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Mankastu Impex Private Ltd Vs Airvisual Ltd: Indian Courts Do Not Have The Power To Grant Interim Measures When The Seat Of Arbitration Is Outside India

Prahalad B ,
  21 October 2021       Share Bookmark

Court :
Supreme Court
Brief :

Citation :
Arbitration Petition No. 32 of 2018

Date of Judgement:
05 March 2020

Coram:
Justice R Banumathi
Justice A S Bopanna
Justice Hrishikesh Roy

Parties:
Appellant – Mankastu Impex Private Ltd.
Respondent – Airvisual Ltd.

Subject

When the seat of arbitration is not in India, courts in India do not have jurisdiction to adjudicate upon the issue.

Legal Provisions

  • Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 – Defines international commercial arbitration.
  • Section 9 of the Arbitration and Conciliation Act, 1996 - Interim measures, etc., by Court.
  • Section 11(6) of the Arbitration and Conciliation Act, 1996 - Appointment of arbitrators.

Overview

  • The appellant herein is engaged in business of different air purifiers. The respondent is an incorporated company according to laws applicable in Hong Kong engaged in air quality management business.
  • The parties entered into an agreement wherein it was agreed upon that the respondent will supply all air monitoring products to the appellant for onward sale. Further, it was also agreed that the appellant will be the exclusive distributor in India and non-exclusive distributor in other specified countries.
  • Subsequently, the respondent company was acquired by company called IQAir AG which was conveyed to the appellant. The acquiring company stated that the product specified in the agreement between the appellant and respondent would be discontinued and a new product was to be introduced. The acquiring company also further stated that it would not assume any legal obligation which the respondents earlier entered into.
  • The appellant then invoked the arbitration clause provided in the agreement and also proposed an arbitrator for adjudicating the dispute. The appellant also filed a petition before the High Court under section 9 of the Arbitration and Conciliation Act praying for directing the acquiring company to honour the contract and to provide the exclusive distribution right as agreed upon. The High Court directed not to sell its product as an interim measure.
  • It was the contention of the respondent that under its purchase agreement, it will assume or honour any legal obligation of the respondent. It was further contended that the arbitration clause in the agreement provided for Hong Kong as the administrative arbitration seat and hence Indian courts do not have the jurisdiction to entertain this suit.
  • The appellant argued that the first sub clause to the arbitration clause provided that the MoU will be governed by Indian laws and it was agreed that the courts of Delhi will have the jurisdiction. Hence, Indian laws are applicable.

Issue

  • Whether the parties to the contract agreed that the seat of arbitration will be in Hong Kong.
  • Whether this court does not have jurisdiction to adjudicate the petition filed under Section 11 of the act.

Judgement Analysis

  • The court examined the important clauses of the arbitration agreement. The first clause provided that the MoU will be governed by the applicable Indian laws and the courts at New Delhi will have the jurisdiction to adjudicate upon. The second clause provided that any dispute shall be resolved by an arbitration administered in Hong Kong. Finally, the third clause provided that the parties may seek interim relief from a court which has jurisdiction to adjudicate the dispute.
  • This court first clarified that the venue of arbitration is different from seat of an arbitration and cannot be used interchangeably. Although the arbitration section provided for Hong Kong as the place of arbitration, that in itself will not make Hong Kong as seat of the arbitration.
  • The court after careful observation of the section held that Hong Kong was not a reference to place of arbitration but seat of the arbitration. On bare reading, it suggests that the seat of arbitration will be in Hong Kong and laws of the same will be followed and applied.
  • This court referring to Eitzen Bulk V. Ashapura Minechem Ltd. (2016) reiterated that once the seat of arbitration is agreed upon laws applicable to region is binding and applicable.
  • With regard to the jurisdiction of courts in Delhi, on careful reading it is interpreted as only provisional relief can be prayed during the pendency of the proceedings.
  • Hence, it was reiterated by the court that once it is decided and agreed upon that the seat of arbitration is outside India, Indian courts do not have jurisdiction to entertain such petitions. Therefore, the petition under section 11 of the act was dismissed.

Conclusion

The venue of the arbitration proceeding is different from the seat of arbitration. The venue can be chosen for the convenience of the parties. While the seat of arbitration plays a significant part in an arbitration proceeding. The seat of arbitration decides the applicable laws to the dispute. When the same is outside India, the courts in India do not have jurisdiction to grant relief or pass orders on the dispute.

Click here to download the original copy of the judgement

Questions

  1. How is a venue of arbitration different from a seat of arbitration?
  2. Failing which condition that the arbitral tribunal shall consists of a sole arbitrator? Under which section this is dealt with?
 
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