REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION NO.10 OF 2006

Great Offshore Ltd.                 … Petitioner/Applicant

Versus

Iranian Offshore Engineering &  Construction Company         …Respondent

J U D G M E N T

Dalveer Bhandari, J.

1. Great Offshore Limited has filed a petition under section

11(5)((6)(9)  and (12)  of  the  Arbitration and Conciliation Act,

1996 whereby the applicant seeks the appointment of a sole

arbitrator.  The applicant, Great Offshore Ltd., submits that it

has  entered  into  a  charter  party  agreement  with  the

respondent,  Iranian  Offshore  Engineering  &  Construction

Company.  The charter party agreement (“CPA”) contains an

arbitration clause.  Relying on this clause, the applicant has

asked  this  Court  to  appoint  an  arbitrator  to  resolve  the

dispute.   The  respondent,  however,  contends  that  the  two

parties  had  not  progressed  beyond  the  stage  of  negotiation

and  that  there  is  no  concluded  contract  between  them.

Therefore, it is argued that there is no question of referring the

dispute to arbitration.   

2. Brief  facts  which  are  relevant  to  dispose  of  this

arbitration petition are recapitulated below.

3. The  charter  party  agreement  in  dispute  marks  the

second time the parties have done business with each other.

The  first  time  was  in  2004.   In  March  of  that  year,  the

respondent entered into a contract with the Oil and Natural

Gas Corporation Limited (“ONGC”)  to carry out construction

work  on  ONGC’s  installations  at  Bombay  High.   On  26th

October, 2004, the applicant and the respondent entered into

a charter party agreement.  Under this prior agreement, the

respondent hired a vessel combination from the applicant. The

respondent required a specialized offshore construction barge

known as  a  “Gal  Constructor.”   It  also  required  an anchor

handling tug, named “AHT Malaviya Five.”  The AHT Malaviya

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is used in combination with the Gal Constructor.  I shall refer

to the Gal Constructor and the AHT Malaviya as the “vessel

combination.”  

4. The  respondent  needed  this  combination  to  execute

offshore  work  for  ONGC.   This  work  was  part  of  ONGC’s

RSPPM project,  Phase I.   The  first  phase  was completed  in

November 2004.

5. In this case,  the controversy is confined to the alleged

agreement relating to the second phase of ONGC’s project.   

6. In this arbitration petition, I need to decide whether the

parties  have  entered  into  a  valid  contract  containing  an

arbitration clause.  To this end, it has become imperative  to

review the relevant correspondence between them.  Only then

will I be able to arrive at a conclusion as to whether there was

a  concluded  contract  or  whether  the  parties  had  never

progressed beyond the stage of negotiation.

7. After the parties expressed mutual interest in resuming

business  for  Phase  II,  the  respondent  faxed  a  letter  to  the

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applicant.  The letter is dated June 20th, 2005.  In this letter,

the respondent expressed its intention to use the applicant’s

vessel combination for 170 days pursuant to the same terms

as the preceding agreement.   A few amendments,  however,

were to be made to that agreement.  

8. The  applicant  responded  vide  email  the  next  day  and

stated  that  it  would  like  to  “come  to  an  agreement.”  After

meeting the respondent on 22nd June, the applicant faxed an

offer to the respondent on June 23rd, 2005.  

9. In turn, the respondent faxed a letter of intent on June

23rd,  2005.   The  letter  stated  that  it  was  “…a firm  and

unconditional  letter  of  intent  (for  short  LIO)  for  award  of

contract for charter hire of your barge Gal Constructor and

Malviya  5”.   Nevertheless,  the  very  same  letter  contained  a

contingency clause:  

“  This  Agreement  is  subject  to  IOEC  [respondent]   providing a suitable barge and AHT acceptable to GE Shipping [applicant] for a period of 45-55 days on  mutually  agreed  rates for  commencement between  25th October  and  10th November  05  for BHN MOL project works.”   

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10. On July 1st, 2005, the respondent’s minutes of meeting

indicate that the barge (vessel) was to be available for visual

examination “…until  25th of  July  after  which the  barge  will

leave AJMAN port in UAE for the project in PG”.   

11. On August 4th, 2005, the applicant explained that it no

longer  wanted  the  respondent  to  provide  a  barge  for  45-55

days,  as  mentioned  in  the  respondent’s  June  23rd letter  of

intent.  Because the parties could not agree on the rate for

this service, the applicant said that it would make alternate

arrangements.   

12. On August 11th, the respondent sent a letter in regard to

modifying the Barge Gal Constructor so that it could function

as  a  riser  installation  barge.   Based  on  its  engineering

analysis, it sought to install “…5 davits in the port or STBD

side  at  the barge”  as  well  as  a “… working platform as  an

extension  to  main  deck  in  the  aft  quarter  over  one  of  the

anchor rests”.   

13. In response to a meeting on August 8th and the above

letters,  the  respondent  faxed  a  letter  to  the  respondent  on

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August  13th,  2005.   The  letter  suggested  that  additional

provisions be incorporated in a new draft of the contract.  The

respondent requested the right to modify the Gal Constructor,

thereby  enabling  it  to  perform  a  riser  installation.   The

respondent further asked the applicant to pay the outstanding

amount  (USD  188,500)  from  the  preceding  contract.  In

conclusion, the respondent stated that it would be willing to

finalize the contract before the 30th of August.   

14. On 16th August, the parties met to discuss the proposed

changes.  The  applicant  formally  responded  to  the

respondent’s suggestions in a letter dated August 22nd, noting

that  the  parties  had  come  to  the  following  agreement

regarding a number of outstanding issues:

S. No. Clause Agreement 1 Modifications  for  Riser

Installation  Clause  on  the  basis  of Addendum 3 to  Charter  Party dated  26th Oct  04  to  be incorporated  

2 Early  Termination Clause

It  was mutually agreed not to include the clause suggested  

3 Employment of vessel Clause  as  per  Charter  Party dated  26th Oct  04  to  be incorporated  

4 Sublet Clause Clause 17 of the charter party to  be  referred  in  additional clause pertaining to sublet  

5 Credit note issue Addressed hereunder

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…  we  confirm our  acceptance  of  the  credit  note amounting  to  US$186,618  …  for  subject  vessel combination for charter party dated 26th Oct 2004. …”  

15. Before  proceeding  with  the  correspondence,  it  is

pertinent  to  note  that  the  faxed  charter  party  agreement

(“faxed  CPA”)  is  dated  August  22nd.   After  having  settled  a

number  of  outstanding  issues  vide  the  above  letter,  the

applicant allegedly sent the faxed CPA to the respondent on

the same day.   

16. The faxed CPA officially entitled  the  “Charter  Party for

Offshore  Service  Vessels  Code  Name ‘Supplytime 89’”  dated

August  22nd,  2005  is  reproduced,  in  relevant  part.   The

“charterer”  is  the  respondent,  and  the  applicant  is  the

“owner”:     

1.  Place & Date. Mumbai, India.  22nd August 2005.  …

9.  Period of Hire. 204 days firm / minimum …

14. Early termination of  charter (state amount of  hire payable) (Cl. 26(a)) Not Applicable.   

18. Employment of Vessel restricted to (state nature of service(s))  

(Cl  5a))  Hook  up,  commissioning,  accommodation  and offshore Installation work such as I-Tube installation and Riser Installation and all other activities of RSPPM Project, within  Vessel’s  natural  Capabilities  and  safe  practices/

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operations.   

19. Charter Hire (state rate & currency) (Cl 10(a) & (d))

                                     USD 31,000 … PDPR …

22. Payments …

Payments  shall  be  made  against  acceptable, unconditional, revolving and irrevocable Letter of  Credit  issued  at  sight  by  the  Charterer’s bank for USD 6,500,000 …   

These  L/C(s)  to  be  opened,  latest  by  15th September  2005.   However  draft  of  L/C(s) should  be  provided  to  the  Owners  by  1st September 2005.   

33. Law  and  arbitration  (state  Cl  31(a)  or  31(b)  or  31(c),  as agreed, If 31c agreed also state place of arbitration) (Cl.31)

Clause 31(c)  – Indian Arbitration and Conciliation Act, 1996 at Mumbai  

      …. . ”   

17. I  must  provide  some  background  before  dealing  with

other documents, as the faxed CPA sits at the center of this

dispute.  

18. It appears that both parties signed the faxed CPA, and it

bears  the  applicant’s  seal.   However,  it  does  not  bear  the

respondent’s seal.  The applicant contends that it had sent the

original to the respondent on August 22nd.   The respondent

did not return the original.  Instead, on September 8th, the

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respondent’s head office faxed a copy of the CPA to its local

office. [The top of the said fax shows the date and time as well

as the place from and to which it was sent; it reads “08-SEP-

2005 13:52 FROM IOEC HEAD OFFICE  TO ALLAHVERDI”].

This faxed copy is signed by the respondent’s Project Director,

Mr. M. Sabbaghi.    

19. The respondent’s Mr. Ali Rahmati provided the applicant

the faxed CPA on October 12th, according to the applicant’s

letter dated October 21st.  In a letter dated October 26, the

respondent originally asserted that it never signed the faxed

CPA and that the document was forged.  

20. Between the date on which the applicant sent the faxed

CPA  – 22nd August – and the date on which the respondent

reportedly  returned  it  to  the  applicant  –  12th September,

ONGC  had  advised  the  respondent  to  get  the  vessel

combination  certified  before  proceeding  with  a  Riser

installation. ONGC’s letter dated 30th August stated that the

vessel  did  not  have  any  past  track  record  with  riser

installations.  

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21. The  applicant  later  expressed  concern  that  the

respondent’s  failure  to  return  the  original  contract,  i.e.,

charter party agreement, could result in undue delay.  In an

email  sent  at  9:03  a.m.  on  14th September,  the  applicant

stated, in relevant part, that:-

“... You would appreciate that it is imperative for us to have the charter party with us in order to initiate actions  from  various  departments  such  as operations, fleet personnel, accounts etc to prepare for  the  said  contract  and  in  absence  of  this document we are not in a position to push for same. This will result in last minute hassles and delays. …”  

22. The respondent’s email  rejoinder came at 4:31 p.m. on

the same day.  The relevant part reads as under:-

“…

The CPA of Gal Constructor and Malavya 5 is ready in our office and will be hand over to you.   

…”   

23. On  September  15th,  2005,  the  applicant  sent  the

following email to the respondent. It reads in relevant part as

under:-

“1.  Understand that charter party is ready in your office.  However, we are yet to receive the same and

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urgently  require  it  to  be  circulated  among  the concerned  departments so that they are  prepared for the next contract.  Will get in touch with your office again today for the same. …”   

24. The  respondent  faxed  a  letter  dated  September  23rd,

2005 to the applicant.  The letter asks the applicant to issue a

cheque  for  the  outstanding  amount  due  from  the  parties’

Phase I work.  It further demands that the applicant grant the

respondent the sole and absolute right to sublet the vessel to

its  subcontractor(s)  at  the  agreed  charter  party  rate.   It

concludes by saying that the respondent “… can not conclude

the charter party agreement until the above issue are settled.”

25. On  September  24th,  the  respondent  met  with  Likpin

Engineers to discuss whether the applicant’s vessel could be

converted to perform a riser installation.  Likpin surveyed the

vessel on 23rd September 2005 and, in the following minutes,

concluded that:-

“Taking  into  account  the  number  of  problems associated with the vessel,  it  is  the  conclusion of Likpin and IOEC that  the  Gal  Constructor  is  not suitable  as  a  riser  installation.  … the  vessel  size combined  with the limited  crane reach cannot  be corrected or overcome and hence the vessel should not be chartered for riser installation operations.”  

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26. In a letter dated September 27th, 2005, the respondent

again  asked  the  applicant  to  issue  a  cheque  or  remit

$186,618.  It once again demanded that it be granted the right

to sublet the vessel and that until those issues were settled, it

could not conclude the CPA.  

27. In a letter dated September 29th, 2005, the respondent

reiterated  its  demands,  namely,  that  the  applicant  remit

$186,618 and that it provide the respondent with the sole and

absolute right to sublet the vessel combination.  It admitted

that  this  payment  had  nothing  to  do  with  Phase  II  of  the

project  and  thus  “…  has  no  connection  with  the  current

negotiations and should be  closed  out immediately,  so that

Phase II can begin on a clean slate.”  It further stated that:

“… the sole and absolute right to sublet the vessel to IOEC subcontractors … is an essential element in IOEC work plan for Phase II. … Lack of, or delay in,  the  ability  to  exercise  the  sublet  option  will impact on IOEC work plan and also affect the cost schedule of RSPPM project and is not acceptable to IOEC.  Please note that time is running short and in absence  of  GESCO’s  immediate  compliance  with above two requirements IOEC may be compelled to take recourse to other options.  …”   

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28. The applicant responded to the above with the following

letter dated 30th September 2005.  The relevant part reads as

under:-

“… We are in the process of arranging funds to be remitted  to you against the said amount and will confirm remittance  as  soon  as  possible.  2)   Your request  for  sole  and  absolute  right  to  sublet  the vessel  is  not  acceptable  to  us.   The  LOI  for  the contract has been issued by you on 23rd June 2005 after  we  mutually  agreed  on  the  terms  and conditions  of  charter  party.   Thereafter,  on  your request,  we  have  provided  with  you  with  signed originals of the charter party on 22nd August 2005 for  your  signatures.  You  have  accepted  the  same and conformed to us vide your letter communique dated 14 September that he charter party has been signed  and  is  ready  in  your  office  and  will  be handed over to us.  Previous to that, you have also sent  us  letter  saying  that  you  confirm  that  the charter party will be finalized by 30 August 2005. While  we  have  been  provided  a  photocopy  of  the signed  charter  party  by  your  office,  it  is  now  30 September  and  rather  than  keeping  your commitment and returning the original and issuing the L/C as promised, you are deliberately delaying the same.  

29. The  letter  goes  on  to  demand  that  the  respondent

immediately issue the signed, stamped original charter party

agreement  as  well  as  the  irrevocable  line  of  credit.  The

applicant further demanded that both tasks be completed by

1st October at 1200 hours.   

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30. Vide letter dated 10th October, the applicant informed the

respondent that the applicant’s vessel combination arrived at

P & V Channel, Mumbai on October 6th.  Because it had yet to

receive  the line of credit,  it  informed the respondent that it

could not proceed further with the mobilization of the vessel

combination.  The applicant provided the respondent with an

invoice  for  mobilizing  its  vessel  combination.   It  gave  the

respondent  another  chance  to  comply  with  the  purported

contract:  “please note that contractual hire will begin as and

from 0000 hours of the 11th October 2005. We on our party

stand ready and willing to comply with all our obligations.”   

31. In its October 10th letter, the respondent reiterated that

the terms of the agreement were still  under negotiation and

that  no  contracted  had  been  concluded.  It  objected  to  the

absence of a provision that provided the respondent with the

absolute right to sublet the vessel.  

32. It  also  argued  that  the  applicant’s  vessel  combination

was not fit for the agreed purpose.  This issue is beyond the

scope of this decision, which limits itself to deciding whether

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or not a contract containing an arbitration clause was formed.

While I have made mention of some of the other issues, such

as whether the vessel was fit for the agreed purpose, I need

not rehash each and every one.  All matters, save for whether

the alleged contract/arbitration clause was formed, would be

more appropriately addressed by an Arbitral Tribunal.    

33. The  letter  goes  on to  state  that it  would  still  consider

hiring  the  applicant’s  vessel  combination  if  it  received  the

right  to  sublet  and  also  if  the  crane  were  made  fit  for  the

purpose for which the respondent intended.  On 18th October,

the respondent sent a letter in which it stated that it would

have to look for a vessel  from an alternative  provider.   The

respondent  said  that  it  would  treat  the  matter  with  the

applicant as “closed.”  It concluded by asking the applicant to

pay  the  amount  due  for  Phase  I.   It  sent  a  letter  on  20th

October reiterating the same.   

34. On 21st October, the applicant sent a letter detailing the

sequence  of  events  that  had  occurred  between  the  parties.

Para 5 of the said letter is reproduced as under:-

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“The Charter Party Agreements, two originals duly signed and stamped by us, were submitted to your office  on  22nd August  2005  requesting  you  to forward us one original after execution of the same from your side.  You never returned one original for our records.   However,  your Mr. Ali  Rahmati  had handed over to us a fax copy of the formal Charter Party  document  signed  by  your  Mr.M.  Sabbaghi when we had a meeting with him on 12  th   September   2005.  A copy of the same is enclosed herewith for your perusal.”   

35. In  its  26th October  26th,  the  respondent  once  again

claimed  that  the  charter  party  remained  unconcluded.   It

alleged that the faxed copy of the charter party agreement was

“forged  and  the  story  of  delivery  false  and  concocted.”

Moreover,  it  stated  that  “since  we  have  found  the  vessel

completely unfit for riser installation as the said vessel with

the  present  condition  of  the  crane  is  not  suitable  at  all,

therefore we thought fit to withdraw from the negotiation….”

It claimed that the applicant had misrepresented its vessel’s

ability  to  perform a riser  installation.  Thus,  it  thought  this

misrepresentation had vitiated the negotiations.  At this point,

it appeared that their relationship had officially soured.   

36. In  its  letter  dated  16th November,  the  respondent

reiterated much of what is already provided above. Of interest,

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it stated that:-

“You are aware that initially, we intended to hire the vessel  combination  for  only  170  days.   However, since you agreed to take barge and AHT from us for 45-55 days, we agreed to extend the intended hire period from 170 days to 200 days and accordingly in  this  background  the  said  LOI  was  issued. However, since thereafter you unilaterally declined to  take  our  barge  and  AHT  on  the  ground  of difference in rate levels offered by us, we, in view of the said condition and in the light of your refusal to accept our barge and AHT, asked you for absolute subletting right of  the said vessels  to compensate us/minimize  our  expenses  for  risk  of  additional days  than the  originally  intended  170 days.   The correspondences which were exchanged between us make it aptly clear that negotiations and change in terms and conditions from your side continued even after issuance of LOI and therefore the question of concluding  the  CPA  in  respect  of  RSPPM  project phase-II does not arise at all.”   

37. In its December 2nd,  2005 letter, the respondent called

upon the applicant to arrange for a third party inspection of

the applicant’s vessel, in order to determine whether or not it

was suitable for riser installation.   

38. In response, on 23rd January 2006, the applicant served

the respondent with a notice of arbitration.  On 2nd February

2006, the respondent replied to the same.   

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39. With the relevant correspondence outlined above, I turn

to  the  parties’  main  submissions.   The  applicant  contends,

inter alia, that the faxed copy of the charter party agreement

(“faxed  CPA”)  dated  22nd August  is  a  binding,  concluded

contract.  The applicant gives four reasons for this assertion.   

40. First, the faxed CPA is signed by both parties. Second,

the applicant’s statement to this effect was not denied in the

pleadings  [See  the  last  page  of  the  respondent’s

supplementary written submission of May 13th, 2005:  (“…it

was not signed properly and but for the last page, the said fax

communication, did not bear signature on other page.”)   

41. Third,  the  respondent  admitted  in  its  letter  dated  14th

September that the original CPA “… is ready in our office and

will be hand to you.”  The applicant argues that because the

applicant  had  already  signed  the  original  CPA,  there  was

nothing  left  for  the  respondent  to  do  but  sign.  Hence,  by

saying it was “ready”, I may infer that it was signed.   

42. Fourth,  the  respondent’s  letter  of  10th October  did not

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deny  the  fact  that  the  original  CPA  was  signed  by  the

respondent and was waiting in the respondent’s  office,  even

though the applicant had asserted as much in its letter dated

30th August. It was not until 26th October that the respondent

deemed it necessary to deny this fact.   

