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TMI Blog2008 (4) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... clause would not result in holding that there was an contract containing an arbitral clause. The arbitral clause was not independent of the agreement to be entered into. - (APPEAL NO. 457 OF 2007 IN ARBITRATION PETITION NO. 81 OF 2007) - - - Dated:- 7-4-2008 - F.I. REBELLO AND R.S. MOHITE, JJ. M.H. Seerval for the Petitioner Janak Dwarkadas, Sharan Jagitani, Chakrapanni Mlsra, Vishal Maheshwari, Aditya Khanna and Ms. Nandini Khaitan for the Respondent ORDER F.I. Rebello, J. Admit. By consent of the parties heard forthwith. 2. A learned Single Judge by his order dated 4 May 2007 dismissed the application for interim relief filed by the appellant herein by recording a finding that considering the purport of section 9 of the Arbitration and Conciliation Act 1966 (hereinafter referred to as the 'Act'), he prima facie was of the opinion that there was no binding arbitration agreement between the parties as non-signing of the basic documents between the parties as reflected from the record just cannot be over ruled. The learned judge observed that the parties were at liberty to raise all their objections while submitting their contentions in the pendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments and written submissions has argued that the appellants had moved the petition as can be ascertained from the petition on the basis that there was an arbitral term in the agreement dated 8.5.2006. It is, therefore, submitted that the contention now raised on behalf of the appellants that the correspondence terminating in the communication of 10 March 2006 constitutes an arbitration agreement is contrary to the pleadings and the appellants cannot be allowed to raise a plea inconsistent with their pleadings. In the alternative, it is open to the appellant to raise the contention, that there was no agreement between the parties on material terms. The exchange of correspondence can be considered to find out if there be a valid and binding concluded agreement for the purpose of section 7 of the Act. In paragraph 5( i ) of the pleadings the appellants have pleaded that various e-mails were also exchanged between the advocates for the parties with drafts of the final agreement which were being negotiated to finalise the agreement and keep ready for signing. This expressly would indicate that exchange of correspondence between the parties were negotiations. The correspondence would f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the arbitration clause, considering the terminology of section 9 of the Act, that court necessarily has jurisdiction to decide whether there is an arbitration agreement which is valid in law and whether the dispute sought to be raised is covered by the agreement. There is no indication in the Act that the powers of the court are curtailed on these aspects. On the other hand, section 9 insists that once approached in that behalf, 'the court shall have the same power for making orders as it has for the purpose of and in relation to any proceeding before it'. The court then observed, 'Surely, when a matter is entrusted to a civil court in the ordinary hierarchy of courts without anything more, the procedure of that court would govern the adjudication'. A petition under section 9 is not a suit but a civil proceeding. Considering section 141 of the Code of Civil Procedure, the procedure governing suits will be applicable, as far as it can be made applicable, in all civil proceedings. It will, therefore, be open to the court to frame issues on these aspects and decide the same. On such issue being decided, the findings on the issues would conclude the issue between the parties on thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is covered by the arbitral clause will have to be decided as an issue when such issue arises before a court entertaining the petition under section 9 of the Act. A similar view has been taken by us in another unreported judgment of this court in Oberoi Construction ( P ) Ltd. v. Worli Shivshahi Co-op. Hsg. Society Ltd., decided on 30 January 2008 in Appeal No. 619 of 2007. To that extent the finding by the learned judge that his finding is prima facie and leaving the issue open for consideration in the proceeding under section 11 would, in our opinion, not be the correct statement of law under the Act. A court considering an application and or petition under section 9 of the Act has jurisdiction to decide whether there is an arbitral clause and secondly whether the dispute raised falls within the scope of the arbitral clause. 8. Having said so we may gainfully reproduce section 7, which reads as under. "Arbitration agreement- ( 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as averred. "In view of the negotiations referred to below and thereafter agreement being reached between the parties, the petitioner exercised restraint in initiating legal proceedings." 9.3 In communication of 14 July 2006 addressed on behalf of the appellants to respondent No. 1, in paragraph 5, reference is made to the agreement dated 8 May 2006 entered into between the appellants and the respondents. By letter of 2 March 2007 addressed by the appellants to respondent No. 1 they referred to the agreement dated 8 May 2006 and in terms of paragraph 3 of the letter, terminated the said agreement. 9.4 It is therefore, clear from the pleadings and the correspondence, that the appellants had filed the petition under section 9, contending that the agreement between the parties was the agreement dated 8 May 2006 and approached the court praying for interim relief pending constitution of the arbitral tribunal in terms of the agreement dated 8 May 2006. There can therefore, be no doubt that when the appellants had approached the court and advanced arguments before the learned judge it was on the basis that the arbitral clause was contained in the agreement dated 8 May 2006. Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the draft agreement was for discussion purpose only and that there had been only negotiations but no concluded contract. The submission, therefore, on behalf of the respondent No. 1 is that the question for determination of the court is, as to whether the correspondence exchanged between the parties has resulted in agreement containing an arbitral clause and the provisions of section 7(4)( b ) will not arises as there was no independent exchange of letters as to an arbitral clause. The entire exchange of correspondence and pleadings is that there is a contract, containing an arbitral clause. The appellants in their written submissions have specifically submitted that there is no document signed by the parties. After orally contending that they place reliance on section 7(4)( b ), in the written submissions the issue is pleaded as under. "The issue arising for determination of the Hon'ble Court is whether correspondence reveals an agreement in general and agreement on the arbitral clause in particular. We may broadly state that whether formation of a contract occurs prior to the signing of a document is one of inter action which is a question of fact." 12. When can a cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in writing' under which parties have agreed to submit their differences to arbitration." 13.2 In Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd. [1999] 1 Comp LJ 13 (SC): [1999] 1 SCC 1, the Supreme Court held, that from the correspondence it must unequivocally and clearly emerge that the parties were at ad idem as to the terms otherwise it cannot be said that an agreement had come into existence between them through correspondence. The test, therefore, is whether parties are at ad idem on the material terms of the contract including the arbitral clause. 14. The learned counsel for the appellants has placed before us some English authorities for our consideration. In Perry v. Suffields [1916] 2 Ch 187 a judgment of the Chancery Division where it was held, that when a contract is contained in letters, the test to be applied is as under: "Though when a contract is alleged to be contained in letters the whole correspondence should be looked at, yet if once a definite offer has been made and accepted without qualification, and it appears that the letters of offer and acceptance contain all the terms agreed on between the parties at the date of the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey were finally setting the terms of the agreement by which they were to be bound; and it appears to me that no such contract ought to be held established, even by letters which would otherwise be sufficient for the purpose, if it is clear, upon the facts, that there were other conditions of the intended contract, beyond and besides those expressed in the letters, which were still in a stage of negotiation only, and without the settlement of which the parties had no idea of concluding any agreement. (4)Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled: see Love and Stewart v. Instone per Lord Loreburn at p.476. (5)If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty. (6)It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word "essential" in that context is ambiguous. If by "essenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject to approval of conditions' and 'form of agreement by purchasers solicitor' the court observed relying upon earlier judgments: "I think the decisions settle that it is a question of construction whether the parties finally agreed to be bound by the terms, though they were subsequently to have a formal agreement drawn up." 15.2 In Filby v. Hounsell [1896] 2 Ch 737 there also the words 'subject to contract as agreed' were contained in the correspondence. Addressing itself the court observed that "Now, that form of contract was in writing, and was definitive in all its terms clearly identified by the offer. It left nothing to be agreed upon thereafter. The signing it was a form. The contract between the parties was complete on acceptance of the offer, whether the form of the auction particulars was signed or not." 16. To arrive at a finding whether there is a contract in writing, another relevant aspect would be the conduct of the parties. It is sought to be contended on behalf of the appellants that in the present case the conduct of the parties exchanging documents and commenting on the drafts prepared by the appellants was not that of a party who was merely con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table to respondent, a reply to that effect is naturally expected." 17. Considering the various tests as to when an agreement in writing has been arrived at, let us examine the documents on record and which have been relied upon. Firstly the previous agreement between the parties had been terminated and in respect of which there was a dispute on the issue of termination. That agreement contained no arbitral clause. The first document placed on record is a communication dated 10.11.2005 forwarding draft agreement and setting out that the points raised and other points which required further discussion. This first draft forwarded contained an arbitral clause. On behalf of the respondents a communication was addressed on 4.1.2006 setting forth various subjects which required to be considered. On 24.1.2006 on behalf of the appellants a draft deed of assignment was forwarded. This contained clause 6( j ) which reads as under: "The company shall pay all amounts payable to the producer pursuant to the exploitation of the Sound Recordings and/or Underlying Works prior to the execution of this agreement on or before 31 March 2006." 17.1 Next is letter of dated 8.2.2006 from appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.6.2006. Then another letter dated 2.3.2007 terminating the agreement. Between 7.6.2006 and 2.3.2007 there is no exchange of correspondence disclosing whether the parties had agreed to pay royalty and the period (?). The material on record would show that during the period the parties had not acted on the basis of the purported concluded contract. 18. Considering the correspondence on record including communication of the respondent No. 1 to advocates for the appellants on 7.6.2006 and the subsequent non-signing of the agreement and not acting on the same till the purported termination of 2.3.2007, is there an agreement in writing evidenced by the exchange of correspondence either as an independent arbitral agreement or as a term in the contract. Insofar as an independent arbitral agreement is considered there is no such exchange of correspondence. The oral correspondence is in respect of exchange of documents as to an agreement which contains an arbitral clause. From the documents, it appears that most of the material terms were settled. The major issue not settled is the payment of royalties for the past dues which was a requirement before the agreement could be signed, for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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