REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION PETITION NO.18 OF 2010
M/s. Reva Electric Car Co. P. Ltd. ...Petitioner
VERSUS
M/s. Green Mobil ...Respondent
O R D E R
SURINDER SINGH NIJJAR, J.
1. The petitioner has filed the present application under Sections
11(4) and (6) of the Arbitration and Conciliation Act, 1996 read with
paragraph 2 of the Appointment of the Arbitrators by the Chief Justice of
India Scheme, 1996. It is stated that the parties had entered into a
legally valid and enforceable Memorandum of Understanding (`MOU’)
– 1 –
dated 25th September, 2007, providing, inter alia, for the respective
obligation of both the parties in connection with the marketing of the
cars of the petitioner. Though the term of the MOU was till December,
2007, it was extended by the acts of the parties in terms of Clause 2 of
the MOU.
2. The petitioner makes a reference to various requests made by the
respondent for supply of cars in terms of MOU on 22nd April, 2008; 24th
August, 2008; and 1st April, 2009. The petitioner further claims that
some time in September 2009, disputes arose between the parties.
Numerous e-mails were exchanged between the parties, apart from
the personal discussions between their representatives, touching and
covering the disputes. It is the petitioner’s claim that during the term of
MOU, merely 15 cars of the petitioner had been sold in the Belgium
Region. The petitioner, therefore, claimed that the respondent did not
have in place the necessary resources to build the brand of the
petitioner. Consequently, through e-mail dated 25th September, 2009 the
petitioner requested the respondent to immediately cease sales and
– 2 –
marketing activities on its behalf and take necessary steps of providing
after sales and service to existing car owners, till such time the
petitioner appointed its new distributor. The petitioner claims that the
aforesaid e-mail duly constituted the termination of the contractual
relationship between the parties as covered under the MOU.
3. As a consequence of the aforesaid termination, the parties have
exchanged various e-mails raising claims and counter claims on 6th /7th
/8th October, 2009.
4. The petitioner further claims to have received a Writ of Summons
dated 14th January, 2010 of legal proceedings initiated by the
respondent in Belgium before the First Divisional Court, Room A of the
Commercial Court in Brussels. According to the petitioner, the claims
made by the respondent before the Commercial Court, Brussels disclose
that the respondent instituted the legal proceedings inter alia claiming
damages from the petitioner on account of termination of the MOU dated
25th September, 2007. On 15th March, 2010, the counsel for the
– 3 –
respondent sent an e-mail communication that the respondent was
willing to negotiate a global settlement with the petitioner and that the
respondent through its counsel would be available to discuss any such
proposal. According to the petitioner, the aforesaid communication also
acknowledges the fact that the rights and obligation of both the parties
were covered by the distributorship agreement, i.e. the MOU, which
stood duly terminated.
5. The petitioner thereafter issued a notice dated 24th March, 2010
through its counsel in terms of Clause 11 of the MOU invoking
arbitration under the MOU and referring all disputes between the parties
to arbitration. The petitioner in fact nominated Mr. Justice Jayasimha
Babu (Retired) as the Sole Arbitrator, and failing confirmation by the
respondent, as the arbitrator of the petitioner on the three member
Arbitral Tribunal to be constituted in terms of Clause 11.
– 4 –
6. The respondent through its counsel sent a reply to the notice dated
7th April, 2010 denying existence of any contractual relationship between
the parties on the date of termination of MOU on 25th September, 2009.
7. The petitioner, therefore, filed Arbitration Application No.576 of
2010 under Section 9 of the Arbitration and Conciliation Act, 1996
before the Court of the Principal City Civil & Sessions Judge at
Bangalore praying for an order of injunction restraining the respondent
from proceeding with the legal proceedings initiated before the First
Divisional Court, Room A of Commercial Court of Brussels, Belgium.
