Case Note & Summary
The Applicant, Global Cements Ltd., entered into an agreement for sale with the Respondent, The Associated Cement Companies Ltd., on 16 December 1989. The agreement contained Clause 21 which provided that any dispute between the parties shall be referred to either Mr. N.A. Palkhivala or Mr. D.S. Seth, whose decision would be final and binding. Subsequently, disputes arose regarding the resumption of part of the land by the State Government due to breach of lease terms by the Respondent. The Applicant invoked the arbitration clause by letter dated 20 July 2011 and filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 on 8 December 2011 for appointment of an arbitrator. The Respondent raised two defences: first, that Clause 21 does not constitute an arbitration agreement; second, that even if it does, both named arbitrators have died and the agreement is therefore inoperative. The court examined the language of Clause 21 and held that it clearly evidences an intention to refer disputes to arbitration, thus satisfying the definition under Section 7 of the Act. The naming of individuals does not negate the existence of an arbitration agreement. Regarding the death of the named arbitrators, the court held that the arbitration agreement does not become inoperative. Section 15(2) of the Act provides for substitution of an arbitrator who is unable to perform his functions, and the agreement does not exclude this provision. Therefore, the court has the power under Section 11 to appoint a substitute arbitrator. The court allowed the application and appointed a sole arbitrator to adjudicate the disputes between the parties.
Headnote
A) Arbitration Law - Validity of Arbitration Agreement - Section 7 Arbitration and Conciliation Act, 1996 - Clause 21 of agreement provided for reference of disputes to either of two named individuals - Held that the clause constitutes a valid arbitration agreement as it contains an unequivocal intention to refer disputes to arbitration, and the naming of individuals does not detract from the existence of an arbitration agreement (Paras 5-8).
B) Arbitration Law - Appointment of Arbitrator - Death of Named Arbitrators - Sections 11 and 15 Arbitration and Conciliation Act, 1996 - Both named arbitrators died - Held that the arbitration agreement does not become inoperative; the court can appoint a substitute arbitrator under Section 11, as the agreement does not exclude the applicability of Section 15(2) which provides for substitution (Paras 9-13).
Issue of Consideration
Whether Clause 21 of the agreement dated 16 December 1989 constitutes a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996; and if so, whether the death of the named arbitrators renders the arbitration agreement inoperative, or whether the court can appoint a substitute arbitrator under Section 11.
Final Decision
The court allowed the application and appointed a sole arbitrator to adjudicate the disputes between the parties.
Law Points
- Arbitration agreement
- Section 7 Arbitration and Conciliation Act 1996
- Named arbitrator
- Death of arbitrator
- Section 11 Arbitration and Conciliation Act 1996
- Appointment of substitute arbitrator
Case Details
2012 LawText (BOM) (05) 28
Arbitration Application No.7 of 2012
Mr. Pravin Samdani, Senior Advocate with Mr. Kezer Khanrawala i/b. R.K. Associates for the Petitioner; Mr. D.D. Madon, Senior Advocate with Mr. Homa Petit, Mr. Cyrus Ardeshir, Mr. Mihail Behl and Mr. Ashwin Bhagwat i/b. Vigil Juris for the Respondent.
Global Cements Ltd. (formerly known as Fraser Investments Ltd.)
The Associated Cement Companies Ltd.
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Nature of Litigation
Application under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator.
Remedy Sought
The Applicant sought appointment of an arbitrator to adjudicate disputes arising from an agreement for sale dated 16 December 1989.
Filing Reason
Disputes arose regarding resumption of land by the State Government due to breach of lease by the Respondent, and the Applicant invoked the arbitration clause.
Previous Decisions
The Collector, Porbandar and Secretary (Appeals) passed orders resuming part of the land; the Respondent's writ petitions challenging those orders were dismissed by the Gujarat High Court on 15 December 2009.
Issues
Whether Clause 21 of the agreement dated 16 December 1989 constitutes a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996.
Whether the death of the named arbitrators renders the arbitration agreement inoperative, or whether the court can appoint a substitute arbitrator under Section 11.
Submissions/Arguments
Respondent argued that Clause 21 does not embody an arbitration agreement; it merely provides for reference to named individuals, not arbitration.
Respondent argued that even if it is an arbitration agreement, both named arbitrators have died, and the agreement is inoperative as it only allows reference to those two individuals.
Applicant argued that Clause 21 is a valid arbitration agreement and the court can appoint a substitute arbitrator under Section 11.
Ratio Decidendi
Clause 21 of the agreement constitutes a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996 as it contains an unequivocal intention to refer disputes to arbitration. The death of the named arbitrators does not render the arbitration agreement inoperative; the court has the power under Section 11 to appoint a substitute arbitrator, as Section 15(2) provides for substitution and the agreement does not exclude its applicability.
Judgment Excerpts
Clause 21 of the Agreement dated 16 December 1989 is to the following effect : '21. If any question or difference or dispute shall arise between the parties hereto or their representatives at any time in relation to or with respect to the meaning or effect of these presents or with respect to the rights and liabilities of the parties hereto then such question or dispute shall be referred either to Mr.N.A.Palkhivala or Mr.D.S. Seth, whose decision in the matter shall be final and binding on both the parties.'
An arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996 is defined to mean an agreement between parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
Procedural History
On 16 December 1989, the parties entered into an agreement for sale. On 24 January 2002 and 3 February 2003, the Collector and Secretary (Appeals) passed orders resuming part of the land. The Respondent filed writ petitions (Special Civil Applications 1975 of 2003 and 1992 of 2003) which were dismissed on 15 December 2009. On 17 May 2011, the Applicant sent a letter of demand. On 20 July 2011, the Applicant invoked the arbitration clause. On 8 December 2011, the Applicant filed the present application under Section 11 of the Arbitration and Conciliation Act, 1996.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 7, Section 11, Section 15
