M/s. Chandra Nirman Pvt. Ltd. vs M/s. Orient Paper Mills Limited

Hon''ble Shri Justice Rajendra Menon

Seeking constitution of an arbitral Tribunal for resolution of the dispute existing between the parties, this application has been filed u/s 11 (6) of the Arbitration and Conciliation Act, 1996. Applicant claims to be a Private Limited Company registered under the Indian Companies Act, 1956. Non-applicant M/s Orient Paper Mills Limited is also a Company registered under the Companies Act, having its establishment in Amlai, District Shahdol. It is stated that the non-applicant Company issued a tender notice for award of certain construction work with regard Water Storage Reservoir at Amlai. Annexure A/1 is the tender document. Applicant Company submitted their offer in accordance to the terms and conditions of the tender, the offer was accepted and work order - Annexure A/1 was issued to the applicant on 2.12.2009, by the non-applicant M/s Orient Paper Mills Limited. It is the case of the applicant that the total amount of the contract was Rs. 14,11,40,596/- and as the final bills of the applicant were not paid, the applicant submitted demand letter dated 27.11.2010 with the Chief Executive Officer of the non-applicant Company, for payment of Rs. 450 Lacs vide Annexure A/2. The CEO vide Annexure A/3 reply to the aforesaid representation and finally when the applicant sought for appointment of an arbitrator vide Annexure A/4 dated 13.1.2011 and when nothing was done, this application was filed.

Inviting my attention to Clause 66.1 of the tender document, which contemplates an arbitration clause, Shri V.R. Rao - learned Senior Advocate, submits that Clause 66.1 of the tender document read alongwith the work order - Annexure A/1 and the conditions stipulated in the work order, constitutes an arbitration agreement as contemplated by the Supreme Court in the case of Jagdish Chander Vs. Ramesh Chander and Others, , and as the non-applicants have failed to constitute an arbitral Tribunal for resolution of the dispute as per the arbitration agreement, this application has been filed.

Shri V.R. Rao, learned Senior Advocate, invites my attention to the terms and conditions incorporated in the work order - Annexure A/1 and submits that in the said terms and conditions, at page No. 16, it is clearly stipulated that in addition to the other terms and conditions indicated in the work order - Annexure A/1, the terms and conditions mentioned in the tender document forms part of the agreement between the parties and, therefore, contending that the agreement between the parties are the terms and conditions stipulated in the tender document read alongwith the terms and conditions stipulated in the work order - Annexure A/1, learned Senior Advocate submits that this Court should proceed to issue directions for constitution of the arbitral Tribunal as contemplated under Clause 66.1 of the Agreement. Learned Senior Advocate submits that a condition stipulated in the work order - Annexure A/1 with regard to reference of the dispute to the CEO is not an arbitration agreement as contemplated by the Supreme Court in the case of Jagdish Chander (supra), the arbitration agreement is Clause 66.1 of the tender document, which forms part of the agreement entered into between the parties and as the arbitration agreement is in existence and as there is difference between the parties, the dispute be resolved by constituting an arbitral Tribunal. Learned Senior Advocate argues that when the applicant demanded resolution of dispute by the CEO vide Annexure R/2 and when the said authority has not taken action, the present application has been filed. Accordingly, learned Senior Advocate submits that it is a fit case where jurisdiction vested in this Court u/s 11(6) of the Arbitration and Conciliation Act should be exercised and action taken.

Shri V.R. Rao, learned Senior Advocate, emphasized that the Clause contained in page No. 16 of Annexure A/1 - the work order, is not an arbitration agreement, it is only an in-house mechanism, but Clause 66.1 of the tender document is the arbitration agreement and, therefore, action should be taken in accordance to this agreement.

