Whether Arbitration Agreement Has All Essential Elements Can Better Be Decided By Tribunal U/S 16 Of A&C Act: Rajasthan High Court
The Rajasthan High Court bench of Justice Sudesh Bansal has held that the issue of validity of arbitration agreement more particularly in respect of having essential elements of the arbitration agreement, can better be considered and decided on merits by the arbitration tribunal under section 16 of the Arbitration Act. Brief Facts The present application has been filed under section...
The Rajasthan High Court bench of Justice Sudesh Bansal has held that the issue of validity of arbitration agreement more particularly in respect of having essential elements of the arbitration agreement, can better be considered and decided on merits by the arbitration tribunal under section 16 of the Arbitration Act.
Brief Facts
The present application has been filed under section 11 of the Arbitration Act seeking appointment of an Arbitrator for a dispute arising from a Rate Contract Cum Supply agreement which was executed on October 10, 2020 with the respondent, a government owned corporation. The applicant was awarded the contract for supply of drugs and medicines.
The respondent imposed penalties for non-compliance of the purchase orders by the applicant. It is the case of the applicant that the penalties imposed by the respondent are arbitrary and excessive as onslaught of pandemic which disrupted the imports of raw material was not taken into consideration.
The applicant relies on Clause 22(2) of the agreement which provides for the disputes to be resolved through Arbitration but the clause does not provide a mechanism of appointment of the Arbitrator. The applicant served a legal notice on the respondent in which the arbitration was invoked.
Despite obtaining interim relief under section 9 by which the respondent was restrained from encashing the bank guarantees and serving multiple notices, no response was given by the respondent nor any arbitrator was appointed. It is the case of the applicant that in these circumstances the arbitrator should be appointed by the court.
On the other hand, the respondent submitted that imposition of penalties and order of debarment were in consonance with tender conditions 13(15) and 13(18). They further contended that onslaught of pandemic cannot be treated as force majeure excusing the applicant from its obligations to maintain the supply of the drugs and medicines.
They also submitted that Clause 22(2) of the NIB cannot be considered as a valid arbitration agreement as it lacks the essential elements of finality and binding nature of arbitrator's decision. In support of their submission, they relied on the Rajasthan High Court judgment in M/s Mohammad Arif Contractor vs. State of Rajasthan & Anr., 2015.
Observations:
The court at the outset observed that it is undisputed between the parties that Clause 22 (2) of the NIB provides a remedy to the applicant company to refer the dispute for arbitration. It is noteworthy that parties are not at quarrel about existence and validity of the Clause 22 (2) of the NIB and same being a part of the contract between the parties.
In Jagdish Chander Vs. Ramesh Chander & Ors:[(2007) the Supreme Court has held that “where the clause provides that in the event of dispute arising between the parties, the dispute shall be referred to arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement.”
The court also noted that it was further observed in this judgment that if the clause relating to settlement of disputes, specifically excludes any of the attributes of an arbitration agreement, then it will not be treated as an arbitration agreement.
It further observed that “It is well established principle of law that if there is any contractual stipulation between the parties which under-mines the scope of arbitration clause, the same will be given an interpretation in the manner which gives full effect to the arbitration agreement between the parties.”
In Mahanagar Telephone Nigam Limited Vs. Canara Bank & Ors:[(2020) the Supreme Court has held that “a commercial document has to be interpreted in such a manner so as to give effect to the agreement, rather than to invalidate it. An "arbitration agreement" is a commercial document inter parties, and must be interpreted so as to give effect to the intention of the parties, rather than to invalidate it on technicalities."
While applying the law discussed above, the court observed that in the opinion of this Court, prima facie it reveals from bare perusal of Clause 22 (2) of the NIB that same clearly reflects the intention of parties to refer the dispute to the arbitration for its decision and further the clause does not exclude the attributes of an arbitration agreement that the decision of Arbitrator shall not be final and would not be binding on the parties.
It further added that the issue of validity of arbitration agreement more particularly in respect of having essential elements of the arbitration agreement, can better be considered and decided on merits by the arbitration tribunal.
It opined that the High Court being a referral Court while exercising its jurisdiction, dealing with an application under Section 11 of A&C Act, 1996 for appointment of Arbitrator, exercises a limited jurisdiction which is provided under Section 11 (6A) of the A&C Act, 1996.
Accordingly, the present appeal was allowed and the arbitrator was appointed.
Case Title: M/s Terrace Pharmaceuticals Private Limited Versus Rajasthan Medical Services Corporation Limited through its Managing Director
Case Number: S.B. Arbitration Application No. 63/2023
Judgment Date: 29/11/2024