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Arbitration Agreement "Exists" Only When It Is Enforceable In Law And Meets The Statutory Requirements Of A&C Act And Contract Act: Delhi High Court

Parina Katyal
6 Nov 2022 3:00 AM GMT
Arbitration Agreement Exists Only When It Is Enforceable In Law And Meets The Statutory Requirements Of A&C Act And Contract Act: Delhi High Court
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The Delhi High Court has ruled that a mere exchange of communication is not sufficient to show that the parties are at ad idem with respect to an arbitration agreement, when none of the correspondence exchanged between the parties made any reference to an agreement containing an arbitration clause. The Single bench of Justice V. Kameswar Rao observed that the petitioner had failed to...

The Delhi High Court has ruled that a mere exchange of communication is not sufficient to show that the parties are at ad idem with respect to an arbitration agreement, when none of the correspondence exchanged between the parties made any reference to an agreement containing an arbitration clause.

The Single bench of Justice V. Kameswar Rao observed that the petitioner had failed to show any positive act of the opposite party, depicting acceptance of the terms of the agreement containing an arbitration clause.

The Court held that under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act), the Court has to see the "existence" of an arbitration agreement between the parties. It added that "existence" of an arbitration agreement means an arbitration agreement which is enforceable in law and which meets and satisfies the statutory requirements of the A&C Act and the Contract Act.

The petitioner- M/s. Sequoia Fitness and Sports Technology Pvt. Ltd., approached the respondent- GD Goenka Pvt. Ltd., for entering into a training and coaching arrangement, for the students studying in the schools operated by the respondent. Several rounds of meetings were held between the parties, where the petitioner allegedly shared the copy of a proposal-cum-agreement for conducting the said program. The said proposal contained terms and conditions, including an arbitration clause.

Thereafter, the petitioner deployed its staff for training the students of the school run by the respondent. Alleging that the respondents had failed to make payments against the invoices raised by the petitioner, the petitioner invoked the arbitration clause and filed a petition under Section 11(6) of the A&C Act before the Delhi High Court seeking appointment of an arbitrator.

The petitioner- M/s. Sequoia Fitness and Sports Technology, submitted before the Court that the respondents had orally accepted the proposal and the terms and conditions, stipulated in the proposal-cum-agreement shared by the petitioner. It contended that on verbal assurances given by the respondents, the petitioner provided coaches to the respondent schools for conducting the sports training program as per the said proposal- cum-agreement, for which the petitioner raised invoices. The petitioner argued that the respondents had failed to make payments against the said invoices, and had failed to accept and execute the proposal-cum-agreement. The petitioner added that the contract between the parties was that of reciprocal obligations and the petitioner had performed its part of the contract by deploying its staff for training the students. It contended that the respondents, however, failed to perform their part of the contract by not executing the contract and not making payments against the invoices raised by the petitioner.

The respondent- GD Goenka International School, argued that the petition filed by the petitioner for appointment of an arbitrator was not maintainable since there was no agreement executed between the parties which included an arbitration clause. Denying the contention made by the petitioner that the respondents had orally accepted the proposal-cum-agreement, the respondent averred that no document was placed by the petitioner showing that the parties were at ad idem to the terms of the proposal-cum-agreement.

The Court noted that the said proposal-cum-agreement was not signed or executed by the parties and that it was only a copy of the proposal which was shared by the petitioner with the respondents.

The petitioners contended before the Court that Sections 7(4)(b) and 7(c) of the A&C Act do not contemplate that a document, which has not been signed by the parties, cannot be an arbitration agreement.

The bench referred to the decision of the Supreme Court in Govind Rubber Ltd. versus Louis Dreyfus Commodities Asia Pvt. Ltd. (2014), where the Apex Court had ruled that it is a settled position of law that if an agreement is not signed by the parties, it can be spelt out from correspondence exchanged between them. However, the Supreme Court had held that it is the duty of the Court to ensure from the correspondence exchanged between the parties as to whether the parties were ad idem to the terms of the contract.

While holding that there was no communication produced by the respondent from which it could be inferred that the parties were at ad idem with respect to the arbitration agreement, the Court observed that all correspondence was issued from the petitioner's side. Further, it noted that the invoices raised by the petitioner did not refer to the said proposal-cum-agreement, containing an arbitration clause, and that reference to the arbitration agreement was made for the first time when the notice invoking arbitration was issued by the petitioner.

Noting that the invocation notice was not replied by the respondents, the Court ruled that in the absence of any communication it could not be inferred that the parties were at ad idem with regard to settlement of disputes through arbitration.

The bench took into account that none of the messages or other communication exchanged between the parties, or the invoices, referred to the proposal-cum-agreement and thus, the very existence of the agreement was doubtful.

"To draw an inference or for showing meeting of minds on the arbitration agreement, a mere exchange of communication shall not suffice. Facts which depict meeting of minds or the parties are at ad idem are relevant, which are missing in this case", the Court said.

Adding that the petitioner had failed to highlight any positive act of the respondent, showing acceptance of the terms of the proposal-cum-agreement, the Court dismissed the contention of the petitioner that the issue regarding existence of an arbitration agreement must be examined by the arbitrator in view of Section 16 of the A&C Act.

The Court held that under Section 11 of the A&C Act, the Court has to see the "existence" of an arbitration agreement between the parties.

Referring to the decision of the Supreme Court in Vidya Drolia versus Durga Trading Corpn. (2020), the Court observed that an arbitration agreement exists only when it is valid and legal. Further, it reiterated that "existence" of an arbitration agreement means an arbitration agreement which is enforceable in law and which meets and satisfies the statutory requirements of the A&C Act and the Contract Act.

Thus, holding that there was no agreement between the parties, the Court dismissed the petition as not maintainable.

Case Title: M/s Sequoia Fitness and Sports Technology Pvt. Ltd. versus GD Goenka Pvt. Ltd.

Citation: 2022 LiveLaw (Del) 1047

Counsel for the Petitioner: Mr. Himanshu Mahajan, Adv.

Counsel for the Respondent: Mr. Advait Ghosh, Adv.

Click Here To Read/Download Order

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