8. The petitioner had also moved I.A.No.1 in the aforesaid suit dated
19th April, 2010 seeking an order of temporary injunction which was
granted by the Principal City Civil & Sessions Judge at Bangalore on 21st
April, 2010. Thereafter the petitioner has moved the present application
for appointment of the Arbitrator in terms of Clause 11 of the MOU
which reads as under:-
“11. Governing Law and Jurisdiction
– 5 –
i. This MOU shall be construed and enforced in accordance
with the laws of India.
ii. In the event of any dispute or difference arising at any
time between the parties hereto as to the construction,
meaning or effect of this Agreement or thing contained herein
or the rights, duties, liabilities and obligations of the parties
hereto in relation to this Agreement, the same shall be referred
to a single arbitrator, in case the parties can agree upon one
(1) within a period of thirty days upon being called by a party
to do so and failing such agreement to three (3) arbitrators one
(1) each to be appointed by GREENMOBIL and RECC and the
third to be appointed by the two arbitrators so appointed. The
award passed by such arbitrator(s) shall be final and binding
on both the parties.
All such arbitration proceedings shall be held in Bangalore as
per the Arbitration and Conciliation Act, 1996 as amended
from time to time.”
9. In reply to the aforesaid petition, the respondent claimed that the
MOU dated 25th September, 2007 expired on 31st December, 2007. The
petition does not clearly set out the claim or the period of the claim but
the documents and implication of the contents of the present petition
seem to indicate that the claim of the petitioner is in respect of the
commercial distribution of the cars which commenced from 1st January,
2008 i.e. after the expiry of Memorandum of understanding. It is also the
plea of the respondent that the MOU relate to a test and trial period
– 6 –
which came to an end on 31st December, 2007, after which the parties
decided to enter into a distribution agreement which was sent by the
petitioner to the respondent on 15th November, 2007, i.e., 15 days prior
to the expiry of the MOU. Therefore, the arbitration clause relied upon by
the petitioner does not cover any disputes/claims that relate to any
period beyond 31st December, 2007. It is further claimed that the
petition is only a counterblast to the proceedings filed by the respondent
before the Commercial Court at Brussels. This, according to the
respondent, is evident from the fact that the respondent had instituted
the proceedings in the Commercial Court at Brussels on 14th January,
2010; the petitioner was intimated about the said proceedings vide e-
mail dated 15th March, 2010; and the notice invoking the arbitration
clause in the MOU is dated 24th March, 2010. It is, therefore, clear that
the arbitration clause is invoked only to avoid proceedings before the
Commercial Court at Brussels. It is emphasised that the proceedings
before the Commercial Court at Brussels related to the period beyond
the MOU when the parties had commenced work of distributorship or
dealership after the test trial period under the MOU had come to an end.
– 7 –
10. I have heard the learned counsel for the parties.
11. Mr. Narasimha, learned senior counsel appearing for the petitioner
submits that the averments made by the respondent in reply to the
petition make it abundantly clear that the disputes pertained to the
MOU dated 25th September, 2007. According to the learned counsel,
there was no fresh agreement entered into between the parties. Cars
were being supplied to the respondent in terms of Clause 2 of the MOU.
Making a reference to Clause 2, learned counsel submits that the
aforesaid clause makes it clear that the MOU was effective for a period of
three to six months, from the date of arrival of the cars in Belgium. This
term was to be considered as the trial period. On completion of the trial
period but not later than 3rd December, 2007, the parties were to
mutually decide to continue the marketing, sales, and service of the
work hours by the respondent. They were also to enter into a fresh long
term agreement on mutually agreed terms and conditions. He submits
that till the date of the termination of the MOU, no fresh agreement had
– 8 –
been entered into between the parties. Relying on the last sentence of
the Clause 2, Mr. Narasimha submits that it was the sole discretion of
the petitioner to extend the MOU in case the petitioner believed that the
additional time is required to complete the trial period. The aforesaid
portion of Clause 2 is as under :-
“RECC, at its sole discretion, may decide to extend the MOU if
RECC believes that additional time is required to complete the
trial period.”
12. He further submits that although the cars were being supplied to
the respondent but the petitioner was not satisfied with the progress
made in the number of cars sold by the respondent. Therefore, the
respondent was constrained to terminate the MOU, after a period of two
years from the commencement.
13. According to Mr. Narasimha, respondent has initiated the
proceedings in the Brussels Court only to pre-empt the initiation of legal
proceedings by the petitioner. He points out that the pleadings in the
Writ of Summons, clearly show: that the respondent was only concerned
with the effect of the termination and not the period of the MOU.
