UNSIGNED ARBITRATION
AGREEMENT IS NOT INVALID IN ALL CIRCUMSTANCES
The Supreme Court of India has very recently in the case of Caravel Shipping Service Private Limited versus Premier Sea Foods Exim Private Limited
held that an unsigned arbitration agreement would not be invalid in all
cases. The only pre-requisite is that it has to be in writing, as set
out in Section 7(3) of the Arbitration Act, 1996 (Act). Further,
the aforesaid judgment held that the stage of the suit would not come in
the way of an application filed under Section 8(3) of the Act to refer
parties to arbitration when the issue is pending before the judicial
authority, provided said application under Section 8(3) of the Act was
filed in the same year as that of the suit.
The dispute arose out of a Bill of Lading (Bill) between Caravel Shipping Service Private Limited (Appellant) and Premier Sea Foods Exim Private Limited (Respondent)
who was the merchant according to the Bill. A suit was filed by the
Respondent before the Sub-Judge’s Court in Kochi to recover the sum of
Rs. 26,53,593/- from the Appellant. The pleadings expressly stated that
the Bill was to be a part of the cause of action in the aforesaid suit.
Subsequently, the Appellant filed an interim application under Section 8 of the Act to refer the matter to arbitration. It was brought to the Hon’ble Court’s notice that the arbitration clause was included in the printed terms annexed to the aforesaid Bill. Furthermore, the interim application also stated that a petition under Section 11 of the Act to appoint an arbitrator in accordance with clause 25 of the aforesaid Bill had been filed in Chennai. The Sub-judge dismissed the application on the ground that the printed condition annexed to the Bill would not be binding upon the parties.
A writ was filed under Article 227 before the Kerala High Court which was dismissed by judgment dated 14 June 2016 inter alia on the grounds that the arbitration clause did not reflect an intention to arbitrate and further, there was nothing to show that the aforesaid clause 25 was brought to the notice of the Respondent. The Appellants filed a review petition against this judgment which was dismissed by the Kerala High Court. The Appellant then approached the Supreme Court.
Subsequently, the Appellant filed an interim application under Section 8 of the Act to refer the matter to arbitration. It was brought to the Hon’ble Court’s notice that the arbitration clause was included in the printed terms annexed to the aforesaid Bill. Furthermore, the interim application also stated that a petition under Section 11 of the Act to appoint an arbitrator in accordance with clause 25 of the aforesaid Bill had been filed in Chennai. The Sub-judge dismissed the application on the ground that the printed condition annexed to the Bill would not be binding upon the parties.
A writ was filed under Article 227 before the Kerala High Court which was dismissed by judgment dated 14 June 2016 inter alia on the grounds that the arbitration clause did not reflect an intention to arbitrate and further, there was nothing to show that the aforesaid clause 25 was brought to the notice of the Respondent. The Appellants filed a review petition against this judgment which was dismissed by the Kerala High Court. The Appellant then approached the Supreme Court.
RATIO DECIDENDI
The Supreme Court referred to the Bill and held that the aforesaid Bill stipulated that the Merchant, the present Respondent, agreed to be bound by the terms, conditions, clauses and exceptions on both sides of the Bill.
The Bench observed that since the Respondent had themselves relied upon the Bill as a part of its cause of action in the suit filed by them before Sub-Judge’s Court in Kochi, they cannot at a later stage take a contradictory stance.
The Court referred to Jugal Kishore Rameshwardas v. Mrs Goolbai Hormusji (AIR 1995 SC 812) which held that an arbitration agreement needs to be in writing though it need not be signed. The Supreme Court concurred with this view.
The Apex Court stipulated that since the Respondent relied on the Bill in his suit to recover monies from the Appellant, he was expressly bound by the arbitration clause even if the arbitration clause is annexed to the Bill in printed condition. The Respondent cannot make a subsequent argument that because the arbitration clause is annexed to the Bill in printed condition, the parties are not bound by it.
The Bench also observed that the stage of the suit would not come in the way of an application filed under Section 8(3) of the Act in as much as the said Section 8(3) application is filed in the same year as that of the suit.
The Supreme Court referred to the Bill and held that the aforesaid Bill stipulated that the Merchant, the present Respondent, agreed to be bound by the terms, conditions, clauses and exceptions on both sides of the Bill.
The Bench observed that since the Respondent had themselves relied upon the Bill as a part of its cause of action in the suit filed by them before Sub-Judge’s Court in Kochi, they cannot at a later stage take a contradictory stance.
The Court referred to Jugal Kishore Rameshwardas v. Mrs Goolbai Hormusji (AIR 1995 SC 812) which held that an arbitration agreement needs to be in writing though it need not be signed. The Supreme Court concurred with this view.
The Apex Court stipulated that since the Respondent relied on the Bill in his suit to recover monies from the Appellant, he was expressly bound by the arbitration clause even if the arbitration clause is annexed to the Bill in printed condition. The Respondent cannot make a subsequent argument that because the arbitration clause is annexed to the Bill in printed condition, the parties are not bound by it.
The Bench also observed that the stage of the suit would not come in the way of an application filed under Section 8(3) of the Act in as much as the said Section 8(3) application is filed in the same year as that of the suit.
MHCO Comment: Pursuant to this judgment, it would be
advisable for parties to a contract who do not wish to arbitrate to
ensure that the terms and conditions of the contract do not include an
arbitration clause. If an arbitration clause is present in the printed
but unsigned conditions of an agreement, the matter may still be
referred to arbitration even if the parties have not signed the
conditions.
The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.
The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.
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