Case Note & Summary
The Applicant filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of a sole arbitrator to resolve disputes arising out of a Memorandum of Understanding (MOU) dated 26th March 2013 entered into between the Applicant and the Respondents. The Applicant contended that Clause 10 of the MOU contained an arbitration agreement. The Respondents opposed the application, arguing that Clause 10 did not constitute a binding arbitration agreement as it first provided for civil court jurisdiction in Mumbai and only contemplated arbitration as an alternative if the parties mutually agreed at the time of dispute. The Court examined Clause 10, which stated: 'This Memorandum of Understanding is constructed as a contract and is subject to Mumbai jurisdiction only. In case of any disputes, the Courts of Mumbai will have the sole jurisdiction. Alternatively Arbitrator can be appointed by mutual consent of both the parties and the decisions given by the Arbitrator will be binding on both the parties.' The Court noted that the clause primarily vested jurisdiction in the civil courts of Mumbai and used the word 'Alternatively' to indicate that arbitration was merely an option, not a mandatory dispute resolution mechanism. The Court held that for a clause to be a valid arbitration agreement under Section 7 of the Act, it must be binding and mandatory, not contingent on future mutual consent. Since the clause made arbitration dependent on the parties' subsequent agreement, it did not constitute a binding arbitration agreement. Consequently, the Court dismissed the application, finding no valid arbitration agreement to warrant appointment of an arbitrator under Section 11 of the Act.
Headnote
A) Arbitration Law - Validity of Arbitration Agreement - Section 7, Arbitration and Conciliation Act, 1996 - Clause 10 of MOU provided for civil court jurisdiction and alternatively that 'Arbitrator can be appointed by mutual consent of both the parties' - Held that the clause does not contain a binding arbitration agreement as it makes arbitration contingent on future mutual consent and is not mandatory - The word 'Alternatively' indicates arbitration is only an option, not an obligation - Application under Section 11 dismissed (Paras 1-5).
Issue of Consideration
Whether Clause 10 of the Memorandum of Understanding dated 26th March 2013 constitutes a valid and binding arbitration agreement under the Arbitration and Conciliation Act, 1996, entitling the Applicant to appointment of an arbitrator under Section 11 of the Act.
Final Decision
The Court dismissed the Arbitration Application No. 131 of 2014, holding that Clause 10 of the MOU does not contain a binding arbitration agreement, and therefore no arbitrator can be appointed under Section 11 of the Arbitration and Conciliation Act, 1996.
Law Points
- Arbitration agreement must be binding and mandatory
- not optional or contingent on future mutual consent
- Clause providing for civil court jurisdiction with alternative arbitration by mutual consent does not constitute a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act
- 1996
