REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION NO.18 OF 2010

M/s. Reva Electric Car Co. P. Ltd.                 ...Petitioner

VERSUS

M/s. Green Mobil                       …Respondent

O R D E R

SURINDER SINGH NIJJAR, J.

1. The  petitioner  has  filed  the  present  application  under  Sections  

11(4)  and (6)  of  the Arbitration and Conciliation Act,  1996 read with  

paragraph 2 of the Appointment of the Arbitrators by the Chief Justice of  

India  Scheme,  1996.  It  is  stated  that  the  parties  had entered into  a  

legally  valid  and  enforceable  Memorandum of  Understanding  (‘MOU’)  

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dated  25th September,  2007,  providing,  inter  alia, for  the  respective  

obligation of both the parties in connection with the marketing of the  

cars of the petitioner. Though the term of the MOU was till December,  

2007, it was extended by the acts of the parties in terms of Clause 2 of  

the MOU.

2. The petitioner makes a reference to various requests made by the  

respondent for supply of cars in terms of MOU on 22nd April, 2008; 24th  

August,  2008;  and 1st April,  2009.  The petitioner  further  claims that  

some  time  in  September  2009,  disputes  arose  between  the  parties.  

Numerous          e-mails were exchanged between the parties, apart from  

the  personal  discussions  between their  representatives,  touching  and  

covering the disputes.  It is the petitioner’s claim that during the term of  

MOU, merely 15 cars of  the petitioner  had been sold in the Belgium  

Region. The petitioner,  therefore, claimed that the respondent did not  

have  in  place  the  necessary  resources  to  build  the  brand  of  the  

petitioner. Consequently, through e-mail dated 25th September, 2009 the  

petitioner  requested  the  respondent  to  immediately  cease  sales  and  

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marketing activities on its behalf and take necessary steps of providing  

after  sales  and  service  to  existing  car  owners,  till  such  time  the  

petitioner appointed its new distributor.  The petitioner claims that the  

aforesaid  e-mail  duly  constituted  the  termination  of  the  contractual  

relationship between the parties as covered under the MOU.  

3. As a consequence  of  the  aforesaid termination,  the  parties  have  

exchanged various e-mails raising claims and counter claims on 6th /7th  

/8th October, 2009.

4. The petitioner further claims to have received a Writ of Summons  

dated  14th January,  2010  of  legal  proceedings  initiated  by  the  

respondent in Belgium before the First Divisional Court, Room A of the  

Commercial Court in Brussels. According to the petitioner, the claims  

made by the respondent before the Commercial Court, Brussels disclose  

that the respondent instituted the legal proceedings  inter alia claiming  

damages from the petitioner on account of termination of the MOU dated  

25th September,  2007.    On  15th March,  2010,  the  counsel  for  the  

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respondent  sent  an  e-mail  communication  that  the  respondent  was  

willing to negotiate a global settlement with the petitioner and that the  

respondent through its counsel would be available to discuss any such  

proposal. According to the petitioner, the aforesaid communication also  

acknowledges the fact that the rights and obligation of both the parties  

were  covered  by  the  distributorship  agreement,  i.e.  the  MOU,  which  

stood duly terminated.

5. The petitioner thereafter issued a notice dated  24th March, 2010  

through  its  counsel  in  terms  of  Clause  11  of  the  MOU  invoking  

arbitration under the MOU and referring all disputes between the parties  

to arbitration. The petitioner in fact nominated Mr. Justice Jayasimha  

Babu (Retired)  as the Sole  Arbitrator,  and failing confirmation by the  

respondent,  as  the  arbitrator  of  the  petitioner  on  the  three  member  

Arbitral Tribunal to be constituted in terms of Clause 11.

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6. The respondent through its counsel sent a reply to the notice dated  

7th April, 2010 denying existence of any contractual relationship between  

the parties on the date of termination of MOU on 25th September, 2009.

7. The  petitioner,  therefore,  filed  Arbitration  Application  No.576  of  

2010  under  Section  9  of  the  Arbitration  and  Conciliation  Act,  1996  

before  the  Court  of  the  Principal  City  Civil  &  Sessions  Judge  at  

Bangalore praying for an order of injunction restraining the respondent  

from  proceeding  with  the  legal  proceedings  initiated  before  the  First  

Divisional Court, Room A of Commercial Court of Brussels, Belgium.  

