Great Offshore Ltd. Vs.
Iranian Offshore Eng & Constn. Co.  INSC 1418 (25 August 2008)
IN THE SUPREME COURT
OF INDIA CIVIL ORIGINAL JURISDICTION ARBITRATION PETITION NO.10 OF 2006 Great
Offshore Ltd. ... Petitioner/Applicant Versus Iranian Offshore Engineering
& Construction Company ...Respondent
Dalveer Bhandari, J.
Offshore Limited has filed a petition under section 11(5)((6)(9) and (12) of
the Arbitration and Conciliation Act, 1996 whereby the applicant seeks the
appointment of a sole arbitrator. The applicant, Great Offshore Ltd., submits
that it has entered into a charter party agreement with the respondent, Iranian
Offshore Engineering & Construction Company. The charter party agreement
("CPA") contains an arbitration clause. Relying on this clause, the
applicant has asked this Court to appoint an arbitrator to resolve the 2
dispute. The respondent, however, contends that the two parties had not
progressed beyond the stage of negotiation and that there is no concluded contract
Therefore, it is
argued that there is no question of referring the dispute to arbitration.
facts which are relevant to dispose of this arbitration petition are
charter party agreement in dispute marks the second time the parties have done
business with each other.
The first time was in
2004. In March of that year, the respondent entered into a contract with the
Oil and Natural Gas Corporation Limited ("ONGC") to carry out
construction work on ONGC's installations at Bombay High. On 26th October,
2004, the applicant and the respondent entered into a charter party agreement.
Under this prior agreement, the respondent hired a vessel combination from the
applicant. The respondent required a specialized offshore construction barge
known as a "Gal Constructor." It also required an anchor handling
tug, named "AHT Malaviya Five." The AHT Malaviya 3 is used in
combination with the Gal Constructor. I shall refer to the Gal Constructor and
the AHT Malaviya as the "vessel combination."
respondent needed this combination to execute offshore work for ONGC. This work
was part of ONGC's RSPPM project, Phase I. The first phase was completed in
this case, the controversy is confined to the alleged agreement relating to the
second phase of ONGC's project.
this arbitration petition, I need to decide whether the parties have entered
into a valid contract containing an arbitration clause. To this end, it has
become imperative to review the relevant correspondence between them. Only then
will I be able to arrive at a conclusion as to whether there was a concluded
contract or whether the parties had never progressed beyond the stage of
the parties expressed mutual interest in resuming business for Phase II, the
respondent faxed a letter to the 4 applicant. The letter is dated June 20th,
2005. In this letter, the respondent expressed its intention to use the
applicant's vessel combination for 170 days pursuant to the same terms as the
preceding agreement. A few amendments, however, were to be made to that
applicant responded vide email the next day and stated that it would like to
"come to an agreement." After meeting the respondent on 22nd June,
the applicant faxed an offer to the respondent on June 23rd, 2005.
turn, the respondent faxed a letter of intent on June 23rd, 2005. The letter
stated that it was "...a firm and unconditional letter of intent (for
short LIO) for award of contract for charter hire of your barge Gal Constructor
and Malviya 5". Nevertheless, the very same letter contained a contingency
is subject to IOEC [respondent] providing a suitable barge and AHT acceptable
to GE Shipping [applicant] for a period of 45-55 days on mutually agreed rates
for commencement between 25th October and 10th November 05 for BHN MOL project
July 1st, 2005, the respondent's minutes of meeting indicate that the barge
(vessel) was to be available for visual examination "...until 25th of July
after which the barge will leave AJMAN port in UAE for the project in PG".
August 4th, 2005, the applicant explained that it no longer wanted the
respondent to provide a barge for 45-55 days, as mentioned in the respondent's
June 23rd letter of intent. Because the parties could not agree on the rate for
this service, the applicant said that it would make alternate arrangements.
August 11th, the respondent sent a letter in regard to modifying the Barge Gal
Constructor so that it could function as a riser installation barge. Based on
its engineering analysis, it sought to install "...5 davits in the port or
STBD side at the barge" as well as a "... working platform as an
extension to main deck in the aft quarter over one of the anchor rests".
response to a meeting on August 8th and the above letters, the respondent faxed
a letter to the respondent on 6 August 13th, 2005. The letter suggested that
additional provisions be incorporated in a new draft of the contract. The
respondent requested the right to modify the Gal Constructor, thereby enabling
it to perform a riser installation. The respondent further asked the applicant
to pay the outstanding amount (USD 188,500) from the preceding contract. In
conclusion, the respondent stated that it would be willing to finalize the
contract before the 30th of August.
