“If Two Arbitration Clauses Exist, They Must Be Harmonized”: Supreme Court

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Supreme Court heard the dispute between Balasore Alloys Ltd and Medima LLC where the main issue concerned the appointment of an arbitrator. The Court dismissed the application. The Bench ruled the matter in favour of Medima LLC.

Brief Facts of the Case

The Applicant (Balasore Alloys Ltd) approached the Court under Section 11(12)(a) if the Arbitration and Conciliation Act 1996. The Applicant and the Respondent (Medima LLC) entered into transactions where the Applicant agreed to supply the High Carbon Ferro Chrome manufactured by them to the Respondent. The same was supplied for sale of the material in the territory of USA and Canada. Thirty-seven purchase orders were placed by the respondent.

On 31.08.2020, the parties entered into an agreement relating to the same transaction. The Applicant prayed to the Court for the appointment of a sole arbitrator. This is to adjudicate the disputes that have arisen between the parties. Alternatively, it is prayed that the second arbitrator is appointed on account of the failure of the respondent to nominate an arbitrator the contracts.

Arguments

The Applicant relied on Clause 7 contained in the contracts of the thirty-seven purchase orders. The provision provides for the resolution of disputes through arbitration by Arbitral Tribunal that will be constituted as provided therein. The Applicant argues that the Respondent had failed to appoint their arbitrator, despite the Petitioner having nominated Justice Amitava Lala, Retired High Court Judge.

The Respondent replied to the application stating that the entire transaction is governed under the Agreement dated 31.03.2018. The Respondent referred to the agreement as an Umbrella Agreement. Further, they argue that the said Umbrella Agreement vide Clause 23 provides for resolution of disputes through arbitration in the manner as indicated therein. As such the Respondent had already invoked the same by the issue of notice. Also, as per the procedure contemplated in Clause 23 respondent had filed a petition before the International Chamber of Commerce (‘ICC’ for short) and the Arbitral Tribunal has been constituted. Thus, this application is not bonafide and is liable to be dismissed.

Court’s Observation

The Court pointed out that it is evident that the parties have entered into a business transaction and certain disputes have arisen between them which is to be resolved through arbitration. The parties are also in agreement to this extent. The issue for consideration is the appropriate clause that will operate providing for arbitration and will apply to this factual matrix. The Court then discussed the two provisions – Clause 7 and Clause 23.

The Court referred to the 1999 case of Olympus Superstructures Pvt Ltd v Meena Vijay Khetan & Ors. In this case, the Court was confronted with the issue of there being two different arbitration clauses in two related agreements between the same parties. The Court while dealing with the same, harmonized both the clauses. The Court held that the parties should get the disputes resolved under the main agreement.

Looking at the facts of the current case, the Court observed that the Applicant had not initiated the process of invoking the arbitration clause. A notice dated 13.03.2020 was issued on behalf of the Respondent to the Applicant.

The notice referred to the breach of the Umbrella agreement/Pricing agreement. As per Clause 23 of the said agreement, an opportunity was provided to resolve the matter. It was indicated that the Respondent would approach the International Chamber of Commerce (ICC) in 30 days.

In their reply, the Applicant disputed the claim put forth by the Respondent under the Agreement, referring to it as the Pricing Agreement. Further, the Applicant thereafter referred to the nature of their claim. The Applicant indicated that the constitution of the Arbitral Tribunal and conduct of arbitration proceeding must be under Clause 7 of the contract terms forming part of and governing all individual contracts.

The Court observed that the terms of the Umbrella/Pricing Agreement are comprehensive and encompassing all terms of the transaction. Also, the agreement’s arbitration clause is different from the one in the purchase order as the latter is for the limited purpose of the supply of the produce.

Court’s Order

The Court held that it would not be appropriate for the Applicant to invoke Clause 7 of the purchase orders. This was because the arbitration clause contained in the Agreement dated 31.03.2018 had been invoked. Accordingly, the Court dismissed the application.


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