The Supreme Court in a recent decision in M/s Caravel Shipping Services Pvt Ltd v M/s Premier Sea Food Exim Pvt Ltd1 has examined §7 of the Arbitration & Conciliation Act 1996 ('Act') and held that the only pre-requisite to a valid arbitration agreement is that the agreement should be in writing and it does not necessarily need to be in a document which has been signed by both parties.
The disputes between the Appellant, Caravel Shipping and the Respondent, Premier Sea Foods arose from a Bill of Lading. Premier Sea was named as the 'Consignor/Shipper' in the said Bill of Lading. The terms and conditions of the Bill of Lading specifically provided that on accepting the Bill of Lading, both parties would be bound by all the terms, conditions, clauses and exceptions whether typed, printed or otherwise. Further, Clause 25, "Jurisdiction/Arbitration" of the Bill of Lading, which was a printed condition, annexed to the Bill of Lading contained the arbitration clause.
Premier Sea filed a recovery Suit to recover monies from Caravel Shipping before the Sub-Judges Court, relying, in part, on the Bill of Lading. Caravel Shipping filed an Application under §8 of the Act pointing out the existence of an arbitration clause. The Application was, however, dismissed on the basis that the printed conditions annexed to the Bill of Lading would not be binding on the parties. The Kerala High Court dismissed a Revision Petition against the lower court order on grounds that no intent to arbitrate could be made out.
Proceedings before the Supreme Court:
The limited question before the Supreme Court was whether parties would be bound by the arbitration agreement in Clause 25, mentioned in the conditions annexed to the Bill of Lading.
Caravel Shipping argued that the printed conditions of the Bill of Lading were expressly referred to in the Bill of Lading, and therefore by reference an arbitration clause had come in to existence between the parties. Reliance was placed on §7(5) of the Act and the Supreme Court judgment in MR Engineers and Contractors Pvt Limited v Som Datt Builders Limited.2
Premier Sea relied on §7(4) of the Act and contented that §7(4)(a) required the arbitration agreement to be in a document signed by the parties and given that the Bill of Lading had not been signed by Premier Sea, it was not bound by the arbitration agreement.
The Supreme Court ruled in favour of Caravel Shipping and held that the parties had expressly agreed to be bound by the arbitration clause. The Court observed, that parties under the Bill of Lading itself had agreed to be bound by the terms and conditions of the Bill of Lading whether typed or printed. The Court also observed that Premier Sea had relied on the Bill of Lading in its Suit for recovery and it could not therefore be permitted to partially rely on the document to its own benefit.
The Supreme Court further relied on a 1955 judgment, Jugal Kishore Rameshwar Das v Mrs Goolbai Hormusji3 under the Arbitration & Conciliation Act 1940 to hold that the only pre-requisite is that an arbitration agreement needs to be in writing and it need not be signed. The Court ruled that §7(3) of the Act states that an arbitration agreement should be in writing whereas §7(4) only adds that an arbitration clause would be found in the circumstances mentioned in the sub-clauses contained in the provision. The arbitration agreement being signed therefore was not a pre-requisite for its existence.
The decision of the Supreme Court is in stark contrast to its earlier decision in Shri Vimal Kishor Shah v Mr Jayesh Dinesh Shah & Ors4 where it had ruled that the conditions contemplated in §7, including signing of the agreement, are a pre-requisite for constituting a valid and enforceable arbitration agreement.
While §7(3) of the Act states that an arbitration agreement should be in writing, §7(4) of the Act explains when an arbitration can be said to be in writing. The Supreme Courts reading of §7(3) as an autonomous provision separate from §7(4) of the Act may lead to a situation where parties could seek to validate dubious arbitration clauses on the basis that they are in writing. It is therefore necessary that the present judgement be explained and reconciled with the Supreme Court's earlier decision in Shri Vimal Kishor Shah v Mr Jayesh Dinesh Shah & Ors.
1 Civil Appeal No.10800 – 10801 of 2018
2 (2009) 7 SCC 969
3 AIR 1955 SC 812
4 (2016) 8 SCC 788
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