Calcutta High Court: Meeting Of Minds To Refer Dispute To Private Tribunal Constitutes Arbitration Clause, Mentioning Of Applicable Law, Seat, Venue Not Mandatory

The Calcutta High Court has re-iterated that a meeting of minds of the involved parties to refer any dispute to a private tribunal for adjudication would constitute an arbitration clause and mentioning of 'Applicable Law', 'Seat', 'Venue' in the agreement is not mandatory.

The Court was considering an application for appointment of an Arbitrator to adjudicate the disputes arising out of a Memorandum of Understanding (MoU) for execution of a project floated by the Ministry of Rural Development, Government of India.

The single-bench of Justice Shampa Sarkar observed, "The Hon’ble Apex Court has held that for an arbitration agreement to be a binding clause, neither the law nor the seat or venue has to be mentioned. As long as the clause indicated that the parties had agreed and there was a meeting of minds to refer any dispute to a private tribunal for adjudication of the disputes, the said clause would constitute an arbitration clause."

The Applicant was represented by Advocate Chayan Gupta while the Respondent was represented by Advocate Noelle Banerje.

Facts of the Case

The MoU executed between parties contained Clause 9.1, the Arbitration Clause and the Petitioner raised a dispute regarding non-payment of dues. It was submitted that, upon completion of the first phase, payment was made. When the Petitioner claimed the payment for the second phase, the same was denied on the ground that the Petitioner had failed to execute the project in terms of the MoU, thereby committing breach of the MoU. Challenging the refusal on the part of the Respondent to make the payment, the Petitioner approached the High Court which dismissed the Writ Petition filed. It was held inter-alia that nothing in the order would prevent the parties from approaching the appropriate arbitral tribunal or any other forum, if they were otherwise entitled to in law, for adjudication of the disputes between the parties. Upon dismissal of the Writ Petition, the Petitioner invoked the Arbitration Clause, by issuing a Notice. Despite receipt of the said Notice, the Respondent did not take any steps, and as such, this application has been filed for appointment of an Arbitrator.

The Respondent submitted that Clause 9.1 is not an Arbitration Clause as the same is vague for applicable law, seat and venue has not been mentioned. Submitting that the mere use of the expression ‘Arbitrator’ would not make the said clause an arbitration agreement between the parties, the Respondent placed reliance on a notification dated September 12, 2023, by which the project director PBSSD clarified that the use of the expression ‘Arbitrator’ would not cover the definition of arbitrator, under the Arbitration and Conciliation Act, 1996 and the expression should be read as ‘adjudicator’.

Reasoning By Court

The Court, at the outset, observed that in the said clause, the intention of the parties to refer disputes not settled mutually, to an Arbitrator, is available. It is a different matter altogether that the Vice Chairman, PBSSD & Principal Secretary, TET & SD Department, Government of West Bengal, was the named Arbitrator.

"It was a common practice that in the dispute resolution clause, the party/owner of the project, named the Arbitrator. Having a named arbitrator does not make the clause invalid insofar as, the meeting of minds to refer a dispute to arbitration is concerned. It only results in failure of the mechanism provided by application of Section 12 (5) read with the Vth and VIIth schedules of the 1996 Act.........The Vice Chairman, PBSSD & Principal Secretary, TET & SD Department, Government of West Bengal, who was named in the said clause to be an Arbitrator is incapable to function as such under the law, but the clause does lose its character of an arbitration agreement," the Court observed.

It thus rejected the Respondent's contention that the applicable law guiding the Arbitration, the seat and other ingredients of an arbitration agreement should have been mentioned, for the clause to be treated as an arbitration clause, as not acceptable.

The Application was accordingly disposed off.

Cause Title: Ilead Foundation vs. State of West Bengal

Appearances:

Applicant- Advocate Chayan Gupta, Advocate Rittick Chowdhury, Advocate Dwip Raj Basu

Respondent- Advocate Noelle Banerje, Advocate Ritoban Sarkar, Advocate-On-Record Paritosh Sinha, Advocate Arindam Mondal, Advocate Swagata Ghosh

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