Arbitration In IndiaConsensus of Parties mandatory for a Valid Arbitration Agreement

The High Court of Bombay, in the case of Nagreeka Indcon Products Pvt Ltd vs. Cargocare Logistics (India) Pvt. Ltd. [Arbitration Application No.168 of 2022decided on 23.02.2023] held that the words “can be settled” cannot be inferred as an imperative mandate for referring the disputes to Arbitration, but it is an option for the parties to adjudicate the disputed by mode of Arbitration.  The consensus of parties to refer the dispute for Arbitration is mandatory to establish the validity of an Arbitration Agreement.

FACTS

Nagreeka Indcon Products Pvt. Ltd., (hereinafter referred to as “the Applicant”)is engaged in the business of manufacturing containers and kitchen rolls. M/s. American Alupack Industries LLC (hereinafter referred to as “AAI”) placed orders for the purchase of corrugated boxes of aluminium foils from the Applicant and agreed to deliver the consignment in six containers as per the agreed price. The consignment was to be delivered to Charleston, South Carolina, USA. The Applicant entered into an Agreement with Cargocare Logistics (India) Pvt. Ltd.(hereinafter referred to as “the Respondent”) for transportation of the consignment in six containers.

The Applicant agreed to pay freight charges of Rs.2,23,550/- and raised an invoice. Out of six, four containers were successfully delivered and the dispute arose between the parties pursuant to the fifth container. The Respondent issued a bill of lading in three original sets, which contained an Arbitration Clause.

The prevailing practice in respect of contract for the carriage of goods, is that the delivery of the consignment is to be made at the discharge port, by the carrier to the consignee, only upon production of the original bill of lading by the consignee. Thus,  the Multimodal transport operator is discharged from its liability, only when the goods are delivered against surrender of original bill of lading. As AAI failed to pay the consignment for fifth container, the Applicant retained the original bill of lading.

Hence, the dispute arose between the parties relating to the delivery of a container. The Applicant was informed that the container was handed over to the Respondent on 21.10.2020. The Applicant claimed that the Respondent had illegally delivered the goods without the original bill of lading.

The Applicant issued a letter to the Respondent on 10.12.2020 and sought an outstanding invoice of the amount of USD 28064.86. The Respondent vide legal notice denied the claim and also claimed that an oral agreement was there between the Applicant and Respondent to release the consignment without production of the original bill of lading.

The Applicant invoked Arbitration through a notice dated 10.03.2022 for adjudication of a claim of USD 13230.86. The Respondent contested the efficacy of Arbitration as a mode of settlement of the dispute. Further, it was contested that the Arbitration Clause used the words “can be settled” and hence, Arbitration was not a mandatory mode of resolution of disputes.

Hence, the Applicant filed the present Application.

ISSUES BEFORE THE BOMBAY HIGH COURT

1. Whether the Arbitration Clause stating “can be settled” can be considered to be mandatory imperative for the parties to refer the dispute to Arbitration?

CONTENTIONS OF THE PARTIES

The Applicant submitted that the word “can” is to be construed as an imperative mandate.

The Applicant relied on  Vidya Drolia vs. Durga Trading Corporation & Ors., [(2021) 2 SCC 1], wherein the Supreme Court laid down the governing principle in Arbitration  is “when in doubt do refer”.

The Respondent submitted that Arbitration is merely an option available to settle the dispute and it cannot be conferred as consensus between the parties.

Also, It was contended that there is no clarity in the intention of the parties is visible in the Arbitration Agreement that both the parties necessarily wish to opt for Arbitration, and without consensus of the parties a dispute cannot be referred to Arbitration.

DECISION AND FINDINGS

The Bombay High Court observed that in the present Arbitration Agreement, the words “can be settled” are used, which leaves an option of settlement of disputes between the parties. It was held that mere Arbitration Clause would not imply a conclusive and mandatory Arbitration Agreement.

The Court held that there was no Agreement between the parties to mandatorily refer the disputes for Arbitration. Moreover, the word “can” cannot be imperative mandate for the parties to refer for Arbitration, specially when the option is available and the Respondent has refused to invoke Arbitration.

The Court further held that the Arbitration was not the mandatory mode of resolution of disputes and hence, the present Application was dismissed.

AMLEGALS REMARKS

The Bombay High Court has upheld that the consensus of the parties is of prime importance to establish the validity of the Arbitration Agreement. Moreover, the Agreement that provides an option for Arbitration for the adjudication of disputes, it cannot be invoked if one of the parties refuses to invoke Arbitration.

– Team AMLEGALS assisted by Ms. Samiha Yadav (Intern)

For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or mridusha.guha@amlegals.com.