Mankastu Impex Private Limited vs Airvisual Limited on 5 March, 2020


Supreme Court of India

Mankastu Impex Private Limited vs Airvisual Limited on 5 March, 2020

Author: R. Banumathi

Bench: R. Banumathi, A.S. Bopanna

                                                                        REPORTABLE
                                          IN THE SUPREME COURT OF INDIA
                                           CIVIL APPELLATE JURISDICTION

                                     ARBITRATION PETITION NO. 32 OF 2018


                         MANKASTU IMPEX PRIVATE LIMITED                            ...Petitioner

                                                       VERSUS

                         AIRVISUAL LIMITED                                     …Respondent

                                                    JUDGMENT

R. BANUMATHI, J.

This petition has been filed under Section 11(6) of the

Arbitration and Conciliation Act, 1996 read with Arbitration and

Conciliation (Amendment) Act, 2015 read with the Appointment of

Arbitrator by the Chief Justice of India Scheme, 1996 seeking

appointment of a sole arbitrator under Clause 17.2 of the

Memorandum of Understanding dated 12.09.2016 between

petitioner-Company incorporated in India and respondent-

incorporated under the laws of Hong Kong.

2. Brief facts of the case relevant for the purposes of this petition

Signature Not Verified
are as under:-

Digitally signed by
MAHABIR SINGH

The petitioner-company incorporated in India conducts
Date: 2020.03.05
14:47:00 IST
Reason:

business under the brand name “Atlanta Healthcare” and is in the

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business of air quality management and supply of air purifiers, car

purifiers, anti-pollution masks and air quality monitors. The

respondent is a company incorporated under the laws of Hong

Kong and is in the business of manufacture and sale of air quality

monitors as well as air quality information. A Memorandum of

Understanding (MoU) dated 12.09.2016 was entered into between

the parties under which the respondent agreed to sell to the

petitioner the complete line of the respondent’s air quality monitors

products for onward sale. As per the terms of the agreement, the

petitioner was appointed as an exclusive distributor for the products

for sale within India. Additionally, non-exclusive rights were given to

the petitioner qua distribution for sales in Sri Lanka, Bangladesh

and Nepal. This agreement was to continue for a period of five

years from the starting date, which date was to commence from the

date of delivery of the first lot of Air Quality monitors in India, i.e.

03.10.2016 or 01.11.2016, whichever was later. As per the

petitioner, it has spent approximately Rs.17,00,000/- in promoting

and creating a brand value for the products in India. Further the

petitioner spent Rs.9,00,000/- towards promoting the products at

over fifteen business events such as Indo-German Natural Health

Fair, India International Trade Fair, etc.

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3. On 14.10.2017, the petitioner received an e-mail from one Mr.

Charl Cater of IQAir AG (Proposed respondent No.2) informing the

petitioner that the respondent is a part of IQAir AG. Attached to the

e-mail was a letter dated 13.10.2017 by the CEO of IQAir AG

stating that IQAir AG has acquired all technology and the

associated assets of the respondent. Further, the product of

AirVisual Node has been discontinued and the IQAir AG is in the

process of relaunching a new and improved version which will be

rebranded as IQAir AirVisual Pro. The letter also stated that IQAir

AG will not assume any contracts or legal obligations of the

respondent and will work on a case to case basis with resellers to

negotiate new contracts and that the IQAir AirVisual products will be

made available under separate dealer agreements.

4. The petitioner sent reply dated 15.10.2017, invoking the terms

of MoU with the respondent as per which the petitioner holds

exclusive rights for sale of AirVisual Products for five years within

the territory of India. Further the petitioner stated as per the terms of

the MoU, in the event of any take out/buy out or change in

shareholding of the entity, it was obligatory on the part of the

respondent to ensure that the party taking over the business/assets

shall honour the contract on the same terms and conditions and it is

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a deemed presumption that the acquisition of business/assets of the

respondent has been done keeping in view the existing liabilities

and obligations.

