Case Analysis: Groupe Chimique Tunisien SA v. Southern Petrochemicals Ltd. (2006) 5 SCC 265

Author: Vaishnavi Navghare.

CITATION

(2006) 5 SCC 265

NAMES OF PARTIES

Petitioner: Groupe Chimique Tunisien SA.

Respondent: Southern Petrochemicals Ltd.

JUDGES

Justice R.V. Raveendran

INTRODUCTION

Arbitration is the outside court dispute resolution method. It is governed by “The Arbitration and Conciliation Act, 1966” in India. It is time saving and hassle free method or way to resolve the dispute. This method is undertaken by most of the companies, not only Indian companies but foreign companies having dispute with Indian companies also prefer arbitration.

In order to do arbitration there should be the prior arbitration agreement signed by both the parties. These are like contingent contract they become enforceable only when dispute arose between the parties. Section 2(b) of the Arbitration and Conciliation Act defines arbitration agreement and Section 7 of the act gives details regarding the essential of the agreement and how it functions. Therefore the arbitration agreement holds important place when parties decides to take recourse of arbitration.

This case Groupe Chimique Tunisien SA V. Southern Petrochemicals Ltd.(((2006) 5 SCC 265.)) focuses mainly on the point that how the Court recognize that there is arbitration agreement between the parties and what factors should be taken into consideration while doing so. This article is a case analysis of this case. Author has discussed all the facts, issues involved in this case, and judgment given by the Court.

FACTS

Groupe Chimique Tunisien (Petitioner company) is the company located in Tunisia South Africa. It is the petitioner in the case and M/S Southern Petrochemicals Industries corporation Ltd. (Respondent company) is the respondent.  

The respondent company placed five different orders in petitioner company for purchase of phosphoric acid on the given dates i.e. 10/11/200, 17/11/2000, 4/12/2000, 20/12/2000, and 13/7/2001. All the orders were having the details regarding the quantity that is to be supplied, the price paid and the shipment details etc. Specially all the purchase stated that the order are as per terms and conditions of the fertilizer association of India and conditions for sale and the purchase of phosphoric acid i.e. FAI.  

In the clause 15 of the FAI Terms, it was given that if any dispute arose between the parties then it will be resolved by arbitration.

Payment dues of the respondent company were remaining and due to which the petitioner company filed suit in the Amman court of first instance in Jordan. On this respondent company argued with two points-

Jordan court did not have Jurisdiction to try the case.

Parties have arbitration agreement as per clause 15 of the FAI terms.

On the ground of lack of jurisdiction in 2003 the Amman court dismissed the petition filed by petitioner company. Petitioner also challenged the decision of the court through appeal which was also dismissed by the court.

In 2004 petitioner company issued notice to respondent company demanding payment of due amount along with interest of 7.5% per annum. After failure of respondent to pay this amount petitioner also filed the winding up petition in High Court of Madras, which is also pending.

Petitioner company sent notice to respondent company in 2005, informing that the dispute between the parties has to be settled by arbitration as per clause 15 of the FAI. The petitioner filed petition under section 11(4) of the Arbitration Conciliation Act 1996 for the appointment of arbitral tribunal for adjudication.

Petitioner appointed Justice D.P Wadhwa as its arbitrator and told respondent company to appoint its arbitrator within 30 days from receiving the notice. If respondent company did not comply with the procedure as given in the notice then proceedings will be initiated against it.((From the original judgment of Groupe Chimique Tunisien SA V. Southern Petrochemicals Ltd. (2006) 5 SCC 265.))

ISSUES 

1. Whether there exist a contract and arbitration agreement between the parties?

2. Whether petitioner’s claim is barred by limitation?

3. Whether respondent lost his right to appoint its nominee to the Arbitral Tribunal in view of its failure to comply with the demand of the petitioner to appoint the arbitrator within 30 days from the date of receival of receipt of notice?((Ibid.))

JUDGMENT

Issue 1. Whether there exist a contract and arbitration agreement between the parties?

Court here clarified at the very first that whether there is an arbitration agreement or not is to be decided with reference to contract document and not as per the contentions raised by the parties before the court of law after dispute arose. Court said the reference to the pleadings in the Jordanian court could have been relevant if they would be as per the Section 7(4) (C) of the Arbitration and Conciliation Act 1996 (herein after the Act).

The plea was that the arbitration agreement between the parties is contained in the exchange of statement of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. 

Court then went onto the meaning of arbitration agreement. Section 2(b) defines the arbitration agreement and what are essential of the agreement is given in the section 7 of the act. Court analyzed the Section 7 along with the documents of the parties.

Court said that, purchase order which were placed by the respondent company on the petitioner company are contracts between them and they are subject to FAI terms containing arbitration clause. Section 7 of the Act provides that “where there is reference in a contract to a document containing an arbitration clause (the FAI terms) such reference constitutes an arbitration agreement” ((Section 7 of the Arbitration and Conciliation Act 1996.))from this court said there is reference in the contract (that is purchase order here) to a document containing an arbitration clause given in FAI terms therefore it lead to existence of the arbitration agreement.