16th August, the parties met to discuss the proposed changes. The applicant
formally responded to the respondent's suggestions in a letter dated August
22nd, noting that the parties had come to the following agreement regarding a
number of outstanding issues:
S. No. Clause
Agreement 1 Modifications for Riser Clause on the basis of Installation
Addendum 3 to Charter Party dated 26th Oct 04 to be incorporated 2 Early
Termination It was mutually agreed not to Clause include the clause suggested 3
Employment of vessel Clause as per Charter Party dated 26th Oct 04 to be
incorporated 4 Sublet Clause Clause 17 of the charter party to be referred in
additional clause pertaining to sublet 5 Credit note issue Addressed hereunder
7 ... we confirm our acceptance of the credit note amounting to US$186,618 ...
for subject vessel combination for charter party dated 26th Oct 2004.
proceeding with the correspondence, it is pertinent to note that the faxed
charter party agreement ("faxed CPA") is dated August 22nd. After
having settled a number of outstanding issues vide the above letter, the
applicant allegedly sent the faxed CPA to the respondent on the same day.
faxed CPA officially entitled the "Charter Party for Offshore Service
Vessels Code Name `Supplytime 89'" dated August 22nd, 2005 is reproduced,
in relevant part. The "charterer" is the respondent, and the
applicant is the "owner":
1. Place & Date.
Mumbai, India. 22nd August 2005. ...
9. Period of Hire.
204 days firm / minimum ...
14. Early termination
of charter (state amount of hire payable) (Cl. 26(a)) Not Applicable.
18. Employment of
Vessel restricted to (state nature of service(s)) (Cl 5a)) Hook up,
commissioning, accommodation and offshore Installation work such as I-Tube
installation and Riser Installation and all other activities of RSPPM Project,
within Vessel's natural Capabilities and safe practices/ 8 operations.
19. Charter Hire
(state rate & currency) (Cl 10(a) & (d)) USD 31,000 ... PDPR ...
22. Payments ...
Payments shall be
made against acceptable, unconditional, revolving and irrevocable Letter of
Credit issued at sight by the Charterer's bank for USD 6,500,000 ...
These L/C(s) to be
opened, latest by 15th September 2005. However draft of L/C(s) should be
provided to the Owners by 1st September 2005.
33. Law and
arbitration (state Cl 31(a) or 31(b) or 31(c), as agreed, If 31c agreed also
state place of arbitration) (Cl.31) Clause 31(c) - Indian Arbitration and
Conciliation Act, 1996 at Mumbai .... . "
must provide some background before dealing with other documents, as the faxed
CPA sits at the center of this dispute.
appears that both parties signed the faxed CPA, and it bears the applicant's
seal. However, it does not bear the respondent's seal. The applicant contends
that it had sent the original to the respondent on August 22nd. The respondent
did not return the original. Instead, on September 8th, the 9 respondent's
head office faxed a copy of the CPA to its local office. [The top of the said
fax shows the date and time as well as the place from and to which it was sent;
it reads "08-SEP- 2005 13:52 FROM IOEC HEAD OFFICE TO ALLAHVERDI"].
This faxed copy is
signed by the respondent's Project Director, Mr. M. Sabbaghi.
respondent's Mr. Ali Rahmati provided the applicant the faxed CPA on October
12th, according to the applicant's letter dated October 21st. In a letter dated
October 26, the respondent originally asserted that it never signed the faxed
CPA and that the document was forged.
the date on which the applicant sent the faxed CPA - 22nd August - and the date
on which the respondent reportedly returned it to the applicant - 12th
September, ONGC had advised the respondent to get the vessel combination
certified before proceeding with a Riser installation. ONGC's letter dated 30th
August stated that the vessel did not have any past track record with riser
applicant later expressed concern that the respondent's failure to return the
original contract, i.e., charter party agreement, could result in undue delay.