8. The petitioner had also moved I.A.No.1 in the aforesaid suit dated  

19th April,  2010 seeking an order of  temporary  injunction which was  

granted by the Principal City Civil & Sessions Judge at Bangalore on 21st  

April, 2010. Thereafter the petitioner has moved the present application  

for  appointment  of  the  Arbitrator  in  terms of  Clause  11 of  the  MOU  

which reads as under:-

“11. Governing Law and Jurisdiction   

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i.  This MOU shall be construed and enforced in accordance  with the laws of India.

ii. In the event of any dispute or difference arising at any  time  between  the  parties  hereto  as  to  the  construction,  meaning or effect of this Agreement or thing contained herein  or the rights, duties, liabilities and obligations of the parties  hereto in relation to this Agreement, the same shall be referred  to a single arbitrator, in case the parties can agree upon one  (1) within a period of thirty days upon being called by a party  to do so and failing such agreement to three (3) arbitrators one  (1) each to be appointed by GREENMOBIL and RECC and the  third to be appointed by the two arbitrators so appointed. The  award passed by such arbitrator(s) shall be final and binding  on both the parties.  

All such arbitration proceedings shall be held in Bangalore as  per  the  Arbitration  and Conciliation  Act,  1996 as  amended  from time to time.”   

9. In reply to the aforesaid petition, the respondent claimed that the  

MOU dated 25th September, 2007 expired on 31st December, 2007. The  

petition does not clearly set out the claim or the period of the claim but  

the documents and implication of the contents of the present petition  

seem to  indicate  that  the  claim of  the  petitioner  is  in respect  of  the  

commercial distribution of the cars which commenced from 1st January,  

2008 i.e. after the expiry of Memorandum of understanding. It is also the  

plea of the respondent that the MOU relate to a test and trial period  

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which came to an end on 31st December, 2007, after which the parties  

decided to enter into a distribution agreement which was sent by the  

petitioner to the respondent on 15th November, 2007, i.e., 15 days prior  

to the expiry of the MOU. Therefore, the arbitration clause relied upon by  

the  petitioner  does  not  cover  any  disputes/claims  that  relate  to  any  

period  beyond  31st December,  2007.  It  is  further  claimed  that  the  

petition is only a counterblast to the proceedings filed by the respondent  

before  the  Commercial  Court  at  Brussels.  This,  according  to  the  

respondent, is evident from the fact that the respondent had instituted  

the proceedings in the Commercial Court at Brussels on 14th January,  

2010; the petitioner was intimated about the said proceedings vide  e-

mail  dated 15th March,  2010;  and the  notice invoking the  arbitration  

clause in the MOU is dated 24th March, 2010. It is, therefore, clear that  

the arbitration clause is invoked only to avoid proceedings before the  

Commercial  Court  at Brussels.  It  is emphasised that the proceedings  

before the Commercial Court at Brussels related to the period beyond  

the MOU when the parties had commenced work of distributorship or  

dealership after the test trial period under the MOU had come to an end.  

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10. I have heard the learned counsel for the parties.

11.  Mr. Narasimha, learned senior counsel appearing for the petitioner  

submits  that  the  averments  made  by  the  respondent  in  reply  to  the  

petition  make it  abundantly  clear  that  the  disputes  pertained  to  the  

MOU  dated 25th September, 2007. According to the learned counsel,  

there was no fresh agreement entered into between the parties.  Cars  

were being supplied to the respondent in terms of Clause 2 of the MOU.  

Making  a  reference  to  Clause  2,  learned  counsel  submits  that  the  

aforesaid clause makes it clear that the MOU was effective for a period of  

three to six months, from the date of arrival of the cars in Belgium.  This  

term was to be considered as the trial period. On completion of the trial  

period  but  not  later  than   3rd December,  2007,  the  parties  were  to  

mutually  decide  to  continue the  marketing,  sales,  and service  of  the  

work hours by the respondent. They were also to enter into a fresh long  

term agreement on mutually agreed terms and conditions. He submits  

that till the date of the termination of the MOU, no fresh agreement had  

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been entered into between the parties. Relying on the last sentence of  

the Clause 2, Mr. Narasimha submits that it was the sole discretion of  

the petitioner to extend the MOU in case the petitioner believed that the  

additional time is required to complete the trial  period. The aforesaid  

portion of Clause 2 is as under :-

“RECC, at its sole discretion, may decide to extend the MOU if  RECC believes that additional time is required to complete the  trial period.”    

   12. He further submits that although the cars were being supplied to  

the respondent but the petitioner was not satisfied with the progress  

made  in  the  number  of  cars  sold  by  the  respondent.  Therefore,  the  

respondent was constrained to terminate the MOU, after a period of two  

years from the commencement.  

13. According  to  Mr.  Narasimha,  respondent  has  initiated  the  

proceedings in the Brussels Court only to pre-empt the initiation of legal  

proceedings by the petitioner. He points out that the pleadings in the  

Writ of Summons, clearly show: that the respondent was only concerned  

with  the  effect  of  the  termination  and  not  the  period  of  the  MOU.  

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Respondent  has admitted that  the  contractual  relationship  started in  

2007.  The respondent has admitted that there is no other subsequent  

agreement.  In Paragraph 18 of the Writ of Summons, the respondent  

admits that the contractual relationship was subsisting till September,  

2009.  In Paragraph 30, it is admitted by the respondent that “the party  

summoned  below terminated  the  contract  in  an untimely  and brutal  

manner on 25th September, 2009”.    

14. He  points  out  that  the  disputes  have  arisen  in  relation  to  the  

termination of the MOU and the consequences thereof.  Such disputes  

are clearly covered by the arbitration clause which clearly provides for  

resolution of disputes through arbitration. The clause provides that in  

the event of any dispute or difference  arising at any time between the  

parties in relation to the agreement shall be referred to a Sole Arbitrator.  

The clause, according to the learned senior counsel, is not limited to the  

disputes relating only to the initial period of the MOU                      till  

31st December 2007.  

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15. He submits irrespective of whether the MOU is now in existence or  

not, the Arbitration clause would survive.  He relies on the decisions of  

this  Court  in  the  cases  of  Bharat  Petroleum Corporation  Ltd. Vs.  

Great Eastern Shipping Company Ltd.  1   and Everest Holding Limited  

Vs.  Shyam Kumar Shrivastava & Ors.  2    He further submits that this  

Court is required to refer the disputes between the parties to the Sole  

Arbitrator, without any in-depth examination of the disputes.  The Court  

is merely to be satisfied that the disputes fall within the ambit of the  

Arbitration  Clause.   In  support  of  this  submission,  he  relies  on  the  

judgment of this Court in Brigadier Man Mohan Sharma, FRGS (Retd.)  

Vs.  Lieutenant  General  Depinder  Singh  3  .   He  also  relies  on  the  

judgment  in  the  case  of  National  Insurance  Company  Limited Vs.  

Boghara Polyfab  Private Limited  4  ,  in  support  of  the  submission all  

disputes are such which need to be decided by the Sole Arbitrator on  

merits, and can not be decided by this Court in a petition under Section  

11(4)  and  6  of  the  Arbitration  and  Conciliation  Act,  1996.   Learned  

1 2008 (1) SCC 503 2 2008 (16) SCC 774 3 2009 (2) SCC 600 4 2009(1) SCC 267

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counsel further submits that in accordance with the aforesaid clause the  

petitioner  had already nominated the Sole Arbitrator.  The respondent  

has, however, not accepted the aforesaid arbitrator. At the same time, it  

had expressed its willingness to negotiate the global settlement with the  

petitioner.  

16. On the other hand, Ms. Tasneem Ahamadi, has submitted that the  

MOU having come to an end by efflux of time, there was no question of  

any termination as claimed by the petitioner. She further submits that  

the notice invoking arbitration was sent only as a counterblast to the  

summons  received  by  the  petitioner  from  the  Brussels  Commercial  

Court. Learned counsel further submitted that the disputes which form  

the basis of the claim in the Brussels Commercial Court pertained to a  

period subsequent to the period covered by the MOU. The arbitration  

clause in the MOU relates only to disputes which relate to the test and  

trial period.   Hence, an arbitrator can not be appointed for settlement of  

disputes which occurs / relate to a period after 31st December, 2007.  

The disputes raised before the Commercial  Court at Brussels are not  

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covered by the arbitration clause in the MOU.  She had made a detailed  

reference to numerous  e-mails exchanged between the parties to submit  

that the parties had in fact entered into a long term contract. This was  

only to be reduced to a formal document. Since the disputes are not  

covered by the arbitration clause, there can be no reference. In support  

of the aforesaid submission, learned counsel relies on a judgment of this  

Court in the case of  SBP & Co.  Vs.  Patel Engineering Ltd. & Anr.  5  .  

In view of the law laid down in the aforesaid judgment, according to the  

learned counsel, the arbitration petition deserves to be dismissed.

17 I have considered the submissions made by the learned counsel for  

the parties. It appears that the submissions made by Ms. Ahamadi that  

the question with regard to the existence of a valid arbitration agreement  

would have to be decided by this Court, is not without merit. This Court  

has on a number of  occasions examined the scope and ambit  of  the  

jurisdiction of the Chief Justice or his designate under Section 11 of the  

Arbitration and Conciliation Act, 1996. A reference in this connection  

5 2005 (8) SCC 618

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can be made to the judgment of this Court in SBP & Co. (supra) wherein  

a Constitution Bench of this Court has clearly held as under:  

