M/S. Unissi (India) Pvt. Ltd vs P.G. Institute Of Med. Edn. & Research

however, forfeited the earnest money of

Rs.2,12,160/-, which was encashed by them.

Eventually, the PGI got the equipments lifted and it

was found by the appellant that the equipments had

been mis-handled and were no longer fit to be

used/resold in the market. A notice was served on

behalf of the appellant of the matter to the PGI but

no reply was received. It was the case of the PGI that

no agreement was executed. The appellant was

alleged to have committed fraud on the PGI by

representing themselves of being the manufacturers

3 of the equipments, which were in fact, according to

the PGI, were imported from Korea. A Technical

Committee of the PGI on 14th of January, 2003,

however, did not approve the purchase and

installation of the equipments and thus, by a letter

issued in the year 2003, the appellant was informed

that the tender was rejected. According to the PGI,

the supply, not being in accordance with the

specification, was rejected after use and the

appellant was debarred from dealing with the PGI for

the next two years. Therefore, it was alleged by the

PGI that no arbitration agreement was executed

between the parties and, therefore, question of

appointing an Arbitrator in the present case could

not arise at all.

5. Finding no other alternative, the appellant filed

an application before the Additional District Court at

Chandigarh under Section 11(4) (a) of the Arbitration

and Conciliation Act, 1996 (in short, "the Act") for a

direction upon the PGI to appoint an Arbitrator. The

4 Additional District Judge, Chandigarh, by the

impugned order dated 3rd of August, 2005, held that

as there was no agreement executed between the

parties, the question of appointing an Arbitrator

under the Act could not arise at all. It was held by

the learned Addl. District Judge, Chandigarh that

since the photocopy of the proposed agreement bears

the signature of only the appellant and not that of

the PGI, it could not be held that an arbitration

agreement was executed between the parties and

since there was no signature of the PGI on the said

agreement, which was sent after signature of the

appellant, remained only as an offer. Therefore,

according to the learned Additional District Judge,

Chandigarh, in the agreement containing an

arbitration clause, it could not be held that the

appellant was entitled to ask for appointment of an

Arbitrator under Section 11 of the Act. It is this

order, which is under challenge in this Court, which

on grant of leave, was heard in presence of the

5 learned counsel for the parties.

6. This special leave petition, as initially filed,

came up for consideration for admission on 9th of

May, 2006 when a question arose whether the said

special leave petition was maintainable in this court

against an order of the Additional District Judge,

Chandigarh purported to have acted in the exercise

of its power under Section 11 (4)(a) of the Act. While

issuing notice, this Court passed the following order:-

"This special leave petition has been filed by the petitioner against the order dated 3.8.2005 passed by the Addl. District Judge, Chandigarh in Arbitration Case No.45 dated 2.6.2004. According to the learned counsel for the petitioner, the special leave petition is maintainable in view of the recent judgment of the Constitution Bench in SBP & Co. vs. Patel Engineering Ltd. & Anr. Reported in (2005) 8 SCC 618. In this regard, he invited our attention to paragraph 47 sub-clause (vii),

(x) and (xi). In our view, there is a clear indication in the said judgment that against the order passed by the Additional District Judge, the special leave petition under Article 136 of the Constitution of India is entertainable by this Court. (emphasis supplied)

We, therefore, issue notice to the respondent on the question of maintainability

6 of the special leave petition in this Court against the order passed by the Additional District Judge, Chandigarh.

Issue notice on the application for condonation of delay also."

7. On a plain reading of this order passed by this

Court on 9th of May, 2006, it is evident that this

Court was of the view that an application under

Article 136 of the Constitution was maintainable

against an order passed by the Additional District

Judge, Chandigarh. Furthermore, the learned

counsel appearing for the parties have also argued

the case before us on merits, that is to say, on the

question whether an arbitration agreement exists

between the parties for which an Arbitrator could be

appointed. Such being the stand taken by the

learned counsel for the parties and in view of the

aforesaid order passed by this Court, we do not

intend to go into the question whether a petition

under Article 136 of the Constitution would at all be

entertainable by this Court as the Special Leave

7 petition was entertained and notice was issued.

