REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6039  OF 2008 (Arising out of SLP(C) No. 9204 of 2006)

M/s. Unissi (India) Pvt. Ltd.             …Appellant

VERSUS

Post Graduate Institute of Medical  Education & Research        …Respondent

J U D G M E N T

TARUN CHATTERJEE,J.

1. Delay  in  filing  this  special  leave  petition  is

condoned.   

2. Leave granted.   

3. This  appeal  is  directed  against  the  Judgment

and order  dated 3rd of  August,  2005 in Arbitration

Case No. 45 of 2004 passed by the Additional District

Judge,  Chandigarh,  dismissing the application filed

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by the appellant for appointment of an Arbitrator on

the  ground  that  no  Arbitration  Clause  was  in

existence between the parties.  

4. The brief facts leading to the filing of this appeal

may be summarized as under :-

A  tender  was  floated  by  the  Post  Graduate

Institute  of  Medical  Education  and  Research  (in

short, “the PGI”)  on 21st of December, 2000 for the

purchase  of  Pulse  Oxymeters,  the  format  of  which

contained an arbitration clause.  The appellant gave

an  offer  for  the  tender  on  15th of  January,  2001,

which  was  accepted  by  the  PGI.   Purchase  orders

were placed and in compliance with the said order,

the appellant had supplied equipments.  The delivery

of equipments was also accepted by the PGI and the

machineries were installed.  The PGI demanded the

execution of an agreement containing an arbitration

clause  on a  non-judicial  stamp paper  duly  signed.

The appellant signed the agreement and sent it to the

PGI but the signature of the authorities of the PGI

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was  never  acquired.   It  is  true  that  although  the

appellant duly signed the agreement and sent it  to

PGI  but the signature on the agreement had never

reached the appellants.  According to the appellant,

an agreement  containing an arbitration clause  was

executed between the parties.  No payment was made

by  the  PGI  against  delivery  of  goods  worth  Rs.

22,16,853.60 though the equipments were installed

and  put  in  use.   The  PGI,  on  the  other  hand,

however,  forfeited  the  earnest  money  of

Rs.2,12,160/-,  which  was  encashed  by  them.

Eventually, the PGI got the equipments lifted and it

was found by the appellant that the equipments had

been  mis-handled  and  were  no  longer  fit  to  be

used/resold in the market.  A notice was served on

behalf of the appellant of the matter to the PGI but

no reply was received.  It was the case of the PGI that

no  agreement  was  executed.   The  appellant  was

alleged  to  have  committed  fraud  on  the  PGI  by

representing themselves of being the manufacturers

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of the equipments, which were in fact, according to

the  PGI,  were  imported  from  Korea.   A  Technical

Committee  of  the  PGI  on  14th of  January,  2003,

however,  did  not  approve  the  purchase  and

installation of the equipments and thus, by a letter

issued in the year 2003, the appellant was informed

that the tender was rejected.  According to the PGI,

the  supply,  not  being  in  accordance  with  the

specification,  was  rejected  after  use  and  the

appellant was debarred from dealing with the PGI for

the next two years.  Therefore, it was alleged by the

PGI  that  no  arbitration  agreement  was  executed

between  the  parties  and,  therefore,  question  of

appointing  an Arbitrator  in  the  present  case  could

not arise at all.   

5. Finding no other alternative, the appellant filed

an application before the Additional District Court at

Chandigarh under Section 11(4) (a) of the Arbitration

and Conciliation Act, 1996 (in short, “the Act”) for a

direction upon the PGI to appoint an Arbitrator.  The

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Additional  District  Judge,  Chandigarh,  by  the

impugned order dated 3rd of August, 2005, held that

as  there  was  no  agreement  executed  between  the

parties,  the  question  of  appointing  an  Arbitrator

under the Act could not arise at all.  It was held by

the  learned  Addl.  District  Judge,  Chandigarh  that

since the photocopy of the proposed agreement bears

the signature of only the appellant and not that of

the  PGI,  it  could  not  be  held  that  an  arbitration

agreement  was  executed  between  the  parties  and

since there was no signature of the PGI on the said

agreement,  which  was  sent  after  signature  of  the

appellant,  remained  only  as  an  offer.   Therefore,

according  to  the  learned  Additional  District  Judge,

Chandigarh,  in  the  agreement  containing  an

arbitration  clause,  it  could  not  be  held  that  the

appellant was entitled to ask for appointment of an

Arbitrator  under  Section  11  of  the  Act.   It  is  this

order, which is under challenge in this Court, which

on  grant  of  leave,  was  heard  in  presence  of  the

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learned counsel for the parties.  

