India: No Valid Arbitration If Clause In Unsigned Agreement

Delhi High Court: 

  • Reaffirms the criteria to deem a foreign arbitral award valid under section 44 of the Arbitration and Conciliation Act, 1996 and the Convention on the Recognition and Enforcement of Awards, 1958.
  • A contract containing an arbitration agreement must be signed by all parties to the contract, in order to make the arbitration agreement valid and binding upon the parties. 

INTRODUCTION:

The Delhi High Court ("Court") in the case of Virgoz Oils and Fats Pte. Ltd. ("Vigoz") v National Agricultural Marketing Federation of India 1("NAFED") has refused the enforcement of a foreign arbitral award after allowing an objection to its enforcement under Section 48 of the Arbitration and Conciliation Act, 1996 ("The Act"). The Court has referred to and relied upon the requirements set out under the Convention on the Recognition and Enforcement of Awards, 1958 ("The Convention") and the Act, to examine the requirements of a valid arbitration agreement. Applying these guidelines, the Court has held that the arbitration agreement between the parties in the present matter, was a part of a written agreement which was not signed by NAFED. Thereby, rendering the arbitration agreement inoperable and invalid against NAFED.

FACTS:

Virgoz and NAFED, through a broker, had entered into negotiations for the sale of edible oil by Virgoz to NAFED. Through the negotiations, a series of sales contracts were formed, which were transmitted to NAFED by the broker. NAFED, upon receipt of the same, requested a deferred date of shipment of the goods to the broker, who in turn, communicated the same to Virgoz. The contracts were amended accordingly by Virgoz with the changes in the date of shipment being the only material alteration.

The contracts were signed by the broker and Virgoz, but not by NAFED or its representatives ("Impugned Contracts"). Virgoz, proceeded, with its obligations under the Impugned Contracts assuming the same to have become effectively concluded between the parties and shipped the goods to NAFED. Upon NAFED's failure to provide a Letter of Credit, as per the terms of the Impugned Contracts, Vigoz declared NAFED to be in default. Thereafter, Virgoz proceeded to initiate arbitration proceedings before an arbitral tribunal constituted under the Palm Oil Refiners Association of Malaysia, Rules of Arbitration and Appeal ("PORAM Rules"), in accordance with the arbitration clause contained in the contracts.

The Tribunal passed an award on April 5, 2012, which accepted two key submissions advanced by Virgoz being (a) a letter dated July 29, 2008, from NAFED requesting a deferred date of shipment while making reference to the contracts, was evidence of the existence of a contractual arrangement between the parties and (b) the signing of an Agreement by a broker on behalf of the buyer, was 'common practice' in the industry. The award was passed in favor of Virgoz.

Virgoz, vide an enforcement petition filed before the Court sought to enforce the award against NAFED and its assets in India.

ISSUE:

Whether there existed a valid arbitration agreement between the parties.

CONTENTIONS:

Virgoz advanced two primary contentions to establish that the award being a foreign award must be enforced under Part II of the Act, they were (a) the parties were dealing with each other through a broker and therefore there was no requirement for NAFED to sign the Impugned Contract and (b) the Letter dated July 29, 2008, indicated that NAFED had accepted the terms of the Impugned Contract and requested a deferred date of shipment.

NAFED, stated that there were no communications directly between Virgoz and NAFED implying that NAFED had consented to the terms of the Impugned Contract. Further, NAFED had not signed the Impugned Contract thereby making it invalid against NAFED.

JUDGMENT:

The Court analyzed the definition of a 'foreign award' under section 44 of the Act, which stipulates that the award must be rendered in pursuance of an arbitration agreement in writing between the parties, to which the Convention shall apply. In order to examine whether there was a valid arbitration agreement in terms of the Convention, the Court analyzed Paragraph 2 of Article II of the Convention, which states that an 'agreement in writing' would inter alia mean an arbitration clause contained in a contract signed by the parties or contained in an exchange of letters or telegrams.

The Court held that, Virgoz had relied upon an arbitration agreement contained in the Impugned Contracts and not in any correspondence exchanged between the parties. Therefore, as per the aforementioned requirements under the Convention, the Impugned Contracts should have been signed by all parties to the contract in order to deem it as a valid arbitration agreement. This requirement was not met as NAFED had not signed the contracts, thus, resulting in the arbitration agreement becoming invalid and inoperative with respect to NAFED. The Court also examined the communications between the parties, holding that the Letter dated July 29, 2008, did not evidence the intention of NAFED to bind itself to the terms of the Impugned Contract or the arbitration clause contained therein.

The Court based its judgment on the following reasoning:-

  1. Although NAFED was described as a buyer, with a specific provision for its signature in the Impugned Contract, no signatures appear by NAFED at the designated parts of the Impugned Contracts.
  2. The broker signed the Impugned Contract in his own capacity and not for and on behalf of NAFED
  3. There were no correspondences exchanged between the parties establishing a meeting of minds as to their intention to submit their disputes to arbitration.

Thus, the Court concluded that under section 48, there were valid reasons to refuse the recognition and enforcement of the award and passed orders effecting the same.

ANALYSIS:

The judgment of the Court, might be construed as a departure from the pro-arbitration stance adopted by the judiciary of late. If an appeal was to be preferred it would be interesting to observe whether the Appellate Court would consider (a) the usual trade practice between parties trading in palm oil in India to have unsigned contracts; (b) the correspondence exchanged between the parties by which the Impugned Contract was deliberated upon and amended and (c) the verdict of an expert body mandated to preside over disputes in that particular industry.

However, it must be noted that the legal analysis conducted by the Court which formed the basis of the judgment is sound. The requirement of an agreement in writing, when evidenced in an arbitration agreement, results in the consequent requirement that the agreement must be of the nature of a valid contract. The lack of a party's signature upon the contract, would be strong evidence as to the lack of the party's consent to the agreement and consequently to an arbitration clause contained therein.

A valuable take away from this pronouncement is to ensure that all parties to a contract containing the arbitration agreement should sign the same even if they are being represented by another for all practical purposes. Further, if parties intend to enter into commercial transactions basis communications exchanged, then they must ensure to incorporate a dispute resolution mechanism in the same.

Footnotes

1 EX.P. 149/2015 & EA(OS) No. 66/2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions