IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION (CIVIL) NO. 5 OF 2010

Powertech World Wide Limited   …  

Petitioner

Versus

Delvin International General Trading LLC    … Respondent

O R D E R

Swatanter Kumar, J.

1. M/s.  Powertech  World  Wide  Limited,  the  petitioner,  is  a  

limited company registered under the Companies Act, 1956,  

having its registered office at 202, Krishna Chambers, 59, New  

Marine Lines, Churchgate, Mumbai and has filed the present  

petition through its  authorized representative  under  Section  

11(6) of the Arbitration and Conciliation Act, 1996 (for short  

‘the  Act’)  praying  for  appointment  of  an  Arbitrator.   M/s.  

Delvin International General Trading LLC, the respondent, is  

also a company, which has been incorporated under the laws  

of  Dubai  (UAE)  having  its  registered office  in  Dubai  and is  

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stated to be engaged in the business of importing and selling  

of  various  commodities.   The  respondent  was  desirous  of  

purchasing  and  the  petitioner  was  willing  to  sell  various  

articles in the course of  their  international  trade,  for  which  

their  negotiations  in  November  2006  finally  resulted  in  a  

purchase contract dated 1st December, 2006 executed between  

the  parties.   This  contract  specifically  noticed  that  after  

satisfactory  discussions  between  the  respondent  and  the  

petitioner, the respondent agreed to join hands and work with  

the  petitioner  on  the  terms  and  conditions  provided  in  the  

contract.   This contract was to be operative and valid for a  

period of  one  year  subject  to  the  terms and the  conditions  

mentioned therein and became effective w.e.f.  1st December,  

2006.  The contract also contained an arbitration clause which  

reads as under: -

“Any  disputes  arising  out  of  this  Purchase  Contract shall be settled amicably between Both  the  parties  or  through  an  Arbitrator  in  India/UAE.”

2. In furtherance  to  this  contract,  the  goods were sold and  

supplied by the petitioner and are stated to have been duly  

received by the respondent, without any demur in relation to  

the quantity and quality of the goods.  The bills raised by the  

petitioner  were  sent  through  petitioner’s  bankers.   The  

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documents were accepted by the negotiating bankers.  It is the  

case of the petitioner that initially the respondent was prompt  

in payments for the consignments sold and supplied to it in  

conformity with the purchase order, i.e. within 60/90 days of  

the acceptance of the consignments.  However, in April 2007, a  

request  was  made  by  the  respondent  to  the  petitioner  to  

supply more goods as per its requirements, without insisting  

for  the  outstanding  payments  in  respect  of  some  previous  

consignments  received  at  its  end.   Considering  the  good  

business relationship existed between the parties, the goods  

were  supplied  though  the  payments  were  not  made.   The  

requests  made  by  the  petitioner  for  payments  of  the  

outstanding  dues  were  not  acceded  to  by  the  respondent,  

despite repeated oral and written requests.

3. On 30th March, 2008, the respondent through its advocates,  

sent  a  notice  to  the  petitioner  claiming  a  sum  of   AED  

4,00,000/-  and  also  repelled  the  threat  extended  by  the  

petitioner  to  initiate  proceedings  before  the  Export  Credit  

Guarantee Corporation of India Limited (for short ‘ECGC’) for  

imposing  of  sanctions  etc.   The  notice  also  contained  

averments  that  the  threat  advanced  by  the  petitioner  in  

relation  to  obtaining  sanctions,  or  otherwise  taking  

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proceedings  against  the  respondent  was  without  any  basis.  

Through this notice, the advocates of the respondent informed  

the  petitioner  that  they  should  make  the  payments  within  

seven days, failing which, a law suit would be instituted for  

recovering the appropriate amount, compensation and costs.  

The  respondent  also  informed  the  petitioner  that  no  threat  

should be extended for taking out the proceedings etc. which  

was otherwise undesirable.  

4.This notice dated 30th March, 2008 was responded to by the  

petitioner  through  its  advocates,  vide  letter  dated  4th April,  

2008  wherein  besides  stating  the  facts  afore-noticed,  it  

reiterated that the goods were supplied as per specifications  

and the allegations in the notice were baseless, while claiming  

a  sum of  US$ 63,86,005.56 as the  amount  payable  by  the  

respondent to the petitioner.  It also claimed interest on the  

said  amount  till  the  date  of  payment  and  notified  the  

respondent as under:

“11. In the event Delvin fails  to comply with the  requisitions contained in Paragraph 10 above and  pay the amounts due within a period of seven (7)  days from the receipt of this notice, Powertech will  be  constrained  to  initiate  appropriate  legal  proceedings entirely at the risk of Delvin, as to costs  with consequences.”

5. Having  failed  to  receive  any  response  to  this  letter,  the  

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petitioner  sent  another  notice  dated  30th May,  2008  to  the  

respondent  through  its  advocates  invoking  the  arbitration  

proceedings to adjudicate the disputes regarding the Purchase  

Contract dated 1st December, 2006.  The relevant part of the  

said notice reads as under:

“The  Contract  provides  for  the  resolution  of  all  disputes arising thereunder between the parties by  way of Arbitration to be held in India.  Powertech  now desires to exercise its right under the contract  to  invoke  Arbitration  proceedings  to  resolve  the  dispute with Delvin.

Powertech  hereby  nominates  Mr.  Justice  D.R.  Dhanuka (Retired) Judge, Bombay High Court)  as  their arbitrator and the venue being Mumbai, India  for resolution of the disputes that have arisen under  the Contract.  You are hereby requested to concur  to  the  appointment  of  Mr.  Justice  D.R.  Dhanuka  (Retired)  Judge,  Bombay  High  Court)  as  the  sole  arbitrator for resolution of  the disputes that  have  arisen under the Contract or nominee an arbitrator  within thirty (30) days from receipt of this notice.

Please  note  that  if  Delvin  fails  to  concur  to  the  nomination of  Mr.  Justice  D.R.  Dhanuka (Retired  Judge,  Bombay  High  Court)  or  nominate  an  arbitrator within thirty (30) days from the receipt of  this notice.   Powertech shall  take out appropriate  legal proceedings for appointment of arbitrator for  resolution of  the  disputes that  have arisen under  the Contract.”  

6. This  notice  invoking  the  arbitration  proceedings  was  

responded to by the respondent through it advocates vide its  

reply dated 27th June, 2008 and it will be useful to reproduce  

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the relevant portion of the said letter:

“In  the  meantime,  you  are  requested  not  to  approach  or  adopt  Legal  Proceedings  for  appointment of Arbitrator as telephonically we are  instructed  to  suggest  some  other  name  as  an  Arbitrator subject to your consent.”

7. According  to  the  petitioner,  thereafter  and  till  date,  the  

respondent has neither concurred to the appointment of the  

said Arbitrator nor has it settled the disputes.  Treating it to be  

inaction or refusal to act on the part of the respondent, the  

petitioner filed the present petition under Section 11(6) of the  

Act on 20th March, 2010.

8. As  the  respondent  could  not  be  served  in  the  normal  

course, a Registrar of this Court vide order dated 28th April,  

2011  permitted  the  petitioner  to  serve  the  respondent  by  

substituted service.  The Registrar vide order dated 11 th June,  

2011 noticed that the proof of publication of notice had been  

produced and the sole respondent stood served by substituted  

service.   As  no  one  appeared  on  behalf  of  the  respondent  

despite service, vide order dated 25th July, 2011, the suit was  

ordered to be proceeded  ex parte and the matter was heard  

accordingly.

9. When the  matter  was  being  heard,  a  question  had been  

raised as to whether the arbitration agreement as contained in  

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the Purchase Contract and reproduced supra, was a binding  

arbitration agreement enforceable in terms of Section 11(6) of  

the Act?

10. The  learned  counsel  appearing  for  the  petitioner  

contended  that  from the  language  of  the  arbitration  clause  

itself,  it  is  unambiguously  clear  that  there  is  a  binding  

arbitration agreement  between the  parties.   The  respondent  

having failed to act despite notice, the petitioner is entitled to  

the  relief  prayed  for.   It  is  further  the  contention  of  the  

petitioner  that  the  words  ‘shall’  and  ‘or’  appearing  in  the  

arbitration clause have to be given their true meaning.  The  

expression ‘shall’  has to be construed mandatorily while the  

expression ‘or’ has to be read as disjunctive.  Upon taking this  

as the correct approach, the arbitration agreement would be  

binding upon the parties as the expression ‘settled amicably  

between both the parties’ cannot be construed as a condition  

precedent to the invocation of the arbitration agreement and  

the  reference  to  arbitration being  an alternative  and agreed  

remedy, the petitioner may unequivocally be allowed to invoke  

the arbitration agreement.

