If Contractual Stipulation Undermines Scope Of Arbitration Clause, Same Will Interpreted Giving Full Effect To Arbitration Agreement: Rajasthan HC

The Applicant had filed the arbitration application under Section 11 (5) of the Arbitration and Conciliation Act, 1996 for appointment of a sole arbitrator to resolve the dispute arrived at between the parties pursuant to a bid for Rate Contract Cum Supply and Empanelment of Drugs and Medicines.

The Single-Judge Bench of Justice Sudesh Bansal said, “The High Court being a referral Court while exercising its jurisdiction, dealing with an application under Section 11 of A&C Act, 1996 for appointment of Arbitrator, exercises a limited jurisdiction which is provided under Section 11 (6A) of the A&C Act, 1996.”

Advocate Tarun Kumar Mishra represented the Petitioner while Advocate Satya Narayan Gupta represented the Respondents.

The applicant, a private limited company, was declared as successful bidder by the respondent- Rajasthan Medical Services Corporation under bid for manufacturing and supply of empaneled drugs and medicines. The dispute had arisen in respect of a purchase order for supply of some Ear Drops & suspension. The applicant-company has raised a dispute in respect of suffering huge damages and loss on account of cancellation of the purchase order by the respondents, without any show cause notice and after passing a sufficient period of time.

According to the applicant-company, initially an E-mail was sent to the respondents and then, legal notice was issued to the respondents, calling upon to lift the manufactured drugs and pay the purchase amount to the applicant to the tune of Rs.33,26,904, else the applicant would be constrained to take legal remedies through arbitration.

It was the applicant’s case that Clause 22 (2) of the Contract/ NIB, which has become part of contract terms and conditions between the parties after acceptance of bid, provides an arbitration clause for the applicant but no mechanism is provided for appointment of Arbitrator. Hence, the instant arbitration application was filed by the Company before the High Court for appointment of an independent and neutral Arbitrator to resolve the dispute.

The legal objection of the respondents was that the arbitration clause contained in Clause 22 (2) of the NIB, on which the applicant-company has placed reliance for appointment of Arbitrator, does not meet the essential elements of an arbitration agreement, since it is not indicated in the arbitration clause that decision of Arbitrator shall be final and binding upon the parties which is one of the essential attribute of an arbitration agreement.

Referring to the judgments in Jagdish Chander Vs. Ramesh Chander & Ors[(2007) 5 SCC 719], K. K. Modi Vs. K N Modi [(1998)3 SCC 573], Bharat Bhushan Bansal Vs. U.P. Small Industries Corporation:[(1999)2 SCC 166] and State Of Orissa & Anr. Vs. Damodar Das: [(1996)2 SCC 216], the Bench said, “ It is well established principle of law that if there is any contractual stipulation between the parties which under-mines the scope of arbitration clause, the same will be given an interpretation in the manner which gives full effect to the arbitration agreement between the parties.”

From a bare perusal of Clause 22 (2) of the NIB, the Bench observed that the same clearly reflects the intention of parties to refer the dispute to the arbitration for its decision and further the clause does not exclude the attributes of an arbitration agreement that the decision of Arbitrator shall not be final and would not be binding on the parties. “Therefore, following the ratio decidendi of above referred judgments of Hon'ble Supreme Court, this Court would support the case of applicant company to refer the dispute to the arbitration for decision, instead of rejecting the arbitration application on the ground that all essential elements of the arbitration agreement are absent in Clause 22 (2)”, it said.

Reliance was also placed upon Section 16 of the A&C Act, 1996 which provides competence of the arbitral tribunal to rule on its own jurisdiction. It was observed that it shall be open for the respondents to raise the objection about validity of the arbitration agreement before the arbitration tribunal itself and if any such objection is raised, the arbitration tribunal shall obviously deal with such an objection in accordance with law,without being influenced by the prima facie opinion, expressed by this Court, since the opinion of this Court is only prima facie.

The Court further observed that the judgment relied upon by the respondents delivered by the Constitutional Bench of the Supreme Court In Re: Interplay Between Arbitration Agreements Under The Arbitration and Conciliation Act 1996 And the Indian Stamp Act, 1989 [AIR 2024 SC 1], do not propose any contrary principle of law on this point but also suggests to rely on the provision of Section 11 (6A) of the A&C Act,while dealing with the arbitration application since such provision has been observed to be alive.

Thus, allowing the arbitration application, the Bench appointed Justice Dinesh Chandra Somani (Former Judge) as a sole Arbitrator in both the arbitration applications to adjudicate the dispute between parties.

Cause Title: M/s Argon Remedies Pvt. Ltd. v. Rajasthan Medical Services Corporation Ltd [Neutral Citation:2024:RJ-JP:49334]

Appearance:

Petitioner: Mr. Tarun Kumar Mishra

Respondents: Mr. Satya Narayan Gupta

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