M/S Linde Heavy Truck Division Ltd vs Container Corporation Of India ...
2012 Latest Caselaw 6213 Del

       *         IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                        Judgment reserved on: 11.10.2012
                                         Judgment pronounced on: 16.10.2012

+      CS(OS) 23/2012

       M/S LINDE HEAVY TRUCK DIVISION LTD                              ..... Plaintiff

                              Through:   Mr. Abhimanyu Bhandari, Ms. Aakansha
                                         Munjal and Mr. Nikhil Singhvi, Advocates

                     versus

       CONTAINER CORPORATION OF INDIA LTD & ANR.                      ....Defendants

                              Through:   Counsel for Defendants

CORAM:
HON'BLE MR. JUSTICE V.K.JAIN

V.K. JAIN, J.

IA No. 2153/2012 (under Section 8 of Arbitration & Conciliation Act, 1996) in CS(OS) 23/2012

1. This is a suit for recovery of Rs 11,71,46,949/-. The case of the plaintiff is

that it entered into an agreement dated 04.07.2007 with defendant No. 1 for

manufacture, supply and commissioning of 15 Reach Stackers, along with

operation and maintenance of those stackers, at the specified terminals of defendant

No. 1, for a period of 5 years. The plaintiff alleges material breach of the terms of

the contract by defendant No. 1 and claims that an amount of Rs 4,92,73,207/- is

due and payable to it towards the supply, operation and maintenance of machines.

The contract was terminated by defendant No. 1 vide letter dated 24.05.2011. The

bank guarantees furnished to it by the plaintiff were then invoked by defendant No.

1. The plaintiff is claiming Rs 56,68,000/- alleging that the invocation of the bank

guarantees was illegal. Some other amounts have also been claimed in the present

suit, thereby raising the total claim to Rs 11,71,46,494/-

2. IA No. 2153/2012 has been filed by defendant No. 1 seeking stay of the suit

and reference to arbitration in terms of clause 15 of Section (iii) of the contract

between the parties. The application has been opposed by the plaintiff primarily on

the ground that there is no arbitration agreement between the parties.

3. Clauses 15.3 to 15.6 of the contract are relevant and read as under:-

"15.3 Jurisdiction of Courts: the Courts of the place from where the acceptance of

tender has been issued shall alone have jurisdiction to decide any dispute arising

out of or in respect of the contract i.e. New Delhi (INDIA)

15.4 In case of any dispute or difference whatsoever arising between the parties

out of the relating to the construction, interpretation, application, meaning, scope

operation or effect of this contract or the validity or the breach thereof, CONCOR

and supplier shall make very effort to resolve amicable by direct informal

negotiation any disagreement or dispute arising between them under or in

connection with the contract.

15.5 If, after 30(thirty) day from the commencement of such informal negotiation,

CONCOR and the supplier have been unable to resolve amicably the contract

dispute, either party may require that the dispute be referred for resolution by

arbitration in accordance with the rules of Arbitration of the "Standing Committee

on Public Enterprises" of India (SCOPE) from the "Conciliation and Arbitration"

and award made in pursuance thereof shall be binding on the parties.

15.6 During settlement of disputes in arbitration proceedings, both parties shall be

obliged to carry out their respective obligation under the contract"

4. In Wellington Associates Ltd. v. Kirit Mehta (2004) 4 SCC 272, clause 4

and 5 of the agreements between the parties read as under:-

"4. It is hereby agreed that, if any dispute arises in connection with these presents, only courts in Bombay would have jurisdiction to try and determine the suit and the parties hereto submit themselves to the exclusive jurisdiction of the courts in Bombay."

5. It is also agreed by and between the parties that any dispute or differences

arising in connection with these presents may be referred to arbitration in

pursuance of the Arbitration Act, 1947, by each party appointing one arbitrator and

the arbitrators so appointed selecting an umpire. The venue of arbitration shall be at

Bombay.

Holding that clause 5, extracted above, does not constitute a firm or

mandatory arbitration clause, Supreme Court, inter alia, held as under:-

"21. Does clause 5 amount to an arbitration clause as defined in Section 2(b) read with section 7? I

may here state that in most arbitration clauses, the words normally used are that "disputes shall be referred to arbitration". But in the case before me, the words used are "may be referred".

22. It is contended for the petitioner that the word "may" in clause 5 has to be construed as "shall". According to the petitioner's counsel, that is the true intention of the parties. The question then is as to what is the intention of the parties. The parties, in my view, used the words "may" not without reason. If one looks at the fact that clause 4 precedes clause 5, one can see that under clause 4 parties desired that in case of disputes, the Civil Courts at Bombay are to be approached by way of a suit. Then follows clause 5 with the words "it is also agreed" that the dispute "may" be referred to arbitration implying that parties need not necessarily go to the Civil Court by way of suit but can also go before an arbitrator. Thus, clause 5 is merely an enabling provision as contended by the respondents. I may also state that in cases where there is a sole arbitration clause couched in mandatory language, it is not preceded by a clause like clause 4 which discloses a general intention of the parties to go before a Civil Court by way of suit. Thus, reading clause 4 and clause 5 together, I am of the view that it is not the intention of the parties that arbitration is to be the sole remedy. It appears that the parties agreed that they can "also" go to arbitration also in case the aggrieved party does not wish to go to a Civil Court by way of a suit. But in that event, obviously, fresh consent to go to arbitration is necessary. Further, in the present case, the same clause 5, so far as the venue of arbitration is concerned, uses word "shall". The parties, in my view, must be deemed to have used the words "may" and "shall" at different places, after due deliberation.

23. A somewhat similar situation arose in B.Gopal Das vs. Kota Straw Board. In that case the clause read as follows:

"That in case of any dispute arising between us, the matter may be referred to arbitrator mutually agreed upon and acceptable to you and us." It was held that fresh consent for arbitration was necessary. No doubt, the above clause was a little clearer there than in the case before me. In the above case too, the clause used the word "may" as in the present case. The above decision is therefore directly in point.

25. Suffice it to say, that the words "may be referred" used in clause 5, read with clause 4, lead me to the conclusion that clause 5 is not a firm or mandatory arbitration clause and in my view, it postulates a fresh agreement between the parties that they will to go to arbitration. Point 2 is decided accordingly against the petitioner.

5. In Jyoti Brothers v. Shree Durga Mining Co. AIR 1956 Calcutta 280, the

arbitration clause read as under:-

"In the event of any dispute arising out of this contract the same can be settled by Arbitration held by a Chamber of Commerce at Madras. Their decision shall be binding to the Buyers and the Sellers."

Holding that the arbitration clause, extracted above, was not a valid

arbitration agreement, the High Court, inter alia, held as under:-

"4. I know of no reported decision where any Arbitration clause used the word "can" as in this case. The Arbitration Clause in this case can at best mean that the dispute "can" be settled by Arbitration. But that does not mean that the dispute shall be settled by Arbitration. It only means this that after the dispute has occurred, the parties may go to Arbitration as an alternative method of settling the dispute instead of going to the Courts. But that means that after the dispute has arisen, the parties will have to come to a further agreement that they shall go to Arbitration.

In other words, the clause at best means that it is a contract to enter into a contract. It denotes the possibility of Arbitration in the event of a future dispute. I do not consider a contract to enter into a contract to be a valid contract in law at all. I am, therefore, of the opinion that this is not a valid submission to Arbitration. The word "can" by the most liberal interpretation only indicates a possibility. A legal contract is more than a mere possibility. It is possibility added to obligation. If a seller says "I can sell goods" that does not mean an immediate or present contract to sell. Similarly, if a person says "I can go to arbitration" that statement does not make an immediate contract to send disputes to arbitration. A mere pious wish or desire for arbitration does not make a contract for arbitration. An arbitration agreement has to be couched not in precatory but obligatory words. No particular form can be laid down as universal for framing an arbitration agreement but this much is certain, words used for the purpose must be words of choice and determination to go to arbitration and not problematic words of mere possibility."

In Sudarshan Chopra and Ors. v. Company Law Board and Ors.

2004(2) Arb. LR 241, the relevant clause read as under:-

"190. The parties shall make endeavour to settle by mutual conciliation any claim, dispute or controversy (dispute) arising out of or in relation to the shareholders agreement, including any dispute with respect to the existence or validity thereof, the interpretation thereof, the activities performed thereunder, or the material breach of any term(s) of the shareholders agreement by either party which remains unresolved for Sixty (60) days after receiving written notice of such breach from the other Party or deadlock or material disagreement which remains unresolved for three consecutive Board Meeting or nine months. "That as part of such conciliation process, members of Group A and Group B will meet each other, in order to settle disputes of any nature in reaching a solution to the problems/disputes. Any claim, dispute, deadlock or controversy which cannot be resolved through conciliation within 15 days or such extended period as Parties may unanimously agree, a party may refer the claim, dispute or difference to arbitration as hereinunder provided in accordance with the New Indian Arbitration and Conciliation Act, 1996. The arbitration shall be held in the city where the registered office of the company is situated. There shall be three arbitrators in arbitration proceedings. Group A and Group B shall have the right to appoint one arbitrator each and two such appointed arbitrators shall appoint the third arbitrator. The applicable law shall be Indian Law. The costs and expenses of such arbitration shall be allocated between the borne by the parties."

Referring to the decision of the Supreme Court in Wellington Associates

Ltd. (supra) and considering other clauses, including para 28 which stipulated that

all the legal remedies open to a party would be open for consideration, the High

Court took a view that there was no valid arbitration agreement between the

parties.

