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Zhejiang Bonly Elevator Guide Rail Manufacture Company Limited v. Jade Elevator Components.
Factual and Procedural Background
The petitioner, a company incorporated in the People’s Republic of China and engaged in the export of elevator components, entered into a “Commission Processing Contract” with the respondent, an Indian partnership firm supplying elevator components, on 11 September 2014. Clause 15 of the contract—captioned “Dispute handling”—envisaged resolution of disputes first through consultation, and if consultation failed, “by treatment of to the arbitration body for arbitration or the court.”
Disputes arose during the contract’s performance. Invoking Clause 15, the petitioner unilaterally nominated Justice V. S. Agarwal (retired) as sole arbitrator and, on 30 March 2018, requested the respondent’s consent within thirty days. The respondent, by reply dated 5 April 2018, refused to concur, disputing both the facts and the arbitrability of the claims. Consequently, the petitioner filed the present application under Section 11(5) of the Arbitration and Conciliation Act, 1996, seeking judicial appointment of a sole arbitrator.
Legal Issues Presented
- Whether Clause 15 of the Commission Processing Contract constitutes a valid arbitration agreement under the Arbitration and Conciliation Act, 1996, despite providing an option of “arbitration or court.”
- If Clause 15 is a valid arbitration agreement, whether the Supreme Court should exercise its power under Section 11(5) to appoint a sole arbitrator after the respondent’s refusal to consent.
Arguments of the Parties
Petitioner’s Arguments
- Clause 15 offers alternative forums—arbitration or court—and the petitioner has elected arbitration; the court should respect that choice.
- The language, though imperfectly translated, reflects the parties’ intention to allow arbitration upon failure of amicable consultation.
Respondent’s Arguments
- The phrase “arbitration or court” does not amount to a mandatory arbitration clause; therefore, the petitioner must file a suit in a competent court rather than compel arbitration.
- The claims asserted by the petitioner allegedly fall outside the contractual provisions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Indtel Technical Services (P) Ltd. v. W.S. Atkins Rail Ltd., (2008) 10 SCC 308 | Emphasised that contractual clauses offering a choice between arbitration and court still evince an intention to arbitrate if either party so elects. | The Court relied on this authority to infer that the parties’ intention in Clause 15 permits arbitration, thereby justifying judicial appointment of an arbitrator. |
Court's Reasoning and Analysis
The Court scrutinised Clause 15’s structure: (i) disputes are first to be settled through consultation; (ii) upon failure, parties may proceed to “arbitration or the court.” Acknowledging the imperfect translation, both counsel agreed the clause undeniably contains the words “arbitration or court.” The Court emphasised the parties’ intention, noting that the presence of alternative forums does not negate the existence of an arbitration agreement.
Relying on Indtel Technical Services, the Court reiterated that where a clause provides an option between arbitration and litigation, the election of arbitration by one party suffices to activate the arbitral process. Since disputes indisputably exist and the petitioner elected arbitration after consultation failed, the statutory conditions of Section 11(5) were met. The respondent’s refusal to concur therefore triggered the Court’s jurisdiction to appoint an arbitrator.
Holding and Implications
Holding: The petition is allowed. Justice Prakash Prabhakar Naolekar (retired Judge of the Supreme Court of India) is appointed as sole arbitrator to adjudicate the disputes. The arbitrator shall conduct the proceedings in accordance with the Arbitration and Conciliation Act, 1996, as amended in 2015. No order as to costs.
Implications: The parties must now resolve their dispute through arbitration rather than court litigation. While the decision reaffirms existing jurisprudence that “arbitration or court” clauses constitute valid arbitration agreements if a party opts for arbitration, it does not establish a novel legal principle beyond that reaffirmation.
Dipak Misra, C.J.— In the instant arbitration petition, preferred under Section 11(5) of the Arbitration and Conciliation Act, 1996 (for brevity “the Act”), the petitioner seeks for constitution of an Arbitral Tribunal with a sole arbitrator to adjudicate the claims of the petitioner under the Commission Processing Contract dated 11-9-2014 and to pass such further order as may be deemed fit and proper in the facts and circumstances of the case.
2. The petitioner Company incorporated under the laws of People's Republic of China having its office at Sanquiao Village, Fuchun Street, Fuyang, China, is engaged in the business of, inter alia, exporting and supplying high quality elevator guide rails, fish plates, accessories and allied goods. The respondent, a partnership firm based in India having its office at Plot No. 455, Road No. 11, ‘A’ Cross Road, GIDC, Kathwada, Ahmedabad 382 430, Gujarat, is engaged in the business of supplying elevator components for use in the modernisation of existing lifts and the new design of the elevator.
