Lyrus Life Sciences Pvt Ltd Vs ACME Generics LLP (Karnataka High Court)
The Karnataka High Court considered a petition filed by Lyrus Life Sciences Pvt Ltd under Section 11(5) of the Arbitration and Conciliation Act, 1996, seeking appointment of a sole arbitrator in a dispute with ACME Generics LLP arising from an agreement dated 8 October 2018 for product development, manufacturing and supply. The petitioner alleged that the respondent had failed to supply certain pharmaceutical products as agreed and that the quality of products supplied was deficient. The petitioner invoked the arbitration clause through a legal notice dated 30 July 2020 and nominated a former Drug Controller of Karnataka as sole arbitrator. Although the respondent replied on 19 September 2020, the parties could not agree on the appointment.
The principal controversy concerned the seat of arbitration. The respondent argued that the proceedings should take place in Himachal Pradesh because the agreement was concluded there and its manufacturing unit and registered office were situated in that State. It contended that the agreement did not expressly designate Bengaluru as the juridical seat. The petitioner maintained that Clause 16.1 specified Bangalore as the precise location of arbitration and required all arbitration proceedings to be conducted in English, demonstrating the parties’ intention to anchor the proceedings in Bengaluru. The petitioner also submitted that there was no contrary contractual indication identifying Himachal Pradesh as the seat.
Referring to Mankastu Impex Private Limited v. Airvisual Limited and BGS SGS SOMA JV v. NHPC Limited, the High Court observed that the juridical seat must be determined from the agreement as a whole and the parties’ intention. Although Clause 16.1 did not expressly use the expressions “seat” or “venue”, its designation of Bangalore as the precise location of arbitration, together with the requirement that all proceedings be conducted in English, established the intention to choose Bengaluru as the seat. No other place had been identified as the seat. The Court also noted that the respondent had indicated its willingness to refer the dispute to the Bengaluru Arbitration Centre if a former judicial officer were appointed.
Regarding the appointment of an arbitrator, the High Court rejected the proposition that a dispute involving pharmaceutical quality necessarily required an arbitrator possessing technical expertise in that industry. It explained that an arbitral tribunal could obtain assistance from experts where appropriate. Section 26 of the Arbitration and Conciliation Act, 1996 permits an arbitral tribunal, unless otherwise agreed by the parties, to appoint an expert to report on specific issues. Since the parties had not agreed to prohibit expert assistance and there was a discernible consensus regarding appointment of a former judge, the Court considered such an appointment appropriate.
Accordingly, the High Court allowed the petition and appointed Hon’ble Mr. Justice H.G. Ramesh, a former judge of the Karnataka High Court, as sole arbitrator. The arbitration was directed to be conducted at the Arbitration and Conciliation Centre (Domestic and International), Bengaluru, in accordance with its governing rules. Both parties were left at liberty to seek expert assistance under Section 26, and the Court directed communication of the appointment order to the Arbitration Centre and the appointed arbitrator.
Cases Discussed
- Mankastu Impex Private Limited v. Airvisual Limited, (2020) 5 SCC 399 (Supreme Court) — Relied upon for the principle that the seat and venue of arbitration are distinct concepts and the parties’ intention must be determined from the agreement and relevant circumstances.
- BGS SGS SOMA JV v. NHPC Limited, (2020) 4 SCC 234 (Supreme Court) — Relied upon for determining when a designated place of arbitration constitutes its juridical seat in the absence of significant contrary indications. Related TaxGuru discussion.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner, who has entered into the Agreement dated 8.10.2018 [for short, ‘the Agreement’] with the respondent for product development, manufacturing and supply, has filed this petition under section 11(5) of the Arbitration and Conciliation Act, 1996 invoking the arbitration clause in the Agreement which reads as under:
“16.1 If any question of dispute shall at any time during the term or thereafter arise between the parties with respect to the validity, interpretation, implementation or alleged material breach of any provision of this Agreement or the rights or obligations of the Parties hereunder, or regarding any question including the question as to whether the termination of this Agreement by either Party has been legitimate, then the Parties shall attempt to settle such dispute amicably between them. In the event that such dispute has not been amicably settle within 30 days, then such a question or dispute shall be submitted to arbitration in accordance with the Indian Arbitration and Conciliation Act,1998 and the Rules made there under as are in force at the date of the aforementioned written demand. The precise location of the arbitration Bangalore. All proceedings of such arbitration, including without limitation, any agreements or awards, shall be in the English language.”
2. The petitioner’s case is that the dispute between the petitioner and the respondent is because the respondent has not supplied certain pharmaceutical products as agreed and the petitioner is also aggrieved because of the quality of the products supplied by the respondent. The petitioner is entitled for certain relief/s in these regards. The petitioner has issued the legal notice dated 30.7.2020 raising claims and nominating a former Drug Controller of the State of Karnataka as the sole arbitrator to enter reference of the dispute invoking the arbitration clause. The respondent is called upon to convey, within 30 days from the date of receipt of the notice, the acceptance of such nomination. The respondent has replied to this notice on 19.9.2020, but unanimity on the appointment of the arbitrator has remained elusive.
3. The learned counsel for the petitioner, relying upon the agreement, the averments in the petition, the arbitration clause, the legal notice dated 30.07.2020 and the reply dated 19.9.2020, submits that given the nature of the dispute which would involve controversy about the quality of pharmaceutical products supplied by the petitioner, a person acquainted with the pharma industry must be appointed and therefore, the petitioner has bona fide nominated a former Drug Controller of the State of Karnataka. The petitioner would otherwise also agree for the appointment of a former Judge of this Court as the arbitrator appointed by this Court could himself/ herself appoint an expert in the absence of agreement against the appointment of an expert by the arbitrator.
