Mankastu Impex Private Limited vs Airvisual Limited

NAME OF THE CASE		Indus Mobile Distribution Pvt. Ltd vs  Datawind Innovations Pvt. Ltd. And Ors.
CITATION		AIR 2020 SUPREME COURT 1297
		ARBITRATION PETITION NO. 32 OF 2018
DATE OF JUDGEMENT		5th March 2020
PRTITIONER		Indus Mobile Distribution Pvt. Ltd.
RESPONDENT		Datawind Innovations Pvt. Ltd. And Ors.
BENCH /JUDGE		Hrishikesh Roy, A.S. Bopanna, R. Banumathi
STATUTES INVOLVED		Arbitration and Conciliation Act, 1996 and
IMPORTANT SECTIONS/ARTICLE		Arbitration and Conciliation Act, 1996:  Sections: 2(1)(f), 9, 11(6), 20(1)

Facts of the case:

In a reply dated October 15, 2017, the petitioner invoked the terms of a Memorandum of  Understanding with the respondent, according to which the petitioner has five years of  exclusive rights to sell AirVisual products within India. Additionally, the petitioner stated that  in accordance with the terms of the Memorandum of Understanding, in the event of any  takeout, buyout, or change in the entity's shareholding, the respondent was required to make  sure that the party taking over the business or assets would honour the contract on the same  terms and conditions. It is a deemed presumption that the acquisition of the respondent's  business or assets was done with consideration for the existing liabilities and obligations.

The petitioner emailed IQ Air AG and the respondent on October 31, 2017, requesting a  proforma invoice so that it may issue purchase orders. In response, IQ Air AG reaffirmed that  they have not taken on any legal responsibilities on behalf of the respondent. In contrast to the

initial price of USD 110 per unit that the petitioner and respondent had agreed upon, they  offered to supply the petitioner with IQ Air branded AirVisual Pro under a new non-exclusive  arrangement at a new wholesale price of USD 172 per unit. Following that, the petitioner  submitted multiple emails, but none of them were answered. The petitioner invoked the  arbitration option found in option 17 of the Memorandum of Understanding on December 8,  2017. Additionally, the petitioner suggested that Hon. Justice RC Chopra serve as the arbitrator,  subject to the respondent's and IQ Air AG's approval.

Provisions involved:

ARBITRATION AND CONCILIATION ACT, 1996:

Section 2. Definitions.: (1)In this Part, unless the context otherwise requires,

(f) international commercial arbitration means an arbitration relating to disputes arising out of legal  relationships, whether contractual or not, considered as commercial under the law in force in India and where at  least one of the parties is

(i)an individual who is a national of, or habitually resident in, any country other than India; or (ii)a body corporate which is incorporated in any country other than India; or

(iii)[* * *] [Omitted words 'a company or' by Act No. 3 of 2016 dated 31.12.2015.] an association or a body of  individuals whose central management and control is exercised in any country other than India; or(iv)the  Government of a foreign country;

9. Interim measures, etc., by Court. - [(1)] [Renumbered as sub-section (1) by Act No. 3 of 2016 dated  31.12.2015.] 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 a 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)[ 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.] [Inserted by Act No. 3 of 2016 dated 31.12.2015.]

11. Appointment of arbitrators.:

6)Where, under an appointment procedure agreed upon by the parties.

(a)a party fails to act as required under that procedure; or

(b)the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure;  or

(c)a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a  [the appointment shall be made, on an application of the party, by the arbitral institution designated by the  Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations  other than international commercial arbitration, as the case may be] [Substituted by Act No. 33 of 2019, dated  9.8.2019.] to take the necessary measure, unless the agreement on the appointment procedure provides other  means for securing the appointment.

20. Place of arbitration.

(1)The parties are free to agree on the place of arbitration.

