If several annexures/attachments of contract are prepared at different points of time, the latter in point of time would normally prevail over the earlier

 Another parallel principle that is equally relevant is that where the contract has several annexures/attachments, prepared at different points of time, unless a contrary intention is apparent, the latter in point of time would normally prevail over the earlier in point of time."{Para 32}

 IN THE HIGH COURT OF BOMBAY

Arbitration Application No. 250 of 2021

Decided On: 14.09.2023

Parekh Plastichem Distributors LLP Vs. Simplex Infrastructure Limited

Hon'ble Judges/Coram:

Firdosh P. Pooniwalla, J.

Citation:  MANU/MH/3701/2023,2023/BHC-OS/9920.

Read full Judgment here: Click here.

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Written, stamped or typed additions in the contract when inconsistent with the printed terms, would normally prevail over the printed terms"

  That leaves me to consider one more argument advanced by the Applicant. It is the case of the Applicant that the purchase orders contained an Annexure, in which against the title "Other Terms", it is stated that jurisdiction would be subject to Mumbai High Court. It is the submission of the Applicant that, because of this Clause, this Court would have jurisdiction under Section 11 of the Act to appoint an Arbitrator. In the context of this submission, the Applicant has referred to a judgment of the Hon'ble Supreme Court in the case of M. K. Abraham & Co. (Supra) and in particular to Paragraph No. 10 thereof, which reads as under:-

"10. If a contract consists of a printed form with cyclostyled amendments, typed additions and deletions and handwritten corrections, an endeavour shall be made to give effect to all the provisions. However, in the event of apparent or irreconcilable inconsistency, the following rules of construction will normally apply :

(i) The cyclostyled amendments will prevail over the printed terms;

(ii) The type-written additions will prevail over the printed terms and cyclostyled amendments;

(iii) Hand written corrections will prevail over the printed terms, cyclostyled amendments and typed written additions.

The above rules have evolved from the well known maxim of construction that "written, stamped or typed additions, when inconsistent with the printed terms, would normally prevail over the printed terms" and proceeds on the assumption that the printed form contained the original terms, and changes thereto were incorporated by the cyclostyled amendments, followed by changes by type-written additions and lastly the hand written additions. The logical explanation for such assumption is this: The printed form contains standardized terms to suit all contracts and situations. It is not drafted with reference to the special features of a specific contract. When such a standard form is used with reference to a specific contract, it becomes necessary to modify the standard/general terms by making additions/alterations/deletions, to provide for the special features of that contract. This is done either by way of an attachment of an annexure to the standard printed form, incorporating the changes, or by carrying out the required additions/alterations/deletions in the standard form itself. Such additions/alterations/deletions are done by typing/stamping/hand. We may refer to the following oft-quoted enunciation of the legal position by Lord Ellenborough in Robertson v. French MANU/ENRP/0600/1803 : [1803-13] All ER Rep.350 with reference to printed form of contract with hand- written additions :

....... that the words super added in writing are entitled, nevertheless, if there should be any reasonable doubt on the sense and meaning of the whole, to have a greater effect attributed to them than to the printed words, inasmuch as the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning and the printed words are a general formula adapted equally to their case and that of all other contracting parties on similar occasions and subjects".

Another parallel principle that is equally relevant is that where the contract has several annexures/attachments, prepared at different points of time, unless a contrary intention is apparent, the latter in point of time would normally prevail over the earlier in point of time."{Para 32}

 IN THE HIGH COURT OF BOMBAY

Arbitration Application No. 250 of 2021

Decided On: 14.09.2023

Parekh Plastichem Distributors LLP Vs. Simplex Infrastructure Limited

Hon'ble Judges/Coram:

Firdosh P. Pooniwalla, J.

Citation:  MANU/MH/3701/2023,2023/BHC-OS/9920.

Read full Judgment here: Click here.

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How to ascertain venue of arbitration if different venues are mentioned in purchase order and invoice?

 It is well settled law that, in order to consider whether there is any arbitration agreement between the parties and also in order to consider what is that arbitration agreement, the intention of the parties is paramount. The reason for this is obvious: that Arbitration is a consensual form of dispute resolution which, barring a few exceptions, can be resorted to only if parties have consented to the same.{Para 21}

22. In the light of this settled position in law, in the present case, it would have to be considered as to whether the parties intended to be bound by the Arbitration Clause contained in the purchase orders issued by the Respondent or by the Arbitration Clause contained in the invoices raised by the Applicant.

23. In my view, the parties intended to be bound by the Arbitration Clause contained in the purchase orders issued by the Respondent for the following reasons:-

A. The purchase orders issued by the Respondent constitute the main agreement between the parties which contained the terms and conditions on which the goods had to be supplied by the Applicant to the Respondent. These purchase orders contained the description of the goods to be supplied, the quantity, the rate at which they were to be supplied, the delivery schedule, the tax and fees schedule, the terms of payment, site for inspection, the test certificate to be furnished, the place of delivery and various other terms and conditions. These purchase orders, being the main agreement between the parties, it cannot be disputed that the Arbitration Clause contained in the said purchase orders had been agreed to by the parties.

B. Since the purchase orders constituted the main agreement between the parties, if the parties intended that the Arbitration Clause in the invoices raised by the Applicant should supersede the Arbitration Clause contained in the purchase orders, then, there ought to have been an express agreement between the parties to specifically override or supersede the Arbitration Clause contained in the purchase orders. However, there is no such express agreement between the parties which specifically provides that the Arbitration Clause in the invoices would supersede the Arbitration Clause in the purchase orders.

C. Just because the invoices raised by the Applicant contained an Arbitration Clause and state that the terms contained in the invoices would supersede any other terms agreed between the parties in the past, and the Respondent accepted the supplies under the said invoices and made some payments in respect thereof, the same cannot have the effect of the Arbitration Clause in the invoices superseding the Arbitration Clause in the purchase orders. This is more so since the Arbitration Clause in the purchase orders provided that a Sole Arbitrator would be appointed by the Company Secretary of the Respondent. It is difficult to accept that the Respondent agreed to such an Arbitration Clause being superseded by the Arbitration Clause in the invoices which provided that the Arbitrator would be nominated by the Applicant, unless there is an express agreement specifically overriding or superseding the Arbitration Clause in the purchase orders. It is also not possible to accept that the Respondent, which is based in Kolkata, agreed to Arbitration at Mumbai, instead of Arbitration at Kolkata, as provided in the Arbitration Clause contained in the purchase orders.

34. Since I have come to the conclusion that the Arbitration Clause in the purchase orders issued by the Respondent is the Arbitration Clause governing the parties, and since the said Arbitration Clause provides the venue and seat of the Arbitration as Kolkata, in the light of the law laid down by the Hon'ble Supreme Court in Indus Mobile Distribution Pvt. Ltd. V/s. Datawind Innovations Pvt. Ltd. and Ors. MANU/SC/0456/2017 : (2017) 7 Supreme Court Cases 678 the Courts at Kolkata will have jurisdiction to entertain an Application under Section 11 of the Act.

 IN THE HIGH COURT OF BOMBAY

Arbitration Application No. 250 of 2021

Decided On: 14.09.2023

Parekh Plastichem Distributors LLP Vs. Simplex Infrastructure Limited

Hon'ble Judges/Coram:

Firdosh P. Pooniwalla, J.

Citation:  MANU/MH/3701/2023,2023/BHC-OS/9920

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How to determine the court's jurisdiction when an agreement contains both arbitration and recourse to court clauses for dispute settlement?

The law related to the jurisdiction of the court in the matters pertaining to arbitration is no longer res integra. It has been held in various pronouncements that all the matters arising out of an agreement/contract would be decided by the court in whose jurisdiction the seat of arbitration is decided.

 17. In the case of Shree Bhowani Cotton Mills vs Union Textile Traders, MANU/WB/0114/1966, the Calcutta High Court has held as under:

"4. the other contention on behalf of the petitioner was that it appeared from a clause of the agreement that the Courts at Calcutta would have jurisdiction, that it was open to the parties to come to a Court of law and therefore the agreement as to arbitration was vague. Settlement of dispute through the medium of arbitration and through recourse to Court of law are two different aspects. It may be that the parties envisaged disputes which are not covered by the arbitration clause and in such a case the parties might have recourse to a Court of law. That is why the parties stipulated that the Courts at Calcutta would have jurisdiction. I am unable to find any inconsistency between the provisions or to hold that there is any vagueness or uncertainty or that the clause providing for resort to Courts of law in Calcutta nullifies the arbitration agreement. Further, counsel, for the respondent rightly contended that in a document of this nature if there was any inconsistency the earlier clause would prevail unlike in a Will where the later clause would prevail. I make it quite clear that I do not hold that there is any inconsistency....."

18. Thus, in light of the detailed discussions above, this court is inclined to hold that clause 18.2 shall have a prevailing effect over the latter clause 18.3 of the agreement dated 26th August 2013 with respect to the mode of dispute resolution. It is further observed that parties have agreed for the arbitration proceedings to take place in New Delhi which can be construed as the "seat" of the arbitration and therefore, this court has the jurisdiction to entertain the present petition.

IN THE HIGH COURT OF DELHI

Arb. P. 1102/2022 and O.M.P. (I) (Comm.) 328/2022

Decided On: 18.01.2023

Sunil Kumar Chandra Vs. Spire Techpark Pvt. Ltd.

Hon'ble Judges/Coram:

Chandra Dhari Singh, J.

Citation: MANU/DE/0337/2023

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What are exceptions to Exclusive jurisdiction clause in contract?

I would like to set down the principles which emerge upon a reading of the judgments cited by the counsel.

11.1. First, parties cannot confer jurisdiction on a court to which CPC applies if it otherwise does not arise in law. However, if in law, two or more courts have jurisdiction in respect of disputes arising between the parties, parties by an agreement can confine jurisdiction qua disputes arising between them to one court and, thus, in effect, put fetters on approaching a court other than the agreed court i.e. the designated court or courts located in a particular territory. Such an agreement is not contrary to public policy, or in restraint of legal proceedings in terms of the provisions of Sections 23 and 28 of the Contracts Act. [See: AVM Sales Corporation1]

11.2. Second, merely because terms such as 'exclusive', 'alone' or 'only' are not used, would have no bearing on concluding as to whether or not the jurisdiction clause obtaining in a contract entered into between the parties confers jurisdiction upon a court to the exclusion of all other courts if the words used in the contract are otherwise clear and unambiguous. The important facet being that the court which is conferred with jurisdiction should, otherwise, in law, have jurisdiction in the matter.

