Z.A. Haq, J@mdashHeard learned advocates for the respective parties.
2. RULE. Rule made returnable forthwith.
3. The petitioners/original defendants have filed this petition challenging the order passed by the trial Court rejecting the application (Exh.16) filed by the petitioners praying that the parties be referred to arbitration.
4. The respondent has filed civil suit against the petitioners praying for the decree for Rs. 36,24,598/- along with interest. According to the respondent/ plaintiff, the petitioners / defendants are liable to pay the amount of Rs. 28,53,743/- towards the balance payment for the supply of goods made in February, 2014. The respondent/ plaintiff contends that as per the terms and conditions incorporated in the bills, the plaintiff is entitled to charge interest @ 24% per annum if the payment is not received within 30 days and therefore, the amount which is sought to be recovered from the petitioners, includes interest of Rs. 2,60,825/-. In addition, the respondent/ plaintiff has claimed damages of Rs. 5,00,000/-, notice charges of Rs. 5,000/- and miscellaneous expenses of Rs. 5,000/-. Thus, the total amount of Rs. 36,24,598/- is claimed.
5. The petitioners/ defendants filed application (Exh.16) under section 8 of the Arbitration and Conciliation Act, 1996 praying that the parties be referred to arbitration. According to the petitioners, the terms and conditions of the contract between the parties are incorporated on the purchase order and as per clause 11(a), any dispute arising between the parties out of or relating to the purchase order is required to be settled by the sole arbitrator to be appointed by the parties. The petitioners contend that the claim of the respondent/ plaintiff is in respect of the amount for the goods alleged to have been sold and delivered to the petitioner No. 1 and the petitioners are disputing the claim of the respondent. It is further submitted that the petitioners are disputing the claim made by the respondent for interest, damages, notice charges and miscellaneous expenses.
6. The learned trial Judge, by the impugned order, concluded that the respondent/ plaintiff has not agreed in respect of the arbitration clause and therefore, there is no arbitration agreement between the parties. The learned trial Judge has accordingly rejected the application filed by the petitioners. The petitioners, being aggrieved by the order passed by the trial Court, has filed this petition.
7. Shri Gharote, learned advocate for the petitioners has assailed the legality of the impugned order urging that the learned trial Judge has committed an error in concluding that there is no arbitration agreement between the parties, overlooking the specific condition on the purchase order that in case of dispute, controversy or claim arising out of or relating to the purchase order, the dispute shall be referred to sole arbitrator to be appointed on mutual discussions. It is submitted that there need not be written and signed agreement or contract between the parties containing the clause of arbitration and the arbitration agreement can be inferred from the letters, telex, telegrams or other means of telecommunication between the parties. To fortify this submission reliance is placed on the following judgments:
i) Judgment given in the case of
ii) Judgment given in the case of
iii) Judgment given in the case of
8. It is submitted that the claim of the respondent/ plaintiff is based on the purchase order and even for the claim of interest, the respondent/ plaintiff relies on the condition incorporated in the purchase order and therefore, the conclusion of the learned trial Judge that there is no arbitration agreement between the parties is unfounded.
9. Shri Gharote, learned advocate has submitted that when it is established that there is arbitration agreement between the parties and an application under Section 8 of the Arbitration and Conciliation Act, 1996 is filed praying for referring the parties to arbitration and once it is established that the dispute between the parties is covered by the arbitration clause, then the trial Court is under obligation to refer the dispute for arbitration. In support of this submission, the learned advocate has relied on the following judgments :
i) Judgment given in the case of
ii) Judgment given in the case of
It is submitted that in the present case all the requirements, necessary for referring the parties to arbitration, have been established on the record and therefore, the trial Court was under an obligation to stay the civil suit and refer the parties to arbitration.
10. Shri Bhangde, learned advocate for the respondent has submitted that there is no agreement between the parties and the respondent/ plaintiff has not accepted the terms of the arbitration clause. It is argued that the petitioners cannot impose the terms of arbitration clause unilaterally and unless it is shown that the respondent agreed for the terms of the arbitration clause, the trial Court cannot exercise jurisdiction under Section 8 of the Arbitration and Conciliation Act, 1996. It is submitted that the purchase order is not signed by the respondent and therefore, it cannot be said that the respondent has agreed for the terms of arbitration clause.