– 9 –
Respondent has admitted that the contractual relationship started in
2007. The respondent has admitted that there is no other subsequent
agreement. In Paragraph 18 of the Writ of Summons, the respondent
admits that the contractual relationship was subsisting till September,
2009. In Paragraph 30, it is admitted by the respondent that “the party
summoned below terminated the contract in an untimely and brutal
manner on 25th September, 2009”.
14. He points out that the disputes have arisen in relation to the
termination of the MOU and the consequences thereof. Such disputes
are clearly covered by the arbitration clause which clearly provides for
resolution of disputes through arbitration. The clause provides that in
the event of any dispute or difference arising at any time between the
parties in relation to the agreement shall be referred to a Sole Arbitrator.
The clause, according to the learned senior counsel, is not limited to the
disputes relating only to the initial period of the MOU till
31st December 2007.
– 10 –
15. He submits irrespective of whether the MOU is now in existence or
not, the Arbitration clause would survive. He relies on the decisions of
this Court in the cases of Bharat Petroleum Corporation Ltd. Vs.
Great
Eastern Shipping Company Ltd.1
and Everest Holding Limited
Vs. Shyam
Kumar Shrivastava & Ors.2
He further submits that this
Court is required to refer the disputes between the parties to the Sole
Arbitrator, without any in-depth examination of the disputes. The Court
is merely to be satisfied that the disputes fall within the ambit of the
Arbitration Clause. In support of this submission, he relies on the
judgment of this Court in Brigadier Man Mohan Sharma, FRGS (Retd.)
Vs. Lieutenan
t General Depinder Singh3
. He also relies on the
judgment in the case of National Insurance Company Limited Vs.
Boghara
Polyfab Private Limited4
, in support of the submission all
disputes are such which need to be decided by the Sole Arbitrator on
merits, and can not be decided by this Court in a petition under Section
11(4) and 6 of the Arbitration and Conciliation Act, 1996. Learned
1 2008 (1) SCC 503
2 2008 (16) SCC 774
3 2009 (2) SCC 600
4 2009(1) SCC 267
– 11 –
counsel further submits that in accordance with the aforesaid clause the
petitioner had already nominated the Sole Arbitrator. The respondent
has, however, not accepted the aforesaid arbitrator. At the same time, it
had expressed its willingness to negotiate the global settlement with the
petitioner.
16. On the other hand, Ms. Tasneem Ahamadi, has submitted that the
MOU having come to an end by efflux of time, there was no question of
any termination as claimed by the petitioner. She further submits that
the notice invoking arbitration was sent only as a counterblast to the
summons received by the petitioner from the Brussels Commercial
Court. Learned counsel further submitted that the disputes which form
the basis of the claim in the Brussels Commercial Court pertained to a
period subsequent to the period covered by the MOU. The arbitration
clause in the MOU relates only to disputes which relate to the test and
trial period. Hence, an arbitrator can not be appointed for settlement of
disputes which occurs / relate to a period after 31st December, 2007.
The disputes raised before the Commercial Court at Brussels are not
– 12 –
covered by the arbitration clause in the MOU. She had made a detailed
reference to numerous e-mails exchanged between the parties to submit
that the parties had in fact entered into a long term contract. This was
only to be reduced to a formal document. Since the disputes are not
covered by the arbitration clause, there can be no reference. In support
of the aforesaid submission, learned counsel relies on a judgment of this
Court in the case of SBP & Co. Vs. Patel
Engineering Ltd. & Anr.5
.
In view of the law laid down in the aforesaid judgment, according to the
learned counsel, the arbitration petition deserves to be dismissed.