In an email sent at 9:03 a.m. on 14th September, the applicant stated, in
relevant part, that:- "... You would appreciate that it is imperative for us
to have the charter party with us in order to initiate actions from various
departments such as operations, fleet personnel, accounts etc to prepare for
the said contract and in absence of this document we are not in a position to
push for same.
This will result in
last minute hassles and delays.
respondent's email rejoinder came at 4:31 p.m. on the same day. The relevant
part reads as under:- "...
The CPA of Gal
Constructor and Malavya 5 is ready in our office and will be hand over to you.
September 15th, 2005, the applicant sent the following email to the respondent.
It reads in relevant part as under:- "1. Understand that charter party is
ready in your office. However, we are yet to receive the same and 11 urgently
require it to be circulated among the concerned departments so that they are
prepared for the next contract. Will get in touch with your office again today
for the same. ..."
respondent faxed a letter dated September 23rd, 2005 to the applicant. The
letter asks the applicant to issue a cheque for the outstanding amount due from
the parties' Phase I work. It further demands that the applicant grant the
respondent the sole and absolute right to sublet the vessel to its
subcontractor(s) at the agreed charter party rate. It concludes by saying that
the respondent "... can not conclude the charter party agreement until the
above issue are settled."
September 24th, the respondent met with Likpin Engineers to discuss whether the
applicant's vessel could be converted to perform a riser installation. Likpin
surveyed the vessel on 23rd September 2005 and, in the following minutes,
concluded that:- "Taking into account the number of problems associated
with the vessel, it is the conclusion of Likpin and IOEC that the Gal Constructor
is not suitable as a riser installation. ... the vessel size combined with the
limited crane reach cannot be corrected or overcome and hence the vessel should
not be chartered for riser installation operations."
a letter dated September 27th, 2005, the respondent again asked the applicant
to issue a cheque or remit $186,618. It once again demanded that it be granted
the right to sublet the vessel and that until those issues were settled, it
could not conclude the CPA.
a letter dated September 29th, 2005, the respondent reiterated its demands,
namely, that the applicant remit $186,618 and that it provide the respondent
with the sole and absolute right to sublet the vessel combination. It admitted
that this payment had nothing to do with Phase II of the project and thus
"... has no connection with the current negotiations and should be closed
out immediately, so that Phase II can begin on a clean slate." It further
"... the sole
and absolute right to sublet the vessel to IOEC subcontractors ... is an
essential element in IOEC work plan for Phase II. ... Lack of, or delay in, the
ability to exercise the sublet option will impact on IOEC work plan and also
affect the cost schedule of RSPPM project and is not acceptable to IOEC. Please
note that time is running short and in absence of GESCO's immediate compliance
with above two requirements IOEC may be compelled to take recourse to other
applicant responded to the above with the following letter dated 30th September
2005. The relevant part reads as under:- "... We are in the process of
arranging funds to be remitted to you against the said amount and will confirm
remittance as soon as possible. 2) Your request for sole and absolute right to
sublet the vessel is not acceptable to us. The LOI for the contract has been
issued by you on 23rd June 2005 after we mutually agreed on the terms and
conditions of charter party. Thereafter, on your request, we have provided with
you with signed originals of the charter party on 22nd August 2005 for your
signatures. You have accepted the same and conformed to us vide your letter
communique dated 14 September that he charter party has been signed and is
ready in your office and will be handed over to us. Previous to that, you have
also sent us letter saying that you confirm that the charter party will be
finalized by 30 August 2005.
While we have been
provided a photocopy of the signed charter party by your office, it is now 30
September and rather than keeping your commitment and returning the original
and issuing the L/C as promised, you are deliberately delaying the same.
letter goes on to demand that the respondent immediately issue the signed,
stamped original charter party agreement as well as the irrevocable line of
credit. The applicant further demanded that both tasks be completed by 1st
October at 1200 hours.
letter dated 10th October, the applicant informed the respondent that the
applicant's vessel combination arrived at P & V Channel, Mumbai on October
6th. Because it had yet to receive the line of credit, it informed the
respondent that it could not proceed further with the mobilization of the
vessel combination. The applicant provided the respondent with an invoice for
mobilizing its vessel combination. It gave the respondent another chance to
comply with the purported contract: "please note that contractual hire
will begin as and from 0000 hours of the 11th October 2005. We on our party
stand ready and willing to comply with all our obligations."
