2006 Supreme(SC) 534

2006(4) Supreme 534
SUPREME COURT OF INDIA
(Under Section 11(4) of the Arbitration and Conciliation Act)
R.V. Raveendran, (Chamber Judge)
M/s. Groupe Chimique Tunisien SA—Petitioner
versus
M/s. Southern Petrochemicals Industries Corpn. Ltd.—Respondent
Arbitration Petition No. 4 of 2006
Decided on 24-5-2006
Counsel for the Parties :
For the Appellant : Sanjeev Sachdeva Advocate.
For the Respondent : K.K. Mani Advocate.

IMPORTANT POINT
If on account of mistake or wrong understanding of law, a party takes a particular stand i.e. there is no arbitration agreement, he is not debarred from changing his stand subsequently or estopped from seeking arbitration.

Headnote:(i) Arbitration and Conciliation Act, 1996—Sections 2(b) and 7(5) and 10—Arbitration agreement—Respondent placed purchase orders on petitioner for supply of Phosphoric Acid—All purchase orders stated that all other terms and conditions were as per FAI and clause 15 of FAI provided for settlement of disputes by arbitration—Petitioner effected supplies and raised invoices—Disputes over payment of invoices—Petitioner appointed the arbitrator and called upon respondent to appoint its Arbitrator which it failed —Respondent’s contention that there was no consensus ad idem to refer disputes to arbitration—Petitioner earlier filed suit in a Court at Jordan denying arbitration agreement—Reference to pleadings before Jordanian Court would have been relevant if plea was that arbitration agreement was contained in exchange of statement of claim and defence—Case was covered by Section 7(5) of the Act as purchase orders were contracts and they were subject to FAI terms which contained arbitration clause—If by pleadings in a suit before Jordanian Court, on account of mistake or wrong understanding of law, petitioner took a particular stand, it was not debarred from changing its stand.

       Held : The purchase orders placed by the respondent on the petitioner are the contracts between the parties and they are subject to FAI terms which contain the arbitration clause. Sub-section (5) of section 7 specifically provides that where there is reference in a contract (in this case, the purchase order) to a document containing an arbitration clause (in this case, the FAI terms), such reference constitutes an arbitration agreement, if the contract is in writing and the reference is such as to make that arbitration clause a part of the contract. The case squarely falls under section 7(5) of the Act and there is an arbitration agreement between the parties as per clause 15 of the FAI terms.(Para 7)

       It is true that the petitioner had contended before the Jordanian Court that there was no arbitration agreement between the parties. But the said contention was not accepted and the suit filed by the petitioner has been dismissed on the ground of want of jurisdiction. Thereafter, on reconsidering the matter and taking legal advice, with reference to the contentions of the respondent, the petitioner has now proceeded on the basis that an arbitration agreement exists between the parties. If, on account of mistake or wrong understanding of law, a party takes a particular stand (that is, there is no arbitration agreement), he is not barred from changing his stand subsequently or estopped from seeking arbitration. (See U.P. Rajkiya Nirman Nigam Ltd. v. Indore (P) Ltd. – 1996(2) SCC 667 – where the contention based on estoppel was negatived while considering a reserve situation).(Para 9)

       Section 10 of the Act provides that the number of Arbitrators shall not be ‘even’. The arbitration clause provides that the dispute shall be referred to two Arbitrators and in the event of Arbitrators not agreeing then an Umpire to be appointed by the Arbitrators in writing before proceeding to the reference. Having regard to section 10 of the Act, the Arbitral Tribunal shall consist of three Arbitrators (one to be appointed by each of the two parties and the Presiding Arbitrator).(Para 12)

       For the aforesaid reasons, this petition is allowed and the following Arbitral Tribunal is constituted to adjudicate upon the claim made by the petitioner against the Respondent and to settle the disputes between the parties :

       (i)Mr. Justice R.C. Lahoti, Former Chief Justice of India, Noida (UP) – Presiding Arbitrator;

       (ii)Mr. Justice S. Ratnavel Pandian, Former Judge of Supreme Court, Chennai – nominee of respondent;

       (iii)Mr. Justice D.P. Wadhwa, Former Judge of Supreme Court, New Delhi – nominee of petitioner.(Para 13)

       (ii) Arbitration and Conciliation Act, 1996—Section 11(4)—Petition for appointment of arbitrator—Respondent’s contention that claim sought to be prosecuted were barred by limitation—Question of limitation could be examined and decided by Arbitral Tribunal.

       Held : In regard to limitation, the petitioner submitted that having regard to the acknowledgements contained in the series of letters written by Respondent requesting for time and the acknowledgements contained in the balance-sheets where these amounts are shown as ‘due and outstanding’, the petitioner’s claim is not barred by limitation. It is, however, unnecessary to examine this aspect as the learned counsel for the respondent fairly conceded that this is a question which can be examined by the Arbitral Tribunal, in the event of a reference to arbitration being made. It is now well-settled that the limitation is an issue that can be considered and decided by the Arbitral Tribunal. (Para 10)