17 I have considered the submissions made by the learned counsel for
the parties. It appears that the submissions made by Ms. Ahamadi that
the question with regard to the existence of a valid arbitration agreement
would have to be decided by this Court, is not without merit. This Court
has on a number of occasions examined the scope and ambit of the
jurisdiction of the Chief Justice or his designate under Section 11 of the
Arbitration and Conciliation Act, 1996. A reference in this connection
5 2005 (8) SCC 618
– 13 –
can be made to the judgment of this Court in SBP & Co. (supra) wherein
a Constitution Bench of this Court has clearly held as under:
“39. It is necessary to define what exactly the Chief Justice,
approached with an application under Section 11 of the Act, is
to decide at that stage. Obviously, he has to decide his own
jurisdiction in the sense whether the party making the motion
has approached the right High Court. He has to decide
whether there is an arbitration agreement, as defined in the
Act and whether the person who has made the request before
him, is a party to such an agreement. It is necessary to
indicate that he can also decide the question whether the
claim was a dead one; or a long-barred claim that was sought
to be resurrected and whether the parties have concluded the
transaction by recording satisfaction of their mutual rights
and obligations or by receiving the final payment without
objection. It may not be possible at that stage, to decide
whether a live claim made, is one which comes within the
purview of the arbitration clause. It will be appropriate to leave
that question to be decided by the Arbitral Tribunal on taking
evidence, along with the merits of the claims involved in the
arbitration. The Chief Justice has to decide whether the
petitioner has satisfied the conditions for appointing an
arbitrator under Section 11(6) of the Act. For the purpose of
taking a decision on these aspects, the Chief Justice can either
proceed on the basis of affidavits and the documents produced
or take such evidence or get such evidence recorded, as may
be necessary. We think that adoption of this procedure in the
context of the Act would best serve the purpose sought to be
achieved by the Act of expediting the process of arbitration,
without too many approaches to the court at various stages of
the proceedings before the Arbitral Tribunal.”
– 14 –
In the case of National Insurance Co. Ltd. (supra), this Court again
examined the question with regard to the scope of the jurisdiction under
Section 11(6). In doing so, this Court explained the ratio of the
Constitution Bench in SBP & Co. (supra). In Para 21 of the Judgment,
the power of the Arbitral Tribunal in cases where the disputes are
referred to arbitration without the intervention of the court has been
distinguished from the power in matters where the intervention of the
court is sought for appointment of an Arbitral Tribunal. In case where
the matters are sought to be referred to arbitration without the
intervention of the court it has been held that the Arbitral Tribunal
can decide the following questions affecting its jurisdiction: (a) whether
there is an arbitration agreement; (b) whether the arbitration agreement
is valid; (c) whether the contract in which the arbitration clause is found
is null and void, and if so, whether the invalidity extends to the
arbitration clause also.
18. In matters, where the intervention of the Chief Justice of India has
been sought for appointment of a sole arbitrator under Section 11(4), (5)
– 15 –
and (6) of the Arbitration Act, 1996, the Chief Justice or his designate
will have to decide certain preliminary issues. It would be apposite to
notice here the relevant observations made in Para 22, which are as
follows :-
“22. This Court identified and segregated the preliminary
issues that may arise for consideration in an application
under Section 11 of the Act into three categories, that is, (i)
issues which the Chief Justice or his designate is bound to
decide; (ii) issues which he can also decide, that is, issues
which he may choose to decide; and (iii) issues which should
be left to the Arbitral Tribunal to decide.
22.1. The issues (first category) which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the application has approached
the appropriate High Court.
(b) Whether there is an arbitration agreement and whether the
party who has applied under Section 11 of the Act, is a party
to such an agreement.
22.2. The issues (second category) which the Chief Justice/his
designate may choose to decide (or leave them to the decision
of the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live
claim.
(b) Whether the parties have concluded the
contract/transaction by recording satisfaction of their mutual
rights and obligation or by receiving the final payment without
objection.
– 16 –
22.3. The issues (third category) which the Chief Justice/his
designate should leave exclusively to the Arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration clause (as
for example, a matter which is reserved for final decision of a
departmental authority and excepted or excluded from
arbitration).
(ii) Merits or any claim involved in the arbitration. ”
These observations were further reiterated by this Court in the case of
A.P. Tourism Development Corporation Ltd. Vs. Pampa Hotels Ltd.6.
The aforesaid ratio of law has been reiterated by this Court in Alva
Aluminium Limited, Bangkok Vs. Gabriel India Limited7. Upon
consideration of the entire case law, it has been observed as follows :-
“18. It is in the light of above pronouncements, unnecessary
to delve any further on this issue. It is clear that once the
existence of the arbitration agreement itself is questioned by
any party to the proceeding initiated under Section 11 of the
Act, the same will have to be decided by the Chief
Justice/designate as the case may be. That is because
existence of an arbitration agreement is a jurisdictional fact
which will have to be addressed while making an order on a
petition under Section 11 of the Act.”
6 [2010 (5) SCC 425].
7 [2011 (1) SCC 167].