11.3. Third, the parties can, in law, forge or cobble up contracts which have a clause that requires one of the two disputants to approach the courts located in a particular jurisdiction [designated court] even while granting leeway to the other disputant to approach, for agitation of its grievance, not only the designated court but other courts of competent jurisdiction as well. [See: Mauritius Commercial Bank2]

11.4. Fourth, in an international contract, parties often confer jurisdiction on foreign courts located in neutral venues which have nothing to do either with the parties or the contract obtaining between them. [See: Modi Entertainment3]

11.5. Fifth, the courts have jurisdiction to grant anti-suit injunction where it is found that the proceeding that the defendant has taken out or intends to take out is vexatious or oppressive. [However, as would be noticed from the facts narrated hereinabove, that is not the precise frame of the instant suit.] It is, however, submitted on behalf of the plaintiff that if the instant application is allowed, the fact that the plaintiff would then have to approach, perhaps, the Danish courts, would be both vexatious and oppressive.] [See: Modi Entertainment]

11.6. Sixth, the clause concerning governing law would, ordinarily, have no bearing on concluding as to whether or not a clause obtaining in the contract entered into between the parties confers exclusive jurisdiction on a particular court where suits are instituted in India based on the provisions of CPC concerning cause of action. [See: Laxman Prasad4 and Metal Distributors (UK)]

Applicability of the principles:-

18.4 The foregoing shall not, however, preclude B&O from obtaining interim injunctive relief on an immediate basis from a court of competent jurisdiction, pending the initiation, or outcome, of the legal proceedings regarding an alleged breach of confidentiality obligations or infringement of intellectual property rights."

13.1. A perusal of the aforesaid extract would show that Clause 18.1 of the MDA is, in effect, the governing law clause. In terms of the principles articulated hereinabove, this clause, in my view, can have no bearing on the decision as to whether or not Clause 18.2 requires the plaintiff to approach the Danish court in the event it decides to sue the defendant.

13.2. This is for the reason that even if I were to agree with the submission of Mr. Mehta that Indian court has jurisdiction in the cause, it would, then, easily apply the Danish law subject to proof as per the provisions of The Indian Evidence Act, 1872 as to what is the position in the Danish law qua the issue at hand. As to what is the foreign law vis-a-vis the issue arising between disputants is a question of fact which, then, would have to be proved, inter alia, by reference to expert testimony. [See: Hari Shanker Jain vs. Sonia Gandhi, MANU/SC/0551/2001 : (2001) 8 SCC 2335]

13.3. However, when Clauses 18.2, 18.3 and 18.4 are read together, what emerges is this, in plain words: In the event, the plaintiff seeks to agitate any controversy arising out of the MDA, it will have to approach the venue where the defendant is located i.e. Denmark, in other words, the Danish courts.

13.4. This is evident from the fact that while Clause 18.2 says that the parties agree that any controversy arising under this agreement [i.e. the MDA] shall be presented before the court located at the defendant's venue [and that parties hereby submit themselves to the jurisdiction of the said court], the next clause i.e. 18.3 explicitly states that "notwithstanding the aforesaid, the defendant may elect to take legal action against the Master Dealer at the Master Dealer's venue" i.e. the Indian courts.

13.5. Likewise, Clause 18.4, in no uncertain terms, states that the foregoing i.e. clauses 18.1, 18.2 and 18.3 shall not preclude the defendant from obtaining interim injunctive relief, on an urgent basis, concerning matters involving breach of confidentiality or infringement of intellectual property rights from a court of competent jurisdiction pending initiation or outcome of legal proceedings.

14. Thus, what comes forth, is that, while the plaintiff can be sued by the defendant both in Danish courts and in Indian courts, the plaintiff can sue the defendant only in Danish courts. Concededly, both the Danish courts and Indian courts have jurisdiction and, therefore, it cannot be said, in this case, that parties have foisted jurisdiction on one or the other courts where none, in law, arises. Admittedly, a part of the cause of action has arisen in Denmark.

14.1. The defendant is, admittedly, situated in Denmark. Therefore, the parties could agree on confining the jurisdiction concerning disputes arising out of the MDA in the Danish courts even while giving leeway to one of the disputants i.e. the defendant to approach courts in India as well Danish Courts for agitating its grievance.

14.2. The logic and rationale of giving the defendant the leeway to approach Indian courts is obviously for the reason that the plaintiff's assets would be located in India and the goods which the defendant was required to supply under the MDA would possibly be sold in stores/shops located in India. The defendant, therefore, perhaps, required such play in the joints to ensure that the remedy available to it is efficacious.

14.3. Clauses 18.3 and 18.4 envisage a situation which is often captured in international contracts that enables a foreign party [in this case, a foreign supplier] to approach courts of competent jurisdiction [i.e. in this case, the Indian courts] for securing its interest having regard to the fact that the assets of the opposite party are often located in jurisdictions other than where the foreign party is situated.

14.4. These are, to my mind, clauses which provide, in a manner of speech, two strings to a bow to one of the parties [in this case, the defendant]. It is no one's case and none has been pleaded that the plaintiff was coerced into executing the MDA, in particular, concerning the provisions of Clause 18 of the MDA.

14.5. The fact that no grievance qua the same was made in the first 5 years only fortifies my view. These clauses, in my opinion, are neither against the public policy of India nor can be construed as clauses which fetter the plaintiff from taking recourse to a legal proceeding.

Ratio: the Court held that the law permitted the parties to an international contract to confer jurisdiction on foreign courts located in neutral venues which did not have any nexus either with the parties or the contract between them, and that as an extension of this autonomy the parties could further contract between themselves to require one of them to approach only the courts located in a particular jurisdiction in the case of dispute, even while granting leeway to the counter-party to approach not only the said identified court but other courts of competent jurisdiction as well.

 IN THE HIGH COURT OF DELHI

I.A. No. 4174/2020 in CS (COMM) 122/2020

Decided On: 24.08.2020

 Beoworld Pvt. Ltd. Vs.   Bang & Olufsen Expansion

Hon'ble Judges/Coram:

Rajiv Shakdher, J.

