A commercial document having an arbitration clause has to be interpreted in such a manner as to give effect to the agreement rather than to invalidate it: High Court of Gujurat

 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTIN THE HIGH COURT OF GUJARAT AT AHMEDABADR PETN. UNDER ARBITRATION ACT NO. 420 FOR APPROVAL AND SIGNATURE: HONOURABLE MS. JUSTICE BELA M. TRIVEDI ==========================================================1 Whether Reporters of Local Papers may be allowed to see the judgment NO2 To be referred to the Reporter or not YES3 Whether their Lordships wish to see the fair copy of the judgment NO4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder NO==========================================================ALPHARD MARITIME PVT. LTD. VersusMALARA ENTERPRISES ==========================================================Appearance:MR ASHWIN SHANKAR WITH MR RISHI MURAR KP FOR MS PAURAMI B. SHETH(841) for the Petitioner(s) No. 1MR.PARTH CONTRACTOR(7150) for the Respondent(s) No. 1 2==========================================================CORAM: HONOURABLE MS. JUSTICE BELA M. TRIVEDI Date : 23 04 2021 CAV JUDGMENT1.The petitioner M s. Alphard Maritime Pvt. Ltd. has preferred the present petition under Section 11 of the Arbitration and Conciliation Act 1996seeking following prayer:­“18.a.Appoint an independent Arbitrator for the purpose of resolving the dispute arose between the petitioner and the respondents under the Arbitration and Conciliation Act 1996read with the Arbitration and ConciliationAct 2019 No.319.”2.As per the case of the petitioner the petitioner is a Company incorporated in India and is an owner of various tugs barges and offshore vessels. The petitioner is the owner of the barge A M Abhik on which the dry docking services were provided by the respondents who belong to Malara firm a proprietary firm of the Proprietor Mr.Ashish S. Joshi the respondent No. 2 herein. The further case of the petitioner as stated in the petition is that the petitioner required dry docking services for the barge involved in the present dispute for which the respondent No.2 had approached the petitioner with a quotation for the dry dock repairs of the barge at Sikka Port on behalf of the respondent No.1. Later as per the instructions of the petitioner the respondent No.1 sent the quotations and the contractual terms on its letter­head vide E­mail on 26.9.2019 for the dry docking services to be provided 2 SCC 455 to submit that the arbitral Tribunal is empowered and has the competence to rule on its own jurisdiction including determining all jurisdictional issues as also the existence or validity of the arbitration agreement. Reliance has also been placed on the decision of the Supreme Court in case of Govind Rubber Limited Vs. Louis Dreyfus Commodities Asia Private Limited reported in13 SCC 477 to submit that an arbitration agreement even though in writing need not be signed by the parties if the record of agreement is provided in exchange of letters telex telegrams or other means of communications.6.Per contra the learned Advocate Mr.Parth Contractor for the respondents vehemently submitted that the quotation by the respondents was merely an offer and not a binding contract and that there was no arbitration clause in the purchase order. Mr. Contractor further submitted that assuming without admitting that the quotation contained the arbitration agreement such passing reference of words in the terms and conditions of the Page 6 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTquotation would not constitute a valid arbitration agreement as contemplated under Section 7 of the said Act. Placing heavy reliance on the decision of the Supreme Court in case of Jagdish Chander Vs. Ramesh Chander and Ors. reported in5 SCC 719 Mr. Contractor submitted that mere use of the word “arbitration” or “arbitrator” in a clause would not make it an arbitration agreement if it required or contemplated a further or fresh consent of the parties for reference to arbitration. Mr. Contractor also relied upon the decision of the Bombay High Court in case of Dhargalkar TechnoesisPvt. Ltd. Vs. MMRDdecided on 3.12.2020 to buttress his submission that in absence of an arbitration agreement between the parties the petition is liable to be dismissed.7.At the outset it may be noted that the 2015 Amendment Act brought significant changes in Section 11 of the Act and sub­sectionwas inserted therein by the said Amendment Act w.e.f. 23.10.2015. The said sub­Sectionwas omitted by the Act 319 however it seems that though the said Amendment Act 319 was published in the Official Gazette of India on 9th August 2019 the said deletion of sub­sectionPage 7 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENThas not come into effect. The Supreme Court in the latest decision in case of Bharat Sanchar Nigam Ltd. Versus M s. Nortel Networks India Pvt. Ltd. decided on 10th March 2021 in Civil Appeal Nos. 843­8421 observed with regard to the status of sub­sectionas under:“The 2019 Amendment has deleted sub­sectionin Section 11. However the amended to Section 11 is yet to be notified. Consequently sub­sectioncontinues to remain on the statute book and governs the scope of power under Section 11 for the present. “8.The said sub­sectionof Section 11 of the said Act reads as under:­“(6A) The Supreme Court or as the case may be the High Court while considering any application under sub­sectionor sub­sectionor sub­sectionshall notwithstanding any judgment decree or order of any Court confine to the examination of the existence of an arbitration agreement.” 9. In case of Uttarakhand Purv Sainik Kalyan Nigam Limitedthe Supreme Court considering sub­sectionof Section 11 and applying the Doctrine of Kompentenz­Kompentenz also known as competence­competence reiterated that in view of the legislative mandate contained in Section 11the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold Page 8 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTissues are left to be decided by the Arbitrator under Section 16. The precise observations made by the Supreme Court in the said case are reproduced as under:“7.10.In view of the legislative mandate contained in Section 11(6­A) the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issued are left to be decided by the arbitrator under Section 16 which enshrines the kompetenz­kompetenz principle.”10.In view of the above stated legal position the Court is required to examine only about the existence of the Arbitration Agreement. Section 7 of the said Act envisages as to what is an Arbitration Agreement. The said provision reads as under: “7.Arbitration Agreement­In this Part “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.An arbitration agreement shall be in writing.An arbitration agreement is in writing if it is contained in­(a) a document signed by the partiesan exchange of letters telex telegrams or other means of telecommunication which provide a record of the agreement or(c) an exchange of statements of claim and defence in Page 9 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTwhich the existence of the agreement is alleged by one party and not denied by the other.(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.” 11.At his juncture it would be also germane to refer to the decision of the Supreme Court in the case of Govind Rubber Limitedon the interpretation of Section 7 of the said Act. Para. 15 to 17 thereof read as under:“15.A perusal of the aforesaid provisions would show that in order to constitute an arbitration agreement it need not be signed by all the parties. Section 7(3) of the Act provides that the arbitration agreement shall be in writing which is a mandatory requirement. Section 7(4) states that the arbitration agreement shall be in writing if it is a document signed by all the parties. But a perusal of clausesandof Section 7(4) would show that a written document which may not be signed by the parties even then it can be arbitration agreement. Sectionprovides that an arbitration agreement can be culled out from an exchange of letters telex telegrams or other means of telecommunication which provides a record of the agreement. 16.On reading the provisions it can safely be concluded that an arbitration agreement even though in writing need not be signed by the parties if the record of agreement is provided by exchange of letters telex telegrams or other means of telecommunication Section 7(4)(c) provides that there can be an arbitration agreement in the 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. If it can be prima facie shown that the parties are at ad idem then the mere fact of one party not signing the agreement cannot absolve him from the liability under Page 10 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTthe agreement. In the present day of e­commerce in cases of internet purchases tele purchases ticket booking on internet and in standard forms of contract terms and conditions are agreed upon. In such agreements if the identity of the parties is established and there is a record of agreement it becomes an arbitration agreement if there is an arbitration clause showing ad idem between the parties. Therefore signature is not a formal requirement under Section 7(4)(b) or 7(4)(c) or under Section 7(5) of the Act. 17. We are also of the opinion that a commercial document having an arbitration Clause has to be interpreted in such a manner as to give effect to the agreement rather than invalidate it. On the principle of construction of a commercial agreement Scrutton on Charter Partiesexplained that a commercial agreement has to be b construed according to the sense and meaning as collected in the first place from the terms used and understood in the plain ordinary and popular senseopined relying on Astro Vencedor Compania Naviera S.A. v. Mabanaft GmbH that the court should if the circumstances allow lean in favour of giving effect to the arbitration Clause to which the parties have agreed. The learned author has also referred to another judgment in Paul Smith Ltd. v. H and S International Holdings lnc. in order to emphasise that in construing an arbitration agreement the court should seek to “give effect to the intentions of the parties”.12.Thus it can be safely deduced from the aforesaid legal position that the Arbitration Agreement even though in writing need not be signed by the parties if the record of the agreement is provided by the exchange of letters telex telegrams or other means of telecommunications. It is also held that a commercial Page 11 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTdocument having an arbitration clause has to be interpreted in such a manner as to give effect to the agreement rather than to invalidate it. 13.Ofcourse the learned Advocate Mr. Parth Contractor appearing for the respondents has placed heavy reliance on the observations made by the Supreme Court in the case of Jagdish Chanderto submit that mere use of the words arbitration or arbitrator in a clause will not make it an arbitration agreement if it required a further or fresh consent of the parties for reference to arbitration. To be precise the observations made by the Supreme Court are reproduced as under:“8. This Court had occasion to refer to the attributes or essential elements of an arbitration agreement in K K Modi v. K N ModiSCC 573] Bharat Bhushan Bansal vs. U.P. Small Industries Corporation Ltd.SCC 166] and Bihar State Mineral Development Corporation v. Encon BuildersLtd.SCC 418]. In State of Orissa v. Damodar DasSCC 216] this Court held that a clause in a contract can be construed as an arbitration agreement only if an agreement to refer disputes or differences to arbitration is expressly or impliedly spelt out from the clause. We may at this juncture set out the well settled principles in regard to what constitutes an arbitration agreement: Page 12 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENT(i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a 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 a 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.Even if the words arbitration and arbitral tribunalare not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes in a clause relating to settlement of disputes it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are :The agreement should be in writing.The parties should have agreed to refer any disputesbetween them to the decision of a private tribunal.The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner giving due opportunity to the parties to put forth their case before it.The parties should have agreed that the decision of the Private Tribunal in respect of the disputes will be binding on them.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 Page 13 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTarbitration 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 an arbitration agreement it will not be an arbitration agreement. For example where an agreement requires or permits an authority to decide a claim or dispute without hearing or requires the authority to act in the interests of only one of the parties or provides that the decision of the Authority will not be final and binding on the parties or that if either party is not satisfied with the decision of the Authority he may file a civil suit seeking relief it cannot be termed as an arbitration agreement.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 Page 14 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTcontemplating a further consent or consensus before a reference to arbitration is not an arbitration agreement but an agreement to enter into an arbitration agreement in future. “14.Now so far as the facts of the present case are concerned the petitioner has placed reliance on the Clause­13 contained in the terms and conditions mentioned in the quotation submitted by the respondents. The said Clause­ 13 stated that the jurisdiction of arbitration will be at High Court of Gujarat. Undisputedly the said quotation with the terms and conditions was accepted by the petitioner without any modification therein. It is also not disputed by the respondents that pursuant to the said quotation the petitioner had issued the purchase order in favour of the respondents for carrying out the dry docking work on the barge of the petitioner and that the contract as such was acted upon and implemented by the parties. 15.The bone of contention raised by Mr. Contractor appearing for the respondents is that the purchase order issued by the petitioner did not contain the arbitration clause. The Court does not find any substance in the said submission. Merely because the purchase order issued by the petitioner did not contain any terms and conditions or the arbitration clause it could not be said that there was no arbitration clause more particularly Page 15 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTwhen the quotation of the respondents containing the arbitration clause was accepted by the petitioner and on the basis of which the purchase order was issued by the petitioner. There is also nothing on record to suggest that the parties had contemplated a further or fresh consent for reference of disputes to the arbitration. The said Clause 13 contained in the quotation of the respondents having neither been denied nor modified by the petitioner till the entire contract was executed it can safely be concluded that both the parties were ad­idem about the said clause pertaining to the arbitration. It does not lie in the mouth of the respondents to say that the clause­13 which stated that the jurisdiction of arbitration will be at the High Court of Gujarat was not binding to them or that there was no arbitration agreement as contemplated in Section 7 of the said Act. From the said documents on record namely the quotation of the respondents and the purchase order of the petitioner it clearly transpires that both the parties intended to refer the disputes to the arbitration and agreed that the jurisdiction of the arbitration will be at the High Court of Gujarat. 16.This takes the Court to the next question as to whether the Court could appoint an Arbitrator under Section 11 of the said Act as prayed for in the petition. In the instant case the parties Page 16 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTthough had agreed to submit the jurisdiction of the High Court of Gujarat they had not agreed to the procedure for the appointment of an Arbitrator. Therefore it will be necessary to cursorily refer to the relevant provisions contained in Section 11 as regards the appointment of an Arbitrator in a situation when the parties though having agreed for the arbitration have not agreed on the procedure for appointing an Arbitrator. It is needless to say that Section 11 exclusively deals with the appointment of the Arbitrators. Sub­sectionthereof provides that subject to the sub­sectionthe parties are free to agree on a procedure for appointing an Arbitrator or Arbitrators. Sub­sectionprovides inter alia that if an agreed procedure had not been acted upon the parties could approach the Supreme Court or the High Court as the case may be to take necessary measure unless the agreement on the appointment procedure provides other means for securing the appointment. Sub­sectionprovides that failing any agreement referred to in sub­sectionin an arbitration with a Sole Arbitrator if the parties fail to agree on the arbitrator within thirty days from the receipt of a request made by one party from the other party to so agree the appointment shall be made on an application of the party in accordance with the provisions contained in sub­sectionon the contingencies mentioned therein having arisen the appointment is required to be made on an application of the party by the High Court in case of arbitration other than international commercial arbitration. 17.As stated earlier though the parties had agreed to submit to the jurisdiction at the High Court of Gujarat for the purpose of arbitration the procedure for the appointment of the Arbitrator was not agreed upon. It has also come on record that the petitioner had already called upon the respondents by sending a Notice of Arbitration dated 14.04.220 through e­mail calling upon them to appoint an independent and impartial Sole Arbitrator as per the provisions contained in the Act however the respondents had refused to agree to the said request. Under the circumstances in absence of any procedure having been agreed upon for appointing the Arbitrator and both the parties having failed to agree on the appointment of the Arbitrator within thirty days from the receipt of the request made by the petitioner to the respondents the case would fall under sub­sectionof Section 11 for appointment of Arbitrator by this Court. 18.In the aforesaid premises the Court in exercise of the Page 18 of 19 on : Fri Apr 23 23:03:54 IST 2021 C IAAP 40 2020 CAV JUDGMENTpowers conferred under sub­sectionread with sub­sectionand sub­section(2) of Section 11 appoints Mr. Jutice Kartikeya Thaker Former Judge of High Court of Gujarat to act as an Arbitrator to resolve the disputes between the parties. The learned Advocate Mr.Shankar appearing with Ms. Paurami Sheth for the petitioner is directed to obtain the requisite consent and declaration of Mr. Justice Thaker as required in terms of Sixth Schedule under Section 11(8) read with Section 12(1)(b) of the Arbitration and Conciliation Act 1996 as amended by the Arbitration & ConciliationAct 2015 to act as an Arbitrator within two weeks from today. On obtaining such declaration learned Advocate for the petitioner Mr. Shankar shall submit the same in the office within two weeks from today.19.In the aforestated premises and subject to the aforesaid directions the petition stands allowed accordingly. Rule is made absolute accordingly.(BELA M. TRIVEDI J) V.V.P PODUVAL SINDHU NAIRPage 19 of 19 

Summary: In absence of any procedure having been agreed upon for appointing the Arbitrator, and both the parties having failed to agree on the appointment of the Arbitrator, within thirty days from the receipt of the request made by the petitioner to the respondents, the case would fall under sub­ section (5) of Section 11 for appointment of Arbitrator by this Court. This was said in the case of Alphard Maritime Pvt. Ltd. vs Malara Enterprises [C/IAAP/40/2020] by Justice Bela M. Trivedi in the High Court of Gujarat at Ahmedabad.  The facts of the case are that the respondents were under a contract with the petitioners to provide dry docking services. The petitioner, sent a notice through E­ mail calling upon the respondents to pay the damages arising out of the breach of the contract and also invoked the arbitration Clause 13 requesting the respondents to appoint an independent and impartial sole Arbitrator as per the provisions of the said Act. However, the respondents refuted the very existence of the contract. The petitioner therefore has filed the petition seeking appointment of Arbitrator under Section 11 of the said Act, in view of the Clause­13 of the terms and conditions of the contract quoted by the respondents.  The petitioner contended that arbitration Clause­13 defined the contractual relationship between the partiesThe purchase order was issued by the petitioner pursuant to the Clause­11 of the quotation dated 26.09.2020. From the E­ mails exchanged and the conduct of the parties, it was evidently clear that there was an arbitration agreement as contemplated in Section 7 of the said Act. The existence of the Clause­13 is not denied by the respondents, the respondents have indirectly admitted to the validity of the Arbitration Clause, by stating that there was no ad idem between the parties on the arbitration agreement.  The respondents contended that the quotation by the respondents was merely an offer and not a binding contract, and that there was no arbitration clause in the purchase order. They further contended that assuming without admitting that the quotation contained the arbitration agreement, such passing reference of words in the terms and conditions of the quotation would not constitute a valid arbitration agreement as contemplated under Section 7 of the said Act.  The Court after perusing the interpretation of Section 7 of the said Act, said that “it can be safely deduced from the aforesaid legal position that the Arbitration Agreement even though in writing need not be signed by the parties, if the record of the agreement is provided by the exchange of letters, telex, telegrams or other means of telecommunications”.  Furthermore, the Court said that “though the parties had agreed to submit to the jurisdiction at the High Court of Gujarat for the purpose of arbitration, the procedure for the appointment of the Arbitrator was not agreed upon. It has also come on record that the petitioner had already called upon the respondents by sending a Notice of Arbitration through e­mail, calling upon them to appoint an independent and impartial Sole Arbitrator as per the provisions contained in the Act, however the respondents had refused to agree to the said request. So, the case falls under section (5) of Section 11 for appointment of Arbitrator by this Court”. Hence, the appeal stands allowed.