Recently, in the case of
I. FACTS
The disputes between the parties remained unresolved which led to the invocation of the Arbitration Clause by the Petitioner. In response, the Respondent stated that it did not sign the agreement with Petitioner and that the disputes were to be referred to the court of competent jurisdiction in Gurugram,
Hence, the Respondent filed a Civil Suit before the
While the suit was pending, the Petitioner filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act") before the Civil Court to refer the suit for arbitration. Additionally, the Petitioner filed a petition under Section 11 of the Act, before the Hon'ble
II. RELEVANT CLAUSES OF THE DISTRIBUTION AGREEMENT
"XXIV. GOVERNING LAW:
This Agreement and all PO under this Agreement shall be exclusively governed by and construed in accordance with the laws of
XXV ARBITRATION:
The parties will attempt to settle any dispute, claim or controversy arising out of this Agreement through consultation and negotiation in good faith and in a spirit of mutual co-operation. If those attempts fail, then either Party can refer the disputes, issues or claims arising out of or relating to this Agreement for arbitration by a sole arbitrator who shall be appointed by the Managing Director of the
III. ISSUE BEFORE THE HIGH COURT
Whether the Agreement is binding upon the parties to refer the dispute to Arbitration?
IV. CONTENTIONS OF THE PARTIES
Petitioner: With regard to the interpretation of the arbitration clause, the Petitioner contended that the essential ingredients of a valid arbitration agreement as stipulated in Section 7 of the Act are satisfied. The Petitioner submitted that, upon a combined reading of Clauses XXIV and XXV of the Agreement, it is clear that the parties intended a mandatory reference to arbitration, and that such intention cannot be eclipsed by the mere use of the word "can". The Petitioner cited the case of
Respondent: The Respondent contended that the arbitration clause in the Distribution Agreement does not make a "mandatory" reference to the arbitration, and, hence, it is not a valid arbitration clause. The Respondent submitted that the use of the word "can" signifies an option in the hands of the parties as to whether to refer a dispute to arbitration or not.
V. FINDINGS OF THE COURT
Section 7 of the Act encapsulates the mandatory requirements to make an arbitration agreement valid. It provides that the parties must contemplate a mandatory reference to arbitration. The same has been confirmed through judicial precedents, as in the cases of K.K Modi v. K.N Modi,3
The Hon'ble Judge laid down the following principle:
"15. 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 emphasised to negate the clause of its true meaning."
The Court while deciding the matter held that:
"15.... The 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
The Court further negated the Respondent's contention that the case of
CONCLUSION
In order to derive the intention of the parties as to referring the matter to arbitration, it should be derived from the interpretation of the relevant agreement in its entirety. No particular phrase or a word should be unduly emphasized in such a manner, which can frustrate the true meaning of the agreement.
Footnotes
1.
2. (2007) 5 SCC 719.
3. (1998) 3 SCC 573, refer paragraph 17(5).
4. (2003) 7 SCC 418, refer paragraph 17.
5. 2022 SCC OnLine SC 1165 [Judgment in Civil Appeal arising out of
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