Powertech World Wide Limited vs Delvin International Gen.Trading Llc

Powertech World Wide Limited ...

Petitioner

Versus

Delvin International General Trading LLC ... Respondent

O R D E R

Swatanter Kumar, J.

1. M/s. Powertech World Wide Limited, the petitioner, is a

limited company registered under the Companies Act, 1956,

having its registered office at 202, Krishna Chambers, 59, New

Marine Lines, Churchgate, Mumbai and has filed the present

petition through its authorized representative under Section

11(6) of the Arbitration and Conciliation Act, 1996 (for short

`the Act') praying for appointment of an Arbitrator. M/s.

Delvin International General Trading LLC, the respondent, is

also a company, which has been incorporated under the laws

of Dubai (UAE) having its registered office in Dubai and is

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stated to be engaged in the business of importing and selling

of various commodities. The respondent was desirous of

purchasing and the petitioner was willing to sell various

articles in the course of their international trade, for which

their negotiations in November 2006 finally resulted in a

purchase contract dated 1st December, 2006 executed between

the parties. This contract specifically noticed that after

satisfactory discussions between the respondent and the

petitioner, the respondent agreed to join hands and work with

the petitioner on the terms and conditions provided in the

contract. This contract was to be operative and valid for a

period of one year subject to the terms and the conditions

mentioned therein and became effective w.e.f. 1st December,

2006. The contract also contained an arbitration clause which

reads as under: -

"Any disputes arising out of this Purchase

Contract shall be settled amicably between Both

the parties or through an Arbitrator in

India/UAE."

2. In furtherance to this contract, the goods were sold and

supplied by the petitioner and are stated to have been duly

received by the respondent, without any demur in relation to

the quantity and quality of the goods. The bills raised by the

petitioner were sent through petitioner's bankers. The

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documents were accepted by the negotiating bankers. It is the

case of the petitioner that initially the respondent was prompt

in payments for the consignments sold and supplied to it in

conformity with the purchase order, i.e. within 60/90 days of

the acceptance of the consignments. However, in April 2007, a

request was made by the respondent to the petitioner to

supply more goods as per its requirements, without insisting

for the outstanding payments in respect of some previous

consignments received at its end. Considering the good

business relationship existed between the parties, the goods

were supplied though the payments were not made. The

requests made by the petitioner for payments of the

outstanding dues were not acceded to by the respondent,

despite repeated oral and written requests.

3. On 30th March, 2008, the respondent through its advocates,

sent a notice to the petitioner claiming a sum of AED

4,00,000/- and also repelled the threat extended by the

petitioner to initiate proceedings before the Export Credit

Guarantee Corporation of India Limited (for short `ECGC') for

imposing of sanctions etc. The notice also contained

averments that the threat advanced by the petitioner in

relation to obtaining sanctions, or otherwise taking

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proceedings against the respondent was without any basis.

Through this notice, the advocates of the respondent informed

the petitioner that they should make the payments within

seven days, failing which, a law suit would be instituted for

recovering the appropriate amount, compensation and costs.

The respondent also informed the petitioner that no threat

should be extended for taking out the proceedings etc. which

was otherwise undesirable.

4. This notice dated 30th March, 2008 was responded to by the

petitioner through its advocates, vide letter dated 4th April,

2008 wherein besides stating the facts afore-noticed, it

reiterated that the goods were supplied as per specifications

and the allegations in the notice were baseless, while claiming

a sum of US$ 63,86,005.56 as the amount payable by the

respondent to the petitioner. It also claimed interest on the

said amount till the date of payment and notified the

respondent as under:

"11. In the event Delvin fails to comply with the

requisitions contained in Paragraph 10 above and

pay the amounts due within a period of seven (7)

days from the receipt of this notice, Powertech will

be constrained to initiate appropriate legal

proceedings entirely at the risk of Delvin, as to costs

with consequences."