4. The learned counsel for the respondent argues against the petition relying upon two fold submissions. He submits that if there must be appointment of an arbitrator it must be a former member of the judiciary and the arbitral proceedings will have to be conducted in Himachal Pradesh. The learned counsel submits that the agreement is concluded in Himachal Pradesh, the respondent’s unit is in Himachal Pradesh, the respondent’s registered office is also in Himachal Pradesh and as such, the arbitration must be in Himachal Pradesh. The parties have not agreed upon Bengaluru as the ‘seat of arbitration’, and in the absence of such agreement, the petitioner cannot insist that the arbitration must be held in Bengaluru. The learned counsel for the petitioner relies upon a decision of the Hon’ble Supreme Court in Mankastu Impex Private Limited vs. Air Visual Limited1, to support his submissions that the arbitration must be in Himachal Pradesh.
5. In rejoinder, the learned counsel for the petition submits that the parties have agreed that the precise location of the arbitration should be in Bangalore and all proceedings of such arbitration shall be in the English language, and the parties in stipulating Bangalore has the precise location for arbitration and such arbitration must be in English have agreed to anchor arbitral proceedings in Bangalore. The respondents do not point out any contra indicia to indicate that the State Himachal Pradesh is agreed as the seat of arbitration. The learned counsel relies upon the declaration by the Hon’ble Supreme Court in Paragraph 82 of the decision in BSG SGS SOMA JV v NHPC Limited2.
6. It is settled that the arbitration must be held at the place intended as the seat of arbitration, and whether the parties have intended a particular place to be seat of arbitration will have to be discerned from the overall terms of the contract and the contra conditions if any. In this regard, the decision of the Hon’ble Supreme Court in BSG SGS SOMA JV v NHPC Limited supra is categorical and so is the later decision of the Hon’ble Supreme Court in Mankastu Impex Private Limited vs. Air Visual Limited wherein it is held that:
“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.”
7. In the present case, the parties have not used the expression either ‘seat of arbitration’ or ‘venue of arbitration’ but they have mentioned ‘Bengaluru’ as the precise location for the arbitration and followed this up with the stipulation all such proceedings shall be in ‘English’ language. These can only be a declaration of the intent to choose ‘Bengaluru’ as the seat of arbitration. Further, there is nothing on record to indicate that the parties have indicated any other place as the seat of arbitration. The respondent in its Statement of Objections has also stated that if this Court appoints a former member of the judiciary as the sole arbitrator, the matter could be sent to Bengaluru Arbitration Centre. This also indicates that the objection as to the seat of arbitration is tentative.
8. As regards the sole arbitrator to be appointed, merely because the dispute could involve controversy on certain nuances specific to a particular industry, it would not be necessary that only persons with technical expertise in such filed should be appointed as the sole arbitrator. An arbitrator could always, given the facts and circumstances of each case, avail the assistance of experts in the field. The provisions of Section 26 of the Arbitration and Conciliation Act, 19963 provide for appointment of an
3 26. Expert appointment by arbitral tribunal.—
expert by the arbitral tribunal to report on specific issues to be determined by it in the absence of an agreement to the contrary. In the present case, as pointed out by the learned counsel for the petitioner, the parties have not agreed against appointment of an expert. The respondent’s only response to the petitioner’s nomination of an expert is as follows:
“I have been instructed by my client to inform you that my client disagree with your proposal for the appointment of Sri. M.N.Ramamurthy, former Drugs Controller for the State of Karnataka as Sole Arbitrator to adjudicate upon the dispute.”
9. In these circumstances, and because there is a discernable unanimity as regards appointment of any Former Judge as the sole arbitrator, this Court opines that a former Judge of this Court must be appointed as the sole arbitrator to enter reference of the dispute with possession of the expert with which he was provided in order to prepare his report.
liberty to both the petitioner and the respondent to seek appoint of an expert as contemplated under Section 26 of the Act. Hence, the following
ORDER
a. The petition is allowed, and Hon’ble Mr. Justice H.G Ramesh, a Former Judge of this Court, No.342A, 10th Main, Sector 7, HSR Layout, Bengaluru – 560 102 is appointed as the sole arbitrator to enter reference of the dispute and conduct proceeding at the Arbitration and Conciliation Centre (Domestic and International), Bengaluru according to the Rules governing the said Arbitration Centre.
b. The Office is directed to communicate this order to the Arbitration and Conciliation Centre and Hon’ble Mr.
Justice H.G Ramesh as required under the Appointment of Arbitrators by the Chief Justice of India Scheme, 1996.
Notes:
1 (2020) 5 SCC Online 301
2 (2020) 4 SCC 234
(1) Unless otherwise agreed by the parties, the arbitral tribunal may—
appoint one or more experts to report to it on specific issues to be determined by the arbitral tribunal, and
require a party to give the expert any relevant information or to produce, or to provide access to, any relevant documents, goods or other property for his inspection.
(2) Unless otherwise agreed by the parties, if a party so requests or if the arbitral tribunal considers it necessary, the expert shall, after delivery of his written or oral report, participate in an oral hearing where the parties have the opportunity to put questions to him and to present expert witnesses in order to testify on the points at issue.
(3)Unless otherwise agreed by the parties, the expert shall, on the request of a party, make available to that party for examination all documents, goods or other property in the