43. The  respondent  contends  that  because  the  original

signed copy was never given to the applicant, the parties were

in negotiations at all times. With respect to the faxed CPA, it

points to the fact that the respondent did not sign every page.

It gives further weight to the fact that the faxed copy was not

sent vide fax from the respondent to the applicant; rather, it

was first sent vide fax from the respondent’s main office to its

local branch.   

44. Learned counsel for the respondent states in its written

submission  that  “…the  respondent  failed  to  even  sign  the

formal contract document that the applicant had sent to it for

its signature.”  It  argues that because the original CPA was

not signed by the respondent,  the Court will  have to find a

contract, if any, in the correspondence.  According to Mulla:-

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“In  construing  whether  or  not  a  particular agreement does or does not amount to a contract, the court would look for the intention of the parties, the  nature  of  the  transaction,  the  language employed  in  the  informal  agreement  and  other relevant circumstances. None of these is conclusive in itself.   … The fact  that the parties contemplate that the letters or an informal agreement would be superceded by a more formal one, does not prevent it from taking effect as a contract.  If  the letter of intent is acted upon, especially for a length of time, the court is likely to hold the parties bound by the contract.”  [See Mulla,  Indian Contract and Specific Relief Acts, 13th Edition at pages 317-318].   

45. In  Dresser Rand S.A. v.  M/s. Bindal Agro Chemical

Ltd. & Another, AIR 2006 SC 871 at page 884 at para 34, a

two-Judge  Bench  of  this  Court  emphasized  that  whether

letters of intent rise to the level of being a contract hinges on

the terms of the letter itself.  It observed as under:-

“It is no double true that a Letter of Intent may be construed as a letter of acceptance if such intention is evident from its terms.  It  is not uncommon in contracts involving detailed procedure,  in order to save time, to issue a letter of intent communicating the  acceptance  of  the  offer  and  asking  the contractor to start the work with a stipulation that the detailed contract would be drawn up later.  If such a letter is issued to the contractor, though it may be termed as a Letter of Intent, it may amount to acceptance of the offer resulting in a concluded contract … .  But the question whether the letter of intent is merely an expression of intention to place an order in future or whether is a final acceptance of the offer thereby leading to a contract, is a matter

20

that has to be decided by reference to the terms of the letter.”   

[Emphasis added].  

46. The  respondent’s  main  submission  is  that  it  never

actually  concluded  a  contract  and  that,  if  anything,  the

applicant mistakenly thought that the respondent’s LOI of 23rd

June was an offer. Why else would the applicant have sent its

acceptance on 4th?  Its attack against the LOI as a contract is

two-fold.  First, it argues that the parties cannot leave a major

piece of the contract open for future negotiation.  Second, it

contends that the parties were not eye-to-eye, or ad idem on

the points.  

47. According to the respondent, the applicant’s assumption

that the respondent’s 23rd June LOI read with the applicant’s

4th August letter is misplaced.  The LOI of 23rd June read with

the applicant’s letter of 4th August does not form a contract

because a contract cannot leave a major part of its terms open

to  future  negotiation.  The  respondent  relies  on  May  &

Butcher  Limited v.  The  King (1934)  2  KB  17, for  the

proposition that an agreement in which some critical part of

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the contract matter is left undetermined is no contract at all.   

48. In its assertion that the applicant’s LOI of 23rd June was

conditional, it points to the following language from the same

LOI:  “this agreement is subject to IOEC providing a suitable

barge and AHT acceptable to GE Shipping for a period of 45-

55 days on mutually agreed rates for commencement between

25th October  and  10th November  05  for  BHN  MOL  project

works.”  The respondent’s supplying the barge to the applicant

for 45-55 days went unmet when the applicant said it would

not need this barge.   

49. In  addition,  the  respondent  argues  that  this  condition

was material to the contract, as evidenced by the fact that the

respondent only agreed to increase the duration of the work

from 170 to 200 days if it got paid for supplying the barge.  By

doing so, the respondent was attempting to offset the costs it

would incur by having the applicant’s vessel combination for

an extra 30 days.  

50. Furthermore,  the  respondent  claims  that  no  contract

could arise from its LOI of 23rd June because the parties were

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not ad idem, i.e.,  in agreement on each point.   Along these

lines,  Chitty on  Contracts [29th Edn.  Vol.1  at  page  134]  has

observed:-

“When parties carry on lengthy negotiations, it may be difficult to say when and whether a contract has been concluded.  The court must then look at the whole  correspondence  and decide,  whether  on its true  construction,  the  parties  had  agreed  to  the same terms.”  

51. In  M/s.  Rickmers  Verwaltung  Gimb H v.  Indian Oil

Corporation Ltd., AIR 1999 SC 504 at page 509  para 12,

this  Court  reiterated  this  stand:   “Unless  from  the

correspondence it can unequivocally and clearly emerge that

the parties were ad idem to the terms, it cannot be said that

an agreement had come into existence between them through

correspondence.”  [See  also:  Dresser  Rand  S.A.  v. M/s.

