The petitioner-company, incorporated in India, dealing in air quality management and supply of air purifiers and related items, entered into a 5-year Memorandum of Understanding with the respondent-company, incorporated under the laws of Hong Kong, dealing with the manufacture and sale of air quality monitors and information, wherein the respondent agreed to sell to the petitioner the complete line of the respondent’s air quality monitors products for onward sale. The petitioner was also made the exclusive distributor in India, along with being granted non-exclusive rights for distribution in Sri Lanka, Bangladesh, and Nepal. The starting date for the same was to be the date of the first delivery of Air Quality Monitors to the petitioner, i.e., 03/10/2016 or 01/11/2016, whichever was later. Owing to the same, the petitioner spent huge amounts of money for promoting and creating a brand value for the product.
On 14/10/2017 the petitioner received an email from IQAir AG stating that the respondent was now a part of IQAir AG. The letter attached to the mail stated that the product in question was discontinued and that the company would not assume any contractual or legal obligations of the respondent, and deal with resellers by negotiating new contracts. In its reply, the petitioner invoked the terms of the MoU and claimed that the company was liable to honor the contract as it is presumed that the acquisition was made keeping in view the respondent’s existing liabilities and objections. After a reply that was near identical to the company’s previous mail, the petitioner’s repeated failure of contact with the company led it to invoke the arbitration clause i.e., clause 17 of the MoU, along with a petition filed under Section 9 of the Arbitration and Conciliation Act before the Delhi High Court. Although the petition was still pending, the High Court, vide interim order, restrained the respondent from selling any of its products in India.
The company kept contending that it did not accrue any contractual or legal obligations to itself while also pointing out that Clause 17 of the MoU provided for arbitration administered and seated in Hong Kong, and that should the petitioner wish to resolve the dispute by arbitration, they should refer the dispute to an arbitration institution in Hong Kong.
Against this backdrop, the petitioner filed a petition under Section 11(6) of the Arbitration and Conciliation Act seeking the appointment of Sole Arbitrator under Clause 17 of the MoU.
1. Given Clause 17.2 of the MoU whether the parties have agreed that the seat of arbitration is at Hong Kong.
2. Whether this Court lacks jurisdiction to entertain the present petition filed under Section 11 of the Arbitration and Conciliation Act, 1996.
Arbitration Petition No.32 of 2018 filed by the petitioner seeking appointment of an arbitrator under Section 11(6) of the Act was dismissed.
According to the Court, the present case dealt with an International Commercial Arbitration within the meaning provided in Section 2(1) of the Arbitration Act. Further, placing reliance in the interpretation of Section 2(2) in the case of in Bharat Aluminum Company v. Kaiser Aluminum Technical Services Inc. [(2012) 9 SCC 552] (BALCO) the Court held that Part-I of the Act would have no application to “International Commercial Arbitration” held outside India. The Court duly noted that the “seat of arbitration” and “venue of arbitration” could not be used interchangeably. It had 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.
Hence, interpreting clause 17 of the MoU, the Court held that a paired reading of clause 17.1 and 17.3 of the MoU was necessary, but the same was no bar to the interpretation of clause 17.2 which 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 had to 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” served as an indicium that the seat of arbitration was at Hong Kong. Once the parties had chosen “Hong Kong” as the place of arbitration to be administered, the laws of Hong Kong would govern the arbitration. The Indian courts had no jurisdiction for the appointment of the arbitrator.
The Court also noted that the proviso added to Section 2(2) did not include Section 11 within its ambit. Hence, it had no application to “International Commercial Arbitrations” seated outside India.