MANKASTU IMPEX PRIVATE LIMITED V. AIR VISUAL LIMITED, (2020) 5 SCC 399 BY - DR. LEENA MOUDGIL
MANKASTU IMPEX PRIVATE LIMITED V. AIR VISUAL LIMITED, (2020)
5 SCC 399
I. INTRODUCTION
The main source of international
arbitration law remains the intention of the parties.[1]
In order to avoid legal disputes, the commercial activity is to be preceded by
a contract fixing the obligations of the parties.[2]
With the rapid growth of the International Commercial Trade relations, parties
increased rights to determine their own disputes and freely determine the
nature of their relationship and contractual duties were recognized.[3] These are
the law governing the arbitration agreement and the performance of that
agreement; the law governing the existence and proceedings of the arbitral tribunal;
the law or the relevant legal rules, governing the substantive issues in
dispute- generally described as the ‘applicable law’, the ‘governing law’, the
‘proper law of contract’ or ‘the substantive law’; other applicable rules and
non-binding guidelines and recommendations and the law governing the
recognition and enforcement of the arbitral award.[4] The procedure in International Commercial
Arbitration is complex as it involves more than one system of law or of legal
rules. Determining the “seat” of arbitration is extremely important as it
determines the procedural law applicable to the arbitration, the law of
arbitration agreement and proper law of substantive contract.[5]
II. FACTS OF THE CASE
In the present case, the petition is
filed for the appointment of an arbitrator bythe Chief Justice of India under
Section 9 and Section 11 (6), Arbitration and Conciliation Act, 1996
(hereinafter referred to as 1996 Act)[6] and whether the parties have chosen “Hong
Kong” as the seat of arbitration.
The petitioner’s Company is incorporated
in India and respondent’s Company is incorporated under the laws of Hong Kong. In September 2016, the two companies entered intoMoU under
which the respondent agreed to sell to the petitioner the complete line of the
respondent’s air quality monitors products for onward sale. In 2017, the
petitioner received an e-mail from
one IQAir AG that the respondent is a part of IQAir AG. The petitioner sent
reply invoking the terms of MoU. Later,
petitioner issued a notice invoking the arbitration clause provided in Clause
17 the MoU and filed a petition under section 9 before Delhi High Court for
interim measures so as to allow him to be the authorized distributor for the
sale of all products in terms of the MoU and to injunct the respondent and
IQAir AG from terminating the MoU and from entering into any contract with
third parties for products which are the subject matter of the MoU.
On 15.12.2017, the
respondent via letter responded to the notice that it has not assumed any
contractual and legal obligations and terms of the MoU were not enforceable
against IQ Air AG. Also, Clause 17 of the MoU provides for arbitration
administered and seated in Hong Kong. The parties did not agree to ad hoc
arbitration. On this background, the petitioner filed a petition under Section
11 (6), 1996 Act for the
appointment of a sole arbitrator. In this case, Section 9 for Interim measures,
Section 11 (6), 1996 Act for the appointment
and Clause 17 of MOU are in question.
Clause 17 of the MoU provides 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 issue was regarding the seat of
arbitration when parties have mentioned the place of arbitration and not the
seat. Can it be said that place and seat of arbitration are same? The Court has
tried to settle the controversy.
In 2012, the Constitutional Bench in BharatAluminium Co. v. Kaiser Aluminium Technical Services Inc.[7]
(herein after referred as, Balco case)
held that Section 2(2) provides that Part I of the
1996 Act shall apply to all arbitrations which take place within India. 1996
Act would have no application to international commercial arbitration held
outside India. Therefore, such awards would only be subject to the jurisdiction
of the Indian courts when the same is sought to be enforced in India in
accordance with the provisions contained in Part II of the 1996 Act.
In Enercon (India) Ltd. v. Enercon
GMBH[8], the
Supreme Court held that “the location of the Seat will determine the courts
that will have exclusive jurisdiction to oversee the arbitration proceedings.
It was further held that the seat normally carries with it the choice of that
country’s arbitration/curial law”.
As per the facts, MoU is
governed by the laws of India and the courts at New Delhi have the
jurisdiction. In 2018, UOI v. Hardy Exploration and Production (India)
INC [9]
where the Court held that a “venue” can become a “seat” only if– (i) no other
condition is postulated; (ii) if a condition precedent is attached to the term
“place”, the said condition/indicia has to be satisfied first for “venue” to be
equivalent to “seat”. The counsel on behalf of the respondent submitted that clause 17.2
provides that the place of arbitration is Hong Kong and thus, for the
appointment of arbitrator the Indian Courts don’t have the jurisdiction. Later,
in 2019 in BGS Soma JV v. NHPC Ltd.[10]
case where the Court held that “venue” is really the “seat of arbitration proceedings”.
The ambiguity in judicial pronouncement and not having decision from larger
bench leaves us to analyse and interpret.
III.
SEAT VS.
PLACE
The seat of arbitration
is animportant aspect of any arbitration proceedings. The 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. The Court
held “seat of arbitration” and “venue of arbitration” cannot be used interchangeably.
Also, the “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 parties’ intention as to the “seat” should be determined from
other clauses in the agreement and the conduct of the parties.
Also, it is well-settled
that the “seat of arbitration” and “venue of arbitration” cannot be used
interchangeably. Mere expression “place of arbitration” cannot be the basis to
determine that parties 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. Clause 17.2 is clear
that the reference to Hong Kong as a “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. The
agreement between the parties that the dispute “shall be referred to and
finally resolved by arbitration administered in Hong Kong” clearly 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
the power of judicial review over the arbitration award.
Clause 17.2 of the
MoUprovides that “arbitration administered in Hong Kong” is an indicium that
the seat of arbitration is at Hong Kong. Once the parties have chosen “Hong
Kong” as the place of arbitration to be administered in Hong Kong, laws of Hong
Kong would govern the arbitration. The Indian courts have no jurisdiction for
the appointment of the arbitrator. As
discussed in Redfern and Hunter on International Arbitration that contains the
following explication of the issue[11]:
“To say that the
parties have “chosen” that particular law to govern the arbitration is rather
like saying that an English woman who takes her car to France has “chosen”
French traffic law, which will oblige her to drive on the right-hand side of
the road, to give priority to vehicles approaching from the right, and
generally to obey traffic laws to which she may not be accustomed. But it would
be an odd use of language to say this notional motorist had opted for “French
traffic law”. What she has done is to choose to go to France. The applicability
of French law then follows automatically. It is not a matter of choice.Nevertheless,
once a place of arbitration has been chosen, it brings with it its own law. If
that law contains provisions that are mandatory so far as arbitration is
concerned, those provisions must be obeyed. It is not a matter of choice any
more than the notional motorist is free to choose which local traffic laws to
obey and which to disregard.”
The words in Clause 17.1
do not suggest that the seat of arbitration is in New Delhi. The words
“without regard to its conflict 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. Since
the arbitration is seated in Hong Kong, the petition filed by the petitioner
under Section 11
(6) of
the Act is not maintainable and the petition is liable to be dismissed.
The reference to Section 2 (2)is necessary which
provides that Part-I shall apply where the place of arbitration is in India. If
the “International Commercial Arbitration” is seated in India, then Part-I of
the Act shall apply. Later, in 2015 Amendment, a proviso is added to Sec. 2 (2)
which provided that subject to an agreement to the
contrary, the provisions of sections 9, 27 (1) (a) and 37(3) shall also
apply to international commercial arbitration, even if the place of arbitration
is outside India, and an arbitral award made or to be made in such place is
enforceable and recognized under the provisions of Part II of this Act.
IV.
INTERPRETATION
The concept of supervisory
jurisdiction to bring out clarity in the law. In Mankastucase, 2020 the
Court observed similar to Balco case that in case of seat of arbitration
outside India, the Indian Courts cannot exercise supervisory jurisdiction over
the award or pass interim orders. But partiesshould incorporate Clause 17.3 so
that a party may seek interim relief for which Delhi Courts would have
jurisdiction. So, supervisory jurisdiction principle was not applied.
In Comparative
international arbitration, it is stated: “the choice of the place or seat of
arbitration is one of the key issues in drafting an arbitration agreement.
