1999(2) ALL MR 310
IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ASHOK AGARWAL AND A.V. SAVANT, JJ.

M/S. Divya Shivlaks Impex Vs. Shantilal Jamnadas Textiles (P) Limited

Appeal No.35 of 1999,Arbitration Petition No.381 of 1998

24th February, 1999

Petitioner Counsel: Mr. S. P. DALAL
Respondent Counsel: Mr. R. S. TRIPATHI, i/b M/s. BHANSAL & BHANSAL

Arbitration and Conciliation Act (1996) S.7 - Arbitration clause - Written Contract not containing clause - Invoice containing a printed clause to the effect that "sale is subject to the Sale, Disputes and Arbitration Rules of Mumbai Piece Goods Merchants Mahajan" - Held printed clause did not amount to an agreement to refer dispute to the arbitration of the Mahajan.

Appeal No.782/1986 in Arb.Pet.No.57/1986 Dt.10.12.1996 and Arb.Pet.No.61/1982 Dt.18.2.1988 Disting. (Paras 16, 17)

Cases Cited:
App.No.782 of 1986 in Arb.P.No.57 of 1986 in Award No.10 of 1986, Dt.10th Dec, 1996 [Para 17]
Arb.P.No.61 of 1982 in Award No.6 of 1982, Dt.18th Feb, 1988 [Para 18]


JUDGMENT

A. V. SAVANT, J. :- Heard both the learned Counsel Mr. S. P. Dalal, for the appellants and Mr. R. S. Tripathi, for the respondents.

2. Appeal admitted, Mr. Tripathy waives service. By consent, appeal is taken up for hearing and final disposal forthwith. Paper book dispensed with.

3. The appeal is against order dated 17th November, 1998 in Arbitration Petition No.381 of 1998. The petition was filed by the appellant challenging the award dated 5th August, 1998, on the ground that there was no arbitration agreement between the parties and hence the award was not binding on the appellants. In the petition the appellants contended that the contract dated 2nd January, 1998 between the parties did not contain any stipulation as to arbitration. The terms of the contract were in writing and it was contended that the same should not be altered unilaterally by printing some clause on the invoice which was disputed and was not inteligible. At any rate, it was contended that there was no arbitration agreement between the parties.

4. The learned Single Judge has rejected this contention. In the opinion of the learned Single Judge, the agreement between the parties did not exclude the arbitration clause in the event of disputes arising between the parties. On the footing that arbitration clause can be spelt out from subsequent correspondence, in the opinion of the learned Single Judge, there was an arbitration agreement between the parties. In the result, the petitioned was dismiss. It is this order which is challenged before us in appeal.

5. A few facts may be stated. Pursuant to the written contract dated 2nd January, 1998, fabrics were delivered by the respondents to the appellants in various lots and invoices were raised on the appellants. Certain payments were made by the appellants to the respondents in respect of the first two lots. However, in respect of the remaining lots the appellants complained to the respondents. The parties exchanged notices and on 11th April, 1998, notice of arbitration was given to the appellants by the Mumbai Textile Merchants' Mahajan (for short 'Mahajan') enclosing the statement of claim of the respondents. The appellants were informed that the respondents had appointed Shri Kanubhai Narsana as their Arbitrator. The appellants were called upon to appoint their Arbitrator, failing which the said Kanubai Narsana was to act as the Sole Arbitrator.

6. On 18th April 1998, the appellants wrote to the Mahajan categorically stating that there was a written contract on 2nd January, 1998 with the respondents for supply of goods. The said contract did not provide for any arbitration between the parties in the event of any dispute. The appellants therefore informed the Mahajan that they had no jurisdiction to arbitrate over the dispute between the parties. The letter also informs that defective material was supplied by the respondents and since the material was required for manufacturing trousers which were meant for export for overseas buyers against their confirmed order, the appellants had failed to fulfill the said export order and had sustained heavy losses. The appellants also called upon the Mahajan to supply to them the copy of "Sale, Disputes and Arbitration Rules of the Mumbai Textile Merchants" on payment of necessary charges to enable the appellants to consider whether or not to submit to the proposed arbitration.

7. On 7th May, 1998, the Mahajan wrote to the appellants that every invoice of Mahajan's members carried a printed notation "that the particular deal will be subject to arbitration of Mahajan, if needed." Regarding complaints about the fabric quality of the goods supplied, the appellants were called upon to come forward at the arbitration hearing and put forth their case.

