Holding

No arbitration agreement existed in relation to the suit transactions, so the application under Section 8 and the Special Leave Petition were rightly dismissed.

Summary

The plaintiff filed a suit for recovery of Rs 9,48,143 relating to consignments and samples supplied. The defendants sought to refer the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, relying on three invoices issued by a proprietary concern of one defendant that contained an arbitration clause. The trial court and the Calcutta High Court held that the invoices did not constitute an arbitration agreement because they were not signed by the plaintiff and did not pertain to the transactions that gave rise to the suit. The defendants appealed, arguing that acceptance of the invoices by the plaintiff sufficed to create an arbitration agreement. The Supreme Court held that for Sections 7 and 8 to apply, an arbitration agreement must (i) be between the parties to the dispute and (ii) relate to the subject matter of the dispute; neither condition was satisfied. Consequently, the application under Section 8 was correctly dismissed and the Special Leave Petition was dismissed both for delay (182 days) and lack of merit.

Issues considered

Whether the invoices containing an arbitration clause constitute a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996 for the purpose of invoking Section 8.
Whether an arbitration agreement must relate to the specific transaction that is the subject of the suit.
Whether the 182‑day delay in filing the Special Leave Petition can be condoned.

Legislation cited

Arbitration and Conciliation Act, 1996s. 7, s. 8

Subjects

ArbitrationArbitration agreementSection 7Section 8DelaySpecial Leave PetitionArbitration and Conciliation Act 1996Invoice clauseLaches

Judgment

_,I
[2008) 16 S.C.R. 895

YOGI AGARWAL A
"'
-":,
v.
M/S, INSPIRNFION CL~THES & lJ AND ORS.
(Special Leave P~titiPfl (Q) Ng, ~~333/2008)
DEC~MBER 1, 2ooa B
[R.V. RAVEENDRAN AND D.K. JAIN, JJ.]
-+-
ARBITRATION ANO CONG/LIA TION ACT, 1996:

s. 8 rlw s. 7 - Application by defendant in suit seeking· c
reference to arbitration - HELD: In order to constitute an
areftration agreement for purpo.ses Of SS. 7 and 8, two.
pgnqifion~ ~houlq be satisfied - Firstly, it should be between
the p@rti@s to the dis[!ute - Secondly, it should relate to or be
applic;able to the disput~ - In th@ instant case, neither of the · D
two conditions was satisfif3d ,.,. . Firstly, the suit related to
transactions said to have taken place between plaintiff and
7 defendant no. 1 company and its two directors, whereas the
t documents put forth as containing the arbitration agreement
related to some transactions between a proprietary concern
·E
of defendant no. 2 and plaintiff - Secondly, the provision for
er-/:Jitration is not contained in any contract or document
.,_' ~-" ' , ' I I I •

relating to the suit transapfions, but contained in documents
relating to some unconnected independent transactions -
Defendants, in ff1f#( ;;Jppfiqation uls. 8, did not even allege
th~t there was an arbitration agreement in regard to the F
,._ IJY/;Jj@p( matter of the suit- What they alleged was that 'subject
m~tter pf the suit' was similar to or identical to with the subject
matter qf the arbitration agreement' - That does not entitle
tht?m tp see/< relief u/s 8 - As there was no ·arbitration
f!lgrnement', the requirements of s. 7 were not met - G
Consequently, rejection of the application filed by defendants
~~ uls 8 does not call for interference - Further, there is a delay
"
of 182 days in filing the petition - The only reason assigned
by the petitioner, a seasoned businessman, to explain the
895 H
('
896 SUPREME COURT REPORTS [2008] 16 S.C.R. '

A delay is that he was confused by diverse opinions about
' '/-
filing of special leave petition - The explanation is neither
satisfactory nor sufficient to condone the delay - Delay/
Laches. ·

CIVIL APPELLATE JURISDICTION : Special Leave
B
Petition (C) No. 29333/2008.

From the final Judgment and Order dated 29.11.20Q7 of
"'t-
the High Court of Calcutta at Calcutta in C.O. No. 1258of1006.

c Shyam Divan, Sunil Singhania and Sarad Kum~r
Singhania for the Appellant.

The Order of the Court was deliv~red by

ORPER
D
R.V. RAV~f.:NORAN J, 1. Dismissal of an application
under Section 8 of the Arbitration and Conciliation Act, 1996
('the Act' for short), filed by the defendants in a money suit .(filed 1
by the first respondent herein against three defendants, that is, ·~

E third respondent company, and its two directors namely,
petitioner and second respondent), affirmed by the High Court,
has led· to the filing of this special leave petition. For
convenience, we will refer to the parties by their rank in the suit.

2. There is a delay of 1~2 d.~Y§ in filing this petitipn, The
F only reason assigned by the· petitioner, a $easoned
businessman, to explain the delay is that he was confused by
--i·
diverse opinions about filing of special leave petition. The
explanation is neither satisfactory nor sufficient to condone the
delay. Even assuming that the delay is condonable, we find that
G the special leave petition is liable to be rejected on merits.

3. The plaintiff -filed the suit on 9.9.2003 for recovery of
,:f....
Rs.9,48, 143 with interest allegedly due in regard to (i) price of
two consignments supplied . by plaintiff to\the
.
nominees of the .,
H first defendant company and (ii) value of nine samples made
YOGI AGARWAL v. MIS. INSPIRATION CLOTHES & U 897
AND ORS. [RV. RAVEENDRAN, J.]