its October 10th letter, the respondent reiterated that the terms of the
agreement were still under negotiation and that no contracted had been
concluded. It objected to the absence of a provision that provided the
respondent with the absolute right to sublet the vessel.
also argued that the applicant's vessel combination was not fit for the agreed
purpose. This issue is beyond the scope of this decision, which limits itself
to deciding whether 15 or not a contract containing an arbitration clause was
While I have made
mention of some of the other issues, such as whether the vessel was fit for the
agreed purpose, I need not rehash each and every one. All matters, save for
whether the alleged contract/arbitration clause was formed, would be more
appropriately addressed by an Arbitral Tribunal.
letter goes on to state that it would still consider hiring the applicant's
vessel combination if it received the right to sublet and also if the crane were
made fit for the purpose for which the respondent intended. On 18th October,
the respondent sent a letter in which it stated that it would have to look for
a vessel from an alternative provider. The respondent said that it would treat
the matter with the applicant as "closed." It concluded by asking the
applicant to pay the amount due for Phase I. It sent a letter on 20th October
reiterating the same.
21st October, the applicant sent a letter detailing the sequence of events that
had occurred between the parties.
Para 5 of the said
letter is reproduced as under:- 16 "The Charter Party Agreements, two
originals duly signed and stamped by us, were submitted to your office on 22nd
August 2005 requesting you to forward us one original after execution of the
same from your side. You never returned one original for our records. However,
your Mr. Ali Rahmati had handed over to us a fax copy of the formal Charter
Party document signed by your Mr.M. Sabbaghi when we had a meeting with him on
12th September 2005. A copy of the same is enclosed herewith for your
its 26th October 26th, the respondent once again claimed that the charter party
remained unconcluded. It alleged that the faxed copy of the charter party
agreement was "forged and the story of delivery false and concocted."
Moreover, it stated
that "since we have found the vessel completely unfit for riser
installation as the said vessel with the present condition of the crane is not
suitable at all, therefore we thought fit to withdraw from the
It claimed that the
applicant had misrepresented its vessel's ability to perform a riser
installation. Thus, it thought this misrepresentation had vitiated the
negotiations. At this point, it appeared that their relationship had officially
its letter dated 16th November, the respondent reiterated much of what is
already provided above. Of interest, 17 it stated that:- "You are aware
that initially, we intended to hire the vessel combination for only 170 days.
However, since you agreed to take barge and AHT from us for 45-55 days, we
agreed to extend the intended hire period from 170 days to 200 days and
accordingly in this background the said LOI was issued.
thereafter you unilaterally declined to take our barge and AHT on the ground of
difference in rate levels offered by us, we, in view of the said condition and
in the light of your refusal to accept our barge and AHT, asked you for
absolute subletting right of the said vessels to compensate us/minimize our
expenses for risk of additional days than the originally intended 170 days. The
correspondences which were exchanged between us make it aptly clear that
negotiations and change in terms and conditions from your side continued even
after issuance of LOI and therefore the question of concluding the CPA in
respect of RSPPM project phase-II does not arise at all."
its December 2nd, 2005 letter, the respondent called upon the applicant to
arrange for a third party inspection of the applicant's vessel, in order to
determine whether or not it was suitable for riser installation.
response, on 23rd January 2006, the applicant served the respondent with a
notice of arbitration. On 2nd February 2006, the respondent replied to the
the relevant correspondence outlined above, I turn to the parties' main
submissions. The applicant contends, inter alia, that the faxed copy of the
charter party agreement ("faxed CPA") dated 22nd August is a binding,
concluded contract. The applicant gives four reasons for this assertion.
the faxed CPA is signed by both parties. Second, the applicant's statement to
this effect was not denied in the pleadings [See the last page of the
respondent's supplementary written submission of May 13th, 2005: ("...it
was not signed properly and but for the last page, the said fax communication,
did not bear signature on other page.")
the respondent admitted in its letter dated 14th September that the original
CPA "... is ready in our office and will be hand to you." The
applicant argues that because the applicant had already signed the original
CPA, there was nothing left for the respondent to do but sign. Hence, by saying
it was "ready", I may infer that it was signed.
