SHINHAN BANKversusCAROL INFO SERVICES LIMITED

706                       [2023]
               SUPREME COURT     5 S.C.R. 706
                              REPORTS                        [2023] 5 S.C.R.


A                              SHINHAN BANK
                                        v.
                      CAROL INFO SERVICES LIMITED
                    (Arbitration Petition (Civil) No 1 of 2019)
B                                MARCH 13, 2023
               [DR. DHANANJAYA Y CHANDRACHUD, CJI,
                PAMIDIGHANTAM SRI NARASIMHA AND
                            J. B. PARDIWALA, JJ.]
             Arbitration and Conciliation Act, 1996: ss.7, 8 – Arbitration
C     agreement – Leave and License agreement as also amenties
      agreement between the petitioner and the respondent – Disputes
      between the parties – Invocation of Arbitration clause by the
      petitioner by Proposing appointment of a sole arbitrator for
      settlement of disputes – However, denial of existence of an arbitration
D     agreement by the respondent – Case of the respondent that the
      Amenities agreement contained an arbitration agreement, and not
      the Leave and Licence agreement; and that the petitioner should
      move an application u/s. 8 for seeking a reference to arbitration –
      On appeal, held: Plain consequence of clause (1) of the Amenities
      agreement is that all the terms of the agreement constitute an integral
E     part of the Leave and Licence agreement – Thus, the parties have
      intended to make the arbitration clause in the Amenities agreement
      an integral part of the Leave and Licence agreement – s. 7(5)
      stipulates that the reference in a contract to a document containing
      an arbitration clause constitutes an arbitration agreement if the
F     contract is in writing and the reference is such as to make that
      arbitration clause part of the contract – Thus, it cannot be said that
      the petitioner should be now relegated to pursuing the remedy u/s.
      8 – In view of the clear terms of the contract between the parties, a
      reference to arbitration would be necessitated – Sole arbitrator
      nominated by the petitioner having assumed the position of Lokyukta
G     of the State of Maharashtra, the disputes and differences between
      the parties to be referred to the former Judge of the High Court.
            M R Engineers and Contractors Private Limited vs Som
            Datt Builders Limited (2009) 7 SCC 696 – referred to.

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                                       706
    SHINHAN BANK v. CAROL INFO SERVICES LIMITED                               707


                         Case Law Reference                                   A
(2009) 7 SCC 696                  referred to               Para 13
      CIVIL ORIGINAL JURISDICTION : Arbitration Petition (Civil)
No.1 of 2019.
       Arbitration Petition Under Section 11(6) read with Section 11(12)(a)   B
of the Arbitration and Conciliation Act, 1996.
       Abhishek Puri, Ms. Surabhi Gupta, Manish Dhingra, Mrs. Reeta
Puri, P. N. Puri, Advs. for the Petitioner.
     Sanjeev Kumar Kapoor, M/s. Khaitan & Co., Advs. for the
Respondent.                                                                   C
      The Judgment of the Court was delivered by
      DR. DHANANJAYA Y CHANDRACHUD, CJI
       1. On 5 August 2011, the petitioner entered into a Leave and
License agreement with the respondent for the use and occupation of           D
office premises situated on the 4th Floor of the West Wing at Wockhardt
Towers, C-2, Block G, Bandra Kurla Complex, Bandra (East), Mumbai
400051 for a period of five years. On the same day, an Amenities
agreement was contemporaneously executed with the Leave and Licence
agreement. Upon the expiry of the term of the Leave and License
agreement, a fresh Leave and Licence agreement was executed between           E
the petitioner and the respondent on 1 July 2016 for the continued use
and occupation of the premises for a period of two years.
      2. On 25 August 2016, the petitioner entered into an Amenities
agreement with the respondent.
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       3. On 22 March 2017, the petitioner issued a notice of termination
to the respondent stating that the Leave and Licence agreement and the
Amenities agreement would stand terminated upon the expiry of the
lock-in period, namely, on 1 July 2017.
       4. The respondent replied to the termination notice on 30 March        G
2017. Asserting that the termination was not in accordance with the
terms of the Leave and Licence agreement and the Amenities agreement,
the respondent declined to refund the security deposits to the petitioner.
According to the petitioner, vacant and peaceful possession of the licensed
premises was handed over to the respondent on 13 June 2017.
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708             SUPREME COURT REPORTS                            [2023] 5 S.C.R.