Citation: MANU/DE/1593/2020

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Whether interpretation of contract terms regarding taxes will be in arbitrator's domain?

 From the legal position as noted it is evident whether the service
tax liability has been agreed not to be passed on to the recipient of the
service would depend on the interpretation of clauses entered into
between the parties.
 In the instant case, the clause in question does not fix liability on
the contractor to pay service tax that apart from, the clause required
interpretation and in view of the aforenoted Judgments regarding the

interpretation of the contract, view taken by the learned Arbitrator
cannot be faulted.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION

APPEAL NO. 284 OF 2019
IN
ARBITRATION PETITION NO. 214 OF 2014

Central Warehousing Corporation Vs. Aqdas Maritime Agency Pvt. Ltd

CORAM : PRADEEP NANDRAJOG, C.J. &
N. M. JAMDAR, J.
DATE : 14 th JUNE, 2019.
 (Per Chief Justice)

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What is penta-test for interpretation of implied terms of contract?

 In the said decision, the Supreme Court further held that implied terms could be read into a contract only in exceptional cases, where the following “penta-test”, postulated by Lord Simon of Glaisdale in BP Refinery (Westernport) Pty Ltd. v. Shire of Hastings (1977) 180 CLR 266, 282-283:

“(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’ (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

In the High Court of Delhi at New Delhi

(Before C. Hari Shankar, J.)

Parsoli Motors Works Private Limited  v. BMW India Private Litmited .

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How doctrine of blue pencil is applicable for interpretation of agreement?

 In several cases, courts have held that partial invalidity in contract will not ipso facto make the whole contract void or unenforceable. Wherever a contract contains legal as well as illegal parts and objectionable parts can be severed, effect has been given to legal and valid parts striking out the offending parts.

In the present case, Clause 23 relates to arbitration. It is in various parts. The first part mandates that, if there is a dispute between the parties, it shall be referred to and finally resolved by arbitration. It clarifies that the rules of UNCITRAL would apply to such arbitration. It then directs that the arbitration shall be held in Delhi and will be in English language. It stipulates that the costs of arbitration shall be shared by the parties equally. The offending and objectionable part, no doubt, expressly makes the arbitrator's determination "final and binding between the parties" and declares that the parties have waived the rights of appeal or objection "in any jurisdiction". The said objectionable part, in my opinion, however, is clearly severable as it is independent of the dispute being referred to and resolved by an arbitrator. Hence, even in the absence of any other clause, the part as to referring the dispute to arbitrator can be given effect to and enforced. By implementing that part, it cannot be said that the Court is doing something which is not contemplated by the parties or by 'interpretative process', the Court is re-writing the contract which is in the nature of 'novatio'. The intention of the parties is explicitly clear and they have agreed that the dispute, if any, would be referred to an arbitrator. To that extent, therefore, the agreement is legal, lawful and the offending part as to the finality and restraint in approaching a Court of law can be separated and severed by using a 'blue pencil'.

26. The proper test for deciding validity or otherwise of an agreement or order is 'substantial severability' and not 'textual divisibility'. It is the duty of the court to severe and separate trivial or technical part by retaining the main or substantial part and by giving effect to the latter if it is legal, lawful and otherwise enforceable. In such cases, the Court must consider the question whether the parties could have agreed on the valid terms of the agreement had they known that the other terms were invalid or unlawful. If the answer to the said question is in the affirmative, the doctrine of severability would apply and the valid terms of the agreement could be enforced, ignoring invalid terms. 

IN THE SUPREME COURT OF INDIA

Arbitration Petition 1 of 2005

Decided On: 31.01.2006

Shin Satellite Public Co. Ltd. Vs. Jain Studios Limited

Hon'ble Judges/Coram:

C.K. Thakker, J.

Citation: AIR2006SC963

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Whether court exercises appellate nor supervisory in application filed U/S 34 of Arbitration Act?

It is mercifully unnecessary to repeat and quote the profusion of judicial authority on the issue that Section 34 jurisdiction is neither appellate nor supervisory; it is to ensure that awards are expressions of decisions of

agreed private judges, are broadly in conformity with law and are not preceded by an approach that betrays unreasonableness in procedure or outcome of the kind that would shock a court of law, or disclose patently erroneous understanding of law: [Ref Saw Pipes (supra) and Mc Dermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181]. The decision in Associate Builders v Delhi Development Authority [2015 (3) SCC 49] cautioned courts from intervening with findings in Arbitral Tribunal awards, on public policy grounds unless there was a patent error of law or a manifestly unreasonable finding (which have now become precepts for the approach under Section 34) thus: “33. It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his Arbitral Tribunal award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.”

19. The second facet which Courts must be conscious of is that if the arbitrator commits an error in contract interpretation, that is an error within her jurisdiction (Ref MSK Projects (I) (JV) Ltd v State of Rajasthan and Anr. 2011 (10) SCC 53; G. Ramachandra Reddy v Union of India and Anr. 2009 (6) SCC 414; McDermott International Inc. v. Burn Standard Co. Ltd. and Ors., (2006) 11 SCC 181 and Renusagar Power Co. Ltd. v. General Electric Co. and Anr. 1984 (4) SCC 679). In McDermott International (supra), the

Supreme Court clarified the Court’s inherent limitation by reason of Section 34 in such matters:

“112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. (See Pure Helium India (P) Ltd. v. ONGC [(2003) 8 SCC 593] and D.D. Sharma v. Union of India [(2004) 5 SCC 325]). 113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.” 20. Likewise, in Steel Authority of India v. Gupta Brothers 2009 (10) SCC 63, the Court held that Section 34 would be attracted in cases where an arbitrator “travels beyond the contract”, or makes an award “contrary to the terms of the contract”. Section 34, however, the Court stated, cannot be used to set aside awards in which there was an “error relatable to interpretation of the contract”, or if it was based on a “possible view of the matter”, or if it was based on a finding of law in a case where a “specific question of law [had been] submitted to the arbitrator.” In short, it is not the courts’ primary responsibility to examine the award as though they were sitting in appeal over it.

