India: In The Event of a Vague Arbitration Clause, Intent of Parties Will Guide It

Last Updated: 19 September 2018
Article by AMLEGALS  

IN THE MATTER OF

ZHEJIANG BONLY ELEVATOR GUIDE RAIL MANUFACTURE CO. LTD.
VS.
M/S JADE ELEVATOR COMPONENTS
ARBITRATION PETITION (CIVIL) NO. 22 OF 2018 – THE SUPREME COURT OF INDIA

FACTS

The Petitioner Company is incorporated under the laws of People's Republic of China and has its office in Fuyang, China and is involved in the business of exporting and supplying high quality elevator guiderails, fish plates, accessories and allied goods.

The Respondent is a Partnership Firm based in India and has its Office in Ahmedabad, Gujarat, India.

The Petitioner and the Respondent entered into a Processing Contract on 11.09.2014 for supply of certain products. Certain disputes that fell within the scope of the arbitration clause arose between the parties, during the course of performance of the Contract and the parties were unable to settle them amicably.

The Petitioner appointed Justice V. S. Agarwal, a former judge of the High Court of Judicature at New Delhi, as the sole arbitrator. On 30.03.2018 the Petitioner called upon the Respondent to consent to the said appointment within 15 days of receipt of notice.

The Respondent replied to that notice on 05.04.2018 and refused to concur and consent to the appointment of the sole arbitrator. Because of this, the Petitioner has approached the Hon'ble Supreme Court of India for appointment of sole arbitrator.

ISSUES BEFORE SC

The question in this case was –

"Whether there is an arbitration clause for resolution of disputes in the Contract between the parties herein?"

The clause under consideration, Clause 15 of the Contract, as translated in English reads as follows:

"15. Dispute handling: Common processing contract disputes, the parties should be settled through consultation; consultation fails by treatment of to the arbitration body for arbitration or the court."

It was the contention of the Petitioner that if Clause 15 is properly scrutinized, the disputes were to be first settled by consultation and if consultation fails then to the arbitration body for arbitration or court and thus, the matter had to be referred to Arbitration. The Petitioner emphasized that the clause lead to choices and the Petitioner had expressed Arbitration as their choice.

On the other hand, it was the contention of the Respondent that when an option exists between arbitration and court for dispute resolution, the Petitioner should have approached the Court and should not have resorted to arbitration. Thus, it was the Respondent's argument that Clause 15 cannot be regarded as an Arbitration clause at all.

Also, Section 11 (5) allows parties to approach the Court for the appointment of an arbitrator, where the parties themselves are unable to agree on such appointment. Hence, the Petitioner has filed this petition seeking the appointment of a sole Arbitrator by the Hon'ble Supreme Court.

OBSERVATION

After hearing the contentions of both the parties Hon'ble Chief Justice of India, Dipak Mishra considered it necessary to understand the anatomy of the clause in issue, Clause 15.

The Clause is captioned "dispute handling" and it states that disputes should be settled through consultation and if that fails, then to the arbitration body for arbitration or the Court. It was a settled matter of fact, between both the parties that despite the oddly worded translation, the words "arbitration or court" are undisputable as far as adjudication of the disputes was concerned.

The intention of the parties, as can be understood from the Clause 15, is that efforts have to be made to settle the disputes in an amicable manner and thus, two options have been provided, either to go for arbitration or litigation in a court of law. The Hon'ble Court relied on its judgment in INDTEL Technical Services Private Limited vs. W.S. Atkins Rail Limited to understand the nature of Clause 15 in the present case.

Based on the aforementioned judgment of this Hon'ble Court, it was observed that emphasis has been laid on the INTENTION of the parties to have their disputes resolved by arbitration.

CONCLUDING VIEW

The Honorable Apex Court therefore held that:

"The aforesaid passage makes it clear as crystal that emphasis has been laid on the intention of the parties to have their disputes resolved by arbitration.

In the case at hand, as we find, Clause 15 refers to arbitration or court. Thus, there is an option and the petitioner has invoked the arbitration clause and, therefore, we have no hesitation, in the obtaining factual matrix of the case, for appointment of an arbitrator and, accordingly, Justice Prakash Prabhakar Naolekar, formerly a Judge of this Court, is appointed as sole Arbitrator to arbitrate upon the disputes which have arisen between the parties. The learned Arbitrator shall be guided by the Arbitration & Conciliation (Amendment) Act, 2015. The learned Arbitrator shall make positive efforts to complete the arbitration proceedings as per the Act of 2015."

Thus, the arbitration petition was accordingly allowed.

RELIED UPON DECISIONS

The Hon'ble Apex Court relied on its Judgment in INDTEL Technical Services Private Limited vs. W.S. Atkins Rail Limited.

The Court had observed Clauses No. 13.2 and 13.3 of the aforementioned judgment to throw light on the present case. The relevant part of the judgment is reproduced as follow:

"13.2. Subject to Clause 13.3 all disputes or differences arising out of, or in connection with, this agreement which cannot be settled amicably by the parties shall be referred to adjudication; 13.3. If any dispute or difference under this agreement touches or concerns any dispute or difference under either of the sub-contract agreements, then the parties agree that such dispute or difference hereunder will be referred to the adjudicator or the courts as the case may be appointed to decide the dispute or difference under the relevant sub-contract agreement and the parties hereto agree to abide by such decision as if it were a decision under this agreement."

Interpreting the aforesaid clauses, the Judge designated by the learned Chief Justice of India in INDTEL Technical Services Private Limited vs. W.S. Atkins Rail Limited held thus:-

"Furthermore, from the wording of Clause 13.2 and Clause 13.3, I am convinced, for the purpose of this application, that the parties to the memorandum intended to have their disputes resolved by arbitration and in the facts of this case the petition has to be allowed."

Relying on the aforementioned judgment, this Hon'ble Court observed that:

"The aforesaid passage makes it clear as crystal that emphasis has been laid on the intention of the parties to have their disputes resolved by arbitration."

AMLEGALS REMARKS

This decision has emphasized and developed on the principle that in the event that an ambiguity persists in the relevant contract clause and when such a clause does not provide for Arbitration as the only option available to the parties for resolution of disputes then the intention of the parties to settle the disputes by arbitration must be encouraged and prioritized.

This judgment also furthers the object of the Arbitration and Conciliation Act, 1996, that is, to discourage and avoid litigation whenever possible and encourage alternate dispute resolution mechanisms.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Reade should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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