Bindal Agro Chemical Ltd. & Another, AIR 2006 SC 871 at

page 879 para 21 (affirming the same)]   

52. The  respondent  argues  that  they  were  still  negotiating

the terms and conditions.  It cites to its letter of 13th August

and  the  applicant’s  letter  of  22nd  August  as  evidence  of

continued negotiations.  In the respondent’s letter dated 13th

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August, it suggests that a number of changes be made to the

“new draft contract.”  [emphasis added].  “Draft” suggests that

nothing  had  been  finalized.   Moreover,  the  letter  lists  a

number  of  issues  that  were  still  open  to  negotiation.   The

applicant’s  letter  of  22nd August,  however,  addressed  the

proposed changes.    

53. The respondent concedes that while it said it would sign

and finalize the contract by 30th August, it changed its mind

on 27th August and conveyed the message that it would not

enter  the  agreement  until  all  outstanding  issues  were

resolved.  

54. Like the applicant’s counsel, the respondent also makes

use  of  the  fact  that  the  applicant  did  not  object  to  the

respondent’s letter dated 13th August.  The applicant should

have said that there was no question of finalizing the contract

when it had already been finalized.  I note that this argument

seems unfair because the applicant could not have gotten the

faxed  CPA  from the  respondent  until  8th September  at  the

earliest, as that is the date that appears on the fax.  According

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to the applicant, it received the faxed copy on 12th September.

55. Of  course,  all  of  the  respondent’s  arguments  become

moot if the faxed CPA dated 22nd is valid. In the instant case,

the  burden  to  prove  that  a  valid  contract  containing  an

arbitration clause existed first rested on the applicant, as it

was the applicant that was moving this Court.  However, upon

producing the faxed CPA that, on its face, appears legitimate,

the onus shifted to the respondent to prove that it was forged.

It appears, prima facie, to be legitimate because it bears the

heading “08-SEP-2005 13:52 FROM IOEC HEAD OFFICE TO

ALLAHVERDI”  (hereinafter  the  “fax  header”).   This  is  an

important piece of evidence that makes its genuineness more

probable than not.  Hypothetically, the applicant could have

fabricated  the  fax  header.   But  that  is  highly  unlikely  and

presumes much more than what is expected in normal human

conduct especially when that conduct concerns the forgery of

an executive  officer’s  signature.   It  should  not  be  forgotten

that this case is between sophisticated companies, not warring

family members that dispute the authenticity of a will.  

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56. The  respondent  could  argue  that  it  handed  over  an

unsigned copy of the faxed CPA and that the applicant forged

it after the fact.  Such an assumption is equally dubious.  Why

would the respondent go through the trouble of returning the

applicant’s  August  22nd CPA  unsigned,  when  it  had  been

routed vide fax through its Head Office?   

57. There is no evidence to suggest that the faxed CPA was

forged. To the contrary, the evidence we do have is the faxed

CPA  bearing  the  parties’  signatures  coupled  with

correspondence between the parties.  The correspondence, as

it is more than just a pleading, adds additional weight to the

applicant’s  story.   The  applicant’s  letter  of  21st October

corroborates  the  allegation  that  Ali  Rahmati  delivered  the

faxed CPA to the  applicant  on 12th September.  The  date  of

delivery of 12th September fits the timeline provided on the fax

header, as the respondent could only have delivered the faxed

CPA  after  8th September.  Moreover,  it  appears  that  having

received the faxed CPA on 12th September, the applicant was

prompted to ask for the original vide email on 14th September.

Once again, the dates match up.   

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58. The fax header, on its face, suggests that the document

is  genuine.   This  conclusion  is  bolstered  by  the  above-

mentioned  correspondence.  Thus,  I  find  that  the  applicant

had discharged its initial  burden of sufficiently proving that

the  faxed  CPA  was  not  forged.   The  onus  shifted  to  the

respondent to prove that its signature was forged.  With no

evidence  to  support  its  assertion,  the  respondent  cannot

discharge its  onus.   Therefore,  I  find that the faxed CPA is

legitimate and is not a product of forgery.  As such, I need not

look for the existence of a contract on the basis of the LOI of

23rd June.   

59. The  question  then  becomes  whether  the  faxed  CPA  is

valid under  the  relevant  law.  Here,  the purported  contract

provides that the Arbitration and Conciliation Act, 1996 (26 of

1996) is to be used. [page 3 of faxed CPA dated 22 August

2005].   In  the  preceding  contract  the  same  Act  was  used.

Therefore, it comes as no surprise that the parties have not

objected to the same in the instant case.   

60. Section 7 of the Arbitration and Conciliation Act, 1996

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(26 of 1996) provides:   

(1)In  this  part,  “arbitration  agreement”  means  an agreement by the parties to submit to arbitration all  or  certain  disputes  which  have  arisen  or which may arise  between  them in respect  of  a defined legal relationship, whether contractual or not.

(2)An arbitration agreement may be in the form of an arbitration clause or in the form of a separate agreement.  

(3) An arbitration agreement shall be in writing  .

