Delhi High Court| Interpretation of an arbitration clause must be predicated upon a construction of the contract as a whole, and no particular word or phrase should be unduly emphasized to negate the clause of its true meaning

Delhi High Court

Delhi High Court: In a case filed by Panasonic India Private Limited (petitioner) seeking appointment of an arbitrator to adjudicate disputes which have arisen between the parties under a Distribution Agreement, Prateek Jalan, J., refuting the contentions of the respondent that the clause referring to arbitration 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 and held 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 emphasized to negate the clause of its true meaning.

Panasonic’s claims arise out of alleged unpaid invoices which were raised by it for electronic goods sold to Shah Aircon. In the course of correspondence between the parties, claims were raised by both parties against each other. Panasonic finally invoked the arbitration clause by a letter dated 29-01-2021 and filed the present petition under Section 11 of Arbitration and Conciliation Act, 1996.

The contention by the respondent rests upon the use of the word “can” in Clause XXV of the Agreement, and the last part of the said clause which provides for recourse to civil proceedings in certain circumstances. The Court however noted that the requirements for existence of a valid arbitration clause are encapsulated in Section 7 of the Act, which inter alia states that the parties must contemplate a mandatory reference to arbitration.

The Court noted that, 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 Court observed that 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.

Thus, the Court concluded that no fresh consent for arbitration is contemplated, and the Agreement adequately demonstrates consensus between the parties, and on a proper interpretation of the arbitration clause in the present case, the parties, in fact, arrived at a mandatory understanding that their disputes under the Agreement would be referred to arbitration.

The Court appointed Mr. Vidit Gupta, Advocate as the Arbitrator to adjudicate the disputes between the parties under the Agreement and is requested to make a declaration in terms of Section 12 of the Act prior to entering upon the reference.

[Panasonic India Private Limited v. Shah Aircon, 2022 SCC OnLine Del 3288, decided on 11-10-2022]

Advocates who appeared in this case :

Mr. Kunal Kher, Advocate, for the Petitioner;

Mr. Zahid Hanief, Advocate, for the Respondent.

*Arunima Bose, Editorial Assistant has put this report together.

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