First, it may influence which law governs arbitration. Second, it has a bearing
on the issue which can exercise supervisory or supportive powers in relation to
arbitration. Third, the place of arbitration determines the nationality of the
award which is relevant for the ultimate enforcement of the award.[12]
In Mankastucase, the court has not gone into the correctness of the
BGS Soma case. The clause 17.1 of MoU is governed by the laws of India, without
regard to its conflicts of law provisions, and courts at New Delhi shall have
the jurisdiction. Clause 17.2 of the MoU provides that the place of arbitration
shall be Hong Kong. This clause clarifies that the place will be Hong Kong.
Also, in the MoU uses the word ‘administered’ implies that the parties have
agreed that the arbitration between the parties would be seated in Hong Kong.
The intention of the parties is not looked at from the point of concepts
earlier developed.
‘Administer’ means to be
responsible for managing a company, organization or institution.[13] The
word administer is a verb that implies to carry out administration and further
administration means organization and running of business.[14] According to Black’s Law
Dictionary the word ‘administration’ means management or performance of
executive duties of a government, institution or business.[15] These definitions elaborate
on the interpretation of the word administer and administration. This means
that organization of arbitration will be in Hong Kong. The organization of arbitration
implies that law applicability will be of Hong Kong only.
V. CONCLUSION AND SUGGESTIONS
The applicability of laws
regarding seat and place has been interpreted several times. In Balco case,
2012 the difference between place and seat is elaborated. The author agrees
with the decision as place is considered as physical location of arbitration and
seat is considered as the centre of gravity that will govern the law
applicable. In Mankastu case, the ‘place of arbitration’ is considered as ‘seat
of arbitration’. The Court considered that it can be so as the word
administered is mentioned in Clause 17. The author opines that the word
‘administered’ is interpreted correctly. Administer implies managing only. It
provides about not only physical location but also law governing arbitration. Sec. 11(6), 1996 Act provides about
appointment of arbitrator in domestic arbitration and arbitration seated in
India. The provision has no application when proceedings are outside India.
·
The concepts of supervisory jurisdiction and closest connection test have to be interpreted
minutely to decide their application in future cases.
·
There is an utmost need to resolve the point on ‘place’ and ‘seat’
of arbitration by a larger bench or legislature.
·
Indian courts should not swing between different principles. The
uncertainty regarding jurisdiction and application of provisions should be
settled.
* Associate Professor,Vivekananda School of Legal
Studies,Vivekananda Institute of Professional Studies, GGSIPU, Delhi.
[1]Mauro Rubino-Sammartano, International Arbitration: Law and Practice56
(Kluwer Law International, Delhi, 1st Indian edn., 2007).
[2] Sabyasachi Chatterjee, “Law applicable to
International Commercial Arbitration”, 109- 116 JSLC 4 (2004).
[3] Dickson Oruaze Moses, Chrispas Nyombi and
Tom Mortimer, “The Practicalities of Delocalisation in International Commercial
Arbitration”, International Business Law
Journal 2017 .
[4] Nigel Blackaby and Constatine
Partasides(et.al), Redfern and Hunter on International
Arbitration 165 (Oxford University Press, 2009).
[5]P.C. Markanda, Law relating to Arbitration and Conciliation 385 (Wadhwa and
Company Nagpur, 5thedn, 2003).
[6]The case is decided by Full Bench Judges namely
Justice R. Bhanumathi, Justice A.S. Bopanna, and JusticeHrishikesh Roy. Justice
R. Bhanumathi authored the judgment.
[7] (2012) 9 SCC 552.
[9] (2018) 7 SCC 374.
[10] 2019 (17) SCALE 369.
[11]Alan Redfern & Martin Hunter
et.al., Law and Practice on International Commercial Arbitration 87 (
Sweet& Maxwell, 4thedn., 2006).
[12] Julian DN Lew QC, Loukas A. Mistellis and Stefan M.
Karol (Kluwer Law International) (referred from P.C. Markanda,Law relating to Arbitration and Conciliation, (Lexis Nexis,
2019, 9th edn) (Reprint).
[14] Pearsall, The Concise Oxford Dictionary 17 (Oxford University Press, 1999).
[15] Bryan A. Garner, Black’s Law Dictionary 44 (West Group, St. Paul, Minn., 1999)