TMI Blog2000 (4) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... on clause at all between the parties, the Chief Justice of India or his designate has to decide the said question. The words ‘may be referred’ used in clause 5, read with clause 4, lead me to the conclusion that clause 5 is not a firm or mandatory arbitration clause and in my view, it postulates a fresh agreement between the parties that they will go to arbitration. Point 2 is decided accordingly against the petitioner - ARBITRATION PETITION NO. 9 OF 1999 - - - Dated:- 4-4-2000 - M. JAGANNADHA RAO, J. JUDGMENT ( Rao, J. ) - This is an application filed under sub-clauses (2), (6), (10) and 12 of section 11 of the Arbitration and Conciliation Act, 1996 ( the Act ). The application is made to the Chief Justice of India and after due nomination, has been placed before me. 2. The brief facts as set out in the petition, to the extent necessary for the purpose of this application, are as follows. The petitioner is a company with its registered office at Les Cascades, Port Luis Republic of Mauritius. The respondent is the promoter and Managing Director of C.M.M.Ltd., Mumbai. The petitioner entered into two agreements both dated 15-8-1995 with the respondent under whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f subscription, neither the respondent nor Sigma Credit and CapitalServices (P.) Ltd. had honoured their commitments as per agreements dated 15-8-1995 and letter dated 26-9-1995. There was no response to this notice by the respondent or by Sigma. A further notice was issued by the petitioner on 19-4-1999 stating that there was no response to the earlier notice, that the two agreements dated 15-8-1995 contained an arbitration clause and that the petitioner desired that the disputes and differences be referred to arbitration. It was also intimated that the petitioners had appointed Justice M.L Pendse, Retired Chief Justice, the Karnataka High Court as their arbitrator and that the respondent was being called upon to appoint his Arbitrator within 30 days from the date of receipt of the letter or else the respondent should confirm the appointment of Sri Justice M.L. Pendse. In default, the petitioners would, proceed under the Arbitration and Conciliation Act, 1996. The respondent sent a reply on 28-5-1999 raising various contentions. One of the contentions was that the arbitration clause, namely, clause 5 in the agreements dated 15-8-1995 used the words may and that the said clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stence of the arbitration clause ? Whether such a question should be decided only by the arbitral Tribunal under section 16 and could not be decided by the Chief Justice of India or his designate while dealing with an application under section 11 ? (2) If the Chief Justice or his designate could decide the said question, then whether clause 5 of the agreements dated 15-8-1995 which used the words "may be referred" required fresh consent of the parties before areferences was made for arbitration ? (3) To what relief. Point 1: - This point raises a question as to the scope of section 16 on the one hand and section 11 on the other. 8. Before referring the said section, I shall refer to the relevant clauses 4 and 5 in the two agreements dated 15-8-1995. They read as follows : " Clause 4: - It is hereby agreed that, if any dispute arises in connection with these presents, only courts in Bombay would have jurisdiction to try and determine the suit and the parties hereto submit themselves to the exclusive jurisdiction of the courts in Bombay. Clause 5: - It is also agreed by and between the parties that any dispute or differences arising in connection with these pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an arbitration clause or not, whenever the existence of the arbitration clause was challenged by any of the parties. That section read as follows: "33. Arbitration agreement or award to be contested by application Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined, shall apply to the Court and the Court shall decide the question on affidavits, . . ." 11. In Dhanrajmal Gobindram v. Shamji Kalidas Co. AIR 1961 SC 1285 (at 1293) (para 25) it was held that the question as to the existence of arbitration clause was for the Court to decide under section 33 and not for the arbitrators. In Khardah Co. Ltd. v. Raymon Co. (India) Ltd. AIR 1962 SC 1810 and in Waverly Jute Mills Co. Ltd. v. Raymon Co. (India) (P.) Ltd. AIR 1963 SC 90, at 96 para 17, it was held that the question as to the validity of the contract was also for the Court to decide under section 33 and not for the arbitrator. If there was no arbitration clause at the time of entry of the arbitrators on their duties, the whole proceedings would be with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. The interpretation put on section 16 by the petitioner s counsel that only the arbitral Tribunal can decide about the existence of the arbitration clause is not acceptable for other reasons also apart from the result flowing from the use of the word may in section 16. The acceptance of the said contention will, as I shall presently show, create serious problems in practice. As Saville L.J. stated in a speech at Middle Temple Hall on 8-7-1996 "Question of the jurisdiction of the Tribunal cannot be left (unless the parties agreed) to the Tribunal itself for that would be a classic case of pulling oneself up by one s own bootstraps." ( A practical approach to Arbitration Law, Keren Tweeddale Andrew Tweeddale, (1999) Blackstone Press Ltd., (P. 75). Let us take this very case. If indeed clause 5 does not amount to an arbitration agreement , it will, in my view, be anomalous to ask the arbitrator to decide the question whether clause 5 is at all an arbitration clause. It is well settled and has been repeatedly held that the source of the jurisdiction of the arbitrator is the arbitration clause, [ see Waverly Jute Mills Co. Ltd. s case ( supra )]. When that is the posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors, and likewise section 11(12) enables the Chief Justice of India or his designate to appoint arbitrator or arbitrators; under rule 2 of the scheme framed by the Chief Justice of India, a request is to be made to the Chief Justice of India alongwith with a duly certified copy of the original arbitration agreement . Section 2( b ) of the Act defines arbitration agreement as an agreement referred to in section 7. Section 7 defines arbitration agreement as follows : "1. 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 or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (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 parties; ( b )an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or ( c )an exchange of stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said question. 19. For the aforesaid reasons, this objection raised by the learned counsel for the petitioner is rejected. Point 1 is decided accordingly. Point 2: - Does clause 5 amount to an arbitration clause as defined in section 2( b ), read with section 7? I may here state that in most arbitration clauses, the words normally used are that disputes shall be referred to arbitration . But in the case before me, the words used are may be referred . It is contended for the petitioner that the word may in clause 5 has to be construed as shall . According to the petitioner s counsel, that is the true intention of the parties. The question then is as to what is the intention of the parties ? The parties, in my view, used the words may not without reason. If one looks at the fact that clause 4 precedes clause 5, one can see that under clause 4 parties desired that in case of disputes, the Civil Courts at Bombay are to be approached by way of suit. Then follows clause 5 with the words it is also agreed that the dispute may be referred to arbitration implying that parties need not necessarily go the civil court by way of suit but can also go before an arbitrator. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was given to one particular party, the mandatory part of the clause stated as to what should be done after one party exercised the option. Reference to arbitration was mandatory, once option was exercised. In England too such a view was expressed in Pittalis and Sheriffenttin [1986] (1) QB 868. In the present case, we are not concerned with a clause which used the word may while giving option to one party to go to arbitration. Therefore, I am not concerned with a situation where option is given to one party to seek arbitration. I am, therefore, not to be understood as deciding any principles in regard to such cases. 22. Suffice it to say, that the words may be referred used in clause 5, read with clause 4, lead me to the conclusion that clause 5 is not a firm or mandatory arbitration clause and in my view, it postulates a fresh agreement between the parties that they will go to arbitration. Point 2 is decided accordingly against the petitioner. Point No 3: - In the light of the finding on Point 2, it is obvious that I have to dismiss this petition. It may be that if the petitioner files a suit in Bombay, there can be considerable delay. But that is no ground to cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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