the respondent's letter of 10th October did not 19 deny the fact that the
original CPA was signed by the respondent and was waiting in the respondent's
office, even though the applicant had asserted as much in its letter dated 30th
August. It was not until 26th October that the respondent deemed it necessary
to deny this fact.
respondent contends that because the original signed copy was never given to
the applicant, the parties were in negotiations at all times. With respect to
the faxed CPA, it points to the fact that the respondent did not sign every
It gives further
weight to the fact that the faxed copy was not sent vide fax from the
respondent to the applicant; rather, it was first sent vide fax from the
respondent's main office to its local branch.
counsel for the respondent states in its written submission that "...the
respondent failed to even sign the formal contract document that the applicant
had sent to it for its signature." It argues that because the original CPA
was not signed by the respondent, the Court will have to find a contract, if
any, in the correspondence. According to Mulla:- 20 "In construing
whether or not a particular agreement does or does not amount to a contract,
the court would look for the intention of the parties, the nature of the transaction,
the language employed in the informal agreement and other relevant
circumstances. None of these is conclusive in itself. ... The fact that the
parties contemplate that the letters or an informal agreement would be
superceded by a more formal one, does not prevent it from taking effect as a
contract. If the letter of intent is acted upon, especially for a length of
time, the court is likely to hold the parties bound by the contract." [See
Mulla, Indian Contract and Specific Relief Acts, 13th Edition at pages
Dresser Rand S.A. v. M/s. Bindal Agro Chemical Ltd. & Another, AIR 2006 SC
871 at page 884 at para 34, a two-Judge Bench of this Court emphasized that
whether letters of intent rise to the level of being a contract hinges on the
terms of the letter itself. It observed as under:- "It is no double true
that a Letter of Intent may be construed as a letter of acceptance if such
intention is evident from its terms. It is not uncommon in contracts involving
detailed procedure, in order to save time, to issue a letter of intent
communicating the acceptance of the offer and asking the contractor to start
the work with a stipulation that the detailed contract would be drawn up later.
If such a letter is issued to the contractor, though it may be termed as a
Letter of Intent, it may amount to acceptance of the offer resulting in a
concluded contract ... . But the question whether the letter of intent is
merely an expression of intention to place an order in future or whether is a
final acceptance of the offer thereby leading to a contract, is a matter 21
that has to be decided by reference to the terms of the letter."
respondent's main submission is that it never actually concluded a contract and
that, if anything, the applicant mistakenly thought that the respondent's LOI
of 23rd June was an offer. Why else would the applicant have sent its
acceptance on 4th? Its attack against the LOI as a contract is two-fold. First,
it argues that the parties cannot leave a major piece of the contract open for
future negotiation. Second, it contends that the parties were not eye-to-eye,
or ad idem on the points.
to the respondent, the applicant's assumption that the respondent's 23rd June
LOI read with the applicant's 4th August letter is misplaced. The LOI of 23rd
June read with the applicant's letter of 4th August does not form a contract
because a contract cannot leave a major part of its terms open to future
negotiation. The respondent relies on May & Butcher Limited v. The King
(1934) 2 KB 17, for the proposition that an agreement in which some critical
part of 22 the contract matter is left undetermined is no contract at all.
its assertion that the applicant's LOI of 23rd June was conditional, it points
to the following language from the same LOI: "this agreement is subject to
IOEC providing a suitable barge and AHT acceptable to GE Shipping for a period
of 45- 55 days on mutually agreed rates for commencement between 25th October
and 10th November 05 for BHN MOL project works." The respondent's
supplying the barge to the applicant for 45-55 days went unmet when the
applicant said it would not need this barge.
addition, the respondent argues that this condition was material to the
contract, as evidenced by the fact that the respondent only agreed to increase
the duration of the work from 170 to 200 days if it got paid for supplying the
barge. By doing so, the respondent was attempting to offset the costs it would
incur by having the applicant's vessel combination for an extra 30 days.
the respondent claims that no contract could arise from its LOI of 23rd June
because the parties were 23 not ad idem, i.e., in agreement on each point.
Along these lines, Chitty on Contracts [29th Edn. Vol.1 at page 134] has
observed:- "When parties carry on lengthy negotiations, it may be
difficult to say when and whether a contract has been concluded. The court must
then look at the whole correspondence and decide, whether on its true
construction, the parties had agreed to the same terms."
