POWERTECH WORLD WIDE LIMITEDversusDELVIN INTERNATIONAL GENERAL TRADING LLC

                    [2011] 13 (ADDL.) S.C.R. 122


A              POWERTECH WORLD WIDE LIMITED
                                     v
        DELVIN INTERNATIONAL GENERAL TRADING LLC
             (Arbitration Petition (Civil) No. 5 of 2010)
                         NOVEMBER 14, 2011
B
                     [SWATANTER KUMAR, J.]

        Arbitration and Conciliation Act, 1996 - s. 11 (6) -
  Appointment of an arbitrator - Petition u/s. 11 (6) - Indian
C Company (petitioner) entered into a purchase contract with a
  foreign Company (respondent) - Contract contained an
  arbitration clause - Supply of goods by the petitioner -
  Repeated request by the petitioner for payment of outstanding
  dues not acceded to by the respondent - Notice by the
D petitioner to the respondent invoking arbitration proceedings
  to adjudicate the said dispute and nomination of an arbitrator
  - No response from respondent - Petition u/s. 11(6) by the
  petitioner before the Supreme Court - Arbitration agreement
  as contained in the Purchase Contract that 'any disputes
E arising out of the Purchase Contract shall be settled amicably
  between both the parties or through an arbitrator in India/
  abroad - Enforceability of, in terms of s. 11 (6) - Held: It is clear
  from a reading of the arbitration clause that the parties were
  ad idem to amicably settle their disputes or settle the disputes
F through an arbitrator in India/abroad - There was apparently
  some ambiguity caused by the language of the arbitration
  clause - However, once the correspondence between the
  parties and attendant circumstances are read conjointly with
  the petition of the petitioner and with particular reference to
G the purchase contract, it becomes evident that the parties had
  an agreement in writing and were ad idem in their intention
  to refer these matters to an arbitrator in accordance with the
  provisions of the Act - Respondent had admitted the
  existence of an arbitration agreement between the parties and

H                                  122
  POWERTECH WORLD WIDE LTD. v. DELVIN INTERNATIONAL 123
                GEN, TRADING LLC

  consented to the idea of appointing a common/sole arbitrator      A
- to determine the disputes between the parties - Thus, any
  ambiguity in the arbitration clause contained in the purchase
  contract stood extinct by the correspondence between the
  parties and the consensus ad idem in relation to the existence
  of an arbitration agreement and settlement of disputes            B
  through arbitration became crystal clear - Thus, the
  arbitration petition is allowed and the arbitrator nominated by
  the petitioner is appointed as Sole Arbitrator to adjudicate
  upon the disputes.

     Arbitration - Binding arbitration agreement - Pre-
                                                                    c
 requisites of - Explained.

      Jagdish Chander v. Ramesh Chander & Ors. (2007) 5
 SCC 719; Wellington Associates Ltd. v. Kirit Mehta AIR 2000
 SC 1379; K.K. Modi v. K.N. Modi & Ors. (1998) 3 SCC 573;           D
 Smita Conductors Ltd. v. Euro Alloys Ltd. (2001) 7 SCC 728;
 Bihar State Mineral Development Corporation v. Encon
 Builders (2003) 7 SCC 418; Rickmers Verwaltung GMBH v.
 Indian Oil Corp. Ltd. (1999) 1 SCC 1; Unissi (India) Pvt. Ltd.
 v. Post Graduate Institute of Medical Education and                E
 Research (2009) 1 SCC 107; Shakti Bhog Foods Ltd. v. Kola
 Shipping Ltd. (2009) 2 SCC 134; VISA International Ltd. v.
 Continental Resources (USA) Ltd. (2009) 2 SCC 55 -
 referred to.

       CIVIL ORIGINAL JURISDICTION : Arbitration Petition           F
 (Civil) NO. 5 of 2010.

      Arbitration and Conciliation Act, 1966.