 IN THE HIGH COURT OF DELHI AT NEW DELHI

Decided on: 16.10.2018

 FAO (OS) 458/2012

POWER GRID CORPORATION OF INDIA  Vs L.S. CABLE 

CORAM:

HON'BLE MR. JUSTICE S. RAVINDRA BHAT

HON'BLE MR. JUSTICE A.K. CHAWLA

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Whether a matter can be referred to arbitration if there is mere reference of another Contract with an Arbitration clause?

Reliance may also be placed on M. Dayanand Reddy v. A.P. Industrial Infrastructure Corporation Ltd. (1993) 3 SCC 137 laying down that “the intention to refer to arbitration by such incorporation must be clear and specific. The question whether or not the arbitration clause contained in another document is incorporated in the contract, is always a question of construction this depends on the intention of the parties to be gathered from the relevant documents and surrounding circumstances….In the absence of clear intention of both the parties, agreement for arbitration cannot and should not be inferred”.

That brings me to M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696. Supreme Court therein held “there is a difference between reference to another document in a contract and incorporation of another document in a contract, by reference. In the first case, the parties intend to adopt only specific portions or part of the referred document for the purposes of the contract. In the second case, the parties intend to incorporate the referred document in entirety, into the contract. Therefore when there is a reference to a document in a contract, the court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in entirety into the contract, or with the intention of adopting or borrowing specific portions of the said document for application to the contract…. If a contract refers to a document and provides that the said document shall form part and parcel of the contract, or that all terms and conditions of the said document shall be read or treated as a part of the contract, or that the contract will be governed by the provisions of the said document, or that the terms and conditions of the said document shall be incorporated into the contract, the terms and conditions of the document in entirety will get bodily lifted and incorporated into the contract… On the other hand, where there is only a reference to a document in a contract in a particular context, the document will not get incorporated in entirety into the contract. For example, if a contract provides that the specifications of the supplies will be as provided in an earlier contract or another purchase order, then it will be necessary to look to that document only for the limited purpose of ascertainment of specifications of the goods to be supplied. The referred document cannot be looked into for any other purpose, say price or payment of price.” Applying the said principle, the “Acceptance Contract” between the plaintiff and the defendant no. 1 refers to the website only in the context of “Cancellation Rules” and such a reference can incorporate only the “Cancellation Rules” as given on the website into the “Acceptance Contract” and not the other terms and conditions contained on the website. Supreme Court in the said judgment also held that “A general reference to another contract will not be sufficient to incorporate the arbitration clause from the referred contract into the contract under consideration. There should be a special reference indicating a mutual intention to incorporate the arbitration clause from another document into the contract”.”

In the High Court of Delhi at New Delhi

(Before S.P. Garg, J.)

M/s. Shree Ganesh Metals 

v.

Glencore International AG & Anr. 

CS(COMM) 154/2017

Decided on November 2, 2017

The Judgment of the Court was delivered by

S.P. Garg, J. (Oral)

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What is use of contra proferentem rule in interpretation of insurance contract?

We proceed to deal with the submission made by counsel for the Appellant regarding the rule of contra proferentem. The Common Law rule of construction "verba chartarum fortius accipiuntur contra proferentem" means that ambiguity in the wording of the policy is to be resolved against the party who prepared it. MacGillivray on Insurance Law[1] deals with the rule of contra proferentem as follows:

"The contra proferentem rule of construction arises only where there is a wording employed by those drafting the clause which leaves the court unable to decide by ordinary principles of interpretation which of two meanings is the right one. "One must not use the rule to create the ambiguity - one must find the ambiguity first." The words should receive their ordinary and natural meaning unless that is displaced by a real ambiguity either appearing on the face of the policy or, possibly, by extrinsic evidence of surrounding circumstances."

(footnotes omitted)

Colinvaux's Law of Insurance[2]propounds the contra proferentem rule as under: " Quite apart from contradictory clauses in policies, ambiguities are common in them and it is often very uncertain what the parties to them mean. In such cases the rule is that the policy, being drafted in language chosen by the insurers, must be taken most strongly against them. It is construed contra proferentes, against those who offer it. In a doubtful case the turn of the scale ought to be given against the speaker, because he has not clearly and fully expressed himself. Nothing is easier than for the insurers to express themselves in plain terms.

The assured cannot put his own meaning upon a policy, but, where it is ambiguous, it is to be construed in the sense in which he might reasonably have understood it. If the insurers wish to escape liability under given circumstances, they must use words admitting of no possible doubt. But a clause is only to be contra proferentes in cases of real ambiguity. One must not use the rule to create an ambiguity. On must find the ambiguity first. Even where a clause by itself is ambiguous if, by looking at the whole policy, its meaning becomes clear, there is no room for the application of the doctrine. So also where if one meaning is given to a clause, the rest of the policy becomes clear, the policy should be construed accordingly."