M/s. Rickmers Verwaltung Gimb H v. Indian Oil Corporation Ltd., AIR 1999 SC 504
at page 509 para 12, this Court reiterated this stand: "Unless from the
correspondence it can unequivocally and clearly emerge that the parties were ad
idem to the terms, it cannot be said that an agreement had come into existence
between them through correspondence." [See also: Dresser Rand S.A. v. M/s.
Bindal Agro Chemical Ltd. & Another, AIR 2006 SC 871 at page 879 para 21
(affirming the same)]
respondent argues that they were still negotiating the terms and conditions. It
cites to its letter of 13th August and the applicant's letter of 22nd August as
evidence of continued negotiations. In the respondent's letter dated 13th 24
August, it suggests that a number of changes be made to the "new draft
contract." [emphasis added]. "Draft" suggests that nothing had
been finalized. Moreover, the letter lists a number of issues that were still
open to negotiation. The applicant's letter of 22nd August, however, addressed
the proposed changes.
respondent concedes that while it said it would sign and finalize the contract
by 30th August, it changed its mind on 27th August and conveyed the message
that it would not enter the agreement until all outstanding issues were
the applicant's counsel, the respondent also makes use of the fact that the
applicant did not object to the respondent's letter dated 13th August. The
applicant should have said that there was no question of finalizing the
contract when it had already been finalized. I note that this argument seems
unfair because the applicant could not have gotten the faxed CPA from the
respondent until 8th September at the earliest, as that is the date that
appears on the fax. According 25 to the applicant, it received the faxed copy
on 12th September.
course, all of the respondent's arguments become moot if the faxed CPA dated
22nd is valid. In the instant case, the burden to prove that a valid contract
containing an arbitration clause existed first rested on the applicant, as it
was the applicant that was moving this Court. However, upon producing the faxed
CPA that, on its face, appears legitimate, the onus shifted to the respondent
to prove that it was forged.
It appears, prima
facie, to be legitimate because it bears the heading "08-SEP-2005 13:52
FROM IOEC HEAD OFFICE TO ALLAHVERDI" (hereinafter the "fax
header"). This is an important piece of evidence that makes its
genuineness more probable than not. Hypothetically, the applicant could have
fabricated the fax header. But that is highly unlikely and presumes much more
than what is expected in normal human conduct especially when that conduct
concerns the forgery of an executive officer's signature. It should not be
forgotten that this case is between sophisticated companies, not warring family
members that dispute the authenticity of a will.
respondent could argue that it handed over an unsigned copy of the faxed CPA
and that the applicant forged it after the fact. Such an assumption is equally
dubious. Why would the respondent go through the trouble of returning the
applicant's August 22nd CPA unsigned, when it had been routed vide fax through
its Head Office?
is no evidence to suggest that the faxed CPA was forged. To the contrary, the
evidence we do have is the faxed CPA bearing the parties' signatures coupled
with correspondence between the parties. The correspondence, as it is more than
just a pleading, adds additional weight to the applicant's story. The
applicant's letter of 21st October corroborates the allegation that Ali Rahmati
delivered the faxed CPA to the applicant on 12th September. The date of delivery
of 12th September fits the timeline provided on the fax header, as the
respondent could only have delivered the faxed CPA after 8th September.
Moreover, it appears that having received the faxed CPA on 12th September, the
applicant was prompted to ask for the original vide email on 14th September.
Once again, the dates
fax header, on its face, suggests that the document is genuine. This conclusion
is bolstered by the above- mentioned correspondence. Thus, I find that the
applicant had discharged its initial burden of sufficiently proving that the
faxed CPA was not forged. The onus shifted to the respondent to prove that its
signature was forged. With no evidence to support its assertion, the respondent
cannot discharge its onus. Therefore, I find that the faxed CPA is legitimate
and is not a product of forgery. As such, I need not look for the existence of
a contract on the basis of the LOI of 23rd June.
question then becomes whether the faxed CPA is valid under the relevant law.
Here, the purported contract provides that the Arbitration and Conciliation
Act, 1996 (26 of 1996) is to be used. [page 3 of faxed CPA dated 22 August
2005]. In the preceding contract the same Act was used.
