Yogi Agarwal vs M/S Inspiration Clothes & U & Ors

Reportable IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION[C] NO.29333/2008 [CCNO.15612/2008]

Yogi Agarwal .......... Petitioner

Vs.

M/s. Inspiration Clothes & U, and Ors. .......... Respondents

O R D E R

R.V. Raveendran J.

Dismissal of an application under Section 8 of the

Arbitration and Conciliation Act, 1996 (`the Act' for

short), filed by the defendants in a money suit (filed by

the first respondent herein against three defendants, that

is, third respondent company, and its two directors namely,

petitioner and second respondent), affirmed by the High

Court, has led to the filing of this special leave

petition. For convenience, we will refer to the parties by

their rank in the suit.

2

2. There is a delay of 182 days in filing this petition.

The only reason assigned by the petitioner, a seasoned

businessman, to explain the delay is that he was confused

by diverse opinions about filing of special leave petition.

The explanation is neither satisfactory nor sufficient to

condone the delay. Even assuming that the delay is

condonable, we find that the special leave petition is

liable to be rejected on merits.

3. The plaintiff filed the suit on 9.9.2003 for recovery

of Rs.9,48,143 with interest allegedly due in regard to (i)

price of two consignments supplied by plaintiff to the

nominees of the first defendant company and (ii) value of

nine samples made available by the plaintiff to defendants.

In the said suit, defendants made an application dated

17.12.2005 under section 8 of the Act, for referring the

parties to arbitration. To show the existence of

arbitration agreement, the defendants relied upon three

invoices of `Yash Traders', a proprietary concern of the

second defendant (petitioner herein), dated 2.11.1999,

22.6.2001 and 11.2.2003 in regard to the sale of cotton

fabric by the said Yash Traders to the plaintiff containing

the following note: "All disputes pertaining to this 3

transaction if any will be subject to the Arbitration Rules

& Regulations of Bharat Merchant Chamber". The defendants

alleged that the said invoices were accepted by the

plaintiff thus resulting in a binding arbitration

agreement.

4. The trial court noted that there was no arbitration

agreement in regard to the suit transactions and that the

defendants wanted the three invoices (containing a

provision for arbitration) relating to some other

transactions to be treated as an arbitration agreement

between parties in regard to the suit transactions. It

examined the three invoices and held that the said invoices

could not be treated as containing an arbitration agreement

within the meaning of Section 7 of the Act, as the invoices

were signed only by `Yash Traders' and not by the

plaintiff. The said decision has been affirmed by the High

Court.

5. The petitioner has filed this special leave petition,

contending that to constitute a valid arbitration

agreement, a document containing the arbitration agreement

need not be signed by all parties. According to the

petitioner, if an invoice signed by the seller is 4

acknowledged or accepted or acted upon by the buyer, a term

in the invoice providing for arbitration will be an

"arbitration agreement" as between the seller and the

buyer, irrespective of whether the buyer signed the

document or not. We do not propose to examine the said

contention as it does not really arise for consideration in

this case.

6. The fundamental lacuna in the claim of defendants for

reference to arbitration is the absence of an arbitration

agreement between the parties, in regard to the suit

transactions. The three invoices containing a provision for

arbitration relied upon by the petitioner (second

defendant), do not relate to the suit transactions at all.

The plaintiff, as noticed above, filed a suit for recovery

of the amounts allegedly due in regard to some samples

supplied by him to the defendants and certain supplies made

to the nominees of the first defendant company. The three

invoices relied on by the defendants, on the other hand,

relate to sale of goods by the proprietary concern of

second defendant to the plaintiff. The said invoices have

nothing to do with the suit transactions. Such unconnected

documents cannot be pressed into service to claim the

existence of an arbitration agreement.

5

7. When a defendant invokes section 8 of the Act by

alleging existence of an arbitration agreement, he should

establish that such arbitration agreement related to, or is

applicable to, the suit transaction/contract. The parties

may enter into different contracts at different points of

time or may enter into a series of unrelated transactions.

It is possible that in regard to some, they may provide for

arbitration and in regard to others, may not provide for

arbitration. Obviously, the existence of an arbitration

agreement with reference to some other transaction/contract

to which plaintiff was or is a party, unconnected with the

transactions or contracts to which a suit relates, cannot

be considered as existence of an `arbitration agreement' in

regard to the suit transactions/contracts. When sections 7

and 8 of the Act refer to the existence of an arbitration

agreement between the parties, they necessarily refer to an

arbitration agreement in regard to the current dispute

between the parties or the subject matter of the suit. It

is fundamental that a provision for arbitration, to

constitute an arbitration agreement for the purposes of

sections 7 and 8 of the Act, should satisfy two conditions.

Firstly, it should be between the parties to the dispute.

Secondly, it should relate to or applicable to the dispute. 6

8. In this case, neither of the two conditions was

satisfied. Firstly, the suit related to transactions said

to have taken place between plaintiff and first defendant

company and its two directors, whereas the documents put

forth as containing the arbitration agreement related to

some transactions between a proprietary concern of second

defendant and plaintiff. Secondly, the provision for

arbitration is not contained in any contract or document

relating to the suit transactions, but contained in

documents relating to some unconnected independent

transactions. It is significant that, in their application

under section 8 of the Act, the defendants did not even

allege that there was an arbitration agreement in regard to

the subject matter of the suit. What they alleged was that

`subject matter of the suit' was similar to or identical

with the `subject matter of the arbitration agreement'.

That does not entitle them to seek relief under section 8

of the Act. As there was no `arbitration agreement', the

requirements of section 7 were not met.

9. As there is no arbitration agreement with reference to

the subject-matter of the suit filed by the plaintiff 7

(first respondent herein), rejection of the application

filed by defendants under Section 8 of the Act, does not

call for interference. The special leave petition is,

therefore, dismissed both on the ground of delay and on

merits.

..................................................J. (R V Raveendran)

New Delhi; ..................................................J. December 1, 2008. (D K Jain)