11. The aforesaid contentions have been raised by the  

advocates for  the  petitioner  in  view of  the  judgment  of  this  

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Court in the case of  Jagdish Chander v. Ramesh Chander &  

Ors. [(2007) 5 SCC 719] wherein this Court had taken the view  

that such an arbitration clause would not have satisfied the  

pre-requisites of  a valid arbitration reference.   In that  case,  

this  Court  was  concerned  with  Clause  16  of  the  contract  

between the parties that read as under:

“(16) If during the continuance of the partnership or  at  any  time  afterwards  any  dispute  touching  the  partnership  arises  between  the  partners,  the  same  shall be mutually decided by the partners or shall be  referred  for  arbitration  if  the  parties   so  determine.”  (emphasis supplied)

12. The  Court  felt  that  the  main  attribute  of  an  

arbitration agreement, namely, consensus ad idem to refer the  

disputes  to  arbitration,  is  missing  in  Clause  16  relating  to  

settlement  of  disputes.   Therefore,  it  is  not  an  arbitration  

agreement as defined under Section 7 of the Act.  In absence  

of an arbitration agreement, the question of exercising power  

under Section 11 of the Act to appoint an arbitrator does not  

arise.   

13. A similar view was expressed by this Court in the  

case of Wellington Associates Ltd. v. Kirit Mehta [AIR 2000 SC  

1379] though the arbitration clause in that case was different.

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14. Now, I may refer to the pre-requisites of a valid and  

binding  arbitration  agreement  leading  to  an  appropriate  

reference under the Act.   Section 2(1)(b)  defines ‘arbitration  

agreement’  to  be  an  agreement  referred  to  in  Section  7.  

Section 7 of the Act states that an ‘arbitration agreement’ is an  

agreement by the parties to submit to arbitration all or certain  

disputes which have arisen or which may arise between them  

in respect of a defined legal relationship, whether contractual  

or not.  The arbitration agreement may be in the form of an  

arbitration clause in a contract or in the form of a separate  

agreement  and  shall  be  an  agreement  in  writing. An  

arbitration agreement is in writing if it is contained in any of  

the clauses i.e. clauses (a) to (c) of Sub-section (4) of Section 7  

of the Act.  Once these ingredients are satisfied, there would  

be a binding arbitration agreement between the parties and  

the  aggrieved  party  would  be  in  a  capacity  to  invoke  the  

jurisdiction of this Court under Section 11(6) of the Act.

15. In the case of K.K. Modi v. K.N. Modi & Ors. [(1998)  

3 SCC 573],  this  Court,  while  differentiating  an ‘arbitration  

agreement’  from  a  ‘reference  to  an  expert’  for  decision,  

contained  in  an  MOU  recording  a  family  settlement,  

enumerated  the  essential  attributes  of  a  valid  arbitration  

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agreement:  

“1. The arbitration agreement must contemplate that  the  decision  of  the  tribunal  will  be  binding  on  the  parties to the agreement,  

2. that the jurisdiction of the tribunal to decide the  rights  of  parties  must  be  derived  either  from  the  consent of the parties or from an order of the Court or  from a statute, the terms of which make it clear that  the process is to be an arbitration,  

3. the agreement must contemplate that substantive  rights  of  parties  will  be  determined  by  the  agreed  tribunal,  

4. that the tribunal will  determine the rights of  the  parties in an impartial and judicial manner with the  tribunal owing an equal obligation of fairness towards  both sides,  

5.  that  the  agreement  of  the  parties  to  refer  their  disputes  to  the  decision  of  the  tribunal  must  be  intended to be enforceable in law and lastly,  6. the agreement must contemplate that the tribunal  will make a decision upon a dispute which is already  formulated at the time when a reference is made to  the tribunal.”

