# M/s Arif Azim Co. Ltd v. M/s Micromax Informatics Fze

- **Citation:** 2024 INSC 850
- **Court:** Supreme Court of India
- **Decided:** 2024-11-07
- **Case number:** Arbitration Petition No. 31 of 2023
- **Bench:** Dr. Dhananjaya Y. Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-arif-azim-co-ltd-v-m-s-micromax-informatics-fze-37652
- **Pages:** 91

## Headnote

(a) Whether the present petition under section 11 of the Arbitration
and Conciliation Act, 1996 maintainable in India; (b) whether
seat of arbitration designated under the aforesaid Distributorship
Agreement is in India; (c) whether the arbitration agreement could
be said to be governed by the Indian laws.
Headnotes†
Arbitration and Conciliation Act, 1996 - Application of Part-I:
Held: Part I of the Act, 1996 and the provisions thereunder only
applies where the arbitration takes place in India i.e., where either
(I) the seat of arbitration is in India OR (II) the law governing the
arbitration agreement are the laws of India. [Para 71(i)]
Arbitration and Conciliation Act, 1996 - Part-I - Arbitration
agreements executed after or prior to 06.09.2012 - Applicability
of provisions of the Act:
Held: Arbitration agreements executed after 06.09.2012 where
the seat of arbitration is outside India, Part I of the Act, 1996 and
the provisions thereunder will not be applicable and would fall
beyond the jurisdiction of Indian courts - Even those arbitration
agreements that have been executed prior to 06.09.2012 Part I
of the Act, 1996 will not be applicable, if its application has been
excluded by the parties in the arbitration agreement either explicitly
by designating the seat of arbitration outside India or implicitly by
choosing the law governing the agreement to be any other law
other than Indian law. [Paras 71(ii), 71(iii)]
* Author
[2024] 11 S.C.R.
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Arbitration and Conciliation Act, 1996 - Determination of
seat - Exclusive jurisdiction clause:
Held: The moment 'seat' is determined, it would be akin to an
exclusive jurisdiction clause whereby only the jurisdictional courts
of that seat alone will have the jurisdiction to regulate the arbitral
proceedings - The notional doctrine of concurrent jurisdiction
has been expressly rejected and overruled by this Court in its
subsequent decisions. [Para 71(iv)]
Arbitration and Conciliation Act, 1996 - Determination of
seat - Closest Connection Test - No longer a viable criterion:
Held: The 'Closest Connection Test' for determining the seat of
arbitration by identifying the law with which the agreement to
arbitrate has its closest and most real connection is no longer a
viable criterion for determination of the seat or situs of arbitration
in view of the Shashoua Principle - The seat of arbitration cannot
be determined by formulaic and unpredictable application of
choice of law rules based on abstract connecting factors to the
underlying contract - Even if the law governing the contract has
been expressly stipulated, it does not mean that the law governing
the arbitration agreement and by extension the seat of arbitration
will be the same as the lex contractus. [Para 71(v)]
Arbitration and Conciliation Act, 1996 - Determination of seat
of Arbitration - More appropriate criterion:
Held: The more appropriate criterion for determining the seat of
arbitration in view of the subsequent decisions of this Court is that
where in an arbitration agreement there is an express designation of
a place of arbitration anchoring the arbitral proceedings to such place,
and there being no other significant contrary indicia to show otherwise,
such place would be the 'seat' of arbitration even if it is designated
in the nomenclature of 'venue' in the arbitration agreement - Where
the curial law of a particular place or supranational body of rules
has been stipulated in an arbitration agreement or clause, such
stipulation is a positive indicium that the place so designated is
actually the 'seat', as more often than not the law governing the
arbitration agreement and by extension the seat of the arbitration
tends to coincide with the curial law. [Para 71(vi), 71(vii)]
Arbitration and Conciliation Act, 1996 - Seat of Arbitration -
Choices of parties and their intentions in Arbitration agreement:
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Held: Merely

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[2024] 11 S.C.R. 1142 : 2024 INSC 850
M/s Arif Azim Co. Ltd.
v.
M/s Micromax Informatics Fze
(Arbitration Petition No. 31 of 2023)
07 November 2024
[Dr. Dhananjaya Y. Chandrachud, CJI.,
J.B. Pardiwala* and Manoj Misra, JJ.]
Issue for Consideration
(a) Whether the present petition under section 11 of the Arbitration
and Conciliation Act, 1996 maintainable in India; (b) whether
seat of arbitration designated under the aforesaid Distributorship
Agreement is in India; (c) whether the arbitration agreement could
be said to be governed by the Indian laws.