However, keeping this question open for decision in

an appropriate case, we would like to go into the

merits of the case, that is to say, whether an

Arbitrator can be appointed in view of existence of an

arbitration agreement between the parties, although

in such agreement the PGI had not executed

agreement by putting their signature on the same.

8. In view of the aforesaid stand being taken by

the learned counsel for the parties, let us now

examine the merits of this appeal. As noted herein

earlier, the learned Additional District Judge,

Chandigarh held that their did not exist any

arbitration agreement between the parties and,

therefore, question of appointing an Arbitrator could

not arise at all. Therefore, in order to decide whether

the order of the Additional District Judge was correct

or not, we have to consider the relevant facts as well

as Section 7 of the Act for the purpose of coming to a

8 proper conclusion whether the agreement containing

an arbitration clause did exist between the parties or

not. Before we proceed further, we may examine

Section 7 of the Act which runs as under :

"Section 7 - Arbitration agreement

(1) In this Part, "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.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in-

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

9 (5) The 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 part of the contract."

9. We have carefully examined the provisions

made under Section 7 of the Act which deals with

arbitration agreement. In Smita Conductors Ltd. vs.

Euro Alloys Ltd. [2001 (7) SCC 728], Article II Para

2 of New York Convention came up for consideration

before this Court. The provisions of Article II, Para 2

of New York Convention is in pari materia to the

aforequoted provisions of Section 7 of the Act. The

provisions of Article II, Para 2 of New York

Convention is being quoted herein now. Para 2 runs

as under :-

"Para 2 - The term "agreement in writing"

shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams."

10

10. This Court, while interpreting the aforequoted

para 2 in the New York Convention held in para 6 at

pages 734-735 in Smita Conductors (supra) the

following : -

"6. What needs to be understood in this context is that the agreement to submit to arbitration must be in writing. What is an agreement in writing is explained by para 2 of Article II. If we break down para 2 into elementary parts, it consists of four aspects. It includes an arbitral clause (1) in a contract containing an arbitration clause signed by the parties, (2) an arbitration agreement signed by the parties, (3) an arbitral clause in a contract contained in exchange of letters or telegrams, and (4) an arbitral agreement contained in exchange of letters or telegrams. If an arbitration clause falls in any one of these four categories, it must be treated as an agreement in writing. In the present case, we may advert to the fact that there is no letter or telegram confirming the contract as such but there is certain correspondence which indicates a reference to the contract in opening the letters of credit addressed to the Bank to which we shall presently refer to. There is no correspondence between the parties either disagreeing with the terms of the contract or arbitration clause. Apart from opening the letters of credit pursuant to the two contracts, the appellant also addressed a telex message on 23.4.1990 in which there is a reference to two contracts bearing

11 Nos. S.142 and S. 336 in which they stated that they want to invoke force majeure and the arbitration clauses in both the contracts which are set forth successively and thus it is clear that the appellant had these contracts in mind while opening the letters of credit in the bank and in addressing the letters to the bank in this regard. May be, the appellant may not have addressed letters to the respondent in this regard but once they state that they are acting in respect of the contracts pursuant to which letters of credit had been opened and they are invoking the force majeure clause in these two contracts, it obviously means that they had in mind only these two contracts which stood affirmed by reason of these letters of credit. If the two contracts stood affirmed by reason of their conduct as indicated in the letters exchanged, it must be held that there is an agreement in writing between the parties in this regard.

11. Again in Nimet Resources Inc. vs. Essar

Steels Ltd. [2000 (7) SCC 497 at Para 5], this

Court observed as follows:-

"If the contract is in writing and the reference is made to a document containing arbitration clause as part of the transaction, which would mean that the arbitration agreement is part of the contract. Therefore, in a matter where there has been some transaction between the parties and the

12 existence of the arbitration agreement is in challenge, the proper course for the parties is to thrash out such question under Section 16 of the Act and not under Section 11 of the Act."