5. Having failed to receive any response to this letter, the

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petitioner sent another notice dated 30th May, 2008 to the

respondent through its advocates invoking the arbitration

proceedings to adjudicate the disputes regarding the Purchase

Contract dated 1st December, 2006. The relevant part of the

said notice reads as under:

"The Contract provides for the resolution of all

disputes arising thereunder between the parties by

way of Arbitration to be held in India. Powertech

now desires to exercise its right under the contract

to invoke Arbitration proceedings to resolve the

dispute with Delvin.

Powertech hereby nominates Mr. Justice D.R.

Dhanuka (Retired) Judge, Bombay High Court) as

their arbitrator and the venue being Mumbai, India

for resolution of the disputes that have arisen under

the Contract. You are hereby requested to concur

to the appointment of Mr. Justice D.R. Dhanuka

(Retired) Judge, Bombay High Court) as the sole

arbitrator for resolution of the disputes that have

arisen under the Contract or nominee an arbitrator

within thirty (30) days from receipt of this notice.

Please note that if Delvin fails to concur to the

nomination of Mr. Justice D.R. Dhanuka (Retired

Judge, Bombay High Court) or nominate an

arbitrator within thirty (30) days from the receipt of

this notice. Powertech shall take out appropriate

legal proceedings for appointment of arbitrator for

resolution of the disputes that have arisen under

the Contract."

6. This notice invoking the arbitration proceedings was

responded to by the respondent through it advocates vide its

reply dated 27th June, 2008 and it will be useful to reproduce

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the relevant portion of the said letter:

"In the meantime, you are requested not to

approach or adopt Legal Proceedings for

appointment of Arbitrator as telephonically we are

instructed to suggest some other name as an

Arbitrator subject to your consent."

7. According to the petitioner, thereafter and till date, the

respondent has neither concurred to the appointment of the

said Arbitrator nor has it settled the disputes. Treating it to be

inaction or refusal to act on the part of the respondent, the

petitioner filed the present petition under Section 11(6) of the

Act on 20th March, 2010.

8. As the respondent could not be served in the normal

course, a Registrar of this Court vide order dated 28th April,

2011 permitted the petitioner to serve the respondent by

substituted service. The Registrar vide order dated 11 th June,

2011 noticed that the proof of publication of notice had been

produced and the sole respondent stood served by substituted

service. As no one appeared on behalf of the respondent

despite service, vide order dated 25th July, 2011, the suit was

ordered to be proceeded ex parte and the matter was heard

accordingly.

9. When the matter was being heard, a question had been

raised as to whether the arbitration agreement as contained in

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the Purchase Contract and reproduced supra, was a binding

arbitration agreement enforceable in terms of Section 11(6) of

the Act?

10. The learned counsel appearing for the petitioner

contended that from the language of the arbitration clause

itself, it is unambiguously clear that there is a binding

arbitration agreement between the parties. The respondent

having failed to act despite notice, the petitioner is entitled to

the relief prayed for. It is further the contention of the

petitioner that the words `shall' and `or' appearing in the

arbitration clause have to be given their true meaning. The

expression `shall' has to be construed mandatorily while the

expression `or' has to be read as disjunctive. Upon taking this

as the correct approach, the arbitration agreement would be

binding upon the parties as the expression `settled amicably

between both the parties' cannot be construed as a condition

precedent to the invocation of the arbitration agreement and

the reference to arbitration being an alternative and agreed

remedy, the petitioner may unequivocally be allowed to invoke

the arbitration agreement.

11. The aforesaid contentions have been raised by the

advocates for the petitioner in view of the judgment of this

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Court in the case of Jagdish Chander v. Ramesh Chander &

Ors. [(2007) 5 SCC 719] wherein this Court had taken the view

that such an arbitration clause would not have satisfied the

pre-requisites of a valid arbitration reference. In that case,

this Court was concerned with Clause 16 of the contract

between the parties that read as under:

"(16) If during the continuance of the partnership or

at any time afterwards any dispute touching the

partnership arises between the partners, the same

shall be mutually decided by the partners or shall be

referred for arbitration if the parties so determine."

(emphasis supplied)

12. The Court felt that the main attribute of an

arbitration agreement, namely, consensus ad idem to refer the

disputes to arbitration, is missing in Clause 16 relating to

settlement of disputes. Therefore, it is not an arbitration

agreement as defined under Section 7 of the Act. In absence

of an arbitration agreement, the question of exercising power

under Section 11 of the Act to appoint an arbitrator does not

arise.

13. A similar view was expressed by this Court in the

case of Wellington Associates Ltd. v. Kirit Mehta [AIR 2000 SC

1379] though the arbitration clause in that case was different.

8 14. Now, I may refer to the pre-requisites of a valid and

binding arbitration agreement leading to an appropriate

reference under the Act. Section 2(1)(b) defines `arbitration

agreement' to be an agreement referred to in Section 7.

Section 7 of the Act states that an `arbitration agreement' is 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. The arbitration agreement may be in the form of an

arbitration clause in a contract or in the form of a separate

agreement and shall be an agreement in writing. An

arbitration agreement is in writing if it is contained in any of

the clauses i.e. clauses (a) to (c) of Sub-section (4) of Section 7

of the Act. Once these ingredients are satisfied, there would

be a binding arbitration agreement between the parties and

the aggrieved party would be in a capacity to invoke the

jurisdiction of this Court under Section 11(6) of the Act.

15. In the case of K.K. Modi v. K.N. Modi & Ors. [(1998)

3 SCC 573], this Court, while differentiating an `arbitration

agreement' from a `reference to an expert' for decision,

contained in an MOU recording a family settlement,

enumerated the essential attributes of a valid arbitration

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agreement:

"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 be derived 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 agreement 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."

16. Also in the case of Smita Conductors Ltd. v. Euro

Alloys Ltd. [(2001) 7 SCC 728], where no contract, letter or

telegram confirming the contract containing the arbitration

clause as such was there, but certain correspondences which

indicated a reference to the contract containing arbitration

clause for opening the letter of credit addressed to the bank,

were there. There was also no correspondence between the

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parties disagreeing either with the terms of the contract or the

arbitration clause. The two contracts also stood affirmed by

reason of their conduct as indicated in the letters exchanged

between the parties. This Court construed it to be an

arbitration agreement in writing between the parties and

referred to Article II Para 2 of the New York Convention, which

is pari materia to Section 7 of the Act and observed as under:

"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."

17. This Court, in the case of Bihar State Mineral

Development Corporation v. Encon Builders [(2003) 7 SCC 418]

has also taken the view that the parties must agree in writing

to be bound by the decision of such Tribunal and they must be

ad idem.

18. The next question that falls for consideration is

what should be the approach of the Court while construing a

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contract between the parties containing an arbitration

agreement. In the case of Rickmers Verwaltung GMBH v.

Indian Oil Corp. Ltd. [(1999) 1 SCC 1], this Court took the view

that `it is the duty of the court to construe correspondence

with a view to arrive at a conclusion whether there was any

meeting of minds between the parties, which could create a

binding contract between them. Unless from the

correspondence, it can unequivocally and clearly emerge that

the parties were ad idem to the terms, it cannot be said that

an agreement had come into existence between them through

correspondence.' Still in the case of Unissi (India) Pvt. Ltd. v.

Post Graduate Institute of Medical Education and Research

[(2009) 1 SCC 107], where the appellant had given his tender

offer which was accepted by the respondent and the tender

contained an arbitration clause, this Court, considering the

facts of the case, the provisions of Section 7 of the Act and the

principles laid down by it, took the view that though no formal

agreement was executed but in view of the tender documents

containing the arbitration clause, the reference to arbitration

was proper. In the case of Shakti Bhog Foods Ltd. v. Kola

Shipping Ltd. [(2009) 2 SCC 134], this Court held that from the

provisions made under Section 7 of the Act, the existence of an

arbitration agreement can be inferred from a document signed

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by the parties or exchange of e-mails, letters, telex, telegram or

other means of telecommunication, which provide a record of

the agreement.

19. In a recent judgment of this Court in the case of

VISA International Ltd. v. Continental Resources (USA) Ltd.

[(2009) 2 SCC 55], this Court was concerned with an

arbitration clause contained in the memorandum of

understanding that read as under:

"Any dispute arising out of this agreement and

which cannot be settled amicably shall be finally

settled in accordance with the Arbitration and

Conciliation Act, 1996."