A            5. On 3 July 2017, the petitioner served a notice of demand for
      refund of the security deposits together with interest. The claim was
      denied in a letter dated 13 July 2017. By another letter of 13 July 2017,
      the respondent served upon the petitioner a notice claiming an amount
      of Rs 2,59,85,856 towards the balance license fee and amenities charges
      for the period between 1 July 2017 and 30 June 2018 and claimed
B
      consequential losses amounting to Rs 69,21,408 together with interest
      after adjusting the amount of the security deposits under the 2016
      agreement.
             6. By an Advocate’s letter dated 29 September 2017, the petitioner
      sought refund of its security deposit in the amount of Rs 1,68,48,000
C     (which was deposited under the Leave and Licence agreement) and Rs
      56,16,000 (which was deposited under the Amenities agreement) together
      with interest at the rate of 15% per annum. The respondent rejected the
      claim in its response dated 5 October 2017.
            7. On 9 October 2017, the petitioner invoked arbitration and
D     proposed the appointment of a sole arbitrator. In its response dated 13
      October 2017, the respondent denied the existence of an arbitration
      agreement.
            8. An arbitration petition under Section 11 of the Arbitration and
      Conciliation Act 1996 was instituted before the High Court of Judicature
E     at Bombay, but it was withdrawn since the arbitration is an international
      commercial arbitration, the petitioner being a banking company
      incorporated under the laws of South Korea.
           9. We have heard Mr Abhishek Puri, counsel for the petitioner
      and Mr Sanjeev Kumar Kapoor, counsel for the respondent.
F
             10. Two agreements entered into between the parties. The first is
      a Leave and Licence agreement dated 1 July 2016. The second is an
      Amenities agreement dated 25 August 2016. The bone of contention is
      whether there is an arbitration agreement between the parties. The
      contention of the respondent is that while the Amenities agreement
G     contains an arbitration agreement, the Leave and Licence agreement
      does not. Hence, it has been submitted that the claim of the petitioner
      invoking arbitration must be rejected. Moreover, it has been submitted
      that the respondent has instituted a suit before the High Court of Judicature
      at Bombay on its Original Side and it would be open to the petitioner to
      move an application under Section 8 for seeking a reference to arbitration.
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       SHINHAN BANK v. CAROL INFO SERVICES LIMITED                                709
           [DR. DHANANJAYA Y CHANDRACHUD, CJI]

It has been submitted that the claim of the respondent in the suit for            A
outstanding license fees has been computed after adjusting the security
deposit and hence the appropriate course of action for the petitioner
would be to pursue its remedies under Section 8.
       11. The Amenities agreement which was entered into between
the parties on 25 August 2016, inter alia, contains the following provision:      B
         “This Agreement is executed contemporaneously with the said
         Leave and License Agreement and shall be read and construed
         accordingly. The provision of this Agreement shall be deemed to
         be and shall constitute an integral part of the said Leave and
         License Agreement in respect of the License of the Licensed              C
         Premise granted by the Licensors to the Licensee. All provisions
         of the said Leave and License Agreement shall, mutatis mutandis;
         apply to this Amenities Agreement”
      12. The Amenities agreement contains a provision to resolve
disputes through arbitration. Clause 17 is in the following terms:
                                                                                  D
         “17. All disputes, controversies or claims arising out of or relating
         to this Agreement: including existence or interpretation of any
         clause hereof, shall be referred to arbitration by a sole arbitrator
         duly appointed by mutual consent of both the Parties in writing,
         failing which under the provisions of the Arbitration and Conciliation
         Act, 1966. The cost of theArbitration shall be borne equally. The        E
         place of arbitration shall be Mumbai and the arbitration shall be
         governed by the Arbitration & Conciliation Act, 1966 as amended
         from time to time. The language of the arbitration proceedings
         shall be English. The Award shall be final and conclusive. The
         Courts in Mumbai shall have exclusive jurisdiction to try and            F
         entertain matters arising herefrom.”
       13. The submission which has been urged on behalf of the
respondent is that in terms of Section 7(5), a mere reference to a document
would not have the effect of making an arbitration clause from that
document a part of the contract. The submission is based on the decision
                                                                                  G
of this Court in M R Engineers and Contractors Private Limited vs
Som Datt Builders Limited1.
      14. Clause (1) of the Amenities agreement which has been
extracted above indicates that (i) the provisions of the Amenities
1
    (2009) 7 SCC 696                                                              H
710            SUPREME COURT REPORTS                             [2023] 5 S.C.R.


