Where the arbitration agreement does not specify the disputes between the parties to be referred to arbitration or does not exclude certain claims/disputes from the purview thereof, it must be presumed that the parties had agreed to submit to arbitration all disputes which have arisen or which may arise between them in respect of a defined legal relationship. A view to the contrary would render such an arbitration agreement redundant.
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Bombay High Court
Shri Sai Trading Company vs Corporation on 3 August, 2010
Bench: S.J. Vazifdar
DATED: 3RD AUGUST, 2010.
Citation; 2010(5) MHLJ765
1. This is an application under section 11 of the Arbitration and Conciliation Act, 1996 for the appointment of an arbitrator.
2. In circumstances which I will shortly mention the arbitral tribunal constituted with the consent of the parties withdrew from the reference in view of certain allegations having been made against them by the respondent. It is for this reason that the application has been filed.
3. The applicant and the respondent had entered into an agreement dated 27th April, 2006. The respondent appointed the applicant as an agent for collection of octroi imposed by the respondent for the period 1st May, 2006 to 30th April, 2007. The applicant was to pay a sum of Rs. 43, 06, 66, 666 during the contract period. The applicant was entitled to collect the entire octroi at the rate fixed by the respondent on the goods imported within the octroi limits of the respondent for the said period and for the area stipulated in the agreement. Clauses 15 and 16 of the agreement read as under: --
3 ARBP14.07 "15) In case of any dispute the same shall be referred to the Commissioner of the Corporation and his decision shall be final and binding on the agent. The appeal in respect of any decision of the Commissioner lie to the Government of Maharashtra (Urban Development).
However the agent shall within a period of 30 days from receipt of decision by the Commissioner shall indicate his intention to refer the dispute to the Government of Maharashtra (Urban Development)."
16) This agreement will be governed by the provisions of Arbitration and Conciliation Act, 1996."
4. According to the applicant it suffered losses of about Rs.11 crores as a result of an indefinite strike called for by various organisations of traders, natural calamities including flooding of the Krishna river in the months of July and August 2006 and the respondent having allegedly illegally granted a 50% concession in octroi for industrial units from certain areas.
Representations were, therefore, made by octroi agents to the Government of Maharashtra for remission of the amount of the loss suffered by them. The respondent however did not consider the applicants representations and in fact invoked the bank guarantee furnished at the instance of the Applicant.
This being an application under section 11, it is not necessary to express any view about the rival contentions on merits.
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5. On 15th February 2007 the general body of the respondent discussed the matter. As I have been furnished a translation of the minutes of the meeting I will quote the relevant resolutions passed at the meeting. They read as under : --
"2. As per Term No. 16 in the Agreement, Arbitration and Conciliation Act, 1996 is applicable to this agreement. For recovery of arrears amount of Rs. 2, 61, 96, 255/-- from the Octroi Contractor, this Meeting is authorising the Commissioner to take prescribed action for appointing Retired Judge in the High Court or Constitutional Officer as Arbitrator and Conciliator with consent of Octroi Agents and Municipal Corporation and this Meeting is giving approval for the expenses to be incurred therefore.
3. In the aforesaid matter, if the order of arbitrator is against the financial interests of Municipal Corporation, then this meeting is giving its approval to file dispute by approaching appropriate Court and to the expenses that will be incurred."
6. By a letter dated the 17th February, 2007, the Commissioner of the Respondent directed the Applicant to remain present on 21st February, 2006 in his office to discuss the various issues, including appointing the arbitral tribunal for recovery of the respondents dues.
5 ARBP14.07 7(A). The applicant submitted its representation to the Commissioner. On the same day the Commissioner passed an order rejecting the Applicant's contentions and ordering the appointment of the arbitral tribunal. The translation of the operative part of the order reads thus : -
"By appointing Retired Judge in the High Court or Constitutional Officer as Arbitrator, consent of them and of Octroi Agent be obtained. The expenses to be incurred in this regard will be borne by concerned."
