Delhi High Court: In a case wherein, the petitioner, Pure Diets India Ltd., had filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘Act’) for appointment of a sole Arbitrator in respect of a Supply Agreement (‘Agreement’), Jyoti Singh, J.*, held that mere use of the word ‘arbitration’ or ‘arbitrator’ was not enough to construe an agreement to be an arbitration agreement and dismissed the petition granting liberty to the petitioner to take recourse to other remedies available in law for redressal of its grievances.
In an instant case, a Agreement was executed between the parties for supply of products such as organic sugar, organic molasses, etc. customized for the petitioner. The agreement contained a clause mandating exclusivity on the part of the respondent for markets in the USA and Europe where the petitioner desired to acquire supply of these products. Subsequently, the parties entered into several other agreements for different quantities of the products, however, the parties agreed that no other agreement contained any other clause similar to Clause 15.7 in the Agreement dated 18-08-2017.
The petitioner contended that it terminated the Agreement on 29-09-2019 on account of breach of the exclusivity clause by the respondent. Thereafter, the petitioner issued a notice, invoking Clause 15.7 of the Agreement, seeking reference of the disputes between the parties to Arbitration.
On the other hand, the respondent, Lokmangal Agro Industries Ltd., contended that the agreement between the parties did not contain an arbitration clause and Clause 15.7 only provided that parties were at liberty to seek equitable/interim/provisional relief from a Court of competent jurisdiction including temporary or permanent injunction concerning a dispute, either prior to or during ‘any arbitration’ to protect their interests and preserve the status quo pending arbitration proceedings. There was nothing in the Clause which could be construed to mean and connote that parties envisaged appointment of an Arbitrator. Additionally, Clause 15.2 which was an exclusive jurisdiction clause showed that the parties intended that any dispute pertaining to the Agreement would be decided by a Civil Court at Delhi and both clauses 15.2 and 15.7 had to be read together and given a harmonious construction.
Analysis, Law and Decision
On considering the issue that whether a clause in the agreement was an arbitration clause falling within the scope of Section 7 of the Act, the Court relied on Wellington Associates Ltd. v. Kirit Mehta, (2000) 4 SCC 272 and opined that the question as to whether a clause in the agreement was an arbitration clause falling within the scope of Section 7 of the Act, might be decided in the proceedings under Section 11 of the Act as it touched upon the existence and validity of the Arbitration Clause and might not be left to be decided by the Arbitral Tribunal.
Further relying on Vidya Drolia and Others v. Durga Trading Corporation, (2021) 2 SCC 1 and after combined reading of Sections 2(b) and 7 of the Act, the Court opined that if a clause in an agreement purporting to be an arbitration clause did not fit in the statutory regime of Sections 2(b) and 7 of the Act and could not be termed as an arbitration agreement, the Court could at the threshold deny reference of disputes for adjudication through the arbitral mechanism.
After the perusal of Clause 15.7, the Court opined that it was difficult to hold that the parties intended to refer their disputes to arbitration and/or that the Clause could be construed to be an arbitration agreement as the clause contained the expressions “any arbitration” and “arbitration proceeding” but did not meet the threshold of the attributes of an arbitration agreement as elucidated in K.K. Modi v. K.N. Modi, (1998) 3 SCC 573 and the principles laid down in Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719. The clause emphasized on interim reliefs or preservation and status quo orders that could be sought by the parties to the agreement prior to or during the arbitration proceeding. The Court further opined that the word “arbitration” was qualified by the word “any” and therefore it could not be said that there was a clear intent of the parties to refer their disputes to arbitration. The words merely disclosed a contemplation or a possibility of resorting to arbitration as different and opposed to an obligation to do so.
The Court relied on Bernhard Consultancy Private Limited v. Ind. Agro Synergy Limited, Nagpur, 2001 SCC OnLine AP 534 and opined that the Court was unable to discern an unambiguous, certain, or unequivocal intent of the parties from a reading of Clause 15.7 to resort to arbitration as mode of settlement of their disputes.
The Court observed that Clause 15.7 only provided that the parties were at liberty to seek equitable/interim/provisional relief from a Court of competent jurisdiction including temporary or permanent injunction concerning a dispute, either prior to or during ‘any arbitration’ to protect their interests and preserve the status quo pending arbitration proceedings. At the highest it could be construed as an agreement to enter into an arbitration agreement.
The Court further opined that the main attribute of an arbitration agreement, namely, consensus ad idem to refer the disputes to arbitration, was missing in the clause. The Court held that an agreement to enter into an arbitration agreement could not be an arbitration clause and therefore mere use of the word ‘arbitration’ or ‘arbitrator’ was not enough to construe an agreement to be an arbitration agreement.
Thereafter, the Court dismissed the petition and concluded that the invocation of Section 11(6) of the Act by the petitioner was not correct and thus, this petition could not be entertained. However, the Court granted liberty to the petitioner to take recourse to other remedies available in law for redressal of its grievances.
Accordingly, the Court disposed of the petition.
[Pure Diets India Ltd. v. Lokmangal Agro Industries Ltd., 2023 SCC OnLine Del 4486, decided on 25-07-2023]
*Judgment by- Justice Jyoti Singh
Advocates who appeared in this case:
For Petitioner: Raghav Awasthi, Mukesh Sharma and Kunal Tiwari, Advocates;
For Respondent: Shivlok Yashovardhan, T.N. Durga Prasad and Prakash, Advocates.