The question involved in this Revision is whether in view of Clauses 24 and 25 of the agreement entered into between the parties the disputes are to be settled by Arbitration under the Arbitration and Conciliation Act or whether the civil court will have jurisdiction to decide the disputes. The court below held that the civil court will have jurisdiction and the parties need not be referred to Arbitration invoking Section 8 of the Arbitration and Conciliation Act, 1996, rejecting the contentions put forward by the defendant. The defendant challenges in this Revision the order passed by the court below.
2. Kottayam Cable Distributor Pvt. Ltd. filed O.S.No.169 of 2008 on the file of the court of the Munsiff of Erattupetta against the revision petitioner (Jolly Thomas) for a permanent prohibitory injunction restraining the defendant from transferring the cable net work contrary to the terms of the agreement entered into between the parties and restraining the defendant from obstructing telecast of the signals of the plaintiff's company. Other ancillary reliefs for injunction were also claimed in the plaint.
3. The defendant entered appearance and filed an application under Section 8 of the Arbitration and Conciliation Act to refer the parties to arbitration. The defendant contended that as per Clause 24 of the agreement entered into between the parties, the disputes between them shall be referred to arbitration.
4. The plaintiff contended that there is no arbitration clause in the agreement and the parties are governed by Clause 25 of the agreement whereby the disputes are to be resolved through the civil court.
5. For the sake of convenience, it is apposite to extract paragraphs 24 and 25 in the agreement executed between the parties.
“24. The original of this agreement must keep in the custody of the First Part and the copy under the custody of Second Part. Any dispute between the First and Second must solve through the arbitrator.
25. If the dispute is not settled between the parties they must went into the court for the solution of the disputes. The jurisdiction of the every legal proceedings arising out of this agreement must be in the Judicial Munsiff Court, Pala which is the jurisdiction of the first part. It is not affected the 3rd conditions of this agreement, the right of the First Part or Distributor to disconnect the supply of the signals to the Second Part.”
6. The court below held that there is no valid agreement for arbitration between the plaintiff and the defendant as per the agreement dated 01/08/2007. It was also held that the real intention of the parties was not to settle the disputes between them by referring to arbitration.
7. Sri.M.Narendra Kumar, learned counsel appearing for the petitioner submitted that on a plain reading of Clause 24 of
the agreement, it is clear that the parties intended to resolve the dispute by appointing an arbitrator. Clause 25 of the agreement has no meaning at all. If Clause 24 is resorted to, Clause 25 should be ignored. He relied on the decisions of the Supreme Court in (2005) 8 SCC 618 M/s. S. B. P. and Co. v. M/s. Patel Engineering Ltd. and Anr., 1996 (2) SCC 216 State of Orissa and another Vs. Damodar Das, 2007 (5) SCC 719 Jagdish Chander Vs. Ramesh Chander and Others, 2000
(4) SCC 272 Wellington Associates Ltd. Vs. Kirit Mehta, AIR 2008 Karnataka 127 Y.L.eServices Pvt. Ltd. Vs. Silverline Business & Tech Park Pvt. Ltd. and others, 2009
(2) SCC 55 Visa International Ltd. Vs. Continental Resources (USA) Ltd., 2009(5) SCC 313 Bank of India and another Vs. K.Mohandas & others and also certain passages in Chitty on Contract and Russel on Arbitration.
8. Smt.Sheeja.P.A., the learned counsel for the respondent submitted that the different clauses in the agreement are to be read together and a harmonious construction is to be made. It is submitted that parties cannot be said to be unaware that when a matter is referred to arbitration, it should reach the finality and there is no question of the civil court deciding the issue over again. Therefore on a combined reading of Clauses 24 and 25, it is clear that before approaching the court, the parties intended to have the dispute settled by some sort of pre-litigation settlement and that the parties never intended to resolve the disputes by recourse to the Arbitration and Conciliation Act, 1996.
9. Section 2(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Arbitration Act) defines Arbitration Agreement as follows:-
“2(b)“arbitration agreement” means an agreement referred to in section 7.”
10. Section 7 of the Arbitration Act reads as follows:-
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.”
