PROBLEM SCENARIO

This is a dispute between SHAKTI AUTOMOTIVE LIMITED and . SHANGHAI ENGINE COMPONENTS
INDIA PVT. LTD.

BACKGROUND FACTS

∙ SHANGHAI ENGINE COMPONENTS PVT. LTD. (SHANGHAI) is a company duly organised and existing
under the laws of England with its principal offices in the UK. It is a young and aggressive company
that is engaged and specialises in manufacturing engine components for automotive and off-road
vehicles. It is owned by FRANK (Chairman).

∙ SHAKTI AUTOMOTIVE LIMITED (SHAKTI) the appellant is a corporation duly existing under the
Indian laws and engaged in the sale of automotive parts with its head office in Mumbai. It is owned
by YASHVIR (Chairman).

∙ In 2008, SHAKTI was appointed (by SHANGHAI) as the exclusive distributor for motorcycle pistons
for the territories of India, Sri Lanka, Nepal and Bangladesh under the brand name ‘SHANGHAI
Original’. For this, initially, an agreement dated 01-01-2008 had been entered into between both
parties. That agreement was valid for a period of five years from January 2008 to December 2012.

∙ On 01.01.2013 SHAKTI and SHANGHAI deliberated and commonly consented to renew the contract
for another year on the agreed terms and conditions. It was agreed that: 1. SHAKTI AUTOMOTIVE
LIMITED will continue to be an exclusive distributor of SHANGHAI for motorcycle pistons for the
territories of India, Sri Lanka, Nepal and Bangladesh.

2. SHANGHAI was not to appoint or seek to appoint, during this period, any other retailer or dealer
for these territories.

3. SHAKTI AUTOMOTIVE LIMITED was required not to undertake any other competing companies’
exclusive dealerships for these products (motorcycle pistons) during this duration, for the mentioned
territories.

4. SHAKTI also agreed not to publicly disclose any confidential information or data relating to the
operation of the company during and even after the termination of the business association.

5. Both agreed to not make any published derogatory comments during and even after the
termination of the business association that could harm each other's reputation in the market.

6. Clause 6.2 of that agreement provided for an automatic renewal of the agreement for an
additional period of one year and thereafter, unless, either party gave a notice of six months before
the expiry of the said term, indicating its intention not to renew.

7. Also, in case of flouting of the condition mentioned in the agreement, the liquidated damages
clause stated that any proven breach of these provisions would automatically entitle the opposite
party to liquidated damages of Rs. 50 crores.

∙ As per Clause 6.2, after a year, the agreement was again renewed on 01.01.2014 but this time on
March 20, 2014 SHANGHAI, through a notice, informed SHAKTI AUTOMOTIVE LIMITED about its
intention to not renew the agreement on its expiration on 31.12.2014. SHANGHAI stated that there
was an urgent need to make changes to the distribution agreement in tune with the changed
business practices.
∙ Thus, both the parties started exploring the possibility of continuing the business association under
different terms and a different business model. For the same, parties held discussions and
exchanged a series of e-mails. Several versions of the proposed draft distribution agreement were
exchanged. The seventh such draft was sent by SHANGHAI on 16.04.2014 in soft-copy form as an
attachment to an e-mail of that date. The said agreement was printed on a stamp paper and two
copies were sent to SHAKTI by SHANGHAI for signatures. As per SHAKTI, the said agreement was
duly signed by them and forwarded to SHANGHAI on 21.04.2014. However, SHANGHAI ENGINE
COMPONENTS INDIA PVT. LTD did not sign the agreement.

∙ On 21.05.2014, SHANGHAI sent an e-mail stating that although the parties had spent considerable
time in understanding each other's business requirements, significant progress had not been made
in that context and, therefore, SHANGHAI was withdrawing from the exercise.

∙ Unhappy with this development, SHAKTI contended that it has given its unqualified and
unequivocal acceptance and thus the contract was already concluded between the parties because
they had accepted the offer given by SHANGHAI. Whereas, SHANGHAI took the stand that no
binding contract had resulted and that the alleged distribution agreement only remained a draft.
This led to a bitter conflict between the parties.

∙ In the meanwhile, respecting the past cordial relationship shared by SHANGHAI with SHAKTI, it
started rounds of internal discussions so that a midway approach can be adopted, and the deal can
be re-worked among the parties. But on 28.09.2014 (while the current contract was still subsisting)
SHAKTI grabbed an opportunity of entering into a similar kind of exclusive distributorship (for the
next year, that is 2015) for motorcycle pistons with another competitor company NEUTRON
ENTERPRISES PVT. LTD. (NEUTRON ).

∙ To make it official, SHAKTI hosted a grand ceremony that marked the finalisation of this dealership.
The event was attended by reporters from almost every leading media houses in India and foreign
countries. During the media session, one of the reporters from a widely read and renowned
business magazine asked the Chairman (YASHVIR) of SHAKTI about what went wrong with the deal
with SHANGHAI, and if the company was thinking about taking legal action against the SHANGHAI to
which, in the live streaming, YASHVIR replied as follows: ‘No. I will not sue SHANGHAI and would
rather wish to start a new relationship with NEUTRON, as I no longer wish to deal in substandard
products.’

∙ This comment by Chairman (YASHVIR) sparked a media stir for the next few days as it was
broadcast and analysed by local magazines. It created an embarrassing situation for SHANGHAI and
its Chairman (FRANK) who now wants to take a legal action against the Chairman and SHAKTI
AUTOMOTIVE LIMITED for reputation

harm. SHANGHAI is demanding either Rs 50 Crores as damages or an unconditional public apology.

Both these demands have been refused by SHAKTI.

∙ SHAKTI even made a counterclaim of Rs. 60 Crores calculated on account of breach of trust by not
honouring the revised business agreement (which was drafted by SHANGHAI themselves), and
notional business loss due to compromised business deal signed by SHAKTI in haste with NEUTRON.

∙ Denying this, SHANGHAI claimed that as per Clause 9 ‘Neither party will have any other obligations
in the event of termination.’ So, SHANGHAI is not liable for any speculative, arbitrary and
unverifiable amounts.
You are a very well known advocate who has a vision for the certainty and clarity to the arbitration
clauses, depending upon the specifications and needs of parties. Both the parties have approached
you for the drafting of arbitration clause. You have agreed to supply the draft of the arbitration
clause to the parties on or before 19th April, 2021 by 12 noon.

Make a Draft Arbitration Clause based on the BACKGROUND FACTS, stated above in RED colour.

Sample 1

ARBITRATION CLAUSE

1. Any claim, dispute or difference relating to or arising out of this Agreement shall be settled
under this Arbitration clause.

2. If a dispute arises, the parties agree that upon request of either party they will seek the
advice of [a mutually selected person] and try in good faith to settle the dispute within 30 days of
that request, following which either party may submit the matter to mediation under the
International Mediation rules of the Indian Institute of Arbitration Mediation. If the matter is not
resolved within 60 days after initiation of mediation, either party may demand arbitration
administered by the Arbitration and Conciliation Act, 1996.

3. The arbitration shall be presided over by three arbitrators: one selected by claimant, one
selected by the respondent and the third arbitrator shall be appointed by the arbitrators selected by
the parties within 14 days of the commencement of the arbitration. If they fail to do so, the third
arbitrator shall be appointed in accordance with the Arbitration and Conciliation Act, 1996. Prior to
the commencement of the hearing, the arbitrator appointed shall provide an oath or undertaking of
impartiality.

4. The arbitrators shall not be of the nationality of either of the parties.

5. The place of arbitration shall be New Delhi, India.

6. The governing law shall be Part II of Arbitration and Conciliation Act, 1996.

7. The language of the arbitration shall be English.

8. The award shall be made within one year of filing of the notice of intention to arbitrate and
arbitrators shall agree to comply with this schedule before accepting appointment.

9. The arbitrators may grant any remedy or relief that the arbitrators deems just and equitable
within the scope of the parties. If the parties want, they can decide the nature of the award or
remedy. The arbitrators shall have no authority to award punitive, consequential or indirect
damages.

10. Any award in an arbitration initiated under this clause shall be limited to monetary damages
and shall include no injunction or direction to any party other than the direction to pay a monetary
amount.

11. The award shall be binding on both the parties and their representatives.

12. The cost of the arbitration proceedings shall be borne by the unsuccessful party. The
prevailing party shall be entitled to an award of reasonable attorney fees.

13. The arbitrators shall award to the prevailing party, if any, as determined by the arbitrators, all
of its costs and fees. “Costs and fees” mean all reasonable pre-award expenses of the arbitration,
including the arbitrators’ fees, administrative fees, travel expenses, out-of- pocket expenses such as
copying, court costs, witness fees, attorney’s fees.

14. Each party shall pay its own proportionate share of arbitrator fees and expenses. The
arbitrators shall award to the prevailing party, if any as determined by the arbitrators, all of its cost
and fees. Costs and fees means all reasonable per-award expenses out of pocket, expenses such as
cost of proceedings etc. The arbitrators may determine how the costs and expenses of the arbitration
shall be allocated between the parties, but they shall not award attorneys’ fees.

15. Except as may be required by law, neither a party nor an arbitrator may disclose the
existence, content, or results of any arbitration hereunder without the prior written consent of both
parties.

By signing below both parties are in understanding and agreement to the terms and conditions
mentioned above.

Party 1
Party 2

Sample 2

ARBITRATION CLAUSE

This arbitration clause is by and between the following parties Shanghai Engine Component Pvt
Ltd., United Kingdom

AND

Shakti Automotive Limited, India

1. Any dispute,controversy, or claim arising out of, or relating to, or in connection with this
contract shall be resolved through consultation and negotiation, recognising their mutual interest.
If no settlement is reached then any unresolved dispute, controversy or claim arising out of or
relating to, or in connection with this contract shall be settled by arbitration in accordance with the
rules agreed by both the parties.

