Summary
The appellant sought appointment of an arbitrator under Section 11 relying on clause 13 of the contract's general terms, which, after a two-stage in-house settlement procedure, stated that for parties other than government agencies redressal of the dispute "may be sought through" the Arbitration and Conciliation Act, 1996. The Court held that the referral court must itself examine, prima facie, whether an arbitration agreement under Section 7 exists rather than leave the question to the tribunal, and that clause 13 was merely an enabling provision requiring further consent and not a binding arbitration agreement; the High Court's dismissal of the application was upheld.
Issues
- Whether the question of existence of an arbitration agreement should be left by the referral court under Section 11 to the arbitral tribunal.
- Whether clause 13 of the General Terms and Conditions constitutes an arbitration agreement within the meaning of Section 7 of the Arbitration and Conciliation Act, 1996.
- Whether clause 32 of the Instructions to Bidders (conferring jurisdiction on the District Court) negates the existence of an arbitration agreement.
Provisions considered
- Section 11(6-A), Arbitration and Conciliation Act, 1996The referral court's jurisdiction is confined to an examination of the existence of an arbitration agreement, which is a prima facie determination; where the professed agreement is a single undisputed clause, a plain reading to see whether it satisfies Section 7 does not transgress this limit, as the object of the examination is to weed out frivolous claims for appointment. (¶¶ 14, 15, 16, 17, 18, 19)
- Section 7, Arbitration and Conciliation Act, 1996An arbitration agreement requires a present or future difference, an intention to settle it by a private tribunal, a written agreement to be bound by its decision and consensus ad idem; a clause which requires or contemplates further consent before reference is not an arbitration agreement; clause 13 did not satisfy these requirements. (¶¶ 17, 18, 20, 22, 26, 31)
- Section 2(b), Arbitration and Conciliation Act, 1996Defines an arbitration agreement as an agreement referred to in Section 7, which is the foundation of arbitration as it records the parties' consent to submit disputes to arbitration. (¶ 20)
- Section 16, Arbitration and Conciliation Act, 1996The arbitral tribunal may rule on its own jurisdiction including the existence and validity of the arbitration agreement; a prima facie view of the referral court binds neither the tribunal nor the court enforcing the award, which is why the referral court should not conduct a deeper probe where existence is prima facie made out from several documents. (¶¶ 15, 17)
Held
- Following the seven-Judge decision in In re Interplay between Arbitration Agreements and the Stamp Act, the referral court must be prima facie satisfied that an arbitration agreement under Section 7 exists before appointing a tribunal; it may scrutinise the documents relied upon, the burden being on the party asserting the agreement, but only prima facie proof is required and no mini-trial is to be held. (¶¶ 14, 15, 16)
- Where the professed arbitration agreement is contained in an undisputed document, no inquiry into its existence is needed and the court simply peruses it to see whether it prima facie fulfils the ingredients of Section 7; where the agreement must be inferred from several documents such as exchanges of letters, the referral court should refer the matter once existence is prima facie made out rather than undertake a deeper probe, its opinion being binding on neither the tribunal nor the court dealing with the award. (¶ 17)
- Here a single undisputed clause was relied on and the only question was whether on a plain reading it was an arbitration agreement; such a limited exercise does not transgress Section 11(6-A), and the appellant's argument that the referral court should straightaway refer the matter and leave existence to the tribunal was rejected. (¶¶ 18, 19)
- An arbitration agreement must disclose a determination and obligation to go to arbitration, not merely contemplate its possibility; clauses using words such as 'may also agree to refer', 'if the parties so decide' or 'should consider settlement by arbitration' indicate only a desire or tentative arrangement and require a further agreement, so they are agreements to enter into an arbitration agreement in future (Jagdish Chander and Mahanadi Coalfields followed). (¶¶ 22, 23, 24, 25, 26)
- Clause 13 does not bind the parties to use arbitration: the words 'may be sought' imply that there is no subsisting agreement that the parties or any one of them must seek settlement through arbitration; it is only an enabling clause under which, if the parties agree, they could arbitrate, and not an agreement allowing one party on its own to compel arbitration. The High Court was right in holding that it is not an arbitration agreement and, no later agreement to arbitrate being pleaded, in rejecting the application. (¶¶ 28, 29, 30, 31, 32)
- Clause 32 does not exclude resolution of disputes through arbitration; it only fixes jurisdiction and, had there been an arbitration agreement, could have determined the juridical seat; the issue was of no consequence given the finding that no arbitration agreement existed. (¶ 33)
Result
Appeal dismissed; High Court order dated 19.01.2024 rejecting the application under Section 11 upheld; no order as to costs; pending applications disposed of.