6. This  special  leave  petition,  as  initially  filed,

came  up  for  consideration  for  admission  on  9th of

May, 2006 when a question arose whether the said

special leave petition was maintainable in this court

against  an  order  of  the  Additional  District  Judge,

Chandigarh purported to have acted in the exercise

of its power under Section 11 (4)(a) of the Act. While

issuing notice, this Court passed the following order:-

“This  special  leave  petition  has  been filed by the petitioner against the order dated 3.8.2005 passed by the Addl. District Judge, Chandigarh in Arbitration Case No.45 dated 2.6.2004.  According  to  the learned  counsel for the petitioner, the special leave petition is maintainable in view of the recent judgment of  the Constitution Bench in SBP & Co. vs. Patel  Engineering  Ltd.  &  Anr.  Reported  in (2005) 8 SCC 618. In this regard, he invited our attention to paragraph 47 sub-clause (vii), (x)  and  (xi).  In  our  view,  there  is  a  clear indication in the said judgment that against the  order  passed  by the Additional  District Judge, the special leave petition under Article 136  of  the  Constitution  of  India  is entertainable  by  this  Court. (emphasis supplied)  

We,  therefore,  issue  notice  to  the respondent on the question of maintainability

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of  the  special  leave  petition  in  this  Court against the  order  passed  by the Additional District Judge, Chandigarh.

Issue  notice  on  the  application  for condonation of delay also.”  

7. On a plain reading of this order passed by this

Court  on  9th of  May,  2006,  it  is  evident  that  this

Court  was  of  the  view  that  an  application  under

Article  136  of  the  Constitution  was  maintainable

against  an  order  passed  by  the  Additional  District

Judge,  Chandigarh.  Furthermore,  the  learned

counsel  appearing for the parties  have also argued

the case before us on merits, that is to say, on the

question  whether  an  arbitration  agreement  exists

between the parties for which an Arbitrator could be

appointed.   Such  being  the  stand  taken  by  the

learned  counsel  for  the  parties  and  in  view of  the

aforesaid  order  passed  by  this  Court,  we  do  not

intend  to  go  into  the  question  whether  a  petition

under Article 136 of the Constitution would at all be

entertainable  by  this  Court  as  the  Special  Leave

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petition  was  entertained  and  notice  was  issued.

However, keeping this question open for decision in

an  appropriate  case,  we  would  like  to  go  into  the

merits  of  the  case,  that  is  to  say,  whether  an

Arbitrator can be appointed in view of existence of an

arbitration agreement between the parties, although

in  such  agreement  the  PGI  had  not  executed

agreement by putting their signature on the same.     

8. In  view of  the aforesaid stand being taken by

the  learned  counsel  for  the  parties,  let  us  now

examine the merits of this appeal.  As noted herein

earlier,  the  learned  Additional  District  Judge,

Chandigarh  held  that  their  did  not  exist  any

arbitration  agreement  between  the  parties  and,

therefore, question of  appointing an Arbitrator could

not arise at all. Therefore, in order to decide whether

the order of the Additional District Judge was correct

or not, we have to consider the relevant facts as well

as Section 7 of the Act for the purpose of coming to a

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proper conclusion whether the agreement containing

an arbitration clause did exist between the parties or

not.  Before  we  proceed  further,  we  may  examine

Section 7 of the Act which runs as under :

“Section 7 - Arbitration agreement  

(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 in a contract 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.

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(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.”

9. We  have  carefully  examined  the  provisions

made under  Section 7 of  the Act which deals  with

arbitration agreement. In Smita Conductors Ltd. vs.