(B). Further correspondence ensued between the parties regarding the constitution of the arbitral tribunal. An arbitral tribunal consisting of three learned arbitrator's was constituted in February 2007. The arbitral tribunal entered upon reference. They decided an application for interim reliefs. The respondent challenged the same. I do not consider it necessary to refer to any of the submissions made by the learned counsel regarding the nature of the order and the conduct of the arbitral tribunal.
Suffice it to state that in view of various allegations made by the respondent against the arbitral tribunal the members thereof withdrew from the proceedings.
6 ARBP14.07 (C). By a letter dated 28th March, 2007, the applicant submitted an application to the respondent for appointing new arbitrator's. The respondent however by a letter dated 30th March, 2007 contended that there is no arbitration agreement between the parties. It is in these circumstances that the present application has been filed.
8. I will proceed on the basis that if the agreement did not contain an arbitration clause the earlier reference of disputes to the arbitral tribunal would not entitle the applicant to succeed in this application. I must however in fairness to Mr. Godbole mentioned that he had raised various submissions on the basis of the same which I have not considered as in my opinion clause 16 of the agreement is an arbitration agreement.
9. Clause 15 is not an arbitration agreement. Nor do I find an arbitration agreement to be comprised in clauses 15 and 16 read together. In other words, a combined reading of these two clauses does not constitute the Commissioner of the respondent an arbitrator. The two clauses are separate and distinct. Clause 15 in any event does not exclude the operation of clause 7 ARBP14.07
16. It does not denude the jurisdiction of the arbitrator under clause 16. The effect of a decision of the Commissioner under clause 15 on the merits of the applicant's claim weather before an arbitral tribunal or any other forum is another matter altogether.
10. Clause 16 indeed is not the usual arbitration clause found in most agreements. I must, as far as possible, give the clause meaning. It is not the respondent's case that the clause was included inadvertently. It is reasonable, therefore, to assume that it was incorporated in the agreement for some purpose and consciously. I cannot possibly presume that the parties had no intention of referring their disputes and differences to arbitration. If that were the presumption the clause can be given no meaning, - it would serve no purpose. The clause would be otiose.
11. By providing that the agreement would be governed by the provisions of the Arbitration and Conciliation Act, 1996, clause 16 to my mind clearly posits an agreement to submit to arbitration disputes, which may arise between the parties. There is no other aspect of the agreement which can be 8 ARBP14.07 governed by the said Act. It can hardly be suggested that the parties intend the said Act to be applicable to the agreement without their having intended to have the disputes in respect thereof referred to arbitration. That would render the clause absurd. Significantly there was no explanation on the part of the respondent as to the purpose of clause 16. I am, therefore, of the view that clause 16 is a valid agreement to refer the dispute between the parties in respect of the said agreement to arbitration.
12. Clause 16 is in the widest terms. It does not restrict the submission to arbitration to only certain disputes in respect of the said agreement. The absence of any limitation about the disputes to be referred to arbitration leads to the conclusion that the parties intended to refer and submit all disputes between themselves in respect of the agreement to arbitration.
Section 2 read with section 7 of the said Act supports this view.
13. Sections 2 and 7 read as under: -
"2. Definitions.--(1) In this Part, unless the context otherwise requires,--
(a) .....................................................................
(b) "arbitration agreement" means an agreement referred to in Section 7;
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7. Arbitration agreement.--(1) In 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.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in--
(a) a document signed by the parties;
(b) an 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 which 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."
14. Where the arbitration agreement does not specify the disputes between the parties to be referred to arbitration or does not exclude certain claims/disputes from the purview thereof, it must be presumed that the parties had agreed to submit to arbitration all disputes which have arisen or which may arise between them in respect of a defined legal relationship. A view to the contrary would render such an arbitration agreement redundant.
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15. Mr. Walawalkar, the learned senior counsel appearing on behalf of the Respondent, submitted that the matter is sensitive and of considerable importance and seriousness. I agree. That however would make no difference to the applicability of the arbitration agreement.
17. In the circumstances, the application is allowed as prayed. Mr. Justice S.N. Variava (Retd.) is appointed as the sole arbitrator. There shall be no order as to costs.
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