“39. It is necessary to define what exactly the Chief Justice,  approached with an application under Section 11 of the Act, is  to decide at that stage. Obviously, he has to decide his own  jurisdiction in the sense whether the party making the motion  has  approached  the  right  High  Court.  He  has  to  decide  whether there is an arbitration agreement, as defined in the  Act and whether the person who has made the request before  him,  is  a  party  to  such  an  agreement.  It  is  necessary  to  indicate  that  he  can  also  decide  the  question  whether  the  claim was a dead one; or a long-barred claim that was sought  to be resurrected and whether the parties have concluded the  transaction  by  recording  satisfaction  of  their  mutual  rights  and  obligations  or  by  receiving  the  final  payment  without  objection.  It  may  not  be  possible  at  that  stage,  to  decide  whether  a  live  claim made,  is  one  which comes  within  the  purview of the arbitration clause. It will be appropriate to leave  that question to be decided by the Arbitral Tribunal on taking  evidence, along with the merits of the claims involved in the  arbitration.  The  Chief  Justice  has  to  decide  whether  the  petitioner  has  satisfied  the  conditions  for  appointing  an  arbitrator under Section 11(6) of the Act. For the purpose of  taking a decision on these aspects, the Chief Justice can either  proceed on the basis of affidavits and the documents produced  or take such evidence or get such evidence recorded, as may  be necessary. We think that adoption of this procedure in the  context of the Act would best serve the purpose sought to be  achieved by the Act of expediting the process of arbitration,  without too many approaches to the court at various stages of  the proceedings before the Arbitral Tribunal.”

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In the case of  National Insurance Co. Ltd.  (supra),  this Court again  

examined the question with regard to the scope of the jurisdiction under  

Section  11(6).  In  doing  so,  this  Court  explained  the  ratio  of  the  

Constitution Bench in SBP & Co. (supra). In Para 21 of the Judgment,  

the  power  of  the  Arbitral  Tribunal  in  cases  where  the  disputes  are  

referred to arbitration without the intervention of  the court has been  

distinguished from the power in matters where the intervention of the  

court is sought for appointment of an Arbitral Tribunal. In case where  

the  matters  are  sought  to  be  referred  to  arbitration  without  the  

intervention of the court it has been held that the Arbitral Tribunal  

can decide the following questions affecting its jurisdiction: (a) whether  

there is an arbitration agreement; (b) whether the arbitration agreement  

is valid; (c) whether the contract in which the arbitration clause is found  

is  null  and  void,  and  if  so,  whether  the  invalidity  extends  to  the  

arbitration clause also.  

18. In matters, where the intervention of the Chief Justice of India has  

been sought for appointment of a sole arbitrator under Section 11(4), (5)  

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and (6) of the Arbitration Act, 1996, the Chief Justice or his designate  

will have to decide certain preliminary issues.  It would be apposite to  

notice here the relevant observations made in Para 22,  which are  as  

follows :-

“22. This  Court  identified  and  segregated  the  preliminary  issues  that  may  arise  for  consideration  in  an  application  under Section 11 of the Act into three categories, that is, (i)  issues which the Chief Justice or his designate is bound to  decide;  (ii)  issues  which he  can also  decide,  that  is,  issues  which he may choose to decide; and (iii) issues which should  be left to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief Justice/his  designate will have to decide are: (a) Whether the party making the application has approached  the appropriate High Court. (b) Whether there is an arbitration agreement and whether the  party who has applied under Section 11 of the Act, is a party  to such an agreement.

22.2. The issues (second category) which the Chief Justice/his  designate may choose to decide (or leave them to the decision  of the Arbitral Tribunal) are: (a) Whether the claim is a dead (long-barred) claim or a live  claim. (b)  Whether  the  parties  have  concluded  the  contract/transaction by recording satisfaction of their mutual  rights and obligation or by receiving the final payment without  objection.

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22.3. The issues (third category) which the Chief Justice/his  designate should leave exclusively to the Arbitral Tribunal are: (i) Whether a claim made falls within the arbitration clause (as  for example, a matter which is reserved for final decision of a  departmental  authority  and  excepted  or  excluded  from  arbitration). (ii) Merits or any claim involved in the arbitration. “

These observations were further reiterated by this Court in the case of  

A.P. Tourism Development Corporation Ltd. Vs. Pampa Hotels Ltd.6.  

The aforesaid ratio  of  law has been reiterated by this  Court  in  Alva  

Aluminium Limited, Bangkok Vs.  Gabriel India     Limited7. Upon  

consideration of the entire case law, it has been observed as follows :-  

“18. It is in the light of above pronouncements, unnecessary  to delve any further on this issue.  It  is  clear that once the  existence of the arbitration agreement itself is questioned by  any party to the proceeding initiated under Section 11 of the  Act,  the  same  will  have  to  be  decided  by  the  Chief  Justice/designate  as  the  case  may  be.  That  is  because  existence of an arbitration agreement is a jurisdictional fact  which will have to be addressed while making an order on a  petition under Section 11 of the Act.”

6 [2010 (5) SCC 425]. 7 [2011 (1) SCC 167].

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19. In view of the aforesaid authoritative dicta, the submission of Ms.  