11. It is submitted that the petitioners have accepted the liability to pay the amount of Rs. 28,53,443/- by issuing calculation sheet and therefore, there is no dispute between the parties regarding the claim of the respondent and consequently there is no need for referring the parties to arbitration.
In support of this contention the learned advocate has relied on the following judgments :
i) Judgment given in the case of
ii) Judgment given in the case of
iii) Judgment given in the case of
iv) Judgment given in the case of
It is submitted that the petitioner Nos. 2 to 7 are Directors of the company and they are not party to the purchase order and therefore, even if the contentions of the petitioners relying on the terms of the purchase order are to be accepted, there cannot be arbitration in respect of the claim made by the respondent against the petitioner Nos. 2 to 7.
12. Relying on the judgment given in the case of
13. In reply, the learned advocate for the petitioners has submitted that the claim made against the petitioner Nos. 2 to 7 is in their capacity as Directors of the company and the claim is not against them in their personal capacity. It is submitted that the calculation-sheet, on which the respondent is relying, refers to the amount of Rs. 28,53,443/- and there is nothing on the record to show that the petitioners have accepted the liability to pay this amount and the other amounts claimed by the respondent. It is submitted that the claim made by the respondent for the amount of damages, interest and other items is ancillary to the substantive claim made on the basis of the purchase order and the petitioners are disputing the entitlement of the respondent for these claims and therefore, the dispute will be covered by the terms of the arbitration clause. It is prayed that the impugned order be set aside and the application filed by the petitioners under Section 8 of the Arbitration and Conciliation Act, 1996 be allowed.
14. After examining the documents placed by the parties on the record of this writ petition, I find that there is no dispute between the parties that the respondent is claiming the amount for the alleged supply of goods on the basis of the purchase order dated 15th January, 2014, the supply is alleged to have been made in February, 2014. The respondent claims interest on the principal amount @ 24% per annum relying on the clause of the purchase order. In this background, whether the clause of arbitration incorporated in the purchase order can be considered as arbitration agreement between the parties.
15. In the judgment given in the case of Govind Rubber Ltd. (supra) the Hon''ble Supreme Court has dealt with this aspect and has recorded as follows :
"15.Perusal of the aforesaid provisions would show that in order to constitute an arbitration agreement, it need not be signed by all the parties. Section 7(3) of the Act provides that the arbitration agreement shall be in writing, which is a mandatory requirement. Section 7(4) states that the arbitration agreement shall be in writing, if it is a document signed by all the parties. But a perusal of Clauses (b) & (c) of Section 7(4) would show that a written document which may not be signed by the parties even then it can be arbitration agreement. Section 7(4)(b) provides that an arbitration agreement can be culled out from an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement.
16. Reading the provisions it can safely be concluded that an arbitration agreement even though in writing need not be signed by the parties if the record of agreement is provided by exchange of letters, telex, telegrams or other means of telecommunication. Section 7(4)(c) provides there can be an arbitration agreement in the exchange of statements of claims and defence in which the existence of the agreement is alleged by one party and not denied by the other. If it can be prima facie shown that the parties are at ad idem, then mere fact of one party not signing the agreement cannot absolve himself from the liability under the agreement. In the present day of E-commerce, in cases of internet purchases, tele purchases, ticket booking on internet and in standard forms of contract, terms and conditions are agreed upon. In such agreements, if the identity of the parties is established, and there is a record of agreement it becomes an arbitration agreement if there is an arbitration clause showing ad idem between the parties. Therefore, signature is not a formal requirement Under Section 7(4)(b) or 7(4)(c) or under 7(5) of the Act.
