Case Brief of Indus Mobile Distribution Pvt. Ltd vs Datawind Innovations Pvt. Ltd. And Ors | Case Briefs | The Legal Lock
Case Brief of Indus Mobile Distribution Pvt. Ltd vs Datawind Innovations Pvt. Ltd. And Ors
Vaidehi Sharma
·
By the Supreme Court of India
NAME OF THE CASE
Indus Mobile Distribution Pvt. Ltd vs Datawind Innovations Pvt. Ltd. And Ors.
CITATION
AIR 2017 SUPREME COURT 2105
CIVIL APPEAL NO.: 5370-5371 OF 2017
DATE OF JUDGEMENT
19th April 2017
PRTITIONER
Indus Mobile Distribution Pvt. Ltd.
RESPONDENT
Datawind Innovations Pvt. Ltd. And Ors.
BENCH /JUDGE
R.F. Nariman, Pinaki Chandra Ghose
STATUTES INVOLVED
Arbitration and Conciliation Act, 1996 and Code of Civil Procedure, 1908, UNCITRAL Model Law on International Commercial Arbitration
IMPORTANT SECTIONS/ARTICLE
Arbitration and Conciliation Act, 1996: Sections: 2(1)(e), 20, 9, 16-21. Code of Civil Procedure, 1908: Section 20
Facts of the case:
Respondent No. 1 is involved in the production, marketing, and distribution of mobile phones, tablets, and their accessories. These are the essential information to understand the disagreement. Amritsar, Punjab, is the registered office of Respondent No. 1. Respondent No. 1 was delivering products from New Delhi to the appellant in Chennai. Respondent No. 1 was approached by the appellant, who conveyed a sincere wish to work with Respondent No. 1 as its retail chain partner. In light of this, the parties signed an agreement dated October 25, 2014. Clauses 18 and 19, which are listed below, are pertinent to our purposes.
Arbitration: In case of any dispute or differences arising between parties out of or in relation to the construction, meaning, scope, operation or effect of this Agreement or breach of this Agreement, parties shall make efforts in good faith to amicably resolve such dispute.
If such dispute or difference cannot be amicably resolved by the parties (Dispute) within thirty days of its occurrence, or such longer time as mutually agreed, either party may refer the dispute to the designated senior officers of the parties.
If the Dispute cannot be amicably resolved by such officers within thirty (30) days from the date of referral, or within such longer time as mutually agreed, such Dispute shall be finally settled by arbitration conducted under the provisions of the Arbitration & Conciliation Act 1996 by reference to a sole Arbitrator which shall be mutually agreed by the parties. Such arbitration shall be conducted at Mumbai, in English language.”
Following disagreements between the parties, Respondent No. 1 sent the appellant a notice dated September 25, 2015. According to the notice, the appellant was required to pay the outstanding balance of Rs. 5 crores, together with interest, within a period of seven days. Respondent No. 1 invoked Clause 18 of the Agreement, and Justice H.R. Malhotra was designated as the parties' sole arbiter. The appellant objected to Justice Malhotra's appointment and requested that Respondent No. 1 retract its notice in a reply dated October 15, 2015. In a follow-up response dated October 16, 2015, the notice's allegations were completely refuted.
The contested ruling dismissed both applications. First and foremost, the contested judgment held that only the courts of three territories Delhi, Chennai, and Amritsar, the appellant company's registered office could have jurisdiction over the case because no portion of the cause of action originated in Mumbai. Because the courts in Mumbai would have no jurisdiction at all, the court determined that the exclusive jurisdiction clause would not apply on facts.
As a result, it decided that Delhi, the first court to be contacted, would have jurisdiction over the case. It then confirmed the interim order dated 22.9.2015 and resolved the Section 11 petition by designating retired Supreme Court Judge Justice S.N. Variava as the only arbitrator in the proceedings. The ruling said that the arbitration would be held in Mumbai. Respondent No. 1's experienced counsel attempted to refute these claims by arguing that no portion of the cause of action originated in Mumbai.