(footnotes omitted)

11. This court in General Assurance Society Ltd. v. Chandmull Jain and Anr., reported in [1966] 3 SCR 500 held that there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberima fides, i.e., good faith on the part of the insured and the contract is likely to be construed contra proferentes, i.e., against the company in case of ambiguity or doubt. It was further held in the said judgment that the duty of the Court is to interpret the words in which the contract is expressed by the parties and it is not for the Court to make a new contract, however reasonable.

SUPREME COURT OF INDIA

M/s. Industrial Promotion & Investment Corporation of Orissa Ltd. Vs. New India Assurance Company Ltd. & ANR.

[Civil Appeal No. 1130 of 2007]

L. NAGESWARA RAO, J.

Dated:22 august 2016

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What are rules for interpretation of contract in standard format?

It is true that the agreement is in a standard form of contract. The standard clauses of this contract have been settled over the years and have been widely adopted because experience shows that they facilitate the supply of electric energy. Lord Diplock has observed: "If fairness or reasona- bleness were relevant to their enforceability the fact that they are widely used by parties whose bargaining power is fairly matched would raise a strong presumption that their terms are fair and reasonable." Schroder Music Co. Ltd. v. Macaulay, [1974] 3 All ER 6 16 (624). In such contracts a standard form enables the supplier to say: "If you want these goods or services at all, these are the only terms on which they are available. Take it or leave it." It is a type of contract on which the conditions are fixed by one of the parties in advance and are open to acceptance by anyone. The contract, which frequently contains many conditions is presented for acceptance and is not open to discussion. It is settled law that a person who signs a document which contains contractual terms is normally bound by them even though he has not read them, even though he is ignorant of the precise legal effect. 

Supreme Court of India

Bihar State Electricity Board, ... vs Green Rubber Industries And Ors on 24 November, 1989

Equivalent citations: 1990 AIR 699, 1989 SCR Supl. (2) 275

BENCH:
SINGH, K.N. (J)
FATHIMA BEEVI, M. (J)

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Golden Rules for interpretation of Insurance contract

Before we examine the issue involved in the case,
it is necessary to take note of the law laid down on the
subject by the Constitution Bench of this Court in

General Assurance Society Ltd. vs. Chandumull
Jain & Anr., AIR 1966 SC 1644.
31) The Constitution Bench in this case has explained
the true nature of contract relating to Insurance and
laid down the relevant factors which the courts should
keep in mind while interpreting the contract of
insurance.
32) Justice Hidayatullah, J. (as His Lordship then
was) speaking for the Bench in his distinctive style of
writing held in Para 11 as under:
“11. A contract of insurance is a species of
commercial transactions and there is a well
established commercial practice to send
cover notes even prior to the completion of a
proper proposal or while the proposal is being
considered or a policy is in preparation for
delivery. A cover note is a temporary and
limited agreement. It may be self contained
or it may incorporate by reference the terms
and conditions of the future policy. When the
cover note incorporates the policy in this
manner, it does not have to recite the term
and conditions, but merely to refer to a
particular standard policy. If the proposal is
for a standard policy and the cover note
refers to it, the assured is taken to have
accepted the terms of that policy. The

reference to the policy and its terms and
conditions may be expressed in the proposal
or the cover note or even in the letter of
acceptance including the cover note. The
incorporation of the terms and conditions of
the policy may also arise from a combination
of references in two or more documents
passing between the parties. Documents like
the proposal, cover note and the policy are
commercial documents and to interpret them
commercial habits and practice cannot
altogether be ignored. During the time the
cover note operates, the relations of the
parties are governed by its terms and
conditions, if any, but more usually by the
terms and conditions of the policy bargained
for and to be issued. When this happens the
terms of the policy are incipient but after the
period of temporary cover, the relations are
governed only by the terms and conditions of
the policy unless insurance is declined in the
meantime. Delay in issuing the policy makes
no difference. The relations even then are
governed by the future policy if the cover
notes give sufficient indication that it would
be so. In other respects there is no difference
between a contract of insurance and any
other contract except that in a contract of
insurance there is a requirement of uberrima
fides i.e. good faith on the part of the
assured and the contract is likely to be
construed contra proferentem that is against
the company in case of ambiguity or doubt. A
contract is formed when there is an
unqualified acceptance of the proposal.
Acceptance may be expressed in writing or it
may even be implied if the insurer accepts
the premium and retains it. In the case of the
assured, a positive act on his part by which
he recognises or seeks to enforce the policy
amounts to an affirmation of it. This position
was clearly recognised by the assured

himself, because he wrote, close upon the
expiry of the time of the cover notes, that
either a policy should be issued to him before
that period had expired or the cover note
extended in time. In interpreting documents
relating to a contract of insurance, the duty
of the court is to interpret the words in
which the contract is expressed by the
parties, because it is not for the court to
make a new contract, however reasonable, if
the parties have not made it themselves.
Looking at the proposal, the letter of
acceptance and the cover notes, it is clear
that a contract of insurance under the
standard policy for fire and extended to cover
flood, cyclone etc. had come into being.”
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.2140 OF 2007
United India Insurance Co. Ltd. ……Appellant(s)
VERSUS
M/s Orient Treasures Pvt. Ltd. ……Respondent(s)

Abhay Manohar Sapre, J.
Dated;January 13, 2016.
Citation:(2016)3 ALLMR441 SC

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How doctrine of severability is applicable for interpretation of contract?

