Contract Clause Giving Option Of Arbitration Or Court Adjudication; Choice Of Party Prevails, Holds SC [Read Judgment]

When a clause in the contract gives an option to parties to go for arbitration or prefer adjudication by courts, whether it can be regarded as an arbitration clause which stipulates that the disputes shall be referred to arbitration?

This question has been considered in Zhejiang Bonly Elevator Guide Rail Manufacture Co. Ltd. Vs. Jade Elevator Components, by the bench comprising of the Chief Justice Dipak Misra, Justice AM Khanwilkar and Justice DY Chandrachud.

The relevant clause in the contract, as translated to English, reads: “15. Dispute handling: Common processing contract disputes, the parties should be settled through consultation; consultation fails by treatment of to the arbitration body for arbitration or the court.”

According to the petitioner, who had approached the Court seeking appointment of Arbitrator, this clause states that disputes are to be settled through consultation and, if the consultation fails by treatment of to the arbitration body for arbitration or Court and, therefore, the matter has to be referred to arbitration. According to him, the clause is not categorically specific that it has to be adjudicated in a court of law as it leads to choices and the choice expressed by the petitioner is arbitration.

Refuting these submissions, the other party contended that arbitration cannot be resorted to as the clause cannot be regarded as an arbitration clause which stipulates that the disputes shall be referred to arbitration.

Referring to the clause, the bench observed: “There is assertion that disputes have arisen between the parties. The intention of the parties, as it flows from the clause, is that efforts have to be made to settle the disputes in an amicable manner and, therefore, two options are available, either to go for arbitration or for litigation in a court of law.”

The bench referred to the judgment in INDTEL Technical Services Private Limited vs. W.S. Atkins Rail Limited and observed that emphasis has been laid on the intention of the parties to have their disputes resolved by arbitration.

The bench then said: “In the case at hand, as we find, Clause 15 refers to arbitration or court. Thus, there is an option and the petitioner has invoked the arbitration clause and, therefore, we have no hesitation, in the obtaining factual matrix of the case, for appointment of an arbitrator.”

The Court then appointed Justice Prakash Prabhakar Naolekar, former SC Judge, as sole Arbitrator to arbitrate upon the disputes in this matter.