Headnotes†
Arbitration and Conciliation Act, 1996 - Application of Part-I:
Held: Part I of the Act, 1996 and the provisions thereunder only
applies where the arbitration takes place in India i.e., where either
(I) the seat of arbitration is in India OR (II) the law governing the
arbitration agreement are the laws of India. [Para 71(i)]
Arbitration and Conciliation Act, 1996 - Part-I - Arbitration
agreements executed after or prior to 06.09.2012 - Applicability
of provisions of the Act:
Held: Arbitration agreements executed after 06.09.2012 where
the seat of arbitration is outside India, Part I of the Act, 1996 and
the provisions thereunder will not be applicable and would fall
beyond the jurisdiction of Indian courts - Even those arbitration
agreements that have been executed prior to 06.09.2012 Part I
of the Act, 1996 will not be applicable, if its application has been
excluded by the parties in the arbitration agreement either explicitly
by designating the seat of arbitration outside India or implicitly by
choosing the law governing the agreement to be any other law
other than Indian law. [Paras 71(ii), 71(iii)]
* Author
[2024] 11 S.C.R.
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Arbitration and Conciliation Act, 1996 - Determination of
seat - Exclusive jurisdiction clause:
Held: The moment 'seat' is determined, it would be akin to an
exclusive jurisdiction clause whereby only the jurisdictional courts
of that seat alone will have the jurisdiction to regulate the arbitral
proceedings - The notional doctrine of concurrent jurisdiction
has been expressly rejected and overruled by this Court in its
subsequent decisions. [Para 71(iv)]
Arbitration and Conciliation Act, 1996 - Determination of
seat - Closest Connection Test - No longer a viable criterion:
Held: The 'Closest Connection Test' for determining the seat of
arbitration by identifying the law with which the agreement to
arbitrate has its closest and most real connection is no longer a
viable criterion for determination of the seat or situs of arbitration
in view of the Shashoua Principle - The seat of arbitration cannot
be determined by formulaic and unpredictable application of
choice of law rules based on abstract connecting factors to the
underlying contract - Even if the law governing the contract has
been expressly stipulated, it does not mean that the law governing
the arbitration agreement and by extension the seat of arbitration
will be the same as the lex contractus. [Para 71(v)]
Arbitration and Conciliation Act, 1996 - Determination of seat
of Arbitration - More appropriate criterion:
Held: The more appropriate criterion for determining the seat of
arbitration in view of the subsequent decisions of this Court is that
where in an arbitration agreement there is an express designation of
a place of arbitration anchoring the arbitral proceedings to such place,
and there being no other significant contrary indicia to show otherwise,
such place would be the 'seat' of arbitration even if it is designated
in the nomenclature of 'venue' in the arbitration agreement - Where
the curial law of a particular place or supranational body of rules
has been stipulated in an arbitration agreement or clause, such
stipulation is a positive indicium that the place so designated is
actually the 'seat', as more often than not the law governing the
arbitration agreement and by extension the seat of the arbitration
tends to coincide with the curial law. [Para 71(vi), 71(vii)]
Arbitration and Conciliation Act, 1996 - Seat of Arbitration -
Choices of parties and their intentions in Arbitration agreement:
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Held: Merely because the parties have stipulated a venue without
any express choice of a seat, the courts cannot sideline the specific
choices made by the parties in the arbitration agreement by imputing
these stipulations as inadvertence at the behest of the parties as
regards the seat of arbitration - Deference has to be shown to
each and every choice and stipulations made by the parties, afterall
the courts are only a conduit or means to arbitration, and the sum
and substance of the arbitration is derived from the choices of the
parties and their intentions contained in the arbitration agreement -
It is the duty of the court to give weight and due consideration to
each choice made by the parties and to construe the arbitration
agreement in a manner that aligns the most with such stipulations
and intentions. [Para 71(viii)]
Arbitration and Conciliation Act, 1996 - Where there is no
express or implied designation of a place of arbitration -
Closest Connection Test:
Held: It is not said that the Closest Connection Test has no
application whatsoever, where there is no express or implied
designation of a place of arbitration in the agreement either in the
form of 'venue' or 'curial law', there the closest connection test may
be more suitable for determining the seat of arbitration. [Para 71(ix)]
Arbitration and Conciliation Act, 1996 - Doctrine of Forum
Non Conveniens - Where two or more possible places that
have been designated in the arbitration agreement either
expressly or impliedly:
Held: Where two or more possible places that have been designated
in the arbitration agreement either expressly or impliedly, equally
appear to be the seat of arbitration, then in such cases the conflict
may be resolved through recourse to the Doctrine of Forum Non
Conveniens, and the seat be then determined based on which