– 17 –
19. In view of the aforesaid authoritative dicta, the submission of Ms.
Ahamadi has to be accepted that in a petition under Sections 11(4)(5)(6)
and (9) of the Arbitration Act, 1996, it is for the Chief Justice of
India/his designate to decide about the existence of a valid arbitration
agreement. Now let me examine the facts in the present case keeping in
view the aforesaid well settled principles.
20. There is no dispute that the parties had entered into a legally valid
and enforceable MOU dated 25th September, 2007. There is also no
dispute that Clause 11 provides that disputes arising between the
parties, at any time, in relation to the MOU, shall be referred to
arbitration. Clause (2) of the MOU, undoubtedly, fixes the trial period
upto 31st December, 2007. However, the clause also provides that the
petitioner may unilaterally decide to extend the MOU, if it considers
necessary. The correspondence between the parties would show that the
petitioner had proposed a draft distribution agreement to the respondent
for discussion. Thereafter, a series of e-mails were exchanged between
the parties, but making it apparent that no final consensus was reached.
– 18 –
It would, therefore, appear that the MOU was duly extended till it was
terminated as averred by the petitioner.
21. The petitioner has categorically pleaded that the MOU was
terminated on 25th September, 2009. The petitioner has placed on record
the e-mail dated 25th September, 2009 in which it is clearly stated that
MOU was entered into on 25th September, 2007 for a test period of
six months from the date of arrival of the trial cars. It is further stated
that this period was extended on an informal and voluntary basis by the
petitioner for a period extending to two years from the date of signing of
the MOU. During this two years period, a total of 15 REVA cars have
been sold. It is pointed out that inspite of the best efforts of the
respondent and the efforts of the petitioner to support the respondent,
following a review of the European operations it is believed that the
respondents do not have in place the resources to build the REVA brand,
invest in the appropriate infrastructure, obtain necessary fiscal and/or
subsidy and infrastructure support and are not adequately prepared to
launch the M1 vehicles introduced by REVA at the Frankfurt IAA.
– 19 –
Thereafter it requests the respondents to immediately cease all sales and
marking activities on behalf of REVA brand. This termination of the
agreement has been acknowledged by the respondents in its e-mail
dated 7th October, 2009. A perusal of this e-mail would also
demonstrate that the disputes had clearly arisen between the parties at
that time. The e-mail makes a grievance that the respondents had not
been notified of the termination of its dealership activities a few weeks
ago when it had informed the petitioner of its negotiations with potential
Dutch partners. The respondents also repeated its disappointment that
the win-win soft-landing solution it proposed on 25th September, 2009
was rejected by the petitioner. Rest of the correspondence between the
parties continues in the same tenor. Clearly, therefore, the MOU has
been extended till its termination on 25th September, 2009. It is also
evident that the parties had failed to reach any fresh agreement with
regard to sale of REVA cars in Europe by the respondents. In my
opinion, the pleadings and the material on record has clearly established
that there was a valid arbitration agreement incorporated in Clause 11 of
the MOU.
– 20 –
22. This takes me to the second submission of Ms.Ahamadi that, in
any event, the disputes cannot be referred to arbitration as it pertained
to a period subsequent to the term of the MOU. Mr.Narasimha has,
however, pointed out that according to the case pleaded by the
respondents in the Brussels Court which is evident from the writ of
summons, all the disputes pertained to the period prior to the
termination of the agreement by the petitioner. The writ of summons
clearly mentions as follows :
“Whereas the first cars of the make REVA were marketed in
India from June 2001 onwards, then in the UK in 2003 and
worldwide from 2007.
That the party summoned below had however promised the
arrival of more performing Lithium batteries that would be
installed in their vehicles from the middle of 2008, as well as a
new or more competitive and more attractive car model by the
end of 2008, the REVA `NXR’.
Whereas the contractual relationships between the petitioner
and the party summoned below started in 2007.
Whereas the distribution of the REVA cars by the petitioner
took place in two stage.
– 21 –
That during an initial period the petitioner ran a pilot project
for the party summoned below to assess the marketing
possibilities of the REVA on the Belgian market.
That after a certain period of time the petitioner became an
exclusive distributor of REVA cars for the BENULEX.”
