If MoU Arises Out Of An Agreement Containing Arbitration Clause, Reference Of MoU Is Valid: Delhi High Court

The Single Bench of Justice Anup Jairam Bhambhani held that since the MoU was a part of the dispute covered by the Arbitration Clause contained in the agreement, the dispute between the parties could be referred to arbitration.

The Court reiterated that if the parties have not agreed on the seat of arbitration, the "Court" as defined under Section 2(1)(e) of the Arbitration and Conciliation Act, 1996 (A&C Act) would be the Court competent to entertain an application under Section 11 of the A&C Act.

A Distribution Agreement was entered into between the petitioner Juki India Private Limited and the respondent M/s Capital Apparels Technology Private Limited. After certain disputes arose, the parties signed a Memorandum of Understanding (MoU) to settle all past dues, whereunder the respondent undertook to pay to the petitioner all the outstanding dues. After the respondent failed to comply with the terms of the MoU, the petitioner issued demand notices. Thereafter, the petitioner invoked the Arbitration Clause contained in the Distribution Agreement. The petitioner filed a petition under Section 11 (6) of the A&C Act before the Delhi High Court seeking appointment of an arbitrator for adjudicating the disputes between the parties.

The respondent M/s Capital Apparels Technology contended before the High Court that the disputes between the parties were resolved and settled under an MoU and that the MoU did not contain any Arbitration Clause. Therefore, the respondent submitted that the petitioner could not invoke arbitration. The respondent averred that the Delhi High Court did not have the territorial jurisdiction to entertain the petition.

The petitioner Juki India Private Limited contended that none of the provisions in the Distribution Agreement contained any reference to the place where the said agreement was signed, nor was there any clause in the Distribution Agreement that conferred territorial jurisdiction on any Court with respect to the disputes arising under the said agreement. The petitioner added that the Arbitration Clause contained in the Distribution Agreement did not specify the "seat" or "venue" for holding the arbitral proceedings. Thus, the petitioner contended that in view of the decision of the Delhi High Court in the case of Aarka Sports Management Pvt. Ltd. versus Kalsi Buildcon Pvt. Ltd (2020), the Delhi High Court had the jurisdiction to entertain and decide the petition.

The petitioner submitted that the Delhi High Court in the case of Aarka Sports Management Pvt. Ltd. versus Kalsi Buildcon Pvt. Ltd (2020) had held that if the parties have not determined the seat of arbitration, the seat of arbitration shall be determined by the Arbitral Tribunal under Section 20(2) of the Arbitration and Conciliation Act. Also, the Delhi High Court had ruled that if the parties had not agreed on the seat of arbitration, the "Court" as defined under Section 2(1)(e) of the A&C Act read with Sections 16 to 20 of the Code of Civil Procedure, 1908 would be the Court competent to entertain an application under Section 11 of the A&C Act.

The petitioner submitted that the registered office of the respondent was situated within the territorial jurisdiction of the Delhi High Court and some of the invoices payable by the respondent were also raised at New Delhi. Thus, the petitioner averred that in view of the provisions of Section 20 of the Code of Civil Procedure, the Delhi High Court would have the jurisdiction to entertain the petition.

Section 2(1)(e)(i) of the A&C Act provides that the term "Court", in the case of an arbitration other than international commercial arbitration, means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having the jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit.

Section 20 of the Code of Civil Procedure, 1908 provides that a suit shall be instituted in a Court within whose jurisdiction the defendant resides or carries on business, or within whose jurisdiction the cause of action, wholly or in part, arises.

The High Court observed that the respondent had its registered office in Delhi and that some of the invoices were prima-facie raised against the respondent in Delhi. Thus, the High Court ruled that in view of the decision of the Coordinate Bench of the Delhi High Court in Aarka Sports Management Pvt. Ltd. versus Kalsi Buildcon Pvt. Ltd (2020), read with the provisions of Section 2(1)(e)(i) of the A&C Act and Section 20 of the Code of Civil Procedure, the Delhi High Court had the territorial jurisdiction to decide the petition.

The Court held that though the MoU did not contain an Arbitration Clause, however, the MoU was founded upon the business transaction conducted by the parties under the said Distribution Agreement. The Court added that the MoU was itself a part of the dispute that arose out of the Distribution Agreement, as contemplated in the Arbitration Clause embedded in the said Distribution Agreement. Thus, the Court ruled that the said dispute between the parties could be referred to arbitration.

The Court, therefore, allowed the petition and referred the parties to arbitration.

Case Title: Juki India Private Limited versus M/s Capital Apparels Technology Private Limited

Citation: 2022 LiveLaw (Del) 536

Dated: 07.04.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Dhruv Wahi with Mr. Paras Joshi, Advocates

Counsel for the Respondent: Mr. Navodaya Singh Rajpurohit, Advocate

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