3. The contract, namely, Commission Processing Contract (hereinafter referred to as “the Contract”) was entered into between the parties on 11-9-2014 in respect of supply of certain products under the Contract. In the course of performance of the Contract, as certain differences had arisen and the parties were unable to amicably settle the disputes which fell within the scope of the arbitration clause, the petitioner appointed Justice V.S. Agarwal, former Judge, High Court of Judicature at New Delhi as the sole arbitrator. On 30-3-2018, the petitioner called upon the respondent to consent to the appointment of the sole arbitrator within a period of thirty days from the receipt of the notice. The respondent received the said notice on 31-3-2018 and the respondent in its reply dated 5-4-2018 refused to concur and consent to the appointment of the sole arbitrator. Because of the aforesaid situation, the petitioner has been compelled to move this Court for appointment of the sole arbitrator. When the matter was listed before this Court after service of notice 2018 SCC OnLine SC 1681, the learned counsel for the respondent has placed reliance on the reply dated 5-4-2018 given by the counsel for the respondent. In the said reply, the facts asserted by the petitioner have been disputed. That apart, it has been stated that the claims put forth are beyond the provisions of the Contract.
4. To appreciate the controversy, it is required to be seen whether there is an arbitration clause for resolution of the disputes. Clause 15 of the agreement as translated in English reads as follows:
“15. Dispute handling.—Common processing contract disputes, the parties should be settled through consultation; consultation fails by treatment of to the arbitration body for arbitration or the court.”
5. It is submitted by the learned counsel for the petitioner that if the clause of “dispute handling” is scrutinised appropriately, the disputes are to be settled through consultation and, if the consultation fails by treatment of to the arbitration body for arbitration or court and, therefore, the matter has to be referred to arbitration. It is canvassed by him that the clause is not categorically specific that it has to be adjudicated in a court of law. It leads to choices and the choice expressed by the petitioner is arbitration.
6. The learned counsel for the respondent, in his turn, would urge that when it is stated as arbitration or court, the petitioner should knock at the doors of the competent court but not resort to arbitration, for the clause cannot be regarded as an arbitration clause which stipulates that the disputes shall be referred to arbitration.
7. To appreciate the clause in question, it is necessary to appositely understand the anatomy of the clause. It stipulates the caption given to the clause “dispute handling”. It states that the disputes should be settled through consultation and if the consultation fails by treatment of to the arbitration body for arbitration or the court. On a query being made, the learned counsel for the parties very fairly stated that though the translation is not happily worded, yet it postulates that the words “arbitration or the court” are indisputable as far as the adjudication of the disputes is concerned. There is assertion that disputes have arisen between the parties. The intention of the parties, as it flows from the clause, is that efforts have to be made to settle the disputes in an amicable manner and, therefore, two options are available, either to go for arbitration or for litigation in a court of law.
8. This Court had the occasion to deal with such a clause in the agreement in Indtel Technical Services (P) Ltd. v. W.S. Atkins Rail Ltd. (2008) 10 SCC 308 In the said agreement, Clause 13 dealt with the settlement of disputes. Clauses 13.2 and 13.3 that throw light on the present case were couched in the following language:
“6. … ‘13.2. Subject to Clause 13.3 all disputes or differences arising out of, or in connection with, this agreement which cannot be settled amicably by the parties shall be referred to adjudication;
13.3. If any dispute or difference under this agreement touches or concerns any dispute or difference under either of the sub-contract agreements, then the parties agree that such dispute or difference hereunder will be referred to the adjudicator or the courts as the case may be appointed to decide the dispute or difference under the relevant sub-contract agreement and the parties hereto agree to abide by such decision as if it were a decision under this agreement.’”
9. Interpreting the aforesaid clauses, the Judge designated by the learned Chief Justice of India held thus: (Indtel Technical Services case (2008) 10 SCC 308)
“38. Furthermore, from the wording of Clause 13.2 and Clause 13.3 I am convinced, for the purpose of this application, that the parties to the memorandum intended to have their disputes resolved by arbitration and in the facts of this case the petition has to be allowed.”
The aforesaid passage makes it clear as crystal that emphasis has been laid on the intention of the parties to have their disputes resolved by arbitration.
10. In the case at hand, as we find, Clause 15 refers to arbitration or court. Thus, there is an option and the petitioner has invoked the arbitration clause and, therefore, we have no hesitation, in the obtaining factual matrix of the case, for appointment of an arbitrator and, accordingly, Justice Prakash Prabhakar Naolekar, formerly a Judge of this Court, is appointed as sole arbitrator to arbitrate upon the disputes which have arisen between the parties. The learned arbitrator shall be guided by the Arbitration and Conciliation (Amendment) Act, 2015. The learned arbitrator shall make positive efforts to complete the arbitration proceedings as per the 2015 Act.
11. The Registry is directed to send a copy of this order to the sole arbitrator. The learned counsel for the parties are also at liberty to bring it to the notice of the arbitrator.
12. The arbitration petition is, accordingly, allowed. There shall be no order as to costs.
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