20. The disputes having arisen between the parties, the

respondent, instead of challenging the existence of a valid

arbitration clause, took the stand that the arbitration would

not be cost effective and will be pre-mature. In view of the

facts, this Court held that there was an arbitration agreement

between the parties and the petitioner was entitled to a

reference under Section 11 of the Act and observed:

"No party can be allowed to take

advantage of inartistic drafting of arbitration

clause in any agreement as long as clear intention

of parties to go for arbitration in case of any

future disputes is evident from the agreement and

the material on record, including surrounding

circumstances."

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21. It is in light of these provisions, one has to construe

whether the clause in the present case, reproduced above, in

Para 1, constitutes a valid and binding agreement. It is clear

from a reading of the said clause that the parties were ad idem

to amicably settle their disputes or settle the disputes through

an arbitrator in India/UAE. There was apparently some

ambiguity caused by the language of the arbitration clause. If

the clause was read by itself without reference to the

correspondence between the parties and the attendant

circumstances, may be the case would clearly fall within the

judgment of this Court in the case of Jagdish Chander (supra).

But once the correspondence between the parties and

attendant circumstances are read conjointly with the petition

of the petitioner and with particular reference to the purchase

contract, it becomes evident that the parties had an agreement

in writing and were ad idem in their intention to refer these

matters to an arbitrator in accordance with the provisions of

the Act. Vide their letter dated 30th March, 2008, the

respondent had raised certain claims upon the petitioner and

had also repelled the threat extended by the petitioner to take

steps before the ECGC. This notice had been responded to by

the petitioner vide letter dated 4th April, 2008 wherein it had

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raised its claims demanding payment of money within seven

days and also stated that any default thereto would constrain

it to take legal action. Finally, vide letter dated 30th May,

2008, the petitioner had invoked arbitration clause between

the parties and, in fact, had even nominated an arbitrator

calling upon the respondent to concur to the said

appointment. Replying to this letter vide letter dated 27th

June, 2008, the respondent had neither denied the existence

nor the binding nature of the arbitration clause. On the

contrary, it had requested the petitioner not to take any legal

action for appointment of an arbitrator, as they wanted to

suggest some other name as an arbitrator, that too, subject to

consent of the petitioner. This letter conclusively proves that

the respondent had admitted the existence of an arbitration

agreement between the parties and consented to the idea of

appointing a common/sole arbitrator to determine the

disputes between the parties. However, thereafter there had

been complete silence from its side, necessitating the filing of

present petition under Section 11(6) of the Act by the

petitioner. Thus, any ambiguity in the arbitration clause

contained in the purchase contract stood extinct by the

correspondence between the parties and the consensus ad

idem in relation to the existence of an arbitration agreement

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and settlement of disputes through arbitration became crystal

clear. The parties obviously had committed to settle their

disputes by arbitration, which they could not settle, as claims

and counter claims had been raised in the correspondence

exchanged between them. In view of the above, even the pre-

condition for invocation of an arbitration agreement stands

satisfied. The arbitration agreement does not provide for any

specific mode/methodology to be adopted while appointing an

arbitrator. The learned counsel appearing for the petitioner

contended that keeping in view the extent of claims, it will be

highly expensive if an Arbitral Tribunal consisting of two

arbitrators and a presiding arbitrator is constituted. He

further contented that the parties in their correspondence

have already agreed to the appointment of a sole arbitrator.

He prayed for appointment of a sole arbitrator as both the

parties in their respective letters had agreed to appoint an

arbitrator with common concurrence. Thus, in the afore-

mentioned circumstances, this petition is allowed and Mr.

Justice D.R. Dhanuka (Retired) Judge, Bombay High Court, is

appointed as Sole Arbitrator to adjudicate upon the disputes.

The parties are at liberty to file claims/counter claims before

the appointed Arbitrator, which shall be decided in accordance

with law.

16 No orders as to costs.

....................................J.

[Swatanter Kumar]

New Delhi;

November 14, 2011

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