one of the possible places may be the most appropriate forum
keeping in mind the nature of the agreement, the dispute at hand,
the parties themselves and their intentions - The place most suited
for the interests of all the parties and the ends of justice may be
determined as the 'seat' of arbitration. [Para 71(x)]
Arbitration and Conciliation Act, 1996 - s.11 - Petitioner herein
and respondent no.1 entered into a Consumer Distributorship
Agreement inter-alia for distribution of handsets manufactured
by respondent no.1 and the same was executed by the
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parties in Kabul, Afghanistan - Distributorship Agreement
also contained Arbitration clause - The said Distributorship
Agreement inter-alia stipulates that the said agreement will be
governed by the laws of UAE and subject to the non-exclusive
jurisdiction of the Dubai Courts - Dispute arose between the
parties - Petitioner invoked Arbitration clause - The petitioner
sought appointment of an arbitrator u/s. 11(6) of the Act:
Held: In the instant case, clause 26 of the aforesaid Distributorship
Agreement stipulates that the arbitration shall be subject to UAE
Arbitration and Conciliation rules - The aforesaid arbitration clause
further designates only one place i.e., Dubai, UAE as the venue
of arbitration - Since only one place has been designated in the
arbitration clause, and such place has been categorically fixed
inasmuch as there is no scope for the place designated as venue
to change in terms of Clause 26, and furthermore, the said clause
has explicitly stipulated that the curial law would be the UAE
Arbitration and Conciliation rules and there being no other contrary
indicia let alone a significant contrary indicia, this Court is of the
considered opinion that the Dubai, UAE has not been designated
merely as a venue but rather as the juridical seat of arbitration in
terms of clause 26 of the Distributorship Agreement - And since
the Distributorship Agreement already designates Dubai, UAE as
the seat of arbitration, the same would be akin to an exclusive
jurisdiction clause with only the courts in Dubai, UAE having the
jurisdiction over such arbitration - This Court, also will not have
jurisdiction to entertain the present Section 11 petition because,
Part I of this Act, 1996 will not be applicable where the seat of
arbitration is outside India or where the law governing the arbitration
agreement is not Indian laws - As the Distributorship Agreement,
more particularly Clauses 26 & 27 respectively makes it abundantly
clear that the seat of arbitration is in fact Dubai, UAE, furthermore
both the law governing the contract and the curial law are not
Indian laws - Even if it is assumed that Clause 27 of the aforesaid
Distributorship Agreement conferred concurrent jurisdiction to both
the courts in UAE and the other courts and thus, the petitioner
herein was well-within its right to approach this Court in terms of the
non-exclusive jurisdiction clause for the purpose of appointment of
arbitrator, this Court can decline to exercise its jurisdiction if there
exists a more appropriate forum - The more appropriate forum
suitable for appointment of arbitrator is Dubai, UAE and not the
courts of India - Thus, the present petition under Section 11 of the
Act, 1996 is not maintainable as neither the seat of arbitration is
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India nor is the arbitration agreement governed by laws of India.
[Paras 55, 56, 62, 63, 70, 72]
Case Law Cited
National Thermal Power Corporation v. Singer Company & Ors.
[1992] 3 SCR 106 : (1992) 3 SCC 551; Sumitomo Heavy Industries
Ltd. v. ONGC Ltd. & Ors. [1997] Supp. 6 SCR 186 : (1998) 1
SCC 305; Bhatia International v. Bulk Trading S.A. [2002] 2 SCR
411 : (2002) 4 SCC 105; Venture Global Engineering v. Satyam
Computer Services Ltd. [2008] 1 SCR 501 : (2008) 4 SCC 190;
Indtel Technical Services (P) Ltd. v. W.S. Atkins Rail Ltd. [2008]
12 SCR 673 : (2008) 10 SCC 308; Enercon (India) Ltd. & Ors.
v. Enercon GMBH & Anr [2014] 2 SCR 855 : (2014) 5 SCC 1;
BGS SGS SOMA JV v. NHPC LTD. [2019] 17 SCR 742 : (2020)
4 SCC 234; Mankastu Impex Private Ltd. v. Airvisual Ltd. [2020]
4 SCR 565 : (2020) 5 SCC 399; Indus Mobile Distribution (P) Ltd.
v. Datawind Innovations (P) Ltd [2017] 4 SCR 744 : (2017) 7 SCC
678; Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd. [2013] 7 SCR
581 : (2013) 9 SCC 32; Modi Entertainment Network v. W.S.G.
Cricket Pte. Ltd [2003] 1 SCR 480 : (2003) 4 SCC 341 - relied on.
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc
[2012] 12 SCR 327 : (2012) 9 SCC 552; Union of India v. Reliance
Industries Ltd. & Ors. [2015] 10 SCR 85 : (2015) 10 SCC 213;
Roger Shashoua (2) v. Mukesh Sharma [2017] 7 SCR 442 : (2017)
14 SCC 722 - referred to.
Roger Shashoua (1) v. Sharma [2009] EWHC 957 (Comm);
Sulame ́rica Cia Nacional de Seguros SA v. Enesa Engelharia SA
(2013) 1 WLR 102 (CA); Spiliada Maritime Corp v. Cansulex Ltd.
[1987] AC 460 - referred to.
Books and Periodicals Cited
New York Convention of 1958; UNCITRAL Model Law on
International Commercial Arbitration.
List of Acts
Arbitration and Conciliation Act, 1996; Arbitration (Protocol and
Convention) Act, 1937; Geneva Convention, Arbitration Act,
1940; Foreign Awards (Recognition and Enforcement) Act, 1961;
UNCITRAL Model Law and Rules; UAE Arbitration and Conciliation
Rules.
[2024] 11 S.C.R.
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M/s Arif Azim Co. Ltd. v.
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List of Keywords
Consumer Distributorship Agreement; Arbitration clause; Section 11
of the Arbitration and Conciliation Act, 1996; Seat of arbitration;
Application of Part-I of Arbitration and Conciliation Act, 1996;
Determination of seat of arbitration; Exclusive jurisdiction clause;
Closest Connection Test; Shashoua Principle; Choices of parties
and their intentions in Arbitration agreement; Doctrine of Forum
Non Conveniens.
Case Arising From
CIVIL ORIGINAL JURISDICTION: Arbitration Petition No. 31 of 2023
(Under Section 11 sub-section (6)(a) read with Section 11 subsection (12)(a) of the Arbitration and Conciliation Act, 1996)
Appearances for Parties
R. Sathish, Rajesh Kumar, Mohan Das Kk, Mathan Joseph,
Mrs. S. Geetha, Advs. for the Petitioner.
Mudit Sharma, Ms. Nandini Sharma (Gidwaney), Advs. for the
Respondent.
Judgment / Order of the Supreme Court
Judgment
J.B. Pardiwala, J.
For the convenience of exposition, this judgment is divided into the
following parts: -
INDEX*
A. FACTUAL MATRIX ...........................................................
3
B. SUBMISSIONS OF THE PARTIES .....................................
11
i.
Submissions on behalf of the Petitioner ..................
11
ii.
Submissions on behalf of the Respondent ..............
18
C. ISSUES FOR DETERMINATION .....................................
21
* Ed. Note: Pagination as per the original Judgment.
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D. ANALYSIS ..........................................................................
21
i.
The Notional Doctrine of Concurrent Jurisdiction
and Applicability of Part I of the Arbitration &
Conciliation Act, 1996 ............................................
24
a.
Pre-BALCO Regime ..............................................
26
b.
Post BALCO Regime ..........................................
43
ii.
Criterion or Test for Determination of Seat of
Arbitration: Conflict of 'Venue' versus 'Seat' of
Arbitration ................................................................
56
a.
Closest Connection Test - Place of Arbitration
to be ascertained by the Law governing the
Arbitration Agreement and not the Place of
Arbitration .............................................................
56
b.
The Shashoua Principle - 'Venue' to be construed
as 'Seat' ..............................................................
71
iii.
Whether the Seat of Arbitration in the underlying
Distributorship Agreement is in India? ................
81
iv.
Doctrine of Forum non Conveniens ....................
89
E.
CONCLUSION ...................................................................
95
1.
The present petition has been filed under Section 11 sub-section
(6)(a) read with Section 11 sub-section (12)(a) of the Arbitration
and Conciliation Act, 1996 (for short, the "Act, 1996") seeking a
referral of the disputes that have arisen between the parties to
arbitration and consequent appointment of an arbitrator by this
Court in terms of clauses 26 and 27 of the Consumer Distributorship
Agreement respectively dated 09.11.2010 (hereinafter referred to
as the "Agreement") entered into between the petitioner and the
respondent herein.
2.
The petitioner, 'M/s Arif Azim Co. Ltd.', is a company based in
Afghanistan, having its registered office at 1st Floor, Zarnigar Hotel,
Mohammed Jan Khan Watt, Kabul, Afghanistan and is inter-alia
engaged in the business of distribution of handsets which are
manufactured by the respondent no. 1 in the territory of Kabul,
Afghanistan. The respondent no. 1, 'M/s Micromax Informatics FZE'
is a Free Zone Establishment company incorporated under the
[2024] 11 S.C.R.
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laws of United Arab Emirates having its office at 28, Shed No. 18,
Technology Park, Free Trade Zone, Ras-Al-Khaimah, UAE. Whereas,
the respondent no. 2, 'M/s Micromax India' is a public limited company
incorporated in India having its registered office at Block A, Plot No.
21/14, Naraina Industrial Area, Phase-II New Delhi. The respondent
no. 1 company is a wholly owned subsidiary of the respondent no. 2
company with the same Board Members in both the companies,
and together they are engaged in the business of manufacturing,
importing and supplying various mobile handsets under its brand
name 'Micromax' worldwide. We may clarify at the outset, that the
respondent no. 2 company herein is a non-signatory to the arbitration
agreement in respect of which the present Section 11 petition has
been filed.
A.
FACTUAL MATRIX
3.
The petitioner herein and the respondent no. 1 company entered
into a Consumer Distributorship Agreement dated 09.11.2010 (for
short, the "Distributorship Agreement") inter-alia for the distribution
of handsets which are manufactured by the respondent no. 1 and
the same was executed by the parties in Kabul, Afghanistan. As
per the terms of the aforesaid agreement, the petitioner herein
became the authorized distributor of the respondent's products
including mobile handsets and was granted a non-exclusive right
to market and distribute the same under its own account in the
territory of Afghanistan as allotted and delineated under the said
agreement.
4.
