In its recent decision in the matter of M/s Caravel Shipping Services Private Limited v M/s Premier Sea Foods Exim Private Limited,(1) the Supreme Court held that the only prerequisite for an arbitration agreement is that it be in writing. The fact that the parties have not signed the agreement does not make it invalid.
The dispute between M/s Caravel Shipping Services Private Limited (the appellant) and M/s Premier Sea Foods Exim Private Limited (the respondent) arose of out of a document titled Multimodal Transport Document/Bill of Lading dated 25 October 2008. The bill of lading specified that "the Merchant expressly agrees to be bound by all the terms, conditions, clauses and exceptions on both sides of the Bill of Lading whether typed, printed or otherwise". Further, Clause 25 of the bill of lading, which was set out in printed terms annexed thereto, contained an arbitration clause.
The respondent had filed suit before the Kochi subordinate court to recover Rs2,653,593. The suit expressly stated that the bill of lading was part of the cause of action. Pursuant to filing the suit, the appellant filed an interlocutory application under Section 8 of the Arbitration and Conciliation Act 1996 which, among other things, highlighted that an arbitration clause was included in the printed terms annexed to the bill of lading. The subordinate court dismissed the interlocutory application.
Aggrieved by the dismissal, the appellant filed a petition before the Kerala High Court under Article 227 of the Constitution. In deciding on the appeal, the Kerala High Court stated, among other things, that as the arbitration clause was printed in an annex to the bill of lading, there was no obvious intention to arbitrate and the petition was accordingly disposed. The Kerala High Court also dismissed the review filed against the earlier judgment. Accordingly, the appellant approached the Supreme Court.
Appellant's arguments The appellant's main arguments were as follows:
- The printed terms annexed to the bill of lading were expressly referred to in the bill of lading and thus both parties were bound by the same.
- In accordance with Section 7(5) of the act, read with the Supreme Court's judgment in MR Engineers and Contractors Private Limited v Som Datt Builders Limited,(2) the contract referred to the arbitration clause. Further, the arbitration clause was in writing and the reference was such that the arbitration clause formed part of the contract.
Respondent's arguments The respondent's main arguments were as follows:
- Section 7(4) of the act requires an arbitration agreement to be in a document signed by the parties.
- Since the respondent had not signed the bill of lading, it was not bound by the arbitration clause contained therein.
Having heard both parties, the Supreme Court held as follows:
- The bill of lading specified that the merchant expressly agreed to be bound by all of the terms and conditions on both sides of the bill of lading, whether typed, printed or otherwise.
- Clause 25 of the bill of lading showed that the respondent had expressly agreed to be bound by the arbitration clause despite the fact that the terms were printed and annexed to the bill of lading.
- In its suit, the respondent relied on the unsigned bill of lading as part of its cause of action. As such, the respondent could not then argue that the act requires arbitration clauses to be signed in order to be valid.
- In Jugal Kishore Rameshwardas v Mrs Goolbai Hormusji,(3) the Supreme Court held that while an arbitration agreement must be in writing, it need not be signed. This principle is also contained in Section 7(3) of the act. Section 7(4) of the act should not be construed to mean that an arbitration agreement must be signed in all cases. The only prerequisite is that it be in writing.
- Section 7(5) of the act, read with the decision in MR Engineers, implies that the reference in the bill of lading made the arbitration clause part of the contract between the parties.
Accordingly, the appeal was allowed and the high court's judgment was set aside.
The Supreme Court has clarified the meaning and purport of arbitration agreements. The court rightly held that in terms of Section 7(3) of the act, the primary prerequisite for there to be a valid arbitration agreement is that it be in writing. The court further stated that the conditions under Section 7(4) of the act are not exhaustive to the extent that the same are merely circumstances to show that there is an arbitration agreement between parties. However, it would be incorrect to state that if the conditions under Section 7(4) are not met, no valid arbitration agreement exists. That is to say, what is primarily required is that the arbitration agreement be in writing.
Notably, courts in jurisdictions with well-established arbitration regimes (eg, the Singapore High Court) have in the past held that even if a contract is not signed, the contract is still formed if there is performance of the contract. The absence of a signed arbitration agreement does not preclude a court from finding that there is a valid and binding arbitration agreement. Thus, in general, finding that an arbitration agreement can be concluded by conduct is a pro-arbitration stance.
In light of the above, the Supreme Court has adopted a pro-arbitration approach and, as such, may contribute positively to the existing jurisprudence on the Indian arbitration regime. By relying on the unsigned bill of lading, the court focused on the parties' conduct and intent, both of which indicated that there was an arbitration agreement between them. The court's approach may set a precedent for reducing the scope for parties that try to abandon their contractual obligations. However, it may also be argued that the lack of a party's signature on a contract is strong evidence of its lack of consent to the agreement and consequently to the arbitration clause therein.
For further information on this topic please contact Chakrapani Misra, Ravitej Chilumuri or Saasha Malpani at Khaitan & Co by telephone (+91 11 4151 5454) or email ([email protected], [email protected] or [email protected]). The Khaitan & Co website can be accessed at www.khaitanco.com.
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