Euro Alloys Ltd. [2001 (7) SCC 728], Article II Para

2 of New York Convention came up for consideration

before this Court.  The provisions of Article II, Para 2

of  New  York  Convention  is  in  pari  materia  to  the

aforequoted provisions of Section 7 of the Act. The

provisions  of  Article  II,  Para  2  of  New  York

Convention is being quoted herein now.  Para 2 runs

as under :-   

“Para 2 - The term “agreement in writing” shall  include  an  arbitral  clause  in  a contract  or  an  arbitration  agreement, signed by the parties or  contained in  an exchange of letters or telegrams.”  

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10. This  Court,  while  interpreting  the  aforequoted

para 2 in the New York Convention held in para 6 at

pages  734-735  in  Smita  Conductors  (supra)  the

following : –

“6.  What  needs  to  be  understood  in  this context is that the agreement to submit to arbitration must be in writing. What is an agreement in writing is explained by para 2 of Article II.  If  we break down para 2 into elementary parts, it consists of four aspects. It  includes  an  arbitral  clause  (1)  in  a contract  containing  an  arbitration  clause signed  by  the  parties,  (2)  an  arbitration agreement  signed  by  the  parties,  (3)  an arbitral  clause  in  a  contract  contained  in exchange of letters or telegrams, and (4) an arbitral agreement contained in exchange of letters or telegrams. If an arbitration clause falls in any one of these four categories, it must be treated as an agreement in writing. In the present case,  we may advert to the fact  that  there  is  no  letter  or  telegram confirming the contract as such but there is certain  correspondence  which  indicates  a reference  to  the  contract  in  opening  the letters  of  credit  addressed  to  the  Bank to which we shall  presently refer to. There  is no  correspondence  between  the  parties either  disagreeing  with  the  terms  of  the contract  or  arbitration  clause.  Apart  from opening the letters of credit pursuant to the two contracts, the appellant also addressed a  telex  message  on  23.4.1990  in  which there is a reference to two contracts bearing

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Nos. S.142 and S. 336 in which they stated that they want to invoke  force majeure and the arbitration clauses in both the contracts which are set forth successively and thus it is  clear  that  the  appellant  had  these contracts in mind while opening the letters of credit in the bank and in addressing the letters to the bank in this regard. May be, the  appellant  may  not  have  addressed letters to the respondent in this regard but once  they  state  that  they  are  acting  in respect of the contracts pursuant to which letters of credit had been opened and they are  invoking  the  force  majeure clause  in these two contracts, it obviously means that they had in mind only these two contracts which  stood  affirmed  by  reason  of  these letters of credit.  If the two contracts stood affirmed  by  reason  of  their  conduct  as indicated in the letters exchanged, it must be  held  that  there  is  an  agreement  in writing between the parties in this regard.

11. Again  in  Nimet  Resources  Inc.  vs.  Essar

Steels  Ltd.  [2000  (7)  SCC  497  at  Para  5], this

Court observed as follows:-

“If  the  contract  is  in  writing  and  the reference is made to a document containing arbitration clause as part of the transaction, which  would  mean  that  the  arbitration agreement is part of the contract. Therefore, in  a  matter  where  there  has  been  some transaction  between  the  parties  and  the

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existence  of  the arbitration agreement  is  in challenge, the proper course for the parties is to thrash out such question under Section 16 of the Act and not under Section 11 of the Act.”

12. Keeping  the  aforesaid  principles,  as  quoted

hereinabove, in the aforesaid decisions of this Court

in  kind,  in  fact  what  constitutes  an  arbitration

agreement between the parties, we have to examine

whether  there  exists  an  arbitration  agreement

between  the  parties  or  not  in  the  facts  and

circumstances of the case. Let us, therefore, consider

the gist of the facts involved in this case.  A tender

enquiry  No.2PGI/OGL/2K/6281  dated  21.12.2000

for purchase of Pulse Oxymeters was floated by the

PGI.  It  is  an  admitted  position  that  the  appellant

submitted  their  tender  vide  their  offer

No.UIPL/331177/00-01  dated  15.2.2001.   The

tender of the appellant was accepted by the PGI vide

their  letter  No.PGI/P-61/02/477/11936-51  dated

29.9.2002 for supplying 41 Pulse Oxymeters to their

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different  departments.  The  tender  documents  itself

contain  an  arbitration  clause  and  by  reason  of

acceptance of the tender of the appellant by the PGI,

it  must  be  held  that  there  was  a  valid  arbitration

agreement  between  the  parties.  The  appellant

supplied 41 Pulse Oxymeters and the receipt thereof

was duly acknowledged on behalf of the PGI on the

delivery challans. The service/installation reports of

the aforesaid machines were duly signed on behalf of

the PGI. In the letters issued by the PGI, there was

an  apparent  acknowledgement  of  supply  of  the

aforesaid meters by the appellant and also reference

to the aforementioned tender enquiry number. It  is

an admitted position that the appellant had sent the

agreement containing the arbitration clause, as per

the format provided by the PGI, after duly signing the

same on requisite value of stamp paper for signing of

the  same  by  the  PGI.  The  PGI  though  admittedly

received the same, did not send back the agreement

to the appellant after signing it as per the agreement

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between  the  parties.  The  PGI  admittedly  had used

the  machines  for  about  an  year  and  thereafter

returned  the  same  to  the  appellant.  Subsequently,

the  bank guarantee  furnished  by  the  appellant  for

Rs.2,13,160/-  and  the  earnest  money  deposit  of

Rs.45,000/- was encashed and forfeited by the PGI.

In  view  of  the  aforesaid  facts  and  the

correspondences  between  the  parties,  particularly

the  tender  offer  made  by  the  appellant  dated

15.1.2001  and  supply  order  of  the  PGI  dated

29.9.2002,  and,  in  our  view,  to  constitute  an

arbitration  agreement  between  the  parties  and  the

action taken on behalf of the appellant and in view of

Section 7 of the Act and considering the principles

laid  down  by  the  aforesaid  two  decisions  of  this

Court, as noted herein earlier, we are of the view that

the arbitration agreement did exist and therefore the

matter  should  be  referred  to  an  Arbitrator  for

decision.   That  apart,  as  we  have  already  noted

herein  earlier  that  in  this  case,  the  documents  on

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record,  in  our  view,  apparently  show  supply  of

materials by the appellant and acceptance thereof by

the PGI  in pursuance of the tender enquiry by the

PGI,  wherein tender  of  the appellant containing an

arbitration  clause  was  admittedly  accepted  by  the

respondent.  In that view of the matter, it cannot be

said that the PGI should now be allowed to wriggle

out from the arbitration agreement between them.   

13. We may reiterate  that  in  this  case  admittedly

the documents which are on record apparently show

supply  of  the material  by the appellant  to the  PGI

and acceptance thereof by the PGI in pursuance of

the  tender  enquiry  by  them wherein  tender  of  the

appellant  containing  the  arbitration  clause  was

admittedly accepted by the PGI. Accordingly, we hold

that arbitration agreement did  exist  and,  therefore,

dispute between the parties would be referred to an

Arbitrator for decision.      

14. Therefore, considering the above aspects of the

matter in this case, we must come to this conclusion

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that although no formal agreement was executed, the

tender  documents  indicating  certain  conditions  of

contract contained an arbitration clause. It is also an

admitted position that the appellant gave his tender

offer  which  was  accepted  and  the  appellant  acted

upon  it.  Accordingly,  we  are  of  the  view  that  the

learned Additional District Judge, Chandigarh erred

in  holding  that  their  did  not  exist  any  arbitration

agreement  between  the  parties  and,  therefore,  the

order passed by him is liable to be set aside.   

15. For the reasons aforesaid, the impugned order

is set aside and the appeal is allowed.  We now direct

that  the  matter  may  be  placed  before  the  Hon’ble

Chief  Justice  of  the  High  Court  of  Chandigarh  to

appoint  an  Arbitrator  in  accordance  with  law  to

resolve the dispute between the parties.  The appeal

is thus allowed.  There will be no order as to costs.

…………..………………J. [TARUN CHATTERJEE ]  

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NEW DELHI:                             …..………………………J.

October 01, 2008                   [DALVEER BHANDARI]

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