Arbitration agreement “exists” only when it is enforceable at law and meets the legal requirements of A&C Act and Contracts Act: Delhi High Court

The Delhi High Court ruled that a simple exchange of communication is not sufficient to demonstrate that the parties agree ad ditto in the case of an arbitration agreement, when none of the correspondence exchanged between the parties refers to an agreement containing an arbitration clause.

The Unique Bench of Judge V. Kameswar Rao noted that the applicant had not presented any positive act from the opposing party, reflecting the acceptance of the terms of the agreement containing an arbitration clause.

The Court held that under section 11 of the Arbitration and Conciliation Act 1996 (A&C Act), the Court must find the “existence” of an arbitration agreement between the parties. He added that the “existence” of an arbitration agreement means an arbitration agreement that is enforceable at law and that respects and satisfies the legal requirements of the A&C Act and contract law.

The petitioner – M/s. Sequoia Fitness and Sports Technology Pvt. Ltd., approached the Respondent – GD Goenka Pvt. Ltd., for entering into a training and supervision agreement for students studying in the schools operated by the respondent. Several series of meetings took place between the parties, during which the applicant allegedly shared a copy of a proposal-agreement for the execution of this program. Said proposal contained terms and conditions, including an arbitration clause.

Subsequently, the Claimant deployed his staff to train students at the school run by the Respondent. Alleging that the Respondents had failed to pay the invoices issued by the Claimant, the Claimant invoked the arbitration clause and brought a claim under Section 11(6) of the A&C Act in the High Court of Delhi to request the appointment of an arbitrator.

The petitioner – M/s. Sequoia Fitness and Sports Technology, argued before the Court that the respondents had verbally accepted the proposal and the terms and conditions, stipulated in the proposal-agreement shared by the petitioner. He argued that on the verbal assurances given by the Respondents, the Applicant provided coaches to the Respondents’ schools to conduct the sports training program in accordance with the said proposal-agreement, for which the petitioner has issued invoices. The Claimant argued that the Respondents failed to make payment on said invoices and failed to accept and perform the proposal-agreement. The petitioner added that the contract between the parties was one of reciprocal obligations and the petitioner had carried out his part of the contract by deploying his personnel for the training of students. He argued that the Respondents, however, failed to perform their part of the contract by not performing the contract and failing to pay the invoices issued by the Claimant.

The Respondent – GD Goenka International School, argued that the request filed by the Claimant for the appointment of an arbitrator was not receivable because there was no signed agreement between the parties which included an arbitration clause . Rejecting the applicant’s assertion that the respondents orally accepted the proposal-agreementthe Respondent asserted that no document had been filed by the Applicant showing that the parties were ad ditto under the terms of proposal-agreement.

The Court noted that the said proposal-agreement was not signed or executed by the parties and was only a copy of the proposal that was shared by the petitioner with the respondents.

The petitioners argued before the Court that sections 7(4)(b) and 7(c) of the A&C Act do not provide that a document, which has not been signed by the parties, cannot be a arbitration agreement.

The Panel referred to the Supreme Court decision in Govind Rubber Ltd. against Louis Dreyfus Commodities Asia Pvt. ltd. (2014), where the Apex Court had ruled that it is a well-established legal position that if an agreement is not signed by the parties, it can be stated from the correspondence exchanged between them. However, the Supreme Court held that it was the duty of the Court to ascertain, from the correspondence exchanged between the parties, whether the parties were ad ditto under the terms of the contract.

While finding that there was no communication produced by the respondent from which it could be inferred that the parties were at ad ditto with respect to the arbitration agreement, the Court observed that all correspondence originated from the side of the claimant. Furthermore, he noted that the invoices presented by the petitioner did not refer to the said proposal-agreement, containing an arbitration clause, and that the reference to the arbitration agreement was made for the first time when the notice invoking arbitration was issued by the claimant.

Noting that the notice of invocation had not received a response from the respondents, the Court held that in the absence of any communication, it could not be inferred that the parties were at ad ditto regarding the settlement of disputes by arbitration.

The panel took into account the fact that none of the messages or other communications exchanged between the parties, nor of the invoices, made reference to the proposal-with-agreement and, therefore, the very existence of the agreement was doubtful.

“To reach a conclusion or to show a convergence of views on the arbitration agreement, a simple exchange of communication is not sufficient. The facts that depict a convergence of views or the parties are at ad ditto are relevant, which are missing in this case,” the Court said.

Adding that the Applicant had not demonstrated any positive act by the Respondent, demonstrating acceptance of the terms of the proposal-agreementthe Court rejected the claimant’s assertion that the question of the existence of an arbitration agreement must be examined by the arbitrator under Article 16 of the A&C Act.

The Court held that under Section 11 of the A&C Act, the Court must find the “existence” of an arbitration agreement between the parties.

Referring to the Supreme Court decision in Vidya Drolia vs. Durga Trading Corp. (2020), the Court observed that an arbitration agreement only exists when it is valid and legal. Further, he reiterated that the “existence” of an arbitration agreement means an arbitration agreement that is enforceable at law and that complies with and satisfies the legal requirements of the A&C Act and contract law.

Thus, finding that there was no agreement between the parties, the Court dismissed the application as inadmissible.

Deal Title: M/s Sequoia Fitness and Sports Technology Pvt. Ltd v GD Goenka Pvt. ltd.

Dated: 31.10.2022 (Delhi High Court)

Counsel for the Claimant: Mr. Himanshu Mahajan, Adv.

Counsel for the Respondent: Mr. Advait Ghosh, Adv.

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