Shinhan Bank v. Carol Info Services Limited

SHINHAN BANK v. CAROL INFO SERVICES LIMITED (Arbitration Petition (Civil) No 1 of 2019) MARCH 13, 2023 [DR. DHANANJAYA Y CHANDRACHUD, CJI, PAMIDIGHANTAM SRI NARASIMHA AND J. B. PARDIWALA, JJ.] Arbitration and Conciliation Act, 1996: ss.7, 8 – Arbitra tion agreement – Leave and License agreement as also ame nties agreement between the petitioner and the respondent – Disputes between the parties – Invocation of Arbitration cla use by the petitioner by Proposing appointment of a sole arbit rator for settlement of disputes – However, denial of existence of an arbitration agreement by the respondent – Case of the responden t that the Amenities agreement contained an arbitration agreem ent, and not the Leave and Licence agreement; and that the petit ioner should move an application u/s. 8 for seeking a reference to arbi tration – On appeal, held: Plain consequence of clause (1) of the Am enities agreement is that all the terms of the agreement constitute an integral part of the Leave and Licence agreement – Thus, the parties have intended to make the arbitration clause in the Amenities ag reement an integral part of the Leave and Licence agreement – s. 7(5) stipulates that the reference in a contract to a document containin g an arbitration clause constitutes an arbitration ag reement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract – Thus, it cannot be said th at the petitioner should be now relegated to pursuing the reme dy u/s. 8 – In view of the clear terms of the contract between the par ties, a reference to arbitration would be necessitated – So le arbitrator nominated by the petitioner having assumed the position of Lo kyukta of the State of Maharashtra, the disputes and diffe rences between the parties to be referred to the former Judge of the Hig h Court. M R Engineers and Contractors Private Limited vs Som Datt Builders Limited (2009) 7 SCC 696 – referred to. Case Law Reference

(2009) 7 SCC 696 referred to Para 13 CIVIL ORIGINAL JURISDICTION : Arbitration Petition (Civil) No.1 of 2019. Arbitration Petition Under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996. Abhishek Puri, Ms. Surabhi Gupta, Manish Dhingra, Mrs. Reeta Puri, P. N. Puri, Advs. for the Petitioner. Sanjeev Kumar Kapoor, M/s. Khaitan & Co., Advs. for the Respondent. The Judgment of the Court was delivered by DR. DHANANJAYA Y CHANDRACHUD, CJI

¶1On 5 August 2011, the petitioner entered into a Leave and License agreement with the respondent for the use and occupation of office premises situated on the 4th Floor of the West Wing at Wockhardt Towers, C-2, Block G, Bandra Kurla Complex, Bandra (East), Mumbai 400051 for a period of five years. On the same day, a n Amenities agreement was contemporaneously executed with the Leave and Licence agreement. Upon the expiry of the term of the Leave an d License agreement, a fresh Leave and Licence agreement was executed between the petitioner and the respondent on 1 July 2016 for the continued use and occupation of the premises for a period of two years.

¶2On 25 August 2016, the petitioner entered into an Amenities agreement with the respondent.

¶3On 22 March 2017, the petitioner issued a notice of termination to the respondent stating that the Leave and Licence agreement and the Amenities agreement would stand terminated upon the expiry of t he lock-in period, namely, on 1 July 2017.

¶4The respondent replied to the termination notice on 30 March 2017. Asserting that the termination was not in accordance with the terms of the Leave and Licence agreement and the Amenities agreement, the respondent declined to refund the security deposits to the petitioner. According to the petitioner, vacant and peaceful possession of the licensed premises was handed over to the respondent on 13 June 2017.

¶5On 3 July 2017, the petitioner served a notice of demand for refund of the security deposits together with interest. The claim was denied in a letter dated 13 July 2017. By another letter of 13 July 2017, the respondent served upon the petitioner a notice claiming an amount of Rs 2,59,85,856 towards the balance license fee and amenities charges for the period between 1 July 2017 and 30 June 2018 and claimed consequential losses amounting to Rs 69,21,408 together with interest after adjusting the amount of the security deposits u nder the 2016 agreement.

¶6By an Advocate’s letter dated 29 September 2017, the petitioner sought refund of its security deposit in the amount of Rs 1,68,48,000 (which was deposited under the Leave and Licence agreement) and Rs 56,16,000 (which was deposited under the Amenities agreement) together with interest at the rate of 15% per annum. The respondent rejected the claim in its response dated 5 October 2017.

¶7On 9 October 2017, the petitioner invoked arbitration and proposed the appointment of a sole arbitrator. In its response dated 13 October 2017, the respondent denied the existence of an arbitration agreement.

¶8An arbitration petition under Section 11 of the Arbitration and Conciliation Act 1996 was instituted before the High Court of Judicature at Bombay, but it was withdrawn since the arbitration is an international commercial arbitration, the petitioner being a bank ing company incorporated under the laws of South Korea.

¶9We have heard Mr Abhishek Puri, counsel for the petition er and Mr Sanjeev Kumar Kapoor, counsel for the respondent.

¶10Two agreements entered into between the parties. The first is a Leave and Licence agreement dated 1 July 2016. The second is an Amenities agreement dated 25 August 2016. The bone of contention is whether there is an arbitration agreement between th e parties. The contention of the respondent is that while the Amenities agreement contains an arbitration agreement, the Leave and Licence agr eement does not. Hence, it has been submitted that the claim of t he petitioner invoking arbitration must be rejected. Moreover, it has been submitted that the respondent has instituted a suit before the High Court of Judicature at Bombay on its Original Side and it would be open to the petitioner to move an application under Section 8 for seeking a reference to arbitration. It has been submitted that the claim of the respondent in the suit for outstanding license fees has been computed after adjusting the security deposit and hence the appropriate course of action for the pe titioner would be to pursue its remedies under Section 8.

¶11The Amenities agreement which was entered into between the parties on 25 August 2016, inter alia, contains the following provision: “This Agreement is executed contemporaneously with the said Leave and License Agreement and shall be read and construed accordingly. The provision of this Agreement shall be deemed to be and shall constitute an integral part of the said L eave and License Agreement in respect of the License of the Lice nsed Premise granted by the Licensors to the Licensee. All provisions of the said Leave and License Agreement shall, mutatis mutandis; apply to this Amenities Agreement”

¶12The Amenities agreement contains a provision to resol ve disputes through arbitration. Clause 17 is in the following terms: “17. All disputes, controversies or claims arising out of or relating to this Agreement: including existence or interpretation of any clause hereof, shall be referred to arbitration by a sole arbitrator duly appointed by mutual consent of both the Parties in writing, failing which under the provisions of the Arbitration and Conciliation Act, 1966. The cost of theArbitration shall be borne equally. The place of arbitration shall be Mumbai and the arbitration shall be governed by the Arbitration & Conciliation Act, 1966 as amended from time to time. The language of the arbitration proceedings shall be English. The Award shall be final and conclusive. The Courts in Mumbai shall have exclusive jurisdiction to try and entertain matters arising herefrom.”

¶13The submission which has been urged on behalf o f the respondent is that in terms of Section 7(5), a mere reference to a document would not have the effect of making an arbitration clause from th at document a part of the contract. The submission is based on the decision of this Court in M R Engineers and Contractors Private Limited vs Som Datt Builders Limited 1.

¶14Clause (1) of the Amenities agreement which has been extracted above indicates that (i) the provisions of the Amenities 1 (2009) 7 SCC 696 [DR. DHANANJAYA Y CHANDRACHUD, CJI] agreement shall be deemed to be and shall constitute an integral part of the Leave and Licence Agreement in respect of the license gr anted by the petitioner to the respondent; and (ii) all the provisions of the Leave and Licence agreement shall mutatis mutandis apply to the Amenities agreement. Clause 17 of the Amenities agreement contains an agreement to refer disputes to arbitration.

¶15The plain consequence of clause (1) of the Amen ities agreement is that all the terms of that agreement constitute an integral part of the Leave and Licence agreement. The Amenities agre ement does not merely contain a reference to the Leave and Licence agreement. It incorporates all the terms of the Amenities agreement as an integral part of the Leave and Licence agreement. By doing so, the parties have intended to make the arbitration clause in the Amenities agreement an integral part of the Leave and Licence agreement.

¶16Section 7(5) of the Arbitration and Conciliation Act 1996 stipulates that the reference in a contract to a document con taining an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbi tration clause part of the contract. Clause (1) of the Amenities agreement is intended to make the arbitration clause which is embodied in the Amenities agreement (Clause 17) an integral part of the Leave and Licence agreement.

¶17In M R Engineers and Contractors Private Limited vs Som Datt Builders Limited (supra), this Court held thus: “We will give a few instances of incorporation and mere reference to explain the position (illustrative and not exhaustive). If a contract refers to a document and provides that the said document shall form part and parcel of the contract, or that all terms and conditions of the said document shall be read or treated as a part of the contract, or that the contract will be governed by the provisions of the said document, or that the terms and conditions of the said document shall be incorporated into the contract, the terms and conditions of the document in entirety will get bodily lifted and incorporated into the contract. When there is such incorporation of the terms and conditions of a document, every term of such document (except to the extent it is inconsistent with any specific provision in the contract) will apply to the contract. If the document so incorporated contains a provision for settlement of disputes by arbitration, the said arbitration clause also will apply to the contract.”

¶18The principle which emerges from the provisions of Section 7(5) is elucidated in paragraph 19 of the judgment, which is extract ed below: “Sub-section (5) of Section 7 merely reiterates these well-settled principles of construction of contracts. It makes it clear that where there is a reference to a document in a contract, and the reference shows that the document was not intended to be incorporated in entirety, then the reference will not make the arbitration clause in the document, a part of the contract, unless there is a spe cial reference to the arbitration clause so as to make it applicable.”

¶19The arbitration agreement which is embodied in clause 17 of the Amenities agreement was intended by the parties for all intents and purposes to be a part of the Leave and Licence agreement.

¶20There is no merit in the submission that the petitioner should be now relegated to pursuing the remedy under Section 8. In view of the clear terms of the contract between the parties, a reference to arbitration would be necessitated.

¶21The sole Arbitrator who was nominated by the petitioner has since assumed the position of Lokayukta of the State of M aharashtra. Hence, we direct that the disputes and differences between the parties arising out of claim of the petitioner shall be referred to the sole arbitration of Dr (Mrs) Shalini Phansalkar-Joshi, a former Judge of the High Court of Judicature at Bombay. The Arbitrator shall decide upon the fees in consultation with the parties and the modalities of arbitration.

¶22The Registrar (Judicial) shall transmit a copy of this order to the sole Arbitrator.

¶23The Arbitration Petition is accordingly disposed of.

¶24Pending applications, if any, stand disposed of. Nidhi Jain Arbitration petition disposed of. (Assisted by : Tamana, LCRA) [DR. DHANANJAYA Y CHANDRACHUD, CJI]