Authored By: Samriddhi Singh, University of Lucknow Court: Karnataka High Court
Case: Sanjay Kumar v Elior India.
Bench: Hon’ble Mr. Justice M. Nagaprasanna
Writ Petition No.2584 of 2023
Introduction
The recent judgment by the Hon’ble Karnataka High Court in the case of Sanjay Kumar v. Elior India Food Services LLP brings to light a crucial aspect of commercial disputes arising from employment contracts. In the context of industrial disputes based on terms of employment, it’s essential to distinguish between labour arbitration under the Industrial Disputes Act (ID Act) and commercial arbitration.
Under the Industrial Disputes Act, labour arbitration is primarily governed by the agreement to arbitrate between the parties involved. This means that the parties voluntarily agree to submit their disputes to arbitration, providing a mechanism for resolving conflicts related to employment terms. The ID Act sets out the framework for addressing industrial disputes, and the arbitration process is guided by the terms established through mutual agreement.
Now, contrasting this with commercial arbitration, the key difference lies in the nature of disputes. While industrial disputes revolve around employment-related matters governed by the ID Act, commercial arbitration typically deals with disputes arising from business and commercial transactions. Commercial arbitration is often conducted based on the terms specified in commercial contracts, and the Arbitration and Conciliation Act, 1996, governs such proceedings.
This case addresses the jurisdiction of commercial courts in dealing with disputes that emanate from employment agreements. The petitioner, Mr. Sanjay Kumar, sought to restrain the Commercial Court from proceeding further in the matter, raising significant questions regarding the definition of commercial disputes and the jurisdiction of the Commercial Court.
2. Background:
The petitioner was initially hired by Elior India Food Services LLP (referred to as “the firm”) and thereafter became a partner and minor partner with a particular share in the firm. Due to the petitioner’s conduct and omissions, the firm launched an investigation by
submitting a charge sheet on 10-05-2022. In response to these procedures, the petitioner filed a Commercial Arbitration Application[1] before the Commercial Court on 13-05-2021, alleging Section 9 of the Arbitration and Conciliation Act, 1996, and citing an arbitration clause in the employment agreement.
The firm terminated the petitioner’s employment while the Section 9[2] application was pending. The petitioner invoked arbitration under Section 21 of the Act on 08-06-2021 and served notice on the firm. However, during the Section 21 procedures, the application under Section 9 filed before the Commercial Court was dismissed. The petitioner then filed a commercial appeal[3] before the Court, but it was similarly dismissed on 22-10-2021 by a Division Bench, which upheld the lower Court’s decision. The petitioner did not contest the Division Bench’s decision.
A three-member Arbitral Tribunal was formed in accordance with the Employment Agreement’s arbitration clause. The Arbitral Tribunal had its first hearing on December 8, 2021, at which the parties were represented and the Tribunal directed the completion of pleadings. The Arbitral Tribunal issued an order on December 15, 2022, in response to the claimant’s application under Section 17[4] of the Act.
In response to this order, the firm filed a Commercial Miscellaneous Application[5] before the Commercial Court, to which the petitioner objected, arguing that the Commercial Court lacked jurisdiction. In an order dated 30-01-2023, the Commercial Court asked the petitioner’s counsel to give a copy of the objections filed and decided to hear the matter on both jurisdiction and merits, scheduling it for 01-02-2023. This order, which ruled that the case will be heard on both jurisdiction and merits, spurred the petitioner to file the current petition with the Court.
3. Case Analysis: Analysing the Jurisdictional Conundrum
The case of Sanjay Kumar v. Elior India Food Services LLP delves into crucial questions surrounding the nature of a dispute arising from an employment agreement, the jurisdiction of the Commercial Court, and the implications of the petitioner’s actions in filing a Commercial Arbitration Application. The petitioner contended that the Commercial Court lacked jurisdiction, asserting that the dispute, as per Section 2(1)(c) of the Commercial Courts Act, did not qualify as a commercial dispute. The central issue revolved around whether a dispute rooted in an employment agreement fell within the scope of a commercial dispute. The petitioner’s counsel argued that the court should determine jurisdiction at the outset, emphasizing the need to decide this matter before delving into the merits of the case.
In response, the petitioner’s counsel vehemently asserted that labeling an employment contract as a provision of services should not automatically categorize it as a commercial dispute. They argued that errors in jurisdiction, even if consented to, should not confer jurisdiction upon a court. Furthermore, they highlighted that the dispute brought before the Arbitral Tribunal did not align with the definition of a commercial dispute outlined in Section 2(1)(c) of the Commercial Courts Act.
Contrary to these contentions, the respondent argued that the petitioner had invoked Section 9 of the Arbitration and Conciliation Act before the Commercial Court, a move that ended in dismissal. The petitioner’s subsequent appeal against this dismissal also proved unsuccessful. The respondent contended that by actively participating in these proceedings, the petitioner had effectively acquiesced to the jurisdiction of the Commercial Court. Additionally, the respondent maintained that the dispute, arising from an Employment Agreement, inherently qualified as a commercial dispute due to its connection with the provision of services.
Justice M. Nagaprasanna delivered a decisive judgment, asserting that merely characterizing an employment contract as a provision of services did not automatically transform it into a commercial dispute. The Court, in alignment with the Commercial Courts Act’s objective, emphasized that categorizing every employment agreement as a commercial dispute would overwhelm the commercial courts, contradicting their intended purpose. The judgment drew on the precedent set by the Supreme Court in the case of Ambalal Sarabhai Enterprises Limited v KS Infraspace LLP[6], highlighting the need for commercial courts to focus on cases directly related to commercial disputes rather than being swayed by the sheer value or a desire for swift settlements. The Court’s emphasis on the non-binding nature of jurisdiction erroneously invoked without objection reinforced the principles of fair legal proceedings.
4. Critical Appraisal:
I certainly agree with J. M Nagaprasanna and even in my opinion the decision of the High Court is consistent with the objective of the Commercial Court Act. If every employment agreement of the kind that is the subject matter in this case is brought within the ambit of commercial dispute, it would then be opening a pandora’s box or will be opening flood gates of litigation before the commercial court/s that would clog the courts. Thus, it would defeat the very reason why the commercial Court was constituted.
This judgment is a landmark decision as it distinguishes the term ‘commercial dispute’ from the dispute related to ‘employment contract’. Further, the Court righty in this case held that merely because a party invokes the wrong jurisdiction and a determination is made by the Court without parties objecting to it, jurisdiction will not become binding on subsequent proceeding. This decision also emphasizes that employment contract cannot be given colour of commercial dispute otherwise it will clog commercial courts.
5. Conclusion:
The High Court’s decision in this case is noteworthy as it distinguishes between a ‘commercial dispute’ and a dispute arising from an ’employment contract.’ It underscores that treating every employment agreement as a commercial dispute would overwhelm commercial courts, defeating the purpose for which they were established. The judgment establishes that jurisdiction, once erroneously invoked and determined without objection, does not become binding in subsequent proceedings. This decision contributes significantly to the clarity of the scope of commercial disputes and the jurisdiction of commercial courts in India.
[2] Section 9, Arbitration and Conciliation Act, 1996
[3] Com.A.P.No.161 of 2021
[4] Section 17, Arbitration and Conciliation Act, 1996
[6] 2019 Latest Caselaw 945 SC
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