The Respondent and the Petitioner had entered into a memorandum of understanding (MoU) whereby the Petitioner was an exclusive distributor of the Respondents Air quality monitors products for a duration of five years. The former is a company incorporated in India whereas the latter is incorporated in Hong Kong. Thereafter, the Respondent was acquired by IQAir AG (Respondent No.2). The Petitioner was intimidated by Respondent No. 2 that as a consequence of the acquisition, the product was not continued and that it was not bound by any legal or contractual obligations of the Respondent.

The Petitioner invoked the memorandum of understanding (MoU). It brought to the knowledge of Respondent No. 2 that memorandum of understanding (MoU) explicitly specified that in case of a situation like an acquisition, the Respondent was obligated to make sure that the acquiring party shall uphold the same contractual obligation and that the acquisition was done only after considering the pre-existing obligations.

The Respondent rejected to consider the Petitioners averments, thus the Petitioner then resorted to invoking Clause 17 i.e. the arbitration clause of the memorandum of understanding (MoU). The Petitioner further filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 for the order –

ordering Respondent No. 1 and 2 to execute the memorandum of understanding (MoU); allowing the Petitioner to act as the exclusive distributor over the products, and refraining Respondent No. 1 and 2 from terminating the memorandum of understanding (MoU) and also from contracting third parties for the subject matter. The Court injuncted the Respondent from selling the products in India.

Respondent No. 2 countered the arbitration notice by asserting that firstly, the memorandum of understanding (MoU) was not enforceable against them and secondly, in accordance with Clause 17, the dispute can only be resolved by an arbitration institution in Hong Kong.

Thus this Petition was filed under Section 11(6) of the Act read with Arbitration and Conciliation (Amendment) Act, 2015 read with the Appointment of Arbitrator by the Chief Justice of India Scheme, 1996 seeking appointment of a sole arbitrator under Clause 17 of a memorandum of understanding (MoU).

Issues

The issue in the present case was Whether the parties have agreed that the seat of arbitration is in Hong Kong and whether this Court lacks jurisdiction to entertain the petition filed under Section 11 of the Act?

Judgment

The Hon’ble Supreme Court begins its observation by noting the importance of the seat of arbitration. The court observed that the seat determined the applicability of the law governing the arbitration proceeding and also described the scope of judicial review over the arbitration award.

The Court analyzed that the words “place of arbitration should be in Hong Kong” were not adequate to describe Hong Kong as a seat of arbitration. The court then viewed clause 17.2 which provided “any dispute, difference, controversy arising out of or relating to MoU shall be referred to and finally resolved by arbitration administered in Hong Kong.” The court concluded that the word in a clause in 17.2 that “arbitration administered in Hong Kong” constituted indicia that the seat of arbitration was Hong Kong. Therefore, the court held that once the parties have chosen Hong Kong as the seat of arbitration, the laws of Hong Kong will govern the arbitration. The court held clause 17.1 was only limited to the proper law of the contract and did not extend to the arbitration proceedings.

The Supreme Court dismissed the petition for the appointment of an arbitrator by holding that part I of the act did not apply arbitration proceedings.