Arbitration: Calcutta High Court Allows S. 11 Application Being Consolidated Claim Under Different Purchase Orders Linked To A Single Main Contract

The Calcutta High Court has ruled that a single composite invocation of arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 (A&C Act), pertaining to a consolidated claim arising out of three different Purchase Orders, containing separate arbitration clauses, cannot be labelled as invalid or unlawful. The court made the observation while noting that all the Purchase Orders, though issued at different times, were a sub-set of the respondent’s performance of a single Main Contract. Further, the relevant clauses of the Purchase Order established a link between the liabilities arising out of the Purchase Orders and the Main Contract, and contained identically worded arbitration clauses. The bench of Justice Sabyasachi Bhattacharyya held that where the arbitration clauses placed in different contracts are relatable to a single Main Contract- indirectly through reference- the arbitral reference for a single consolidated claim may be incidental and will fall in the category of "may arise" as envisaged in Section 7 (1) of the A&C Act. The court said that the expression "may arise" is wide enough to encompass not only the specific disputes spelt out in the invocation, but also disputes which may reasonably arise out of those. The bench thus allowed the single application filed by the petitioner under Section 11 of the A&C Act, and appointed a Sole Arbitrator to adjudicate the consolidated claims in a composite manner. The petitioner, Godrej & Boyce Mfg. Co. Ltd, invoked arbitration after the respondent, Shapoorji Pallonji and Company Pvt Ltd, allegedly failed to pay the dues for the furniture supplied by the former. Godrej, thereafter, filed an application under Section 11 of the A&C Act before the Calcutta High Court seeking appointment of the Arbitral Tribunal. Disputing the maintainability of the application, the respondent, Shapoorji Pallonji, argued that the dispute between the parties arose out of three separate purchase orders having distinct arbitration clauses. It claimed that all the three purchase orders were independent contracts. Thus, Godrej was required to file three separate applications seeking arbitral reference under Section 11 of the A&C Act, preceded by three separate arbitration notices, invoking the different arbitration clauses contained in the separate contracts. To this, Godrej contended that all the purchase orders emanated from a single parent contract executed between Shapoorji Pallonji and the West Bengal Medical Services Corporation Ltd (WBMSCL). Godrej argued that under the purchase orders, it had supplied furniture for various Hospitals in West Bengal, in pursuance of the parent contract entered into between the said parties. In support of its application, Godrej relied on the identical language of the three arbitration clauses contained in the purchase orders. It further claimed that prior to invocation of arbitration, it had received payment of a consolidated sum of money from Shapoorji Pallonji. The High Court observed that all the three purchase orders were issued by the respondent, Shapoorji Pallonji, to the petitioner, Godrej, to fulfil the terms of a master (principal) agreement between the former and its employer- WBMSCL. Perusing the facts of the case, the bench further said that it cannot turn a blind eye to the communication between the parties preceding the arbitral reference, in which both parties referred to the issue of a single, total, consolidated claim amount. The court noted that although Shapoorji Pallonji’s employer, WBMSCL, is not a party to any of the purchase orders, the relevant clause of the purchase order refers to the disputes between them. The said clause provides for arbitration in case of a dispute arising out of the Main Contract executed between the two. The bench further observed that the said clause empowered Shapoorji Pallonji- even in connection with the arbitral disputes with WBMSCL under the Main Contract- to require Godrej to not only provide information but to attend meetings in connection with such disputes. The court ruled that the same undeniably established a link between the liabilities arising out of the purchase orders and the Main Contract. The court concluded: “The purchase orders, although separate and pertaining to different bulks of furniture for different areas in West Bengal, share a common underlying bond with the Main Contract between the respondent and its employer. Importantly, such interplay between the performance of the Main Contract and the purchase orders is “observer-dependent” on the perception of the respondent.” The court thus held that all the purchase orders, though issued at different times for different zones, were a sub-set of Shapoorji Pallonji’s performance of the single Main Contract executed with its employer, WBMSCL. Perusing the arbitration clause contained in the purchase orders, the...

Arbitration: Calcutta High Court Allows S. 11 Application Being Consolidated Claim Under Different Purchase Orders Linked To A Single Main Contract

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Arbitration: Calcutta High Court Allows S. 11 Application Being Consolidated Claim Under Different Purchase Orders Linked To A Single Main Contract

Parina Katyal

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