Correspondence Between Parties Cannot Overrule Clear Intention Under Agreement Providing For Optional Arbitration: Bombay High Court

The bench of Justice Bharati Dangre held that once an option is made available to a party to not be referred for arbitration, the mandatory nature of an arbitration agreement gets ripped off. It further ruled that the correspondence exchanged between the parties cannot overrule or surpass the clear intention of the parties as manifest under the terms of the agreement.

The Court said that the correspondence exchanged between the parties or any contention raised before the Court, after the dispute has arisen, is of no consequence if the agreement between the parties does not indicate an intention to refer disputes to arbitration.

The petitioner- GTL Infrastructure Ltd, and the predecessor of the respondent i.e., Vodafone Essar Ltd. (VEL), entered into Master Service Agreement. After certain disputes arose between the parties under the Master Service Agreement, the petitioner invoked the arbitration clause and filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Bombay High Court seeking appointment of Arbitrator.

The petitioner GTL Infrastructure submitted before the High Court that as per the arbitration clause contained in the agreement, any dispute between the parties is required to be resolved by a co-ordination committee or through mediation. Further, if the dispute cannot be resolved, the matter may be referred to arbitration by mutual agreement.

The petitioner added that even though the relevant clause contained the word ‘may’, however, reference to arbitration was imperative. It added that the arbitration clause explicitly provided that the decision of such arbitration shall be binding and conclusive upon the parties.

To this the respondent- Vodafone India Ltd., contended that reference to arbitration is not imperative in view of the use of the word ‘may’. It added that without taking recourse to the process of settlement stipulated in the clause, the respondent cannot invoke arbitration. It argued that the relevant clause only enabled arbitration if the parties mutually decided to refer the disputes to arbitration.

The Court observed that the A&C Act does not contemplate the Arbitration Agreement to be in any particular form; further, the use or absence of the word “Arbitration/Arbitrators” is immaterial. It added that when the intention of the parties to seek arbitration is plain and clear, no party can take advantage of the artistic drafting of arbitration clause.

The bench ruled that the intention of the parties, expressing consensual acceptance to refer disputes to Arbitrator, is mandatory, failing which the Arbitrator does not have any jurisdiction.

“In other words, parties must have consented for being referred for arbitration, as against the disputes and differences that have arisen between them in unequivocal terms and it is imperative that they do not leave any scope to depart from the arrangement that is worked out amongst themselves and make it a imperative mandate”, the Court said.

The Court held that for determining whether an arbitration agreement exists or not, reference must be made to the relevant Contract and not to any contention made before the Court after the disputes have arisen. It added that the agreement must unambiguously indicate the intention and agreement of both the parties, which is enforceable in law, to refer the disputes to arbitration.

The bench noted that the use of the word “may” and the requirement of a “mutual agreement between the parties” for being referred to arbitration, were the salient features of the relevant clause.

It added that despite the fact that the relevant clause conferred conclusiveness and a binding nature upon the decision of the Arbitrator, the use of the word ‘may’ did not bring about an arbitration agreement and that it merely contemplated a future possibility to refer the disputes to arbitration.

“It thus provides an option whether to agree for resolution of dispute through arbitration or not, removing the element of compulsion for being referred for arbitration. This would necessarily contemplate future consent, for being referred for arbitration”, the Court said.

The bench held that once an option is made available to a party to not be referred for arbitration, the mandatory nature of an arbitration agreement gets ripped off.

The petitioner GTL Infrastructure argued before the Court that the respondent, in its reply to the arbitration notice issued by the petitioner, had not denied the existence of an arbitration clause. It averred that the conduct of the parties is relevant to determine if a particular clause can be construed as an arbitration clause.

Dismissing the contention of the petitioner, the Court ruled that the correspondence exchanged between the parties cannot overrule or surpass the clear intention of the parties as manifest under the terms of the agreement.

The Court reiterated that the correspondence exchanged between the parties or any contention raised before the Court of Law, after the dispute has arisen, is of no consequence if the agreement between the parties does not indicate an intention to refer disputes to arbitration.

“Reading of the clauses in the two agreements which are subject matter of consideration before me, the use of the word “may be referred”, perforce me to arrive at a conclusion that the relevant clause for dispute resolution is not a firm or mandatory arbitration clause and in fact, it postulates a fresh consensus between the parties, when an option become available to them, to be referred for arbitration”, the Court concluded.

Holding that there was no valid arbitration agreement between the parties, the Court dismissed the petition.

Case Title: GTL Infrastructure Ltd. versus Vodafone India Ltd. (VIL)

Dated: 02.12.2022 (Bombay High Court)

Counsel for the Petitioner: Mr.Ashish Kamath with Akshay Puranik, Rucha Surve, Priyanka Palsodkar i/b Alathes Law LLP

Counsel for the Respondent: Mr.Zal Andhyarujina, Sr. Advocate with Karan Bhide with Pranay Kumar i/b Trilegal

Citation: 2022 LiveLaw (Bom) 522  

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