Before proceeding further, it would be apposite to first highlight some
of the salient features of the aforesaid Distributorship Agreement which
are relevant to the case at hand. Under the terms of the aforesaid
Distributorship Agreement, it is stipulated that all payments shall
be made by the distributor in full before the physical delivery of the
products, and it further specifies that the mode of such payment shall
be through a letter of credit (L/C). The Distributorship Agreement
further provides that no additions or modifications made to the
aforesaid agreement shall be binding unless it is in writing and is duly
signed by the authorized representatives of the parties. Additionally,
the said Distributorship Agreement defines a 'supplementary
agreement' to mean and include any further agreement or agreements
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that may be executed by the parties including such other terms and
conditions that are not incorporated in the main agreement. The
relevant clauses read as under: -
"1. DEFINITIONS
In this agreement, unless the context otherwise requires,
the following expressions have the following meanings:
xxx
xxx
xxx
Supplementary Agreement: means the further
agreement(s) as may be executed between the parties
including such other commercial terms and conditions
which are not incorporated in this Agreement.
xxx
xxx
xxx
5. DISTRIBUTOR'S OBLIGATIONS
xxx
xxx
xxx
5.4 Payment
5.4.1 Invoice and Payment Terms. Unless credit terms
have been expressly agreed by Micromax, payment for the
Products shall be made through irrevocable and confirmed
letter of credit (L/C) in full before physical delivery of the
Products to Distributor (or Distributor's customer). Time
for payment is of the essence and Micromax reserves the
right to charge interest on sums overdue, on a day to day
basis at the rate of 24% per annum. Such interest shall
be payable on demand.
5.4.2. Payments not received by Micromax as per the
payment terms shall constitute a default by the Distributor.
Micromax shall have the right to invoke the bank guarantee
furnished by the Distributor for securing payments in case
of default. Distributor agrees not to seek any adjustments,
set-off of any other amounts outstanding to Micromax in
respect of the bank guarantee nor counter claim from
Micromax.
xxx
xxx
xxx
[2024] 11 S.C.R.
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23. ENTIRE AGREEMENT
23.1 This Agreement together with the Conditions of
Sale, supersedes all prior agreements, arrangements,
understandings and undertakings between the parties
and constitutes the entire agreement between the parties
relating to the subject matter hereof.
23.2 No addition to or modification of any provision of
this Agreement shall be binding upon the parties unless
made by a written instrument signed by a duly authorized
representative of each of the parties.
23.3 Distributor hereby warrants to Micromax that it has
not been induced to enter into the Agreement by any
prior oral or written representations (whether innocently
or negligently made) except as specifically contained in
the Agreement."
5.
Furthermore, the aforesaid Distributorship Agreement inter-alia
stipulates that the said agreement will be governed by the laws of
UAE and subject to the non-exclusive jurisdiction of the Dubai Courts.
The said Distributorship Agreement also contains an arbitration clause
which states that any dispute or difference pertaining to the said
agreement or arising therefrom shall be resolved through arbitration
alone, the venue of the arbitration shall be Dubai, UAE and that the
arbitration shall be subject to the UAE Arbitration & Conciliation rules.
The relevant clauses are reproduced hereunder: -
"26. DISPUTE RESOLUTION
In the event of any dispute or difference arising out of the
Agreement, its validity, applicability, then the same shall be
referred to the arbitration. The arbitration shall be subject
to UAE Arbitration and Conciliation rules made there under.
The venue of arbitration shall be Dubai, UAE.
27. LAW AND JURISDICTION
This Agreement shall be governed by and construed in
accordance with the laws of UAE and shall be subject to
the non-exclusive jurisdiction of the Dubai Courts."
6.
Pursuant to the aforesaid Distributorship Agreement several
transactions took place between the petitioner and the respondents
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for the purchase and distribution of mobile handsets. It is the case
of the petitioner that the business practice mutually followed by the
parties for undertaking these transactions involved the petitioner first
placing a purchase order, after which the respondents would raise
an invoice, and the requisite payment would then be made either to
the respondent no. 1 or the respondent no. 2 as per the instructions
of the respondents.
7.
Around March, 2012 the petitioner herein placed an order for
purchase of 8000 (approx..) mobile handsets from the respondent
no. 1. Against this purchase the respondent no. 1 raised a proforma
invoice to the tune of $109,500/- (USD One hundred nine thousand
five hundred) and as per the invoice the said amount was payable
by the petitioner to the respondent no. 1 company.
8.
According to the petitioner, although the terms of the Distributorship
Agreement mandated that both the delivery of handsets and the
payments thereof be processed through the respondent no. 1 yet,
interestingly, this time the handsets and the corresponding invoices
for the same were issued by the respondent no. 2 instead. The
respondent no. 2 supplied only 7300 handsets to the petitioner and
issued a new invoice for the same amount i.e., $109,500/- (USD
One hundred nine thousand five hundred), which was now payable
directly to the respondent no. 2 instead.
9.
It is the case of the petitioner herein that as on 12.05.2012, the
petitioner company had a credit balance of $190,625/- (USD One
hundred ninety six hundred twenty-five) with the respondent no. 1
company i.e., the running account of the respondent no. 1 reflected
a sum of $190,625/- (USD One hundred ninety six hundred twentyfive) in favour of the petitioner company as outstanding credit.
