Co- Terminus Agreements Which Are Interdependent, Arbitration Clause In One Agreement Governs The Other : Gujarat High Court

The bench of Chief Justice Sunita Agarwal held that when two agreements are integrally related to each other and the performance of one is dependent on the other, then the absence of an arbitration clause in one of such agreement would not be material as the arbitration clause contained in the other would govern both the agreements.

Facts

The parties entered into a lease agreement dated 01.03.2018. Clause 25 of the agreement provided for resolution of dispute through arbitration. Thereafter, the parties entered into a Maintenance and Amenities (M&E) agreement in relation to the premises which were sought to be leased out in terms of the lease agreement.

A dispute arose between the parties which led to the petitioner terminating both the agreements. Thereafter, the petitioner invoked the arbitration clause and requested the respondent to attempt amicable settlement, however, upon the failure of the parties to mutually appoint the arbitrator, the petitioner approached the Court for the appointment of the arbitrator.

Contention of the Parties

The respondent objected to the maintainability of the petition on the following grounds:

• The dispute arises out of the M&E agreement which contains no arbitration clause, therefore, the parties cannot be referred to arbitration. Moreover, the arbitration clause in the lease agreement cannot be invoked for the dispute arising out of a different agreement.
• Even if assuming without admitting that there is an arbitration clause, the same provides that the arbitration shall take place at Bangalore, therefore, this Court lacks territorial jurisdiction to appoint the arbitrator.

The petitioner made the following counter-arguments:

• The lease agreement contains an arbitration clause, and the dispute which essentially arises out of the M&E agreement would also be governed by that arbitration clause as the performance under the lease agreement is dependent upon the M&E agreement.
• The arbitration clause confers exclusive jurisdiction on the Courts at Ahmedabad, therefore, Bangalore is merely the venue of arbitration and the seat of arbitration is Ahmedabad.
• The mere designation of a place of arbitration would not make it the seat of arbitration when a contrary indicia in the form of a contradictory exclusive jurisdiction clause is contained in the agreement.

Analysis by the Court

The Court observed that the both the agreements are executed by the parties in the course of the same transaction. It observed that both are co-terminus and the performance of the lease agreement is dependant upon the M&E agreement.

The Court held that held that when wo agreements are co-terminus and their performance is interdependent, the arbitration clause in one agreement can be invoked for the other as well.

The Court held that when two agreements are integrally related to each other and the performance of one is dependent on the other, then the absence of an arbitration clause in one of such agreement would not be material as the arbitration clause contained in the other would govern both the agreements.

The Court also rejected the objection rejected the objection regarding the lack of territorial jurisdiction. It observed that Clause 25 of the lease agreement provides that the Courts at Ahmedabad shall have the exclusive jurisdiction in all matters arising out of the agreement. It held that the declaration that the Arbitration shall be conducted at Bangalore indicates merely the venue of arbitration and the not the seat.

It held that the place where the arbitration is stated to be conducted would be the venue of arbitration when the agreement contains an exclusive jurisdiction clause that confers exclusive jurisdiction on a court in a different place.

The Court held that the presence of such an exclusive jurisdiction clause would be a contrary indicator which prevents the venue of being the seat of arbitration.

Accordingly, the Court dismissed both the objections and appointed the arbitrator.

Case Title: InstaKart Services v. Megastone Logiparks Pvt Ltd, Petition under Arbitration Act no. 159 of 2022

LL Citation: 2023 LiveLaw (Guj) 168

Date: 13/10/2023

Counsel for the Petitioner: Mr. Devang S. Nanavati and Mr. Tabish Samdani

Counsel for the Respondents: Mr. Aditya Gupta and Mr. Mohit A Gupta

Click Here To Read/Download Order