8. On 23rd May, 1998, the appellants wrote to the Mahajan reiterating that they had no jurisdiction to arbitrate in the transaction between the appellants and the respondents. It was pointed out that there was a specific written contract dated 2nd January, 1998 between the parties and that the said contract did not provide for any arbitration by the Mahajan or otherwise. It was further contended that any term or condition printed by the respondents on the invoice could not override the terms and conditions of the written contract. In the circumstances, the appellants contended that the proposed arbitration by the Mahajan would be without jurisdiction and illegal and would not be binding on the appellants. On merits it was further contended that the dispute had arisen entirely due to the defective material supplied by the respondents. The material was required by the appellants for the manufacture of Trousers for export. As a result of the defective material the appellants had suffered losses and the country had lost valuable foreign exchange. In any event it was reiterated that there was no question of appellants submitting themselves to the arbitration of Mahajan.

9. On 25th May, 1998 the Mahajan again wrote to the appellants quoting a clause printed on the invoice which reads as under:

"This sale is subject to the Sale. Dispute and Arbitration rules of Mumbai Piece goods Merchants Mahajan."

The Mahajan, therefore, informed the appellants that according to the above quoted clause, the Mahajan was proceeding with the arbitration in the dispute between the appellants and the respondents and the appellants were requested to accept the arbitration of the Mahajan and remain present on the stipulated date and put forth their case on merits. On 17th June, 1998 Mahajan wrote to the respondents that the date of hearing was fixed on 14th July, 1998 at 4.00 p.m. in the office of the Mahajan for the purpose of arbitration. A copy of this notice was sent to the appellants.

10. On 4th July, 1998 the appellants wrote to the Mahajan making it clear that the appellants stood by their earlier stand that there was no arbitration clause in the written contract dated 2nd January, 1998 and, therefore, the respondents could not fall back upon some printed condition on their invoice and invoke arbitration of the Mahajan. It was further mentioned in the said letter dated 4th July, 1998 that without prejudice to the appellants contention, out of respect for the Mahajan, the appellants had remained present on 9th June, 198 and filed a written say. In view of this it was prayed that the false claim filed by the respondents should be dismissed for want of jurisdiction.

11. We may at this stage refer to the written statement filed by the appellants on 9th June, 1998. The written statement makes it very clear that it was filed for the limited purpose of challenging the jurisdiction of the Mahajan to act as an arbitral tribunal for deciding the dispute between the parties. It is reiterated that there was a written contract between the parties which was dated 2nd January, 1998. The written contract did not contain any arbitration clause. Copy of the written contract was annexed to the written statement. It was therefore, contended that the Mahajan had no jurisdiction to entertain and proceed with the Arbitration. It was further contended that at the time of entering into the contract on 2nd January, 1998, the respondents had not disclosed to the appellants the condition that "This Sale is Subject to the Sale. Disputes and Arbitration rules of Mumbai Piece goods Merchants Mahajan". It was contended that an invoice cannot constitute a different or new contract between the parties so as to override the terms and conditions of the written contract dated 2nd January, 1998. If the respondents wanted arbitration they should have incorporated a clause to that effect in the written contract dated 2nd January, 1998. Having failed to do so the respondents cannot seek arbitration by Mahajan relying upon 'a priory' printed condition in the invoice. It was therefore, brought to the notice of the Mahajan that if they proceeded with the Arbitration, they would be acting without or in excess of jurisdiction and the award which may be passed would be bad in law and illegal. A prayer was, therefore, made to frame an issue as to whether the Mahajan had jurisdiction to arbitrate between the parties. This should be tried as a preliminary issue and ruling be given thereon. As stated earlier, alongwith the written statement a copy of written contract dated 2nd January, 1998 was annexed and so was a copy of the invoice annexed.

12. Aperusal of the written contract dated 2nd January, 1998 shows that the appellants had placed the order for supply of certain fabrics. The letter was to be treated as a contract. The specifications of the goods were mentioned. The quantity, quality, delivery, mode of payment were mentioned and there is no arbitration clause in the said contract. Another letter was issued by the appellants on 2nd January, 1998, reiterating the earlier contract dated 30th January, 1998. It was contended that in respect of goods received, there were some defects resulting in rejection of some of the goods. The appellants therefore asked for return of payment of Rs.1,86,167.70.

