Featured image for Supreme Court Judgment dated 05-03-2020 in case of petitioner name Mankastu Impex Private Limited vs Airvisual Limited
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Arbitration Dispute Between Mankastu Impex and Airvisual: Legal Jurisdiction and Seat of Arbitration Explained

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The legal dispute between Mankastu Impex Private Limited and Airvisual Limited highlights significant issues related to arbitration clauses, international commercial arbitration, and jurisdictional conflicts. This case primarily concerns whether arbitration should be conducted under Indian jurisdiction or in Hong Kong as per the Memorandum of Understanding (MoU) signed between the parties.

The Supreme Court of India was tasked with deciding whether the arbitration should be conducted in India under the Arbitration and Conciliation Act, 1996, or if Hong Kong was the appropriate jurisdiction for resolving disputes. This case is a critical examination of arbitration agreements, the difference between the ‘seat’ and ‘venue’ of arbitration, and how legal principles determine jurisdiction in cross-border agreements.

Background of the Dispute

Mankastu Impex, an Indian company, entered into a Memorandum of Understanding (MoU) on September 12, 2016, with Airvisual Limited, a company incorporated under the laws of Hong Kong. Under the MoU, Mankastu Impex was appointed as the exclusive distributor of Airvisual’s air quality monitoring products in India for five years. The agreement also granted Mankastu non-exclusive distribution rights for Sri Lanka, Bangladesh, and Nepal.

According to Mankastu Impex, they had made significant financial investments in branding, marketing, and distribution efforts in India. They claimed to have spent approximately Rs. 17 lakh in brand promotion and Rs. 9 lakh participating in business exhibitions to create market visibility for the Airvisual products. The dispute arose when IQAir AG, a Swiss company, acquired all technology and assets of Airvisual Limited and subsequently refused to honor the MoU.

Petitioner’s Claims

Mankastu Impex filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, arguing that:

  • The MoU was governed by Indian laws, and the courts in New Delhi had jurisdiction over disputes, as stated in Clause 17.1 of the agreement.
  • Hong Kong was merely the “venue” of arbitration, not the “seat,” and Indian laws should govern the arbitration process.
  • IQAir AG had taken over Airvisual Limited’s business and should be bound by the obligations under the MoU.
  • Under Clause 17.1, New Delhi courts were given jurisdiction, and Indian courts should appoint an arbitrator.

Respondent’s Counterarguments

Airvisual Limited contended that:

  • Clause 17.2 of the MoU clearly stated that disputes would be “administered” in Hong Kong, making it the designated seat of arbitration.
  • The arbitration agreement specified that Hong Kong was not merely a venue but the place where arbitration would be conducted under its jurisdiction.
  • Since arbitration was to be conducted under Hong Kong’s legal framework, Indian courts had no jurisdiction to appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act.
  • The case law of BGS SGS SOMA JV v. NHPC Ltd. established that when an agreement specifies that arbitration will be administered in a specific location, it is considered the seat of arbitration.

Key Legal Issues Considered by the Court

The Supreme Court of India analyzed several legal aspects to determine jurisdiction, focusing on:

  • Whether Clause 17.2 of the MoU established Hong Kong as the seat of arbitration.
  • Whether the use of the word “administered” in the arbitration clause meant that Hong Kong courts had exclusive jurisdiction.
  • Precedents set by Union of India v. Hardy Exploration and BGS SGS SOMA JV v. NHPC Ltd.
  • Application of Section 2(2) of the Arbitration and Conciliation Act, which states that Part I applies only where the place of arbitration is in India.

Supreme Court’s Decision

The Supreme Court ruled in favor of Airvisual Limited, holding that:

  • The explicit wording of Clause 17.2 meant that the arbitration would be “administered” in Hong Kong, thereby making it the seat of arbitration.
  • Indian courts did not have jurisdiction to appoint an arbitrator as the seat of arbitration was outside India.
  • Under the legal precedents in BGS SGS SOMA JV, the seat of arbitration determines jurisdiction, and once a seat is designated, that jurisdiction governs the arbitration.
  • Mankastu Impex must approach the Hong Kong International Arbitration Centre for arbitration proceedings.

Impact of the Judgment

This ruling reaffirmed the distinction between the seat and venue of arbitration in international commercial contracts. The judgment reinforced that when a contract specifies a particular location for “administration” of arbitration, that location is the seat, and its courts have exclusive jurisdiction.

The case serves as an important precedent for businesses engaging in international contracts, emphasizing the need for clear arbitration clauses. It highlights the necessity for companies to carefully draft arbitration agreements, ensuring that jurisdiction, governing laws, and seat of arbitration are explicitly stated to avoid jurisdictional disputes.

Conclusion

The Supreme Court’s ruling in Mankastu Impex v. Airvisual Limited clarified critical aspects of arbitration law, particularly regarding jurisdiction and the importance of contractual terms. The judgment established that arbitration agreements that specify a seat and administration of arbitration in a particular location will be upheld, regardless of any conflicting provisions regarding governing laws.

Businesses entering into international agreements should carefully consider their arbitration clauses to avoid similar disputes. This case demonstrates how judicial interpretation of arbitration agreements can significantly impact dispute resolution and contractual obligations in cross-border commercial transactions.


Petitioner Name: Mankastu Impex Private Limited.
Respondent Name: Airvisual Limited.
Judgment By: Justice R. Banumathi, Justice A.S. Bopanna, Justice Hrishikesh Roy.
Place Of Incident: New Delhi.
Judgment Date: 05-03-2020.

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