2022 (9) TMI 1117 - HC - Indian Laws

Invalid arbitration agreement due to lack of consensus ad-idem. Trial court's decision overturned. Suit reinstated.

The High Court held that there was no valid arbitration agreement between the parties as the essential element of consensus ad-idem was lacking. The trial ... Application for referring the matter to arbitration - existence of arbitration agreement between the parties - whether the documents on record, upon which the parties have placed reliance, demonstrate existence of such an arbitration clause/agreement? - HELD THAT:- This Court is of the opinion that the trial Court committed a grave error in failing to appreciate the true purport of the documents on record. For an arbitration agreement to come into existence between the parties, there ought to be a document executed on behalf of both the parties, showing consensus ad-idem, incorporating such an arbitration clause/agreement. The only document signed on behalf of both the parties is the letter of intent dated 12/07/2012, which admittedly contains no arbitration clause/agreement. Similarly, even the purchase order dated 16/07/2012, which is signed only on behalf of the petitioners does not contain such an arbitration clause. This Court is of the opinion that merely because the proposal forwarded on behalf of the respondents, by letter dated 26/06/2012, contained an arbitration clause, which was unilaterally signed only on behalf of the respondents and there was reference thereto in the letter of intent dated 12/07/2012 and the purchase order dated 16/07/2012, it cannot be said that an arbitration agreement came into existence between the parties. The trial Court failed to appreciate this aspect of the matter while exercising power under Section 8 of the Act of 1996 - Petition allowed. Issues:Challenge to order referring matter to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996; Appeal against trial court's order and district court's judgment; Existence of arbitration agreement in documents.Analysis:1. The petitioners challenged an order referring the matter to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, based on an application filed by the respondents claiming an arbitration agreement existed between the parties. The trial court disposed of the suit, directing arbitration, which was upheld by the district court. The petitioners contended that there was no arbitration clause in the concluded contract between the parties, emphasizing that key documents did not contain any arbitration clause.2. The respondents argued that the purchase order had to be read with a proposal to establish the existence of an arbitration clause/agreement. The trial court accepted this argument, relying on clause (14) in the proposal dated 26/06/2012, forwarded by the respondents. However, the High Court observed that for an arbitration agreement to be valid, there must be a document executed by both parties showing consensus ad-idem, which was lacking in the present case.3. The High Court analyzed the documents on record, including the proposal, letter of intent dated 12/07/2012, and the purchase order dated 16/07/2012. It noted that the only document signed by both parties, the letter of intent, did not contain any arbitration clause/agreement. The court emphasized that a mere reference to the proposal without incorporating the arbitration clause/agreement in subsequent documents did not establish the existence of an arbitration agreement between the parties.4. The High Court referred to a Supreme Court judgment to emphasize the importance of factual findings in determining the existence of an arbitration agreement. It concluded that the trial court erred in exercising power under Section 8 of the Act of 1996 without a valid arbitration agreement between the parties. Consequently, the orders referring the matter to arbitration were deemed unsustainable, and the trial court's orders were quashed and set aside.5. As a result of setting aside the trial court's orders, the suit filed by the petitioners was restored, and the district court's judgment was rendered meaningless and set aside. The High Court directed the trial court to proceed further in the matter expeditiously, bringing the legal proceedings to a close.