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Case Number

Misc. C.C No. 491 of 2001

Attorney(S)

For Petitioner : S.N. Saxena
Advocate; For Respondents : Respondents No. 1 to 3 B.L. Pavecha
Sr. Advocate with Sadana Pathak
Advocate. Respondent No. 4 by D.K. Goyal
Advocate.

Judges

N.K Mody, J.

Acts

Section 11(5) of the Arbitration and Conciliation Act, 1996,
Clauses (b) and (c) of sub-section (4) to Section 7
sub-section (4) of Section 7

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Smart Summary

Summary of Legal Opinion

Factual and Procedural Background

On 18-9-2001 the petitioner filed an application under Section 11(5) of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator to resolve a dispute arising from the sale of a covered parking area of Devdarshan building, South Tukoganj. The petitioner alleged that a sale deed executed by the respondent on 24-9-1998 contained an arbitration clause providing that disputes between vendor/seller and purchaser shall be referred to an arbitrator. Notices seeking appointment of an arbitrator were issued to the respondents but did not succeed, prompting the petition. Respondents opposed the application on multiple grounds, including that the arbitration agreement must be signed by the parties under Section 7(3)(a) of the Act and that the sale deed bore the signature only of the respondent (vendor), not the petitioner.

Legal Issues Presented

Whether an arbitration agreement exists for the parties despite the sale deed being signed only by the respondent.
Whether Section 7 of the Arbitration and Conciliation Act, 1996 requires an arbitration agreement to be signed by both parties (i.e., whether the absence of the petitioner's signature on the sale deed defeats the arbitration clause).
Whether an earlier agreement to sell (dated 11-9-1997) containing an arbitration clause, and its reproduction in the subsequent sale deed, suffices to constitute an arbitration agreement between the parties.

Arguments of the Parties

Petitioner's Arguments

Prior to the sale deed the parties entered into an agreement to sell dated 11-9-1997 which contained an arbitration clause; that clause was reproduced in the sale deed dated 24-9-1998.
The sale deed was consequential to the earlier agreement, so there was an agreement between the parties regarding appointment of an arbitrator.
The petitioner paid the sale consideration and, in consequence, the petitioner implicitly agreed to the arbitration clause even if the sale deed did not bear the petitioner's signature.
On these grounds the petition for appointment of an arbitrator cannot be dismissed for lack of a signed arbitration agreement; respondents, having agreed in writing by executing the sale deed, could not now challenge the existence of the arbitration clause.

Respondents' Arguments

The petitioner sought appointment of an arbitrator on the basis of a recital in the sale deed, but an arbitration agreement, under Section 7(3)(a) of the Act, is required to be signed by the parties.
As the sale deed was signed only by the respondents (vendors) and not by the petitioner, it cannot be treated as an arbitration agreement.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
2002 (1) Arb LR 174 (Delhi), Unipack Industries v. Subhash Chand Jain	As per Section 7 read with Section 2(b) of the Act there has to be an agreement to refer disputes to arbitration; the arbitration agreement has to be in writing but sub-section (4) of Section 7 (Clauses (b) and (c)) contemplates that an arbitration agreement can exist even if not signed in certain circumstances.	The court relied on the principle that an arbitration agreement need not always be signed and that subsection (4) may suffice to establish an arbitration agreement absent signatures; this supported the view that an arbitration agreement could be presumed on the facts (agreement to sell, sale deed reproducing clause, and payment of consideration).
Pramod Chimanbai Patel v. Lalit Constructions, 2002 (3) Arb LR 338 (Bombay)	Held that an arbitration agreement in writing is contained in a document signed by the parties and that Parliament's use of the plural indicates the agreement should be signed by both parties; therefore the arbitration agreement must be signed by both parties.	The court considered this authority but observed it arose in distinct circumstances (including a disputed/fabricated letter and unusual gaps) and treated the Bombay High Court's strict view as not applicable on the facts of the present case; the court did not accept the respondents' objection based on this precedent.

Court's Reasoning and Analysis

The court began by quoting Section 7 of the Arbitration and Conciliation Act, 1996, including subsection (4) which specifies that an arbitration agreement is in writing if contained in a document signed by the parties, or via an exchange of communications providing a record, or by exchange of statements of claim and defence where the existence of the agreement is alleged by one party and not denied by the other. The court examined the sequence of documents and conduct between the parties: an agreement to sell dated 11-9-1997 that contained an arbitration clause, followed by a sale deed dated 24-9-1998 which reproduced the arbitration clause.

The court analyzed the respondents' objection that the sale deed bore the vendor's signature only and relied on Section 7(3)(a) (as argued by respondents) to contend that absence of the petitioner's signature defeated the arbitration agreement. The court rejected this contention on two bases evident from the opinion: (1) the sale deed was executed consequent to the earlier agreement to sell which contained the arbitration clause, and (2) the petitioner had paid the sale consideration and thereby, by conduct, impliedly accepted the arbitration clause. Further, the court relied on the text of subsection (4) to observe that an arbitration agreement can be established through means other than a document signed by both parties (for example, by an exchange of communications or where existence of the agreement is alleged and not denied).

While the court noted the Bombay High Court decision in Pramod Chimanbai Patel that emphasised signatures by both parties, it treated that case as distinguishable on its facts and not determinative of the present dispute (where there was an antecedent agreement containing the arbitration clause and payment of consideration). On this analysis the court found the respondents' objection to be without force.

Holding and Implications

The petition for appointment of an arbitrator is allowed: the respondents' objection that the arbitration agreement was not signed by both parties is rejected.

