Current Affairs

Source: Gujarat High Court

Why in News?

The High Court of Gujarat in the matter of InstaKart Services v. Megastone Logiparks Pvt Ltd. has held that in the presence of a conflicting exclusive jurisdiction clause, the location of arbitration. is considered the venue rather than the seat arbitration.

• Arbitration proceedings involve the "seat" and the "venue." The venue refers to where in physical space an arbitration is held, while the seat concerns what jurisdiction's laws apply.

What is the Background of the InstaKart Services v. Megastone Logiparks Pvt Ltd. Case?

• The parties entered into a lease agreement; the agreement’s Clause No. 25 provided for resolution of dispute through arbitration.
• The parties subsequently established a Maintenance and Amenities (M&E) agreement concerning the premises intended for leasing as outlined in the lease agreement.
• The petitioner contended that clause 25(ii) of the Lease Agreement indicates that the parties had agreed that the arbitration proceedings will be conducted at Bangalore, Karnataka.
  • Upon placing reliance on Supreme Court (SC) verdicts BGS SGS Coma JV v. NPHC (2020), M/s. Devyani International Ltd v. Siddhivinayak Builders and Developers (2017) petitioner further contended:
    • The seat of the arbitration having been agreed, the jurisdiction to entertain the petition under Section 11 of the (Arbitration and Conciliation Act, 1996) Act, 1996 can only be with the Karnataka High Court.
• It was argued on behalf of the respondent that the lease deed was executed for leasing the premises located in Gujarat.
• The instant petition, seeks for appointment of arbitrator under Section 11(6) of the Act, 1996 on two issues:
  • With regard to the appointment of an Arbitrator on the dispute arising out of the Maintenance and Amenities Agreement.
  • With regard to the territorial jurisdiction of this Court (HC) to entertain the petition under Section 11 of the Act, 1996.

What were the Court’s Observations?

• The Court noted that both agreements were executed by the parties as part of a single transaction. It further noted that they share the same termination date, and the execution of the lease agreement hinges on the fulfillment of the M&E agreement.
  • The Court determined that when two agreements have the same termination date and their execution relies on one another, the arbitration clause in one agreement can be utilized for the other as well.
• It was further observed that Clause 25 of the lease agreement provides that the Courts at Ahmedabad shall have exclusive jurisdiction in all matters arising out of the agreement.
  • It was finally held that the declaration that Arbitration shall be conducted at Bangalore indicates merely the venue of arbitration and not the seat of the arbitration.

What is Arbitration?

• Arbitration is a method of resolving disputes outside of the traditional court system i.e., it is one of the methods of Alternate Dispute Resolution as per Alternative Dispute Resolution Mechanism:
  • Section 89 of the Civil Procedure Code also provides for settlement a Settlement of disputes outside the Court —
    • (1) Where it appears to the Court that there exist elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the Court may reformulate the terms of a possible settlement and refer the same for —
    • (a) arbitration;
    • (b) conciliation;
    • (c) judicial settlement including settlement through Lok Adalat; or
    • (d) mediation.
    • (2) Were a dispute has been referred—
    • (a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act.
• It involves the parties in a dispute agreeing to submit their case to one or more neutral third parties, known as arbitrators, rather than going to court.
• These arbitrators hear the arguments and take the evidence presented by both sides and then make a binding decision, often referred to as an arbitral award, to settle the dispute.

What are the Legal Provisions Involved?

• Arbitration and Conciliation Act, 1996
  • Section 11 (6): Appointment of arbitrators - Where, under an appointment procedure agreed upon by the parties —
  • (a) a party fails to act as required under that procedure; or
  • (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
  • (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,
• a party may request the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.