16. Also in the case of  Smita Conductors Ltd.  v. Euro   

Alloys Ltd.  [(2001) 7 SCC 728],  where no contract,  letter or  

telegram  confirming  the  contract  containing  the  arbitration  

clause as such was there, but certain correspondences which  

indicated  a  reference  to  the  contract  containing  arbitration  

clause for opening the letter of credit addressed to the bank,  

were there.  There was also no correspondence between the  

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parties disagreeing either with the terms of the contract or the  

arbitration clause.  The two contracts also stood affirmed by  

reason of their conduct as indicated in the letters exchanged  

between  the  parties.   This  Court  construed  it  to  be  an  

arbitration  agreement  in  writing  between  the  parties  and  

referred to Article II Para 2 of the New York Convention, which  

is pari materia to Section 7 of the Act and observed as under:

“what needs to be understood in this context is that  the  agreement  to  submit  to  arbitration  must  be  in  writing.  What is an agreement in writing is explained  by Para 2 of Article II.  If we break down Para 2 into  elementary  parts,  it  consists  of  four  aspects.   It  includes  an  arbitral  Clause  (1)  in  a  contract  containing an arbitration clause signed by the parties,  (2) an arbitration agreement signed by the parties, (3)  an arbitral clause in a contract contained in exchange  of letters or telegrams, and (4) an arbitral agreement  contained in exchange of letters or telegrams.  If an  arbitration  clause  falls  in  any  one  of  these  four  categories,  it  must  be  treated  as  an  agreement  in  writing.”

17. This  Court,  in  the  case  of Bihar  State  Mineral   

Development Corporation v. Encon Builders [(2003) 7 SCC 418]  

has also taken the view that the parties must agree in writing  

to be bound by the decision of such Tribunal and they must be  

ad idem.   

18. The  next  question  that  falls  for  consideration  is  

what should be the approach of the Court while construing a  

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contract  between  the  parties  containing  an  arbitration  

agreement.   In  the  case  of  Rickmers  Verwaltung  GMBH  v.   

Indian Oil Corp. Ltd. [(1999) 1 SCC 1], this Court took the view  

that  ‘it  is  the duty of  the court to construe correspondence  

with a view to arrive at a conclusion whether there was any  

meeting of  minds between the parties,  which could create a  

binding  contract  between  them.  Unless  from  the  

correspondence, it can unequivocally and clearly emerge that  

the parties were ad idem to the terms, it cannot be said that  

an agreement had come into existence between them through  

correspondence.’  Still in the case of  Unissi (India) Pvt. Ltd. v.   

Post  Graduate  Institute  of  Medical  Education  and  Research  

[(2009) 1 SCC 107], where the appellant had given his tender  

offer which was accepted by the respondent and the tender  

contained an arbitration clause,  this  Court,  considering the  

facts of the case, the provisions of Section 7 of the Act and the  

principles laid down by it, took the view that though no formal  

agreement was executed but in view of the tender documents  

containing the arbitration clause, the reference to arbitration  

was proper.   In the case of  Shakti  Bhog Foods Ltd.  v.  Kola  

Shipping Ltd. [(2009) 2 SCC 134], this Court held that from the  

provisions made under Section 7 of the Act, the existence of an  

arbitration agreement can be inferred from a document signed  

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by the parties or exchange of e-mails, letters, telex, telegram or  

other means of telecommunication, which provide a record of  

the agreement.

19. In a recent judgment of this Court in the case of  

VISA  International  Ltd.  v.  Continental  Resources (USA)  Ltd.  

[(2009)  2  SCC  55],  this  Court  was  concerned  with  an  

arbitration  clause  contained  in  the  memorandum  of  

understanding that read as under:

“Any dispute arising out of this agreement and  which  cannot  be  settled  amicably  shall  be  finally  settled  in  accordance  with  the  Arbitration  and  Conciliation Act, 1996.”

20. The disputes having arisen between the parties, the  

respondent,  instead  of  challenging  the  existence  of  a  valid  

arbitration clause, took the stand that the arbitration would  

not be cost effective and will be pre-mature.  In view of the  

facts, this Court held that there was an arbitration agreement  

between  the  parties  and  the  petitioner  was  entitled  to  a  

reference under Section 11 of the Act and observed:

“No  party  can  be  allowed  to  take  advantage  of  inartistic  drafting  of  arbitration  clause in any agreement as long as clear intention  of  parties  to  go  for  arbitration  in  case  of  any  future disputes is evident from the agreement and  the  material  on  record,  including  surrounding  circumstances.”

