Case Note & Summary
The case involved a partnership firm (Petitioner) engaged in manufacturing soft gelatin pharmaceutical products, and a US corporation (Respondent No.1) acting as distributor, with a courier company (Respondent No.2) nominated for transportation. Under an Agreement dated 13 April 2006 and amended in November 2007, the Petitioner supplied a multivitamin formulation called 'OBNATALI'. Respondent No.1 claimed that over 450,000 bottles of the product were defective due to leaking capsules, leading to recall and termination of the Agreement after the Petitioner refused to take back the goods. Respondent No.1 first filed a complaint in the US District Court for the Eastern District of Pennsylvania on 7 August 2009, which it withdrew on 25 January 2010. On the same day, it invoked the arbitration clause before the American Arbitration Association (AAA) seeking damages. The Petitioner filed a counterclaim in those proceedings, asserting that the damage was caused by high temperatures and humidity during transit by Respondent No.2, who was Respondent No.1’s nominee, and that Respondent No.1 had wrongfully terminated the Agreement, causing Petitioner to incur substantial upgrade costs. The Petitioner did not appoint its arbitrator but sought and received seven extensions. On 20 November 2010, the Petitioner filed Special Civil Suit No. 58 of 2010 in the court of Civil Judge, Senior Division, Daman, claiming Rs.30.5 crores in damages. Respondent No.1 applied under Section 45 of the Arbitration and Conciliation Act, 1996 to refer the parties to arbitration. The Civil Judge allowed the application on 13 October 2011, leading to this writ petition under Article 227 of the Constitution before the Bombay High Court. The central legal issues were whether the arbitration clause was valid and covered the dispute, whether Respondent No.1 waived arbitration by initiating and withdrawing the US court action, and whether the Petitioner’s participation in the AAA proceedings constituted submission. The High Court examined the existence of a valid arbitration agreement, the scope of the clause, and the doctrine of waiver. The judgment excerpt ends without recording the final decision; therefore the outcome and ratio decidendi are not available in the provided text.
Headnote
A) Arbitration – Reference to International Commercial Arbitration – Section 45, Arbitration and Conciliation Act, 1996 – Conditions for reference – The Court must examine whether there is an arbitration agreement, whether it is null and void, inoperative or incapable of being performed, and whether the dispute falls within its scope. Held, the trial court allowed the reference; the High Court is to consider if the order suffers from error. (Paras 2-3)
B) Arbitration – Participation in Proceedings – Waiver of Objections – Section 45, Arbitration and Conciliation Act, 1996 – Where a party files a counterclaim in arbitration without objecting to jurisdiction, it may amount to submission and waiver of right to challenge reference. Held, petitioner filed counterclaim and sought extensions, indicating active participation. (Paras 6-7)
C) Contract – Interpretation of Arbitration Clause – Clause 16 of Agreement – Scope covering disputes arising out of or relating to the agreement, including performance, breach, termination. Held, the dispute regarding defective products and termination falls within the clause. (Paras 4-5)
D) Constitutional Law – Article 227 of Constitution of India – Supervisory jurisdiction – Scope of interference limited to patent error of law. Held, the petition challenges the trial court’s order; High Court exercises supervisory review. (Para 2)
Issue of Consideration
Whether in terms of Clause 16 of the Agreement, the parties are to be referred to arbitration under Section 45 of the Arbitration and Conciliation Act, 1996
Law Points
- Section 45 of the Arbitration and Conciliation Act
- 1996
- conditions for reference to arbitration
- existence and validity of arbitration agreement
- submission to arbitration by filing counterclaim
- waiver of objections
- Article 227 supervisory jurisdiction
Case Details
2012 LawText (BOM) (03) 44
Writ Petition No. 10475 of 2011
Dr. V. V. Tulzapurkar, Senior Advocate with Mr. Virag Tulzapurkar, Senior Advocate and Mr. Sandeep Parikh for Petitioner; Mr. V R Dhond, Senior Advocate with Mr. Shailesh Shukla & Mr. Pratik Pawar for Respondent No.1; Mr. Rohan Cama for Respondent No.2
Olive Healthcare, a partnership firm, through its partner Mr. Kamlesh C Shah
Lannett Company Inc. and DHL Lemuir Logistics Pvt. Ltd.
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Writ petition under Article 227 of the Constitution of India challenging the order of the Civil Judge, Senior Division, Daman, which allowed an application under Section 45 of the Arbitration and Conciliation Act, 1996, and referred the parties to arbitration.
Remedy Sought
Petitioner (original plaintiff) sought to set aside the order dated 13 October 2011 and thereby prevent reference to arbitration.
Filing Reason
Petitioner contended that the arbitration clause was not mandatory or that Respondent No.1 waived arbitration by prior court proceedings, and that the dispute involved non-arbitrable issues.
Previous Decisions
The Civil Judge, Senior Division, Daman, by order dated 13 October 2011, allowed Respondent No.1's application (Exhibit18) under Section 45 and referred the parties to arbitration.
Issues
Whether the parties should be referred to arbitration under Section 45 of the Arbitration and Conciliation Act, 1996 based on Clause 16 of the Agreement.
Whether the petitioner's filing of a counterclaim and participation in arbitration proceedings constituted submission and waiver of objections.
Whether the arbitration clause covered the dispute regarding defective supply and termination.
Whether the court's order under Section 45 suffers from any error warranting interference under Article 227.
Submissions/Arguments
Petitioner argued that the damage to the product was caused by high temperatures and humidity during transportation by Respondent No.2, who was nominated by Respondent No.1, hence the consequences cannot be foisted on Petitioner. It also contended that termination was wrongful and claimed damages for facility upgrades.
Respondent No.1 argued that the supplied product was defective and leaking, forcing recall, and sought to recover purchase price and costs. It invoked the arbitration clause.
Petitioner objected to the reference on grounds that Respondent No.1 waived arbitration by filing and withdrawing a court complaint in USA, and that the arbitration clause was not mandatory.
Respondent No.1 contended that the arbitration clause was valid and covered the dispute, and that petitioner's filing of counterclaim without objection submitted to arbitration jurisdiction.
Judgment Excerpts
If the parties are unable to resolved, within a reasonable time, any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, performance, breach or termination, the parties agree to first discuss the dispute informally. If such negotiation is not successful... then such dispute shall be resolved by... binding arbitration...
The Petitioner also filed its Counter Claim in the said Arbitration proceedings. In its Counter Claim the Petitioner had made a substantive claim against the Respondent No.1.
...no objection was taken even in the answer about the arbitrability of the disputes either on the ground that there was no mandatory provision for arbitration or that the Respondent No.1 having instituted a Complaint before the United States District Court... had waived its right to arbitration.
Procedural History
The Agreement between the parties was executed on 13 April 2006 and amended in November 2007. Respondent No.1 sent an advocate's notice dated 30 June 2009 regarding defective products. Respondent No.1 filed a complaint in the United States District Court for the Eastern District of Pennsylvania on 7 August 2009, which was withdrawn on 25 January 2010. On the same day, Respondent No.1 invoked arbitration before the American Arbitration Association (AAA). Petitioner filed its answer and counterclaim in February 2010. Respondent No.1 appointed its arbitrator on 23 April 2010; Petitioner sought seven extensions for appointing its arbitrator. Petitioner filed Special Civil Suit No. 58 of 2010 before the Civil Judge, Senior Division, Daman on 20 November 2010. Respondent No.1 filed an application under Section 45 of the Arbitration and Conciliation Act, 1996. By order dated 13 October 2011, the Civil Judge allowed the application and referred the parties to arbitration. Petitioner filed the instant writ petition under Article 227 of the Constitution. The High Court reserved judgment on 23 January 2012 and delivered it on 7 March 2012.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 45
- Constitution of India: Article 227