Ahamadi has to be accepted that in a petition under Sections 11(4)(5)(6)  

and  (9)  of  the  Arbitration  Act,  1996,   it  is  for  the  Chief  Justice  of  

India/his designate to decide about the existence of a valid arbitration  

agreement. Now let me examine the facts in the present case keeping in  

view the aforesaid well settled principles.

20.  There is no dispute that the parties had entered into a legally valid  

and  enforceable  MOU dated  25th September,  2007.  There  is  also  no  

dispute  that  Clause  11  provides  that  disputes  arising  between  the  

parties,  at  any  time,  in  relation  to  the  MOU,  shall  be  referred  to  

arbitration.  Clause (2) of the MOU, undoubtedly, fixes the trial period  

upto 31st December, 2007. However, the clause also provides that the  

petitioner  may unilaterally  decide  to  extend the  MOU,  if  it  considers  

necessary. The correspondence between the parties would show that the  

petitioner had proposed a draft distribution agreement to the respondent  

for discussion. Thereafter, a series of e-mails were exchanged between  

the parties, but making it apparent that no final consensus was reached.  

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It would, therefore, appear that the MOU was duly extended till it was  

terminated as averred by the petitioner.

21. The  petitioner  has  categorically  pleaded  that  the  MOU  was  

terminated on 25th September, 2009. The petitioner has placed on record  

the e-mail dated 25th September, 2009 in which it is clearly stated that  

MOU was entered into           on 25th September, 2007 for a test period of  

six months from the date of arrival of the trial cars. It is further stated  

that this period was extended on an informal and voluntary basis by the  

petitioner for a period extending to two years from the date of signing of  

the MOU. During this two years period, a total of 15 REVA cars have  

been  sold.  It  is  pointed  out  that  inspite  of  the  best  efforts  of  the  

respondent and the efforts of the petitioner to support the respondent,  

following  a  review of  the  European operations  it  is  believed that  the  

respondents do not have in place the resources to build the REVA brand,  

invest in the appropriate infrastructure, obtain necessary fiscal and/or  

subsidy and infrastructure support and are not adequately prepared to  

launch   the  M1 vehicles  introduced by REVA at  the  Frankfurt  IAA.  

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Thereafter it requests the respondents to immediately cease all sales and  

marking  activities  on  behalf  of  REVA brand.  This  termination  of  the  

agreement  has  been  acknowledged  by  the  respondents  in  its  e-mail  

dated  7th October,  2009.     A  perusal  of  this  e-mail  would  also  

demonstrate that the disputes had clearly arisen between the parties at  

that time. The e-mail makes a grievance that the respondents had not  

been notified of the termination of its dealership activities a few weeks  

ago when it had informed the petitioner of its negotiations with potential  

Dutch partners. The respondents also repeated its disappointment that  

the win-win soft-landing solution it proposed on 25th September,  2009  

was rejected by the petitioner. Rest of the correspondence between the  

parties continues in the same tenor.  Clearly,  therefore,  the MOU has  

been extended till  its termination on 25th September, 2009. It  is also  

evident that the parties had failed to reach any fresh agreement with  

regard  to  sale  of  REVA  cars  in  Europe  by  the  respondents.  In  my  

opinion, the pleadings and the material on record has clearly established  

that there was a valid arbitration agreement incorporated in Clause 11 of  

the MOU.

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22. This takes me to the second submission of Ms.Ahamadi that, in  

any event, the disputes cannot be referred to arbitration as it pertained  

to  a  period subsequent  to  the  term of  the  MOU.  Mr.Narasimha has,  

however,  pointed  out  that  according  to  the  case  pleaded  by  the  

respondents  in  the  Brussels  Court  which is  evident  from the  writ  of  

summons,  all  the  disputes  pertained  to  the  period  prior  to  the  

termination of  the agreement by the petitioner.  The writ  of  summons  

clearly mentions as follows :

“Whereas the first cars of the make REVA were marketed in  India from June 2001 onwards, then in the UK in 2003 and  worldwide from 2007.

That the party summoned below had however promised the  arrival  of  more  performing  Lithium batteries  that  would  be  installed in their vehicles from the middle of 2008, as well as a  new or more competitive and more attractive car model by the  end of 2008, the REVA ‘NXR’.

Whereas the contractual relationships between the petitioner  and the party summoned below started in 2007.

Whereas the distribution of the REVA cars by the petitioner  took place in two stage.

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That during an initial period the petitioner ran a pilot project  for  the  party  summoned  below  to  assess  the  marketing  possibilities of the REVA on the Belgian market.

That after a certain period of time the petitioner became an  exclusive distributor of REVA cars for the BENULEX.”

23. The writ of summons further mentions that the petitioner had to  

run  a  pilot  project  of  three  to  six  months  to  test  the  marketing  

possibilities  of  the  REVA  cars  on  the  Belgium  market.  It  is  further  

pleaded  that  at  the  end of  the  test  period  and at  the  latest  on 31st  

December, 2007, the parties had to decide jointly whether the petitioner  

would continue to provide the promotion, sales and service of REVA Cars  

in Belgium within the framework of a long-term distribution contract.  

