Recently, in the case of Sunil Kumar Chandra v. M/s Spire Techpark Private Limited1, the High Court of Delhi (“DHC“) has held that in case there is inconsistency between two clauses in an agreement, the former clause will have precedence over the latter clause.
In the said case, Sunil Kumar Chandra (“Petitioner“) filed a petition under Section 11 of the Arbitration and Conciliation Act 1996 (“Act“) regarding a dispute arising out of an agreement dated August 26, 2013 (“Agreement“) executed with M/s. Spire Techpark Private Limited (“Respondent“). Under this Agreement, the Petitioner was allocated a lockable unit bearing Unit No. 730, on 7th floor, admeasuring about 525 sq. feet in Tower T-02 (“Unit“). The Petitioner had paid the entire consideration amount of the Unit to the Respondent, however, the Respondent demanded an additional amount of Rs. 5,78,643/- on the Petitioner subject to which it would hand over possession of the Unit to the Respondent. Thus, when the Petitioner approached the Respondent to pay the aforementioned demand, he learnt that the Unit was already leased to Vivo Company and that the Petitioner was being offered a different unit altogether and subsequently, the Respondent also stopped making the assured return payments. Owing to an unsuccessful resolution of the dispute between the parties, the Petitioner invoked the arbitration clause i.e., clause 18.2 under the Agreement, wherein all disputes arising out of the Agreement were to be adjudicated by the courts of New Delhi. Clause 18.3 of the Agreement provided that the courts of Gautam Buddha Nagar shall also have jurisdiction to resolve disputes.
The maintainability of suit in the DHC was challenged by the Respondent on the ground of pecuniary jurisdiction, however, it was duly accepted by the Respondent that the dispute was arbitrable in nature.
The Court first dealt with the question of the seat of arbitration. The DHC clarified that the law related to the jurisdiction of the court in the matters pertaining to arbitration is no longer res integra. It has been held in various pronouncements that all the matters arising out of an agreement/contract would be decided by the court in whose jurisdiction the seat of arbitration is decided. The DHC referred to the case of BGS SGS SOMA JV vs. NHPC2, wherein it was held that whenever there is the designation of a place of arbitration in an arbitration clause as being the “venue” of the arbitration proceedings, the expression “arbitration proceedings” would make it clear that the “venue” is really the “seat” of the arbitral proceedings, as the aforesaid expression does not include just one or more individual or particular hearing, but the arbitration proceedings as a whole, including the making of an award at that place. This language has to be contrasted with language such as “tribunals are to meet or have witnesses, experts or the parties” where only hearings are to take place in the “venue”, which may lead to the conclusion, other things being equal, that the venue so stated is not the “seat” of arbitral proceedings, but only a convenient place of meeting. Further, the fact that the arbitral proceedings “shall be held” at a particular venue would also indicate that the parties intended to anchor arbitral proceedings to a particular place, signifying thereby, that that place is the seat of the arbitral proceedings. This, coupled with there being no other significant contrary indicia that the stated venue is merely a “venue” and not the “seat” of the arbitral proceedings, would then conclusively show that such a clause designates a “seat” of the arbitral proceedings.
The Supreme Court of India, in the case of Indus Mobile Distribution (P) Ltd. vs. Datawind Innovations (P) Ltd.3 held that the moment the seat is designated, it is akin to an exclusive jurisdiction clause. The Court also clarified that under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to “seat” is a concept by which a neutral venue can be chosen by the parties to an arbitration clause.
The DHC then delved into the inconsistencies in the Agreement and after duly considering Clause 18.2 and 18.3 of the Agreement, drew the inference that the latter clause was subject to the arbitration clause, i.e., Clause 18.2 and no clear and unambiguous meaning was given as to disputes of what kind shall be referred to the court/forum in Gautam Buddha Nagar. It is further construed by the expression “in case of any disputes between the parties hereto (including their successors) concerning this agreement or matters arising therefrom, the same shall be adjudicated by way of arbitration……arbitration shall be at New Delhi” that the parties while entering into agreement had an intent of resolving any dispute arising out of the Agreement by way of arbitration in New Delhi only.
The DHC clarified that it has been held in a catena of judgments by the Apex Court that where there exists any iota of inconsistency between two provisions of a same instrument, the former clause shall prevail over the latter one.
This was discussed in detail in the case of Ramkishorelal vs. Kamal Narayan4, wherein, the Supreme Court had held that “the golden rule of construction, it has been said, is to ascertain the intention of the parties to the instrument after considering all the words, in their ordinary, natural sense. To ascertain this intention, the Court had to consider the relevant portion of the document as a whole and also to take into account the circumstances under which the particular words were used. Very often the status and the training of the parties using the words have to be taken into consideration. It has to be borne in mind that many words are used in more than one sense and that sense differs in different circumstances. Again, even where a particular word has to a trained conveyancer a clear and definite significance and one can be sure about the sense in which such conveyancer would use it, it may not be reasonable and proper to give the same strict interpretation of the word when used by one who is not so equally skilled in the art of convincing. It is clear, however, that an attempt should always be made to read the two parts of the document harmoniously, if possible; it is only when this is not possible, e.g., where an absolute title is given is in clear and unambiguous terms and the later provisions trench on the same, that the later provisions have to be held to be void.”
While the rules of interpretation have evolved over the years and the parties are free to resort to Courts in case of any inconsistencies, due care must be observed at the drafting stage to ensure that such inconsistencies and ambiguities are avoided in contracts.
1 Arb. P. 1102/2022 and OMP (I) (Comm.) 328 of 2022
2 (2020) 4 SCC 234
3 (2017) 7 SCC 678
4 AIR 1963 SC 890