Mankastu Impex Private Limited v. Airvisual Limited, 2020 SCC Online SC 301 (decided on 5 March 2020)
The disputes between Mankastu Impex Pvt. Ltd., India (MIPL) and Air Visual Ltd., Hong Kong (AVL) arose under MOU to sell its air quality monitor products in India. MIPL was appointed as the exclusive distributor of AVL’s products for a period of five years. But, after AVL was acquired by IQAir AG (IQAir), the later informed that it will not assume any contracts or legal obligations of AVL and will work on a case to case basis with resellers to negotiate new contracts.
MIPL invoked arbitration (on 8 December 2017) as per Clause 17 of the MOU which reads as below:
“17. Governing Law and Dispute Resolution
17.1 This MoU is governed by the laws of India, without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction.
17.2 Any dispute, controversy, difference or claim arising out of or relating to this MoU, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered in Hong Kong.
The place of arbitration shall be Hong Kong. The number of arbitrators shall be one.
The arbitration proceedings shall be conducted in English language.
17.3 It is agreed that a party may seek provisional, injunctive, or equitable remedies, including but not limited to preliminary injunctive relief, from a court having jurisdiction, before, during or after the pendency of any arbitration proceeding.”
AVL/IQAir responded to the NIA stating that Clause 17 provides for arbitration administered and seated in Hong Kong. Therefore, MIPL should refer the dispute to an arbitration institution in Hong Kong. MIPL did not agree and reiterated that the arbitration is seated in India.
As this is an international commercial arbitration (ICA), MIPL filed a Petition under Section 11 of the Act before the Supreme Court for appointment of an arbitrator.
Whether seat of arbitration is India or Hong Kong as per Clause 17 of the MOU?
□ Significance of ‘seat’ reiterated
Significance of the seat of arbitration is that it determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award. The situs is not just about where an institution is based or where the hearings will be held. But it is all about which court would have the supervisory power over the arbitration proceedings.
□ Seat-Venue-Place: Determining criteria
“Seat of arbitration” and “venue of arbitration” cannot be used inter-changeably. It is well settled that expression “place of arbitration” cannot be the basis to determine the intention of the parties that they have intended that place as the “seat” of arbitration. The intention of the parties as to the “seat” should be determined from other clauses in the agreement and the conduct of the parties.
□ The words “arbitration administered in Hong Kong” is an indicia that seat is Hong Kong
Clause 17 of MOU provides “the place of arbitration shall be Hong Kong”. This by itself is insufficient to designate Hong Kong as the seat of arbitration. This part has to be read with Clause 17.2 which provides that “….any dispute, controversy, difference arising out of or relating to the MOU shall be referred to and finally resolved by arbitration administered in Hong Kong…..”. The Court further held that the reference to Hong Kong as “place of arbitration” is not a simple reference as the “venue” for the arbitral proceedings; but a reference to Hong Kong is for final resolution by arbitration administered in Hong Kong suggests that the parties have agreed that the arbitration be seated at Hong Kong and that laws of Hong Kong shall govern the arbitration proceedings as well as have power of judicial review over the arbitration award.
□ Hong Kong, ‘seat’ is not impacted by New Delhi Court’s jurisdiction in case of conflict
The words in Clause 17.1 “without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction” do not take away or dilute the intention of the parties in Clause 17.2 that the arbitration be administered in Hong Kong. The words in Clause 17.1 do not suggest that the seat of arbitration is in New Delhi. Clause 17.1 is to be read in conjunction with Clause 17.3 – the former may have been added in order to enable the parties to avail the interim relief since this is an ICA.
□ Section 11 Petition not maintainable
Since the arbitration is seated at Hong Kong, Section 11 Petition is not maintainable and hence it was dismissed with the option to MIPL to approach HKIAC.
The term ‘seat’ is not referred to in the (Indian) Arbitration Actor in the UNCITRAL Model Law from where the Indian Act was adopted. The term preferred across these statutes is ‘place’ of arbitration.
Though the final conclusion in the judgement is the most plausible and appropriate one, the interpretation adopted by the Court to arrive at ‘seat’ may open up Pandora’s box in the coming days. The judgment has potential to raise controversy in case an arbitration clause only refers to ‘place’ instead of ‘seat’ which may allow a party to argue that ‘seat’ is not where ‘place’ is referred to (of course, in certain circumstances).
The present case is also contrary to its decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, where the Constitution Bench observed that the place of arbitration would ordinarily be regarded as the seat of arbitration.
Although it is academic, but it worth noticing. MIPL raked up the controversial point :- Hardy Exploration (2018) and BGS Soma (2019), both being by the three-Judges Bench of the Supreme Court, declaration by the later Bench that Hardy Exploration is not a god law, may not tantamount to an overriding of Hardy Exploration and the learned Bench in BGS Soma ought to have referred the matter to larger Bench. But, the Court declined to go into the question on the correctness of BGS Soma as it found the solution on ‘seat’ from the clauses of agreement itself.
This case is yet another lesson why the parties should exercise caution while drafting arbitration clauses by constructing them with more clarity and by expressly specifying the ‘seat’ or ‘legal seat’ of arbitration.