    C.N. Sreeku"mar, T.G. Narayanan Nair, K.N.                      G
 Madhusoodhanan, Resmitha R. Chandran for the Petitioner.

      The Order of the Court was delivered by

      SWATANTER KUMAR, J. 1. Mis. Powertech World Wide
 Limited, the petitioner, is a limited company registered under     H
    124     SUPREME COURT REPORTS [2011] 13 (ADDL.} S.C.R.


A the Companies Act, 1956, having its registered office at 202,
  Krishna Chambers, 59, New Marine Lines, Churchgate,
  Mumbai and has filed the present petition through its al!thorized
  representative under Section 11 (6) of the Arbitration and
  Conciliation Act, 1996 (for short 'the Act') praying for
B appointment of an Arbitrator. M/s. Delvin International General
  Trading LLC, the respondent, is also a company, which has
  been incorporated under the laws of Dubai (UAE) having its
  registered office in Dubai and is stated to be engaged in the
  business of importing and selling of various commodities. The
c responderit was desirous of purchasing and the petitioner was
  willing to sell various articles in the course of their international
  trade, for which their negotiations in November 2006 finally
  resulted in a purchase contract dated 1st December, 2006
  executed between the parties. This contract specifically noticed
  that after satisfactory discussions between the respondent and
0
  the petitioner, the respondent agreed to join hands and work
  with the petitioner on the terms and conditions provided in the
  contract. This contract was to be opHative and valid for a
  period of one year subject to the terms and the conditions
  mentioned therein and became effective w.e.f. 1st December,
E 2006. The contract also contained an arbitration clause which
  reads as under: -

          "Any disputes arising out of this Purchase Contract shall
          be settled amicably between Both the parties or through
F         an Arbitrator in lndia/UAE."

       2. In furtherance to this contract, the goods were sold and
  supplied by the petitioner and are stated to have been duly
  received by the respondent, without any demur in relation to the
G quantity and quality of the goods. The bills raised by the
  petitioner were sent through petitioner's bankers. The
  documents were accepted by the negotiating bankers. It is the
  case of the petitioner that initially the respondent was prompt
  in payments for the consignments sold and supplied to it in
H conformity with the purchase order, i.e. within 60/90 days of the
 POWERTECH WORLD WIDE LTD. v. DELVIN INTERNATIONAL 125
      GEN. TRADING LLC [SWATANTER KUMAR, J.]

acceptance of the consignments. However, in April 2007, a            A
request was made by the respondent to the petitioner to supply
more goods as per its requirements, without insisting for the
outstanding payments in respect of some previous
consignments received at its end. Considering the good
business relationship existed between the parties, the goods         B
were supplied though the payments were not made. The
requests made by the petitioner for payments of the outstanding
dues were not acceded to by the respondent, despite repeated
oral and written requests.

     3. On 39th March, 2008, the respondent through its
                                                                     c
advocates, sent a notice to the petitioner claiming a sum of
AED 4,00,000/- and also repelled the threat extended by the
petitioner to initiate proceedings before the Export Credit
Guarantee Corporation of India Limited (for short 'ECGC') for
imposing of sanctions etc. The notice also contained D
averments that the threat advanced by the petitioner in relation
to obtaining sanctions, or otherwise taking proceedings against
the respondent was without any basis. Through this notice, the
advocates of the respondent informed the petitioner that they
should make the payments within seven days, failing which, a E
law suit would be instituted for recovering the appropriate
amount, compensation and costs. The respondent also
informed the petitioner that no threat should be extended for
taking out the proceedings etc. which was otherwise
undesirable.                                                     F

     4. This notice dated 3oth March, 2008 was responded to
by the petitioner through its advocates, vide letter dated 4th
April, 2008 wherein besides stating the facts afore-noticed, it
reiterated that the goods were supplied as per specifications        G
and the allegations in the notice were baseless, while claiming
a sum of US$ 63,86,005.56 as the amount payable by the
respondent to the petitioner. It also claimed interest on the said
amount till the date of payment and notified the respondent as
under.                                                               H
    126     SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.