17. We are also of the opinion that a commercial document having arbitration clause has to be interpreted in such a manner as to give effect to the agreement rather than invalidate it. On the principle of construction of a commercial agreement, Scrutton on Charter Parties (17th Edition, Sweet & Maxwell, London, 1964) explained that commercial agreement has to be construed, according to the sense and meaning as collected in the first place from the terms used and understood in the plain, ordinary and popular sense (See Article 6 at page 16). The learned Author also said that the agreement has to be interpreted ''in order to effectuate the immediate intention of the parties''. Similarly, Russel on Arbitration (21st Edition) opined, relying on Astro Vendeor Compania Naviera SA v. Mabanaft GmbH (1970) 2 (Llyod''s Rep. 267, that the Court should, if the circumstances allow, lean in favour of giving effect to the arbitration clause to which the parties have agreed. The learned Author has also referred to another judgment in Paul Smith Ltd. v. H and S International Holdings Inc. (1991) 2 Llyods Rep. 127 in order to emphasize that in construing an arbitration agreement the Court should seek to ''give effect to the intentions of the parties''. (See page 28 of the book).
18. The Apex Court also in the case of
"7.It must be remembered that a contract is a commercial document between the parties and it must be interpreted in such a manner as to give efficacy to the contract rather than to invalidate it. It would not be right while interpreting a contract, entered into between two lay parties, to apply strict rules of construction which are ordinarily applicable to a conveyance and other formal documents. The meaning of such a contract must be gathered by adopting a common sense approach and it must not be allowed to be thwarted by a narrow, pedantic and legalistic interpretation."
19. ...
20. ...
21....
22. It is clear that for construing an arbitration agreement, the intention of the parties must be looked into. The materials on record which have been discussed hereinabove make it very clear that the Appellant was prima facie acting pursuant to the sale contract issued by the Respondent. So, it is not very material whether it was signed by the second Respondent or not."
In the judgment given in the case of UNISSI (India) Pvt. Ltd. (supra) the Hon''ble Supreme Court has dealt with this issue and has recorded as follows :
"15.Keeping the aforesaid principles, as quoted hereinabove, in the aforesaid decisions of this Court in mind, in fact what constitutes an arbitration agreement between the parties, we have to examine whether there exists an arbitration agreement between the parties or not in the facts and circumstances of the case. Let us, therefore, consider the gist of the facts involved in this case. A tender enquiry No. 2PGI/OGL/2K/6281 dated 21.12.2000 for purchase of Pulse Oxymeters was floated by PGI. It is an admitted position that the appellant submitted their tender vide their offer No.UIPL/331177/00-01 dated 15.1.2001. The tender of the appellant was accepted by PGI vide their letter No.PGI/P-61/02/477/11936-51 dated 29.9.2002 for supplying forty-one Pulse Oxymeters to their different departments. The tender documents itself contain an arbitration clause and by reason of acceptance of the tender of the appellant by PGI, it must be held that there was a valid arbitration agreement between the parties. The appellant supplied forty-one Pulse Oxymeters and the receipt thereof was duly acknowledged on behalf of PGI on the delivery challans. The service/installation reports of the aforesaid machines were duly signed on behalf of PGI. In the letters issued by PGI, there was an apparent acknowledgement of supply of the aforesaid meters by the appellant and also reference to the aforementioned tender enquiry number.
16. It is an admitted position that the appellant had sent the agreement containing the arbitration clause, as per the format provided by PGI, after duly signing the same on requisite value of stamp paper for signing of the same by PGI. PGI though admittedly received the same, did not send back the agreement to the appellant after signing it as per the agreement between the parties. PGI admittedly had used the machines for about an year and thereafter returned the same to the appellant. Subsequently, the bank guarantee furnished by the appellant for Rs. 2,13,160/- and the earnest money deposit of Rs. 45,000/- was encashed and forfeited by PGI.
17. In view of the aforesaid facts and the correspondences between the parties, particularly the tender offer made by the appellant dated 15.1.2001 and supply order of PGI dated 29.9.2002, and, in our view, to constitute an arbitration agreement between the parties and the action taken on behalf of the appellant and in view of Section 7 of the Act and considering the principles laid down by the aforesaid two decisions of this Court, as noted herein earlier, we are of the view that the arbitration agreement did exist and therefore the matter should be referred to an Arbitrator for decision. That apart, as we have already noted herein earlier that in this case, the documents on record, in our view, apparently show supply of materials by the appellant and acceptance thereof by PGI in pursuance of the tender enquiry by PGI, wherein tender of the appellant containing an arbitration clause was admittedly accepted by the respondent. In that view of the matter, it cannot be said that PGI should now be allowed to wriggle out from the arbitration agreement between them.
