Research › Search › Judgment

J&K High Court · body

2013 DIGILAW 543 (JK)

Saifco Cements Pvt. Limited v. Eastern Coalfields Limited Ors.

2013-09-13

M.M.KUMAR

body2013
M.M. Kumar, C.J.;— 1. The instant application under Section 11 of the Jammu & Kashmir Arbitration and Conciliation Act, 1997 (for brevity, the Act) seeks reference of the dispute between the parties to an arbitrator. It is well settled that in order to succeed for securing such a reference there has to be an arbitration agreement between the parties apart from existence of a dispute. Mr. Naik, learned counsel for the petitioner has placed reliance on Clause 14 of the agreement dated 30.04.2008 duly executed between the parties. It is claimed that this Clause fulfills all the attributes of an arbitration agreement and therefore a reference to arbitrator must be made. The aforesaid Clause is set out below in extenso:- 14. SETTLEMENT OF DISPUTES 14.1 In the event of any dispute, disagreement or different arising out of or in connection with this Agreement, including any question regarding its performance, existence, validity, termination and the rights and liabilities of the Parties to this Agreement (Dispute), the Parties shall in the first instance endeavor to amicably settle the same through negotiations carried out in good faith. 14.2. For the purpose of conducting such negotiations, each Party shall designate in writing to the other Party a representative who shall be authorized to negotiate on its behalf with a view to resolving any Disputes (the Representative). Each such Representative shall remain so authorized until his replacement has been designate in writing to the other Party by the Party he represents. 14.3. The Representative of the Party which considers that a dispute has arisen shall give to the Representative of the other Party, a written notice setting out the material particulars of the dispute (Dispute Notice). Within thirty days, or such longer period as may be mutually agreed, of the Dispute Notice having been delivered to the other Party, the Representatives of both Parties shall meet in person, to attempt in good faith and using their best endeavors at all times to resolve the Dispute. Once the Dispute is resolved, the terms of the settlement shall be reduced in writing and signed by the Representatives of the Parties. 2. According to Mr. Naik, Clause 14 have all the attributes of arbitration agreement. In support of his submissions he has placed reliance on paras 5, 8, 9 and 10 of the judgment of Hon'ble the Supreme Court rendered in the case of Punjab State & Ors. 2. According to Mr. Naik, Clause 14 have all the attributes of arbitration agreement. In support of his submissions he has placed reliance on paras 5, 8, 9 and 10 of the judgment of Hon'ble the Supreme Court rendered in the case of Punjab State & Ors. V. Dina Nath, AIR 2007 SC 2157 . 3. Having heard the arguments and closely examining the language, content and intendment of clause 14, I am of the considered view that it falls far short of an Arbitration Agreement. It appears to me that the contents of Clause 14.1 and 14.2 are necessary steps for amicable settlement. However, it does not talk of any binding nature of resolution nor it talks of impartial nature of such resolution by representatives of such parties. Even Clause 14.3 does not contemplate that parties would be bound by the resolution adopted by their representatives. It may be regard as a reference for mediation who are to cordially resolve the issue. There is no stipulation for impartial and fair resolution of the dispute. 4. Section 7 of the Act postulates various essential attributes of Arbitration Agreement. What would be those essential attributes of an Arbitration Agreement is no longer res integra. In the case of K.K. Modi v. K.N. Modi, (1998) 3 SCC 573 it has been held that the following six essentials must be present:- (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 derive 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 judgment 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. (Emphasis added) 5. Again in the case of Bihar State Mineral Development Corpn. and anr. v. Encon Builders (I) (P) Ltd., (2003) 7 SCC 418 similar principles have been laid down. In para 13 of the judgment the following attributes are considered essential:- (1) There must be a present or a future difference in connection with some contemplated affair, (2) There must be the intention of the parties to settle such difference by a private tribunal, (3) The parties must agree in writing to be bound by the decision of such tribunal, (4) The parties must be ad idem. (Emphasis added) Likewise in para 8 of the judgment rendered in Jagdish Chander v. Ramesh Chander and ors., (2007) 5 SCC 718 following four principles have been considered as essential attributes of an Arbitration Agreement:- (i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and a willingness to be bound by the decision of such tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement. (ii) Even if the words 'arbitration' and 'arbitral tribunal (or arbitrator)' are not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are: (a) The agreement should be in writing. (b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. They are: (a) The agreement should be in writing. (b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. (d) The parties should have agreed that the decision of the Private Tribunal in respect of the disputes will be binding on them. (iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to Arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically excludes any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the Authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the Authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement. (iv) But mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as "parties can, if they so desire, refer their disputes to arbitration" or "in the event of any dispute, the parties may also agree to refer the same to