Holding

The purchase orders incorporating the FAI terms create a valid arbitration agreement under Section 7(5); estoppel does not bar the petition, limitation is for the tribunal to decide, and the tribunal must consist of three arbitrators.

Summary

The Tunisian company Groupe Chimique Tunisien supplied phosphoric acid to Southern Petrochemicals under purchase orders that incorporated the Fertilizer Association of India (FAI) terms, which contain an arbitration clause (clause 15). After non‑payment, the supplier sued in a Jordanian court, where the respondent argued that the dispute should be arbitrated; the Jordanian courts dismissed the suit for lack of jurisdiction. The supplier later filed a petition in India under Section 11(4) of the Arbitration and Conciliation Act, 1996, seeking appointment of arbitrators. The respondent contended that the supplier was estopped from invoking arbitration because it had denied the existence of an arbitration agreement before the Jordanian courts, and also raised limitation and procedural objections. The Court held that the purchase orders, by reference to the FAI terms, created a valid arbitration agreement under Section 7(5) of the Act; estoppel did not apply, and the limitation issue could be decided by the arbitral tribunal. Accordingly, a three‑member arbitral tribunal was constituted, with a presiding arbitrator appointed by the court and each party’s nominee.

Issues considered

Whether the purchase orders, by reference to the FAI terms containing an arbitration clause, constitute a valid arbitration agreement under the Arbitration and Conciliation Act, 1996.
Whether the petitioner is estopped from invoking arbitration after having denied the existence of an arbitration agreement before foreign courts.
Whether the claim is barred by the limitation period.
Whether the respondent has lost its right to appoint its arbitrator due to delay.
What is the proper composition of the arbitral tribunal under Section 10 of the Act.

Legislation cited

Arbitration and Conciliation Act, 1996s. 10, s. 11(4), s. 2(b), s. 7(4)(c), s. 7(5)

Subjects

arbitration agreementincorporation by referenceestoppellimitation periodarbitral tribunal compositionSection 7(5)Section 10purchase ordersforeign court jurisdiction

Judgment

A MIS. GROUPE CHIMIQUE TUNISIEN SA
v.
SOUTHERN PETROCHEMICALS INDUSTRIES CORPN. LTD.

MAY 24, 2006

B [R.V. RAVEENDRAN, J.]
...
Arbitration and Conciliation Act, 1996 :

Sections 2(b) and 7(5)-/ncorporation of arbitration agreement by
reference-Purchase orders being subject to arbitration clause 15 of FAl-
c Signed by purchaser and counter signed by supplier-Held, purchase orders
are contracts between parties and they being subject to FAl terms which
contain arbitration clause, the case falls uls 7(5) of the Act and there is an
arbitration agreement between the parties as per clause 15 of FA! terms-
Fertilizer Association of India Terms and Conditions (FAl)-Clause 15-
D Interpretation of Statutes-Incorporation by reference.

Sections JO and 11 (4)-Petition for appointing arbitrator to arbitral
tribunal-Number ofarbitrators-Arbitration clause providing for reference
of dispute to two arbitrators and upon their not agreeing appointment of an
umpire by them-Held, having regard to Section JO, arbitral tribunal shall
E consist of three arbitrators (one to be appointed by each of the two parties
and the Presiding Arbitrator)-Court constituting arbitral tribunal by
appointing a Presiding Arbitrator and two more arbitrators as were
nominated by each of the parties.

F Arbitration:

Limitation-Held, is an issue which can be decided by the arbitral
tribunal.
....
Estoppel-Petitioner taking stand in a foreign court that there was no
G arbitration agreement between parties-That Court not accepting the plea
and dismissing suit for want ofjurisdiction-Petitioner now proceeding on
the basis that arbitration agreement existed between parties-Held, if on
account ofmistake or wrong understanding of law a party takes a particular
stand (i.e., there is no arbitration agreement) he is not barred from changing
his stand subsequently or estopped from seeking arbitration.
H
954
GROUPE CHIMIQUE TUNISIEN SA v. SOUTHERN PETROCHEMICALS INDUSTRIES CORPN. LTD. 955

U.P. Rajkiya Nirman Nigam Ltd. v. Indore (P) Ltd, [1996) 2 sec 667, A
relied on.

