2015 (2) TMI 822 - SC - Companies Law

Court rejects arbitration petition citing vague and unenforceable clause in sale contract. Importance of clear arbitration clauses highlighted.

M/s. System for International Agencies Versus M/s. Rahul Coach Builders Pvt. Ltd.

The court rejected the arbitration petition due to the vagueness and lack of enforceability of the arbitration clause in the sale contract. The judgment ... Arbitration Clause in agreement - Arbitration under the provisions of the Bye-laws of India Companies Act, 1956 - Held that:- Upon perusal of the aforestated clause, it is clear that the clause with regard to arbitration is quite vague and as there are no by-laws framed under the provisions of the Companies Act, no arbitrator can be appointed. Needless to say that it would be open to the parties to take appropriate remedy in accordance with law.The arbitration petition is rejected. Issues:Arbitration clause validity under Indian Companies Act, 1956Analysis:The judgment revolves around the validity of an arbitration clause in a sale contract dated 2nd May, 2011. The clause stated that any disputes would be referred to arbitration under the by-laws of the Indian Companies Act, 1956. The court noted that there were no specific by-laws framed under the Indian Companies Act, 1956. The parties' counsels agreed that no such by-laws existed. Despite an attempt to show willingness to arbitrate in a winding up petition reply, the court found the arbitration clause to be vague and insufficient to appoint an arbitrator. Consequently, the court held that due to the ambiguity in the arbitration clause, arbitration could not proceed as per the provisions of Section 11(6) of the Arbitration and Conciliation Act, 1996.The court emphasized that the lack of specific by-laws under the Indian Companies Act, 1956 rendered the arbitration clause ineffective. The clause's ambiguity and absence of a framework for arbitration under the Companies Act led to the dismissal of the arbitration petition. The judgment highlighted the importance of clarity and specificity in arbitration clauses to ensure enforceability and proper dispute resolution mechanisms. The parties were advised to seek appropriate legal remedies in accordance with the law due to the failure of the arbitration petition.In conclusion, the court rejected the arbitration petition due to the vagueness and lack of enforceability of the arbitration clause in the sale contract. The judgment serves as a reminder of the significance of clear and specific arbitration clauses in contracts to avoid ambiguity and ensure effective dispute resolution mechanisms.