2010 (10) TMI 976 - SC - Indian Laws

Whether the premature and whether allegedly premature and unilateral termination of the distributorship agreement by the respondent is valid in law? Whether the various contentions raised by respondent for terminating the distributorship agreement are valid in law? Whether the respondent are right in unilaterally raising the price of the products in the middle of the year? Whether the respondent is right in unilaterally controlling the supplies to the petitioner? Whether the respondent is stopped from its promise to the petitioner to appoint them as national dealer for 10 years? Whether the respondents are liable for damages to petitioner for breach?

Issues Involved:
1. Validity of the premature and unilateral termination of the distributorship agreement by the respondent.
2. Validity of the various contentions raised by the respondent for terminating the distributorship agreement.
3. Legitimacy of the respondent unilaterally raising the price of the products in the middle of the year.
4. Legitimacy of the respondent unilaterally controlling the supplies to the petitioner.
5. Whether the respondent is estopped from its promise to the petitioner to appoint them as a national dealer for 10 years.
6. Liability of the respondent for damages to the petitioner for breach.

Detailed Analysis:

1. Validity of the Premature and Unilateral Termination:
The petitioner contends that the respondent's termination of the distributorship agreement was premature and unilateral, questioning its validity under the law. The disputes arising from this termination led the petitioner to issue a notice for the appointment of an arbitrator, which was not acted upon, necessitating the present petition.

2. Validity of Respondent's Contentions for Termination:
The petitioner challenges the various reasons cited by the respondent for terminating the agreement, questioning their legal validity. The respondent counters this by asserting that the arbitration should be governed by the rules of the International Chamber of Commerce (ICC) as per the agreement, and thus, the Indian courts have no jurisdiction.

3. Legitimacy of Unilateral Price Increase:
The petitioner disputes the respondent's action of unilaterally raising the product prices mid-year, questioning its legality under the distributorship agreement. This issue is part of the broader dispute that necessitated arbitration.

4. Legitimacy of Unilateral Control of Supplies:
The petitioner also challenges the respondent's unilateral control over supplies, questioning its legality and whether it constitutes a breach of the distributorship agreement.

5. Estoppel from Promise to Appoint as National Dealer:
The petitioner argues that the respondent is estopped from reneging on its promise to appoint the petitioner as a national dealer for 10 years, asserting that this promise formed part of the agreement and its breach has caused damages.

6. Liability for Damages:
The petitioner seeks damages for the respondent's alleged breach of the distributorship agreement, arguing that the respondent's actions have caused significant losses.

Jurisdiction and Applicability of Indian Law:
The primary issue before the court was whether it had the jurisdiction to appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, given the agreement's stipulations.

The respondent argued that the agreement explicitly excluded the applicability of Indian procedural law and Indian courts' jurisdiction, citing Articles 22 and 23 of the distributorship agreement, which state that the agreement is governed by Korean law and any disputes should be settled by arbitration in Seoul, Korea, under the ICC rules.

The petitioner, however, relied on precedents like Bhatia International v. Bulk Trading S.A. and others to argue that Part I of the Act should apply unless explicitly excluded. The petitioner contended that the bracketed portion in Article 23 ("or such other place as the parties may agree in writing") suggested that the seat of arbitration could be elsewhere, thus not excluding Indian jurisdiction.

Court's Interpretation:
The court examined the language of Articles 22 and 23, concluding that the agreement explicitly chose Korean law as the governing law and Seoul, Korea, as the seat of arbitration. The bracketed portion was interpreted as allowing flexibility for the convenience of the parties but not altering the primary seat of arbitration.

The court relied on the precedent set in Sumitomo Heavy Industries Ltd. v. ONGC Ltd., which emphasized that the law governing the arbitration agreement and the curial law (law governing the conduct of arbitration) should be determined by the agreement's terms.

Conclusion:
1. The court concluded that the language of Articles 22 and 23 clearly excluded the applicability of Part I of the Arbitration and Conciliation Act.
2. The precedents cited by the petitioner, including Bhatia International and others, were found not applicable due to the explicit exclusion in the agreement.
3. The court held that since the arbitration was to be governed by Korean law with the seat in Seoul, there was no question of applying Section 11(6) of the Act for appointing an arbitrator.

Judgment:
The petition was dismissed without any costs, affirming that the arbitration should proceed under the agreed terms, governed by Korean law and the ICC rules.

← Previous Next →