By Annie Mittal, Advocate
Homevista Decor and Furnishing Pvt. Ltd. and Another vs Connect Residuary Private Limited, 2023 SCC OnLine Cal 1405 (Decided on 8 June 2023)
Relevant facts:
The case involves two Petitioners, Petitioner No. 1, an online portal operating under the name of www.homelane.com, providing custom home designs, and Petitioner No. 2, a company selling pre-designed modular kitchens and wardrobes online in India. Petitioner No. 2 had demerged and amalgamated into Petitioner No. 1.
Petitioner No. 2 had entered into a Master Rental Agreement (“MRA”) with the Respondent, a company offering office equipment and furniture on rental. As per the MRA, Petitioner No. 2 issued a bank guarantee of Rs. 74,00,000 to the Respondent to secure the rental arrangement.
The Respondent later assigned the rents under the MRA to SREI and reduced the bank guarantee to Rs. 64,68,938. Petitioner No.1 requested further reduction to Rs. 44,00,000, but it was not executed. Despite Petitioner’s requests not to encash the bank guarantee and to reduce it, the Respondent invoked the bank guarantee for Rs. 64,68,938.
The Petitioners sent legal notices invoking arbitration clause in the MRA on two occasions but, the Respondent refused to refer the dispute to arbitration in response to the first notice, and no response was received after the second notice.
Consequently, the Petitioners filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“Act”) before the High Court of Calcutta. The venue of the arbitration was specified as Kolkata in Exhibit 2 of the MRA but, the Special Forum Selection Clause (Clause 25) in the MRA conferred exclusive jurisdiction to the Courts in Mumbai for any disputes arising from the agreement. This clause raised the question of whether Kolkata could be the seat of arbitration, given the contrary indicia provided by exclusive jurisdiction to Courts of Mumbai.
Issues:
- Despite exclusive jurisdiction granted to Courts in Mumbai, can the Calcutta High Court entertain an Application under Section 11 of the Act?
- Does the invocation of the bank guarantee fall within the purview of the arbitration clause in the agreement?
Judgement:
The Counsel for the Petitioner argued that the MRA designated Kolkata as the venue for arbitration, and thus, all arbitration related proceedings should be exclusive to Kolkata. They relied on various judgments, including Hindustan Construction Company Limited v. NHPC Limited and BGS SGS SOMA v. NHPC Limited, to support its arguments.
On the other hand, the Respondent’s Counsel contended that the Specific Forum Selection Clause in the MRA granted exclusive jurisdiction to the courts in Mumbai, and this clause should override the arbitration clause, designating Kolkata as the venue. They cited judgments like Radha Sundar Dutta v. Mohd. Jahadur Rahim and Commercial Division Bowlopedia Restaurant India Limited v. Debyani International Limited to bolster their stance.
The Court analysed the law on ‘seat’ versus ‘venue’ in arbitration and referred to various precedents to gain clarity on the issue. The Court emphasized the importance of considering all clauses in the agreement to ascertain the parties’ true intention. It noted that clauses designating courts of one place with exclusive jurisdiction over disputes arising out of the agreement should be seen as ‘contrary indicia’, preventing the venue from being upgraded to the seat.
The Court discussed relevant judgments, including BGS SGS SOMA v. NHPC Limited, Mankastu Impex Private Limited v. Airvisual Limited, and others, to explain the distinction between the ‘seat’ and ‘venue’ of arbitration. It also addressed specific cases where similar issues were examined, such as Indus Mobile Distribution Pvt. Ltd. v. Data Wind Innovations Pvt. Ltd., Brahmani River Pellets Limited v. Kamachi Industries Limited, Height Insurance Services Limited v. Reliance Nippon Life Insurance Company Limited etc.
In conclusion, the Court held that the presence of a clause designating Courts in Mumbai with exclusive jurisdiction over disputes arising from the agreement was a ‘contrary indicia’ preventing Kolkata from being considered the ‘seat’ of arbitration. Therefore, the Calcutta High Court did not have jurisdiction to entertain the Section 11 application. The Court dismissed the application without costs and held that the issue of wrongful invocation of the bank guarantee should be examined by the Court having jurisdiction.
Comments:
This Judgment is a significant milestone in clarifying the long-lasting debate surrounding the distinction between “seat” and “venue” in arbitration agreements. By drawing from relevant precedents such as BGS SGS SOMA v. NHPC Limited and Mankastu Impex v. Airvisual Limited, the Court has solidified the legal position on this matter. The Court’s emphasis on considering “contrary indicia” and reading the arbitration clause in conjunction with other clauses of the agreement demonstrates a holistic approach to ascertain the true intention of the parties. This approach ensures that the arbitration process is not governed by isolated clauses but is interpreted in a comprehensive manner.
Furthermore, the Judgement clarifies that a clause designating a place as “venue” or “place” must be analysed along with another clause granting exclusive jurisdiction to a different court. This avoids potential conflicts and promotes a clear understanding of the actual seat of arbitration. The Court’s reliance on the Rule of Harmonious Construction provides a practical framework for resolving jurisdictional disputes and harmonizing seemingly conflicting clauses in arbitration agreements.
Overall, this Judgment paves the way for a more transparent and efficient arbitration process in India. It sets a strong precedent for parties to draft clear and precise arbitration clauses, leaving no room for ambiguity. The impact of the Judgement is likely to extend beyond this particular case, as it brings much needed clarity to the arbitration landscape and reinforces India’s position as an arbitration friendly jurisdiction.