23. The writ of summons further mentions that the petitioner had to
run a pilot project of three to six months to test the marketing
possibilities of the REVA cars on the Belgium market. It is further
pleaded that at the end of the test period and at the latest on 31st
December, 2007, the parties had to decide jointly whether the petitioner
would continue to provide the promotion, sales and service of REVA Cars
in Belgium within the framework of a long-term distribution contract.
The respondents further pleaded that :-
“Whereas, in spite of the absence of the signing of a written
contract between the parties, the petitioner de facto became
the exclusive distributor of REVA vehicles in the BENELUX
starting the month of January, 2008.”
24. Thereafter the respondents gave details of the efforts made by it for
marketing of the REVA Cars from January, 2008 onwards. In paragraph
19 of the writ of summons, it is clearly admitted as follows :-
– 22 –
“Whereas on the 25th of September, 2009, as soon as the first
REVA cars fitted with Lithium batteries and of the new REVA
NXR model arrive in Belgium the petitioner is going to be
ejected all of a sudden by the party summoned below.
That during a telephone conversation on 25th September,
2009, confirmed in an email of the same date the party
summoned below suddenly announced its decision to
terminate the concession granted to the petitioner for the
Belelux, with immediate effect;
That the party summoned below asked the petitioner to
immediately stop the sale and promotion of the REVA cars as
well as the use of the REVA mark.”
25. The claims made by the respondents clearly pertained to the
contract which was terminated on 25th September, 2009. In paragraph
30 of the writ of summons, it is pleaded as under :-
“That the parties summoned below terminated the contract in
any untimely and brutal manner on 25th September, 2009.”
26. On the aforesaid basis, the respondents claim compensation and
damages amounting to Euro 454,000.
27. The aforesaid averments and the material on record would clearly
demonstrate that the disputes that have arisen between the parties
– 23 –
clearly relate to the MOU dated 25th September, 2007. It would be for the
Arbitral Tribunal to decide as to whether claims made are within the
arbitration clause. The Arbitral Tribunal would also have to decide the
merits of the claim put forward by the respective parties. In view of the
material placed on record, it would not be possible to accept the
submissions of Ms. Ahamadi that the disputes were beyond the purview
of the arbitration clause.
28. A similar matter was examined by this Court in the case of Bharat
Petroleum Corporation Ltd. Vs. Great Eastern Shipping Co. Ltd.8 In
the aforesaid case, an agreement called time charter party was entered
into between the appellant and the respondent on 6th May, 1997 for
letting on hire vessels for a period of two years from 22nd September,
1996 to 30th June, 1997 and from 1st July, 1997 to 30th June, 1998. It
appears that certain disputes arose between the parties. Thereafter, on
the basis of the correspondence exchanged between the parties with
regard to the disputes, claims and counter claims were filed before the
8 (2008 (1) SCC 503).
– 24 –
Arbitral Tribunal. Issues were duly framed of which the following three
issues may be of some relevance in the present context viz.
“Issue 1.–Whether the Hon’ble Arbitral Tribunal has no
jurisdiction to adjudicate upon the dispute between the
claimant and the respondent for the period September 1998 to
August 1999 in respect of the vessel Jag Praja for the reasons
stated in Para 1 of the written statement?
Issue 2.–Whether there is any common practice that if the
vessel is not redelivered at the end of the period mentioned in
the time charter the vessel would be governed by the charter
party under which originally it was chartered?
* * *
Issue 5.–Whether the time charter party dated 6-5-1997 came
to an end by efflux of time on 30-8-1998? ”
29. The Arbitral Tribunal by its order dated 12th May, 2003 came to the
conclusion that the appellant having invoked the arbitration clause
contained in the charter party agreement dated 6th May, 1997, which
was valid upto 31st December, 1998 and as the dispute between the
parties related to the period subsequent to 31st August, 1998, they had
no jurisdiction to decide the reference. The tribunal held that the charter
party agreement dated 6th May, 1997 was superseded by a fresh
agreement. Therefore, original charter party dated 6th May, 1997 got
– 25 –
extinguished. The respondents challenged the said award before the
High Court. Learned Single Judge set aside the award and held that the
Arbitral Tribunal has the jurisdiction to adjudicate the disputes between
the parties as the vessel continued to be hired by the appellant for the
period subsequent to 31st August, 1998 on the same terms and
conditions, as were contained in charter party agreement dated 6th May,
1997. It was held that the charter party dated 6th May, 1997 did not
come to an end by efflux of time and it was extended by the party on the
same terms and conditions. Correctness of this order was challenged in
this Court. On examination of the entire fact situation, it was held as
follows :-
“19. It is, no doubt, true that the general rule is that an offer
is not accepted by mere silence on the part of the offeree, yet it
does not mean that an acceptance always has to be given in so
many words. Under certain circumstances, offeree’s silence,
coupled with his conduct, which takes the form of a positive
act, may constitute an acceptance–an agreement sub silentio.