5. On 31.10.2017, the petitioner sent an e-mail to the respondent

and IQAir AG seeking Proforma Invoice to enable it to issue

purchase orders. In reply, it was reiterated by IQAir AG that they

have not assumed any legal obligations of the respondent.

However, they offered to supply IQAir branded AirVisual Pro to the

petitioner under a new non-exclusive arrangement with a new

wholesale price of USD 172 per unit as against the original price of

USD 110 per unit agreed upon between the petitioner and the

respondent. The petitioner thereafter sent several e-mails but no

response was received. On 08.12.2017, the petitioner issued a

notice invoking the arbitration clause provided in Clause 17 the

MoU. The petitioner also proposed the name of Hon’ble Justice RC

Chopra as the arbitrator, subject to consent of the respondent and

IQAir AG.

6. The petitioner filed a petition under Section 9 of the Arbitration

and Conciliation Act before the Delhi High Court on 11.12.2017

seeking directions against the respondent and IQAir AG to honour

the terms and conditions of the MoU dated 12.09.2016 and to allow

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the petitioner to continue acting as the authorised 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. Vide interim order dated 28.02.2018,

the High Court restrained the respondent from selling any of its

products in India. The petition filed under Section 9 of the Act by the

petitioner is still pending before the High Court.

7. In response to the petitioner’s notice dated 08.12.2017,

invoking the arbitration clause, IQAir vide its letter dated

15.12.2017, under its asset purchase agreement with the

respondent, it has not assumed any contractual and legal

obligations and that the terms of the MoU were not enforceable

against IQAir AG. The respondent also sent its reply dated

05.01.2018 to the notice dated 08.12.2017 stating that Clause 17 of

the MoU provides for arbitration administered and seated in Hong

Kong. The respondent averred that should the petitioner wish to

resolve the dispute by arbitration, they should refer the dispute to an

arbitration institution in Hong Kong. Further, it was stated that the

respondent did not agree to ad hoc arbitration but clearly agreed to

administered arbitration in Hong Kong. It was in this backdrop, the

petitioner filed petition under Section 11(6) of the Arbitration and

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Conciliation Act seeking appointment of Sole Arbitrator under

Clause 17 of the MoU.

8. According to the petitioner, the proposed arbitration between

the Petitioner and the respondent being an arbitration between a

company registered in India under the Companies Act, 1956 and

the respondent – a body corporate which is incorporated under the

laws of Hong Kong, is an “International Commercial Arbitration” as

per Section 2(1)(f) of the Arbitration and Conciliation Act, 1996

having seat of arbitration in Delhi. In terms of Section 11(6) read

with Section 11(9), the petitioner therefore seeks appointment of

arbitrator.

9. Mr. Vikas Dutta, learned counsel for the petitioner submitted

that Clause 17.1 of the MoU clearly stipulates that the MoU is

governed by the laws of India and the courts at New Delhi have the

jurisdiction. It was submitted that the petitioner and the respondent

have only agreed Hong Kong as the “Venue” of arbitration and

Hong Kong is not the juridical seat of the arbitration. As to the

decision in the case of Union of India v. Hardy Exploration and

Production (India) INC (2018) 7 SCC 374, the learned counsel for

the petitioner has contended that the ratio of the judgment clearly

postulates that a “venue” can become a “seat” only if – (i) no other

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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”. It was submitted that in view of

clear Clause 17.1 where the parties have clearly agreed that the

MoU has to be governed by the laws of India and the courts at New

Delhi would have the jurisdiction, Part-I of the Act is applicable and

hence, prayed for appointment of sole arbitrator.

10. Mr. Ritin Rai, learned Senior counsel for the respondent has

submitted that as per Clause 17.2 of the MoU entered into between

the parties, the place of arbitration shall be Hong Kong. Since the

place of arbitration is outside India, Section 11 of the Arbitration and

Conciliation Act has no application to the present dispute. The

learned Senior counsel submitted that the expression used in

Clause 17.2 which provides “the place of arbitration shall be Hong

Kong”, in addition to also providing that “all disputes arising out of

the MoU shall be referred to and finally resolved and administered

in Hong Kong” clearly shows that the parties have agreed that the

arbitration between the parties would be seated in Hong Kong and

therefore, Part-I is not applicable and Section 11 has no application

to the present dispute. The learned Senior counsel submitted that

the petitioner is required to approach the Hong Kong International

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Arbitration Centre and the Indian Courts have no jurisdiction to

entertain the petition for appointment of arbitrator.

