When a defendant invokes section 8 of the Act by alleging existence of an arbitration agreement, he should establish that such arbitration agreement related to, or is applicable to, the suit transaction/contract. The parties may enter into different contracts at different points of time or may enter into a series of unrelated transactions. It is possible that in regard to some, they may provide for arbitration and in regard to others, may not provide for arbitration. Obviously, the existence of an arbitration agreement with reference to some other transaction/contract to which plaintiff was or is a party, unconnected with the transactions or contracts to which a suit relates, cannot be considered as existence of an `arbitration agreement' in regard to the suit transactions/contracts. When sections 7 and 8 of the Act refer to the existence of an arbitration agreement between the parties, they necessarily refer to an arbitration agreement in regard to the current dispute between the parties or the subject matter of the suit. It is fundamental that a provision for arbitration, to constitute an arbitration agreement for the purposes of sections 7 and 8 of the Act, should satisfy two conditions. Firstly, it should be between the parties to the dispute. Secondly, it should relate to or applicable to the dispute.
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Citation;2009(3) MHLJ SC 507
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
SPECIAL LEAVE PETITION[C] NO.29333/2008
[CCNO.15612/2008]
Yogi Agarwal .......... Petitioner
Vs.
M/s. Inspiration Clothes & U, and Ors. .......... Respondents
R.V. Raveendran J.
Dismissal of an application under Section 8 of the
Arbitration and Conciliation Act, 1996 (`the Act' for
short), filed by the defendants in a money suit (filed by
the first respondent herein against three defendants, that
is, third respondent company, and its two directors namely,
petitioner and second respondent), affirmed by the High
Court, has led to the filing of this special leave
petition. For convenience, we will refer to the parties by
their rank in the suit.
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2. There is a delay of 182 days in filing this petition.
The only reason assigned by the petitioner, a seasoned
businessman, to explain the delay is that he was confused
by diverse opinions about filing of special leave petition.
The explanation is neither satisfactory nor sufficient to
condone the delay. Even assuming that the delay is
condonable, we find that the special leave petition is
liable to be rejected on merits.
3. The plaintiff filed the suit on 9.9.2003 for recovery
of Rs.9,48,143 with interest allegedly due in regard to (i)
price of two consignments supplied by plaintiff to the
nominees of the first defendant company and (ii) value of
nine samples made available by the plaintiff to defendants.
In the said suit, defendants made an application dated
17.12.2005 under section 8 of the Act, for referring the
parties to arbitration. To show the existence of
arbitration agreement, the defendants relied upon three
invoices of `Yash Traders', a proprietary concern of the
second defendant (petitioner herein), dated 2.11.1999,
22.6.2001 and 11.2.2003 in regard to the sale of cotton
fabric by the said Yash Traders to the plaintiff containing
the following note: "All disputes pertaining to this
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transaction if any will be subject to the Arbitration Rules
& Regulations of Bharat Merchant Chamber". The defendants
alleged that the said invoices were accepted by the
plaintiff thus resulting in a binding arbitration
agreement.
4. The trial court noted that there was no arbitration
agreement in regard to the suit transactions and that the
defendants wanted the three invoices (containing a
provision for arbitration) relating to some other
transactions to be treated as an arbitration agreement
between parties in regard to the suit transactions. It
examined the three invoices and held that the said invoices
could not be treated as containing an arbitration agreement
within the meaning of Section 7 of the Act, as the invoices
were signed only by `Yash Traders' and not by the
plaintiff. The said decision has been affirmed by the High
Court.
5. The petitioner has filed this special leave petition,
contending that to constitute a valid arbitration
agreement, a document containing the arbitration agreement
need not be signed by all parties. According to the
petitioner, if an invoice signed by the seller is
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acknowledged or accepted or acted upon by the buyer, a term
in the invoice providing for arbitration will be an
"arbitration agreement" as between the seller and the
buyer, irrespective of whether the buyer signed the
document or not. We do not propose to examine the said
contention as it does not really arise for consideration in
this case.
6. The fundamental lacuna in the claim of defendants for
reference to arbitration is the absence of an arbitration
agreement between the parties, in regard to the suit
transactions. The three invoices containing a provision for
arbitration relied upon by the petitioner (second
defendant), do not relate to the suit transactions at all.
The plaintiff, as noticed above, filed a suit for recovery
of the amounts allegedly due in regard to some samples
supplied by him to the defendants and certain supplies made
to the nominees of the first defendant company. The three
invoices relied on by the defendants, on the other hand,
relate to sale of goods by the proprietary concern of
second defendant to the plaintiff. The said invoices have
nothing to do with the suit transactions. Such unconnected
documents cannot be pressed into service to claim the
existence of an arbitration agreement.
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7. When a defendant invokes section 8 of the Act by
alleging existence of an arbitration agreement, he should
establish that such arbitration agreement related to, or is
applicable to, the suit transaction/contract. The parties
may enter into different contracts at different points of
time or may enter into a series of unrelated transactions.
It is possible that in regard to some, they may provide for
arbitration and in regard to others, may not provide for
arbitration. Obviously, the existence of an arbitration
agreement with reference to some other transaction/contract
to which plaintiff was or is a party, unconnected with the
transactions or contracts to which a suit relates, cannot
be considered as existence of an `arbitration agreement' in
regard to the suit transactions/contracts. When sections 7
and 8 of the Act refer to the existence of an arbitration
agreement between the parties, they necessarily refer to an
arbitration agreement in regard to the current dispute
between the parties or the subject matter of the suit. It
is fundamental that a provision for arbitration, to
constitute an arbitration agreement for the purposes of
sections 7 and 8 of the Act, should satisfy two conditions.
Firstly, it should be between the parties to the dispute.
Secondly, it should relate to or applicable to the dispute.
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8. In this case, neither of the two conditions was
satisfied. Firstly, the suit related to transactions said
to have taken place between plaintiff and first defendant
company and its two directors, whereas the documents put
forth as containing the arbitration agreement related to
some transactions between a proprietary concern of second
defendant and plaintiff. Secondly, the provision for
arbitration is not contained in any contract or document
relating to the suit transactions, but contained in
documents relating to some unconnected independent
transactions. It is significant that, in their application
under section 8 of the Act, the defendants did not even
allege that there was an arbitration agreement in regard to
the subject matter of the suit. What they alleged was that
`subject matter of the suit' was similar to or identical
with the `subject matter of the arbitration agreement'.
That does not entitle them to seek relief under section 8
of the Act. As there was no `arbitration agreement', the
requirements of section 7 were not met.
9. As there is no arbitration agreement with reference to
the subject-matter of the suit filed by the plaintiff
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(first respondent herein), rejection of the application
filed by defendants under Section 8 of the Act, does not
call for interference. The special leave petition is,
therefore, dismissed both on the ground of delay and on
merits.
..................................................J.
(R V Raveendran)
New Delhi; ..................................................J.
December 1, 2008. (D K Jain)
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