Interpretation Of Contractual Stipulations Must Be Done To Give Full Effect To Arbitration Agreement: Rajasthan High Court

Brief Facts:

The dispute arises with respect to a purchase order for supply of certain drugs to the respondent for the sum of Rs.33,26,904/-. It was contended by the appellant that immediately after receiving the purchase order, the applicant started the production of the drugs. And the applicant had already manufactured more than 50% of the purchase order but suddenly, the respondent cancelled the purchase order. Thus, the applicant has raised a dispute in respect of suffering huge damages and loss on account of cancellation of the purchase order by the respondents, without any show cause notice and after passing a sufficient period of time. Then, the appellant filed an arbitration application under Section 11(5) of the Arbitration & Conciliation Act, 1996 for appointment of a sole arbitrator to adjudicate the dispute. The appellant contended that Clause 22(2) of the Contract/ NIB provides an arbitration clause for the applicant. So, such dispute deserves to be resolved through arbitration but in this clause, no mechanism is provided for appointment of Arbitrator. However, the respondent argued that the arbitration clause mentioned in the contract does not meet the essential elements of an arbitration agreement. Since, it is not indicated in the arbitration clause that decision of Arbitrator shall be final and binding upon the parties which is one of the essential attributes of an arbitration agreement.

Observation of the court:

The court held that it is a well-established principle of law if there is any contractual stipulation between the parties which under-mines the scope of the arbitration clause. Then, the same will be given an interpretation in the manner which gives full effect to the arbitration agreement between the parties.

Additionally, the court observed that from bare perusal of Clause 22(2) 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. Therefore, the court held that it is appropriate to refer the dispute to the arbitration for decision, instead of rejecting the arbitration application on the ground that all essential elements of the arbitration agreement are absent in Clause 22(2).

Moving further, the court allowed the arbitration application and appointed a sole arbitrator to adjudicate the dispute between the parties.

Case Title: M/s Argon Remedies Pvt. Ltd. versus Rajasthan Medical Services Corporation Ltd.

Case Number: ARBAP-64/2023

Citation: 2024 LiveLaw (Raj) 390

Counsel for the Petitioner(s): Mr. Tarun Kumar Mishra.

Counsel for the Respondent(s): Mr. Satya Narayan Gupta.

Date of Judgment: 29.11.2024

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