The respondents further pleaded     that :-  

“Whereas, in spite of the absence of the signing of a written  contract between the parties, the petitioner de facto became  the exclusive  distributor  of  REVA vehicles  in the BENELUX  starting the month of January, 2008.”

24. Thereafter the respondents gave details of the efforts made by it for  

marketing of the REVA Cars from January, 2008 onwards. In paragraph  

19 of the writ of summons, it is clearly admitted as follows :-

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“Whereas on the 25th of September, 2009, as soon as the first  REVA cars fitted with Lithium batteries and of the new REVA  NXR  model  arrive  in  Belgium the  petitioner  is  going  to  be  ejected all of a sudden by the party summoned below.  

That  during  a  telephone  conversation  on  25th September,  2009,  confirmed  in  an  email  of  the  same  date  the  party  summoned  below  suddenly  announced  its  decision  to  terminate  the  concession  granted  to  the  petitioner  for  the  Belelux, with immediate effect;

That  the  party  summoned  below  asked  the  petitioner  to  immediately stop the sale and promotion of the REVA cars as  well as the use of the REVA mark.”

25. The  claims  made  by  the  respondents  clearly  pertained  to  the  

contract which was terminated on 25th September, 2009. In paragraph  

30 of the writ of summons, it is pleaded as under :-

“That the parties summoned below terminated the contract in  any untimely and brutal manner on 25th September, 2009.”

26. On the aforesaid basis, the respondents claim compensation and  

damages amounting to Euro 454,000.  

27. The aforesaid averments and the material on record would clearly  

demonstrate  that  the  disputes  that  have  arisen  between  the  parties  

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clearly relate to the MOU dated 25th September, 2007. It would be for the  

Arbitral  Tribunal to decide as to whether claims made are within the  

arbitration clause. The Arbitral Tribunal would also have to decide the  

merits of the claim put forward by the respective parties. In view of the  

material  placed  on  record,  it  would  not  be  possible  to  accept  the  

submissions of Ms. Ahamadi that the disputes were beyond the purview  

of the arbitration clause.

28. A similar matter was examined by this Court in the case of Bharat  

Petroleum Corporation Ltd. Vs. Great Eastern Shipping Co. Ltd.8 In  

the aforesaid case, an agreement called time charter party was entered  

into  between the  appellant  and the respondent  on 6th May,  1997 for  

letting on hire vessels for a period of two years from  22nd September,  

1996 to 30th June, 1997 and from 1st July, 1997 to 30th June, 1998. It  

appears that certain disputes arose between the parties. Thereafter, on  

the  basis  of  the  correspondence  exchanged  between  the  parties  with  

regard to the disputes, claims and counter claims were filed before the  

8 (2008 (1) SCC 503).

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Arbitral Tribunal. Issues were duly framed of which the following three  

issues may be of some relevance in the present context viz.  

“Issue  1.—Whether  the  Hon'ble  Arbitral  Tribunal  has  no  jurisdiction  to  adjudicate  upon  the  dispute  between  the  claimant and the respondent for the period September 1998 to  August 1999 in respect of the vessel Jag Praja for the reasons  stated in Para 1 of the written statement?

Issue 2.—Whether there is any common practice that if  the  vessel is not redelivered at the end of the period mentioned in  the time charter the vessel would be governed by the charter  party under which originally it was chartered? * * * Issue 5.—Whether the time charter party dated 6-5-1997 came  to an end by efflux of time on 30-8-1998? ”

29. The Arbitral Tribunal by its order dated 12th May, 2003 came to the  

conclusion  that  the  appellant  having  invoked  the  arbitration  clause  

contained in the charter party agreement dated 6th May, 1997, which  

was valid  upto 31st December,  1998 and as the dispute  between the  

parties related to the period subsequent to 31st August, 1998, they had  

no jurisdiction to decide the reference. The tribunal held that the charter  

party  agreement  dated  6th May,  1997  was  superseded  by  a  fresh  

agreement.  Therefore,  original  charter  party  dated  6th May,  1997  got  

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extinguished.  The  respondents  challenged  the  said  award  before  the  

High Court. Learned Single Judge set aside the award and held that the  

Arbitral Tribunal has the jurisdiction to adjudicate the disputes between  

the parties as the vessel continued to be hired by the appellant for the  

period  subsequent   to  31st August,  1998  on  the  same  terms  and  

conditions, as were contained in charter party agreement  dated 6th May,  

1997. It was held that the charter party dated 6th May, 1997 did not  

come to an end by efflux of time and it was extended by the party on the  

same terms and conditions. Correctness of this order was challenged in  

this Court. On examination of the entire fact situation, it was held as  

follows :-  

“19. It is, no doubt, true that the general rule is that an offer  is not accepted by mere silence on the part of the offeree, yet it  does not mean that an acceptance always has to be given in so  many words.  Under  certain circumstances,  offeree's  silence,  coupled with his conduct, which takes the form of a positive  act, may constitute an acceptance—an agreement sub silentio.  Therefore, the terms of a contract between the parties can be  proved not only by their words but also by their conduct.”