Respondent No. 1's experienced counsel attempted to refute these claims by arguing that no portion of the cause of action originated in Mumbai. Given this, it wouldn't matter whether the seat were in Mumbai because one of the requirements outlined in the Civil Procedure Code, 1908, must be met in order for a court to have jurisdiction. Since none of these requirements are met by the current case's circumstances, the contested decision is accurate and doesn't need to be changed.
Provisions involved:
ARBITRATION AND CONCILIATION ACT, 1996:
Section 2(1)(e): Definitions.—
(1) In this Part, unless the context otherwise requires,— (e) “Court” means—**
(i) in the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small
Causes;
(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that
High Court;]
Section 9. Interim measures, etc., by Court.—
1[(1)]A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court—**
(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters, namely:— (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.
2[(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine. (3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.]
Section 16. Competence of arbitral tribunal to rule on its jurisdiction.—
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.
Section[17. Interim measures ordered by arbitral tribunal.—
(1) A party may, during the arbitral proceedings 2*** , apply to the arbitral tribunal—
(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters, namely:— (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken, or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient, and the arbitral tribunal shall have the same power for making orders, as the court has for the purpose of, and in relation to, any proceedings before it.
(2) Subject to any orders passed in an appeal under section 37, any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure,1908 (5 of 1908), in the same manner as if it were an order of the Court.]
Section 18. Equal treatment of parties*. —*
The parties shall be treated with equality and each party shall be given a full opportunity to present this case.
Section 19. Determination of rules of procedure.—
(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).
(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings.
(3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.
(4) The power of the arbitral tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence.
Section 20. Place of arbitration*.—*
(1) The parties are free to agree on the place of arbitration. (2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. (3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at anyplace it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.
Section 21. Commencement of arbitral proceedings.—
Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
CODE OF CIVIL PROCEDURE, 1908:
Section 20. Other suits to be instituted where defendants reside or cause of, action arises .-
Subject to the limitations aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction-
(a)the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or (b)any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or
(c)the cause of action, wholly or in part, arises.
[* * * *][ Explanation ] [Substituted by the Code of Civil Procedure (Amendment) Act, 1976, Section 7, for " Explanation II" (w.e.f. 1.2.1977). ].-A corporation shall be deemed to carry on business at its sole or principal office in [India] [Substituted by Act 2 of 1951, Section 3, for " the States" . ] or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.
Issues involved:
1. The current appeals raise the intriguing question of whether an exclusive jurisdiction clause that states that the courts in Mumbai alone would have jurisdiction over disputes arising under the agreement would disqualify all other courts, including the Delhi High Court whose ruling is being appealed, when the arbitration's seat is Mumbai. As long as the dispute is pending, it is hereby "agreed between the Parties that they will continue to perform their respective obligations under this Agreement."
Arguments from the Petitioner’s side:
On behalf of the appellant, learned counsel has challenged the Delhi High Court's ruling, arguing that even if it were acknowledged that the arbitration's seat was in Mumbai, courts in Mumbai would still have exclusive jurisdiction over all proceedings pertaining to the matter. He consequently claims that the contested ruling was incorrect and should be overturned.
Arguments from the Respondent’s side:
Respondent No. 1's experienced counsel attempted to refute these claims by arguing that no portion of the cause of action originated in Mumbai. Given this, it wouldn't matter whether the seat were in Mumbai because one of the requirements outlined in the Civil Procedure Code, 1908, must be met in order for a court to have jurisdiction. Since none of these requirements are met by the current case's circumstances, the contested decision is accurate and doesn't need to be changed.
Judgement Pronounced:
In the contested ruling, the Delhi High Court rejected both applications and ruled that only three territories' courts would have jurisdiction: Amritsar (the appellant's registered office), Delhi, and Chennai (where the commodities were received and supplied, respectively). The Court decided that as the cause of action did not originate in Mumbai, the exclusive jurisdiction clause would not apply in this case. An arbitrator was appointed under the Section 11 petition after it was decided that the Delhi High Court would have jurisdiction. Mumbai was to be the arbitration's location.
