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Shinhan Bank vs. Carol Info Services Limited

Not available · 2023 INSC 217Decided 13 Mar 2023
Not available
Dr. Dhananjaya Y. Chandrachud · Pamidighantam Sri Narasimha · J.B. Pardiwala

Background

Shinhan Bank, a South Korean banking company, had leased office premises from Carol Info Services under a Leave and Licence Agreement (2016), alongside a separately executed "Amenities Agreement" covering the same premises. When the Bank terminated the lease and sought a refund of its security deposits, Carol Info Services disputed the claim and counter-claimed for unpaid licence fees. The Bank invoked arbitration, but Carol Info Services argued no valid arbitration agreement existed for this dispute, since only the Amenities Agreement (not the main Leave and Licence Agreement) contained an arbitration clause.

Decision Breakdown

The Supreme Court examined the wording of the Amenities Agreement, which stated it "shall be deemed to be and shall constitute an integral part of" the Leave and Licence Agreement, and that all provisions of the Leave and Licence Agreement would apply to it. Applying Section 7(5) of the Arbitration and Conciliation Act, 1996 (which allows an arbitration clause in one document to be incorporated into a contract by clear reference) and the Court's earlier ruling in M.R. Engineers v. Som Datt Builders, the Court held that this was not a mere passing reference but a full incorporation of the Amenities Agreement's terms, including its arbitration clause, into the main Leave and Licence Agreement. The petition was allowed and the dispute referred to a sole arbitrator (a former High Court judge, since the originally nominated arbitrator had since become the Maharashtra Lokayukta).

Lesson Learnt

If two related contracts are drafted so that one is expressly made "an integral part of" the other, an arbitration clause in the first can bind disputes arising under the second too: parties should read the fine print of how linked agreements reference each other, not just look for an arbitration clause in the main contract alone.

Official source (sci.gov.in)View Judgment (PDF)

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