11. It is not necessary that the Arbitration Agreement should be in any particular form. The essential requirement is that the parties have agreed to resolve the disputes between them by recourse to arbitration. An arbitration rests on mutual voluntary agreement of the parties to submit to arbitration. No particular form or wording is required to constitute a valid arbitration agreement. However, there is a mandatory requirement that the arbitration agreement shall be in writing. The writing could be in any of the documents mentioned in Sub Sections 4 and 5 of Section 7 of the Arbitration Act. When a dispute arises as to whether there is a valid arbitration agreement between the parties, the court is expected to construe the terms of the agreement. If the words in the agreement are plain and clear, no difficulty will arise to conclude whether there is an arbitration clause. The difficulty arises where the words are not so clear or when different clauses are irreconcilable with each other or where different clauses in the agreement convey different meanings or where different clauses are mutually destructive. The intention of the parties, that is, whether they intended to have the disputes resolved through arbitration assumes importance in such circumstances. It is the duty of the court to ascertain the intention of the parties by interpreting the various clauses in the agreement in accordance with well settled principles of interpretation of contracts.
12. In Chitty on Contracts 29th Edition Volume-I, paragraphs 12-043 and 12-044, it is stated thus:-
“12-043 Intention of the parties. The task of ascertaining the intention of the parties must be approached objectively : the question is not what one or other of the parties meant or understood by the words used, but “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. The cardinal presumption is that the parties have intended what they have in fact said, so that their words must be construed as they stand. That is to say the meaning of the document or of a particular part of it is to be sought in the document itself. “One must consider the meaning of the words used, not what one may guess to be the intention of the parties”. However, this is not to say that the meaning of the words in a written document must be ascertained by reference to the words of the document alone. In the modern law, the courts will, in principle, look at all the circumstances surrounding the making of the contract which would assist in determining how the language of the document would have been understood by a reasonable man.”
12-044 Further it has long been accepted that the courts will not approach the task of construction with too nice a concentration upon individual words.
“The common and universal principle ought to be applied: namely, that [an agreement] ought to receive that construction which its language will admit, and which will best effectuate the intention of the parties, to be collected from the whole of the agreement, and that greater regard is to be had to the clear intention of the parties than to any particular words which they may have used in the expression of their intent.”
13. In paragraph 12-078 in Chitty on Contracts, how to interpret inconsistent or repugnant clauses is stated as follows:
“12-078 Inconsistent or repugnant clauses. Where the different parts of an instrument are inconsistent, effect must be given to that part which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected. The old rule was, in such a case, that the earlier clause was to be received and the later rejected, but this rule was a mere rule of thumb, totally unscientific, and out of keeping with the modern construction of documents. To be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses. A term may also be rejected if it is repugnant to the intention of the parties as it appears from the document. However, an effort should be made to give effect to every clause in the agreement and not to reject a clause unless it is manifestly inconsistent with or repugnant to the rest of the agreement.”
14. In (2005) 8 SCC 618 SBP and Company Vs. Patel Engineering Ltd. and another it was held thus:-
“16. We may at this stage notice the complementary nature of Sections 8 and 11. Where there is an arbitration agreement between the parties and one of the parties, ignoring it, files an action before a judicial authority and the other party raises the objection that there is an arbitration clause, the judicial authority has to consider that objection and if the objection is found sustainable to refer the parties to arbitration. The expression used in this section is “shall” and this Court in P.Anand Gajapathi Raju v. P.V.G. Raju and in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums has held that the judicial authority is bound to refer the matter to arbitration once the existence of a valid arbitration clause is established. Thus, the judicial authority is entitled to, has to and is bound to decide the jurisdictional issue raised before it, before making or declining to make a reference.”
15. In State of Orissa Vs. Damodar Das 1996 (2) SCC 216 the agreement contained a clause to the effect that except where otherwise specified in the contract, the decision of the Public Heath Engineer for the time being shall be final, conclusive and binding on all parties to the contract upon the questions referred to in that clause. The Supreme Court held that Clause 25 of the agreement does not contain an arbitration agreement nor it envisages any difference or disputes to be referred to arbitrator.