A         "11. In the event Delvin fails to comply with the requisitions
          contained in Paragraph 10 above and pay ttie amounts
          due within a period of seven (7) days from the receipt of
          this notice, Powertech will be constrained to initiate
          appropriate legal proceedings entirely at the risk of Delvin,
B         as to costs with consequences."

        5. Having failed to receive any response to this letter, the
  petitioner sent another notice dated 30th May, 2008 to the
  respondent through its advocates invoking the arbitration
C proceedings to adjudicate the disputes regarding the Purchase
  Contract dated 1st December, 2006. The relevant part of the
  said notice reads as under:

          "The Contract provides for the resolution of all disputes
          arising thereunder between the parties by way of
D         Arbitration to be held in India. Powertech now desires to
          exercise its right under the contract to invoke Arbitration
          proceedings to resolve the dispute with Delvin.

          Powertech hereby nominates Mr. Justice D.R. Dhanuka
          (Retired) Judge, Bombay High Court) as their arbitrator and
E
          the venue being Mumbai, India for resolution of the disputes
          that have arisen under the Contract. You are hereby
          requested to concur to the appointment of Mr. Justice D.R.
          Dhanuka (Retired) Judge, Bombay High Court) as the sole
          arbitrator for resolution of the disputes that have arisen
F         under the Contract or nominee an arbitrator within thirty
          (30) days from receipt of this notice.

          Please note that if Delvin fails to concur to the nomination
          of Mr. Justice D.R. Dhanuka (Retired Judge, Bombay High
G         Court) or nominate an arbitrator within thirty (30) days from
          the receipt of this notice. Powertech shall take out
          appropriate legal proceedings for appointment of arbitrator
          for resolution of the disputes that have arisen under the
          Contract."
H
 POWERTECH WORLD WIDE LTD. v. DELVIN INTERNATIONAL             127
      GEN. TRADING LLC [SWATANTER KUMAR, J.]

     6. This notice invoking the arbitration proceedings was          A
responded to by the respondent through it advocates vide its
reply dated 27th June, 2008 and it will be useful to reproduce
the relevant portion of the said letter:

     "In the meantime, you are requested not to approach or
                                                                      8
     adopt Legal Proceedings for appointment of Arbitrator as
     telephonically we are instructed to suggest some other
     name as an Arbitrator subject to your consent."

      7. According to the petitioner, thereafter and till date, the
respondent has neither concurred to the appointment of the            C
said Arbitrator nor has it settled the disputes. Treating it to be
inaction or refusal to act on the part of the respondent, the
petitioner filed the present petition under Section 11 (6) of the
Act on 20th March, 2010.
                                                                      D
     8. As the respondent could not be served in the normal
course, a Registrar of this Court vide order dated 28th April,
2011 permitted the petitioner to serve the respondent by
substituted service. The Registrar vide order dated 11th June,
2011 noticed that the proof of publication of notice had been         E
produced and the sole respondent stood served by substituted
service. As no one appeared on behalf of the respondent
despite service, vide order dated 25th July, 2011, the suit was
ordered to be proceeded ex parle and the matter was heard
accordingly.
                                                                      F
     9. When the matter was being heard, a question had been
raised as to whether the arbitration agreement as contained
in the Purchase Contract and reproduced supra, was a binding
arbitration agreement enforceable in terms of Section 11 (6) of
the Act?                                                              G

      1o. The learned counsel appearing for the petitioner
contended that from the language of the arbitration clause itself,
it is unambiguously clear that there is a binding arbitration
agreement between the parties. The respondent having failed           H
    128 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R


A to act despite notice, the petitioner is entitled to the relief
  prayed for. It is further the contention of the petitioner that the
  words 'shall' and 'or' appearing in the arbitration clause have
  to be given their true meaning. The expression 'shall' has to
  be construed mandatorily while the expression 'or' has to be
B read as disjunctive. Upon taking this as the correct approach,
  the arbitration agreement would be binding upon the parties as
  the expression 'settled amicably between both the parties'
  cannot be construed as a condition precedent to the invocation
  of the arbitration agreement and the reference to arbitration
c being an alternative and agreed remedy, the petitioner may
  unequivocally be allowed to invoke the arbitration agreement.

