Aruna constructions v. Ravuri Venkataswamy, S/o. Ravuri Kankaiha
2023-01-20
PRASHANT KUMAR MISHRA
body2023
DigiLaw.ai
ORDER : This application under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996 (for short, ‘the Act’) has been preferred for appointment of an arbitrator to resolve the disputes arising out of the civil works order dated 23.11.2016, 06.09.2017 and the acceptance letter of the applicant and the Deed of Agreement dated 04.01.2017. 2. Briefly stated, the averments in the application are that the parties have entered into a Deed of agreement dated 04.01.2017 for undertaking civil works. In the course of execution of agreement, dispute arose between the parties. Thereafter, the applicant sent a legal notice dated 31.12.2020 to the respondents, seeking appointment of an arbitrator for resolution of the said dispute. The respondents, having refused to appoint an arbitrator, sent a reply notice dated 27.01.2021 to the applicant. 3. Having referred to Clause Nos.15 and 16 of the agreement dated 04.01.2017 between the parties, learned counsel for the applicant submits that the action of the respondents in denying appointment of arbitrator by invoking the said clauses, is illegal. It is argued that in view of use of words “arbitration” in Clause 15 and “proceedings before the Arbitrators” in Clause 16 of the agreement, it should be inferred that there is implied arbitration agreement between the parties. Reliance is placed on the judgment of Hon’ble Supreme Court in the matter of Babanrao Rajaram Pund v. Samarth Builders & Developers reported in (2022) 9 SCC 691 , particularly, para Nos.8 and 15 thereof. 4. In the case of Babanrao Rajaram Pund (supra), the subject agreement contains arbitration clause, whereby the parties have expressively agreed to refer the dispute to the sole arbitrator mutually appointed, failing which, two arbitrators, one to be appointed by each party to dispute or difference, and those two arbitrators will appoint a third arbitrator and the arbitration shall be governed by the Arbitration and Conciliation Act, 1996 or any re-enactment thereof. When the matter was initially argued before the High Court, the High Court, having accepted the objections taken by the respondents, came to the conclusion that Clause 18 of the subject agreement lacks certain essential ingredients of a valid arbitration agreement, as it does not mandate that the decision of the arbitrator would be final and binding on the parties, and accordingly, dismissed the application as not maintainable.
Setting aside the said order of the High Court, the Hon’ble Supreme Court held as under at paragraph 25 of the judgment: “25. Even if we were to assume that the subject clause lacks certain essential characteristics of arbitration like “final and binding” nature of the award, the parties have evinced clear intention to refer the dispute to arbitration and abide by the decision of the tribunal. The party autonomy to this effect, therefore, deserves to be protected.” The Hon’ble Supreme Court further observed in paragraph 26 that the deficiency of words in agreement which otherwise fortifies the intention of the parties to arbitrate their disputes, cannot legitimise the annulment of arbitration clause. 5. Referring to the above judgment and Section 7 of the Act, learned counsel for the applicant submits that since Section 7 of the Act does not mandate any particular form of the arbitration clause, a reference to the arbitration in the agreement would be construed to be a clear intention of the parties to refer the matter to the arbitration, otherwise there was no occasion for the parties to mention the words “arbitration” in Clauses 15 and 16 of the agreement. 6. True it is that Section 7 of the Act does not mandate any particular form of the arbitration clause. However, at the same time, it should be borne in mind that Section 7(1) of the Act provides that the “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Section 7 also provides that the arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement, but it shall be in writing. It further provides that reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause as a part of the contract. The provisions of Section 7 of the Act, thus, abundantly make it clear that there should be an express intention of the parties to submit to arbitration and that this should be in writing in the form of an “arbitration clause”. 7.
The provisions of Section 7 of the Act, thus, abundantly make it clear that there should be an express intention of the parties to submit to arbitration and that this should be in writing in the form of an “arbitration clause”. 7. In the matter of Rukmanibai Gupta v. Collector reported in (1980) 4 SCC 556 , it was held as under: “6. …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 disputes arise between them in respect of the subject-matter of contract such dispute shall be referred to arbitration, then such an arrangement would spell out an arbitration agreement. A passage from Russel on Arbitration, 19th Edn., P.59 may be referred to with advantage: If it appears from the terms of the agreement by which a matter is submitted to a person’s decision that the intention of the parties was that he should hold an inquiry in the nature of a judicial inquiry and hear the respective cases of the parties and decide upon evidence laid before him, then the case is one of an arbitration” 8. The very principle was reiterated in K.K.Modi v. K.N.Modi reported in (1998) 3 SCC 573 . Yet again, in Bihar State Mineral Development Corpn. v. Encon Builders (I) (P) Ltd., reported in (2003) 7 SCC 418 , it has been held as under: “13. The essential elements of an arbitration agreement are as follows: (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. The parties must be ad idem.” 9. The legal position is well settled that there should be clear intention of the parties that the dispute between them in respect of subject matter of contract shall be referred to arbitration and that there should be a clearly defined procedure for appointment of sole arbitrator or two arbitrators, one by each party, and thereafter the third arbitrator.
The legal position is well settled that there should be clear intention of the parties that the dispute between them in respect of subject matter of contract shall be referred to arbitration and that there should be a clearly defined procedure for appointment of sole arbitrator or two arbitrators, one by each party, and thereafter the third arbitrator. In the case where the implied arbitration agreement is to be inferred by the Court, valid or defined procedure for appointment of arbitrator or arbitrators should be available in the agreement, in the absence of which it is difficult to accept that parties have entered in an arbitration agreement, either in the mother contract or by way of separate contract. 10. When the language employed in Clauses 15 and 16 of the present agreement is placed in juxtaposition to the ratio laid down by the Hon’ble Supreme Court in the matters of Rukmanibai Gupta, K.K.Modi and Bihar State Mineral Development Corpn., as noted supra, it is to be seen that in the above Clauses of the contract, the parties have not agreed, in express terms, to refer the dispute to arbitrators, setting up a procedure for appointment of arbitrator or arbitrators and it does not contemplate that the decision of the arbitrator will be binding on the parties. Thus, in the considered opinion of this Court the parties have not placed evinced clear intention arbitration agreement in the subject contract. Therefore, this application under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996 cannot be entertained. 11. Accordingly, this arbitration application, dismissed. No costs. Pending miscellaneous applications, if any, shall stand closed.