Case: M. Dayanand Reddy Vs. A. P. Industrial Infrastructure Corporation Limited and Others

agreement to arbitrate is enforcement of the agreement to arbitrate and not to damages arising out of such breach. Moreover, there is a further significant difference between an ordinary agreement and an arbitration agreement. In an arbitration agreement, the courts have discretionary power of dispensation of a valid arbitration agreement but the courts have no such power of dispensation of other terms of contract entered between the parties. The very distinctive feature of an agreement for arbitration has been highlighted in the decision in Heyman v. Darwins Ltd. It has been held in North Western Rubber Company and Hunenback & Co., Re ( 1908 (2) KB 907 : 78 LJKB 51) (overruled in Produce Brokers Co. v. Olympia Oil and Cake Co. ( 1916 (1) AC 314 (HL) on other points), that an arbitration agreement in no way classifies the right of the parties under the contract but it relates wholly to the mode of determining the rights. In the backdrop of such position in law relating to an agreement for arbitration, it is to be decided whether the existence of an agreement to refer the dispute to arbitration can be clearly ascertained in the facts and circumstances of the case. This, in turn, depends on the interaction of the parties to be gathered from the relevant documents and surrounding circumstances. In the instant case, it is the specific finding of the learned Judge of the City Civil Court, Hyderabad and also the Andhra Pradesh High Court that in the original agreement signed by the parties, there is no clause for referring the disputes to arbitration. The agreement between the parties in this case has been reduced in writing and has been signed by both the parties. It is therefore not necessary to make any effort for the purpose of finding out as to what were the terms agreed between the parties. The learned Judge, City Civil Court, allowed the application for appointment to arbitrator simply on the ground that a copy of the agreement was forwarded to the appellant with the seal and signature of a competent officer of the Corporation, namely, respondent 2 and in such copy, which was not fabricated by the applicant there was a reference for arbitration as contained in the standard specification. The learned Judge, City Civil Court, also proceeded on the footing that usually in the agreements relating to the nature of the contract, a provision for arbitration is made. As in the original agreement signed between the parties there was no such provision and the agreement was silent on the question as to what would happen if the disputes would arise between the parties, it should be presumed that the parties had really intended to refer the dispute to arbitration in accordance with the standard specifications and in the copy of the agreement which was forwarded to the applicant the provision for arbitration was included. The High Court however, was not inclined to accept this view of the learned Judge of the City Civil Court. The High Court was of the view that it was the signed agreement between the parties which was binding on the parties and only such written terms in the original agreement signed by the parties should be taken into consideration and not the terms contained in the copy of the agreement which was forwarded to the applicant after some time9. It has been indicated hereinbefore that the case of respondent is that through mistake the clause containing the arbitration agreement was not scored out in the copy of the agreement since forwarded to the applicant. The attention of the appellant was drawn to such mistake by the respondents before initiation of the proceedings before the City Civil Court. It also appears that on April 9, 1984, which is long before the agreement dated December 11, 1986, respondent 1, Corporation, came to the decision that arbitration was not really necessary as the aggrieve party to the agreement could always seek redress in a court of law. It was, therefore, decided that the arbitration clause in the standard specifications should be deleted altogether and the agreement was to be finalised in respect of engineering work without any provision for arbitration. It was also indicated that the instruction for deleting the arbitration clause should be followed with immediate effect. If in spite of such policy decision, the original agreement entered between the parties had contained the arbitration clause there is no manner of doubt that the parties to the agreement would have been bound by such arbitration agreement. Admittedly, in the instant case, in the original agreement signed between the parties, there is no clause for arbitration and the reason for absence of arbitration clause can be well explained by the aforesaid policy decision of the Corporation. An arbitration clause may be incorporated by reference to a specific document but the intention to refer to arbitration by such incorporation must be clear and specific. In the instant case, the original agreement signed between the parties does not contain any clause for arbitration. It is not the case of the applicant that the applicant had no occasion to know the terms of the agreement since signed by the parties and there was any clear representation that the copy of agreement was to be followed by the parties and terms contained in the copy were to be treated as the terms of agreement between the parties. Hence, it cannot be held that after the signed agreement the parties had clearly intended to include arbitration clause in the standard specification. In the absence of clear intention of both the parties, agreement for arbitration cannot and should not be inferred more so when the specific case of the respondents is that by mistake the clause relating to arbitration crept in the copy of agreement. In our view, the High Court was justified in holding that in the facts of the case, only the original agreement, and not the copy, was binding between the parties.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]8. Under the Arbitration Act, 1940, only an arbitration agreement in writing is recognised buy the Act. It has been held by this Court in Jugal Kishore Rameshwardas v. Mrs. Goolbai Hormusji that it is not necessary that the contract between the parties should be signed by both the parties. But it is necessary that the terms should be reduced in writing and the agreement between the parties on such written terms is established. It has also been held by this Court in Union of India v. A. L. Rallia Ram that it is not necessary that all the terms of the agreement should be contained in one document. Such terms may be ascertained from the correspondence consisting of number of letters. In Rukmanibai Gupta (Smt.) v. Collector, Jabalpur this Court has laid down 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 clearly ascertained from the terms of the agreement, it is immaterial whether or not the expression arbitration or arbitrator or arbitrators has been used in the agreement. It is also not necessary that agreement to arbitration should appear in the document containing the other terms of agreement between the parties. Law is well settled that arbitration clause may be incorporated by reference to a specific document which is in existence and whose terms are easily ascertainable. It is to be noted, however, that the question whether or not the arbitration clause contained in another document is incorporated in the contract, is always a question of construction. It should also be noted that the arbitration clause is quite distinct from the other clause of the contract. Other clauses of agreement impose obligation which the parties undertake towards each other. But arbitration clause does not impose on any of the parties any obligation in favour of the other party. Such arbitration agreement embodies an agreement between the parties that in case of a dispute, such dispute shall be settled by arbitrator, or umpire of their own constitution or by an arbitrator to be appointed by the Court in an appropriate case. It is pertinent to mention that there is a material difference in an arbitration agreement inasmuch as in an ordinary contract the obligation of the parties to each other cannot, in general, be specifically enforced and breach of such terms of contract results only in damages. The arbitration clause however can be specifically enforced by the machinery of the Arbitration Act. The appropriate remedy for breach of an agreement to arbitrate is enforcement of the agreement to arbitrate and not to damages arising out of such breach. Moreover, there is a further significant difference between an ordinary agreement and an arbitration agreement. In an arbitration agreement, the courts have discretionary power of dispensation of a valid arbitration agreement but the courts have no such power of dispensation of other terms of contract entered between the parties. The very distinctive feature of an agreement for arbitration has been highlighted in the decision inHeyman v. DarwinsLtd. It has been held in NorthWestern Rubber Company and Hunenback & Co., Re ( 1908 (2) KB 907 : 78 LJKB 51) (overruled in Produce Brokers Co. v. Olympia Oil and Cake Co. ( 1916 (1) AC 314 (HL) on otherthat an arbitration agreement in no way classifies the right of the parties under the contract but it relates wholly to the mode of determining the rights. In the backdrop of such position in law relating to an agreement for arbitration, it is to be decided whether the existence of an agreement to refer the dispute to arbitration can be clearly ascertained in the facts and circumstances of the case. This, in turn, depends on the interaction of the parties to be gathered from the relevant documents and surrounding circumstances. In the instant case, it is the specific finding of the learned Judge of the City Civil Court, Hyderabad and also the Andhra Pradesh High Court that in the original agreement signed by the parties, there is no clause for referring the disputes to arbitration. The agreement between the parties in this case has been reduced in writing and has been signed by both the parties. It is therefore not necessary to make any effort for the purpose of finding out as to what were the terms agreed between the parties. The learned Judge, City Civil Court, allowed the application for appointment to arbitrator simply on the ground that a copy of the agreement was forwarded to the appellant with the seal and signature of a competent officer of the Corporation, namely, respondent 2 and in such copy, which was not fabricated by the applicant there was a reference for arbitration as contained in the standard specification. The learned Judge, City Civil Court, also proceeded on the footing that usually in the agreements relating to the nature of the contract, a provision for arbitration is made. As in the original agreement signed between the parties there was no such provision and the agreement was silent on the question as to what would happen if the disputes would arise between the parties, it should be presumed that the parties had really intended to refer the dispute to arbitration in accordance with the standard specifications and in the copy of the agreement which was forwarded to the applicant the provision for arbitration was included. The High Court however, was not inclined to accept this view of the learned Judge of the City Civil Court. The High Court was of the view that it was the signed agreement between the parties which was binding on the parties and only such written terms in the original agreement signed by the parties should be taken into consideration and not the terms contained in the copy of the agreement which was forwarded to the applicant after some time9. It has been indicated hereinbefore that the case of respondent is that through mistake the clause containing the arbitration agreement was not scored out in the copy of the agreement since forwarded to the applicant. The attention of the appellant was drawn to such mistake by the respondents before initiation of the proceedings before the City Civil Court. It also appears that on April 9, 1984, which is long before the agreement dated December 11, 1986, respondent 1, Corporation, came to the decision that arbitration was not really necessary as the aggrieve party to the agreement could always seek redress in a court of law. It was, therefore, decided that the arbitration clause in the standard specifications should be deleted altogether and the agreement was to be finalised in respect of engineering work without any provision for arbitration. It was also indicated that the instruction for deleting the arbitration clause should be followed with immediate effect. If in spite of such policy decision, the original agreement entered between the parties had contained the arbitration clause there is no manner of doubt that the parties to the agreement would have been bound by such arbitration agreement. Admittedly, in the instant case, in the original agreement signed between the parties, there is no clause for arbitration and the reason for absence of arbitration clause can be well explained by the aforesaid policy decision of the Corporation. An arbitration clause may be incorporated by reference to a specific document but the intention to refer to arbitration by such incorporation must be clear and specific. In the instant case, the original agreement signed between the parties does not contain any clause for arbitration. It is not the case of the applicant that the applicant had no occasion to know the terms of the agreement since signed by the parties and there was any clear representation that the copy of agreement was to be followed by the parties and terms contained in the copy were to be treated as the terms of agreement between the parties. Hence, it cannot be held that after the signed agreement the parties had clearly intended to include arbitration clause in the standard specification. In the absence of clear intention of both the parties, agreement for arbitration cannot and should not be inferred more so when the specific case of the respondents is that by mistake the clause relating to arbitration crept in the copy of agreement. In our view, the High Court was justified in holding that in the facts of the case, only the original agreement, and not the copy, was binding between the parties.