PLEADINGS
2. LIFELINE IS ENTITLED TO COMPENSATION DUE TO BREACH OF TRUST, WRONGFUL GAIN, AND
UNJUST ENRICHMENT OF PROMOTERS AND THERE IS AN NO ARBITRATION CLAUSE.
It is humbly submitted before this honourable court that there exists breach of contract, and
that the respondents acquired wrongful gain and unjust enrichment of Promoters by
defrauding and misrepresenting the petitioner who was a bonafide purchaser. The respondents
concealed the fact that the investigation by the US Food and Drug Administration was
pending with malafide intention to ensure that they get an inflated price for their shares.
Secondly, it is submitted that is no arbitration clause. It is because the sale agreement does
not constitute an Arbitration Clause according to Sec.7 of the Arbitration and Conciliation Act
1996. Also, in here there is no mention of the word “Arbitration” but only includes the words
“amicably resolve” which cannot be considered as an arbitration clause. It could also be
stated that by doing so, the right of the parties to choose their choice of arbitrator is also taken
away. A good amount may be awarded as compensation to the petitioner.
2.1 NON-EXISTENCE OF ARBITRATION CLAUSE
In the backdrop of the above referred aspect, it will be appropriate to consider Section 7(1) of
the Arbitration and Conciliation Act, 1996 (“Act”) which is relevant and connected with the
issue in question.
Section 7: Arbitration agreement
(1) In this Part, "arbitration agreement" means an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may arise between them in
respect of a defined legal relationship, whether contractual or not.
(2)....................... Plain reading of the aforementioned provision clearly show that the
Arbitration clause must purport to submit a disputed matter to the judgment of one or more
persons called arbitrators
1. This Court held that a clause in a contract can be construed as an 'arbitration
agreement' only if an agreement to refer disputes or differences to arbitration is
expressly or impliedly spelt out from the clause. We may at this juncture set out the
well settled principles in regard to what constitutes an arbitration agreement.
(i) The intention of the parties to enter into an arbitration agreement shall have to be gathered
from the terms of the agreement. If the terms of the agreement clearly indicate an intention on
the part of the parties to the agreement to refer their disputes to a Private Tribunal for
adjudication and the willingness to be bound by the decision of such Tribunal on such
disputes, it is arbitration agreement. While there is no specific form of an arbitration
agreement, the words used should disclose a determination and obligation to go to arbitration
and not merely contemplate the possibility of going for arbitration. Where there is merely a
possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to
refer disputes to arbitration, there is no valid and binding arbitration agreement.
(ii) Even if the words 'arbitration' and 'Arbitral Tribunal (or arbitrator)' are not used with
reference to the process of settlement or with reference to the Private Tribunal which has to
adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract
from the clause being an arbitration agreement if it has the attributes or elements of an
arbitration agreement. They are - - (a) The agreement should be in writing, (b) The parties
should have agreed to refer any disputes (present or future) between them to the decision of a
Private Tribunal, (c) The Private Tribunal should be empowered to adjudicate upon the
disputes in an impartial manner, giving due opportunity to the parties to put forth their case
before it. (d) The parties should have agreed that the decision of the Private Tribunal in
respect of the disputes will be binding on them.
(iii) Where the clause provides that in the event of disputes arising between the parties, the
disputes shall be referred to arbitration, it is an arbitration agreement. Where there is a
specific and direct expression of intent to have the disputes settled by arbitration, it is not
necessary to set out the attributes of an arbitration agreement to make it an arbitration
agreement. But where the clause relating to settlement of disputes, contains words which
specifically excludes any of the attributes of an arbitration agreement or contains anything
that detracts from an arbitration agreement, it will not be an arbitration agreement. For
example, where an agreement requires or permits an authority to decide a claim or dispute
without hearing, or requires the authority to act in the interests of only one of the parties, or
provides that the decision of the authority will not be final and binding on the parties, or that
if either party is not satisfied with the decision of the authority, he may file a civil suit
seeking relief, it cannot be termed as an arbitration agreement.
Thereafter in Para 9, it has been observed by the learned Supreme Court that the agreement
has to be an arbitration agreement within the purview of section 7 of the Arbitration and
Conciliation Act, 1996. This judgment of the Supreme Court in the case of Jagdish Chander,
was considered by the Bombay High Court in the case of Reshamsingh & Co. Pvt. Ltd., and
after taking note of somewhat similar clause which pertains to settling of dispute to Mumbai
Jurisdiction under the arbitration, similar arguments were rejected and it was held that the
clause does not contemplate an arbitration agreement.
2. A perusal of the law laid down by the Supreme Court in Jagdish Chander and in
Reshamsingh & Co. Pvt. Ltd., would clearly show that to constitute an arbitration
agreement the intention of the parties entering into the agreement has to be clear and
specific in terms. The agreement should indicate that the parties intend to resolve all
their disputes by referring to an Arbitration Tribunal for adjudication and the
willingness of the parties to be bound by such a decision of the Arbitral Tribunal.
Even though Hon'ble Supreme Court has held that no specific form is prescribed for
such an agreement but the existence of arbitration agreement has to be gathered from
the intention of the parties and the correspondence, if any, between them. It is also
observed by the Supreme Court that mere use of words "arbitration or arbitrator" in a
particular clause of the agreement cannot be construed to mean that it is an arbitration
agreement.
3. In effect, the clause requires the consent of parties before the disputes can be referred
to arbitration. The main attribute of an arbitration agreement, namely, consensus ad
idem to refer the disputes to arbitration is missing in clause 16 relating to settlement
of disputes. Therefore, it is not an arbitration agreement, as defined under Section 7 of
the Act.(RAMESH CHANDER)
4. It could be clearly noted that in this case, the Point no. 2.1 says, “The parties shall
endeavour to amicably resolve the above-mentioned issues”. This by keeping in
reference to the above-mentioned judgements showcases that, the clause is not an
arbitration clause as there is no finality or certainty regarding the choosing of
arbitration as a mode to settle disputes. Furthermore, there is no mention of the
arbitrator or the Private Tribunal to whom the dispute shall be transferred and also
there is no mention of the fact that the decision of the Private Tribunal or the arbitrator
would be final and binding on the parties. The lack of these specific words shows that
there is no real Arbitration clause.
5. It is humbly submitted before this Honourable Court that as per Section 7(1) of The
Arbitration and Conciliation Act 1996 that, Arbitration Agreement is an agreement by
the parties to submit to arbitration all or certain disputes which have arisen or which
may arise between them in respect of a defined legal relationship whether contractual
or not. It is important to note that while not deemed essential, certain essential
elements can be included in an arbitration clause based on the parties’ preferences.
These elements provide further clarity and structure to the arbitration process.
Common components of an arbitration clause
An explicit referral of disputes to arbitration;
The governing law of the arbitration agreement;
The seat of arbitration;
The rules governing the arbitration;
The number of arbitrators and their method of selection
All these has not been fulfilled by the clause. Therefore, it won’t amount to an
arbitration clause.
6. It’s not required in the arbitration agreement that the word “Arbitration” is
mentioned*. Similarly in the agreement the word “Arbitration” is not mentioned.
7. It is clearly stated in the sale agreement itself under Point 3 – heading of jurisdiction.
Point 3.1 states that all disputes touching upon the subject matter of the agreement
shall be subject to the jurisdiction of the Delhi High Court.
8. In the instant matter, it is not clearly stated that this is an arbitration agreement or that
the sale agreement constituted an arbitration clause. The word Arbitration is nowhere
mentioned in the sale agreement indicating that the clause refers to an arbitration
clause.
As point no 3.1 specifically mentions that all disputes touching upon the subject
matter of the agreement shall be subject to the jurisdiction of the Delhi High Court.
9. A Clause in a contract read:
“In case of any dispute arising out of the contract, the matter shall be referred to the
concerned court under whose jurisdiction the work is situated”
It was held that although the above clause employed the words, “dispute arising out of
the contract” and “shall be referred to the concerned court”, it was not an arbitration
clause but a clause to limit the territorial jurisdiction of the court.*
10. In another case – The last sentence of the proviso to clause 10 read; “In the event of a
dispute, the decision of the Superintending Engineer of the Circle will be final”. The
question of the decision was, whether this sentence could be considered to be an
arbitration agreement. The court held it did not amount to arbitration as a mode of
settlement of disputes. It did not provide for reference of disputes between parties to
arbitration. It did not provide or refer to any procedure which would show that the
Superintending Engineer was to act judicially after considering the submissions of
both parties. It did not disclose any intention to make the Superintending Engineer as
the arbitrator in respect of disputes that may arise between the Engineer-in-charge and
the contractor. Thus, said clause by no stretch of argument could be considered to be
an arbitration agreement* With regards to the above-mentioned case in the instant
matter under point of Dispute Resolution (2.1) the Composition of the Empowered
Committee comprising of (three) Executive Level Personnel of the Company shall be
final, binding and conclusive on the parties of the agreement. It has nowhere been
mentioned that the Empowered Committee comprising of (three) Executive Level
Personnel are going to act as arbitrators. Bothe the parties have a right to select their
own arbitrator to represent themselves in the dispute a here that basic right is taken
away if one has to construe this relevant clause as an arbitration clause.
11. To constitute an Arbitration agreement, there must be an agreement or clause referring
to Arbitration i.e to say the parties must be ad idem i.e agreed to the same thing in the
same sense. In the instant matter, one cannot say that both the parties have agreed to
the same thing in the same sense, in other words, ad idem does not take place.
2.1.1 What is a Dispute under the Arbitration and Conciliation Act, 1996?
Before moving forward, it is expedient to understand what constitutes a “Dispute”.
The term “dispute” must be interpreted in light of its “ordinary meaning”.
Differences or disputes exist only if one party makes a claim or demand and the other
party refuses or denies the same.
In the case of State of U.P. v. Tipperchand, the Supreme Court held that a clause in a
contract which provided that “the decision of the Superintending Engineer for the
time being shall be final, conclusive and binding on all parties to the contract upon all
questions relating to the meaning of the specifications, design, drawing and
instructions, hereinbefore mentioned” and that “the decision of such Engineer as
to........., shall also be final, conclusive and binding upon the contractor, is not an
arbitration agreement”. Similarly in a case before Allahabad High Court, where a
clause in an agreement provided that the decision of the Chief Engineer would be
final on matters of specification, drawings, instructions, etc., it was held that the Chief
Engineer was not thereby empowered by the clause to decide any difference or
dispute arising out of the contract. The clause in question did not constitute an
arbitration agreement. Reference in this connection is made to the Judgment of the
Supreme Court in the case of Rukmanibai Gupta v. The Collector, Jabalpur and Ors6
where it was held what is required to be ascertained in an arbitration agreement is
whether the parties have agreed that in the event of disputes between them in respect
of the subject matter of contract those shall be referred to arbitration and the decision
taken by the body to whom it is referred to is final. Based on the above principle, the
Orissa High Court7 observed that in two similar clauses, the additional use of the
words “in the event of a dispute” in one clause was held to imply an intention to form
an arbitration agreement, while the other clause, which did not contain those words,
was held to be not an arbitration agreement.
Therefore, it is contended that a plain reading of Clause 2.1 of the agreement does not
indicate the determination of a matter in dispute by the empowered committee but
only the finality of decision of the empowered committee upon questions and issues
relating to meaning, scope, instructions, claims, right or matters of interpretation
under the Agreement. Furthermore, the existence of a dispute is an essential condition
for the exercise of jurisdiction by an arbitrator8 and if there is no dispute there can be
no right to demand arbitration. It is argued that the absence of this essential requisite
of a dispute in an arbitration agreement shows there was no intention to arbitrate
under the Sale Agreement between Lifeline and Promoters.
2.1.2 Whether Clause 2.1 of the Agreement constitutes an expert determination
or an arbitration?
“Whether the agreement is an arbitration agreement or an agreement for valuation
ultimately depends upon the intention of the parties as appearing from the words used
by them. The use of words “judge”, “arbitrator”, “adjudge” and similar expressions is
not conclusive.”12 Russel on Arbitration13 states “Many cases have been fought over
whether a contract’s chosen form of dispute resolution is expert determination or
arbitration. This is a matter of construction of the contract, which involves an
objective enquiry into the intention of the parties. Reliance can be placed on Bharat
Bhushan Bansal v. U.P Small Industries Corp. Ltd14.where the Supreme Court
distinguished expert determination and arbitration. Similarly in the case of K.K. Modi
v. K.N. Modi and Ors., the Supreme Court had the occasion to consider the essential
ingredients of an arbitration clause. Among the ingredients described in the said
judgment, two important ingredients are; that the agreement between the parties must
contemplate that substantive rights of parties will be determined by the agreed
Tribunal and that the Tribunal will determine the rights of the parties in an impartial
and judicial manner with the Tribunal owing an equal obligation of fairness towards
both sides and also that the agreement of the parties to refer their disputes to the
decision of the Tribunal must be intended to be enforceable in law. There is a
difference between an expert determination and arbitration15. In the light of the above
principle, it is clear from Clause 2 of the agreement that in respect of questions and
issues relating to the meaning, scope, instructions, claims, right or matters of
interpretation connected with the contract, the parties shall submit to the decision of
the Empowered Committee which is to be final, binding and conclusive, the intention
of an arbitration being absent.
2.2 SECTION 29 OF INDIAN CONTRACR ACT
1. Agreements void for uncertainty —Agreements, the meaning of which is not certain,
or capable of being made certain, are void. —Agreements, the meaning of which is
not certain, or capable of being made certain, are void."
2. An arbitration agreement has to be definite and certain. An Arbitration agreement, the
meaning of which is not certain, or capable of being made certain is void. * As in the
instant matter, the arbitration agreement has is neither definite nor certain.
3. In one of the case, the suit was dismissed by the court for two reasons one being that
no suit will lie on the terms of Ex.A itself because they embody an agreement which
in the words of Sec.29 of the Contract Act is one, the meaning which is not certain or
capable of being made certain. *
4. In this case, a contract is valid if its terms are competent of being made certain. The
essence of the contract should not be uncertain and further, it needs to be noted that it
is not competent of being made certain. Mere uncertainty or ambiguity which can be
effortlessly removed by proper interpretation does not make a contract unenforceable.
Even oral agreements will not be held uncertain or vague if its terms are ascertainable
with precision.*
5. In yet another case, it is stated that the plea that a particular contract is void for
uncertainty under Section 29 of the Contract Act is a question of law and if the terms
of the contract are vague and uncertain, the contract itself would be void and
unenforceable under Section 29 of Contract Act. *
6. In this case, it has been held that Section 29 of the Contract Act which provides that
an agreement which is not certain or capable of being made certain is void. The
purpose of Section 29 is to ensure that the parties to a contract should be aware of the
precise nature and scope of their mutual rights obligations under contract.*
2.3 In Arguendo, even if there exists an arbitration clause, it would become
unenforceable.
An arbitration clause becomes unenforceable where the dispute involves a question of
fraud. The word ‘fraud’ for this purpose is to be taken in its ordinary meaning in
which dishonesty is an essential ingredient. In this case16 it was held It is also no
doubt true that where existence of an arbitration agreement can be found, apart from
the existence of the original agreement, the courts would construe the agreement in
such a manner so as to uphold the arbitration agreement. However, when a question
fraud is raised, the same has to be considered differently. Fraud as is well-known
vitiates all solemn acts. A contract would mean a valid contract; an arbitration
agreement would mean an agreement which is enforceable in law”. Therefore, when a
party’s case proceeds on serious allegations of fraud, it taints the entire agreement,
including the arbitration clause. Based on the aforementioned principle, it is submitted
that where the appellant has proceeded to take an action against the promoters for
breach of contract on grounds of fraud and misrepresentation, the only mode of
dispute resolution would be under the jurisdiction of Delhi courts.