Shri Kishore Shrivastava, learned Senior Advocate appearing for the non-applicant, took me through the provisions of section 7 of the Arbitration and Conciliation Act, referred to sub-section (4) and the requirement of an arbitration agreement as contemplated therein, and argued that the tender document relied upon by the petitioner and Clause 66.1 thereof is not an arbitration agreement as contended by the petitioner. It is emphasized that the tender document is only an offer submitted by the applicant, the tender document is not signed by the non-applicant, the offer of the applicant was accepted by the work order - Annexure A/1 and the agreement between the parties is the work order, and as the only clause in this Agreement - Annexure A/1 is for resolution of dispute by reference to the CEO of M/s Orient Paper Mills Limited, therefore, the applicant cannot seek constitution of an arbitral Tribunal under Clause 66.1, as the said arbitration agreement is not entered into between the parties. It is emphasized by Shri Kishore Shrivastava, learned Senior Advocate, that there is no arbitration agreement as canvassed by learned Senior Advocate for the applicant, the only agreement is with regard to the claim for adjudication by the CEO and as the applicant has not raised any claim in accordance to the said clause, this application is not maintainable. Referring to the demand made by the applicant - Annexure A/2 on 27.11.2010, learned Senior Advocate for the non-applicant argues that what is claimed by the applicant in this letter is not reference of a dispute as contemplated in the agreement - Annexure A/1 [work-order], but it is only a demand for paying 450 Lacs alongwith interest within 15 days. This communication - Annexure A/2 does not seek resolution of the dispute by reference to the CEO and, therefore, without following the procedure as is contained in Annexure A/1, it is argued by Shri Kishore Shrivastava that this application is not maintainable.

I have heard learned counsel for the parties and perused the records.

Before adverting to consider the rival contentions, it may be necessary to take note of the various provisions relied upon as they appear in the tender document and the work order [agreement between the parties - Annexure A/1]. Clause 66.1 of the tender document reads as under:

66.1 ARBITRATION

The arbitration clause is modified below:

If at any time should there by any question, dispute or difference between the parties in respect of any matter arising out of or in relation to this agreement either party may give to the other party notice in writing of the existence of such questions, dispute or difference and the same shall be referred to the arbitration of a single arbitrator when the parties may agree upon, otherwise two arbitrators, one to be nominated by each party. The arbitrators shall before proceeding with the reference nominate an umpire to act in case of disagreement. The award of the arbitrator(s) shall be final and binding on both the parties (and be accepted by them). This reference to be arbitrators shall be deemed to be a reference under the provisions of the arbitration act, 1940 and the rules made there under and any statutory modifications or re-enactments there of that may be made from time of the reference. The cost of the arbitration shall be borne by the parties as may be decided upon the arbitrators or the umpire as the case may be.

Various clauses in the work order and agreement - Annexure A/1 indicate that Clause 1 pertains to Scope of Work; Clause 2 pertains to terms of payment; Clause 3 - provision for liquidated damages; Clause 4 - the period for completion of the job; Clause 5 -with regard to tools and tackles; Clause 6 - the scope of the non-applicant Company; Clause 7 - the scope of the applicant Company; and, finally certain other terms and conditions are incorporated of which the relevant ones are reproduced hereinunder:

xxx xxx xxx

-In addition to all above mentioned terms & conditions you have to follow other terms & conditions as mentioned in tender document.

-xxx xxx xxx

-In case of any difference or dispute the matter shall be referred to the CEO, Orient Paper Mills Amlai, whose decision shall be final and binding on you.

Thereafter, in page 17, the following two conditions are stipulated:

All other conditions specifications shall remain same as mentioned in the Tender Document.

This contract is subject to the jurisdiction of Burhar (Madhya Pradesh) Court only.

Shri Kishore Shrivastava, learned Senior Advocate, may be right in contending that the tender document is an unilateral proposal submitted by the petitioner and it does not bear the acceptance or signature of the non-applicant/Company, but when the work order - Annexure A/1 was issued, it was in the form of a proposal made by the CEO alongwith a contract for acceptance note, which was accepted by the non-applicant. After acceptance by the applicant this Annexure A/1 became the contract agreement or contract between the parties and in the agreement in question, as indicated hereinabove, the condition with regard to applicability of the other terms and conditions as mentioned in the tender document is incorporated. That apart, as the agreement goes to show that apart from the terms and conditions stipulated in the work order - Annexure A/1, the parties agreed to include other conditions as mentioned in the tender document without any change. It is clearly stipulated in Annexure A/1 under the Clause - "other terms and conditions", that in addition to all the above mentioned terms and conditions, the applicant will have to follow other terms and conditions as mentioned in the tender document. Thereafter, it is again stipulated that all other conditions and specifications shall remain the same as mentioned in the tender document. It is, therefore, clear on a conjoint reading of both i.e... the work order and the tender document, that apart from the terms and conditions stipulated in Annexure A/1, all other terms and conditions, including Clause 66.1 of the tender document, became a part of the agreement entered into between the parties and, therefore, the arbitration clause contained in Clause 66.1 by virtue of the terms and conditions agreed to between the parties as is reflected in Annexure A/1 became part of the agreement - Annexure A/1.