,? available by the plaintiff to defendants. In the said suit, A
-\.
defendants made an application dated 17 .12.2005 under
section 8 of the Act, for referring the parties to arbitration. To
show the existence of arbitration agreement: the defendants
relied upon three invoices of 'Yash Traders', a proprietary
concern of the second defendant (petitioner herein), dated B
2.11.1999, 22.6.2001 and 11.2.2003 in regard to the sale of
cotton fabric by the said Yas~ Traders.to the plaintiff cont~ining
+-
. the following note: "All disputes pertaining to this transaction if
~my will be subject to the Arbitration Rules & Regulations of
j Bharat Merchant Chamber". The defendants alleged that the c
said invoices were accepted by the plaintiff thus resulting in a
binding arbitration agreement.

4. The trial court noted that there was no arbitration
agreement in regard to the suit transactions and that the
defendants wanted the three invoices (containing a provision D
for arbitration) relating to some other transactions to be treated
., as an arbitration agreement between parties in regard to the
suit transactions. It examined the three invoices and held that
the said invoices could not be treated as containing an
\ arbitration agreement within the meaning of Section 7 of the E
_A

Act, as the invoices were signed only by 'Yash Traders' and not
by the plaintiff. The said decision has been affirmed by the High
Court.

5. The petjtioner has filed this special leave petition, F
cont~nding that to constitute a valid arbitration agreement, a
r-- document containing the arbitration agreement need not be
signed by all parties. Accorping to the petitioner, if an invoice
signed by the seller is acknowledged or accepted or acted upon
by the buyer, a term in the invoice providing for arbitration will G
be an "arbitration agreement" as between the seller and the
buyer, irrespective of whether the buyer signed the document
~
or not. We do not propose to examine the said contenticn as
it does not really arise for consideration in this case.

6. The fundamental lacuna in the claim of defendants for H

-,
898 SUPREME COURT REPORTS [2008] 16 S.C.R.

A reference to arbitration is th~ abs~noe of an arbitration ' ,.f...-
agreement between the parties, in regard to the suit
transactions, The three invoices containing a provision for
~
arbitration relied upen by the petitioner (second defendant), do
not relate to ~he suit transactions at all. The plaintiff, as noticed ..
B above, filed a suit for recovery of the amounts allegedly due in
regard to some samples supplied by him to the defendants and
certain supplies made to the nominees of the first defendant
~
--r
company. The three invoices relied on by the defendants, on
the other hand, relate to sale of goods by the proprietary
c concern of second defendant to the plaintiff. The saic:I invoices ~

have nothing to do with the suit transactions. Such unconneGted r
I
documents cannot be pressed into service to claim the
existence of an arbitration agreement.

7. When a defendant invokes section 8 of the Act by
0
alleging existence of an arbitration agreement, he should
establish that such arbitration agreement related to, or is
applicable to, the suit transaction/contract. The parties may t-·
enter into different contracts at different points of time or may
enter into a series of unrelated transactions. It is possible that
E in regard to some, they may provide for arbitration and in regard ~
....
to others, may not provide for arbitration. Obviously, the
.,..
existence of ari arbitration agreement with reference to some
other transaction/contract to whic~ plaintiff was. or is a party,
unconnected with the transactions or q~:mtraets to which a suit
F relates, cannot be GOnside,red ~s existence of ari 'arbitration
agreement' in r~g~rq to th~ suit transactions/contracts. When
--+
sections 7 and 8 of the Ac.t refer to the existence .of an
arbitration agreement between th~ parties, they necessarily
refer to an arbitration agreem~nt in regard to the current dispute
G between the parties or the subject matter of the suit. It is
fundamental that a provision for arbitration, to constitute an
arbitration agreement for the purposes of sections 7 and 8 of ,>-.
the Act, should satisfy two conditions. Firstly, it should be
between the parties to the dispute. Secondly, it should relate
H to or applicable to the dispute.

\
YOGI AGARWAL v. MIS. INSPIRATION CLOTHES & U 899
AND ORS. [R.V. RAVEENDRAN, J.]

-'\
.. 8. In this case, neither of the two conditions was satisfied . A
Firstly, the suit related to transactions said to have takeil place
between plaintiff and first defendant company and its two
directors, whereas the documents put forth as containing the
arbitration agreement related to some transactions between a
proprietary concern of second defendant and plaintiff. Secondly, B
the provision for arbitration is not contained in any contract br
y· document relating to the suit transactions, but contained jn
.. documents relating to some unconnected independent
transactions. It is significant that, in their application under
section 8 of the Act, the defendants did not even allege that
there was an arbitration agreement in regard to the subject
c
'· matter of the suit. What they alleged was that 'subject matter
of the suit' was similar to or identical with the 'subject matter qt
the arbitration agreement'. That does not entitle them to see~
relief under section 8 of the Act. As there was no 'arbitration
agreement', the requirements of section 7 were not met. D

t- 9. As there is no arbitration agreement with reference tG>
_: the subject-matter of the suit filed by the plaintiff (first respondent
. herein), rejection of the application filed by defendants undet
Section 8 of the Act, does not call for interference. The special E
leave petition is, therefore, dismissed both on the ground of
delay and on merits.

RP. Special Leave Petition dismissed.

>~