(4) An  arbitration  agreement  is  in  writing  if  it  is   contained in–  

(a) a document signed by the parties  ;  

(b) an exchange of letters, telex, telegrams or other   means  of  telecommunication  which  provide  a record of the agreement; or      

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.  

 (5)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.   

61. Section 7  squarely  deals  with the present  controversy.

This  Court  has  taken  note  of  Section  7(3)  &  7(A)(a)’s

requirement that the arbitration agreement be in writing and

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signed by the parties.  According to the learned counsel for the

applicant, affixing a seal under section 7 of the Act is not a

requirement.   [See:  Bihar  State  Mineral  Development

Corporation  &  Another  v. Encon  Builders (1)  (P)  Ltd.,

(2003) 7 SCC 418 at page 423 para 13 (one of the essential

elements of an arbitration agreement is that “the parties must

agree in writing to be bound by the decision of such tribunal.”)

and K.K. Modi v. K.N. Modi & Others, (1998) 3 SCC 573 at

page  585  para  21  (“there  are,  of  course,  the  statutory

requirements  of  a  written  agreement  ….   Vide  Section  2

Arbitration  Act,  1940  and  Section  7  Arbitration  and

Conciliation Act, 1996.”)  

62. The respondent makes much of the fact that the “faxed

CPA”  of  August  22nd is  (1)  a  copy,  not  the  original;  (2)  is

stamped by one, not by both parties; (3) one of the parties did

not sign every page; and (4) it was first sent vide fax.  

63. Section 7 defeats all four assertions.  First, there is no

requirement  that  the  arbitration  agreement  be  an  original.

Where the statute has gone to great lengths to define exactly

what is meant by the term “in writing,” we are precluded from

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adding another term to definition.  Indeed, “it is contrary to all

rules  of construction to read words into an Act unless it  is

absolutely  necessary  to  do  so.”   [See:  Justice  G.P.  Singh’s

Principles of Statutory Interpretation, 11th Edition, 2008, at page

62.63,  citing to  Renula Bose (Smt.)  v. Rai  Manmathnath

Bose,  AIR  1945  PC  108,  p.  110;  Stock  v.  Frank  Jones

(Tiptan)  Ltd.,  (1978)  1  All  ER  948,  p.951;  Assessing

Authority-Cum-Excise  and Taxation Officer,  Gurgaon  &

Another  v. East  India  Cotton  Mfg.  Co.  Ltd.,  Faridabad

(1981) 3 SCC 531].  

64. An  exception  to  this  rule  can  be  made.   But  before

adding words to a statute, “…  the Court must be abundantly

clear of three matters:  (1) the intended purpose of the statute

or  provision  in  question,  (2)  that  by  inadvertence  the

draftsman and Parliament failed to give effect to that purpose

in  the  provision  in  question;  and  (3)  the  substance  of  the

provision Parliament would have used,  had the error in the

Bill  been  noticed.”   [See:  Justice  G.P.  Singh’s  Principles  of

Statutory Interpretation, 11th Edition, 2008 at page 75 citing to

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Inco Europe Ltd. v. First Choice Distribution (a firm) (2000) 2 All

ER 109, at page 115 (HL)].   As I  mention below, one of the

main objectives of the Arbitration and Conciliation Act, 1996

is  to  minimise  the  role  of  the  Court;  adding  additional

requirements to the Act is antithetical to such a goal.   

65. Second,  the  plain  language  of  Section  7  once  again

governs my conclusion.  Section 7 does not require that the

parties stamp the agreement.  It would be incorrect to disturb

the  Parliament’s  intention  when  it  is  so  clearly  stated  and

when it in no way conflicts with the Constitution.  

66. Third,  nothing  in  Section  7  suggests  that  the  parties

must sign every page.  Once again, if I take the respondent’s

argument to its logical conclusion, I would have no choice but

to read language into the Act that is  not there.  Even if the

faxed  CPA  is  construed  as  a  “document,”  it  need  only  be

“signed by the parties” pursuant to Section 7(4)(a).  Every page

does not need to be signed.  If it is considered a “document,”

then this requirement would be met.  As established above,

both parties signed the faxed CPA in the signature box at the

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bottom of Part I.  That said, the faxed CPA more closely fits

within Section 7(4)(b)’s requirements.  

67. Fourth,  Section  7(4)(b)  states  that  an  agreement  is  in

writing  if  it  is  contained  in  “an  exchange  of  letters,  telex,

telegrams or other means of telecommunication which provide

a record of the agreement.”  This section covers agreements

that are sent via facsimile (“fax”) as they are “other means of

telecommunication”.   “Fax”  is  defined  as  “a  machine  that

scans documents electronically and transmits a photographic

image  of  the  contents  to  a  receiving  machine  by  telephone

line”  or  “a  document  received  by  such  a  machine.”   [See:

Chambers 21st Century Dictionary, Allied Publisher’s Limited

(1996)].  This definition clearly provides that a fax falls under

“other means of telecommunication.” Thus, faxed agreements

are acceptable under Section 7 of the Act.   

