The Applicant and Respondent herein entered into an agreement dated 19.06.2017, whereby the Applicant agreed to supply the Respondents, in the territory of USA and Canada, the 2000 MT High Carbon Ferro Chrome manufactured by it. Accordingly, the Respondent placed 37 purchase orders specifying various details consist of arbitration clause-7 disputed in this case. Further, both entered into another agreement dated 31.03.2018, enumerating details regarding above transactions and provisions for arbitration in case of any dispute.

After arising of dispute, the Applicant sought the appointment of an arbitrator under clause 7 in 37 purchase orders and constitution of Arbitration Tribunal. Also, it appointed Justice Amitava Lala as an arbitrator. On the other hand, the Respondents denied the contentions of Applicant and sought to govern the transactions under clause-23 of Agreement dated 31.03.2018. Respondents, complied with the procedure of clause-23, filed a petition before the International Chamber of Commerce (ICC); consequently, the Arbitration Tribunal was established.

At the outset, the Respondents denied all the contentions raised by the Applicant in toto and prayed to dismiss the Application in question, i.e. demand for constitution of Arbitration Tribunal not made with bonafide intent.  

Therefore, after hearing both sides, the Supreme Court observed that, by making agreements, the parties entered into the transaction and agreed for resolution of the dispute through arbitration, if arise. To identify an appropriate clause for arbitration, the Supreme Court critically perused the clause-7 and clause-23 of purchase orders and Pricing Agreement dated 31.03.2018, respectively. The former clause consists of the appointment of one arbitrator by each party. Accordingly, the appointed arbitrators would further appoint a presiding arbitrator, and the place for arbitration was Kolkata. In the latter clause, the aggrieved party should file a petition in ICC; accordingly, ICC would constitute the Arbitration Tribunal and place for arbitration was London.  

The Supreme Court, in the past, had already dealt with such issues of the second arbitration clause; therefore, it made reliance on the case of Olympus Superstructures Pvt. Ltd. Vs. Meena Vijay Khetan & Ors. (1999) 5 SCC 651. In that case, the clause-39 of the main Agreement and clause-5 of Interior Design Agreement was disputed, where the Court observed that the latter clause would appear only when no disputes and differences about the main Agreement and the dispute in question would only come under the clause-5 of Interior Design Agreement. In respect of overlapping items in the schedule of both the agreements, it directed that one have to follow the main Agreement. The Court further observed that the intention of parties while making both clauses, as former was made for disputes in both agreements and the latter was made, when no disputes and differences about main Agreement arose. Therefore, the Supreme Court settled the dispute, harmonized both clauses and on reconciliation held that the parties should resolve the dispute under the main Agreement.

The Court, after perusal of annexures and relevant documents, held that the Applicant did not initiate the arbitration proceedings by invoking clause-7 of the purchase orders. Still, it was the Respondents, who issued a notice dated 13.03.2020 pertained to the breaching of Pricing Agreement dated 31.03.2018 under clause-23 of the said Agreement. The Respondents in the said notice allowed the Applicant to resolve the issue amicably; failure to which results in the petition before the ICC in 30 days. The Applicant in its reply dated 13.04.2020 held that considering the nature of the claim; Arbitration tribunal under clause-7 would be constituted.

To determine the Application herein, the Court emphasized on para 6, 7, 8, 9 of the reply by Respondents dated 13.04.2020 and observed, the dispute between the parties was relating to the price and terms of payments, which was directly related to the paras of Pricing Agreement. The paras in Pricing Agreement provides for the mechanism relating purchases and sales; final price, payment of provisional price and adjustment of advance, determination of the final sale price and monthly accounting and payment, whereas the purchase order referred to the price of quantity and special terms relating to price. Therefore, the Court held that the nature of the dispute was similar provisions contained in the Pricing Agreement and gave powers to the Arbitration Tribunal constituted thereunder can go into other disputes.  

Denying the contentions of Applicant regarding non-retrospective effect for applicability of Pricing Agreement, the Court observed, Clause 20(a) of the Pricing Agreement provides that the Agreement shall commence on 31.03.2017 and end on 31.03.2021, which indicated that it was the intention and consensus-is-adam of the parties that the terms contained in the Pricing Agreement would govern all transactions, including those which had commenced from 08.08.2017.

The Supreme Court, in its final verdict, stated that the clause-23 Pricing Agreement would govern the parties in dispute herein, in case of price, payment and recovery. Further, it stated that invoking clause-7 would not be appropriate, as the Arbitration Tribunal has been appointed.

Special Leave Petition

Based on the findings as mentioned above and observations, the Single Judge and in appeal the Division Bench of Supreme Court has dismissed the decree seeking for declaring the clause-23 of Pricing Agreement as invalid and Notice of Motion for interlocutory order of injunction against Arbitrator Tribunal of ICC, accordingly, dismissed the Special Leave Petition.

Consequence of Decision

1. A major consequence of this judgment is, it will almost nullify the effect of arbitration clause-7 of purchase orders.
2. It would defeat Section 7 of Arbitration and Conciliation Act, 1996, as it is mentioned ‘arbitration clause may be in the form of separate agreements’.
3. The decision would be helpful, as in future while making agreements; the parties would make attention on non-repetition of a different arbitration clause in other agreements.

Ending Remarks & Suggestions

The arbitration clause is the crux of any contract or Agreement, without which the parties think twice before entering into it. In cases of more than one Agreement between same parties, which overlaps the schedules of each other and has different arbitration clauses, needs clarification for exercising appropriate clauses under the appropriate Agreement. In this case, the Supreme Court relying on the nature of the transaction, the issue raised by Respondent and the provisions of Agreement held the arbitration clause in main Agreement, i.e. Pricing Agreement as an appropriate clause to resolve the dispute between parties.

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Adding a suggestion

Parties in the Agreement should be cautious while drafting an arbitration clause and try to avoid different clauses in co-relative agreements.