A three judges’ bench of the Hon’ble Supreme Court of India in Mankastu Impex Private Limited v/s Airvisual Limited has on March 05, 2020 ruled that the seat of arbitration determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award.
The Case and Petitioner’s ArgumentsThe Petition was filed in relation to a Memorandum of Understanding (“MOU”) where the Petitioner was based out of New Delhi, India and the Respondent was a Company registered in Hong Kong. Clause 17 of the MOU was relevant for the purposes of Governing Law and Dispute resolution. This Clause 17 read as follows: -
- “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.”
Disputes arose over the MoU and a petition was filed by the petitioner under Section 11 of the Arbitration and Conciliation Act, 1996 (“Act of 1996”) before the Supreme Court for appointment of an arbitrator. The Petitioner’s argument was based on Clause 17.1 and that the MoU was silent on the proper law and the curial law of the arbitration. It was further argued that in the absence of a clear stipulation the proper law and curial law of the arbitration were the laws of India and the same should be taken as the proper law and curial law under the MoU in terms of Clause 17.1 without dilution.
Observations on the LawThe Hon’ble Supreme Court of India ruled that the seat of arbitration is of significance in so far as it determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award. The Court ruled that seat 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.
Application to the facts of the caseThe Court also held that the intention of the parties as to the “seat” should be determined from other clauses in the agreement and the conduct of the parties. It took the view that it had been agreed between the parties that the dispute “shall be referred to and finally resolved by arbitration administered in Hong Kong” clearly suggested that the parties had 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. Further, the Court observed that words in Clause 17.2 that “arbitration administered in Hong Kong” is an indicia that the seat of arbitration is at Hong Kong. Since the parties had chosen “Hong Kong” as the place of arbitration to be administered in Hong Kong, laws of Hong Kong would govern the arbitration and the Indian courts would have no jurisdiction for appointment of the arbitrator.
The Court further went on to rule that although Clause 17.1 of the MoU stipulates that the MoU is governed by the laws of India and the courts at New Delhi should have jurisdiction this had to be read along with Clause 17.3 of the Agreement wherein parties had agreed that a party may seek provisional, injunctive or equitable remedies from a court having jurisdiction before, during or after the pendency of any arbitral proceedings. It cited inter alia other precedents, its ruling in the BALCO case [(2012) 9 SCC 552], wherein it was held that Indian Courts do not have the power to grant interim measures when the seat of arbitration is outside India. The Court also referred to the proviso to Section 2(2) of the Act of 1996 which had been inserted by the Amendment Act of 2015. The Court observed that the proviso provided for certain provisions of Part-I of the Act which have now been made applicable to “International Commercial Arbitrations” even if the place of arbitration is outside India. However, the Court took the view that since Section 11 is not included in the proviso it has no application to “International Commercial Arbitrations” seated outside India. Finally, it concluded that the wording in Clause 17.1 did not take away or dilute the intention of the parties in Clause 17.2 that the arbitration be administered in Hong Kong. It further observed that Clause 17.1 did not suggest that the seat of arbitration was in New Delhi. It was further held that Clause 17.1 is to be read in conjunction with Clause 17.3 and hence, the petition filed by the petitioner under Section 11(6) of the Act is not maintainable and the petition was accordingly dismissed.
Accordingly, the petition was dismissed and it was also ruled that it was open to the petitioner to approach the Hong Kong International Arbitration Centre for appointment of an arbitrator, if they so desire.
ConclusionIt is imperative whilst drafting contracts to ensure adequate attention is given to ‘Dispute Resolution’ clauses. A vague ‘Dispute Resolution’ clause in an agreement may lead to unnecessary delay as the parties may end up seeking relief from a court which may not have jurisdiction. Hence, a ‘Dispute Resolution’ clause in an agreement should be analyzed and drafted meticulously such that there is no uncertainty or vagueness with regards to its interpretation and the dispute resolution mechanism is spelt out clearly.