68. Section  7(4)(b)  further  requires  us  to  ask  whether  a

record of the agreement is found in the telecommunication, in

this case a fax. What could be a better record of the agreement

than the signatures of the parties themselves? As noted above,

with no evidence to indicate that the respondent’s signature

32

was forged, the faxed CPA stands on its own as the record of

agreement.  Likewise, Section 7(4)(b) stands satisfied.  

69. The  court  has  to  translate  the  legislative  intention

especially  when  viewed  in  light  of  one  of  the  Act’s  “main

objectives”:  “to minimise the supervisory role of Courts in the

arbitral process. [See: Statements of Objects and Reasons of

Section 4(v] of the Act].  

70. If this Court adds a number of extra requirements such

as stamps,  seals and originals, we would be enhancing our

role, not minimising it.  Moreover, the cost of doing business

would increase. It  takes time to implement such formalities.

What is even more worrisome is that the parties’ intention to

arbitrate would be foiled by formality.   

71. Such  a  stance  would  run  counter  to  the  very  idea  of

arbitration,  wherein  tribunals  all  over  the  world  generally

bend over backwards to ensure that the parties’ intention to

arbitrate is upheld. Adding technicalities disturbs the parties’

“autonomy of the will” (l’ autonomie de la volonté), i.e., their

wishes. [For a general discussion on this doctrine see Law and

33

Practice of International Commercial Arbitration, Alan Redfern

and Martin Hunter, Street & Maxwell, London, 1986 at pages

4 and 53].   

72. Technicalities like stamps, seals and even signatures are

red tape that have to be removed before the parties can get

what they really want – an efficient, effective and potentially

cheap resolution of their dispute. The autonomie de la volonté

doctrine  is  enshrined  in  the  policy  objectives  of  the  United

Nations Commission on International Trade Law (“UNCITRAL”)

Model Law on International Commercial Arbitration, 1985, on

which our Arbitration Act is based. [See Preamble to the Act].

The courts must implement legislative intention.  It would be

improper and undesirable for the courts to add a number of

extra formalities not envisaged by the legislation.  The courts

directions should be to achieve the legislative intention. The

courts  must  implement  legislative  intention.   It  would  be

improper and undesirable for the courts to add a number of

extra formalities not envisaged by the legislation.  The courts

directions should be to achieve the legislative intention.

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73. One of the objectives of the UNCITRAL Model Law reads

as under:-  

“the  liberalization  of  international  commercial arbitration by limiting the role  of  national  courts, and by  giving effect  to  the  doctrine  “autonomy of will,”  allowing  the  parties  the  freedom  to  choose how  their  disputes  should  be  determined.”  [See Policy  Objectives  adopted  by  UNCITRAL  in  the preparation of  the Model Law, as cited in  Law and Practice  of  International  Commercial  Arbitration, Alan Redfern and Martin Hunter, Street & Maxwell, London  (1986)  at  page  388  (citing  UN doc.A/CN.9/07, paras 16-27].

74. It goes without saying, but in the interest of providing the

parties a comprehensive review of their arguments, I note that

once it is established that the faxed CPA is valid,  it follows

that a valid contract and a valid arbitration clause exist.  This

contract,  the faxed CPA,  does  not suffer  from a conditional

clause,  as did the  Letter  of  Intent.   Thus,  the  respondent’s

argument that the parties were not ad idem must fail.  

75. I  have  heard  the  learned  counsel  appearing  for  the

applicant  and  the  respondent  at  length.   I  have  carefully

reviewed the entire correspondence between the parties.  The

charter party agreement that had been signed by the applicant

35

and  the  respondent  clearly  indicated  that  the  parties  have

entered  into  a  valid  and  concluded  contract.   The  other

correspondence  between  the parties  also leads  to a definite

conclusion:  the  parties  have  entered  into  a  valid  contract

containing an arbitration clause.  Since a dispute has arisen

between  the  applicant  and  the  respondent,  it  needs  to  be

referred to the arbitrator.

76. On  consideration  of  the  totality  of  the  facts  and

circumstances, I am clearly of the opinion that the applicant is

entitled in law to an order for appointment of a sole arbitrator.

Consequently,  I  request  Hon’ble  Justice  S.N.  Variava,  the

retired Judge of the Supreme Court, to accept this arbitration.

The learned arbitrator would be at liberty to fix his own fee.   I

direct the parties to appear before the learned arbitrator on 8th

September,  2008  or  any  date  convenient  to  the  learned

arbitrator.

77. Before parting with this arbitration petition, I would like

to make it abundantly clear that the learned arbitrator shall

not be bound by any observations which have been made in

36

this  judgment.   The  observations  have  been  made  only  to

decide this arbitration petition.   

78. The Registry is directed to communicate this order to the

learned arbitrator to enable him to enter upon the reference

and decide the matter as expeditiously as practicable.

79. Consequently,  this  arbitration  petition  is  allowed  and

disposed of.  In the peculiar facts and circumstances of this

case, I direct the parties to bear their own costs.

…….……………………..J.      (Dalveer Bhandari)

New Delhi;

August 25, 2008.      

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