16. In Jagdish Chander Vs. Ramesh Chander and others (2007) 5 SCC 719, the Supreme Court held thus:-
“8. This Court had occasion to refer to the attributes or essential elements of an arbitration agreement in K.K.Modi v. K.N.Modi, Bharat Bhushan Bansal v. U.P. Small Industries Corpn. Ltd. and Bihar State Mineral Development Corpn. v. Encon Builders (I)(P) Ltd. In State of Orissa v. Damodar Das this Court held that a clause in a contract can be construed as an “arbitration agreement” only if an agreement to refer disputes or differences to arbitration is expressly or impliedly spelt out from the clause. We may at this juncture set out the well-settled principles in regard to what constitutes an arbitration agreement:
(i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and a willingness to be bound by the decision of such tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement.
(ii) Even if the words “arbitration” and “Arbitral Tribunal (or arbitrator)” are not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are: (a) The agreement should be in writing. (b)The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. (d)The parties should have agreed that the decision of the private tribunal in respect of the disputes will be binding on them.
(iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically exclude any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement.
(iv) But mere use of the word “arbitration” or “arbitrator” in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as “parties can, if they so desire, refer their disputes to arbitration” or “in the event of any dispute, the parties may also agree to refer the same to arbitration” or “if, any disputes arise between the parties, they should consider settlement by arbitration” in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that “if the parties so decide, the disputes shall be referred to arbitration” or “any disputes between parties, if they so agree, shall be referred to arbitration” is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future.”
17. In Wellington Associates Ltd. Vs. Kirit Mehta 2000(4) SCC 272, Clauses 4 and 5 of the agreement entered into between the parties were the following:-
"4 : It is hereby agreed that, if any dispute arises in connection with these presents, only Courts in Bombay would have jurisdiction to try and determine the suit and the parties hereto submit themselves to the exclusive jurisdiction of the Courts in Bombay."
5 : It is also agreed by and between the parties that any dispute or differences arising in connection with these presents may be referred to arbitration in pursuance of the Arbitration Act, 1940, by each party appointing one arbitrator and the arbitrators so appointed selecting an umpire. The venue of arbitration shall be at Bombay."
18. Interpreting these paragraphs the Supreme Court held thus:
“21. Does Clause 5 amount to an arbitration clause as defined in Section 2(b) read with Section 7? I may here state that in most arbitration clauses, the words normally used are that "disputes shall be referred to arbitration." But in the case before me, the words used are 'may be referred.'
22. It is contended for the petitioner that the word 'may' in Clause 5 has to be construed as 'shall.' According to the petitioner's-counsel, that is the true intention of the parties. The question then is as to what is the intention of the parties. The parties, in my view, used the words 'may' not without reason. If one looks at the fact that Clause 4 precedes clause 5, one can see that under Clause 4 parties desired that in case of disputes, the Civil Courts at Bombay are to be approached by way of a suit. Then follows Clause 5 with the words 'it is also agreed' that the dispute 'may' be referred to arbitration implying that parties need not necessarily go to the Civil Court by way of suit but can also go before an arbitrator. Thus, Clause 5 is merely an enabling provision as contended by the respondents. I may also state that in cases where there is a sole arbitration clause couched in mandatory language, it is not preceded by a clause like Clause 4 which discloses a general intention of the parties to go before a Civil Court by way of suit. Thus, reading Clause 4 and Clause 5 together, I am of the view that it is not the intention of the parties that arbitration is to be the sole remedy. It appears that the parties agreed that they can "also" go to arbitration in case the aggrieved party does not wish to go to a Civil Court by way of a suit. But in that event, obviously, fresh consent to go to arbitration is necessary. Further, in the present case, the same Clause 5, so far as the venue of arbitration is concerned, uses the word 'shall.' The parties, in my view, must be deemed to have used the words 'may' and 'shall' at different places, after due deliberation.”