CIVIL APPELLATE JURISDICTION: Arbitration Petition No. 4 of
2006.

B
Under Section 11(4) of the Arbitration and Conciliation Act.

Sahjeev Sachdeva, Adv., for the Appellant.

K.K. Mani, Adv., for the Respondent.
c
The Order of the Court was delivered :

ORDER

The pet1tmner has filed this petition under Section 11 (4) of the D
Arbitration and Conciliation Act, 1996 (for short 'the Act') for appointment
of an Arbitral Tribunal for adjudication of its claims and settlement of the
disputes between the parties.

2. The facts, in brief, as stated by petitioner are as follows: E

2.1. Petitioner is a company incorporated under the laws of Tunisia. The
respondent placed purchase orders dated I0.11.2000, 17.11.2000, 4.12.2000,
20.12.2000 and 13.7.2001 on the petitioner for supply of various quantities
of Phosphoric Acid. Each purchase order stipulated the quantity to be
F
supplied, the price, the payment terms and shipment particulars. All the
purchase orders stated that all other terms and conditions are as per FAI terms
(that is, the "Fertilizer Association of India Terms and Conditions for Sale
and Purchase of Phosphoric .Acid"). Clause 15 of FAI terms provided for.
settlement of disputes by arbitration.
G
2.2. The petitioner effected the supplies in pursuance of the purchase
orders and raised invoice for such supplies. The respondent failed to pay the
invoice amounts aggregating to US $ 1,50,15,913.38 in r~spect of the
supplies against the said purchase orders, and went on seeking extension of
time for making payment on the ground of financial Jifficulties. H
956 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A 2.3. The petitioner, therefore, filed a suit in the Amman Court of First
Instance, Jordan, in Case No. 223/2002 for recovery of the amounts due. The
respondent contested the jurisdiction of the said court, firstly, on the ground
that the courts at Jordan did not have jurisdiction and, secondly, on the
ground that there was an arbitration agreement between the parties, as per
clause 15 of the FAl terms. The Amman Court of First Instance, dismissed
B the petitioner's case on 20.3 .2003 on the ground of lack of jurisdiction. The
petitioner challenged the same before the Amman Court of Appeal in case
No. 1229/2003 which was also dismissed on 25.6.2003.

2.4. The petitioner issued a statutory notice dated 2.8.2004 demanding
c payment of the amount due with interest@7.5% per annum. On respondent's
failure to pay, the petitioner filed a petition for winding up in Company
Petition No. 276/2004 on the file of the High Court of Madras, which is
pending. The petitioner also issued a notice dated 30.8.2005 through its
counsel informing the respondent that the disputes and differences between
the parties on account of non-payment of amounts due by the respondent
D
shall have to be settled by arbitration in terms of clause 15 of FAl terms and
appointed Mr. Justice D.P. Wadhwa, former Judge, Supreme Court oflndia,
as its Arbitrator, and called upon the respondent to appoint its Arbitrator in
terms of the arbitration clause within 30 days of the receipt of the notice.
The petitioner also informed the respondent that if the respondent failed to
E comply, appropriate proceedings will be initiated. In spite of it, the respondent
did not comply, necessitating the filing of this petition for appointment of
an second Arbitrator to the Arbitral Tribunal for adjudication and settlement
of the claims. ,.
F 3. The respondent entered appearance and has filed its counter, resisting
the petition on the following grounds :

(i} The petitioner, having denied before the Jordanian Courts (Amman
Court of First Instance and Amman Court of Appeals), the existence of
arbitration agreement between the parties, is estopped from contending in
G
this petition, that there is an arbitration agreement between the parties, or
that the disputes should be settled by arbitration.

(ii) The claim of the petition is barred by limitation as the amounts
claimed are in respect of goods dispatched as per the Bills of Lading dated
H
GROUPE CHIMIQUE TUNISIEN SA'· SOUTHERN PETROCHEMICALS INDUSTRIES CORPN. Lm. 957

19.11.2000, 28.11.2000, 10.12.2000, 22.12.2000 and 13.7.200 I, and the last A
of the correspondence from Respondent was on 17.4.2002.