2. The number of arbitrators shall be three, with each party appointing one arbitrator, within
30 days of the service of notice of arbitration. The two arbitrators will then appoint a third
arbitrator.If they cannot agree upon the appointment of a third arbitrator within 30 days after
selection of party appointees, then the Presiding arbitrator shall be appointed by the Chairman of
Singapore International Arbitration Centre .

3. The third arbitrator shall not be a citizen of either the United Kingdom or India.

4. At Least one arbitrator must have knowledge of the Automobile manufacturing sector. The
arbitration tribunal at any time must have at least one attorney having actively engaged in practice
of international commercial law for at least 10 years.The arbitrator[s] shall be impartial and
independent.

5. The seat of arbitration shall be Singapore and the law governing arbitration shall be
Singapore Arbitration Act, 2001. The rules of arbitration shall be arbitration rules of Singapore
International Arbitration Centre for the time being in force.

6. The Venue of the arbitration shall be Singapore.

7. The language of arbitration and mediation shall be English. In the event testimony or
documentary evidence is submitted in any other language, then translation to English shall be
done of such testimony or documentary evidence.
8. The award shall be rendered within 6 months of the commencement of arbitration, unless
due to extraordinary circumstances and in the interests of justice such time limit is extended by
the arbitral tribunal or by intent of both the parties. Failure to adhere to the time limit shall not be
a ground for challenging the award.

9. Except as may be required by law, neither a party nor its representatives may disclose the
existence, content and results of the arbitration hereunder without the consent of the parties.

10. All costs and expenses of the arbitrators shall be borne by the parties equally; each party
shall bear its own arbitration costs and expenses, including its legal fees and other costs of legal
representation

11. The procedures for the taking of evidence shall be governed by the IBA Rules on the Taking
of Evidence in International Arbitration

12. Except for fraud or collusion, the award of the arbitration shall not be set aside for any
other judicial misconducts or in proceedings. The arbitral award shall be final and binding on the
parties.

By signing below both parties are in understanding and agreement to the terms and conditions
mentioned above.

Party 1

Party 2

Sample 3

ARBITRATION CLAUSE

This agreement is made on 27th April, 2021 BETWEEN

SHANGHAI ENGINE CORPORATIONS PVT.LTD (SHANGHAI) is a

company duly organised and existing under the laws of England with its principal offices in the UK
which is engaged and specialises in manufacturing engine components for automotive and off-road
vehicles.

AND

SHAKTI AUTOMOTIVE LIMITED (SHAKTI)is a corporation duly existing under the Indian laws and
engaged in the sale of automotive parts with its head office in Mumbai.

It is agreed as follows:
1) Any dispute, controversy or claim arising out of or reflecting to this contract (EPCMC), or the
breach, termination or invalidity thereof, shall be administered by the International Chamber of
Commerce in accordance with UNICTRAL Rules on Arbitration in force at the commencement of the
arbitration.

2) The Seat and Place of the Arbitration shall be at Paris in France.

3) The Arbitral Tribunal shall be composed of three Arbitrator each party shall appoint one
arbitrator and the appointed will select third Arbitrator and he will be neutral and this procedure
shall be completed within 10 day before the commencement of Arbitral proceeding.

4) If the two Arbitrators fail to appoint third Arbitrator then chairmen of respective Tribunal
shall appoint 3rd Arbitrator.

5) The language of the Arbitration shall be English .

6) The award shall be made within one year of the filing of the notice of intention to arbitrate.

7) Except as may be required by law, neither party nor an arbitrator may disclose the existence,
content, or results of any arbitration hereunder without the prior written consent of both parties.

8) Each party shall submit to the arbitrator and exchange with each other in advance of the
hearing their last, best offers. The arbitrator shall be limited to awarding only one or the other of the
two figures submitted.

10)Any award in an arbitration initiated under this clause shall be limited to monetary damages and
shall include no injunction or direction to any party other than the direction to pay a monetary sum.

12) The Arbitral Tribunal shall not have any authority to award any punitive, consequential
special and indirect damage and also not have to any injustice relief for either of the party.

13) All costs and expenses of the arbitrators shall be borne by the parties equally. Each party
shall bear all costs and expenses involved in preparing and presenting the case.

14) Any award by the arbitrators shall be final and binding on either parties. The parties under
take to comply fully and promptly with any award without delay and shall be deemed to have waived
their right to any form of recourse in so far as such waiver can validly be made. The award of the
arbitrators shall be accompanied by a reasoned opinion.

IN WITNESS WHEREOF this Arbitration Clause has been signed this 27th April,2021 at PARIS by

1. Party-1-SHANGHAI CORPORATION PVT.LTD (SHANGHAI)

2. Party-2- SHAKTI AUTOMOTIVE LIMITED (SHAKTI)