The Bombay High Court in GTL Infrastructure Ltd. v. Vodafone India Ltd. [Commercial Arbitration Petition No.52/2022 with Arbitration Petition No.323/2021 decided on 02.12.2022] held that unambiguous and explicit consent of the parties is essential for the existence of a valid Arbitration Agreement.
GTL Infrastructure Ltd (hereinafter referred to as “the Petitioner”) and Vodafone Essar Ltd. now known as Vodafone India Ltd. (hereinafter referred to as “the Respondent”) entered into Master Service Agreement (hereinafter referred to as “the Agreement”) on 15.11.2007. The Petitioner was supposed to provide Passive Telecom Infrastructure to the Respondent for the installation of telecom equipment as per the prescribed terms and conditions.
The Petitioner filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”) vide Arbitration Petition No. 323/2021 for the appointment of Sole Arbitrator to adjudicate disputes arising out of the Agreement.
The has filed the present petition under Section 9 of the A&C Act for the disputes arising out of the breach of conditions of the Agreement and the Respondent was liable to pay a penalty of Rs. 1,16,51,695/- for the terminated sites and operational outstanding dues.
ISSUE BEFORE THE COURT
Whether a valid “Arbitration Agreement” exists between the parties?
CONTENTIONS OF THE PARTIES
The Petitioner contended that the Arbitration Clause existed in the Agreement which was invoked by the Petitioner. The parties have understood a particular clause to be an Arbitration Clause and the Court is not open to unravel the understanding.
It was also argued that the clause was conclusive in nature and the mechanism of Arbitration was to be opted in case of failure of Mediation. Mediation was optional but Arbitration was imperative in nature.
It was also asserted that the Respondent terminated the service of the Petitioner on 31.08.2018, outstanding dues of Rs. 166,88,50,876/- was payable by the Respondent. On failure of the payment, Arbitration Clause was invoked by the Petitioner according to the Agreement.
The Petitioner submitted that the Respondent replied to the invocation notice and two specific paragraphs of the Agreement were construed to be Arbitration Clause by both the parties. Moreover, the term ‘may’ in the clause is restricted on exhausting remedy by mediation and do not leave recourse to arbitration optional.
The Respondent argued that the reference to Arbitration is optional. Moreover, no reference was made to mediation which was mandatory, before invocation of the Arbitration Clause.
It was also contended that the such clauses do not amount to Arbitration Agreement; but Arbitration can be invoked only if both the parties mutually decide to refer the dispute to Arbitration.
DECISION AND FINDINGS
The High Court observed that existence of the Arbitration Clause is a sine qua non for the constitution of an Arbitral Tribunal. Moreover, intention and consensus of both the parties to refer the dispute to Arbitration is also must. The Court relied on Babanrao Rajaram Pund Vs. Samarth Builders and Developers & Anr [(2022) 9 SCC 691] and held that under Section 11 of the A&C Act shall give greater importance to the substance of the clause and the intention of the parties.
The High Court further elucidated that unless the clause unambiguously indicates the intention of parties to refer the dispute to Arbitration it cannot be construed to be an arbitration clause in the Agreement. The High Court held that the clause of the Agreement stated that in case of dispute it shall be adjudicated by mediation and in case of failure of mediation, the parties can mutually invoke Arbitration.
The High Court further relied on Jagdish Chander Vs. Ramesh Chander & ors, [(2007) 5 SCC 719] and Wellington Associates Ltd vs. Kirit Mehta [(2000) 4 SCC 272] and held that the word ‘may’ used in the clause would provide a future discretion to the parties whether to invoke Arbitration. The Court further held that as the Respondents had replied to the notice for invocation of the Arbitration, intention of both the parties to refer the dispute to Arbitration cannot be inferred.
It was further held that as the Arbitration Clause is not mandatory in nature, and the pre-condition of mediation is also not met with. Hence, there was no valid Arbitration Agreement between the parties; the appointment of Arbitrator was declined. The Arbitration Application as well as the Arbitration Petition was dismissed.
The expression of consent is material for a party to be bound by the arbitration agreement. In recent times, Courts have underlined the importance of explicit consent primarily due to the concerns of equity. Consensus is quintessential for binding a party to resort to an agreed mode of dispute resolution. This enables the parties to mutually decide and measure the cost and benefits and accessibility to such remedy. The recognition of explicit consent strengthens the principles of natural justice and vindicates the pillars of equity and good conscience for the implementation of the law.
– Team AMLEGALS assisted by Ms. Ayushi Tripathi (Intern)
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