Explaining the doctrine of severability contained in Section
57 of Indian Contract Act, 1872, in B.O.I. Finance Ltd., v.
Custodian and others (1997) 10 SCC 488, a three Judge
 Bench of this Court has
held that question of severance arises only in the case of a
composite agreement consisting of reciprocal promises. In Shin
Satellite Public Co. Ltd. V. Jain Studios Ltd.(2006) 2 SCC 628, this Court has observed that the proper test for deciding 
validity or otherwise of
an order or agreement is “substantial severability” and not
“textual divisibility”. It was further held by this Court that it is
the duty of the Court to sever and separate trivial and technical
parts by retaining the main or substantial part and by giving
effect to the latter if it is legal, lawful and otherwise enforceable.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 9151-9152 OF 2015
(Arising out of S.L.P. (Civil) Nos. 34129-34130 of 2014)
Elektron Lighting Systems 
Pvt. Ltd. and Anr.
V
Shah Investments Financial Developments
and Consultants Pvt. Ltd and Ors. Etc.
Dated;November 20, 2015.
 Citation: 2016(1)ABR190, 2015XII AD (S.C.) 289, 2016 1 AWC671SC, 2015(4)J.L.J.R.500, (2015)8MLJ629(SC), 2016(1)PLJR17, 2016(1)RCR(Civil)397, 2015(12)SCALE538

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Golden Rule for interpretation of commercial contract

  


   The Apex Court also in the case of Union of India vs.

D.N. Revri and Co., AIR 1976 SC 2257, held that a

commercial     document      between      the   parties    must   be

interpreted in such a manner as to give efficacy to the

contract rather than to invalidate it. The learned Judges

clarified it by saying: -


            "7. It must be remembered that a contract is a
           commercial document between the parties and it
           must be interpreted in such a manner as to give
           efficacy to the contract rather than to invalidate
           it. It would not be right while interpreting a
            contract, entered into between two lay parties, to
           apply strict rules of construction which are
           ordinarily applicable to a conveyance and other
           formal documents. The meaning of such a
           contract must be gathered by adopting a
           common sense approach and it must not be
           allowed to be thwarted by a narrow, pedantic
           and legalistic interpretation."

                          REPORTABLE

                                      IN THE SUPREME COURT OF INDIA
                                       CIVIL APPELLATE JURISDICTION


                                      CIVIL APPEAL NO.11438 OF 2014
                                    (Arising out of SLP(C)No. 20990 of 2013 )


                         M/s. Govind Rubber Ltd.                          ...Appellant (s)

                                                     versus

                         M/s. Louids Dreyfus Commodities
                         Asia Pvt. Ltd.                                   ...Respondent(s)


                                     Citation; (2015) 13 SCC 477.

                         M.Y. Eqbal, J.:

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Golden Rules for interpretation of arbitration contract

In the matter of interpretation, the court has to make
different approaches depending upon the instrument falling for
interpretation. Legislative drafting is made by experts and is
subjected to scrutiny at different stages before it takes final
shape of an Act, Rule or Regulation. There is another category
of drafting by lawmen or document writers who are
professionally qualified and experienced in the field like drafting
deeds, treaties, settlements in court, etc. And then there is the
third category of documents made by laymen who have no
knowledge of law or expertise in the field. The legal quality or
perfection of the document is comparatively low in the third
category, high in second and higher in first. No doubt, in the
process of interpretation in the first category, the courts do
make an attempt to gather the purpose of the legislation, its
context and text. In the second category also, the text as well
as the purpose is certainly important, and in the third category
of documents like wills, it is simply intention alone of the
executor that is relevant. In the case before us, being a
contract executed between the two parties, the court cannot
adopt an approach for interpreting a statute. The terms of the
contract will have to be understood in the way the parties
wanted and intended them to be. In that context, particularly in
agreements of arbitration, where party autonomy is the
grundnorm, how the parties worked out the agreement, is one
of the indicators to decipher the intention, apart from the plain
or grammatical meaning of the expressions and the use of the
expressions at the proper places in the agreement.
Contextually, it may be noted that in the present case, the
respondent had invoked the provisions of English law for the
purpose of the initiation of the unsettled disputes. It has hence,
while interpreting an agreement, to be kept in mind that the
parties, intended to avoid impracticable and inconvenient
processes and procedures in working out the agreement. Potter
J. made a similar observation in Cargill International S.A. v.
Bangladesh Sugar and Food Industries Corporation7
:
“As Lord Goff observed in another context in Palm
Shipping v. Kuwait Petroleum [1988] 1 Lloyds Rep
500 at 502: “It is not a permissible method of
construction to propound a general or generally
accepted principal ... (and) ... then to seek to force
the provisions of the ... (the contract) ... into the
straightjacket of that principle.” On the other
hand, modern principles of construction require
7
[1998] 1 W.L.R. 461 CA.

the court to have regard to the commercial
background, the context of the contract and the
circumstances of the parties and to consider
whether, against that background and in that
context, to give the words a particular or restricted
meaning would lead to an apparently
unreasonable and unfair result.”
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7019 OF 2005
BHARAT ALUMINIUM COMPANY ... APPELLANT (S)
VERSUS
KAISER ALUMINIUM TECHNICAL
SERVICES INC. ... RESPONDENT
Dated;January 28, 2016
Citation;(2016)4 SCC126

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Golden rules for interpretation of Insurance contract

 At the outset, it may be stated that contracts of

insurance are contracts of uberrima fides and every material

fact is required to be disclosed. In United India

Insurance Co. Ltd. v. M.K.J. Corpn.(1996) 6 SCC 428

, a two-Judge Bench

has observed:-

“It is a fundamental principle of Insurance law

that utmost good faith must be observed by

the contracting parties. Good faith forbids

either party from concealing (non-disclosure)

what he privately knows, to draw the other

into a bargain, from his ignorance of that fact

and his believing the contrary. Just as the

insured has a duty to disclose, “similarly, it is

the duty of the insurers and their agents to

disclose all material facts within their

knowledge, since obligation of good faith

applies to them equally with the assured”.”