18. We may reiterate that in this case admittedly the documents which are on record apparently show supply of the material by the appellant to PGI and acceptance thereof by PGI in pursuance of the tender enquiry by them wherein tender of the appellant containing the arbitration clause was admittedly accepted by PGI. Accordingly, we hold that arbitration agreement did exist and, therefore, dispute between the parties would be referred to an Arbitrator for decision.
19. Therefore, considering the above aspects of the matter in this case, we must come to this conclusion that although no formal agreement was executed, the tender documents indicating certain conditions of contract contained an arbitration clause. It is also an admitted position that the appellant gave his tender offer which was accepted and the appellant acted upon it. Accordingly, we are of the view that the learned Additional District Judge, Chandigarh erred in holding that their did not exist any arbitration agreement between the parties and, therefore, the order passed by him is liable to be set aside."
In the judgment given in the case of Trimex International FZE Ltd., Dubai (supra) the Hon''ble Supreme Court has dealt with this issue and has recorded in paragraphs 16 and 17 as follows :
"16) In
17) It is clear that in the absence of signed agreement between the parties, it would be possible to infer from various documents duly approved and signed by the parties in the form of exchange of e-mails, letter, telex, telegrams and other means of tele-communication."
16. It is clear from the proposition laid down in the above judgments that the intention of the parties has to be looked into while construing the arbitration agreement and it is not necessary that the arbitration agreement should be signed by the parties. The arbitration agreement can be inferred from the various documents in the form of e-mails, letters, telex, telegrams and other means of telecommunication. In the present case, the respondent has made the claim relying on the purchase order and the claim of interest is also made relying on the terms incorporated on the purchase order. The facts on the record show that the parties have acted upon the purchase order. Under these circumstances, the submission made on behalf of the respondent that there is no arbitration agreement between the parties cannot be accepted, overlooking the terms of the arbitration clause incorporated in the purchase order. The learned trial Judge has committed an error by concluding that there is no signed agreement between the parties requiring the reference of dispute for arbitration. The impugned order is unsustainable in law and has to be set aside.
17. The learned trial Judge has rejected the application filed by the petitioners under Section 8 of the Arbitration and Conciliation Act, 1996 on the ground that there is no arbitration agreement between the parties. The learned trial Judge has not adverted to the issue as to whether the dispute between the parties is required to be referred for arbitration. In normal course, after setting aside the impugned order the matter should have been remitted to the trial Court for considering the issue as to whether the dispute between the parties is covered by the arbitration clause and as to whether the dispute is required to be referred for arbitration. However, the learned advocates for the respective parties have made elaborate submissions on this issue also as this issue is interlinked with the point raised by the parties regarding existence of the arbitration agreement. Therefore, in my view, it would be appropriate to deal with this issue also. The adjudication on the issue as to whether the parties should be referred to arbitration will also be in the interest of the respondent, considering its grievance that the matter is being unnecessarily prolonged.
18. In the judgment given in the case of Branch Manager, M/s. Magna Leasing (supra) the Hon''ble Supreme Court has laid down as follows :
"22. An analysis of Section 8 would show that for its applicability, the following conditions must be satisfied: (a) that there exists an arbitration agreement; (b) that action has been brought to the court by one party to the arbitration agreement against the other party; (c) that the subject matter of the suit is same as the subject matter of the arbitration agreement; (d) that the other party before he submits his first statement of the substance of the dispute, moves the court for referring the parties to arbitration; and (e) that along with the application the other party tenders the original arbitration agreement or duly certified copy thereof."
In the judgment given in the case of Agri Gold Exims (supra) the Hon''ble Supreme Court has laid down as follows :
"15. Difference between Section 34 of the Arbitration Act, 1940 and Section 8 of the 1996 Act is distinct and apparent. Section 8 of the 1996 Act makes a radical departure from Section 34 of the 1940 Act. The 1996 Act was enacted in the light of UNCITRAL Model Rules.