11. On behalf of the respondent, much reliance was placed upon

BGS SGS SOMA JV v. NHPC Ltd. 2019 (17) SCALE 369 to

contend that the expression “arbitration proceedings” would make it

clear that the “venue” is really the “seat of arbitration proceedings”

as the aforesaid expression does not include just one or more single

or part hearing but the arbitration proceedings as a whole including

making of the award at that place. It was submitted that in the

present case, the word “administered” used in Clause 17.2 of the

MoU between the parties clearly shows that the parties have agreed

that the arbitration between the parties would be seated in Hong

Kong.

12. In BGS Soma, the expression used was “….arbitration

proceedings shall be held at New Delhi/Faridabad”. In BGS Soma,

the three-Judges Bench of the Supreme Court held that in all the

three appeals by the parties, proceedings were held at New Delhi

and the awards were also signed at New Delhi and not in

Faridabad. The learned Bench held that in the absence of contrary

expression expressed by the parties, it leads to the conclusion that

the parties have chosen New Delhi as the seat of arbitration under

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Section 20(1) of the Arbitration Act. In BGS Soma, the Bench held

that the judgment in Hardy Exploration is contrary to the decision of

the Constitution Bench judgment of this Court in Bharat Aluminium

Company v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC

552 (BALCO) and therefore, cannot be considered good law.

13. Learned counsel for the petitioner has contended that Hardy

Exploration and BGS Soma, both being by the three-Judges Bench,

declaration by the later Bench that Hardy Exploration is not a god

law, may not tantamount to an overriding of Hardy Exploration. It

was submitted that when both the judgments were by Bench of

equal strength, it was not open to the Bench rendering the decision

in BGS Soma to hold that the decision in Hardy Exploration was

incorrect and the learned Bench in BGS Soma ought to have

referred the matter to larger Bench. To substantiate the contention,

the learned counsel for the petitioner has referred to Chandra

Prakash and others v. State of U.P and another (2002) 4 SCC 234

wherein this Court held that the doctrine of binding precedent is of

utmost importance in the administration of judicial system as it

promotes certainty and consistency in judicial decisions. However,

considering Clause 17 of the MoU in the present case and the

definite clauses therein and in the facts and circumstances of the

9
case, we are not inclined to go into the question on the correctness

of BGS Soma or otherwise.

14. The question falling for consideration in the present case is, in

view of Clause 17.2 of the MoU whether the parties have agreed

that the seat of arbitration is at Hong Kong and whether this Court

lacks jurisdiction to entertain the present petition filed under Section

11 of the Arbitration and Conciliation Act, 1996.

15. The petitioner is a company incorporated in India; whereas

the respondent is a company incorporated under the laws of Hong

Kong. Section 2(1)(f) of the Act defines “International Commercial

Arbitration”. As per Section 2(1)(f), to be an “International

Commercial Arbitration”, three factors ought to be fulfilled – (i)

arbitration; (ii) considered as commercial under the laws in force in

India; and (iii) at least one of the parties is national or habitual

resident in any country other than India. In the present case, since

the respondent is a company incorporated under the laws of Hong

Kong, we are concerned with “International Commercial Arbitration”.

16. As per Section 2(2), 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. The interpretation

of Section 2(2) of the Act was considered by the Constitution Bench

10
in BALCO, wherein it was held that Part-I of the Act would have no

application to “International Commercial Arbitrations” held outside

India. In para (194) of the judgment, it was held as under:-

“194. …..Section 2(2) makes a declaration that Part I of the
Arbitration Act, 1996 shall apply to all arbitrations which take place
within India. We are of the considered opinion that Part I of the
Arbitration Act, 1996 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 are sought to be enforced in India in accordance with the
provisions contained in Part II of the Arbitration Act, 1996. ……”

17. In the present case, Clause 17 of the MoU is a relevant clause

governing the law and dispute resolution. Clause 17 reads as

under:-

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

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relief, from a court having jurisdiction, before, during or after the
pendency of any arbitration proceeding.

