27 December 2021, Monday

5 months ago

A clause that says “dispute can also be decided under the provisions of the Indian Arbitration Act” is not an arbitration agreement: Delhi High Court

07 December 2021 | Sapna Gupta v. Ajay Kumar Gupta and others | OMP (I) (Comm.) 281 of 2021 | Sanjeev Narula J | Delhi High Court | 2021 SCC OnLine Del 5313

A clause in a partnership deed read as follows (broken for convenience into three sentences by the court):

  1. First sentence: “Any other matter for which there is no provision in the Deed and a dispute relating to the affairs of the firm shall be mutually decided by the partners”.
  2. Second sentence: “The provisions of the Indian Partnership Act, 1932 which are not inconsistent or repugnant to the provisions of this Deed shall apply to all matters not specifically mentioned herein”.
  3. Third sentence: “However the dispute can also be decided under the provisions of the Indian Arbitration Act”.

This clause did not amount to an arbitration agreement within the meaning of Section 7 (5) ACA because:

  1. The third part is, in essence, a proviso to the first part.
  2. The first and third parts, when read together, imply that parties can resolve disputes mutually or if they so desire, can also take recourse to the “Indian Arbitration Act”.
  3. Even if the clause is construed to be a case of inartistic drafting and benefit of the doubt given to the petitioner, on a plain reading, it manifests the requirement of a fresh consent for arbitration from the usage of the phrase “can also be decided”.

The court also refused to consider one other deed containing an arbitration clause as a surrounding circumstance, saying that one cannot consider the terms of other contracts, especially when the parties are different.

The court also rejected the argument, based on Vidya Drolia, that the matter should be left for the arbitral tribunal. The court said that there was ex facie no arbitration agreement.

Read the decision here.

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