Arbitration Clause in Connected Amenities Agreement Covers Leave and Licence Disputes: Supreme Court Ruling in Shinhan Bank Vs Carol Info Services Limited

Background and Core Issue

In Shinhan Bank Vs Carol Info Services Limited, the Supreme Court of India examined whether an arbitration clause found only in an Amenities agreement could validly operate as an arbitration agreement for disputes arising under a Leave and Licence agreement executed between the same parties.

The controversy centered on the correct application of Section 7(5) of the Arbitration and Conciliation Act, 1996 in the context of two contemporaneous agreements—one containing an arbitration clause and the other not—where one agreement expressly stated that it formed an integral part of the other.

The Court ultimately concluded that the arbitration clause contained in Clause 17 of the Amenities agreement was indeed intended by the parties to apply equally to disputes under the Leave and Licence agreement.

Factual Matrix

Contractual Arrangements

  1. On 5 August 2011, the petitioner, Shinhan Bank, entered into a Leave and License agreement with the respondent, Carol Info Services Limited, for commercial office premises at the 4th Floor, West Wing, Wockhardt Towers, C-2, Block G, Bandra Kurla Complex, Bandra (East), Mumbai 400051, for a five-year term.
  2. On the same day, an Amenities agreement was executed in relation to the same premises.
  3. After the expiry of the initial term, a fresh Leave and Licence agreement was executed on 1 July 2016 for a further period of two years.
  4. Subsequently, a new Amenities agreement was executed on 25 August 2016.

Termination and Arising Disputes

  • On 22 March 2017, the petitioner sent a notice of termination, stating that both the Leave and Licence agreement and the Amenities agreement would terminate upon completion of the lock-in period, i.e., on 1 July 2017.
  • The respondent, by its reply dated 30 March 2017, disputed the validity of this termination and declined to refund the security deposits, asserting non-compliance with the contractual terms.

According to the petitioner, vacant and peaceful possession of the licensed premises was returned to the respondent on 13 June 2017.

Rival Monetary Claims

  • On 3 July 2017, the petitioner issued a demand notice seeking refund of security deposits along with interest.
  • The respondent, by letter dated 13 July 2017, rejected the demand. On the same date, the respondent claimed:
    • Rs 2,59,85,856 towards alleged balance licence fee and amenities charges for the period 1 July 2017 to 30 June 2018, and
    • Rs 69,21,408 towards consequential losses with interest,
    • after adjusting the security deposits under the 2016 agreement.

The petitioner, through an Advocate’s letter dated 29 September 2017, once again sought:

  • Refund of Rs 1,68,48,000 (security deposit under the Leave and Licence agreement), and
  • Rs 56,16,000 (security deposit under the Amenities agreement),

together with 15% per annum interest. This claim was again declined by the respondent on 5 October 2017.

Invocation of Arbitration and Objection

Petitioner’s Invocation

On 9 October 2017, the petitioner invoked arbitration and proposed appointment of a sole arbitrator under the arbitration clause in the Amenities agreement.

Respondent’s Denial

In its response dated 13 October 2017, the respondent:

  • Denied the existence of any arbitration agreement covering the Leave and Licence agreement,
  • Contended that only the Amenities agreement contained an arbitration clause, and
  • Asserted that the disputes raised by the petitioner, particularly regarding refund of security deposit, primarily related to the Leave and Licence agreement.

Proceedings Before the High Court

An arbitration petition under Section 11 of the Arbitration and Conciliation Act, 1996 was filed before the High Court of Judicature at Bombay. It was subsequently withdrawn when it was realized that the matter constituted an international commercial arbitration, as the petitioner is a banking company incorporated under the laws of South Korea, thereby attracting the jurisdiction of the Supreme Court for appointment of arbitrator.

The central question was: