Citation Codes: 2024 SCC OnLine Del 2985 ; 2024:DHC:3379
Date of Judgement: 22 April 2024
Court: High Court of Delhi
Coram: Justice Prathiba M. Singh
Factual Background
KGPS Mechanical Pvt. Ltd. (hereinafter “Petitioner”) was awarded two contracts on 27 February 2020 regarding designing and construction of a structure. Later, seven more contracts not completed by the previous vendors were awarded to Petitioner by CINDA Engineering and Construction Pvt. Ltd. (hereinafter “Respondent”), a technical consultant company involved in the carbon black project at Dahej, Bharuch.
The Petitioner’s case was that there were payments dues on the part of the Respondent in lieu of work completed by the Petitioner for nine agreements. The Petitioner invoked arbitration vide notice dated 13 December 2023 with respect to seven agreements, including two which did not have an arbitration clause, to which the Respondent replied and acknowledged that there are nine agreements with independent arbitration clauses in each and proposed to appoint a sole arbitrator for the disputes instead of the three-member tribunal as stipulated in the nine agreements.
The above proposal was agreed by the Petitioner and consequently, the Petitioner sent names of three arbitrators to which the Respondent did not reply. Thereafter, the Petitioner initiated the present proceedings under Section 11(6) of the Arbitration & Conciliation Act (hereinafter “A&C Act”) seeking the appointment of the arbitrator. In the proceedings, the Respondent submitted that out of nine agreements, only five agreements have an arbitration clause.
Issue Involved in the case
Whether only the disputes under five agreements can be referred to arbitration which have an arbitration clause or whether the disputes with respect to all nine contracts, including four contracts which do not have an arbitration clause, should be together referred to the sole Arbitrator for arbitration.
Petitioner’s Position
The Petitioner contended that the correspondence and the conduct of the parties would show that the matter could be referred to arbitration. The Petitioner placed reliance on minutes of meetings wherein the Respondent agreed that all agreements are a part of one series of contracts. Moreover, the Petitioner placed reliance on the reply to the notice invoking arbitration to show the conduct of the Respondent in agreeing to refer disputes arising out of all nine contracts to arbitration.
To support their submission, the Petitioner relied on the decision of the Supreme Court in Powertech World Wide Limited v. Delvin International Generic Trading LLC. In this case, the court examined the correspondences between the parties and concluded that they had entered into a binding and valid arbitration agreement.
Respondent’s Position
The Respondent argued that the reply to the legal notice stating all nine agreements have independent arbitration clauses and proposing the appointment of sole arbitrator was issued under a mistaken impression of fact and a mistake by a counsel cannot be held against a client. Reliance was placed on the case of Himalayan Co-Operative Group Housing v. Balwan Singh, wherein the Supreme Court observed that unequivocal admissions of fact by counsel bind their clients. However, if there’s any doubt or if the counsel is not explicitly authorized, the court should be cautious in accepting these admissions.
The Respondent also argued that once a notice invoking arbitration has been issued, no new arbitration agreement can be read in the initial invocation, based on the correspondence between the parties.
Decision and Reasoning
The court emphasized that under Section 7 (4)(b) of the A&C Act, an arbitration agreement would be in writing if it is contained in the correspondence. The court observed that the correspondences show that the parties intended to refer the disputes with respect to all nine agreements to arbitration.
The court noted that the minutes of the meeting show that the Respondent referred to all nine contracts as part of the same set. The court also took note of the reply to the invocation of arbitration where Respondent suggested the appointment of a sole arbitration in respect of all nine contracts.
To come to its decision, the court referred to the following cases:
Ameet Lal Chand Shah & Ors. v. Rishabh Enterprises & Ors: In this case, the Supreme Court referred the dispute to arbitration arising out of four contracts, in which only three had arbitration clauses, as they were part of a single commercial project.
Powertech World Wide Ltd. v. Delvin International General Trading LLC: In this case, the Supreme Court resorted to the correspondence between the parties to conclude that a valid and binding arbitration agreement had been entered into.
S. Ghosh & Associates v. Delhi Development Authority: In this case, the Court held that correspondence where one party accepts the other’s proposal to refer the matter to arbitration satisfies the requirements of the valid arbitration agreement under Section 7(4) of the A&C Act, even without an explicit arbitration clause.
Mahanagar Telephone Nigam Ltd. v. Canara Bank and Others: In this case, the Court interpreted Section 7(4)(b) & 7(3) of the Act and observed that the arbitration agreement may not be in a particular form but what is to be looked into is the intention of the parties to settle their disputes and the same can also be implied from the documents/correspondence exchanged between the parties.
Surya Processors Pvt. Ltd. v. Shree Jai Gurudev Textile Agencies: In this case, the Delhi High Court observed that the conduct of the parties is the most relevant and determinative test and therefore it depends on case to case to ascertain whether the correspondences form an arbitration agreement or not.
About the Respondent’s contention that no new arbitration agreement can be read in the initial invocation, the court held that the date of invocation with respect to the five contracts would be 13 December 2023 (when the Petitioner sent invocation notice with respect to seven agreements, five having arbitration clause and two without arbitration clause) and the reply dated 4 January 2024 would be an invocation of the arbitration for the remaining four contracts. The final rejoinder by the Petitioner accepting the proposals made by the Respondent would be the consensus ad idem between the parties for reference to arbitration under all nine contracts.
While dealing with the contention of the Respondent with respect to the mistake of facts, the court separated the reply into two parts. First is the presumption of an arbitration clause in all agreements and second is the seeking of consent of Petitioner to refer disputes to sole arbitrator. The court held that the mistake in the first part would not obviate the proposal contained in the second part.
Lastly, the court identified several factors favoring the appointment of an arbitrator for disputes arising from all nine contracts: avoiding multiplicity, the interrelated nature of the contracts as part of the same project, correspondence indicating they were treated as a series of contracts, a clear proposal on 4 January 2024, and the Petitioner’s unequivocal consent on 9 January 2024.
Accordingly, the court referred the matter to arbitration appointing Justice A.K. Sikri (Retd.) as a ld. Sole Arbitrator to adjudicate the disputes.
Conclusion
The decision in this case has significant implications for arbitration law, particularly in the interpretation and application of Section 7(4)(b) of the A&C Act. The court’s emphasis on recognizing an arbitration agreement through correspondence aligns with a broader, pro-arbitration stance. This interpretation supports the notion that the intent and conduct of the parties, as evidenced through their communications, can suffice to establish a valid arbitration agreement, even in the absence of a formal arbitration clause in the contract.
By recognizing the validity of arbitration agreements through correspondence, the decision brings Indian arbitration law in line with international standards, which often prioritize the intent and agreement of the parties over strict formal requirements.
Author(s)
Gunjan Choudhary
Student at NLU, Odisha
Ishan Aryan
Student at NLU, Odisha