Formal agreement not required for arbitration

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In a landmark judgment, the Supreme Court of India recently interpreted the provisions of sections 7 and 11(4) of the Arbitration and Conciliation Act, 1996, read with article II para 2 of the New York Convention, in the case of M/s Unissi (India) Pvt Ltd v Post Graduate Institute of Medical Education & Research (decided on 1 October).

The issue in question was whether an arbitrator could be appointed in the absence of a formal agreement containing an explicit arbitration clause agreed and signed by all the parties.

in this case, a tender containing an arbitration clause was floated by the Post Graduate Institute of Medical Education & Research (PGI) in 2000, for the purchase of pulse oxymeters. Unissi made an offer for the tender in 2001, which was accepted by the PGI.

Unissi supplied the equipment, subsequent to the placing of purchase orders by the PGI.

The PGI then demanded the execution of an agreement containing an arbitration clause on a non-judicial paper, duly signed. After signing the agreement, Unissi sent it to the PGI; however, signatures of the PGI’s authorities were never acquired by Unissi.

Later, disputes arose between the parties with regard to the tender. Unissi filed an application for the appointment of an arbitrator before the additional district judge in Chandigarh, contending that an agreement containing an arbitration clause was executed between the parties.

The PGI argued that no arbitration agreement had been executed.

The district judge dismissed Unissi’s application for the appointment of an arbitrator, on the grounds that no arbitration clause was in existence between the parties. Unissi then filed an appeal before the Supreme Court of India.

The Supreme Court analysed sub-section 4 of section 7 of the act, which provides that an arbitration agreement is in writing if it is contained in, (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 (c) an exchange of statements of claim and defence, in which the existence of the agreement is alleged by one party and not denied by the other.

The Supreme Court maintained that the provisions of section 7 of the act were to be read with article II para 2 of the New York Convention. In this case, the documents on record showed that the equipment supplied by Unissi was accepted by the PGI through the tender enquiry.

The court observed that there was a valid arbitration agreement between the parties, even though no formal agreement had been executed. The tender documents accepted by the PGI contained an arbitration clause which was legally binding between Unissi and the PGI.

Therefore, even if no formal agreement is executed, disputes between parties must be referred to an arbitrator as long as supporting documents, such as a condition of contract, contain an arbitration clause.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at [email protected], [email protected] or [email protected] Readers should not act on the basis of this information without seeking professional legal advice.