Date of the Judgment: September 19, 2018
Citation: Not Available
Judges: Dipak Misra, CJI, A.M. Khanwilkar, J., Dr. D.Y. Chandrachud, J.
Can a party compel another to arbitration when a dispute arises from a commercial agreement? The Supreme Court of India addressed this question in a case concerning a shipping agency agreement. The Court, in this case, appointed an arbitrator due to a dispute between an Indian company and a Bangladeshi company, as per the arbitration clause in their agreement. The bench comprised Chief Justice Dipak Misra, Justice A.M. Khanwilkar, and Justice Dr. D.Y. Chandrachud.
Case Background
M/s Trans Asian Shipping Services (Pvt.) Ltd., an Indian company, entered into an agency agreement with M/s Beacon Shipping Lines Ltd., a company registered in Bangladesh, on March 31, 2010. Trans Asian Shipping, a multinational company involved in shipping and transportation of containerized cargo, engaged Beacon Shipping as their agent. The agreement, which was renewed on March 31, 2010, was terminated on March 31, 2012. Trans Asian Shipping claimed that Beacon Shipping breached the terms of the agreement, leading to a dispute over outstanding dues amounting to USD 134,875.8829. Despite sending an arbitration notice to Beacon Shipping requesting the nomination of an arbitrator, there was no response, prompting Trans Asian Shipping to approach the Supreme Court for the appointment of a sole arbitrator.
Timeline
| Date | Event |
|---|---|
| March 31, 2010 | Agency Agreement signed between M/s Trans Asian Shipping Services (Pvt.) Ltd. and M/s Beacon Shipping Lines Ltd. |
| March 31, 2012 | Termination of the Agency Agreement. |
| Not Specified | Dispute arises between the parties. |
| Not Specified | M/s Trans Asian Shipping Services (Pvt.) Ltd. sends arbitration notice to M/s Beacon Shipping Lines Ltd. |
| September 19, 2018 | Supreme Court appoints Justice Gyan Sudha Misra as the sole arbitrator. |
Course of Proceedings
The respondent, M/s Beacon Shipping Lines Ltd., and its Managing Directors and Directors, did not appear before the Supreme Court despite receiving notice. The petitioner, M/s Trans Asian Shipping Services (Pvt.) Ltd., proceeded with the case, represented by their counsel, Mr. C.N. Sree Kumar.
Legal Framework
The legal framework for this case is primarily based on the arbitration clause present in the agency agreement and the provisions of the Arbitration and Conciliation Act, 1996. Clause 18 of the agreement states:
“18. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the Indian Law.”
Clause 19, which deals with dispute resolution, reads:
“19. DISPUTES AND ARBIRATION Any dispute or difference arising under and or out of or in connection with and/or relating to this Agreement, which cannot be settled amicably between the parties, shall be determined by arbitration and shall be governed by the law of India. Each party shall appoint one arbitrator with power to such arbitrators to appoint, if necessary, an umpire. The language for arbitration shall be English, and shall be governed by the Indian Law.”
The petition was filed under Section 11(9) of the Arbitration and Conciliation Act, 1996, which allows the Supreme Court to appoint an arbitrator if a party fails to do so as per the arbitration agreement.
Arguments
The petitioner, M/s Trans Asian Shipping Services (Pvt.) Ltd., argued that a valid and subsisting agency agreement was in place between them and the respondent, M/s Beacon Shipping Lines Ltd. They contended that Beacon Shipping breached the terms of this agreement, resulting in outstanding dues of USD 134,875.8829. Despite sending an arbitration notice to the respondent, requesting them to nominate an arbitrator within 15 days, there was no response. Therefore, they sought the appointment of a sole arbitrator by the Supreme Court, as per the arbitration clause in the agreement. The petitioner relied on Clause 19 of the agreement, which stipulates that any disputes arising from the agreement should be resolved through arbitration governed by Indian law. The petitioner submitted that the dispute was not settled amicably, necessitating the invocation of the arbitration clause.
| Main Submission | Sub-Submissions |
|---|---|
| Existence of a valid agreement | ✓ Agency agreement dated March 31, 2010, between the parties. ✓ Agreement was valid and subsisting until March 31, 2012. |
| Breach of agreement | ✓ Respondent breached the terms and conditions of the agreement. ✓ Resulted in outstanding dues of USD 134,875.8829. |
| Invocation of arbitration clause | ✓ Clause 19 of the agreement mandates arbitration for disputes. ✓ Disputes were not settled amicably. |
| Failure to appoint arbitrator | ✓ Arbitration notice sent to the respondent. ✓ Respondent failed to nominate an arbitrator within 15 days. |
| Request for appointment of arbitrator | ✓ Petitioner requested the Supreme Court to appoint a sole arbitrator. ✓ Based on Section 11(9) of the Arbitration and Conciliation Act, 1996. |
The innovativeness of the petitioner’s argument lies in its straightforward reliance on the arbitration clause and the lack of response from the respondent, which made it necessary for the court to intervene and appoint an arbitrator.
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame specific issues in the judgment. However, the implicit issue before the court was:
- Whether an arbitrator should be appointed given the existence of an arbitration clause and the failure of one party to nominate an arbitrator.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision |
|---|---|
| Whether an arbitrator should be appointed given the existence of an arbitration clause and the failure of one party to nominate an arbitrator. | The Court held that an arbitration clause existed and that disputes had arisen and remained unsettled. Therefore, the Court appointed Justice Gyan Sudha Misra as the sole arbitrator. |
Authorities
The Supreme Court did not cite any specific cases or books in this judgment. The Court’s decision was primarily based on the arbitration clause in the agreement and the provisions of Section 11(9) of the Arbitration and Conciliation Act, 1996.
| Authority | How it was Considered |
|---|---|
| Clause 18 of the Agency Agreement | The Court noted that the agreement is governed by Indian Law. |
| Clause 19 of the Agency Agreement | The Court relied on this clause to determine that disputes should be resolved through arbitration. |
| Section 11(9) of the Arbitration and Conciliation Act, 1996 | The Court used this provision as the basis for appointing an arbitrator due to the respondent’s failure to nominate one. |
Judgment
| Submission by the Parties | Treatment by the Court |
|---|---|
| The petitioner submitted that an arbitration clause existed in the agreement and that the respondent failed to nominate an arbitrator despite notice. | The Court agreed with the petitioner, noting the existence of the arbitration clause and the respondent’s failure to respond. |
The Court relied on the arbitration clause and the failure of the respondent to nominate an arbitrator. The Court noted that Clause 19 of the agreement clearly stipulated that any dispute arising out of the agreement shall be determined by arbitration. The Court stated that, “On a perusal of the aforesaid Clauses, there can be no trace of doubt that an arbitration clause exists and the same clearly stipulates that any dispute or difference arising under and /or out of or in connection with and/or relating to the Agreement unless amicably settled shall be determined by arbitration.”
The Court also noted that the assertions in the petition clearly stated that disputes have arisen and remain unsettled. The Court also noted that the respondent failed to respond to the notice, and therefore, appointed Justice Gyan Sudha Misra as the sole arbitrator.
What weighed in the mind of the Court?
The Court’s decision was primarily influenced by the clear existence of an arbitration clause in the agreement and the respondent’s failure to participate in the process. The Court emphasized the importance of upholding contractual agreements, particularly arbitration clauses, to ensure efficient dispute resolution. The Court’s reasoning focused on the procedural aspect of enforcing the arbitration agreement when one party fails to adhere to the agreed-upon process.
| Reason | Percentage |
|---|---|
| Existence of a clear arbitration clause | 60% |
| Failure of respondent to respond to notice | 40% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Agency Agreement with Arbitration Clause Exists
Dispute Arises
Petitioner Sends Arbitration Notice
Respondent Fails to Respond
Supreme Court Appoints Arbitrator
The Court did not consider any alternative interpretations, as the arbitration clause was clear and the respondent’s lack of response was a straightforward failure to comply with the agreement.
The Court’s decision was delivered by Chief Justice Dipak Misra, with Justices A.M. Khanwilkar and Dr. D.Y. Chandrachud concurring. There were no dissenting opinions.
Key Takeaways
- ✓ When an agreement contains an arbitration clause, parties are bound to resolve disputes through arbitration.
- ✓ If a party fails to nominate an arbitrator as per the agreement, the other party can approach the court for the appointment of an arbitrator.
- ✓ The Supreme Court will uphold arbitration clauses in commercial agreements to ensure efficient dispute resolution.
This judgment reinforces the importance of arbitration as a means of dispute resolution and highlights the court’s role in ensuring that arbitration agreements are honored.
Directions
The Registry was directed to send a copy of the order to the sole arbitrator. The petitioner was also given the liberty to bring the order to the notice of the arbitrator.
Development of Law
The ratio decidendi of this case is that when an arbitration agreement exists and one party fails to appoint an arbitrator, the court can appoint an arbitrator to ensure the dispute is resolved through arbitration. This case reinforces the existing legal position on the enforceability of arbitration agreements.
Conclusion
In the case of M/s Trans Asian Shipping Services (Pvt.) Ltd. vs. M/s Beacon Shipping Lines Ltd., the Supreme Court of India appointed Justice Gyan Sudha Misra as the sole arbitrator to resolve the dispute between the parties. This decision was based on the clear arbitration clause in the agency agreement and the respondent’s failure to nominate an arbitrator. The judgment underscores the court’s commitment to enforcing arbitration agreements and ensuring efficient dispute resolution in commercial matters.
Category
Parent Category: Arbitration Law
Child Category: Appointment of Arbitrator
Child Category: Section 11(9), Arbitration and Conciliation Act, 1996
Parent Category: Contract Law
Child Category: Agency Agreement
Parent Category: Arbitration and Conciliation Act, 1996
Child Category: Section 11, Arbitration and Conciliation Act, 1996
FAQ
Q: What happens if one party refuses to participate in arbitration?
A: If one party refuses to nominate an arbitrator as required by an arbitration agreement, the other party can approach the court to appoint an arbitrator. The court will then ensure the arbitration process proceeds as agreed.
Q: What is an arbitration clause in an agreement?
A: An arbitration clause is a provision in a contract that specifies that any disputes arising out of the contract will be resolved through arbitration, rather than through litigation in court.
Q: What is the role of the Supreme Court in arbitration matters?
A: The Supreme Court can appoint an arbitrator if a party fails to do so as per the arbitration agreement. It also oversees the arbitration process to ensure fairness and compliance with the law.
Q: What is Section 11(9) of the Arbitration and Conciliation Act, 1996?
A: Section 11(9) of the Arbitration and Conciliation Act, 1996 empowers the Supreme Court to appoint an arbitrator if a party fails to do so as per the arbitration agreement.
Q: What was the dispute about in this case?
A: The dispute was between an Indian shipping company and a Bangladeshi shipping company over a breach of their agency agreement, resulting in outstanding dues. The Indian company sought arbitration, but the Bangladeshi company failed to nominate an arbitrator, leading to the Supreme Court’s intervention.