(iii) The petitioner's contention that there is an arbitration agreement
between the parties in accordance with clause 15 of the FAI terms is not
tenable.
B
Without prejudice to the said contention, the respondent has submitted
that in the event of this Court coming to the conclusion that there is a binding
arbitration agreement, Mr. Justice S. Ratnavel Pandian, former Judge of the
Supreme Court, he nominated as its nominee on the Arbitral Tribunal.

4. The respondent has not disputed the fact that it had placed five
c
purchase orders (referred to above) on the petitioner for supply of Phosphoric
Acid, or the fact that each of these purchase orders specifically provided that
"all other terms and condition are as per FAI terms". It is also not disputed
that clause 15 of FAI terms provides for settlement of disputes by arbitration
(extracted below) : D
"In the event of any question or dispute arising under or out of these
conditions or in connection with or relating to this contract (except
as to any matter(s) the decision of which is specially provided for
in these conditions), the matter in dispute shall be referred to two
arbitrators, one to be nominated by the seller and one to be
E
nominated by the buyers or in the case of said arbitrators not
agreeing, then to an Umpire to be appointed by the Arbitrators in
writing before proceeding on the reference and the decision of the
Arbitrators or in the event of their not agreeing, of the said Umpire
shall be final and conclusive and the provisions oflndian Arbitration F
and Conciliation Act, 1996 and any modification thereon and the
rules thereunder shall be deemed to apply to the proceedings. The
arbitrators or the Umpires as the case may be shall be entitled with
the consent of the parties to enlarge the time, from time to time for
marking the award. The arbitrator/Umpire will give a reasoned
G
award.

The venue of the Arbitration shall be Delhi."

5. All the purchase orders were signed on behalf of the respondent and
the same had been counter-signed by the petitioner in token of acceptance H
958 SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.

A of the purchase orders. In fact, in its reply filed the Amman Court of First
Instance, the respondent specifically contended that in view of the arbitration
agreement between the parties (as per Clause 15 of FA! terms), the dispute
will have to be settled by arbitration and therefore, the suit was not
maintainable. It is also significant to note that in the counter statement filed
in this case, the Respondent has neither denies having placed 5 purchase
B
orders on the petitioner nor denied the fact that the purchase orders were all
placed subject to the FA! terms and conditions, including clause 15 ofFAI
terms which provides for arbitration. On the other hand, the contention of
the respondent is that the petitioner having denied the arbitration agreement
before the Jordanian Court, cannot now contend that there is an arbitration
c agreement. Respondent also contends that in the absence of any letter from
the petition specifically referring to or agreeing to arbitration and in view
of petitioner's denial of the existence of arbitration agreement in its pleadings
before the Jordanian Court, there is no consensus ad idem between the parties
to refer the disputes to arbitration and therefore there cannot be any reference
D to arbitration.

6. Whether there is an arbitration agreement or not, has to be decided
with reference to the contract documents and not with reference to any
contention raised before a court of law after the dispute has arisen. Reference
E to pleadings before the Jordanian Courts would have been relevant if the plea
was that the arbitration agreement between the parties is contained in the
exchange of statement of claim and defence in which the existence of the
agreement is alleged by one party and r.ot denied by the other (as
contemplated under section 7(4)(c) of the Act). Be that as it may. Section
2(b) of the Act defines 'arbitration agreement' as meaning an agreement
F referred to in Section 7 (extracted below) :

"7. Arbitration agreement. - (I) 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
G 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.
H
GROUPE CHIMIQUE TUNISIEN SA'· SOUTHERN PETROCHEMICALS INDUSTRlES CORPN. LTD. 959

(4) An arbitration agreement is in writing if it is contained in A
(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
B
(c) an exchange of statements of claim and defence in which the
existence of the agreement is alleged by one party and nor denied
by the other.

(5) The reference in a contract to a document containing an C
arbitration clause constitutes an arbitration agreement ifthe contract
is in writing and the reference is such as to make that arbitration
clause part of the contract."