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30. Examining  the  fact  situation  in  the  present  case,  I  am  of  the  

opinion  that  the  conclusion  is  inescapable  that  notwithstanding  the  

initial period under the MOU expiring by 31st December, 2007, the same  

was extended by the petitioner in exercise of its discretion under Clause  

(2)  of  the  MOU.  The  extended  MOU  was  terminated  only   on  25th  

September, 2009. Therefore, it is not possible to accept the submission  

of Ms. Ahamadi that the disputes arising between the parties cannot be  

referred to the Arbitral  Tribunal.   In my opinion,  Mr.  Narasimha has  

rightly  submitted  that  the  disputes  have  arisen  in  relation  to  the  

termination of the MOU and the consequences thereof.  Such disputes  

would be clearly covered under the Arbitration clause which provides  

that in the event of any dispute or difference arising at any time between  

the  parties  in  relation  to  the  agreement shall  be  referred  to  a  Sole  

Arbitrator.  The clause is clearly not limited to the disputes relating only  

to the initial period of the MOU  till 31st December, 2007.

31. I  also  find  merit  in  the  submission  of  Mr.  Narasimha  that  

irrespective  of  whether  the  MOU  is  now  in  existence  or  not,  the  

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arbitration clause would survive.  The observations made by this Court  

in the case of  Everest Holding Ltd.  (supra) would clearly support the  

submission made by the learned senior counsel.  In the aforesaid case,  

the parties had entered into a Joint Venture Agreement (for short ‘JVA’)  

dated 25th September, 2003 for the purpose of mining, processing and  

export of Iron Ore.  On 26th March, 2004, another JVA was executed  

between  the  parties,  particularly  to  iron  out  certain  controversy  in  

respect of JVA dated 25th September, 2003.  Article 14.3 of the said JVA  

contained an arbitration  clause  providing  that  if  the  parties  failed  to  

resolve  the  matter  through  mutual  agreement,  the  dispute  shall  be  

referred  to  an  Arbitrator  appointed  by  mutual  agreement  of  the  two  

parties.  The stand of the petitioner in the aforesaid case was that on  

20th September,  2004,  it  was  shocked  and  surprised  to  receive  

unwarranted notices for cancellation of JVA.  The aforesaid notice was  

replied on 6th October, 2004.  Since the disputes between the parties  

were  not  resolved,  the  petitioner  invoked  the  arbitration  clause.  

Respondent No. 1 in reply to the notice refuted the claim of the petitioner  

and also refused to refer the matter to arbitration on the ground that the  

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JVA between the petitioner and the respondent No.1 is not in existence  

as the same had been terminated by respondent No.2.  It was stated that  

in view of the aforesaid position, there could be no invocation of Clause  

14.3 of JVA.

32. Considering the aforesaid fact situation, this Court observed that  

under  Clause  14.2,  the  parties  had  agreed  that  they  would  use  all  

reasonable efforts to resolve the disputes, controversy or claim arising  

out of or relating to these agreements.  Since the parties have failed to  

resolve  their  differences,  the  same  had  to  be  referred  to  Arbitration  

under  Clause  14.3.   It  was  held  that  there  is  a  valid  Arbitration  

Agreement  between  the  parties  as  contained  in  the  JVA,  which  the  

parties are required to adhere to and are bound by the same.  In other  

words,  if  there  is  any  dispute  between  the  parties  to  the  agreement  

arising out of or in relation to the subject matter of the said JVA, all  

such disputes and differences have to be adjudicated upon and decided  

through  the  process  of  Arbitration  by  appointing  a  mutually  agreed  

Arbitrator.  This Court observed as follows:-

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“Though the JVA may have been terminated and cancelled as  stated but it  was a valid JVA containing a valid arbitration  agreement  for  settlement  of  disputes  arising  out  of  or  in  relation to the subject-matter of the JVA. The argument of the  respondent  that  the  disputes  cannot  be  referred  to  the  arbitration as the agreement is not in existence as of today is  therefore devoid of merit.”

In my opinion, the aforesaid observations are squarely applicable to  

the facts in the present case.  The disputes that have arisen between the  

parties clearly pertain to the subject matter of the MOU.  

33. Even if, I accept the submission of Ms.Ahamadi that MOU was not  

extended beyond 31st of December, 2007, it would make little difference.  