Provided that the contract should be in writing and reference of the of the arbitration clause should be made in the contract to make it part of contract. Court held that all the requirements falls under the Section 7(5) of the Act. Therefore arbitration agreement exist between the parties as per clause 15 of the FAI terms.

The respondent further contended that the invoices the document made in relation to supplies of the products does not have reference to FAI terms on which court said there is no need that invoices should have reference of arbitration clause when the contract incorporates it.

On the question whether petitioner company is estopped from saying that the parties have arbitration agreement and dispute should be resolved by arbitration on this court said contention made by the petitioner was dismissed as the case got ultimately dismissed due to lack of jurisdiction. If the party make the mistake in understanding the law and later take different stand then it is not barred from taking the stand. Therefore petitioner company is not estopped from saying that the parties have arbitration agreement and dispute should be resolved by arbitration in this court.((U.P. Rajkiya Nirman Nigam Ltd. v. Indore (P) Ltd [1996] 2 SCC 667.)) The party can take recourse of arbitration to resolve the dispute.

Issue 2. Whether petitioner’s claim is barred by limitation?

Respondent contended that the petitioners claim is barred by limitation as the amount claimed are in relation of the goods dispatched as per the bills of lading and the last  response on the from the respondent was given on 17th April 2002.

On this court said that; “it is unnecessary to examine this matter as the dispute between the parties is still alive and it is question of Arbitral tribunal to examine this matter. This issue will be decided by the tribunal and petitioner claim is not barred by limitation”.       

Issue 3. Whether respondent lost his right to appoint its nominee to the Arbitral Tribunal in view of its failure to comply with the demand of the petitioner to appoint the arbitrator within 30 days from the date of receival of receipt of notice?

It is evident that if the respondent will not appoint the arbitrator then arbitration will not take place. Under Section 10 of the Act it is given that the arbitrators cannot be in even number therefore there has to be arbitrators from both the side and a presiding arbitrator. Therefore court accepted the claim of the petitioner to resolve the dispute by arbitration.

Justice R. C Lahoti is appointed as presiding arbitrator, Justice S. Ratnavel Pandian will be representing as the arbitrator from the respondent side and Justice Wadhwa will be representing as the arbitrator from the petitioner side.Petitioner appointed Justice D.P Wadhwa as its arbitrator and told respondent company to appoint its arbitrator within 30 days from receiving the notice. If respondent company did not comply with the procedure as given in the notice then proceedings will be initiated against it.((From the original judgment of Groupe Chimique Tunisien SA V. Southern Petrochemicals Ltd. (2006) 5 SCC 265.))

ANALYSIS

In this case court gave the status of the arbitration agreement to the contract between the parties as there was reference of the arbitration clause in it, which made it part of it.

The Court while determining whether the arbitration agreement exist between the parties, it focused on the principle that it will be decided with the reference to the contract document and not as per the contentions raised by the parties before the Court of Law after dispute arose.

The Court in this case also held that if the party once denied that there exist arbitration agreement between is not estopped from claiming later that there exist the arbitration agreement and take recourse of arbitration to resolve the dispute. The Court in the case analyze the Section 7 of the Act and ensure that all the requirements should be fulfilled.

Arbitration agreement is important step whenever a party decides to resolve the dispute through arbitration in future, it gives the sense of consent from the parties that they with prior consensus has decide that they will go to arbitration if any dispute arose in future. If any mistake the the arbitration clause or not use of proper words cannot take the right of the parties away.

In the cases like Jadish Chander V. Ramesh Chander 2007¹, Dayanand Reddy V. A.P Industrial Infrastructure 1993²,Visa international Ltd V. Continental Resources (USA) Ltd 2008³ etc., it was decided by the court that in determining there exist the arbitration clause and to see whether requirements are fulfilled or not court has to look for the intentions of the parties and that will be gather from the terms of the clause and conduct of parties, the surrounding circumstances.

Even if the words like arbitrator or arbitration are not included it will not make the agreement invalid. The most important thing is that the words should disclose the determination and obligation of the parties to go for arbitration and not mere possibility.

CONCLUSION

Arbitration is the efficient method for the companies specially to resolve their commercial disputes. Through this they can keep the matter private and there will be no arm to their reputation also. Arbitration agreement is important limb of the whole arbitration process as it gives the entry to the parties in the arbitration. Consensus of the both parties is very important before deciding that they are going to choose arbitration as their dispute resolution method for future dispute.

Therefore arbitration agreement is very important as it ensures the willingness and determination of the parties. But the agreement is important document therefore parties should take utmost care while drafting it otherwise it can lead to future consequences.

1. (2007) 5 SCC 719. [↩]
2. (1993) AIR 2268 [↩]
3. (2009) 2 SCC 55. [↩]