Rule Of Repugnancy And Appointment Of Arbitrator Under The Indian Arbitration Regime
Recently, the Delhi High Court, in Sunil Kumar Chandra v Spire Techpark Pvt. Ltd. (“Spire Techpark”), has held that in case where there is an inconsistency between two clauses in an agreement, the latter clause is to be rejected as being repugnant and that the earlier clause prevails. Against the decision of the Delhi High Court, a Special Leave Petition was preferred, and the...
Recently, the Delhi High Court, in Sunil Kumar Chandra v Spire Techpark Pvt. Ltd. (“Spire Techpark”), has held that in case where there is an inconsistency between two clauses in an agreement, the latter clause is to be rejected as being repugnant and that the earlier clause prevails. Against the decision of the Delhi High Court, a Special Leave Petition was preferred, and the same was dismissed in limine by the Supreme Court vide orderdated 10.04.2023.
While the dispute between the parties pertained to a breach of an agreement providing for the allocation of a lockable unit in favour of the Petitioner, the issue under consideration before the Court pertained to the interpretation of the dispute resolution clauses under the said agreement. The Court delved into the inconsistencies between two clauses in an agreement providing for the allocation of a lockable unit admeasuring about 525 sq. ft. in favor of the Petitioner. In terms of the agreement, the respondent was required to transfer the ownership rights of the above-mentioned unit to the petitioner within 36 months, including a six-month grace period, or by August 2017. While the entire sale consideration had been duly transferred by the Petitioner, the Respondent had demanded additional sums towards different charges. However, when the Petitioner offered to pay the amount demanded, the Respondent had offered to transfer another unit to the Petitioner as the unit booked by the Petitioner had already been leased to another entity. Thereafter, the Respondent had also stopped making payments towards the assured returns as agreed between the parties in the agreement. As the parties failed to reach an amicable resolution of disputes, the Petitioner resorted to invoke the arbitration clause under the agreement i.e. clause 18.2. While the said clause stated that “in case of any disputes between the parties hereto (including their successors) concerning this agreement or matters arising therefrom, the same shall be adjudicated by way of arbitration......arbitration shall be at New Delhi,” clause 18.3 of the agreement provided that the disputes between the parties were to be referred to the appropriate court in Gautam Buddha Nagar, New Delhi.
Pursuant to the dispute between the Parties, the Petitioner had approached the Court under section 11 and section 9 of the Arbitration & Conciliation Act, 1996 (“A&C Act”) seeking for an appointment of arbitrator and for certain interim reliefs respectively. Placing reliance on clause 18.2 of the agreement, it was contended by the Petitioner that the parties had mutually decided to resolve any dispute arising out of the agreement by way of arbitration in New Delhi and consequently, clause 18.3 of the agreement, being ambiguous in respect of the jurisdiction of the court in Gautam Buddha Nagar, New Delhi would become invalid. While the Respondent opposed the averments made by the Petitioner, it duly accepted that the dispute in question was arbitrable in nature.
Noting that the law relating to the issue of jurisdiction of courts in matters pertaining to arbitration was no longer res integra, the Delhi High Court observed that all the matters arising out of an agreement/contract would be decided by the court in whose jurisdiction the seat of arbitration is decided. The Court, on duly considering clauses 18.2 and 18.3 of the agreement, drew the inference that the latter clause was subject to the arbitration clause and further noted that no clear and unambiguous meaning had been ascribed to the disputes referred to in clause 18.3. Relying on the judgment of the Indian Supreme Court in Ramkishorelal v Kamal Narayan (“Ramkishorelal”) and that of the Calcutta High Court in Shree Bhowani Cotton Mills v Union Textile Traders, the Delhi High Court held that clause 18.2 would have a “prevailing effect” over the latter clause of the agreement as the former clause would have to prevail in case of inconsistency between two provisions of the same instrument.
The judgment of the Delhi High Court in Spire Techpark follows a catena of judgments that have followed the traditional rule of repugnancy, which can be traced to the decision in Cother v. Merrick, (1657) Hardres’ Reports at p. 94, wherein Baron Nicholas is reported as saying:
“Where there are two clauses in deed of which the latter is contradictory to the former there the former shall stand.”
Although the traditional rule has been a well settled principle of contractual interpretation, the trend of modern authorities in the U.K. and U.S. has tilted towards restricting the operation of this rule, in order to give effect to every part of a deed if possible. (See, Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd, [1959] AC 133, HL, 162 & 18 Corpus Juris p. 287; Sudatlantica Navegacion SA v Devamar Shipping Corp. [1985]. 2 Llyod’s rep. 271). The courts have sought to treat a clause as repugnant which is inconsistent with the main purpose of the contract, or with the intentions of the parties objectively ascertained from the whole of the contract in its relevant contextual setting. If this is not possible, and there is an evident aim derivable from the instrument's face, the trend is to reject only superadded components that are repugnant to that intent. (See, McMeel G., McMeel on the Construction of Contracts (3rd ed. 2017), ¶4.22.).
While the facts of Spire Techpark warranted the application of the traditional rule of repugnancy, this rule ought not to be employed as an absolute rule of construction. As can be discerned from the ratio of the Supreme Court in Ramkishorelal, the reason generally cited for applying this rule has been that a person could not be allowed to defeat his own grant by means of subsequent limitations. However, this ignores the fundamental fact that no grant comes into existence until the entire instrument is completed. Although the traditional rule of repugnancy has been exalted into a rule of positive law in India, every effort must first be made to give effect to every part of an agreement. It may be more appropriate to employ the traditional rule of repugnancy only in circumstances where the real intentions of the parties are not readily discernable or where there is no reasonable way of reconciling the two clauses and bringing them into harmony with some determinate intention that is to be collected from the instrument as a whole. Contractual interpretation aside, parties must also employ abundant caution and care during the drafting stage to avoid inconsistencies and ambiguities in their contracts. To borrow the words of Lord McNaughten in Elderslie Steamship Co. Ltd. v Borthwick [1905] A.C. 93, 96, “an ambiguous document is no protection.”
The authors are advocates practicing before the Madras High Court. Views are personal.