Regard being had to these principles, the authorities

cited by Mr. Gupta, learned senior counsel for the appellant

are to be seen.

 In Amalgamated Electricity Co. v. Ajmer

Municipality (1969) 2 SCR 430 = AIR 1969 SC 227

, though in a different context, it has been

held that:-

“In construing the true nature of the contract

entered into between the parties, the contract has

to be read as a whole and if so read it is clear

that what the plaintiff undertook was to pump

water from the wells in question and not to

supply any electrical energy. Hence we are in

agreement with the learned Judges of the High

Court that the plaintiff's case in this regard

should fail.”

11. In Bay Berry Apartments (P) Ltd. and Another v.

Shobha and others  (2006) 13 SCC 737

, the Court has observed that in

construing a document, the Court cannot assign any other

meaning; and a document as is well known must be

construed in its entirety.

12. In Polymer India (P) Ltd. and Another v. National

Insurance Co. Ltd. and Others  (2005) 9 SCC 174

, this Court has held

thus:-

“19. In this connection, a reference may be made

to a series of decisions of this Court wherein it

has been held that it is the duty of the court to

interpret the document of contract as was

understood between the parties. In the case of

General Assurance Society Ltd. v. Chandumull

Jain  (1996) 3 SCR 500 : AIR 1966 SC 1644

, it was observed as under:

“In interpreting documents relating to a

contract of insurance, the duty of the court

is to interpret the words in which the

contract is expressed by the parties, because

it is not for the court to make a new

contract, however reasonable, if the parties

have not made it themselves.”

20. Similarly, in the case of Oriental Insurance

Co. Ltd. v. Samayanallur Primary Agricultural

Coop. Bank (1999) 8 SCC 543

, it was observed as under:

“The insurance policy has to be construed

having reference only to the stipulations

contained in it and no artificial far-fetched

meaning could be given to the words

appearing in it.”

21. Therefore, the terms of the contract have to

be construed strictly without altering the nature

of the contract as it may affect the interest of

parties adversely.”

13. Learned senior counsel for the appellant has also

drawn inspiration from the decision in General Assurance

Society Ltd. v. Chandmull Jain  (1966) 3 SCR 500 = AIR 1966 SC 1644

, rendered by the

Constitution Bench wherein it has been held that:-

“In other respects there is no difference between

a contract of insurance and any other contract

except that in a contract of insurance there is a

requirement of uberrima fides i.e. good faith on

the part of the assured and the contract is likely

to be construed contra proferentem that is against

the company in case of ambiguity or doubt. A

contract is formed when there is an unqualified

acceptance of the proposal. Acceptance may be

expressed in writing or it may even be implied if

the insurer accepts the premium and retains it.

In the case of the assured, a positive act on his

part by which he recognises or seeks to enforce

the policy amounts to an affirmation of it. This

position was clearly recognised by the assured

himself, because he wrote, close upon the expiry

of the time of the cover notes that either a policy

should be issued to him before that period had

expired or the cover note extended in time. In

interpreting documents relating to a contract of

insurance, the duty of the court is to interpret

the words in which the contract is expressed by

the parties, because it is not for the court to

make a new contract, however reasonable, if the

parties have not made it themselves. Looking at

the proposal, the letter of acceptance and the

cover notes, it is clear that a contract of

insurance under the standard policy for fire and

extended to cover flood, cyclone etc. had come

into being.”

14. Mr. Gupta, learned senior counsel for the appellant

has also drawn our attention to Baj (Run Off) Ltd. v.

Durham and others  (2012) UKSC 14

, wherein the Supreme Court of

United Kingdom, while interpreting the contract of

insurance has opined:-

“To resolve these questions it is necessary to

avoid over-concentration on the meaning of single

words or phrases viewed in isolation, and to look

at the insurance contracts more broadly. As Lord

Mustill observed in Charter Reinsurance Co. Ltd.

v. Fagan [1977] AC 313, 384

, all such words “must be set in the

landscape of the instrument as a whole” at p.381,

any “instinctive response” to their meaning “must

be verified by studying the other terms of the

contract, placed in the context of the factual and

commercial background of the transaction”. The

present case has given rise to considerable

argument about what constitutes and is

admissible as part of the commercial background

to the insurances, which may shape their

meaning. But in my opinion, considerable

insight into the scope, purpose and proper

interpretation of each of these insurances is to be

gained from a study of its language, read in its

entirety. So, for the moment, I concentrate on

the assistance to be gained in that connection.”

 Relying on the authorities which have been stated by

Mr. Gupta, it is submitted by him that the policy between

the parties is required to be read as a whole and on a

reading of the policy in entirety, it is clear that the

declaration of all the shipments whether covered under the

policy or not, is not mandatory and only the shipments in

respect of which claims are lodged are required to be As has been held in Chandmull Jain (supra) by the

Constitution Bench that in a contract of insurance, there is

a requirement of good faith on the part of the insured and

in case of ambiguity, it has to be construed against the

company. As per other authorities, the insurance policy

has to be strictly construed and it has to be read as a whole

and nothing should be added or subtracted. That apart, as

has been held in Polymer India (P) Ltd. (supra), it is the

duty of the Court to interpret the document as is

understood between the parties and regard being had to the

reference to the stipulations contained in it.

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2729 OF 2009

M/s. BHS Industries ... Appellant

Versus

Export Credit Guarantee Corp. & Anr. ... Respondents

Citation;(2015) 9 SCC414

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