Full Judgment Text
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Reportable
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
Arbitration Petition (Civil) No 1 of 2019
Shinhan Bank Petitioner
Versus
Carol Info Services Limited Respondent
J U D G M E N T
Dr Dhananjaya Y Chandrachud, CJI
1 On 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, an Amenities agreement was contemporaneously
executed with the Leave and Licence agreement. Upon the expiry of the term
Signature Not Verified
Digitally signed by
CHETAN KUMAR
Date: 2023.03.20
18:53:43 IST
Reason:
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of the Leave and 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.
2 On 25 August 2016, the petitioner entered into an Amenities agreement with
the respondent.
3 On 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 the lock-in period,
namely, on 1 July 2017.
4 The 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.
5 On 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
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Rs 69,21,408 together with interest after adjusting the amount of the
security deposits under the 2016 agreement.
6 By 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.
7 On 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.
8 An 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 banking company incorporated under the
laws of South Korea.
9 We have heard Mr Abhishek Puri, counsel for the petitioner and Mr Sanjeev
Kumar Kapoor, counsel for the respondent.
10 Two agreements entered into between the parties. The first is a Leave and
Licence agreement dated 1 July 2016. The second is an Amenities agreement
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dated 25 August 2016. The bone of contention is whether there is an
arbitration agreement between the parties. The contention of the respondent
is that while the Amenities agreement contains an arbitration agreement, the
Leave and Licence agreement does not. Hence, it has been submitted that
the claim of the 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 petitioner
would be to pursue its remedies under Section 8.
11 The 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 Leave and
License Agreement in respect of the License of the Licensed
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”
12 The Amenities agreement contains a provision to resolve disputes through
arbitration. Clause 17 is in the following terms:
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“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.”
13 The submission which has been urged on behalf of 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 that 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
1
Limited .
14 Clause (1) of the Amenities agreement which has been extracted above
indicates that (i) the provisions of the Amenities agreement shall be deemed
to be and shall constitute an integral part of the Leave and Licence
Agreement in respect of the license granted 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.
1 (2009) 7 SCC 696
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15 The plain consequence of clause (1) of the Amenities agreement is that all
the terms of that agreement constitute an integral part of the Leave and
Licence agreement. The Amenities agreement 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.
16 Section 7(5) of the Arbitration and Conciliation Act 1996 stipulates that the
reference in a contract to a document containing an arbitration clause
constitutes an arbitration agreement if the contract is in writing and the
reference is such as to make that arbitration 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.
17 In 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
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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.”
18 The principle which emerges from the provisions of Section 7(5) is elucidated
in paragraph 19 of the judgment, which is extracted 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 special reference to the arbitration clause so
as to make it applicable.”
19 The 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.
20 There 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.
21 The sole Arbitrator who was nominated by the petitioner has since assumed
the position of Lokayukta of the State of Maharashtra. Hence, we direct that
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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.
22 The Registrar (Judicial) shall transmit a copy of this order to the sole
Arbitrator.
23 The Arbitration Petition is accordingly disposed of.
24 Pending applications, if any, stand disposed of.
….....…...….......…………………..CJI.
[Dr Dhananjaya Y Chandrachud]
..…....…........……………….…........J.
[Pamidighantam Sri Narasimha]
..…....…........……………….…........J.
[J B Pardiwala]
New Delhi;
March 13, 2023
CKB