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Gei Industrial Systems Ltd. Vs. Bharat Heavy Electricals Ltd. - Court Judgment

LegalCrystal Citation
CourtMadhya Pradesh High Court
Decided On
Case NumberArbitration Case No.123 of 2010
Judge
Reported in2012AIR(MP)44
AppellantGei Industrial Systems Ltd.
RespondentBharat Heavy Electricals Ltd.
Excerpt:
arbitration and conciliation act, 1996 - section 11(6) -.....learned senior advocate argued that the respondents having accepted for amicable resolution of dispute by arbitration cannot now contend that an arbitration clause is not in existence. placing reliance on the following judgments shri b. d’ silva, learned senior advocate, argues that from the correspondences available on record, existence of an arbitration agreement can be inferred. the judgment relied upon are trimex international fze limited, dubai v. vedanta aluminium limited, india, (2010) 3 scc 1: (2010 air scw 909) and nimet resources inc. v. essar steels limited, (2000) 7 scc 497 : (air 2000 sc 3107) to canvass the contention that existence of an arbitration agreement can be inferred from the correspondence and transaction between the parties: union of india v. onkar nath.....
Judgment:

1.Seeking constitution of an Arbitral Tribunal for adjudication of the dispute between the parties, this application is filed by the petitioner under Section 11(6) of the Arbitration and Conciliation Act, 1996.

2. Petitioner company claims to be a company incorporated under the Companies Act having its registered office in 26-A, Industrial Area, Govindpura, Bhopal. It is stated that the petitioner is a reputed company involved in heavy engineering works and has executed various contracts even for the respondent. It is stated that the parties are having long standing business relationship. According to the petitioner, the Oil and Natural Gas Corporation (hereinafter referred to as ‘ONGC’ for short),a Government of India undertaking, placed certain contract with the respondent, for the purpose of supplying Process Gas Compressor Coolers. The respondent, therefore, invited a limited public tender, where the offer of the petitioner was found to be the lowest and technically acceptable. It is the case of the petitioner that on account of their reputation and finding their product to be good and the rate reasonable, their tender was accepted and a standard agreement of contract executed, which included an arbitration clause. However, vide letter dated 14-7-2001, respondent placed an order for 12 Coolers with the petitioner, to be supplied in two stages to 6 Coolers each. The respondent placed the order and time was the essence of contract. The petitioner immediately procured sufficient raw materials for manufacturing 12 Coolers, the cost of each ran into Crores of rupees. However, by a subsequent communication arbitrarily the number of coolers was reduced to 8 i.e. 4 Coolers in each of the two stages. In view of the above, it seems was not resolved, petitioner sought appointment of an arbitrator for resolution of the dispute and when the same was not accepted, this application is filed.

3. Shri Brian D’Silva, learned Senior Advocate appearing for the petitioner, invited my attention to the material available on record and made an oral submission to be effect that the contract was executed in the standard form, which had an arbitration agreement, but the said agreement is not available with the petitioner. Learned senior Advocate submits that the existence of the arbitration agreement can be inferred from the communications available on record. He points out that when the dispute had arisen, communications were made between the parties and vide order dated 28-11-2001 _ Annexure P/5, certain claims were raised by the petitioner, due to change in the contract set up by the reduction of coolers. Correspondence took place and by referring to the various correspondence with regard to settlement of the issues. Shri Brian D’Silva, learned senior Advocate, emphasized that the respondent having admitted the position of getting the dispute resolved by arbitration cannot now say that there is no arbitration agreement. Inviting my attention to the communication Annexure P/10, dated 7-5-2007, seeking nomination of an arbitrator by the respondent and the corresponding reply of the respondent s contained in Annexures P/13, P/14 and P/15, learned senior Advocate argued that the respondents having accepted for amicable resolution of dispute by arbitration cannot now contend that an arbitration clause is not in existence. Placing reliance on the following judgments Shri B. D’ Silva, learned senior Advocate, argues that from the correspondences available on record, existence of an arbitration agreement can be inferred. The judgment relied upon are Trimex International FZE Limited, Dubai v. Vedanta Aluminium Limited, India, (2010) 3 SCC 1: (2010 AIR SCW 909) and Nimet Resources Inc. v. Essar Steels Limited, (2000) 7 SCC 497 : (AIR 2000 SC 3107) to canvass the contention that existence of an arbitration agreement can be inferred from the correspondence and transaction between the parties: Union of India v. Onkar Nath Bhalla and Sons, (2009) 7 SCC 350 : (AIR 2009 SC 3168) and, Angang Group International Trade Corporation v. Pipavav Railway Corporation Limited, (2003) 10 SCC 51, to canvass the contention that even if there is any dispute with regard to existence of an arbitration agreement, it is for the arbitrator to decide the matter and on such ground constitution of an arbitral Tribunal cannot be refused.

4. Shri Ashok Lalwani, learned Counsel for the respondent, refuted the aforesaid and argued that there is no arbitration agreement at all. Respondent have specifically denied the existence of any arbitration agreement, they specifically say that what was issued to the petitioner was only a purchase order as is filed by the petitioner vide Annexures P/2 and P/3, and in the entire purchase order there is no arbitration clause. That apart, Shri Ashok Lalwani, learned counsel, taking me through the document available on record, the wording of the communications _ Annexures P/13, P/14 and P/16, argued that these documents do not indicate that the respondents have admitted to the existence of an arbitration agreement. They only indicate that the respondent were considering the claim of the petitioner and the possibility of arbitration was also under consideration. It is emphasized by him that in the absence of any arbitration agreement being available, the proceeding under Section 11 is not maintainable. Referring to the judgment of the Supreme Court, in the case of SBP and Company v. Patel Engineering Limited, (2005) 8 SCC 618: (AIR 2006 SC 450), and a recent judgment of the Supreme Court in the case of State of Orissa v. Bhagyadhar Dash, (2011) 7 SCC 406 : (AIR 2011 SC 3409) Shri Ashok Lalwani argue that in the absence of there being an arbitration agreement between the parties, this application is not maintainable.

5. That apart, on merit Shri Ashok Lalwani point out that the dispute between the parties has already been settled due to final settlement being made. The contract being concluded, on the ground of delay no case is made out for arbitration. Accordingly, Shri Ashok Lalwani, learned counsel, submit that the application be dismissed.

6. Having heard learned counsel for the parties and on perusal of the record, it is the considered view of this Court that at the very outset the question as to whether an arbitration agreement exit between the parties, which is a pre-condition for exercising jurisdiction under Section 11(6) has to be examined.

7. Even though in paragraph 3 of the application, the petitioner says that after negotiation various terms were settled and standard contract was executed, respondent in the reply h specifically denied the same, they have stated that no such contract was ever executed. In the petition, the petitioner does not say that the executed contract is lot or that it is not available with them. It is only said that the contract was executed, but they do not say as to when it was executed between whom it was executed and who signed the contract and what were the term of contract or what happened to this document, no such contract is available on record and it is a case where the existence of the arbitration agreement itself becomes very doubtful. The petitioner wants this Court to draw an inference with regard to existence of an arbitration agreement on the basis of certain communication available on record i.e. Annexure P/13, P/14 and P/15. Annexure P/13 is a letter written by one Shri S.K. Uppal, Deputy General Manager, BHEL, Bhopal to the President Finance of the petitioner company and the said letter read a under :

“P1. Refer to your letter GEI/BHEL-BPL/2369/06/08 dated 5-5-2008 regarding appointment of Arbitrator.

Kindly recall discussion during last year wherein it was decided to first discuss at lower level for amicable solution before proceeding for arbitration. Hence, your above letter is not acceptable to u. P1. let us know the date of your visit at our office.”

If the aforesaid letter is perused, it only indicates that the parties were to discuss the matter at the lower level before proceeding for arbitration. This letter does not indicate that there is any arbitration agreement or that respondent have greed to get the dispute settled by arbitration, it only indicates that efforts should be made for an amicable solution before arbitration can be thought of.

8. Similarly, Annexure P/14 is another communication from the respondent company to the petitioner and this also talks about discussion for appointment of arbitrator and the fact that the matter is under consideration. From this letter also, it cannot be inferred that there is an arbitration agreement. Similar is the wording of the letter _ Annexure P/15, in which it is indicated that the HR Department and the respondent company is processing the case for appointment of arbitrator by BHEL to resolve the issue. A combined reading of the these letter indicates that the respondents were considering resolving the dispute by arbitration, it does not mean that they had agreed for resolution of the dispute by arbitration and a concluded arbitration agreement came into existence between the parties.

9. In the judgments relied upon by Shri Brian D’Silva, the principle lid down is that in the absence of n arbitration agreement, in writing, existence of an agreement can be inferred from the correspondence. To that effect there is no dispute, but the question is as to whether in the present case on the basis of the communication made in Annexures P/13, P/14 and P/15, execution of an arbitration agreement between the parties is established.

10. The question as to what are the essentials to be considered to constitute an arbitration agreement has been considered recently by the Supreme Court, in the case of Bhagyadhar Dash (supra) and in paragraphs 2,3,4, and 15, after referring to various judgments of the Supreme Court, the following observations are made.

“The essentials of an arbitration agreement.

1. In K.K. Modi v. K.N. Modi, (1998) 3 SCC 573: (AIR 1998 SC 1297) this Court enumerated the following attributes of a valid arbitration agreement:

“(1) to (4) *** *** *** ***

(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.”

1. Following K.K.Modi (supra) and other cases, Bihar State Mineral Development Corporation v. Encon Builders (I) (P) Limited, (2003) 7 SCC 418 : (AIR 2003 SC 3688) this Court listed the following as the essential elements of an arbitration agreement :

“(1) There must be a present or a future difference in connection which 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; and,

(4) The parties must be ad idem.”

1. In Jagdish Chander v. Ram Chander, (2007) 5 SCC 719, this Court, after referring to the cases on the issue, set out the following principles in regard to what constitutes an arbitration agreement:

“(i) The intention of the parties to enter into an arbitration agreement hall have to be gathered from the terms of the agreement. In the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to private tribunal for adjudication and an 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 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), (iii) *** *** ***

(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 reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future.”

15.) In Rukmanibai Gupta v. Collector Jabalpur, (1980) 4 SCC 566: AIR 1981 SC 479 this Court considered whether the following clause amounted to an arbitration agreement.

“15. Whenever any doubt, difference or dispute shall hereafter arise touching the construction of these presents or anything herein contained or any matter or thins connected with the said lands or the working or non-working thereof or the amount or payment of any rent or royalty reserved or made payable hereunder the matter in difference shall be decided by the lessor whose decision shall be final.”

This Court held that 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; and if the answer was in the affirmative, then such an arrangement would spell out an arbitration agreement. Applying the said test, this Court held that the aforesaid clause is an arbitration agreement, as is (a) made a provision for referring any doubt, difference or dispute to a specified authority for decision and (b) it made the “decision” of such authority final.”

(Emphasis Supplied)

11. If the aforesaid principles laid down are taken note of, it would be seen that there must be an intention of the parties to settle the dispute or difference by private Tribunal. Even though there may not be any specific form of an arbitration agreement, the words and conduct of the parties should disclose a determination and obligation to go for arbitration and not merely contemplation or possibility of going for arbitration. It is held by the Supreme court in the case of Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719, that a mere possibility by parties agreeing to arbitration cannot be construed to be an arbitration agreement. If the correspondence available on record and relied upon by Shri Brian D’Silva are taken note of, they only suggest that the parties were negotiating the possibility of resolution of their dispute through arbitration. It would not mean that a concluded arbitration of agreement exists between the parties.

12. Keeping in view the principles of law as detailed hereinabove and the law laid down by the Supreme Court in the backdrop of the facts and circumstances of the present case, I am of the considered view that there was no arbitration agreement between the parties and in the absence of an arbitration agreement, this application is not maintainable. Having held so, it is not necessary now for this Court to go into the various other questions on merit canvassed at the time of hearing, as the jurisdiction of this Court to refer the dispute for arbitration is available only if the arbitration agreement is proved. In view of the law laid down in the case of Patel Engineering Limited (supra), this Court cannot exercise the said jurisdiction under Section 11 of the Act, once it is found that there is no arbitration agreement existing between the parties.

13. Accordingly, finding no case for considering and allowing the prayer of the petitioner, the application is dismissed.

Petition dismissed.


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