The link between arbitration processes and the legal system is discussed in this ruling. It's an easy decision. According to the Court, the designation of a "seat of arbitration" in an arbitration agreement is comparable to an exclusive jurisdiction clause. It should be noted that the ruling dealt with an arbitration agreement in which Mumbai courts were specifically granted exclusive jurisdiction (the word "only" was used). In one audacious move, the Court decided that exclusive jurisdiction would be granted simply by designating a "seat."
The ruling now makes use of both English and Indian jurisprudence. It also depends on scholarly analysis. These rulings and a few other significant Indian court rulings will be examined in this analysis. The Supreme Court observes that a neutral location may be selected as the arbitration process's seat. No part of the cause of action may have originated at that neutral venue, hence it may not have jurisdiction in the traditional sense.
It is crucial to make the situation clear. For instance, A and B may do business in Kolkata, but they have chosen Mumbai a neutral location as the arbitration's seat. Which court would have jurisdiction when the arbitration takes place in Mumbai, a neutral location, even though the cause of action may have arisen in Kolkata? In essence, the Court's approach is focused on this.
The decision places heavy reliance on the constitutional bench decision of BALCO v. Kaiser Aluminium Technical Services. At the beginning of the decision, a reference to Paragraph 96 of BALCO is made. The paragraph discussed Section 2(1)(e) [Definition of ‘Court’] and Section 20 [Place of Arbitration] of the Arbitration and Conciliation Act, 1996. Paragraph 96 notes that the legislature has intentionally given jurisdiction to two courts. The Court in the neutral venue exercises supervisory control over the arbitral process. The Court under whose jurisdiction the subject matter of the suit is situated would also possess jurisdiction.
After taking note of this, Indus swiftly decided that an exclusive jurisdiction clause is comparable to an agreement regarding the arbitration's seat. It was based on the Court of
Appeal, England's ruling in C v. D [i], which noted that "a choice of seat for the arbitration must be a choice of forum for remedies seeking to attack the award." Indus aligned itself with the framework of international instruments like the UNCITRAL Model Law and the New York Convention.
The Supreme Court's decisions in Reliance Industries v. Union of India and Enercon (India) Ltd. v. Enercon Gmbh were also cited by Indus. The court noted that arbitrations are tied to the arbitration's seat.[ii] Based on these precedents, the court came to the conclusion that, after the arbitration's location has been determined, it will function as an exclusive jurisdiction provision for the courts that have supervisory authority over the arbitration.
The final decision in Indus and paragraph 96 of BALCO appear to be at odds. This discrepancy is enough to question Indus's jurisprudential accuracy. We must closely examine A.B.C. Laminart v. AP Agencies, Salem in order to comprehend the gap. A.B.C. Laminart represents the legal precept that courts will consider cases unless the contract specifically states otherwise. The doctrine of ouster, which allows for the exclusion of jurisdiction, was mentioned in the case of Hakam Singh v. Gammon (India) Ltd.
The issue with Indus is that after the parties have designated an arbitral seat, it denies them the ability to select a jurisdiction. Paragraph 96 of BALCO, which states that courts in two different sites have concurrent jurisdiction, is in conflict with this. As stated in ABC Laminart and Hakam Singh, parties may now choose one jurisdiction and exclude others. The parties used this option in the Indus case by explicitly granting Mumbai courts exclusive jurisdiction.
Conclusion:
The right of the parties to select one of several legitimate jurisdictions is now taken away by Indus' decision that the simple assignment of the arbitration's seat grants exclusive jurisdiction. One issue with Indus is this. The court came to the conclusion that after the arbitration's location has been determined, it will function as an exclusive jurisdiction provision for the courts that have supervisory authority over the arbitration.
Author(s): Riya Rao, intern at The Legal Lock, a 3rd year LLB student at G.D. Goenka University.
