The Delhi High Court in the case of Panasonic India Private Ltd. v. Shah Aircon through its Proprietor Shadab Raza, ARB.P. 621/2021, decided on 11th October, 2022 held that mere use of the word ‘can’ in an Arbitration Clause does not render it ineffectual, and the true intent of the parties whether or not to refer disputes to Arbitration should be determined only through a complete reading of the contractual provisions.
Panasonic India Pvt. Ltd. (hereinafter referred to as “the Petitioner”) entered into a Distribution Agreement with Shah Aircon (hereinafter referred to as “the Respondent”) for the sale of electronic goods. The Petitioner’s claims arose out of alleged unpaid invoices which were raised by it for the goods sold to the Respondent.
Simultaneously, claims were raised by both parties against each other and Demand Notices were served by each party to the other for payment of their dues under the Agreement. As the disputes remained unresolved, the Petitioner invoked the Arbitration Clause contained in the Agreement.
In response to the invocation of Arbitration, the Respondent stated that it did not sign the Agreement with the Petitioner and that the disputes were to be referred to the court of competent jurisdiction in Gurugram, Haryana by filing a Civil Suit. Thus, the Respondent filed a Civil Suit before the Court of Learned Civil Judge (Junior Division), Gurugram, Haryana (hereinafter referred to as “the Civil Court”).
During the pendency of the Civil Suit, the Petitioner filed an application before the Civil Court for reference to Arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”). Additionally, the Petitioner filed the present petition before the Delhi High Court for appointment of Arbitrator under Section 11 of the Act.
ISSUES BEFORE THE HIGH COURT
- Whether the High Court has the jurisdiction to entertain the petition?
- Whether the Agreement is binding to refer disputes to Arbitration?
- Whether the Petitioner’s claim is barred by limitation?
CONTENTIONS OF THE PARTIES
The Respondent contended that the Arbitration Clause in the Agreement is invalid as it does not mandate the disputes to be referred to Arbitration. The Respondent argued that the Arbitration Clause contained in the Agreement uses the word ‘can’ rather than ‘shall’, which denotes that a party has the option as to whether or not to refer a dispute to Arbitration. In furtherance of its submissions, the Respondent relied upon the Supreme Court’s decision in Jagdish Chander v. Ramesh Chander and Ors. (2007) 5 SCC 719, and the Calcutta High Court’s decision in Jyoti Brothers v. Sree Durga Mining Company AIR 1956 Cal 280.
The Respondent submitted that the Petitioner’s claims were barred by limitation, as under the heading ‘Term’ in the Agreement, the ‘Effective Date’ and ‘End Date’ of the Agreement were not specified. As per the Respondent, it entered into such Distribution Agreements for a period of one year at a time. Therefore, the Agreement would have been in effect at most until September 2017. In such circumstances, the Respondent stated that the commencement of Arbitration proceedings by the Petitioner was outside the period of limitation.
The Respondent further argued that the High Court lacked jurisdiction to entertain the petition as it should have been filed before the Court having the appropriate jurisdiction, i.e., the Civil Court.
The Petitioner contended that the essential ingredients of a valid Arbitration Agreement were satisfied in the present case. As per the Petitioner, it was clear from the Agreement that the parties intended a mandatory reference of disputes to Arbitration, and that such intention could not be overridden by the word ‘can’.
The Petitioner argued that this was not a case where the claims were so barred by limitation so as to render the reference to Arbitration unnecessary. The Petitioner stated the Respondent’s contentions on limitation may be referred for adjudication by the Arbitral Tribunal.
On the matter of jurisdiction, the Petitioner submitted that Clauses in both the Agreement and the Invoices vested the exclusive jurisdiction over disputes to the Courts in Delhi. Furthermore, the Petitioner emphasized that the present case sought reference in the Agreement and not in the Invoice, relying on the decisions in Cravants Media Pvt. Ltd v. Jharkhand State Co-Operative Milk Producers Federation Ltd. and Anr. ARB.P. 915/2021, and Stella Industries Ltd. v. Vero Moda Retails Pvt. Ltd. ARB.P. 504/2020.
DECISIONS AND FINDINGS
The High Court held that the Respondent’s submission on the matter of jurisdiction was unjustified as the Agreement establishes exclusive jurisdiction of the Courts in New Delhi, and specifically for the parties to seek to reference to the High Court for the appointment of an Arbitrator.
The High Court relied upon the decisions in Cravants Media Pvt. Ltd v. Jharkhand State Co-Operative Milk Producers Federation Ltd. and Anr (supra) and Stella Industries Ltd. v. Vero Moda Retails Pvt. Ltd. (supra) and held that the Agreement in the present case is unambiguous, granting exclusive jurisdiction to the High Court to entertain the present petition.
On the subject matter of the validity of the Arbitration Agreement, the High Court noted that the parties must contemplate a mandatory reference to Arbitration in the Agreement, as required under Section 7 of the Act. For the same, the High Court relied on the decisions in K.K Modi v. K.N Modi and Ors. (1998) 3 SCC 573 and Babanrao Rajaram Pund v. Samarth Builders and Developers and Anr. 2022 SCC OnLine 1165.
The High Court observed that any contractual provision, including an Arbitration Clause, must be interpreted upon construction of the contract as a whole, and no word or phrase should be unduly emphasised in order to negate the true meaning of the clause. Similarly, the High Court noted that the understanding of word ‘can’, which normally denotes an option, as compared to the word ‘shall’, which is mandatory in nature, is not relevant to the current situation. The High Court held that in the present Arbitration Agreement, the word ‘can’ is juxtaposed with the words ‘either party’, signifying that either party has the option to refer disputes to Arbitration.
Thus, the High Court observed that when either party has the option to refer the disputes to Arbitration, such a clause would be binding upon the other party as well. The High Court further held that from the remainder of the clause providing for venue and language of Arbitration, applicability of the Act, procedure for appointment, etc. it was evident that the parties “arrived at a mandatory understanding that their disputes under the Agreement would be referred to arbitration.”
On the issue of limitation, the High Court noted that such contentions were best reserved for adjudication by the Learned Arbitrator. The High Court relied upon the judgments in Bharat Sanchar Nigam Ltd. and Anr. v. Nortel Networks India Pvt. Ltd. (2021) 5 SCC 738 and Vidya Drolia and Ors. v. Durga Trading Corporation (2021) 2 SCC 1, wherein it was held that the question of limitation involved question of both fact and law which fell in the realm of the Arbitrator to resolve.
The High Court noted that the various disputed assertions regarding the lapse of period of limitation were not readily evident from the documents on record, not carving an ex-facie time barred case. Thus, the High Court allowed the petition and appointed an Arbitrator for adjudication of the parties’ disputes.
Through this decision, the High Court emphasized on the accurate interpretation of an Arbitration Agreement, after taking into consideration all the contractual provisions to understand the true intent of the parties.
The Arbitration Agreement in question here stated that either party ‘can’ refer the dispute to Arbitration. When Arbitration was invoked by one party, the other party argued that the presence of the word ‘can’ in place of ‘shall’ indicates that the reference to Arbitration is not binding and mandatory in nature.
The High Court analysed the provisions of the Agreement in entirety and came to the conclusion that the true intent of the parties to the Agreement were to refer disputes to Arbitration, and mere presence of the word ‘can’ would not render the Arbitration Agreement non-binding on the parties.
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