Issued involved:

1. In light of Clause 17.2 of the Memorandum of Understanding, the question in this case  is whether the parties have agreed that Hong Kong will serve as the arbitration's seat  and whether this Court has the authority to consider the current petition submitted under  Section 11 of the Arbitration and Conciliation Act, 1996.

Arguments from the Petitioner’s side:

The respondent's skilled senior counsel, Mr. Ritin Rai, has argued that the arbitration will take  place in Hong Kong in accordance with Clause 17.2 of the memorandum of understanding  between the parties. Section 11 of the Arbitration and Conciliation Act does not apply to this  issue because the arbitration would take place outside of India. The learned Senior Counsel  argued that Clause 17.2, which states that "the place of arbitration shall be Hong Kong" and  that "all disputes arising out of the MoU shall be referred to and finally resolved and  administered in Hong Kong," makes it abundantly evident that the parties have agreed that the  arbitration will take place in Hong Kong. As a result, Part I and Section 11 are not applicable  to the current dispute. The petitioner must contact the Hong Kong International Arbitration  Centre, according to the learned senior counsel, because the Indian courts lack the authority to  consider the petition for arbitrator appointment.

The petitioner's learned attorney has argued that while both Hardy Exploration and BGS Soma  were decided by a three-judge bench, the later bench's statement that Hardy Exploration is not  a god law may not amount to an overriding of Hardy Exploration. It was argued that the learned  Bench in BGS Soma should have referred the case to a bigger Bench instead of holding that

the decision in Hardy Exploration was improper because both rulings were made by Benches  of comparable strength. In order to support the argument, the petitioner's learned counsel cited  Chandra Prakash and others v. State of U.P. and another (2002) 4 SCC 234, in which the Court  determined that the concept of binding precedent is crucial to the operation of the legal system  because it fosters consistency and certainty in court rulings. We are not inclined to discuss  whether BGS Soma is correct or not, nevertheless, given the facts and circumstances of the  case, Clause 17 of the MoU, and the specific clauses contained therein.

Arguments from the Respondent’s side:

In response to the petitioner's notice dated December 8, 2017, which invoked the arbitration  clause, IQ Air stated in a letter dated December 15, 2017, that it had not taken on any legal or  contractual obligations under its asset purchase agreement with the respondent and that the  terms of the Memorandum of Understanding were not enforceable against IQAir AG. In  response to the notice dated 08.12.2017, the respondent also sent a reply dated 05.01.2018,  indicating that Clause 17 of the MoU stipulates that arbitration will be conducted and seated in  Hong Kong. According to the respondent, the petitioner should submit the case to a Hong Kong  arbitration institution if they want to settle it through arbitration. According to the respondent,  the petitioner should submit the case to a Hong Kong arbitration institution if they want to  settle it through arbitration. Additionally, it was stated that the respondent explicitly consented  to arbitration administered in Hong Kong but did not consent to ad hoc arbitration. In light of  this, the petitioner requested the appointment of a sole arbitrator under Clause 17 of the  Memorandum of Understanding by filing a petition under Section 11(6) of the Arbitration and  Conciliation Act.

Clause 17.1 of the MoU expressly states that the MoU is regulated by Indian law and that the  courts in New Delhi have jurisdiction, according to Mr. Vikas Dutta, the petitioner's  experienced lawyer. It was argued that Hong Kong is not the arbitration's legal seat and that  the petitioner and respondent have just agreed upon Hong Kong as the "Venue" of arbitration.

Regarding the ruling in Union of India v. Hardy Exploration and Production (India) INC (2018)  7 SCC 374, the petitioner's learned counsel has argued that the ratio of the judgment explicitly  states that a "venue" can only become a "seat" if: (i) no other condition is postulated; (ii) if a  condition precedent is attached to the term "place," the aforementioned condition/indicia must  be satisfied first for "venue" to be equivalent to "seat." It was argued that Part I of the Act is  applicable in light of the parties' explicit agreement in Clause 17.1 that the MoU would be

regulated by Indian law and that the courts in New Delhi would have jurisdiction. As a result,  the request for the appointment of a solo arbitrator was made.