13. For the purpose of deciding this appeal, we need not go to the merits of the rival contentions. The short point which arises for our consideration is whether there was a arbitration clause in the contract between the parties so as to make the award binding on the appellants. It must be stated that as a result of the appellants having refused to take part in the arbitration on the ground that the Mahajan had no jurisdiction to arbitrate, the award that has been passed is an ex parte award. Under the said award, the Sole Arbitrator came to the conclusion that an amount of Rs.1,09,660.00 plus Rs.11,239/- being the amount of interest was payable by the appellant within 10 days from the date of receipt of the copy of the award by them failing which the respondents will be entitled to recover interest at 21 percent per annum from the appellants till date of payment. Rs.500/- was awarded as cost of arbitration. Award is dated 5th August, 1998. It is this award which was challenged before the learned Single Judge who has dismissed the petition under the impugned order dated 17th November, 1998.

14. Shri Dalal appearing for the appellants/original petitioners raised only one contention namely that there was no arbitration clause in the contract dated 2nd January, 1998 entered into between the parties. We have already referred to the terms of the said contract in brief. The said terms were reiterated in the appellants' letter dated 30th January, 1998. There is no arbitration clause either in the letter dated 2nd January, 1998, which is the contract between the parties, or the letter dated 30th January, 1998. When the appellants received the notice dated 11th April, 1998 from the Mahajan informing them that the respondents had appointed their arbitrator and in the event of the appellants failing to appoint their arbitrator, arbitrator appointed by the respondents would act as the sole arbitrator, they replied this letter on 18th April, 1998. They made it clear that the contract dated 2nd January, 1998 did not contain any arbitration clause in the event of any dispute. The appellants, therefore, clearly told the Mahajan that they had no jurisdiction to arbitrate over the disputes between the parties. The Mahajan again wrote to the appellants on 7th May, 1998. This was replied by the appellants on 23rd May, 1998 wherein the appellants reiterated their contention that the Mahajan had no jurisdiction to arbitrate in the matter in absence of any arbitration agreement between the parties. The appellants repeated their stand that the contract dated 2nd January, 1998, did not contain any arbitration clause. If an invoice contained any such condition, the appellants contended that it would not override the written contract. We will deal with the invoice a little later in order to consider whether the printed condition on the invoice can be construed as an arbitration agreement. Again when the Mahajan wrote to the appellant on 25th May, 1998, the appellants replied by their letter dated 4th July, 1998 refusing to submit to arbitration and making it clear that some printed condition in the invoice can not override the written contract between the parties.

15. There is thus no doubt in our mind that the appellants stood by the terms of the contract dated 2nd January, 1998. The said contract does not contain any arbitration clause. There is no other correspondence on record from which one can spell out any arbitration agreement between the parties. There is no other material save and except the printed invoice with which we will deal presently which can spell out an agreement to refer the dispute to the arbitration of the Mahajan. Admittedly, the appellants are not the member of the Mahajan, through the respondents are.

16. Turning to the printed invoice, our attention was invited to one such sample invoice no 1563 dated 15th January 1998. We have perused the original invoice of which the copy is on record. What the respondents contend is that after the details of the particulars of the goods supplied, their quality, quantity price etc. there is a printed note on the lower portion of the invoice which reads as under:

"This sale is subject to the Sale. Disputes and Arbitration Rules of Mumbai Piece Goods Merchants Mahajan."

Relying upon the above printed clause in the invoice the respondents' contention is that this amounts to an agreement to refer the dispute to the Mahajan. We must hasten to add that this printed clause is not intelligible to us and, in our view, there is no clause which says that the sale was subject to the arbitration rules of the Mumbai Piece Goods Merchants Mahajan. It is difficult to appreciate the exact meaning of the printed words. On a plain reading of the said printed clause, in the absence of any other material to explain the said printed clause, we cannot come to the conclusion that the printed clause quoted above amounts to an agreement to refer the dispute to the arbitration of Mahajan. In our view, therefore, the printed clause does not amount to an agreement to refer the dispute to the arbitration of the Mahajan.