7. The purchase orders placed by the respondent on the petitioner are
the contracts between the parties and they are subject to FAI terms which
D
contain the arbitration clause Sub-section (5) of section 7 specifically
provides that where there is reference in a contract (in this case, the purchase
order) to a document containing an arbitration clause (in this case, the FAI
terms), such reference constitutes an arbitration agreement, if the contract
is in writing and the reference is such as to make that arbitration clause a E
part of the contract. The case squarely falls under section 7(5) of the Act
and there is an arbitration agreement between the parties as per clause 15
of the FAI terms.

8. The respondent next contended that in the invoices for the supplies,
F
there is no reference to FAI terms or arbitration agreement and, therefore,
the disputes are not arbitrable. As noticed above, the purchase orders are the
contracts. Invoice is a document which is prepared with reference to the
supplies made under the contract. When the contract (purchase order)
incorporates an arbitration agreement by reference, the invoice need not
contain a provision for arbitration. G

9. It is true that the petitioner had contended before the Jordanian Court
that there was no arbitration agreement between the parties. But the said
contention was not accepted and the suit filed by the petitioner has been
dismissed on the ground of want of jurisdiction. Thereafter, on reconsidering H
960 SUPREME COURT REPORTS (2006) SUPP. 2 S.C.R.

A the matter and taking legal advice, with reference to the contentions of the
respondent, the petitioner has now proceeded on the basis that an arbitration
agreement exists between the parties. If, on account of mistake or wrong
understanding of law, a party takes a particular stand (that is, there is no
arbitration agreement), he is not barred from changing his stand subsequently
or estopped from seeking arbitration. (See U.P. Rajkiya Nirman Nigam Ltd
B v. lndore (P) Ltd. (1996) 2 SCC 667, where the contention based on estoppel
was negatived while considering a reserve situation).

10. In regard to limitation, the petitioner submitted that having regard
to the acknowledgements contained in the series of letters written by

c Respondent requesting for time and the acknowledgements contained in the
balance-sheets where these amounts are shown as 'due and outstanding', the
petitioner's claim is not barred by limitation. It is, however, unnecessary to
examine this aspect as the learned counsel for the respondent fairly conceded
that this is a question which can be examined by the Arbitral Tribunal, in
the event of a reference to arbitration being made. It is now well-settled that
D the limitation is an issue that can be considered and decided by the
Arbitration Tribunal.

11. The next question is whether the respondent has lost its right to
appoint its nominee to the Arbitral Tribunal in view of its failure to comply
with the demand of the petitioner to appoint the arbitrator within 30 days
E from the date of receipt of notice dated 30.8.2005. It is apparent that the
respondent did not appoint an Arbitrator as it was under a bona fide
impression that there cannot be an arbitration. Further without prejudice to
its contentions, it has nominated its Arbitrator.

F 12. Section 10 of the Act provides that the number of Arbitrators shall
not be 'even'. The arbitration clause provides that the dispute shall be
referred to two Arbitrators and in the event of Arbitrators not agreeing then
an Umpire to be appointed by the Arbitrators in writing before proceeding
to the reference. Having regard to section I 0 of the Act, the Arbitral Tribunal
shall consist of three Arbitrators (one to be appointed by each of the two
G parties and the Presiding Arbitrator).

13. For the aforesaid reasons, this petition is allowed and the following
Arbitral Tribunal is constituted to adjudicate upon the claim made by the
petitioner against the Respondent and to settle the disputes between the
H parties :
GROUPE CHIMIQUE TUNIS IEN SA v. SOUTHERN PEIROCHEMICALS INDUSTRIES CORPN. LTD. 96 J

:'" (i) Mr. Justice R.C. Lahoti, Fonner Chief Justice of India, Noida A
(U .P.) - Presiding Arbitrator;

(ii) Mr. Justice S. Ratnaval Pandian, Fonner Judge of Supreme Court,
Chennai - nominee of respondent;

(iii) Mr. Justice D.P. Wadhwa, Fonner Judge of Supreme Court, New · B
Delhi - nominee of petitioner.

14. Registry is directed to communicate the constitution of the
Arbitral Tribunal to the three Arbitrators to enable them to enter upon the
reference and decide the matter expeditiously. C
R.P. Petition allowed.