A     agreement shall be deemed to be and shall constitute an integral part of
      the Leave and Licence Agreement in respect of the license granted by
      the petitioner to the respondent; and (ii) all the provisions of the Leave
      and Licence agreement shall mutatis mutandis apply to the Amenities
      agreement. Clause 17 of the Amenities agreement contains an agreement
      to refer disputes to arbitration.
B
             15. The plain consequence of clause (1) of the Amenities
      agreement is that all the terms of that agreement constitute an integral
      part of the Leave and Licence agreement. The Amenities agreement
      does not merely contain a reference to the Leave and Licence agreement.
      It incorporates all the terms of the Amenities agreement as an integral
C     part of the Leave and Licence agreement. By doing so, the parties have
      intended to make the arbitration clause in the Amenities agreement an
      integral part of the Leave and Licence agreement.
             16. Section 7(5) of the Arbitration and Conciliation Act 1996
      stipulates that the reference in a contract to a document containing an
D     arbitration clause constitutes an arbitration agreement if the contract is
      in writing and the reference is such as to make that arbitration clause
      part of the contract. Clause (1) of the Amenities agreement is intended
      to make the arbitration clause which is embodied in the Amenities
      agreement (Clause 17) an integral part of the Leave and Licence
E     agreement.
            17. In M R Engineers and Contractors Private Limited vs Som
      Datt Builders Limited (supra), this Court held thus:
            “We will give a few instances of incorporation and mere reference
            to explain the position (illustrative and not exhaustive). If a contract
F           refers to a document and provides that the said document shall
            form part and parcel of the contract, or that all terms and conditions
            of the said document shall be read or treated as a part of the
            contract, or that the contract will be governed by the provisions of
            the said document, or that the terms and conditions of the said
G           document shall be incorporated into the contract, the terms and
            conditions of the document in entirety will get bodily lifted and
            incorporated into the contract. When there is such incorporation
            of the terms and conditions of a document, every term of such
            document (except to the extent it is inconsistent with any specific
            provision in the contract) will apply to the contract. If the document
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     SHINHAN BANK v. CAROL INFO SERVICES LIMITED                                      711
         [DR. DHANANJAYA Y CHANDRACHUD, CJI]

       so incorporated contains a provision for settlement of disputes by             A
       arbitration, the said arbitration clause also will apply to the
       contract.”
       18. The principle which emerges from the provisions of Section
7(5) is elucidated in paragraph 19 of the judgment, which is extracted
below:                                                                                B
       “Sub-section (5) of Section 7 merely reiterates these well- settled
       principles of construction of contracts. It makes it clear that where
       there is a reference to a document in a contract, and the reference
       shows that the document was not intended to be incorporated in
       entirety, then the reference will not make the arbitration clause in           C
       the document, a part of the contract, unless there is a special
       reference to the arbitration clause so as to make it applicable.”
      19. The arbitration agreement which is embodied in clause 17 of
the Amenities agreement was intended by the parties for all intents and
purposes to be a part of the Leave and Licence agreement.                             D
       20. There is no merit in the submission that the petitioner should
be now relegated to pursuing the remedy under Section 8. In view of the
clear terms of the contract between the parties, a reference to arbitration
would be necessitated.
       21. The sole Arbitrator who was nominated by the petitioner has                E
since assumed the position of Lokayukta of the State of Maharashtra.
Hence, we direct that the disputes and differences between the parties
arising out of claim of the petitioner shall be referred to the sole arbitration
of Dr (Mrs) Shalini Phansalkar-Joshi, a former Judge of the High Court
of Judicature at Bombay. The Arbitrator shall decide upon the fees in                 F
consultation with the parties and the modalities of arbitration.
       22. The Registrar (Judicial) shall transmit a copy of this order to
the sole Arbitrator.
       23. The Arbitration Petition is accordingly disposed of.
       24. Pending applications, if any, stand disposed of.                           G


Nidhi Jain                                        Arbitration petition disposed of.
(Assisted by : Tamana, LCRA)


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