17. The respondents invited our attention to two decisions of this Court to contend that similar clauses were held to amount to arbitration agreement between the parties. The first decision is of 10th December, 1996 (M/s Rajkumar Vs. M/s. Bhikulal Dwarkadas). A perusal of this decision shows that though the appellants were not members of the Mahajan as is the case before us, there was a contract between the parties which contained an express clause to the effect that the dispute in respect of the sales covered by the said contract would be decided in accordance with the rules of the Mahajan. Secondly, there were invoices under which the goods were supplied. These invoices also contained an express clause to the effect that the dispute in respect of the sale covered by the invoices was to be decided in accordance with the rules of the Mahajan. The Division Bench thus came to the conclusion that "in view of the written agreement the appellant's contention that they were not bound to refer the dispute to the arbitration under the said rules and that they were not bound by the award could not be accepted." The learned single Judge against whose decision the said appeal was preferred had also come to the same conclusion that there was a contract between the parties which contained an express clause to the effect that the disputes in the respect of the sale covered by the contract would be decided in accordance with the rules of the Mahajan. So was the decision in respect of the invoice. It was in these peculiar facts that the Division Bench came to the conclusion that the appellants were bound by the arbitration agreement and the express clause in the invoice. We do not think that the ratio of the Division Bench decision in appeal No.782 of 1986 is of any application to the facts in the case before us. As indicated earlier, in the written contract dated 2nd January, 1998, there is no arbitration clause. There is no other correspondence from which the arbitration agreement can be spelt out. Printed condition on the invoice does not, in our view, constitute an agreement to refer the dispute to the arbitrator.

18. The second contention on which Mr. Tripathi placed reliance is the decision of a learned single Judge dated 18th February, 1988 in Arbitration Petition No.61 of 1982 in Award No.6 of 1982 (Kishorekumar Lallubhai Vs. Shreenath Trading Corporation). This was also a case where the petitioners who approached this Court for setting aside the Award were not the members of the Mahajan and the respondents in whose favour the award was made were the members. On the contention as to whether there was arbitration clause between the parties, the learned Judge in para 3 of his judgment observed as under:

".....The respondents have filed affidavit of Surendra R. Shah in answer to the petition and in paragraph 3 it is pointed out that in respect of the transaction between the parties the respondents had issued and delivered to the petitioners invoices and each of the invoice containing the clause that the sale is subject to the arbitration rules of the Bombay Piece Goods Merchants' Mahajan."

It was on the basis of such an express clause under which the parties had agreed to refer the dispute to the arbitrator that it was held that the sale was subject to the arbitration rules of the Mumbai Piece goods Merchants Mahajan. In the absence of any such specific clause in the printed invoice which we have referred to above, we do not think that the ratio of the decision in Kishorekumar Lallubhai's case is of any assistance to the facts of the case before us.

19. In the circumstances, we hold that there was no arbitration agreement between the parties. The contract dated 2nd January, 1998 did not contain any arbitration clause. The subsequent correspondence exchanged between the parties also did not contain any stipulation that the sale was subject to the rules of the Merchants' Mahajan much less a specific agreement that the dispute would be referred to the arbitration of the Merchants' Mahajan. Right from the inception, the appellants have been contending that there was no arbitration clause and that the Merchants Mahajan had no jurisdiction to arbitrate upon the dispute. The appellants have been consistently placing reliance on the original contract dated 2nd January, 1998. The ratio of the two decisions of this Court on which Mr. Dalal has placed reliance are, in our view, clearly distinguishable. On facts, in each of the two cases there was an express agreement to refer the dispute to the arbitration of the Merchants' Mahajan which is conspicuously absent in the present case. Printed clause in the invoice is wholly unintelligible and does not, in our view, make out an agreement to refer the dispute to the arbitration of the Merchants' Mahajan. In the circumstances, it is not possible for us to uphold the judgment of the learned Single Judge.

20. Accordingly the impugned judgment dated 17th November, 1998 in Arbitration Petition No.381 of 1998 is set aside. Arbitration Petition No.381 of 1998 is hereby allowed on the ground that there was no arbitration clause between the parties and hence the Merchants' Mahajan had no jurisdiction to arbitrate upon the dispute between the parties. Accordingly, rule in the arbitration petition no.381 of 1998 is made absolute in terms of prayer (a) of the said petition.

21. We, however, make it clear that the parties are free to adopt any other remedy in accordance with law. We have not decided the merits of the rival claims and we express no opinion on the merits of such rival claims.

22. Appeal allowed in the above terms. No other as to costs. Issuance of certified copy expedited.

Appeal allowed.