CS(OS) 23/2012 Page 1 of 13
* 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. TheCS(OS) 23/2012 Page 2 of 13
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 contractCS(OS) 23/2012 Page 3 of 13
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 CS(OS) 23/2012 Page 4 of 13
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.CS(OS) 23/2012 Page 5 of 13
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:-CS(OS) 23/2012 Page 6 of 13
“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.”CS(OS) 23/2012 Page 7 of 13
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.”CS(OS) 23/2012 Page 8 of 13
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 CS(OS) 23/2012 Page 9 of 13
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 CS(OS) 23/2012 Page 10 of 13
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 CS(OS) 23/2012 Page 11 of 13
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 toCS(OS) 23/2012 Page 12 of 13
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. ThisCS(OS) 23/2012 Page 13 of 13
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