However, the respondent no. 2 whilst raising the invoice for supply
of the aforesaid 7300 handsets, ignored the abovementioned credit
balance of the petitioner and demanded payment, to be made directly
to the respondent no. 2 in India.
10. Thereafter some email correspondences were exchanged between
the petitioner company and one Shri Vikas Jain, the executive director
of the respondent no. 1 and the business director of the respondent no.
2 company for the adjustment of the abovementioned credit balance
lying in favour of the petitioner against the outstanding invoices. On
23.10.2012, the respondents vide an email informed the petitioner
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company that since the accounts of Micromax Informatics FZE &
M/s Micromax India are separate, the credit balance lying in its favour
in the respondent no. 1's account cannot be directly adjusted for the
invoices raised by the respondent no. 2. It further stated that, the
petitioner company should first make payment to the respondent
no. 2 towards the invoices that have been raised, and thereafter,
the respondent no. 1 company would remit the outstanding credit
balance to the petitioner. The relevant portion of the respondent's
email dated 23.10.2012 is reproduced below: -
"Dt. 23.10.2012
Subject: Account Statement
Dear Sir,
Kindly note that from Arif Azim we need to receive USD
109500 for sales made in MMX India and Need to pay
USD 190625 in respect of advance received respect
of sale to be made in FZE. Both these accounts are of
separate Cos.
Hence we should first receive payment of MMX India
account; then let Micromax FZE pay to Arif.
Regards, Anita"
11. On 15.01.2013, the petitioner made the requisite payment of
$109,500/- (USD One hundred nine thousand five hundred), which
was now payable directly to the respondent no. 2 towards the aforesaid
invoices raised by it. Thereafter, it appears from the materials on
record, that over a period of time many more transactions took place
between the petitioner company and respondent no. 1 inter-alia for
purchase and supply of various products whereby the credit balance
lying in the respondent no.1's account in favour of the petitioner
company now came out to be $88,425/- (USD Eighty-Eight Thousand
Four Hundred Twenty-Five).
12. On 09.09.2019, the petitioner vide an email again requested Shri
Vikas Jain to confirm the credit balance lying in its favour with the
respondent no. 1 and to undertake steps to transfer the same to the
petitioner's account. In response, Shri Vikas Jain directed the finance
department of respondent no. 1 to confirm the credit balance lying
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with it in favour of the petitioner and further requested the petitioner
to furnish its statement of account so that the two books of account
may be reconciled for making the requisite payment.
13. Thereafter, several more correspondences took place between the
petitioner and Shri Vikas Jain on behalf of the respondents through
emails and texts inter-alia requesting for various documents and
statements for the purpose of ascertaining the outstanding credit
balance in favour of the petitioner. On 06.05.2022, the petitioner
furnished the necessary statement of accounts to the respondents
and requested for an update on the payment.
14. It appears from the material on record, that over the next 2-months
several requests were made by the petitioner to the respondents for
furnishing the outstanding credit balance in its favour and to make
the requisite payment; however, the same were to no avail. Shri
Vikas Jain, on behalf of the respondents' time to time expressed his
difficulty in ascertaining the exact figure for the outstanding credit
balance, inter-alia citing that it was a very old running account and
that the accountants responsible for maintaining the records had left
the company, and thus requested for more time to do the needful.
15. On 14.09.2022, the petitioner sent a notice for invocation of arbitration
under Section 21 of the Act, 1996, in terms of Clause 26 of the
Distributorship Agreement to the respondent nos. 1 & 2. Vide the
notice, the petitioner raised a claim of $88,425/- (USD Eighty-Eight
Thousand Four Hundred Twenty-Five) with interest @24% p.a. as
per the terms agreed in the Distributorship Agreement and nominated
Shri. V. Giri and Shri. R. Basant, Senior Advocate as its nominee
arbitrators and called upon the respondents to accordingly appoint
an arbitrator either from the above suggested panel or any other
suitable name within 28-days from receipt of the said notice.
16. It is material to note that in the aforesaid notice of invocation dated
14.09.2022, the petitioner further alluded that in the Distributorship
Agreement more particularly Clause 27 the parties had not designated
a specific court to the exclusion of all other courts to adjudicate
the dispute, thus no exclusive jurisdiction had been conferred by
the parties upon any particular court. It further stated that, as the
cause of action had concurrently both in Afghanistan and India, the
petitioner expressed its preference to resolve the dispute through
arbitration administered under the jurisdiction of the courts in India.
[2024] 11 S.C.R.
1155
M/s Arif Azim Co. Ltd. v.
M/s Micromax Informatics Fze
17. Since no reply to the aforesaid notice of invocation of arbitration was
elicited from either of the respondents, the present petition came to
be filed by the petitioner on 19.04.2023 before this Court for seeking
appointment of an arbitrator under Section 11(6) of the Act, 1996 in
other words due to the failure on part of the respondents in nominating
an arbitrator as per the mutually agreed upon terms and procedure
under the aforesaid Distributorship Agreement.
B.
SUBMISSIONS OF THE PARTIES
i.
Submissions on behalf of the Petitioner.