Therefore, the terms of a contract between the parties can be
proved not only by their words but also by their conduct.”
– 26 –
30. Examining the fact situation in the present case, I am of the
opinion that the conclusion is inescapable that notwithstanding the
initial period under the MOU expiring by 31st December, 2007, the same
was extended by the petitioner in exercise of its discretion under Clause
(2) of the MOU. The extended MOU was terminated only on 25th
September, 2009. Therefore, it is not possible to accept the submission
of Ms. Ahamadi that the disputes arising between the parties cannot be
referred to the Arbitral Tribunal. In my opinion, Mr. Narasimha has
rightly submitted that the disputes have arisen in relation to the
termination of the MOU and the consequences thereof. Such disputes
would be clearly covered under the Arbitration clause which provides
that in the event of any dispute or difference arising at any time between
the parties in relation to the agreement shall be referred to a Sole
Arbitrator. The clause is clearly not limited to the disputes relating only
to the initial period of the MOU till 31st December, 2007.
31. I also find merit in the submission of Mr. Narasimha that
irrespective of whether the MOU is now in existence or not, the
– 27 –
arbitration clause would survive. The observations made by this Court
in the case of Everest Holding Ltd. (supra) would clearly support the
submission made by the learned senior counsel. In the aforesaid case,
the parties had entered into a Joint Venture Agreement (for short `JVA’)
dated 25th September, 2003 for the purpose of mining, processing and
export of Iron Ore. On 26th March, 2004, another JVA was executed
between the parties, particularly to iron out certain controversy in
respect of JVA dated 25th September, 2003. Article 14.3 of the said JVA
contained an arbitration clause providing that if the parties failed to
resolve the matter through mutual agreement, the dispute shall be
referred to an Arbitrator appointed by mutual agreement of the two
parties. The stand of the petitioner in the aforesaid case was that on
20th September, 2004, it was shocked and surprised to receive
unwarranted notices for cancellation of JVA. The aforesaid notice was
replied on 6th October, 2004. Since the disputes between the parties
were not resolved, the petitioner invoked the arbitration clause.
Respondent No. 1 in reply to the notice refuted the claim of the petitioner
and also refused to refer the matter to arbitration on the ground that the
– 28 –
JVA between the petitioner and the respondent No.1 is not in existence
as the same had been terminated by respondent No.2. It was stated that
in view of the aforesaid position, there could be no invocation of Clause
14.3 of JVA.
32. Considering the aforesaid fact situation, this Court observed that
under Clause 14.2, the parties had agreed that they would use all
reasonable efforts to resolve the disputes, controversy or claim arising
out of or relating to these agreements. Since the parties have failed to
resolve their differences, the same had to be referred to Arbitration
under Clause 14.3. It was held that there is a valid Arbitration
Agreement between the parties as contained in the JVA, which the
parties are required to adhere to and are bound by the same. In other
words, if there is any dispute between the parties to the agreement
arising out of or in relation to the subject matter of the said JVA, all
such disputes and differences have to be adjudicated upon and decided
through the process of Arbitration by appointing a mutually agreed
Arbitrator. This Court observed as follows:-
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“Though the JVA may have been terminated and cancelled as
stated but it was a valid JVA containing a valid arbitration
agreement for settlement of disputes arising out of or in
relation to the subject-matter of the JVA. The argument of the
respondent that the disputes cannot be referred to the
arbitration as the agreement is not in existence as of today is
therefore devoid of merit.”
In my opinion, the aforesaid observations are squarely applicable to
the facts in the present case. The disputes that have arisen between the
parties clearly pertain to the subject matter of the MOU.
33. Even if, I accept the submission of Ms.Ahamadi that MOU was not
extended beyond 31st of December, 2007, it would make little difference.
