The Single Bench of the Delhi High Court in the case of Panasonic India Private Ltd vs Shah Aircon Through Its Proprietor Shadab Raza consisting of Justice Prateek Jalan held that the intention of an arbitration clause in an agreement cannot be eclipsed by mere use of the word “can”.
Facts
By way of this petition u/s 11 of the Arbitration and Conciliation Act, 1996 (“the Act”), the petitioner (“Panasonic”) sought appointment of an arbitrator to adjudicate disputes which arose between the parties under an Agreement entitled “Distribution Agreement” (“the Agreement”) by which Panasonic was to sell electronic goods to the respondent (“Shah Aircon”), a proprietorship firm dealing in electronic goods.
Procedural History
As the parties were unable to resolve their disputes inter se, Panasonic finally invoked the arbitration clause. Shah Aircon responded by a letter inter alia stating that it did not sign the Agreement with Panasonic. It further averred that the disputes between the parties were only in relation to rendition of accounts, for which it had approached the court of competent jurisdiction by filing a civil suit, inter alia seeking rendition of accounts and permanent injunction, and that Panasonic had no power to appoint an arbitrator. Panasonic made an application in the suit for reference to arbitration u/s 8 of the Act. It was in these circumstances that Panasonic filed this petition u/s 11 of the Act.
Contentions Made
Petitioner: It was contended that the essential ingredients of a valid arbitration agreement stipulated in Section 7 of the Act were satisfied in this case. It was also contended that upon a combined reading of Clauses XXIV (Governing Law) and XXV (Arbitration) of the Agreement, the parties intended a mandatory reference to arbitration, and that such intention cannot be eclipsed by mere use of the word “can”.
Respondent: It was contended that the purported arbitration clause in the Agreement was not valid as the reference of disputes to arbitration was not mandatory. It was also contended that the clause uses the word “can”, as opposed to “shall”, which signifies an option in the hands of a party as to whether to refer a dispute to arbitration or not.
Observations of the Court
The Bench, relying on Cravants Media Private Limited, and Stella Industries Ltd, noted that a provision conferring jurisdiction for appointment of the arbitrator upon the Court would prevail over a designation of the venue of the arbitration in a different Court. In this case, Clause XXIV of the Agreement was opined to be unambiguous. It held that this Court had the jurisdiction to entertain this petition.
Regarding whether the arbitration clause in the Agreement constituted a binding agreement to refer disputes to arbitration, it opined that the interpretation of an arbitration clause, as indeed of all contractual provisions, must be predicated upon a construction of the contract as a whole, and no particular word or phrase should be unduly emphasised to negate the clause of its true meaning:
“The use of the word “can”, which normally signifies an option, as opposed to the word “shall”, which is mandatory in nature, is not determinative of the present case. This is because the word “can” is juxtaposed with the words “either party”, signifying the option of either Panasonic, or Shah Aircon, to refer disputes to arbitration. If either of the parties can exercise such an option by referring the disputes under the Agreement to arbitration, it is for all practical purposes, binding upon the other party as well. The remainder of the clause, insofar as it refers to the venue of arbitration, the language of arbitration, the applicability of the Act, the requirement to give reasons, and the procedure for appointment of an arbitrator by reference to Court, also supports the view that the parties intended a mandatory reference to arbitration, and incorporated the ancillary provisions into the Agreement for this purpose only.”
Judgment
The Bench appointed Mr. Vidit Gupta, Advocate as the Arbitrator to adjudicate the disputes between the parties under the Agreement. The petition was accordingly disposed of.
Case: Panasonic India Private Ltd vs Shah Aircon Through Its Proprietor Shadab Raza
Citation: ARB.P. 621/2021
Bench: Justice Prateek Jalan
Decided on: 11th October 2022
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