18. Mr. R. Sathish the learned counsel appearing for the petitioner in
his written submissions has stated thus: -
"WRITTEN SUBMISSIONS MADE BY R. SATHISH,
ADVOCATE ON BEHALF OF THE PETITIONER
1. The Dispute Resolution clause defined the venue of
arbitration as Dubai and the curial law as UAE Arbitration
and Conciliation Rules and the jurisdiction clause,
suggestive of control, does not confer jurisdiction to Dubai
courts to the exclusion of all other courts.
2. For international arbitrations, the concept of seat
assumes greater significance as it acts as the indicator for
both curial law as well as supervisory jurisdiction whereas
venue is not associated with the jurisdiction.
3. The agreement, in so far the identity of Dubai courts,
for jurisdiction, suffers from vagueness in that, it doesn't
specify which of the courts of Dubai and the laws governing
thereunder, shall have jurisdiction to hear the disputes
among three different courts constituted, namely
(i) The UAE Courts (the language is not English)
(ii) Dubai International Financial Court (DIFC-Common law)
(iii) Abu Dhabi Global court (ADGM-common law).
Therefore, at the threshold, it is submitted that the 2nd part
of clause 27 dealing with jurisdiction that "..........and shall
be subject to the non-exclusive jurisdiction of the Dubai
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courts" is a valid opting out of the exclusive jurisdiction
of Dubai courts, as the parties have intended to avoid
impracticable and inconvenient process and procedures as
a result of subsequent amendments and modifications to
the agreement involving 3 countries, Afghanistan, India and
UAE. This submission is discernible from a plain reading
of various clauses in the subject of the agreement as well
as the conduct of the parties including a non -signatory
to the agreement.
4. As held in Bharat Aluminium vs Kaiser Aluminium
Technical Services Inc. 2012 (9)SCC 522, at para 99,
that, it would be a matter of construction of the individual
agreement to decide, whether the designated foreign "seat"
would be read as in fact only providing a "venue"/"place"
where the hearings would be held; and in the present
case on hand, given the choice of UAE Arbitration and
Conciliation Rules as being the curial law and the venue
at Dubai, will not dictate what the governing or controlling
law would be when the 2nd part of clause 27 reiterates
the parties' autonomy in deciding/choosing the seat by
expressly stating its intention that "This agreement shall
be subject to the non-exclusive jurisdiction of the Dubai
Courts". Regard being to other clauses in the agreement,
this clause has been incorporated to avoid conflicts related
to the jurisdictions of courts and confer jurisdiction on other
courts too, it is submitted. (Emphasis supplied).
5. At the outset, be it kindly noted that, the relied upon
decision by the respondent to oust the jurisdiction of Indian
courts in Mankatsu Impex Private Limited vs Airvisual
Limited 2010 (5) SCC 399 is misplaced as it was a case of
exclusive jurisdiction in terms conferred by the agreement.
A clause therein like Cl.17.2 which provides "the place
of arbitration shall be Hong Kong", in addition to, also
providing that "all disputes arising out of the MoU shall be
referred to and finally resolved and administered in Hong
Kong"...is conspicuously absent in the subject agreement.
Still on a matter of law, emphasising the Party's autonomy,
Mankatsu Impex held;
[2024] 11 S.C.R.
1157
M/s Arif Azim Co. Ltd. v.
M/s Micromax Informatics Fze
Quote "20. It is well-settled that "seat of arbitration" and
"venue of arbitration" cannot be used interchangeably. It
has also been established that mere expression "place of
arbitration" cannot be the basis to determine the intention
of the parties that they have intended that place as the
"seat" of arbitration. The intention of the parties as to the
"seat" should be determined from other clauses in the
agreement and the conduct of the parties." Unquote
5. Proposition
(i) Where in substance, the parties agreed that the local
laws of one country will govern and control a given
arbitration, the place where the arbitration is to be heard
will not dictate what the governing law or controlling law
will be. (Bharath Aluminium vs Kaiser Aluminium Technical
services 2012 (9) SCC552 at page 613 Para 107.
(ii) When an agreement expressly designates the venue
without any express reference to seat, given the various
factors connecting the dispute to India in a contract
executed in Kabul and wholly to be performed in India
and Afghanistan and the absence of any foreign factors
connecting the dispute to Dubai with its vagueness and
uncertainty of what the parties had intended by their
reference to the "Dubai courts", the burden is on the
respondents to establish that its terms constituted Dubai
as the seat of arbitration.
SUBMISSIONS ON BEHALF OF THE PETITIONER
6. The petitioner submits that the laws of the country with
which the subject agreement was most closely connected
are India and Afghanistan. The recitals in Sub- Cl. 22.4
(Interpretation Clause) of the Distribution agreement and
the conduct of the parties reveal that the parties had
attached very little importance to its local subsidiary FZE
within the "Micromax Group" of companies that ultimately
signed the Distributor agreement. It was formed to take
advantage of concessional benefits in a free economic
zone. The intention of the parties as to the "seat" should
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[2024] 11 S.C.R.
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be determined from other clauses in the agreement and
the conduct of the parties.