arbitration" or "if any disputes arise between the parties, they should consider settlement by arbitration" in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that "if the parties so decide, the disputes shall be referred to arbitration" or "any disputes between parties, if they so agree, shall be referred to arbitration" is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future. (Emphasis added) 6. It is thus patent that apart from other requirements, one of the necessary attributes of arbitration agreement is that the parties must have intended to make a reference of the dispute to arbitration and treat decision of the arbitrator binding on them. In paras 8 and 10 of the judgment in Dina Nath's case (supra), the aforesaid aspect has been highlighted. The aforesaid paras are set out below in extenso:- 8. A bare perusal of the definition of arbitration agreement would clearly show that an arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if any dispute arises between them in respect of the subject matter of the contract, such dispute shall be referred to arbitration. In that case such agreement would certainly spell out an arbitration agreement. [See Rukmani Bai Gupta v. Collector of Jabalpur, AIR 1981 SC 479 ]. However, from the definition of the arbitration agreement, it is also clear that the agreement must be in writing and to interpret the agreement as an arbitration agreement one has to ascertain the intention of the parties and also treatment of the decision as final. If the parties had desired and intended that a dispute must be referred to arbitration for decision and they would undertake to abide by that decision, there cannot be any difficulty to hold that the intention of the parties to have an arbitration agreement; that is to say, an arbitration agreement immediately comes into existence. 9.. 10. If the parties had desired and intended that a dispute must be referred to arbitration for decision and they would undertake to abide by that decision, there cannot be any difficulty to hold that the intention of the parties to have an arbitration agreement; that is to say, an arbitration agreement immediately comes into existence. 9.. 10. We have already noted Clause 4 of the Work Order as discussed hereinabove. It is true that in the aforesaid Clause 4 of the Work Order the words arbitration and arbitrator are not indicated; but in our view, omission to mention the words arbitration and arbitrator as noted herein earlier cannot be a ground to hold that the said clause was not an arbitration agreement within the meaning of Section 2[a] of the Act. The essential requirements as pointed out herein earlier are that the parties have intended to make a reference to an arbitration and treat the decision of the arbitrator as final.... (Emphasis added) Applying those principles their Lordships of the Supreme Court held that the decision of the arbitrator was considered to be binding on the parties to the agreement. It becomes clear from the observations made in para 14 of the judgment which reads thus:- 14. The words "any dispute" appears in Clause 4 of the Work Order. Therefore only on the basis of the materials produced by the parties in support of their respective claims a decision can be arrived at in resolving the dispute between the parties. The use of the words 'any dispute' in Clause 4 of the Work Order is wide enough to include all disputes relating to the said Work Order. Therefore, when a party raises a dispute for non-payment of money after completion of the work, which is denied by the other party, such a dispute would come within the meaning of 'arbitration agreement' between the parties. Clause 4 of the Work Order also clearly provides that any dispute between the department and the contractor shall be referred to the Superintending Engineer, Hydel Circle No. 1, Chandigarh for orders. The word 'orders' would indicate some expression of opinion, which is to be carried out, or enforced and which is a conclusion of a body (in this case Superintending Engineer, Hydel Circle No. 1, Chandigarh). Then again the conclusion and decision of the Superintending Engineer will be final and binding on both the parties. The word 'orders' would indicate some expression of opinion, which is to be carried out, or enforced and which is a conclusion of a body (in this case Superintending Engineer, Hydel Circle No. 1, Chandigarh). Then again the conclusion and decision of the Superintending Engineer will be final and binding on both the parties. This being the position in the present case and in view of the fact that Clause 4 of the Work Order is not under challenge before us, the decision that would be arrived at by Superintending Engineer, Hydel Circle No. 1, Chandigarh must also be binding on the parties as a result whereof Clause 4 must be held to be a binding arbitration agreement. (Emphasis added) 7. A perusal of the aforesaid paras would show that the parties must have the intention to make reference to arbitration. Apart from the intention they must provide for treating the decision of the arbitrator binding on them. A perusal of Clause 14 of the agreement dealing with settlement of disputes would show that parties have gone upto referring the dispute to their representatives only, who are required to make their best endeavor to resolve the dispute amicably by meeting the parties in person. Once the dispute is resolved, the terms of the settlement are required to be reduced in writing and signed by the representatives of the parties. There is no stipulation in Clause 14, which may be construed to mean that the parties have provided that such a resolution would be binding between the parties. Therefore, one of the essential attributes of Arbitration Agreement is missing. It is not possible to imply such an intention by virtue of necessary intendment employing any process of interpretation. Therefore, this application fails and same is dismissed. However, the petitioner shall be at liberty to avail any other remedy in accordance with law.