       11. The aforesaid contentions have been raised by the
  advocates for the petitioner in view of the judgment of this Court
  in the case of Jagdish Chander v. Ramesh Chander & Ors.
D ((2007) 5 SCC 719] wherein this Court had taken the view that
  such an arbitration clause would not have satisfied the pre-
  requisites of a valid arbitration reference. In that case, this Court
  was concerned with Clause 16 of the contract between the
  parties that read as under:
E
       "(16) If during the continuance of the partnership or at any
       time afterwards any dispute touching the partnership
       arises between the partners, the same shall be mutually
       decided by the partners or shall be referred for arbitration
F      if the parties so determine." (emphasis supplied)

       12. The Court felt that the main attribute of an arbitration
  agreement, namely, consensus ad idem to refer the disputes
  to arbitration, is missing in Clause 16 relating to settlement of
  disputes. Therefore, it is not an arbitration agreement as defined
G under Section 7 of the Act. In absence of an arbitration
  agreement, the question of exercising power under Section 11
  of the Act to appoint an arbitrator does not arise.

        13. A similar view was expressed by this Court in the case
H
 POWERTECH WORLD WIDE LTD. v. DELVIN INTERNATIONAL 129
      GEN. TRADING LLC [SWATANTER KUMAR, J.]

of Wellington Associates Ltd. v. Kirit Mehta [AIR 2000 SC               A
1379] though the arbitration clause in that case was different.

      14. Now, I may refer to the pre-requisites of a valid and
binding arbitration agreement leading to an appropriate
reference under the Act. Section 2(1 )(b) defines 'arbitration          8
agreement' to be an agreement referred to in Section 7.
Section 7 of the Act states that an 'arbitration agreement' is
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                C
contractual or not. The arbitration agreement may be in the form
of an arbitration clause in a contract or in the form of a separate
agreement and shall be an agreement in writing. An arbitration
agreement is in writing if it is contained in any of the clauses
i.e. clauses (a) to (c) of Sub-section (4) of Section 7 of the Act.
Once these ingredients are satisfied, there would be a binding          D
arbitration agreement between the parties and the aggrieved
party would be in a capacity to invoke the jurisdiction of this
Court under Section 11 (6) of the Act.

     15. In the case of K.K. Modi v. K.N. Modi & Ors. ((1998)           E
3 SCC 573], this Court, while differentiating an 'arbitration
agreement' from a 'reference to an expert' for decision,
contained in an MOU recording a family settlement, enumerated
the essential attributes of a valid arbitration agreement:
                                                                        F
     "1. The arbitration agreement must contemplate that the
     decision of the tribunal will be binding on the parties to the
     agreement,
     2. that the jurisdiction of the tribunal to decide the rights of
     parties must be derived either from the consent of the             G
     parties or from an order of the Court or from a statute, the
     terms of which make it clear that the process is to be an
     arbitration,
     3. the agreement must contemplate that substantive rights          H
    130     SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A         of parties will be determined by the agreed tribunal,

          4. that the tribunal will determine the rights of the parties
          in an impartial and judicial manner with the tribunal owing
          an equal obligation of fairness towards both sides,
B         5. that the agreement of the parties to refer their disputes
          to the decision of the tribunal must be intended to be
          enforceable in law and lastly,

          6. the agreement must contemplate that the tribunal will
c         make a decision upon a dispute which is already
          formulated at the time when a reference is made to the
          tribunal."