Therefore, it comes
as no surprise that the parties have not objected to the same in the instant
7 of the Arbitration and Conciliation Act, 1996 28 (26 of 1996) provides:
(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
agreement may be in the form of an arbitration clause or in the form of a
(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
(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.
7 squarely deals with the present controversy.
This Court has taken
note of Section 7(3) & 7(A)(a)'s requirement that the arbitration agreement
be in writing and 29 signed by the parties. According to the learned counsel
for the applicant, affixing a seal under section 7 of the Act is not a
requirement. [See: Bihar State Mineral Development Corporation & Another v.
Encon Builders (1) (P) Ltd., (2003) 7 SCC 418 at page 423 para 13 (one of the
essential elements of an arbitration agreement is that "the parties must
agree in writing to be bound by the decision of such tribunal.") and K.K.
Modi v. K.N. Modi & Others, (1998) 3 SCC 573 at page 585 para 21
("there are, of course, the statutory requirements of a written agreement
.... Vide Section 2 Arbitration Act, 1940 and Section 7 Arbitration and
Conciliation Act, 1996.")
respondent makes much of the fact that the "faxed CPA" of August 22nd
is (1) a copy, not the original; (2) is stamped by one, not by both parties;
(3) one of the parties did not sign every page; and (4) it was first sent vide
7 defeats all four assertions. First, there is no requirement that the
arbitration agreement be an original.
Where the statute has
gone to great lengths to define exactly what is meant by the term "in
writing," we are precluded from 30 adding another term to definition.
Indeed, "it is contrary to all rules of construction to read words into an
Act unless it is absolutely necessary to do so." [See: Justice G.P.
Singh's Principles of Statutory Interpretation, 11th Edition, 2008, at page
62.63, citing to Renula Bose (Smt.) v. Rai Manmathnath Bose, AIR 1945 PC 108,
p. 110; Stock v. Frank Jones (Tiptan) Ltd., (1978) 1 All ER 948, p.951;
Assessing Authority-Cum-Excise and Taxation Officer, Gurgaon & Another v.
East India Cotton Mfg. Co. Ltd., Faridabad (1981) 3 SCC 531].
exception to this rule can be made. But before adding words to a statute,
"... the Court must be abundantly clear of three matters: (1) the intended
purpose of the statute or provision in question, (2) that by inadvertence the
draftsman and Parliament failed to give effect to that purpose in the provision
in question; and (3) the substance of the provision Parliament would have used,
had the error in the Bill been noticed." [See: Justice G.P. Singh's
Principles of Statutory Interpretation, 11th Edition, 2008 at page 75 citing
to 31 Inco Europe Ltd. v. First Choice Distribution (a firm) (2000) 2 All ER
109, at page 115 (HL)]. As I mention below, one of the main objectives of the
Arbitration and Conciliation Act, 1996 is to minimise the role of the Court;
adding additional requirements to the Act is antithetical to such a goal.
the plain language of Section 7 once again governs my conclusion. Section 7
does not require that the parties stamp the agreement. It would be incorrect to
disturb the Parliament's intention when it is so clearly stated and when it in
no way conflicts with the Constitution.
nothing in Section 7 suggests that the parties must sign every page. Once
again, if I take the respondent's argument to its logical conclusion, I would
have no choice but to read language into the Act that is not there. Even if the
faxed CPA is construed as a "document," it need only be "signed
by the parties" pursuant to Section 7(4)(a). Every page does not need to
be signed. If it is considered a "document," then this requirement
would be met. As established above, both parties signed the faxed CPA in the
signature box at the 32 bottom of Part I. That said, the faxed CPA more
closely fits within Section 7(4)(b)'s requirements.
Section 7(4)(b) states that an agreement is in writing if it is contained in
"an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement." This section
covers agreements that are sent via facsimile ("fax") as they are "other
means of telecommunication". "Fax" is defined as "a machine
that scans documents electronically and transmits a photographic image of the
contents to a receiving machine by telephone line" or "a document
received by such a machine." [See: Chambers 21st Century Dictionary, Allied
Publisher's Limited (1996)]. This definition clearly provides that a fax falls
under "other means of telecommunication." Thus, faxed agreements are
acceptable under Section 7 of the Act.
