Dismissal Of A.p. No. 358 Of 2020: Petitioner’s Request For Arbitrator Appointment Under Section 11 Of The Arbitration And Conciliation Act, 1996 Refused Due To Lack Of Calcutta Hc's Jurisdiction Regarding Bank Guarantee Inclusion In Arbitration Provision

Case title:

HOMEVISTA DECOR AND FURNISHING PVT. LTD. & ANR. VS CONNECT RESIDUARY PRIVATE LIMITED 

Date of Order:

June 8,  2023

Bench:

The Hon’ble Justice Shekhar B. Saraf 

SUBJECT

• The petitioner no. 1 has submitted the current application, A.P. No. 358 of 2020, in accordance with Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”), asking for the appointment of an arbitrator to settle the parties’ differences. 
• Due to the court’s jurisdiction over the question of whether the use of a bank guarantee falls under the ambit of the arbitration provision, A.P. No. 358 of 2020 was dismissed without charges.

IMPORTANT PROVISIONS

• If the parties are unable to reach an agreement on the appointment procedure or are unable to carry out the agreed appointment method, the Courts may intervene under Section 11 of the Arbitration and Conciliation Act, 1996 (the "Act").

BRIEF FACTS

• The petitioner no. 1 is an online platform offering customers customised home designs. The second petitioner offers pre-made modular wardrobes and kitchens for projects in India. Through a demerger and amalgamation plan, the petitioner no. 2 acquired the aforementioned company and combined it with the petitioner no.1 
• The respondent is a company that leases furniture and office goods to other companies. On June 30, 2016, the petitioner No. 2 signed a master rental agreement with the respondent to rent furniture and office supplies. 
• The respondent instructed the petitioner to pay rental amounts to SREI and assign rents under the MRA. HDFC complied with SREI’s request to lower the bank guarantee, but SREI was unsuccessful in lowering it.
• The petitioners requested arbitration under the MRA, but the respondent refuted their allegations and declined to submit the case to arbitration.
• The petitioner reiterated the arbitration clause and submitted the current application in accordance with Section 11 of the Act.

ARGUMENTS ADVANCED BY THE PETITIONER 

• The counsel argued that Hindustan Construction Company Limited v. NHPC Limited and Others was a case where the Master Rental Agreement (MRA) contained an arbitration clause that allowed for dispute resolution. The arbitrator was to take place in Kolkata and follow the Arbitration and Conciliation Act, 1996. The Apex Court's judgement in [2020] 4 SCC 310 supported this rationale.
• Mr. Thaker argued that unless there is ‘contrary indicia’, the ‘venue’ of arbitration should be considered the ‘seat’. He relied on the Apex Court’s judgements in BGS SGS SOMA v. NHPC Limited and Indus Mobile Distribution Pvt. Ltd. V. Data Wind Innovations Pvt. Ltd. to support this submission.
• Mumbai has jurisdiction over the issue and Kolkata has jurisdiction over arbitration proceedings. Legal rulings in the cases of My Preferred Transformation and Hospitality Pvt. Ltd. V. Balapreetham Guest House Pvt. Ltd. And M/S Height Insurance Services Limited v. Reliance Nippon Life Insurance Company Limited support the same.
• Wrongfully invoking a bank guarantee is a type of dispute that can be referred to arbitration. 

ARGUMENTS ADVANCED BY THE RESPONDENT

• Their counsel held that the MRA Clause 25, which grants Mumbai’s courts exclusive jurisdiction over any and all issues arising from the MRA, superseded the arbitration clause. The Apex Court’s decision in Radha Sundar Dutta v. Mohd. Jahadur Rahim & Ors., reported in AIR 1959 SC 24, was cited as an example of this.
• The Calcutta High Court’s judgement in Commercial Division Bowlopedia Restaurant India Limited v. Debyani International Limited supports the argument that courts selected by parties have jurisdiction in domestic arbitration.
• Reliance was placed on the judgement in BGS SGS SOMA v. NHPC Limited and the Delhi High Court’s judgement in Kushraj Bhatia v. DLF Powers & Services Limited. The intention of the parties must be gauged from other clauses in the agreement and conduct of the parties, which in this case indicates that Kolkata was merely a seat. Reliance was placed on paragraph 20 of the Apex Court’s judgement in Mankastu Impex Private Limited v. Airvisual Limited.
• The Apex Court’s ruling in Ravi Ranjan Developers Private Limited v. Aditya Kumar Chatterjee upholds the claim that the parties selected Kolkata as the arbitration’s location. The disagreements are over the non-reduction of the alleged bank guarantee that the petitioner purportedly gave in order to protect the respondent’s interest; this is outside the scope of the arbitration provision. The guarantee contract is a separate agreement without an arbitration clause.

JUDGEMENT ANALYSIS

• It was settled that the dispute centres on the court's jurisdiction to consider an application under Section 11 of the Act.
• Courts have been baffled by the legal mystery of “seat” vs. “venue” for years, but there is no obvious precedent that dispels the uncertainty. In Indus Mobile, the Supreme Court agreed that any future legal disputes would be decided by Mumbai’s courts.
• The Apex Court in BGS SGS SOMA (supra) held that Delhi was the seat of arbitration, and a principle was laid down to determine the’seat of arbitration’-Arbitration clauses indicate that the venue is the seat of the arbitral proceedings, regardless of whether it is a supranational body.
• Brahmani River Pellets Limited (supra) chose Bhubaneswar as the venue of arbitration, which was set aside by the Apex Court due to the fact that electing Bhubaneswar as the ‘venue’ excludes jurisdiction of other courts.
• The judge disagreed with the Apex Court’s judgement in Mankastu Impex (supra) as it did not examine whether the clause opting for Bengaluru to have exclusive jurisdiction was a ‘contrary indicia’.
• Contractual interpretation requires taking into account all clauses and relevant factors to give a panoramic meaning to any agreement. The law with respect to arbitration clauses is based on the rule of harmonious construction. When a location is mentioned as ‘venue’ or ‘place’, it must be considered and have jurisdiction to entertain applications under the Act.
• Exhibit 2 of the MRA states that the arbitration will be conducted in Kolkata, but other clauses may act as a ‘contrary indicia’. Clause 25 confers exclusive jurisdiction on the courts in Mumbai, which does not have jurisdiction to entertain the instant petition.
• A.P. No. 358 of 2020 was dismissed without costs due to the court having jurisdiction over the issue of whether the invocation of bank guarantee is within the purview of the arbitration clause.