        16. Also in the case of Smita Conductors Ltd. v. Euro
  Alloys Ltd. ((2001) 7 SCC 728], where no contract, letter or
D telegram confirming the contract containing the arbitration
  clause as such was there, but certain correspondences which
  indicated a reference to the contract containing arbitration
  clause for opening the letter of credit addressed to ttre bank,
  were there. There was also no correspondence between the
E parties disagreeing either with the terms of the contract or the
  arbitration clause. The two contracts also stood affirmed by
  reason of their conduct as indicated in the letters exchanged
  between the parties. This Court construed it to be an arbitration
  agreement in writing between the parties and referred to Article
F II Para 2 of the New York Convention, which is pari materia to
  Section 7 of the Act and observed as under:

          "what needs to be understood in this context is that the
          agreement to submit to arbitration must be in writing. What
G         is an agreement in writing is explained by Para 2 of Article
          II. If we break down Para 2 into elementary parts, it consists
          of four aspects. It includes an arbitral Clause (1) in a
          contract containing an arbitration clause signed by the
          parties, (2) an arbitration agreement signed by the parties,
          (3) an arbitral clause in a contract contained in exchange
H
 POWERTECH WORLD WIDE LTD. v. DELVIN INTERNATIONAL 131
      GEN. TRADING LLC [SWATANTER KUMAR, J.]

    of letters or telegrams, and (4) an arbitral agreement           A
    contained in exchange of letters or telegrams. If an
    arbitration clause falls in any one of these four categories,
    it must be treated as an agreement in writing."

    17. This Court, in the case of Bihar State Mineral               B
Development Corporation v. Encon Builders [(2003) 7 SCC
418) has also taken the view that the parties must agree in
writing to be bound by the decision of such Tribunal and they
must be ad idem.

     18. The next question that falls for consideration is what      C
should be the approach of the Court while construing a contract
between the parties containing an arbitration agreement. In the
case of Rickmers Verwaltung GMBH v. Indian Oil Corp. Ltd.
[(1999) 1 SCC 1], this Court took the view that 'it is the duty of
the court to construe correspondence with a view to arrive at a      D
conclusion whether there was any meeting of minds between
the parties, which could create a binding contract between them.
Unless from the correspondence, it can unequivocally and
clearly emerge that the parties were ad idem to the terms, it
cannot be said that an agreement had come into existence             E
between them through correspondence.' Still in the case of
Unissi (India) Pvt. Ltd. v. Post Graduate Institute of Medical
Education and Research [(2009) 1 SCC 107], where the
appellant had given his tender offer which was accepted by the
respondent and the tender contained an arbitration clause, this F
Court, considering the facts of the case, the provisions of
Section 7 of the Act and the principles laid down by it, took the
view that though no formal agreement was executed but in view
of the tender documents containing the arbitration clause, the
reference to arbitration was proper. In the case of Shaktif3hog G
Foods Ltd. v. Kola Shipping Ltd. [(2009) 2 SCC 134), this
Court held that from the provisions made under Section 7 of
the Act, the existence of an arbitration agreement can be
inferred from a document signed by the parties or exchange
of e-mails, letters, telex, telegram or other means of
telecommunication, which provide a record of the agreement. H
    132     SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A        19. In a recent judgment of this Court in the case of VISA
    International Ltd. v. Continental Resources (USA) Ltd. [(2009)
    2 SCC 55], this Court was concerned with an arbitration clause
    contained in the memorandum of understanding that read as
    under:
B
               "Any dispute arising out of this agreement and which
          cannot be settled amicably shall be finally settled in
          accordance with the Arbitration and Conciliation Act,
          1996."

C      20. The disputes having arisen between the parties, the
  respondent, instead of challenging the existence of a valid
  arbitration clalise, took the stand that the arbitration would not
  be cost effective and will be pre-mature. In view of the facts,
  this Court held that there was an arbitration agreement between
D the parties and the petitioner was entitled to a reference under
  Section 11 of the Act and observed:

                 "No party can be allowed to take advantage of
          inartistic drafting of arbitration clause in any agreement as
          long as clear intention of parties to go for arbitration in
E
          case of any future disputes is evident from the agreement
          and the material on record, including surrounding
          circumstances."