16. We need not dilate on this issue as this aspect of the matter has been considered by this Court in Rashtriya Ispat Nigam Ltd. v. Verma Transport co. wherein this Court noticed (SCC pp 285-86, paras 24-25):
"24. Section 34 of the repealed 1940 Act employs the expression ''steps in the proceedings''. Only in terms of Section 21 of the 1940 Act, the dispute could be referred to arbitration provided parties thereto agreed. Under the 1940 Act, the suit was not barred. The Court would not automatically refer the dispute to an arbitral tribunal. In the event, it having arrived at satisfaction that there is no sufficient reason that the dispute should not be referred and no step in relation thereto was taken by the applicant, it could stay the suit.
25. Section 8 of the 1996 Act contemplates some departure from Section 34 of the 1940 Act. Whereas Section 34 of the 1940 Act contemplated stay of the suit; Section 8 of the 1996 Act mandates a reference. Exercise of discretion by the judicial authority, which was the hallmark of Section 34 of the 1940 Act, has been taken away under the 1996 Act. The direction to make reference is not only mandatory, but the arbitration proceedings to be commenced or continued and conclusion thereof by an arbitral award remain unhampered by such pendency. [See O.P. Malhotra''s ''The Law and Practice of Arbitration and Conciliation'', 2nd Edition, pp. 346-347]"
I have recorded that the arbitration agreement exists between the parties. The respondent and the petitioner No. 1 are party to the arbitration agreement. Prima-facie, the claim against the petitioner Nos. 2 to 7 has been made in their capacity as Directors of the petitioner No. 1 company. The purchase order on which the arbitration clause is incorporated is not disputed by the parties and in fact, the respondent/ plaintiff has made the claim relying on the purchase order. In these facts, applying the ratio laid down by the Hon''ble Supreme Court in the judgment given in the case of Branch Manager, M/s. Magma and in the judgment given in the case of Agri Gold Exims Ltd. it has to be held that the conditions prerequisite for referring the parties to arbitration exist and there is no option for the Court but to refer the parties to arbitration.
19. The judgment given in the case of SBP & Co. (supra) lays down that Sections 8 and 11 of the Arbitration and Conciliation Act, 1996 are complementary in nature and when one of the parties ignoring the arbitration agreement, files a claim before a judicial authority and the other party raises the objection that the parties have to resort to arbitration, the judicial authority has to consider the objection and if the objection is found sustainable, it has to refer the parties to arbitration. It is laid down that the judicial authority is bound to decide the jurisdictional issue raised before it before declining to make the reference. It is laid down that when the defendant before the judicial authority raises a plea that there is an arbitration agreement and the subject matter of the claim is covered by the agreement, the judicial authority has to decide whether, in fact, there is in existence a valid arbitration agreement and whether the dispute raised before it is covered by the arbitration clause. The judgment given in the case of SBP & Co. (supra) does not assist the respondent for urging that the parties are not required to be referred for arbitration.
20. In the judgment given in the case of Rai and Sons Pvt. Ltd. (Supra), the defendant admitted the liability throughout and sought accommodation for payment, asking for postponement of the encashment of the cheques given by him to the plaintiff in that case. Similarly, in the case of Maruti Udyog Ltd. (supra) the Managing Director of the defendant company in that case accepted the liability to pay the amount claimed by the plaintiff and undertook to discharge the liability by making payment in instalments. In case of M/s. Sankar Sealing Systems Ltd. (supra) also the defendant admitted most part of the liability. In case of HDFC Bank Ltd., Mumbai (supra) the defendant in that case admitted that the plaintiff had paid all the amount and the dispute was not regarding the amount payable by the plaintiff in that case to the defendant. Moreover, the defendant in that case had not made any application praying for reference of the matter to the arbitration. In these facts, it is held in the above referred cases that the dispute did not exist between the parties and therefore, there was no requirement to refer the parties to arbitration.
In the present case, the petitioners are disputing the claim of the respondent and the petitioners have filed an application praying for referring the parties to arbitration. I have recorded that the arbitration agreement exists between the parties and the dispute between the parties is covered by it. Therefore, the dispute has to be referred for arbitration.
21. In view of above, the following order is passed :
i) The impugned order is set aside.
ii) The application (Exh.16) filed by the petitioners is allowed.
iii) The parties are referred to arbitration as per clause 11(K) (b) of the purchase order dated 15th January, 2014.
Rule is made absolute in the above terms. In the circumstances, the parties to bear their own costs.
