Citation: Writ Petition No. 5377 of 2021
Court: The High Court of Bombay
Coram: Manish Pitale, J.
Date: 19th September 2022
Keywords: Section 8, Arbitration & Conciliation Act, 1996 (the “A&C Act”), unilaterally signed proposal, arbitration agreement
A Single-Judge Bench of the Bombay High Court ruled that the mere reference to a proposal containing an arbitration clause unilaterally signed by one party would not amount to an arbitration agreement coming into existence.
The dispute relates to a contract whereby M/s. TCI Infrastructure Limited (“TCIIL”) engaged M/s. Kirby Building Systems (Uttaranchal) Private Limited (“KBSUPL”) for the construction of a warehouse.
On 26th June 2012, KBSUPL, by way of a letter, forwarded a proposal dated 10th May 2012 to TCIIL. The proposal was unliterally signed by KBSUPL and contained an arbitration agreement in Clause 14. TCIIL responded by issuing a letter of intent on 12th July 2012 for the supply of pre-fabricated steel building against the offer made by KBSUPL. The letter of intent made reference to the proposal made by KBSUPL in its letter of 26th June 2012 and also subsequent discussions between the parties. Besides outlining the requirements of the prefabricated steel building in respect of the measurement and material, the letter of intent also contained certain terms and conditions; however, it made no reference to any arbitration clause for the resolution of disputes between the parties. The letter of intent was the only document signed by representatives of both TCIIL and KSBUPL.
Following that, on 16th July 2012, TCIIL issued the purchase order to KBSUPL, which also made reference to the letter dated 26th June 2012 containing the proposal, subsequent discussions, and the letter of intent dated 12th July 2012. This purchase order, signed only by TCIIL, contained a reiteration of the specifications of the prefabricated steel building, as provided in the letter of intent, and also specified terms and conditions (including a force majeure clause); however, there was no clause to signify an arbitration agreement between the parties.
In 2017, TCIIL filed Special Civil Suit No. 324 of 2017 against KBSUPL for recovery of a specific amount on the ground that KBSUPL had used sub-standard material in the execution of the contract and construction of the warehouse.
KBSUPL filed an application under Section 8(1) of the A&C Act, asserting that a joint reading purchase order/ contract dated 16th July 2012 and the proposal dated 26th June 2012 (in particular clause 14 of the proposal), signified the existence of an arbitration agreement between the parties.
By an order dated 1st December 2018, the 6th Joint Civil Judge, Senior Division, Nagpur (“trial court”) allowed the application and consequently disposed of the suit filed by TCIIL, thereby leaving the parties to go to arbitration. TCIIL’s appeal through Regular Civil Appeal No. 93 of 2019, before the Court of Principal District Judge, Nagpur (“district court”) was dismissed as untenable by judgment and order dated 12th January 2021.
TCIIL filed a writ petition at the High Court of Bombay challenging the trial court’s order dated 1st December 2018, and also the district court’s judgment and order dated 12th January 2021.
Whether mere reference to a unilaterally signed proposal containing an arbitration clause can signify the existence of an arbitration agreement?
The court noted that the existence of an arbitration clause or agreement is a sine qua non for a court to exercise its powers under Section 8 of the A&C Act. This would require an examination of all documents on record on which the parties have relied to demonstrate the existence of such an agreement.
The court stated that the trial court failed to appreciate the true purport of the documents on record. It noted that a pre-condition for an arbitration agreement to come into existence is a document executed by both parties, which incorporates an arbitration clause/ agreement to showcase their consensus ad-idem.
Neither the letter of intent dated 12th July 2012 (the only document signed by both parties) that independently recorded terms and conditions for the contract’s execution nor the purchase order dated 16th July 2012 (signed only by the petitioners) contained an arbitration clause.
Though the unilaterally signed proposal dated 26th June 2012, contained an arbitration clause, a mere reference to the same in the letter of intent, and the purchase order, without any incorporation of the arbitration clause/ agreement in the respective documents, would not amount to the existence of an arbitration agreement between the parties.
As a result, the orders dated 1st December 2018 passed by the trial court were quashed and set aside. Consequently, the judgment and order of the district court dated 12th January 2021 were rendered meaningless and set aside. Therefore, the original suit filed by the TCIIL in the trial court was restored.
On a perusal of the documents placed on record, the court noted that a mere reference to a unilaterally signed proposal containing an arbitration clause would not result in the existence of an arbitration agreement between the parties.
[This case note has been authored by Ayush Prashant Waghmare, an Editor at Mapping ADR.]