The Delhi High Court in the case of Galaxy Infra Engineering Pvt. Ltd. v. Pravin Electricals Pvt. Ltd. [1] on May 12, 2020 held that it is not mandatory that an arbitration agreement needs to be signed by the parties and such a case would be covered within the meaning of Section 7(4)(b) of the Arbitration and Conciliation Act, 1996.
Background
- Respondent submitted its technical and financial bid invited by South Bihar Power Distribution Company Limited (SBPDCL) for appointment of implementing agency for execution of R-APDRP (Part-B) Scheme on turnkey basis and the various business undertakings between the parties were recorded in an Agreement dated July 7, 2014.
- During the negotiations, allegedly, it was conveyed to the petitioner that as per the terms of the Consultancy Agreement, if the contract is awarded to the respondent, then its Joint Venture, namely, Process Construction and Technical Services Private Limited (PCTSPL) will execute the project.
- It is the case of the petitioner that it had made substantial efforts pursuant to the Consultancy Agreement to facilitate the respondent in getting the contract and the respondent had made payment of Rs. 75,000 (1002 USD) accepting its liability for the consultancy services, rendered under the said Agreement.
- 2 letters of Award were issued by SBPDCL in favor of the respondent. As per the Agreement, the petitioner raised an invoice which was cleared by the respondent.
- Further, the petitioner had to raise a second invoice only upon advance of mobilization of funds to the respondent/the Joint Venture, subject to tendering of Bank Guarantees to SBPDCL.
- Respondent did not furnish the Bank Guarantee due to which the mobilization funds were not advanced, and the petitioner was not paid its consultancy fee.
- Petitioner was subsequently requested by the respondent that instead of an invoice for Rs. one crore (133, 599 USD), an invoice for Rs.20/- lakhs (26,458 USD) plus service tax be raised for the present, which the petitioner did and the respondent paid Rs. 18 lakhs (23,743 USD)to the petitioner. After much follow-up, respondent made a further payment of an amount of Rs. 4,71,500/- (947 USD) only.
- Petitioner further avers that a final invoice for balance payment of Rs. 5,54,14,318/- (740,048 USD) was raised on July 1, 2017 which was duly received by the respondent, but no payment was made thereafter and all attempts for amicable settlement also failed. Petitioner thereafter sent a demand notice dated March 9, 2018, in response to which the respondent on March 22, 2018 sought a copy of the Consultancy Agreement.
Subsequently, the Petitioner invoked the Arbitration clause by a notice dated April 26, 2018 and nominated a sole arbitrator to adjudicate the disputes between the petitioner, respondent and Engineering Private Limited. However, there was no response from the Respondent.
Petitioner’s Contentions
- That the Consultancy Agreement dated July 7, 2014 executed between the parties contains an arbitration clause which is being denied by the Respondent. Further, it alleged that several exchanges were made between the parties and the existence of the Agreement was not denied by the Respondent until now.
- The Petitioner put forth the said exchanges (emails and WhatsApp messages) on record. Additionally, the respondent had made part payment as well pursuant to the alleged Agreement.
- There is not a single document on record filed by the respondent which refutes the existence of the Agreement. The first time that the respondent denied the execution of the agreement was vide a letter dated March 27, 2018 by which time the petitioner had sent demand notice dated March 9, 2018. Even after the receipt of scanned copy of the Agreement on May 14, 2018, no dispute was raised regarding the alleged fabrication of the document.
- It is also contended that the existence of the Arbitration Agreement further flows from the conduct of the parties and the documents exchanged between them.
- The Petitioner submits that even though the Agreement was not signed by the parties, it was acted upon by them and a dispute resolution mechanism was intended to be carried out through Arbitration.[2]
Respondent’s submissions
- It raised a preliminary objection that the present petition is not maintainable as there is no Arbitration Agreement between the parties.
- While challenging the validity of the said Agreement, the respondent stated that it was signed, stamped and notarized in Faridabad and neither of the parties are based in Haryana. Further, that it was highly unlikely that the parties would travel to Haryana to execute an Agreement for works in Bihar.
- Additionally, it is argued that the signing and stamping of the alleged Agreement is further suspected as the license of the Notary Public who has notarized the alleged Agreement, expired on May 27, 2012.
Precedents
The petitioners filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter “the Act”) for the appointment of a sole arbitrator for adjudication of the disputes between the parties. In a petition under Section 11(6) of the Act, the only issue that the Court is required to examine is the existence of an Arbitration Agreement between the parties.[3]
After hearing both parties, the Court looked at precedents on the subject matter:
1. As per the law under Section 7(4)(b) of the Act, an Arbitration Agreement can be proved by way of other documents and correspondences exchanged between the parties or by showing that the parties acted upon the Agreement which contains the Arbitration clause. While the Court noted that in the present case, with the help of exchanged mails, it is clear that the parties acted on the Agreement. Thus, it can be said that the parties were ad idem for submission of disputes w.r.t. Arbitration.
2. Court in Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd.[4] held that in order to constitute an arbitration agreement, it need not be signed by all the parties. However, Section 7(4)(b) and (c) show that a written document which may not be signed by the parties can still be an arbitration agreement. Section 7(4)(b) reads that an arbitration agreement can be culled out from an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement.
3. In Dresser Rand S.A. v. Binda Agro Chern[5], the Supreme Court held that it is the duty of the Court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of mind between the parties, which would create a binding contract between them. It is required to review what the parties wrote and how they acted from that material to infer whether the intention as expressed in the correspondence was to bring into existence a mutually binding contract.
4. In Unissi (India) Pvt. Ltd. v. Post Graduate Institute of Medical Education and Research, the Supreme Court held that even in the absence of a signed formal agreement between the parties, the Arbitration Agreement would be deemed to have come into existence when otherwise discernible from the conduct of the parties or the correspondences exchanged between them.
With the precedents above, the Court had to make a decision as to whether through the correspondence exchanged between the parties or through their conduct, can it be concluded that an Arbitration Agreement existed in the absence of a signed contract.
Court
The Court came to the conclusion that none of the exchanges of emails between the parties has been denied by the respondents. The Petitioner has also rightly submitted that on July 15, 2014, the respondent had itself sent an email containing a Draft Consultancy Agreement which contained Article 14, which was the Arbitration Clause. The parties were thus ad idem regarding submission of disputes to Arbitration.
Further, the documents placed on record by the petitioner clearly evidence that there exists an Arbitration Agreement between the parties as contained in the draft agreement exchanged by email dated July 07, 2014. The present case squarely falls within the ambit of Section 7(4)(b) of the Act. The inevitable result is that the parties must be referred to Arbitration for adjudication of their disputes.
Conclusion
The judgement in this case sheds light on an important concept which is that correspondence between two parties with regard to work and actions upon them can act as an Arbitration Agreement between them, meaning thereby, signing the same is not a mandatory requiring. This brings clarity to what constitutes an arbitration agreement even further and especially in cases where upon acting, one of the parties denies the existence of the Agreement when it comes to monetary liability. Thus, this is a welcome judgment concerning Arbitration matters.
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