2016 (10) TMI 1275 - HC - Indian Laws

Appointment of an Arbitrator - existence of binding agreement/contract between the parties or not - HELD THAT;- In the instant case, no jurisdiction of the Court was invoked for seeking reference to the arbitrator. There was no participation in the proceedings by respondent No.1, therefore the same would not amount to acceptance of jurisdiction of the arbitrator in any manner. There was no agreement, neither any writing, nor there was any signing of documents between the parties, therefore, there was no concluded agreement/contract between the parties. It is equally true that the new act defined the extent of judicial intervention in the arbitration proceedings. No judicial authority can interfere except where so provided. The object of new act is to encourage resolution of disputes expeditiously and less expensively. When there is an arbitration agreement, the intervention of the Court should be minimal. The entire controversy hinges upon a fact whether there was a lawful arbitration agreement between the parties or not. In the light of different precedents as discussed above, I am of the view that there was no arbitration agreement between the parties as provided under Section 7 of Arbitration and Conciliation Act, 1996, nor the arbitration agreement was in writing executed between the parties, therefore, a contract with regard to arbitration cannot be presumed. An Agreement which is enforceable in law is a contract. The alleged agreement between the parties is not enforceable in law being not a concluded agreement between the parties. Section 16 of the Arbitration and Conciliation Act would operate only in the event where there was a concluded agreement between the parties in terms of Section 7 of the Arbitration and Conciliation Act. There was no consensus ad idem between the parties with reference to any terms and conditions of the offer and acceptance. Revision petition dismissed.

Summary

Issues Involved:
1. Validity of the arbitration agreement.
2. Existence of a binding contract.
3. Jurisdiction of the arbitrator.
4. Legal consequences of the refusal to accept the work order.
5. Applicability of Section 16 of the Arbitration and Conciliation Act, 1996.

Detailed Analysis:

1. Validity of the Arbitration Agreement:
The court examined whether an arbitration agreement existed between the parties as per Section 7 of the Arbitration and Conciliation Act, 1996. The petitioner argued that the arbitration agreement did not need to be signed if it was discernible from the conduct and correspondence between the parties. However, the court found no evidence of such an agreement. The court emphasized that an arbitration agreement must be in writing and that the mere exchange of letters or conduct indicating an agreement was insufficient in this case.

2. Existence of a Binding Contract:
The court analyzed whether a binding contract existed between the parties. The petitioner issued a work order which required acceptance within seven days. The respondent refused the work order within this period, citing technical unsoundness. The court held that the work order was a counter-proposal and not an unconditional acceptance. Consequently, no binding contract was formed as per Sections 2(a), 2(b), and 7 of the Indian Contract Act, 1872. The acceptance must be absolute and unqualified, which was not the case here.

3. Jurisdiction of the Arbitrator:
The petitioner appointed an arbitrator based on the disputed work order. The court reiterated that the arbitrator's jurisdiction is contingent upon the existence of a valid arbitration agreement. Since no such agreement was found, the arbitrator had no jurisdiction to proceed. The court referenced several precedents, including Indowind Energy Limited vs. Wescare (I) Ltd., to support this conclusion.

4. Legal Consequences of the Refusal to Accept the Work Order:
The petitioner argued that the refusal to accept the work order resulted in financial loss and invoked the risk and cost clause. The court noted that since no binding contract existed, the respondent was not liable for the claimed financial losses. The forfeiture of the earnest money and subsequent actions by the petitioner were deemed unjustified.

5. Applicability of Section 16 of the Arbitration and Conciliation Act, 1996:
The petitioner contended that the arbitrator had the power to rule on its own jurisdiction under Section 16 of the Arbitration Act. The court acknowledged this provision but clarified that it applies only when a valid arbitration agreement exists. Since no such agreement was found, Section 16 was deemed inapplicable. The court referenced the case of Govind Rubber Limited vs. Louis Dreyfus Commodities Asia Private Limited to support this interpretation.

Conclusion:
The court concluded that there was no valid arbitration agreement or binding contract between the parties. The order dated 25.01.2016 by the Lower Appellate Court, which restrained the arbitrator from proceeding, was upheld. The revision petition was dismissed, affirming that the respondent was not under any legal obligation to work for the petitioner, and no arbitration could proceed without a valid agreement.