IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE THOMAS P.JOSEPH FRIDAY, THE 14TH OCTOBER 2011 / 22ND ASWINA 1933 OP(C).NO. 1881 OF 2011(O) --------------------------------------- OS.270/2009 OF ADDITIONAL SUB COURT, KOLLAM .................... PETITIONER: -------------------- M/S.UNICORP INTERNATIONAL LTD, SUITE-9,99-WARWICK STREET,ROYAL LEAMINGTON SPA, WARWICKSHIRE CV 32 $ RB, GREAT BRITAIN,REP.BY AJESH.S.DATTANI,34 YRS,S/O.SURESH,8/101,WOOD VILLA NEAR CORPN OFFICE, BEACH P.O.,CALICUT BY ADV. SRI.T.R.ASWAS RESPONDENT(S): ------------------------- M/S.KERALA STATE CASHEW DEVELOPMENT CORPN.LTD,KOLLAM REP BY ITS MANAGING DIRECTOR ,PIN-691001 BY ADVOCATE SHRI C. UNNIKRISHNAN THIS OP (CIVIL) HAVING BEEN FINALLY HEARD ALONG WITH C.R.P. NO.451 OF 2011 ON 14/10/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: O.P(C) NO.1881 OF 2011 APPENDIX PETITIONER(S)' EXHIBITS: EXHIBIT P1 INTERNATIONAL CONTRACT EXECUTED BY THE PARTIES. EXHIBIT P2 SECTION 8 PETITION FILED BY THE PETITIONER IN THE COURT BELOW. EXHIBIT P3 IMPUGNED ORDER DATED 21.12.2010 DISMISSING EXHIBIT P2. EXHIBIT P4 TRUE COPY OF THE SALES & PURCHASE AGREEMENT CONTAINING THE ARBITRATION AGREEMENT EXECUTED BETWEEN PARTIES. EXHIBIT P5 TRUE COPY OF THE PETITIONER FILED BY THE PETITIONER/1ST DEFENDANT TO SET ASIDE THE EX PARTE DECREE. RESPONDENT(S)' EXHIBITS: NIL TRUE COPY P.S. TO JUDGE THOMAS P.JOSEPH, J. ==================================== O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 ==================================== Dated this the 14th day of October, 2011 J U D G M E N T The question urged for a decision is whether clause 17 of Exhibit P4, agreement entered into between the parties hereto in the matter of an international commercial transaction spell out an agreement to refer the dispute arising between them and out of the said contract or any matter arising out of or in relation to that contract to the arbitration? Learned Sub Judge, Kollam held that the relevant clause does not spell out any agreement for arbitration but conferred jurisdiction on the civil courts at Cochin/Kollam in the matter of dispute arising out of the contract and hence learned Sub Judge has jurisdiction to entertain the suit and proceed with it. 2. Parties are referred hereunder as petitioner and respondent as they are ranked in O.P(C) No.1881 of 2011. 3. Respondent filed O.S. No.270 of 2009 in the court of learned Additional Sub Judge, Kollam for realization of what it said, the excess money (said to be) paid to the petitioner pursuant O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 2 :- to the aforesaid contract. It is not disputed that Ext.P4, international commercial contract was entered into between petitioner (acting through the second defendant in the suit) and the respondent. On dispute arising with respect to or in relation to that contract, respondent laid the suit against petitioner and the second defendant for recovery of money. In paragraph 2 of the plaint (Ext.P1) respondent referred to the execution of Ext.P4, agreement by itself and petitioner (acting through the second defendant, its agent). Respondent further stated that the second defendant is also responsible for the plaint claim because the contract is made by petitioner through the second defendant who is its agent for sale/purchase of goods for a merchant resident abroad. 4. Petitioner, on receipt of information about the institution of the suit appeared in the court of learned Sub Judge and filed I.A. No.637 of 2010 on 10.02.2010 under Section 8(1) of the Arbitration & Conciliation Act, 1996 (for short, “the Act”) contending that in view of the agreement entered into between the parties to refer the disputes arising out of the contract or any matter in relation to that contract, parties be referred to O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 3 :- arbitration and that the civil court has no jurisdiction to entertain the suit. That application was resisted by the respondent. Learned Sub Judge by Ext.P3, order dated 21.12.2010 held that there is no arbitration clause in the agreement requiring the parties to be referred to arbitration and that learned Sub Judge has jurisdiction to entertain the suit. On the day following the date of the impugned order (as I am told), petitioner applied for a copy of the order on I.A. No.637 of 2010. While I.A. No.637 of 2010 was pending, learned Sub Judge had passed order on 25.10.2010 directing petitioner and second defendant to file written statement within 20 days. I am told that petitioner filed an application for review of the said order, again placing reliance on the relevant clause in the contract which according to the petitioner required the parties to be referred to arbitration. On 10.01.2011, since petitioner and second defendant did not file written statement they were set ex parte and the case was posted on 24.01.2011. On 29.01.2011 learned Sub Judge passed an ex parte judgment and decree in favour of respondent and against petitioner and the second defendant. That was followed by petitioner filing I.A. No.2170 of 2011 to set aside the ex parte O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 4 :- decree. A similar application was filed by the second defendant as well. In the affidavit in support of the application to set aside the ex parte decree as well, petitioner referred to I.A. No.637 of 2010 filed under Sec.8(1) of the Act and its dismissal on 21.12.2010, that on 10.01.2011 counsel for petitioner had submitted before the learned Sub Judge that a copy of the order dated 21.12.2010 on I.A. No.637 of 2010 though applied for on 22.12.2010 was not yet issued and that the said order is being challenged. Notwithstanding the above and petitioner being represented by counsel, petitioner was set ex parte. On 24.01.2011 also a similar submission including that a copy of the order dated 21.12.2010 on I.A. No.637 was not yet issued so as to challenge the same was made. But the court on 29.01.2011 passed the ex parte judgment and decree. By order dated 06.08.2011 learned Sub Judge set aside the ex parte judgment and decree against petitioner on condition of payment of costs of Rs.1,000/-. Petitioner deposited cost and the ex parte judgment and decree were set aside. The ex parte judgment and decree against the second defendant also was set aside. The challenge in the Original Petition is to the order dated 21.12.2010 on I.A. O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 5 :- No.637 of 2010 whereby learned Sub Judge has refused to refer the parties to arbitration as requested by petitioner in the said application. Respondent challenges the order dated 06.08.2011 setting aside the ex parte judgment and decree against petitioner in C.R.P. No.451 of 2011. 5. Petitioner had not produced the original or a duly certified copy of the agreement along with I.A. No.637 of 2010 in the court below as required under Sec.8(1) of the Act. Instead, in the affidavit in support of I.A. No.637 of 2010 petitioner requested the court to exempt it from producing the agreement as the respondent had already produced the agreement along with the plaint. Section 8 of the Act mandatorily requires the party seeking reference to the arbitration to produce the original or a duly certified copy of it along with the application. The Supreme Court in Atul Singh v. Sunil Kumar Singh ([2008] 2 SCC 602 – paragraph 19) has held there, plaintiff had produced a copy of the agreement with the plaint that the party applying for reference to arbitration has to produce along with the application the original or a duly certified copy of the agreement. In the view of the above provision and decision, petitioner has produced a O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 6 :- photocopy of the agreement certified by its counsel as true copy in O.P(C) No.1881 of 2011 vide I.A. No.16186 of 2011. The original of that agreement has already been produced by the respondent before learned Sub Judge with the plaint. I.A. No.16186 of 2011, in fairness is not opposed by the respondent. It is an admitted document. Hence I.A. No.16186 of 2011 is allowed and the agreement is marked as Ext.P4 (in O.P(C) No.1881 of 2011). 6. Learned counsel for petitioner contended that having regard to the preamble of the Act, relevant provisions of the said Act and clause 17 of Ext.P4, copy of the agreement executed between petitioner and the respondent, learned Sub Judge was not right in not referring the parties to arbitration. 7. In response it is contended by learned counsel for the respondent that there is no consensus ad idem between petitioner and the respondent to refer the disputes to arbitration and that clause 17 of Ext.P4, agreement is not sufficient to hold that parties have agreed to refer their disputes to arbitration. According to the learned counsel, the latter part of clause 17 of the agreement that parties are subject to the jurisdiction of civil O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 7 :- courts at Cochin/Kollam, in Kerala, India only is eloquent indication that there was no 'agreement' to refer the disputes to arbitration but parties elected to settle their dispute in the civil courts at Cochin/Kollam. 8. I shall extract the relevant clause appearing in Ext.P4, agreement which is as under. “17. Arbitration: Any dispute arising out of this contract or any matter arising out of or in relation to this contract will be subject to Indian law and subject to the jurisdiction of civil courts at Cochin/Kollam in Kerala, India only” The first question is whether the said clause amounts to an agreement between the petitioner and the respondent to refer their disputes to arbitration. 9. The preamble to the Act states that the United Nations Commission on International Trade Law (UNCITRAL) has O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 8 :- adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985, the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law in view of the desirability of uniformity of law, law of arbitral procedures and the specific needs of international commercial arbitration practice, that the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980, that the General Assembly of the United Nations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek an amicable settlement of that dispute by recourse to conciliation, that the said Model Law and Rules make significant contribution to the establishment of a unified framework for the fair and efficient settlement of disputes arising in international commercial relations, that it is expedient to make law respecting arbitration and conciliation taking into account the aforesaid Model Law and Rules and that in the circumstances, the Parliament has enacted the Act in the year, 1996 whereby it has consolidated and amended the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 9 :- as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. 10. Unlike the Arbitration Act 1940 (for short, “the Act of 1940”) which dealt with only domestic arbitration, the Act (of 1996) makes a cardinal change in that the latter Act is not confined to domestic arbitration alone – it takes in its fold international commercial arbitration, enforcement of foreign arbitrarl awards defines the law relating to conciliation and matters connected therewith or incidental thereto in the view of UNCITRAL Model Law on international commercial arbitration. 11. Section 2(1)(a) of the Act defines 'Arbitration' as meaning any arbitration whether or not administered by permanent arbitral institution and clause (b) defines ‘arbitration agreement’ as meaning an agreement referred to in Sec.7. Section 2(1)(f) of the Act defines ‘international commercial arbitration’ as meaning “an arbitration relating to disputes arising out of legal relationship, whether contractual or not, considered as commercial under the law in force in India and where at lest one of the parties is of the category referred to in clauses (i) to (iv). It is not disputed before me that petitioner is a company incorporated in the United Kingdom. Petitioner thus comes in O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 10 :- the category of sub clauses (ii) and (iii) of clause (f) of Sec.2(1) of the Act. 12. Reference can also be made to Sec.7 of the Act to understand what is an 'arbitration agreement'. The said provision says that ‘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. Sub-sec.(2) of Sec.7 says that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Sub-sec.(3) requires an arbitration agreement to be in writing. Sub-clause (4) says that arbitration agreement is in writing if it is contained in; (a) a document signed by the parties; (b) by exchange of letters, telex, telegrams or other means of telecommunication which provides a record of agreement; or (c) by exchange of statements of claims and defence in which the existence of the agreement is alleged by one party and not denied by the other. Sub-sec.(5) states that reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 11 :- and the reference is such as to make that arbitration clause part of the contract. 13. An arbitration agreement need be in writing. It is not necessary that it should be signed by both or either of the parties. It is sufficient that the written agreement is orally accepted by the parties or that one has signed and the other has accepted it (see Chander Nath Ohja v. Suresh Jhalani ([1999] 8 SCC 628). The Supreme Court in Rukminibai v. Collector, Jabalpur ([1980] 4 SCC 556) has held that an arbitration clause is not required to be stated in any particular form. If the intention of the parties to refer the dispute to arbitration can be ascertained from the form of the agreement, it is immaterial whether or not the expressions “arbitration” or “arbitrator” has been used. The whole thing turns out on the intention of the parties. 14. Reference can be made to Sec.8 of the Act under which petitioner filed I.A. No.637 of 2010. Sub-sec.(1) of the said provision says that a judicial authority before which an action is brought in a matter which is the subject matter of an arbitration shall, if a party so applies not later than when submitting his first O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 12 :- statement on the substance of the dispute refer the parties to arbitration. Sub-sec.(2) says that the application referred to in sub-sec.(1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. Under sub-sec.(3), notwithstanding that an application has been made under sub-sec.(1) and that the issue is pending before the judicial authority an arbitration may be commenced or continued and an arbitral award made. 15. Section 8 of the Act makes a difference from Section 34 of the Act of 1940. If under Sec.34 of the Act of 1940 a discretionary power was vested with the court to refer the parties to arbitration, under Sec.8(1) of the Act that discretionary power is taken away. For Sec.8(1) of the Act to apply, the following requirements are satisfied: i) there must be an agreement for arbitration. ii) party to the agreement brings an action in the court against the other party; iii) the subject matter of the action is the O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 13 :- same as the subject matter of the agreement for arbitration; iv) the other party (to the action in court) moves the court for referring the parties to arbitration before submitting the first statement on the substance of the dispute. When an application under Sec.8(1) of the Act is filed complying with the requirements the further proceedings in the suit is temporarily suspended till a decision is rendered on the said application. The court cannot allow the suit to proceed before a decision is rendered on the application under Sec.8(1) of the Act. 16. In Hudson's 'Buildings And Engineering Contract', 11th Edn. at page 1579 criticizing Sec.5 of the Act it is stated: “It would seen that there has been a widespread movement by influential interests involved in the arbitration process against control by the courts, supported by the many modern Governments who perceive a public financial O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 14 :- advantage in diverting litigation away from the public funded judiciary into the privatised sector which arbitration represents”. Russel on 'Arbitration, 20th Edn. by Anthony Walton and Mary Victoria' states at page 10 regarding statutory arbitration: “a statute may provide that disputes of a particular class shall be determined by arbitration of a particular sort, either in every case or upon certain steps being taken by the party. Where such a provision applies the arbitral Tribunal laid down by the statute has exclusive jurisdiction over such disputes”. Section 5 of the Act bars intervention of judicial authority in matters governed by Part I of the Act except when so provided in the said Act. 17. The Act is intended to help parties settle their differences privately by conciliation or by arbitration and thereby O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 15 :- to spare themselves of wasteful and vexatious litigation. Lord Chancellor Selbourne, in Willesford v. Watson ([1873] 8 Ch. App, 473 at P.480) said: “If parties chose to determine for themselves that they will have a domestic forum instead of resorting to the ordinary courts, then since that Act of Parliament was passed a prima facie duty is cast upon the courts to act upon such an agreement. The parties here have made that agreement. They probably knew what were the reasons in favour of determining these questions by arbitration, and what were the reasons against it, and they made it part of their natural contract that these questions should be so determined. The plaintiff cannot therefore be now heard to complain if that part of their contract is carried into effect.......” A similar view is taken in Quantas Airways Ltd. v. Dillingham Corporation ([1985] 4 NSWLR 113 at page O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 16 :- 122). It is held: “It is simply not open to the plaintiff to complain of the cost and expenses of arbitration, after all, it had freely subscribed to the arbitration clause and is, prima facie, liable to bear the cots of such choice...” 18. Thus if the parties have agreed for arbitration of the disputes arising from the contract they have entered into, the court has to recognize and uphold that agreement for arbitration. 19. I have extracted above the relevant clause in Ext.P4, agreement between the parties. There is no dispute about the execution, validity or enforceability of the contract. The dispute is only regarding clause 17 of the contract (Ext.P4), whether it amounts to an agreement to refer the disputes to arbitration or not? To understand that contention, it is necessary to refer to various other clauses in Ext.P4, agreement. It is styled as a 'Sales and Purchase Agreement' entered into between petitioner (through the second defendant) and the respondent on 15.05.2007. In the preambular potion of the agreement it is O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 17 :- stated that it is executed between petitioner and the respondent and that the parties have agreed “for sale and purchase of raw cashew nuts, particulars of which are as follows”. Thereunder the various terms and conditions of the agreement are stated under separate headings. Clause (1) refers to the agreement number, Clause (2) deals with with commodity, Clause (3) states about the quantity, Clause (4) deals with the price, Clause (5) deals with the quality and Clause (6) deals with inspection. Similar clauses are found in Ext.P4, agreement as to other terms and conditions, each having a separate heading. Thus it comes to clause 17 with respect to “Arbitration” (which is already extracted) and states that any dispute arising out of the contact or any matter arising out or in relation to the contract will be subject to the Indian law and subject to the jurisdiction of civil courts at Cochin/Kollam in Kerala, India only. 20. It is argued by learned counsel for respondent that the above clause does not amount to a consensus ad idem between the parties to refer their disputes to arbitration. Learned counsel has made heavy reliance on the decision in State of Orissa v. Bhagyadhar Dash ([2011] 7 SCC 406). There, O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 18 :- referring to the decision in K.K. Modi v. K.N. Modi ([1998] 3 SCC 573) the requirements of a valid arbitration agreement are enumerated. It is stated that the arbitration agreement must contemplate that decision of the Tribunal will be binding on the parties to the agreement, that jurisdiction of the Tribunal to decide the rights of parties must derive either from the consent of party or from the order of court or from a statute the terms of which make it clear that the process is to be an arbitration, agreement must contemplate that substantive right of parties will be determined by the agreed Tribunal that the Tribunal will determine rights of the parties in an impartial and judicial manner with the Tribunal owing and equal obligation and fairness to both sides 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 that the agreement must contemplate that the Tribunal will make decision upon a dispute which is already formulated at the time when reference is made to the Tribunal. Learned counsel has also referred me to paragraph 4 of the decision in State of Orissa v. Bhagyadhar Dash where reference is made to Jagadish Chander v. Ramesh Chander O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 19 :- ([2007] 5 SCC 719). There, a passage from the decision in Jagadish Chander’s case is quoted which is to the effect that the intention of parties to enter into an arbitration agreement shall have to be gathered from the terms of the contract and that if the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer the dispute to a private Tribunal for adjudication and a willingness to be bound by the decision of such Tribunal on such disputed, it is an arbitration agreement. At page 411 of the decision in State of Orissa v. Bhagyadhar Dash (supra) in clause (iii) it is stated that where the clause provides that in the event of disputes arising between the parties the disputes shall be referred to arbitration it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes contains words which specifically excludes any of the attributes of an arbitration agreement or contains anything that detracts from the arbitration agreement it will not be an arbitration agreement. O.P(C) No.1881 of 2011 & C.R.P. No.451 of 2011 -: 20 :- Clause (iv) at page 411 of the decision says that the mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement if