2006 (5) TMI 446 - SC - Companies Law

Arbitration agreement upheld based on contract terms referencing purchase orders. Limitation issues deemed arbitrable.

The court held that the arbitration agreement between the parties was valid based on the contract documents, despite the petitioner's previous denial ... Whether there is an arbitration agreement or not? Whether the respondent has lost its right to appoint its nominee to the Arbitral Tribunal in view of its failure to comply with the demand of the petitioner to appoint the arbitrator within 30 days from the date of receipt of notice dated 30.8.2005. Held that:- The purchase orders placed by the respondent on the petitioner are the contracts between the parties and they are subject to FAI terms which contain the arbitration clause Sub-section (5) of section 7 specifically provides that where there is reference in a contract (in this case, the purchase order) to a document containing an arbitration clause (in this case, the FAI terms), such reference constitutes an arbitration agreement, if the contract is in writing and the reference is such as to make that arbitration clause a part of the contract. The case squarely falls under section 7(5) of the Act and there is an arbitration agreement between the parties as per clause 15 of the FAI terms. Section 10 of the Act provides that the number of Arbitrators shall not be `even'. The arbitration clause provides that the dispute shall be referred to two Arbitrators and in the event of Arbitrators not agreeing then an Umpire to be appointed by the Arbitrators in writing before proceeding to the reference. Having regard to section 10 of the Act, the Arbitral Tribunal shall consist of three Arbitrators (one to be appointed by each of the two parties and the Presiding Arbitrator). Thus this petition is allowed and the following Arbitral Tribunal is constituted to adjudicate upon the claim made by the petitioner against the Respondent and to settle the disputes between the parties Issues:1. Existence of arbitration agreement between the parties.2. Whether the claim is barred by limitation.3. Appointment of Arbitral Tribunal and nomination of arbitrators by the parties.Existence of Arbitration Agreement:The petitioner sought appointment of an Arbitral Tribunal under Section 11(4) of the Arbitration and Conciliation Act, 1996, based on purchase orders with provisions for arbitration. The respondent contested, arguing estoppel due to the petitioner's denial of the arbitration agreement before Jordanian Courts. However, the court held that the arbitration agreement is determined by contract documents, not post-dispute contentions. The FAI terms referenced in the purchase orders constituted an arbitration agreement under Section 7(5) of the Act.Limitation of Claim:The respondent claimed the petitioner's suit was time-barred, referencing last correspondence in 2002. The court noted that limitation issues are arbitrable and can be decided by the Arbitral Tribunal. The respondent's failure to appoint an arbitrator promptly did not preclude its right to nominate an arbitrator, considering the bona fide belief that arbitration was not applicable.Appointment of Arbitral Tribunal and Nomination of Arbitrators:Section 10 of the Act mandates an odd number of arbitrators, and the court constituted a three-member Arbitral Tribunal. The Presiding Arbitrator was Mr. Justice R.C. Lahoti, with nominees being Mr. Justice S. Ratnaval Pandian and Mr. Justice D.P. Wadhwa. The Registry was directed to inform the arbitrators for expeditious resolution of the disputes.This judgment clarified the existence of an arbitration agreement based on contract documents, affirmed the arbitrability of limitation issues, and established the composition of the Arbitral Tribunal with respective nominees.