7(4)(b) further requires us to ask whether a record of the agreement is found
in the telecommunication, in this case a fax. What could be a better record of
the agreement than the signatures of the parties themselves? As noted above,
with no evidence to indicate that the respondent's signature 33 was forged,
the faxed CPA stands on its own as the record of agreement. Likewise, Section
7(4)(b) stands satisfied.
court has to translate the legislative intention especially when viewed in
light of one of the Act's "main objectives": "to minimise the
supervisory role of Courts in the arbitral process. [See: Statements of Objects
and Reasons of Section 4(v] of the Act].
this Court adds a number of extra requirements such as stamps, seals and
originals, we would be enhancing our role, not minimising it. Moreover, the
cost of doing business would increase. It takes time to implement such
What is even more
worrisome is that the parties' intention to arbitrate would be foiled by
a stance would run counter to the very idea of arbitration, wherein tribunals
all over the world generally bend over backwards to ensure that the parties'
intention to arbitrate is upheld. Adding technicalities disturbs the parties'
"autonomy of the will" (l' autonomie de la volonti), i.e., their
wishes. [For a general discussion on this doctrine see Law and 34 Practice of
International Commercial Arbitration, Alan Redfern and Martin Hunter, Street
& Maxwell, London, 1986 at pages 4 and 53].
like stamps, seals and even signatures are red tape that have to be removed
before the parties can get what they really want - an efficient, effective and
potentially cheap resolution of their dispute. The autonomie de la volonti
doctrine is enshrined in the policy objectives of the United Nations Commission
on International Trade Law ("UNCITRAL") Model Law on International
Commercial Arbitration, 1985, on which our Arbitration Act is based. [See
Preamble to the Act].
The courts must
implement legislative intention. It would be improper and undesirable for the
courts to add a number of extra formalities not envisaged by the legislation.
The courts directions should be to achieve the legislative intention. The
courts must implement legislative intention. It would be improper and
undesirable for the courts to add a number of extra formalities not envisaged
by the legislation. The courts directions should be to achieve the legislative
of the objectives of the UNCITRAL Model Law reads as under:- "the
liberalization of international commercial arbitration by limiting the role of
national courts, and by giving effect to the doctrine "autonomy of
will," allowing the parties the freedom to choose how their disputes
should be determined." [See Policy Objectives adopted by UNCITRAL in the
preparation of the Model Law, as cited in Law and Practice of International
Commercial Arbitration, Alan Redfern and Martin Hunter, Street & Maxwell,
London (1986) at page 388 (citing UN doc.A/CN.9/07, paras 16-27].
goes without saying, but in the interest of providing the parties a
comprehensive review of their arguments, I note that once it is established
that the faxed CPA is valid, it follows that a valid contract and a valid
arbitration clause exist. This contract, the faxed CPA, does not suffer from a
conditional clause, as did the Letter of Intent. Thus, the respondent's
argument that the parties were not ad idem must fail.
have heard the learned counsel appearing for the applicant and the respondent
at length. I have carefully reviewed the entire correspondence between the
parties. The charter party agreement that had been signed by the applicant 36
and the respondent clearly indicated that the parties have entered into a valid
and concluded contract. The other correspondence between the parties also leads
to a definite conclusion: the parties have entered into a valid contract
containing an arbitration clause. Since a dispute has arisen between the
applicant and the respondent, it needs to be referred to the arbitrator.
consideration of the totality of the facts and circumstances, I am clearly of
the opinion that the applicant is entitled in law to an order for appointment
of a sole arbitrator.
request Hon'ble Justice S.N. Variava, the retired Judge of the Supreme Court,
to accept this arbitration.
arbitrator would be at liberty to fix his own fee. I direct the parties to
appear before the learned arbitrator on 8th September, 2008 or any date
convenient to the learned arbitrator.
parting with this arbitration petition, I would like to make it abundantly
clear that the learned arbitrator shall not be bound by any observations which
have been made in 37 this judgment. The observations have been made only to
decide this arbitration petition.
Registry is directed to communicate this order to the learned arbitrator to
enable him to enter upon the reference and decide the matter as expeditiously
this arbitration petition is allowed and disposed of. In the peculiar facts and
circumstances of this case, I direct the parties to bear their own costs.
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