Section 16(1)(a) of the Arbitration and Conciliation Act, 1996 provides
that an arbitration clause which forms part of the contract shall be
treated as an agreement independent of the other terms of the contract.
The plain meaning of the aforesaid clause would tend to show that even
on the termination of the agreement/contract, the arbitration agreement
would still survive. It also seems to be the view taken by this Court in
Everest Holdings Ltd. (supra). Accepting the submission of
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Ms.Ahamadi that the arbitration clause came to an end as the MOU
came to an end by efflux of time on 31st December, 2007 would lead to a
very uncertain state of affairs, destroying the very efficacy of Section
16(1). The aforesaid section provides as under :
“16. Competence of arbitral tribunal to rule on its
jurisdiction – (1) The arbitral tribunal may rule on its own
jurisdiction, including ruling on any objections with respect to
the existence or validity of the arbitration agreement, and for
that purpose –
(a) an arbitration clause which forms part of a contract shall
be treated as an agreement independent of the other terms of
the contract; and
(b) a decision by the arbitral tribunal that the contract is null
and void shall not entail ipso jure the invalidity of the
arbitration clause.”
34. The aforesaid provision has been enacted by the legislature keeping
in mind the provisions contained in Article 16 of the UNCITRAL Model
Law. The aforesaid Article reads as under :-
“Article 16 – Competence of arbitral tribunal to rule on its
jurisdiction –
(1) The arbitral tribunal may rule on its own jurisdiction,
including any objections with respect to the existence or
validity of the arbitration agreement. For that purpose, an
arbitration clause which forms part of a contract shall be
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treated as an agreement independent of the other terms of the
contract. A decision by the arbitral tribunal that the contract
is null and void shall not entail ipso jure the invalidity of the
arbitration clause.
(2)……………………………………………………..
(3)………………………………………………………”
Under Section 16(1), the legislature makes it clear that while
considering any objection with respect to the existence or validity of the
arbitration agreement, the arbitration clause which formed part of the
contract, has to be treated as an agreement independent of the other
terms of the contract. To ensure that there is no misunderstanding,
Section 16(1)(b) further provides that even if the arbitral tribunal
concludes that the contract is null and void, it should not result, as a
matter of law, in an automatic invalidation of the arbitration clause.
Section 16(1)(a) presumes the existence of a valid arbitration clause and
mandates the same to be treated as an agreement independent of the
other terms of the contract. By virtue of Section 16(1)(b), it continues to
be enforceable notwithstanding a declaration of the contract being null
and void. In view of the provisions contained in Section 16(1) of the
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Arbitration and Conciliation Act, 1996, it would not be possible to accept
the submission of Ms.Ahmadi that with the termination of the MOU on
31st December, 2007, the arbitration clause would also cease to exist. As
noticed earlier, the disputes that have arisen between the parties clearly
relate to the subject matter of the relationship between the parties which
came into existence through the MOU. Clearly, therefore, the disputes
raised by the petitioner needs to be referred to arbitration. Under the
arbitration clause, a reference was to be made that the disputes were to
be referred to a single arbitrator. Since the parties have failed to appoint
an arbitrator under the agreed procedure, it is necessary for this Court
to appoint the Arbitrator.
35. In exercise of my powers under Section 11(4) and (6) of the
Arbitration and Conciliation Act, 1996 read with Paragraph 2 of the
Appointment of Arbitrator by the Chief Justice of India Scheme, 1996, I
hereby appoint Hon.Mr.Justice R.V. Raveendran, R/o 8/2, Krishna
Road, Basavangudi, Bangalore, Former Judge of the Supreme Court of
India, as the Sole Arbitrator to adjudicate the disputes that have arisen
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between the parties, on such terms and conditions as the learned Sole
Arbitrator deems fit and proper. Undoubtedly, the learned Sole
Arbitrator shall decide all the disputes arising between the parties
without being influenced by any prima facie opinion expressed in this
order, with regard to the respective claims of the parties.
36. The registry is directed to communicate this order to the Sole
Arbitrator to enable him to enter upon the reference and decide the
matter as expeditiously as possible.
37. The Arbitration Petition is accordingly disposed of.
………………………….J.
[Surinder Singh Nijjar]
New Delhi;
November 25, 2011.
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