18. The learned counsel for the petitioner has submitted that a

perusal of Clause 17.1 of the MoU makes it clear that the petitioner

and the respondent have only agreed that the proper law of the

contract to be laws of India and the MoU is clearly silent on the

proper law and the curial law of the arbitration and therefore, Clause

17.1 would govern the proper law and the curial law. According to

the petitioner, there is no express or implied exclusion either in

Clause 17 or under the entire MoU of the non-applicability of the

laws of India and/or the applicability of the laws of Hong Kong or

any other country. Contention of the petitioner is that in the absence

of the clear stipulation as to the proper law and curial law of the

arbitration, laws of India should be taken as the proper law and

curial law under the MoU and under no circumstances, the terms in

Clause 17.1 of the MoU be undermined or diluted.

19. The seat of arbitration is a vital aspect of any arbitration

proceedings. 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
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about which court would have the supervisory power over the

arbitration proceedings. In Enercon (India) Limited and others v.

Enercon GMBH and another (2014) 5 SCC 1, 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”.

20. It is well-settled that “seat of arbitration” and “venue of

arbitration” cannot be used inter-changeably. It has also been

established that mere 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.

21. In the present case, the arbitration agreement entered into

between the parties provides Hong Kong as the place of arbitration.

The agreement between the parties choosing “Hong Kong” as the

place of arbitration by itself will not lead to the conclusion that

parties have chosen Hong Kong as the seat of arbitration. The

words, “the place of arbitration” shall be “Hong Kong”, have to be

read along with Clause 17.2. Clause 17.2 provides that “….any

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dispute, controversy, difference arising out of or relating to the MoU

“shall be referred to and finally resolved by arbitration administered

in Hong Kong…..”. On a plain reading of the arbitration agreement,

it is clear 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. 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 power of judicial review over the arbitration award.

22. As pointed out earlier, Clause 17.2 of the MoU stipulates that

the dispute arising out of or relating to MoU including the existence,

validity, interpretation, breach or termination thereof or any dispute

arising out of or relating to it shall be referred to and finally resolved

by the arbitration administered in Hong Kong. The words in Clause

17.2 that “arbitration administered in Hong Kong” is an indicia 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 appointment of the arbitrator.

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23. Observing that when the parties have chosen a place of

arbitration in a particular country, that choice brings with it

submission to the laws of that country, in Eitzen Bulk A/S v.

Ashapura Minechem Ltd. and another (2016) 11 SCC 508, it was

held as under:-

“34. As a matter of fact the mere choosing of the juridical seat of
arbitration attracts the law applicable to such location. In other words, it
would not be necessary to specify which law would apply to the
arbitration proceedings, since the law of the particular country would
apply ipso jure. The following passage from Redfern and Hunter on
International Arbitration contains the following explication of the issue:

“It is also sometimes said that parties have selected the
procedural law that will govern their arbitration, by providing for
arbitration in a particular country. This is too elliptical and, as an
English court itself held more recently in Breas of Doune Wind
Farm it does not always hold true. What the parties have done is
to choose a place of arbitration in a particular country. That choice
brings with it submission to the laws of that country, including any
mandatory provisions of its law on arbitration. 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.

Parties may well choose a particular place of arbitration precisely
because its lex arbitri is one which they find attractive.

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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 are 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.”” [Underlining added]

24. In the context of domestic arbitration, holding that once the

“Seat” is determined, only that jurisdictional court would have

exclusive jurisdiction, in Indus Mobile Distribution (P) Ltd. v.