6. In Jagdish Chander v. Ramesh Chander and Ors. (2007) 5 SCC 719, the

question before the Court was as to whether clause 16 of the deed of partnership

was an arbitration agreement within the meaning of Section 7 of Arbitration and

Conciliation Act, 1996 or not. The aforesaid clause reads as under:-

"16. If during the continuance of the partnership or at any time afterwards any dispute touching the partnership arises between the partners, the same shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine."

In the course of the judgment, the Court set out the following principle to

determine as to what constitutes an arbitration clause agreement:-

"(i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and a willingness to be bound by the decision of such

tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement.

(ii) Even if the words "arbitration" and "Arbitral Tribunal (or arbitrator)" are not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are : (a) The agreement should be in writing.

(b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. (d) The parties should have agreed that the decision of the Private Tribunal in respect of the disputes will be binding on them.

(iii) Where the clause provides that in the event of disputes arising between the parties, the disputes 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. But where the clause relating to settlement of disputes, contains words which specifically excludes any of the attributes of

an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement.

(iv) But mere use of the word "arbitration" or "arbitrator" in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as "parties can, if they so desire, refer their disputes to arbitration" or "in the event of any dispute, the parties may also agree to refer the same to arbitration" or "if any disputes arise between the parties, they should consider settlement by arbitration" in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that "if the parties so decide, the disputes shall be referred to arbitration" or "any disputes between parties, if they so agree, shall be referred to arbitration" is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an

arbitration agreement, but an agreement to enter into an arbitration agreement in future."

7. From careful scrutiny of clauses 15.3 to 15.6 of the agreement between the

parties, it would be seen that the expression "may" has been used only in clause

15.5. In clause 15.3, relating to jurisdiction of the Courts, the expression used is

"shall" which indicates mandatory nature of the term agreed between the parties

with respect to territorial jurisdiction of the Court. Similarly, in clause 15.4 dealing

with negotiations, the expression uses is "shall", clearly implying that it would be

mandatory for the parties to make efforts to resolve their disputes by way of

negotiations. On the other hand, though clause 15.5 gives an option to one of the

parties to seek reference of the disputes to arbitration as per the rules of Standing

Committee on Public Enterprises, it does not mandate a compulsory arbitration for

adjudication of such disputes. In case arbitration is sought by one party to the

dispute, the other parties had an option, whether to agree for resolution by

arbitration or not and the party seeking arbitration could not compel the other party

to go through the process of arbitration. Normally, the arbitration clause stipulates

that the disputes between the parties shall be referred to arbitration and the

expression "may" is not used in such clauses, though it can hardly be disputed that

mere use of the expression "may" would not be determinative in every case and in

a given case, the terms and conditions and/or the conduct of the parties may lead to

an inference that despite using the expression "may" the parties had, in fact, agreed

for a compulsory arbitration to resolve their disputes. The arbitration clause in the

case before this Court is more or less similar to the arbitration clause in Wellington

Associates Ltd. (supra). This clause, in my view, does not indicate a firm

determination of the parties and binding obligation on their part to resolve their

disputes through arbitration. It merely gives an option to either of them to seek

arbitration and on such an option being exercised, it would be for the other party

whether to accept it or not. As held by Supreme Court in Jagdish Chander

(supra), if the agreement between the parties requires or contemplates a further or

fresh consent for reference to arbitration, it would not constitute an arbitration

agreement. The view taken by the Apex Court was that if the agreement between

the parties provides that in the event of any dispute, they may refer the same to

arbitration that would not constitute a binding arbitration agreement. In the case

before this Court, clause 15.5 of the agreement envisages a fresh consent for

arbitration, in case the option for arbitration is sought to be exercises by one of the

parties to the disputes. Therefore, it does not constitute a binding arbitration

agreement.

8. A perusal of clause 15.3 would show that the parties agreed that the Courts

of the place from where the acceptance of tender is issued, alone shall have

jurisdiction to decide any dispute arising out of or in respect of the contract. This

clause clearly contemplates adjudication of disputes by a Civil Court though only

by the Court at the place where the acceptance of the tender is issued, i.e., New

Delhi (INDIA). This clause in the contract clearly indicates that the parties did not

enter into a binding arbitration agreement and contemplated resolution of their

disputes through the process of a Civil Court at New Delhi. It would be pertinent to

recall here that in Wellington Associates Ltd. (supra) also clause 4 of the

agreement between the parties provided for jurisdiction of Bombay Courts in case

of any dispute arising in connection with the agreement. It is true that the word

"suit" used in clause 4 of the agreement in Wellington Associates Ltd. (supra) has

not been used in clause 15.3 of the agreement in the case before this Court, but,

that, to my mind, would not be of any consequence, considering the fact that clause

15.3 envisages adjudication by a Civil Court and it does not pertain to place of the

Court, which would have jurisdiction in respect of the arbitration proceedings.

9. For the reasons stated hereinabove, the application is hereby dismissed.

V.K.JAIN, J

OCTOBER 16, 2012 BG