Date of the Judgment: October 29, 2018
Citation: (2018) INSC 968
Judges: R.F. Nariman, J. and Navin Sinha, J.
Can a party be bound by an arbitration clause in a Bill of Lading, even if the clause is in the printed terms and not signed by them? The Supreme Court of India recently addressed this question in a dispute between a shipping company and a seafood exporter. The Court held that the arbitration clause was binding, emphasizing that the party had agreed to be bound by all terms of the Bill of Lading, whether printed or not. The judgment was delivered by a two-judge bench comprising Justice R.F. Nariman and Justice Navin Sinha, with Justice Nariman authoring the opinion.
Case Background
M/s Premier Sea Foods Exim Pvt. Ltd. (the Respondent), a seafood exporter from Kerala, engaged M/s Caravel Shipping Services Pvt. Ltd. (the Appellant) as an agent to facilitate the transport of goods. A “Multimodal Transport Document/Bill of Lading” dated 25.10.2008 was issued, which stated that the Respondent was the shipper and the Appellant was the agent. The Bill of Lading contained a clause stating that the “Merchant” (defined as the shipper, consignor, or consignee) agreed to be bound by all terms and conditions on both sides of the document, whether typed or printed. The Respondent later filed a suit to recover a sum of Rs. 26,53,593, citing the Bill of Lading as part of the cause of action.
Timeline
| Date | Event |
|---|---|
| 25.10.2008 | Multimodal Transport Document/Bill of Lading issued. |
| 2009 | Respondent filed a Suit being O.S. No. 9 of 2009 before the Sub-Judge’s Court in Kochi to recover a sum of Rs. 26,53,593/-. |
| 2009 | Appellant filed I.A. No. 486 of 2009 under Section 8 of the Arbitration and Conciliation Act, 1996, in the Sub-Court, Kochi. |
| 08.01.2013 | Sub-Court, Kochi, dismissed the I.A. |
| 09.01.2015 | Madras High Court applied the arbitration clause and appointed an arbitrator. |
| 14.06.2016 | Review petition against the High Court judgment was dismissed. |
| 29.10.2018 | Supreme Court allows the appeals and sets aside the judgment of the High Court. |
Course of Proceedings
The Appellant filed an application (I.A. No. 486 of 2009) under Section 8 of the Arbitration and Conciliation Act, 1996, in the Sub-Judge’s Court in Kochi, pointing out the arbitration clause in the Bill of Lading. They also mentioned that a Section 11 petition to appoint an arbitrator had been filed in Chennai. The Sub-Court, Kochi, dismissed the application, stating that the printed conditions were not binding and that no part of the cause of action arose in Chennai. The High Court, in an Original Petition under Article 227 of the Constitution of India, upheld the Sub-Court’s decision, noting that the arbitration clause was in a printed condition and that there was no indication that it was brought to the Respondent’s notice. A review petition was also dismissed. Meanwhile, the Madras High Court, in a separate proceeding, applied the arbitration clause and appointed an arbitrator.
Legal Framework
The Supreme Court referred to the following legal provisions:
- Section 7(3) of the Arbitration and Conciliation Act, 1996: “An arbitration agreement shall be in writing.”
- Section 7(4) of the Arbitration and Conciliation Act, 1996: This section outlines the conditions where an arbitration agreement is considered to be in writing. It includes agreements in a document signed by the parties, or in an exchange of letters, telex, telegrams or other means of telecommunication.
- Section 7(5) of the Arbitration and Conciliation Act, 1996: “The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”
- Section 8 of the Arbitration and Conciliation Act, 1996: Deals with the power of a judicial authority to refer parties to arbitration.
The Court also discussed the Multimodal Transportation of Goods Act, 1993, but noted that its applicability would not alter the fact that an arbitration clause formed part of the agreement between the parties.
Arguments
Appellant’s Arguments:
- The Appellant argued that the printed conditions of the Bill of Lading, including the arbitration clause, were expressly referred to in the Bill of Lading and that both parties were bound by them.
- They relied on Section 7(5) of the Arbitration and Conciliation Act, 1996, and the Supreme Court’s judgment in M.R. Engineers and Contractors Private Limited vs. Som Datt Builders Limited, (2009) 7 SCC 696, to assert that the reference to the arbitration clause in the contract made it part of the agreement.
- The Appellant also highlighted that the Madras High Court had already applied the arbitration clause and appointed an arbitrator in a related proceeding.
Respondent’s Arguments:
- The Respondent contended that Section 7(4)(a) of the Arbitration and Conciliation Act, 1996, requires an arbitration agreement to be in a document signed by the parties. Since the Bill of Lading was not signed by them, they were not bound by the arbitration clause.
- They also argued that the suit was already at the stage where issues had been framed and a witness was being examined.
| Main Submission | Sub-Submissions |
|---|---|
| Appellant: The arbitration clause is binding. |
|
| Respondent: The arbitration clause is not binding. |
|
Issues Framed by the Supreme Court
- Whether the arbitration clause in the printed terms of the Bill of Lading is binding on the parties?
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the arbitration clause in the printed terms of the Bill of Lading is binding on the parties? | Yes | The Court held that the respondent had expressly agreed to be bound by all terms of the Bill of Lading, including the printed arbitration clause. The Court also noted that the respondent had relied on the Bill of Lading as part of its cause of action, and therefore, could not deny the validity of the arbitration clause. |
Authorities
The following authorities were considered by the Court:
| Authority | Court | How it was considered | Legal Point |
|---|---|---|---|
| M.R. Engineers and Contractors Private Limited vs. Som Datt Builders Limited, (2009) 7 SCC 696 | Supreme Court of India | Followed | Reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract. |
| Jugal Kishore Rameshwardas vs. Mrs. Goolbai Hormusji, AIR 1955 SC 812 | Supreme Court of India | Followed | An arbitration agreement needs to be in writing though it need not be signed. |
| Section 7(3) of the Arbitration and Conciliation Act, 1996 | Statute | Considered | An arbitration agreement shall be in writing. |
| Section 7(4) of the Arbitration and Conciliation Act, 1996 | Statute | Considered | An arbitration agreement would be found in the circumstances mentioned in the three sub-clauses that make up Section 7(4). |
| Section 7(5) of the Arbitration and Conciliation Act, 1996 | Statute | Considered | The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract. |
Judgment
| Submission by Parties | How the Court treated the submission |
|---|---|
| Appellant: The arbitration clause is binding. | The Court agreed with the Appellant, holding that the arbitration clause was binding because the Respondent had agreed to be bound by all terms of the Bill of Lading. |
| Respondent: The arbitration clause is not binding because it was not signed and is in printed terms. | The Court rejected this submission, stating that an arbitration agreement needs to be in writing but not necessarily signed. The Court also noted that the Respondent could not rely on the Bill of Lading for its suit but deny its arbitration clause. |
| Authority | How the Court viewed the authority |
|---|---|
| M.R. Engineers and Contractors Private Limited vs. Som Datt Builders Limited, (2009) 7 SCC 696 | The Court followed this judgment to hold that the reference in the Bill of Lading was sufficient to make the arbitration clause part of the contract. |
| Jugal Kishore Rameshwardas vs. Mrs. Goolbai Hormusji, AIR 1955 SC 812 | The Court relied on this judgment to reiterate that an arbitration agreement needs to be in writing but not necessarily signed. |
| Section 7(3) of the Arbitration and Conciliation Act, 1996 | The Court used this section to emphasize that an arbitration agreement must be in writing. |
| Section 7(4) of the Arbitration and Conciliation Act, 1996 | The Court clarified that this section does not mean that an arbitration agreement must be signed in all cases. |
| Section 7(5) of the Arbitration and Conciliation Act, 1996 | The Court applied this section to find that the reference in the Bill of Lading to the arbitration clause made it a part of the contract. |
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the fact that the Respondent had expressly agreed to be bound by all terms of the Bill of Lading, including the printed arbitration clause. The Court emphasized that the Respondent could not selectively rely on the Bill of Lading for its suit while denying the validity of its arbitration clause. The Court also relied on the legal principle that an arbitration agreement needs to be in writing but does not necessarily need to be signed.
| Reason | Percentage |
|---|---|
| Express Agreement to be bound by all terms of Bill of Lading | 40% |
| Respondent’s reliance on the Bill of Lading for its suit | 30% |
| Arbitration agreement needs to be in writing but not necessarily signed | 30% |
| Category | Percentage |
|---|---|
| Fact | 40% |
| Law | 60% |
Logical Reasoning
Issue: Is the arbitration clause in the printed terms of the Bill of Lading binding?
Premise 1: The Bill of Lading stated that the “Merchant” agrees to be bound by all terms, whether printed or not.
Premise 2: The Respondent relied on the Bill of Lading as part of its cause of action in the suit.
Premise 3: Section 7(3) of the Arbitration and Conciliation Act, 1996, states that an arbitration agreement must be in writing.
Premise 4: Section 7(5) of the Arbitration and Conciliation Act, 1996, states that a reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement.
Conclusion: The arbitration clause is binding on the Respondent.
The Court rejected the argument that the arbitration clause had to be signed by the parties, citing Jugal Kishore Rameshwardas vs. Mrs. Goolbai Hormusji, AIR 1955 SC 812, which held that an arbitration agreement needs to be in writing but not necessarily signed. The Court also emphasized that the Respondent could not approbate and reprobate, that is, rely on the Bill of Lading for its suit while denying its arbitration clause.
The court stated that, “The respondent, therefore, cannot blow hot and cold and argue that for the purpose of its suit, it will rely upon the Bill of Lading (though unsigned) but for the purpose of arbitration, the requirement of the Arbitration Act is that the arbitration clause should be signed.”
The court further stated that, “The fact that the arbitration agreement shall be in writing is continued in the 1996 Act in Section 7(3) thereof. Section 7(4) only further adds that an arbitration agreement would be found in the circumstances mentioned in the three sub-clauses that make up Section 7(4). This does not mean that in all cases an arbitration agreement needs to be signed. The only pre-requisite is that it be in writing, as has been pointed out in Section 7(3).”
The court stated that, “This being the case, the present is a clear case where, under Section 7(5) of the Act read with M.R. Engineers and Contractors Pvt. Ltd. (supra) (paras 22 & 24), the reference in the Bill of Lading is such as to make the arbitration clause part of the contract between the parties.”
Key Takeaways
- ✓ Parties can be bound by arbitration clauses in printed terms if they agree to be bound by all terms of a contract.
- ✓ An arbitration agreement must be in writing but does not always need to be signed.
- ✓ A party cannot rely on a contract for one purpose while denying its validity for another.
Directions
The Supreme Court allowed the appeals and set aside the judgments of the High Court.
Development of Law
The ratio decidendi of the case is that an arbitration clause in a contract, even if it is in the printed terms and not signed, is binding if the parties have agreed to be bound by all terms of the contract. This case reinforces the principle that an arbitration agreement needs to be in writing, but not necessarily signed, and clarifies the application of Section 7(5) of the Arbitration and Conciliation Act, 1996. This judgment does not introduce a new principle but reiterates the existing legal position.
Conclusion
The Supreme Court’s decision in Caravel Shipping Services Pvt. Ltd. vs. Premier Sea Foods Exim Pvt. Ltd. clarifies that an arbitration clause in a Bill of Lading is binding if the parties have agreed to be bound by all terms of the document, whether printed or not. The Court emphasized the importance of written agreements and the principle that a party cannot selectively rely on a contract while denying its arbitration clause. This judgment reinforces the legal position on arbitration agreements and provides guidance for future cases involving similar issues.