19. In (2009)5 SCC 313 Bank of India and another Vs. K.Mohandas and others the principles regarding true construction of contracts were stated thus:-
“28. The true construction of a contract must depend upon the import of the words used and not upon what the parties choose to say afterwards. Nor does subsequent conduct of the parties in the performance of the contract affect the true effect of the clear and unambiguous words used in the contract. The intention of the parties must be ascertained from the language they have used, considered in the light of the surrounding circumstances and the object of the contract. The nature and purpose of the contract is an important guide in ascertaining the intention of the parties.
29. In Ottoman Bank of Nicosia v. Ohanes Chakarian, Lord Wright made these weighty observations: (AIR p.29) “ .......that if the contract is clear and unambiguous, its true effect cannot be changed merely by the course of conduct adopted by the parties in acting under it.”
30. In Ganga Saran v. Firm Ram Charan Ram Gopal a four-Judge Bench of this Court stated: (AIR p.11, para 6) “6. ......Since the true construction of an agreement must depend upon the import of the words used and not upon what the parties choose to say afterwards, it is unnecessary to refer to what the parties have said about it.”
31. It is also a well-recognised principle of construction of a contract that it must be read as a whole in order to ascertain the true meaning of its several clauses and the words of each clause should be interpreted so as to bring them into harmony with the other provisions if that interpretation does no violence to the meaning of which they are naturally susceptible. (North Eastern Railway Co. v. Lord Hastings)”
20. In Visa International Ltd. Vs. Continental Resources (USA) Ltd (2009) 2 SCC 55, the relevant clause in the agreement was the following:-
“Any dispute arising out of this agreement and which cannot be settled amicably shall be finally settled in accordance with the Arbitration and Conciliation Act, 1996.”
Interpreting the above clause, the Supreme Court held:-
“25. The submission is unsustainable for more than one reason. No party can be allowed to take advantage of inartistic drafting of arbitration clause in any agreement as long as clear intention of parties to go for arbitration in case of any future disputes is evident from the agreement and material on record including surrounding circumstances.”
It was held that the intention of the parties to refer the disputes to arbitration is evident from the agreement. The expression “shall be finally settled” was held to be significant.
21. Sri.Narendra Kumar, learned counsel for the petitioner submitted that the expression “must” occurring in Clause 24 of the agreement makes it clear that the said clause is peremptory and the parties intended to resolve the disputes through arbitration. He also submitted that in the light of the settled principles of law, the court was bound to refer the parties to arbitration.
22. Sections 31, 32, 35 and 36 of the Arbitration and Conciliation Act, 1996 are relevant in this context. Section 31 provides for the form and contents of the arbitral award. Section 32 states that the arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under Sub Section (2) thereof. Sub Section (2) of Section 32 provides for termination of arbitral proceeding in certain contingencies. Section 35 of the Act states that subject to Part-I of the Act, an arbitral award shall be final and binding on the parties and the persons claiming under them respectively. Section 34 provides for setting aside the arbitral award. Section 36 provides that where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court. The aforesaid provisions in the Arbitration Act indicates that once the dispute is referred to arbitration, it should reach its finality unless the arbitration is terminated in the manner provided under Sub Section (2) of Section 32. Had the parties intended to have such an arbitration, there would not have been a clause like Clause 25 in the agreement providing for resolving the disputes through court. Clause 25 also provides which court would have jurisdiction if a dispute arises. Inartistic drafting of the agreement or the clumsy nature of the agreement should not result in discarding the agreement as such. Taking all the terms of the agreement into the account and on harmoniously construing the various terms in the agreement, the only irresistible conclusion that could be arrived at is that the parties only intended to have some sort of resolution of the dispute before the matter is taken to the court. The word “must” occurring in Clause 24 of the agreement, to my mind, does not lead to the conclusion that the parties intended arbitration as the method for resolving the disputes between them. The parties intended to avoid disputes being taken to court to the extent possible. That is what is intended by the parties as per Clause 24 in the agreement. The words “if the dispute is not settled between the parties” occurring in Clause 25 and Clause 25 make the position clear that the parties intended to get a final decision only from the civil court.
For the aforesaid reasons, I am of the view that the court below was right in holding that the parties intended to resolve their disputes through civil court and that there was no arbitration agreement. Accordingly, the Civil Revision Petition is dismissed.
csl/skj K.T.SANKARAN JUDGE