The respondent relied heavily on BGS SGS SOMA JV v. NHPC Ltd. 2019 (17) SCALE 369  to argue that the phrase "arbitration proceedings" would make it evident that the "venue" is  actually the "seat of arbitration proceedings" because it refers to the arbitration proceedings as  a whole, including the making of the award at that location, rather than just one or more single  or partial hearings. It was argued that in this instance, the use of the phrase "administered" in  Clause 17.2 of the parties' Memorandum of Understanding makes it abundantly evident that  the parties have agreed that the arbitration will take place in Hong Kong.

The petitioner's learned counsel has argued that a review of Clause 17.1 of the Memorandum  of Understanding makes it evident that the petitioner and the respondent have only agreed that  the proper law of the contract will be the laws of India. Since the MoU is obviously silent on  the proper law and the curial law of the arbitration, Clause 17.1 would govern the proper law  and the curial law. The petitioner claims that neither Clause 17 nor the entire Memorandum of  Understanding expressly or implicitly exclude the applicability of the laws of India, Hong  Kong, or any other nation. The petitioner contends that the terms in Clause 17.1 of the MoU  should never be compromised or weakened and that, in the lack of a specific stipulation  regarding the proper law and curial law of the arbitration, the laws of India should be taken as  the suitable law and curial law under the MoU.

Judgement Pronounced:

The parties' arbitration agreement stipulates that the arbitration will take place in Hong Kong.  It is not sufficient to conclude that the parties have selected Hong Kong as the arbitral location  based solely on their agreement to that effect. Clause 17.2 of the MoU and the phrase "the place  of arbitration shall be Hong Kong" had to be read. According to clause 17.2, arbitration  conducted in Hong Kong will be used to settle any disagreement, conflict, or disagreement  resulting from or connected to the Memorandum of Understanding.

The parties' agreement that the dispute will be referred to and ultimately settled by arbitration  conducted in Hong Kong makes it abundantly evident that they had decided that the arbitration  would take place in Hong Kong, that Hong Kong laws would apply to the arbitration  proceedings, and that the arbitration award would be subject to judicial review. According to  clause 17.2 of the Memorandum of Understanding, any dispute arising out of or relating to the

Memorandum of Understanding, including its existence, validity, interpretation, breach, or  termination, shall be referred to and ultimately resolved by arbitration conducted in Hong  Kong.

The phrase "arbitration administered in Hong Kong" in Clause 17.2 indicates that Hong Kong  is the arbitration's seat. The arbitration would be governed by Hong Kong rules once the parties  had decided that Hong Kong would be the venue for its administration. The nomination of an  arbitrator is outside the jurisdiction of Indian courts.

Conclusion:

Laws pertaining to seat and place have been construed in a number of ways. The distinction  between place and seat is explained in the 2012 Balco case. The author concurs with the ruling  since seat is regarded as the centre of gravity that will determine the applicable law, while place  is the actual location of arbitration. The "place of arbitration" is regarded as the "seat of  arbitration" in Mankastu cases. Given that Clause 17 mentions the word administered, the  Court reasoned that this could be the case. According to the author, the definition of  "administered" is accurate. To administer is to merely manage. It offers information on the law  governing arbitration as well as the actual location. The 1996 Act's Section 11(6) addresses the  appointment of arbitrators in domestic arbitrations and arbitrations held in India. When  proceedings take place outside of India, the clause is not applicable.

1. The closest relationship test and supervisory jurisdiction must be carefully construed in  order to determine how they will be applied in subsequent cases.

2. The issue of the "place" and "seat" of arbitration must be settled by a larger bench or  legislative.

3. Indian courts shouldn't vacillate between conflicting ideologies. It is necessary to  resolve any ambiguity about jurisdiction and the application of regulations.

Author(s): Riya Rao, intern at The Legal Lock, a 3rd year LLB student at G. D. Goenka University.