Section 16(1)(a) of the Arbitration and Conciliation Act, 1996 provides  

that  an arbitration  clause  which forms part  of  the  contract  shall  be  

treated as an agreement independent of the other terms of the contract.  

The plain meaning of the aforesaid clause would tend to show that even  

on the termination of the agreement/contract, the arbitration agreement  

would still survive. It also seems to be the view taken by this Court in  

Everest  Holdings  Ltd.  (supra). Accepting  the  submission  of  

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Ms.Ahamadi  that the arbitration clause came to an end as the MOU  

came to an end by efflux of time on 31st December, 2007 would lead to a  

very uncertain  state  of  affairs,  destroying the very efficacy  of  Section  

16(1). The aforesaid section provides as under :  

“16.  Competence  of  arbitral  tribunal  to  rule  on  its  jurisdiction –  (1) The arbitral  tribunal may rule on its own  jurisdiction, including ruling on any objections with respect to  the existence or validity of the arbitration agreement, and for  that purpose –

(a)  an arbitration clause which forms part of a contract shall  be treated as an agreement independent of the other terms of  the contract; and

(b) a decision by the arbitral tribunal that the contract is null  and  void  shall  not  entail  ipso  jure the  invalidity  of  the  arbitration clause.”     

34. The aforesaid provision has been enacted by the legislature keeping  

in mind the provisions contained in Article 16 of the UNCITRAL Model  

Law. The aforesaid Article reads as under :-

“Article  16 –  Competence  of  arbitral  tribunal  to  rule  on its  jurisdiction –  

(1)  The  arbitral  tribunal  may  rule  on  its  own  jurisdiction,  including  any  objections  with  respect  to  the  existence  or  validity  of  the  arbitration  agreement.  For  that  purpose,  an  arbitration  clause  which  forms  part  of  a  contract  shall  be  

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treated as an agreement independent of the other terms of the  contract. A decision by the arbitral tribunal that the contract  is null and void shall not entail  ipso jure the invalidity of the  arbitration clause.

(2)……………………………………………………..

(3)……………………………………………………...”       

Under  Section  16(1),  the  legislature  makes  it  clear  that  while  

considering any objection with respect to the existence or validity of the  

arbitration agreement, the arbitration clause which formed part of the  

contract, has to be treated as an agreement independent of the other  

terms of  the  contract.  To  ensure  that  there  is  no  misunderstanding,  

Section  16(1)(b)  further  provides  that  even  if  the  arbitral  tribunal  

concludes that the contract is null and void, it should not result, as a  

matter  of  law,  in  an automatic  invalidation of  the  arbitration clause.  

Section 16(1)(a) presumes the existence of a valid arbitration clause and  

mandates the same to be treated as an agreement independent of the  

other terms of the contract. By virtue of Section 16(1)(b), it continues to  

be enforceable notwithstanding a declaration of the contract being null  

and void.  In view of  the  provisions  contained in  Section 16(1)  of  the  

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Arbitration and Conciliation Act, 1996, it would not be possible to accept  

the submission of Ms.Ahmadi that with the termination of the MOU on  

31st December, 2007, the arbitration clause would also cease to exist. As  

noticed earlier, the disputes that have arisen between the parties clearly  

relate to the subject matter of the relationship between the parties which  

came into existence through the MOU. Clearly, therefore, the disputes  

raised by the petitioner needs to be referred to arbitration. Under the  

arbitration clause, a reference was to be made that the disputes were to  

be referred to a single arbitrator. Since the parties have failed to appoint  

an arbitrator under the agreed procedure, it is necessary for this Court  

to appoint the Arbitrator.  

35. In  exercise  of  my  powers  under  Section  11(4)  and  (6)  of  the  

Arbitration  and  Conciliation  Act,  1996  read  with  Paragraph  2  of  the  

Appointment of Arbitrator by the Chief Justice of India Scheme, 1996, I  

hereby  appoint  Hon.Mr.Justice  R.V.  Raveendran,  R/o  8/2,  Krishna  

Road, Basavangudi, Bangalore, Former Judge of the Supreme Court of  

India, as the Sole Arbitrator to adjudicate the disputes that have arisen  

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between the parties, on such terms and conditions as the learned Sole  

Arbitrator  deems  fit  and  proper.  Undoubtedly,  the  learned  Sole  

Arbitrator  shall  decide  all  the  disputes  arising  between  the  parties  

without being influenced by any prima facie opinion expressed in this  

order, with regard to the respective claims of the parties.

36. The  registry  is  directed  to  communicate  this  order  to  the  Sole  

Arbitrator  to  enable  him to  enter  upon the  reference  and decide  the  

matter as expeditiously as possible.

37. The Arbitration Petition is accordingly disposed of.  

……..…………………..J.

[Surinder Singh Nijjar]  

New Delhi; November 25, 2011.                                         

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