7. A plain conjoint reading of the following 6 clauses in
the agreement with a supplementary agreement executed
by Micromax Inc. (Non-signatory parent Co.) in the form
of two emails forming its integral part (Pages 37 to 54)
would negate the contra plea of the respondents as to the
jurisdiction of Indian courts.
(i) Clause 26 Clause 27 deals with Dispute Resolution;
law and jurisdiction.
Quote.."Cl. 26. Dispute Resolution In the event of any
dispute or difference arising out of the agreement, its
validity, applicability, then the same shall be referred
to arbitration. The arbitration shall be subject to UAE
Arbitration and conciliation rules made there under. The
venue of arbitration shall be Dubai, UAE.
Cl. 27. Law and jurisdiction
This shall be governed by and construed in accordance with
the laws of UAE and shall be subject to the non-exclusive
jurisdiction of the Dubai Courts." ....Unquote
8. Petitioner submits that Clause 27 preserved the party's
autonomy in allowing the concerned parties to choose their
seat/jurisdiction. The second part of jurisdictional Cl. 27
discloses the intention - an agreement by itself- to opt out
of Dubai court's jurisdiction and this is what the parties
had intended by their reference to "the non-exclusive
jurisdiction of the Dubai Courts. Since the parties had
agreed not to confer exclusive jurisdiction to courts in
Dubai, neither of the parties to the agreement construed
the arbitration clause as designating courts in Dubai as
the seat of arbitration.
Vide PASL vs GE 2021 SCC online 226.
9. DETERMINATION OF THE SEAT BASED ON THE
CLOSEST CONNECTION TEST IF IT IS UNCLEAR THAT
THE SEAT HAS BEEN DESIGNATED EITHER BY THE
PARTIES.
[2024] 11 S.C.R.
1159
M/s Arif Azim Co. Ltd. v.
M/s Micromax Informatics Fze
The petitioner submits that the laws of the country with
which the subject agreement was most closely connected
is India. However, there is no stipulation whatsoever in
the subject agreement about the supervisory power over
the arbitration proceedings. In Enercon (India) Limited
and others v. Enercon GMBH and another (2014) 5
SCC 1, the arbitration clause provided London as the
venue and not the seat. The Court pointed out various
factors connecting the dispute to India and the absence
of any foreign factors connecting the dispute to England.
Supreme Court held that "the location of the Seat will
determine the courts that will have exclusive jurisdiction
to oversee the arbitration proceedings. It was further
held that the Seat normally carries with it the choice of
that country's arbitration/curial law". In the present case,
the parties have only agreed on Dubai as a "Venue" of
arbitration and not the juridical seat of the arbitration.
If Dubai is treated as seat of the arbitration, ipso jure,
local laws will be applied. So much so, the stipulation
regarding the governing law of the agreement -Laws of
UAE - contained in the first part of Cl. 27 will not dictate,
what the governing or controlling law would be, whereas
the second part applies to both the substantive law and
curial law, did not concede an exclusive jurisdiction to
Dubai courts. Therefore on a matter of construction, Dubai
cannot be the seat of Arbitration.
10. In Indus Mobile Distribution Pvt. Ltd. v. Datawind
Innovations Pvt. Ltd. and Ors. (2017) 7 SCC 678 followed
by M/s Emkay Global Financial Services Ltd. v. Girdhar
Sondhi reiterated that "seat" in the context of arbitration
proceedings is akin to an exclusive jurisdiction clause and
would not vest the courts with seat if exclusive jurisdiction
is not conceded.
11. Submission is that "supervisory control over the arbitral
proceedings" is not exclusively given to Dubai courts by
the 2nd part of Clause 27 and the party's autonomy is
thus preserved.
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12. 2nd submission. The Bi-party Agreement executed
between the petitioner and a foreign company in Kabul was
altered by invoking the Group of Companies doctrine by a
non-signatory to the agreement. In terms, the agreement
has become a tri-partite agreement where a non-signatory
to the original agreement directed the petitioner to make a
direct payment of $109500 to India by changing the original
invoice raised by a party to the agreement. Submission
is, 2nd part of Cl.27 envisages a jurisdictional situation
as had happened subsequently by the conduct of parties.
12.1 A jurisdiction clause is suggestive of control. In the
context of this particular case, the Dubai Courts would have
no real control or supervisory jurisdiction over the arbitral
process, in as much as, this supplementary agreement
further reiterates the party's autonomy of choosing the
juridical seat of Arbitration in consonance with 2nd part
of Cl.27 in which case, a reference to the "venue" cannot
be treated as the "seat" of the arbitration.
12.2 Micromax Inc.'s insistence on payment in India by
altering the original terms is a non-contest/in terrorem
clause or a condition precedent which again substantiates
the Party's autonomy lest the respondents would have
terminated the subsisting distribution agreement for
violating the supplementary agreement by giving written
notice under clause 15. Equally, clause 16.7 (Effect of
termination), obliges respondents to pay forthwith any
amount standing to the credit of distributor, should they
choose to terminate the agreement. Respondents have
perpetrated a continuous wrong.
12.3.