Datawind Innovations (P) Ltd. and others (2017) 7 SCC 678, it was

held as under:-

“19. A conspectus of all the aforesaid provisions shows that the
moment the seat is designated, it is akin to an exclusive jurisdiction
clause. On the facts of the present case, it is clear that the seat of
arbitration is Mumbai and Clause 19 further makes it clear that
jurisdiction exclusively vests in the Mumbai courts. Under the Law of
Arbitration, unlike the Code of Civil Procedure which applies to suits
filed in courts, a reference to “seat” is a concept by which a neutral
venue can be chosen by the parties to an arbitration clause. The
neutral venue may not in the classical sense have jurisdiction — that
is, no part of the cause of action may have arisen at the neutral
venue and neither would any of the provisions of Sections 16 to 21 of
CPC be attracted. In arbitration law however, as has been held
above, the moment “seat” is determined, the fact that the seat is at
Mumbai would vest Mumbai courts with exclusive jurisdiction for
purposes of regulating arbitral proceedings arising out of the
agreement between the parties.” [Underlining added]

25. Clause 17.1 of the MoU stipulates that the MoU is governed

by the laws of India and the courts at New Delhi shall have

16
jurisdiction. The interpretation to Clause 17.1 shows that the

substantive law governing the substantive contract are the laws of

India. The words in Clause 17.1 “without regard to its conflicts of

laws provisions and courts at New Delhi shall have the jurisdiction”

has to be read along with Clause 17.3 of the agreement. As per

Clause 17.3, the parties have agreed that the party may seek

provisional, injunctive or equitable remedies from a court having

jurisdiction before, during or after the pendency of any arbitral

proceedings. In para (161) in BALCO (2012) 9 SCC 552, this Court

held that “…..on a logical and schematic construction of Arbitration

Act, 1996, the Indian Courts do not have the power to grant interim

measures when the seat of arbitration is outside India….”. If the

arbitration agreement is found to have seat of arbitration outside

India, then the Indian Courts cannot exercise supervisory

jurisdiction over the award or pass interim orders. It would have

therefore been necessary for the parties to incorporate Clause 17.3

that parties have agreed that a party may seek interim relief for

which Delhi Courts would have jurisdiction. In this regard, we may

usefully refer to the insertion of proviso to Section 2(2) of the

Arbitration Act, 1996 by Amendment Act, 2015. By the Amendment

Act, 2015 (w.e.f. 23.10.2015), a proviso has been added to Section

2(2) of the Act as per which, certain provisions of Part-I of the Act

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i.e. Sections 9 – interim relief, 27 – court’s assistance for evidence,

37(1)(a) – appeal against the orders and Section 37(3) have been

made applicable to “International Commercial Arbitrations” even if

the place of arbitration is outside India. Proviso to Section 2(2) of

the Act reads as under:-

“2. Definitions.-

……..

(2) This Part shall apply where the place of arbitration is in India:
Provided that subject to an agreement to the contrary, the provisions
of sections 9, 27 and clause (a) of sub-section (1) and sub-

section (3) of section 37 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
recognised under the provisions of Part II of this Act.”

It is pertinent to note that Section 11 is not included in the proviso

and accordingly, Section 11 has no application to “International

Commercial Arbitrations” seated outside India.

26. 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. Since Part-I is not applicable to “International Commercial

Arbitrations”, in order to enable the parties to avail the interim relief,

Clause 17.3 appears to have been added. The words “without
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regard to its conflicts of laws provisions and courts at New Delhi

shall have the jurisdiction” in Clause 17.1 is to be read in

conjunction with Clause 17.3. Since the arbitration is seated at

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.

27. In the result, Arbitration Petition No.32 of 2018 filed by the

petitioner seeking appointment of an arbitrator under Section 11(6)

of the Act is dismissed. It is however open to the petitioner to

approach Hong Kong International Arbitration Centre for

appointment of the arbitrator, if they so desire.

………………………..J.

[R. BANUMATHI]

………………………..J.

[A.S. BOPANNA]

.………………………..J.

[HRISHIKESH ROY]
New Delhi;

March 05, 2020.

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