The question now is as to whether the clause with regard to reference of dispute to the CEO as appearing in Annexure A/1 is the arbitration clause or is Clause 66.1 the arbitration agreement or clause?

In this regard the law laid down by the Supreme Court in the case of Jagdish Chander (supra) with regard to existence of an arbitration clause may be taken note of. The principle for considering existence of an arbitration agreement is enumerated by the Supreme Court in paragraph 8 of the aforesaid judgment, in the following manner:

This Court had occasion to refer to the attributes or essential elements of an arbitration agreement in K.K. Modi v. K.N. Modi [1998 (3) SCC 573], Bharat Bhushan Bansal Vs. U.P. Small Industries Corporation Ltd., Kanpur, and Bihar State Mineral Dev. Corpn. and Another Vs. Encon Builders (I) Pvt. Ltd., In State of Orissa and another etc. Vs. Sri Damodar Das, this Court held that a clause in a contract can be construed as an ''arbitration agreement'' only if an agreement to refer disputes or differences to arbitration is expressly or impliedly spelt out from the clause. We may at this juncture set out the well settled principles in regard to what constitutes an arbitration 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.

If the Clause pertaining to reference of the dispute to the CEO as contained in Annexure A/1 is analysed in the backdrop of the requirement of law as laid down in the case of Jagdish Chander (supra), it would be clear that the stipulations contained in Annexure A/1 with regard to any difference or dispute in the matter being referred to the CEO and the decision of the CEO being final and binding, as held by the Supreme Court will not be an arbitration agreement. On the contrary, the arbitration agreement between the parties would be the one as is contemplated under Clause 66.1 of the tender document, which has been accepted by the parties and has been incorporated into the agreement between the parties as is evident from the stipulations in this regard contained in Annexure A/1 and reproduced hereinabove. Accordingly, I am unable to accept the contention of Shri Kishore Shrivastava to the effect that there is no arbitration agreement between the parties and the only arbitration agreement is the provision as contained in the work order - Annexure A/1 with regard to reference of dispute to the CEO. Infact, reference of the dispute to the CEO as contemplated in Annexure A/1 is not an arbitration agreement, instead it is Clause 66.1 which is the arbitration agreement. However, as the parties have agreed to resolve the dispute by first resorting to the in-house procedure contemplated in Annexure A/1, by reference to the CEO, the applicant should first comply with the aforesaid requirement before invoking the jurisdiction of this Court for constitution of an arbitral Tribunal under clause 66.1.

Applicant has tried to emphasize that vide Annexure A/2 dated 27.11.2010, the CEO was requested to resolve the dispute under the Clause in this regard contemplated in Annexure A/1 and he has failed to do so, the arbitral Tribunal be constituted. This contention of the applicant cannot be accepted. Annexure A/2 dated 27.11.2010 is not a reference by the applicant in accordance to the stipulation contained in Annexure A/1, in this regard. On the contrary, Annexure A/2 is only a demand made by the applicant for payment of Rs. 450 Lacs alongwith interest @ 15% per annum. This is only a demand made by the applicant and is not a request made by the applicant to the CEO for resolving the dispute or difference in accordance to the stipulations contained in Annexure A/1. That being so, there is some force in the objection raised by Shri Kishore Shrivastava, learned Senior Advocate, to the effect that the applicant cannot invoke the jurisdiction of this Court u/s 11(6) of the Arbitration and Conciliation Act without first exhausting the remedy of resolution of dispute provided under Annexure A/1 through the in-house mechanism.

Accordingly, for the present, finding no case for constitution of an arbitral Tribunal, this application is disposed of with liberty to the applicant to seek resolution of the dispute by reference to the CEO in accordance to the conditions stipulated in Annexure A/1 and thereafter if the applicant has any grievance still subsisting, or if the CEO does not resolve the dispute in accordance to the requirement of the agreement, liberty is granted to the applicant to proceed afresh in accordance with law and seek enforcement of the arbitration agreement by invoking the jurisdiction of the appropriate Court in accordance with law. With the aforesaid, the petition stands disposed of.