       21. It is in light of these provisions, one has to construe
F whether the clause in the present case, reproduced above, in
  Para 1, constitutes a valid and binding agreement. It is clear
  from a reading of the said clause that the parties were ad idem
  to amicably settle their disputes or settle the disputes through
  an arbitrator in lndialUAE. There was apparently some
G ambiguity caused by the language of the arbitration clause. If
  the dause was read by itself without reference to the
  correspondence between the parties and the attendant
  circumstances, may be the case would clearly fall within the
  judgment of this Court in the case of Jagdish Chander (supra).
H But once the correspondence between the parties and
  POWERTECH WORLD WIDE LTD. v. DELVIN INTERNATIONAL 133
       GEN. TRADING LLC [SWATANTER KUMAR, J.]

 attendant circumstances are read conjointly with the petition of       A
 the petitioner and with particular reference to the purchase
 contract, it becomes evident that the parties had an agreement
 in writing and were ad idem in their intention to refer these
 matters to an arbitrator in accordance with the provisions of the
 Act. Vide their letter dated 30th March, 2008, the respondent          B
 had raised certain claims upon the petitioner and had also
 repelled the threat extended by the petitioner to take steps
 before the ECGC. This notice had been responded to by the
 petitioner vide letter dated 4th April, 2008 wherein it had raised
 its claims demanding payment of money within seven days and            c
 also stated that any default thereto would constrain it to take
 legal action. Finally, vide letter dated 30th May, 2008, the
  petitioner had invoked arbitration clause between the parties
 and, in fact, had even nominated an arbitrator calling upon the
 respondent to concur to the said appointment. Replying to this
                                                                        0
·Jetter vide letter dated 27th June, 2008, the respondent had
  neither denied the existence nor the binding nature of the
  arbitration clause. On the contrary, it had requested the
 petitioner not to take any legal action for appointment of an
 arbitrator, as they wanted to suggest some other name as an
 arbitrator, that too, subject to consent of the petitioner. This       E
  letter conclusively proves that the respondent had admitted the
 existence of an arbitration agreement between the parties and
 consented to the idea of appointing a common/sole arbitrator
 to determine the disputes between the parties. However,
 thereafter there had been complete silence from its side,              F
 necessitating the filing of present petition under Section 11 (6)
 of the Act by the petitioner. Thus, any ambiguity in the arbitration
 clause contained in the purchase contract stood extinct by the
  correspondence between the parties and the consensus ad
 idem in relation to the existence of an arbitration agreement          G
 and settlement of disputes through arbitration became crystal
  clear. The parties obviously had committed to settle their
  disputes by arbitration, which they could not settle, as claims
   and counter claims had been raised in the correspondence
  exchanged between them. In view of the above, even the pre-           H
    134     SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.


A condition for invocation of an arbitration agreement stands
  satisfied. The arbitration agreement does not provide for any
  specific mode/methodology to be adopted while appointing an
  arbitrator. The learned counsel appearing for the petitioner
  contended that keeping in view the extent of claims, it will be
B highly expensive if an Arbitral Tribunal consisting of two
  arbitrators and a presiding arbitrator is constituted. He further
  contented that the parties in their correspondence have already
  agreed to the appointment of a sole arbitrator. He prayed for
  appointment of a sole arbitrator as both the parties in their
c respective letters had agreed to appoint an arbitrator with
  common concurrence. Thus, in the afore-mentioned
  circumstances, this petition is allowed and Mr. Justice D.R.
  Dhanuka (Retired) Judge, Bombay High Court, is appointed as
  Sole Arbitrator to adjudicate upon the disputes. The parties are
  at liberty to file claims/counter claims before the appointed
0
  Arbitrator, which shall be decided in accordance with law.

          No orders as to costs.

   N.J.                               Arbitration Petition allowed.