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

AIR 2020 SUPREME COURT 1297, AIRONLINE 2020 SC 333

Background

Mankatsu Impex was rendered in the context of a petition filed under Section 11 of the
Arbitration and Conciliation Act, 1996 (“Act”).

On September 12, 2016, Mankastu Impex Private Limited (“MIPL“) and Airvisual Limited
(“AVL“) entered into a Memorandum of Understanding (“MOU“) in terms of which MIPL
would be the exclusive distributer of AVL’s air quality monitors products for a period of five
years.

AVL was subsequently acquired by an entity namely, IQAir AG (“IQAir“). IQAir informed
MIPL that it had acquired all the technology and the associated assets of AVL. Furthermore,
IQAir informed MIPL that it would not assume any contracts or legal obligations of AVL, and
would work on a case to case basis with resellers to negotiate new contracts. MIPL invoked the
terms of the MOU and stated that MIPL held exclusive rights of sale of AirVisual products for
five years within the territory of India. IQAir rejected this assertion, thus leading to a dispute.

On December 8, 2017, MIPL, invoked the arbitration clause enshrined in Clause 17 of the MOU
and proposed the name of a sole arbitrator. Clause 17 set out as follows:

“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.”

IQAir responded to the Notice of Arbitration wherein it stated that IQAir has not assumed any
contractual obligations and that the terms of the MOU were not enforceable against them. AVL
replied to the Notice of Arbitration and argued that Clause 17 of the MOU provided for an
arbitration administered and seated in Hong Kong.

MIPL did not agree with AVL’s interpretation of Clause 17 and reiterated that the arbitration
was seated in India. MIPL thereafter filed a petition under Section 11 of the Act before the
Supreme Court for appointment of an arbitrator.

Judgment and Analysis

The Supreme Court began its analysis by noting the significance of the seat of arbitration. The
Court observed that the seat determined the applicable law governing the arbitration proceedings
and also delineated the scope of judicial review over the arbitration award.

The key question before the Court was whether Hong Kong or India would be the seat of
arbitration as per Clause 17 of the MOU.

MIPL argued that parties had not designated any place as seat of arbitration. MIPL then relied on
Clause 17.1 to contend that the arbitration ought to be governed under Part I of the Act as the
parties had chosen Indian law as the law governing the agreement, which, according to MIPL,
extended to the arbitration proceedings.

The Court observed that the words ‘place of arbitration shall be Hong Kong’ were insufficient to
designate Hong Kong as the seat of arbitration. The Court then looked at Clause 17.2 which
provided that “….any dispute, controversy, difference arising out of or relating to the MoU shall
be referred to and finally resolved by arbitration administered in Hong Kong…..”. The Court
concluded that the words in Clause 17.2 that “arbitration administered in Hong Kong”
constituted indicia that the seat of arbitration was Hong Kong.

In sum therefore, the Court held that once the parties had chosen Hong Kong as the seat of
arbitration, laws of Hong Kong would govern the arbitration. The Court held that Clause 17.1
was only restricted to the proper law of the contract and did not extend to the arbitration
proceedings.

Having held that Part I of the Act did not apply to the arbitration proceedings, the Supreme Court
dismissed the petition for appointment of arbitrator.