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21. It is in light of these provisions, one has to construe  

whether the clause in the present case, reproduced above, in  

Para 1, constitutes a valid and binding agreement.  It is clear  

from a reading of the said clause that the parties were ad idem  

to amicably settle their disputes or settle the disputes through  

an  arbitrator  in  India/UAE.  There  was  apparently  some  

ambiguity caused by the language of the arbitration clause.  If  

the  clause  was  read  by  itself  without  reference  to  the  

correspondence  between  the  parties  and  the  attendant  

circumstances, may be the case would clearly fall within the  

judgment of this Court in the case of Jagdish Chander (supra).  

But  once  the  correspondence  between  the  parties  and  

attendant circumstances are read conjointly with the petition  

of the petitioner and with particular reference to the purchase  

contract, it becomes evident that the parties had an agreement  

in writing and were  ad idem in their intention to refer these  

matters to an arbitrator in accordance with the provisions of  

the  Act.   Vide  their  letter  dated  30th March,  2008,  the  

respondent had raised certain claims upon the petitioner and  

had also repelled the threat extended by the petitioner to take  

steps before the ECGC.  This notice had been responded to by  

the petitioner vide letter dated 4th April, 2008 wherein it had  

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raised its claims demanding payment of money within seven  

days and also stated that any default thereto would constrain  

it  to  take  legal  action.   Finally,  vide  letter  dated 30th May,  

2008, the petitioner had invoked arbitration clause between  

the  parties  and,  in  fact,  had  even nominated  an  arbitrator  

calling  upon  the  respondent  to  concur  to  the  said  

appointment.   Replying  to  this  letter  vide  letter  dated  27th  

June, 2008, the respondent had neither denied the existence  

nor  the  binding  nature  of  the  arbitration  clause.   On  the  

contrary, it had requested the petitioner not to take any legal  

action  for  appointment  of  an  arbitrator,  as  they  wanted  to  

suggest some other name as an arbitrator, that too, subject to  

consent of the petitioner.  This letter conclusively proves that  

the respondent had admitted the existence of an arbitration  

agreement between the parties and consented to the idea of  

appointing  a  common/sole  arbitrator  to  determine  the  

disputes between the parties.  However, thereafter there had  

been complete silence from its side, necessitating the filing of  

present  petition  under  Section  11(6)  of  the  Act  by  the  

petitioner.   Thus,  any  ambiguity  in  the  arbitration  clause  

contained  in  the  purchase  contract  stood  extinct  by  the  

correspondence  between  the  parties  and  the  consensus  ad  

idem  in relation to the existence of an arbitration agreement  

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and settlement of disputes through arbitration became crystal  

clear.   The  parties  obviously  had  committed  to  settle  their  

disputes by arbitration, which they could not settle, as claims  

and counter  claims had been raised in  the  correspondence  

exchanged between them.  In view of the above, even the pre-

condition  for  invocation  of  an  arbitration  agreement  stands  

satisfied.  The arbitration agreement does not provide for any  

specific mode/methodology to be adopted while appointing an  

arbitrator.  The learned counsel appearing for the petitioner  

contended that keeping in view the extent of claims, it will be  

highly  expensive  if  an  Arbitral  Tribunal  consisting  of  two  

arbitrators  and  a  presiding  arbitrator  is  constituted.   He  

further  contented  that  the  parties  in  their  correspondence  

have already agreed to the appointment of a sole arbitrator.  

He prayed for  appointment  of  a  sole  arbitrator  as both the  

parties  in  their  respective  letters  had agreed to  appoint  an  

arbitrator  with  common  concurrence.   Thus,  in  the  afore-

mentioned  circumstances,  this  petition  is  allowed  and  Mr.  

Justice D.R. Dhanuka (Retired) Judge, Bombay High Court, is  

appointed as Sole Arbitrator to adjudicate upon the disputes.  

The parties are at liberty to file claims/counter claims before  

the appointed Arbitrator, which shall be decided in accordance  

with law.   

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No orders as to costs.

………………………………J.           [Swatanter Kumar]

New Delhi; November 14, 2011

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