Direct consequence: Both parties are directed to submit a panel of three persons out of which an arbitrator can be appointed and the court ordered accordingly.

No broader or new precedent is stated in the opinion beyond the court's application of Section 7 and the cited authorities to the facts; the decision's immediate effect is the rejection of the respondents' signature-based objection and the direction to furnish a panel for appointment of an arbitrator.

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Dr. S.Z Jafrey v. Modern Industrial Enterprises, Indore & Ors.

1. On 18-9-2001 an application was filed by the petitioner under Section 11(5) of the Arbitration and Conciliation Act, 1996, which shall be referred hereinafter as Act, wherein it was prayed to appoint the Arbitrator to settle the dispute between the parties. In the petition it was alleged that on 24-9-1998 respondent executed the sale deed in favour of the petitioner which contains the following Arbitration Clause:—

“Any disputes/differences between the Vendor or Seller and Purchaser shall be referred mutually to a Arbitrator through arbitration under the prevailing Arbitration Laws.”

2. It was submitted that since there was a dispute regarding selling out the covered parking area of Devdarshan building situated at South Tukoganj, therefore notices were issued to the respondents for appointment of Arbitrator for resolving the dispute between the parties, in view of the arbitration clause quoted in the Sale Deed itself, but of no avail. Hence it was prayed to appoint the Arbitrator. Application was opposed by the respondents on various grounds including that the petitioner is claiming for appointment of the Arbitrator on the basis of recital in the Sale Deed. It was submitted that as per Section 7(3)(a) of the Act an Arbitration Agreement is required to be signed by the parties. It was alleged that since the sale deed was signed by only one of the parties, therefore, it cannot be treated as Arbitration Agreement. For the purpose of the convenience Section 7 of the Act is quoted herein below:—

Section 7. Arbitration Agreement:—

(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in:—

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

3. Learned counsel for the petitioner submits that prior to the execution of the sale deed parties entered into an agreement to sale the property vide agreement dated 11-9-1997 wherein there was a Clause of Arbitration, which has been reproduced in the sale deed dated 24-9-1998. It was submitted that sale deed was the consequent of the Agreement, therefore it cannot be said that there was no agreement between the parties regarding appointment of Arbitrator. It was further submitted that since the sale amount was paid by the petitioner and in lieu of which the sale deed was executed, therefore, impliedly the petitioner was agreed for appointment of the Arbitrator. On the strength of this it was argued that in the circumstances the application filed by the petitioner cannot be thrown out on the ground that there is no agreement which has been signed by the parties. Furthermore it was submitted that the objection that there was no arbitration clause in the agreement could have been taken by the petitioner but not the respondents who has agreed in writing while executing the sale deed.

4. Learned counsel for the petitioner placed reliance on a decision reported in 2002 (1) Arb LR 174 (Delhi), Unipack Industries v. Subhash Chand Jain, wherein Hon'ble High Court of Delhi has observed that, “As per Section 7 read with Section 2(b) of the Act there has to be an agreement to refer the dispute or certain disputes with respect to defined legal relationship to arbitration. The arbitration agreement has to be in writing but as is apparent from sub-section (4) of Section 7 even if it is not signed under certain circumstances contemplated under Clauses (b) and (c) of sub-section (4) to Section 7 still there can be an arbitration agreement.”

5. Learned counsel for the respondents placed reliance on a decision reported in the case of Pramod Chimanbai Patel v. Lalit Constructions, 2002 (3) Arb LR 338 (Bombay) wherein Bombay High Court has held that, “Parliament has clearly intended by saying so in clear words that the agreement would be an agreement in writing if it is contained in a document signed by the parties. I am of view that Parliament did not use the words in plural accidentally. It did so deliberately.” Therefore, the arbitration agreement must be signed by both the parties.

6. So far as the case of Pramod Chimanbai Patel supra is concerned, the Bombay High Court has taken the view that the agreement shall be signed by both the parties in all together different circumstances. In this case the arbitrator was sought on the basis of letter dated 28-12-2001, which according to other party was fabricated. For this letter Bombay High Court also observed that there is an unusual long gap between the last sentence of the letter and the signature. The letter was also alleged to have written after two years of original agreement for the purpose of introducing a new clause which the Court found unnatural.

7. In the present case there was an agreement to sale between the parties having a clause of Arbitration. Thereafter a sale deed was executed by the respondents which also contained the Clause of Agreement. On the sale deed no doubt it is the vendor who are respondents herein has signed, but at the time of execution of sale deed the consideration was given by the petitioner, therefore, even if the sale deed do not bear the signature of the petitioner, then too impliedly it can be presumed that there was a clause of Arbitration between the parties which has been duly accepted by both the parties. Apart from this as per sub-clause 4 of Section 7 of the Act it is not the necessary requirement of law to have agreement to be signed by the parties, but even from exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement or an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other, can be presumed that there was an arbitration agreement between the parties.

8. In the facts and circumstances of the case where in consequence of the agreement to sale which contained the clause of Arbitration the sale deed was executed by the Respondent No. 1 in favour of the petitioner, which also contained the arbitration clause and for completing the transaction the petitioner parted with money, it has to infer that there was an agreement between the parties to the effect that in case of dispute the matter has to be referred to the Arbitration. In the facts and circumstances of the case the objection of the respondent has no force, hence rejected. Both the parties are directed to submit panel of three persons out of which arbitrator can be appointed.

Order accordingly.

Dr. S.Z Jafrey v. Modern Industrial Enterprises, Indore & Ors.

Summary of Legal Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondents' Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Dr. S.Z Jafrey v. Modern Industrial Enterprises, Indore & Ors.

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