POWERTECH WORLD WIDE LIMITED Vs DELVIN INTERNATIONAL GEN.TRADING LLC
Bench: SWATANTER KUMAR
Case number: ARBIT.CASE(C) No.-000005-000005 / 2010
Diary number: 9118 / 2010
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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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