12. Keeping the aforesaid principles, as quoted

hereinabove, in the aforesaid decisions of this Court

in kind, in fact what constitutes an arbitration

agreement between the parties, we have to examine

whether there exists an arbitration agreement

between the parties or not in the facts and

circumstances of the case. Let us, therefore, consider

the gist of the facts involved in this case. A tender

enquiry No.2PGI/OGL/2K/6281 dated 21.12.2000

for purchase of Pulse Oxymeters was floated by the

PGI. It is an admitted position that the appellant

submitted their tender vide their offer

No.UIPL/331177/00-01 dated 15.2.2001. The

tender of the appellant was accepted by the PGI vide

their letter No.PGI/P-61/02/477/11936-51 dated

29.9.2002 for supplying 41 Pulse Oxymeters to their

13 different departments. The tender documents itself

contain an arbitration clause and by reason of

acceptance of the tender of the appellant by the PGI,

it must be held that there was a valid arbitration

agreement between the parties. The appellant

supplied 41 Pulse Oxymeters and the receipt thereof

was duly acknowledged on behalf of the PGI on the

delivery challans. The service/installation reports of

the aforesaid machines were duly signed on behalf of

the PGI. In the letters issued by the PGI, there was

an apparent acknowledgement of supply of the

aforesaid meters by the appellant and also reference

to the aforementioned tender enquiry number. It is

an admitted position that the appellant had sent the

agreement containing the arbitration clause, as per

the format provided by the PGI, after duly signing the

same on requisite value of stamp paper for signing of

the same by the PGI. The PGI though admittedly

received the same, did not send back the agreement

to the appellant after signing it as per the agreement

14 between the parties. The PGI admittedly had used

the machines for about an year and thereafter

returned the same to the appellant. Subsequently,

the bank guarantee furnished by the appellant for

Rs.2,13,160/- and the earnest money deposit of

Rs.45,000/- was encashed and forfeited by the PGI.

In view of the aforesaid facts and the

correspondences between the parties, particularly

the tender offer made by the appellant dated

15.1.2001 and supply order of the PGI dated

29.9.2002, and, in our view, to constitute an

arbitration agreement between the parties and the

action taken on behalf of the appellant and in view of

Section 7 of the Act and considering the principles

laid down by the aforesaid two decisions of this

Court, as noted herein earlier, we are of the view that

the arbitration agreement did exist and therefore the

matter should be referred to an Arbitrator for

decision. That apart, as we have already noted

herein earlier that in this case, the documents on

15 record, in our view, apparently show supply of

materials by the appellant and acceptance thereof by

the PGI in pursuance of the tender enquiry by the

PGI, wherein tender of the appellant containing an

arbitration clause was admittedly accepted by the

respondent. In that view of the matter, it cannot be

said that the PGI should now be allowed to wriggle

out from the arbitration agreement between them.

13. We may reiterate that in this case admittedly

the documents which are on record apparently show

supply of the material by the appellant to the PGI

and acceptance thereof by the PGI in pursuance of

the tender enquiry by them wherein tender of the

appellant containing the arbitration clause was

admittedly accepted by the PGI. Accordingly, we hold

that arbitration agreement did exist and, therefore,

dispute between the parties would be referred to an

Arbitrator for decision.

14. Therefore, considering the above aspects of the

matter in this case, we must come to this conclusion

16 that although no formal agreement was executed, the

tender documents indicating certain conditions of

contract contained an arbitration clause. It is also an

admitted position that the appellant gave his tender

offer which was accepted and the appellant acted

upon it. Accordingly, we are of the view that the

learned Additional District Judge, Chandigarh erred

in holding that their did not exist any arbitration

agreement between the parties and, therefore, the

order passed by him is liable to be set aside.

15. For the reasons aforesaid, the impugned order

is set aside and the appeal is allowed. We now direct

that the matter may be placed before the Hon'ble

Chief Justice of the High Court of Chandigarh to

appoint an Arbitrator in accordance with law to

resolve the dispute between the parties. The appeal

is thus allowed. There will be no order as to costs.

................................J. [TARUN CHATTERJEE ]

17 NEW DELHI: ................................J.

October 01, 2008 [DALVEER BHANDARI]

18