
Thereafter, the petitioner filed an application for withdrawal of arbitration proceedings. On 20.04.2024, the Sole Arbitrator allowed withdrawal of the proceedings and granted liberty to the petitioner to approach the High Court under Section 11.
Despite initiating proceedings before the Delhi High Court, service attempts on the respondents failed. The petitioner submitted an affidavit of service dated 17.10.2024, confirming returned speed posts marked "Item returned, Addressee left without instructions."
The Court took note of these efforts and, under Section 3 of the Arbitration and Conciliation Act, held that the petitioner had discharged its onus to effect service, permitting the matter to be taken up ex-parte.
The primary issue that arose was whether the Delhi High Court had territorial jurisdiction to entertain the petitions given that the arbitration clause was silent on seat and venue. The petitioner’s registered office was in Mumbai, corporate office in Gurugram, and the agreements were executed in Pune with mortgaged property also located there. Respondents resided in Pune as well.
Justice Sachin Datta recorded that “the arbitration clause contained in the Standard Terms and Conditions which govern the agreements executed between the parties is silent on the ‘seat and venue of arbitration’.” This necessitated a judicial inquiry into territorial jurisdiction.
Referring to the Supreme Court’s judgement in Ravi Ranjan Developers (P) Ltd. vs Aditya Kumar Chatterjee, 2022 SCC OnLine SC 568, the Court cited:
“An application under Section 11(6) of the A&C Act for appointment of an Arbitrator/Arbitral Tribunal cannot be moved in any High Court in India, irrespective of its territorial jurisdiction… It could never have been the intention of Section 11(6) of the A&C Act that arbitration proceedings should be initiated in any High Court in India… to put an opponent at a disadvantage and steal a march over the opponent.”
A coordinate Bench’s view in Aarka Sports Management Pvt. Ltd vs Kalsi Buildcon Pvt. Ltd, 2020 SCC OnLine Del 2077 was also referred to. The Court noted:
“Once the seat is determined, the Court of that place shall have exclusive jurisdiction to deal with all matters relating to arbitration agreement between the parties.”
Further, in the absence of an agreed seat, the “Court competent to entertain an application under Section 11 of the Arbitration and Conciliation Act would be the ‘Court’ as defined in Section 2(1)(e) of the Act read with Sections 16 to 20 of the Code of Civil Procedure.”
Reliance was also placed on Faith Constructions vs N.W.G.E.L Church, 2025 SCC OnLine Del 1746, which had observed: “In case of lack of consent between the parties as to the seat/venue of arbitration… the Court must determine jurisdiction by taking the aid of Sections 16 to 20 of the CPC.”
Applying this principle, Justice Datta observed: “The respondents reside and carry on their business in the state of Maharashtra. Furthermore, the property mortgaged… is situated in Pune, Maharashtra. The agreements were executed in Pune. Therefore, no part of the cause of action has arisen within the jurisdiction of this Court.”
The judgment further stated: “Territorial jurisdiction of a Court is ascertained having regard to the place of accrual of cause of action… cause of action is a bundle of facts which create rights and obligations and gives rise to the right to sue to a party.”
Quoting Alchemist Ltd. v. State Bank of Sikkim, (2007) 11 SCC 335, the Court recorded: “The test is whether a particular fact(s) is (are) of substance and can be said to be material, integral or essential part of the lis between the parties. If it is, it forms a part of cause of action.”
Justice Sachin Datta concluded: “The material on record clearly indicates that no part of the cause of action has arisen within the jurisdiction of this Court.”
Accordingly, the petitions were dismissed with the following direction: “As such, this Court does not have jurisdiction to entertain the present petitions. The same are, consequently, dismissed.”
The Court allowed liberty to the petitioner to proceed before the appropriate forum, stating: “Needless to say, the petitioner is at liberty to file an appropriate petition in the concerned jurisdictional Court, which shall be dealt with in accordance with law.”
The Court made no orders as to costs.
Advocates Representing the Parties:
For the Petitioners: Mr. Niraj Kumar and Ms. Kirti Raj, Advocates
Case Title: IIFL Home Finance Ltd v. Punkaj Bhagchand Chhallani & Ors.
Neutral Citation: 2025: DHC:3651
Case Number: ARB.P. 827/2024 & 828/2024
Bench: Justice Sachin Datta
[Read/Download order]
