REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICITION

ARBITRATION PETITION NO.2 OF 2010  

Alva Aluminium Ltd. Bangkok …Applicant

Versus

Gabriel India Limited …Respondent

J U D G M E N T

T.S. THAKUR, J.

This petition has been filed under sub-sections (5) and  

(9)  of  Section  11  of  the  Arbitration  and  Conciliation  Act,  

1996 for the appointment of an independent and impartial  

person  as  a  sole  arbitrator  for  the  adjudication  of  the  

disputes  that  have  arisen  between  the  parties.  The

respondent has appeared to contest the petition primarily on  

the  ground  that  no  valid  arbitration  agreement  exists  

between the parties so as to call for the appointment of an  

arbitrator in terms thereof. The respondent’s case precisely  

is  that  the  contract  document  which  the  petitioner  relies  

upon has not  been signed on its  behalf  by an authorized  

person and is not, therefore, binding or enforceable against  

it. Two questions essentially arise for determination in the  

light  of  the  pleadings  of  the  parties  and  the  submissions  

made by them at the bar.  These are :

(1) Whether this Court is in a petition under Sections 11(5)  

and 11(9) of the Arbitration and Conciliation Act, 1996  

required to determine the existence of  an arbitration  

agreement between the parties? and             

(2) Whether  any  such  agreement  has  indeed  been  

executed between the parties in the present case to call  

for the appointment of an arbitrator for adjudication of  

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the disputes and differences that have arisen between  

them?   

I  shall  presently  deal  with  both  these  questions  but  

before I  do so I  may set out the facts necessary for  the  

determination of the said questions.  

The petitioner is a joint venture company between the  

G.P.  Group  in  Thailand  and  Kliss  Group  in  India,  

incorporated under the provisions of the laws of Thailand.  

The   respondent, on the other hand, is an Indian company  

incorporated under the provisions of Companies Act, 1956.  

The  disputes  sought  to  be  referred  for  adjudication  thus  

involves  international  commercial  arbitration  within  the  

meaning of Section 11(9) read with Section 2(f) of the Act  

aforementioned.  

The  petitioner-company  appears  to  have  had  

commercial transactions with the respondent for sometime  

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past.  One  of  the  transactions  which  they appear  to  have  

entered into in the course of their business relationship was  

contract  No.057/2008  for  the  sale  by  the  petitioner  and  

purchase by the respondent of 75 MTs of “Aluminium alloy  

ingots ADC 12”. The present proceedings, however, do not  

concern  the  said  contract.  These  proceedings  relate  to  

contract No.073/2008 executed on 30th July, 2008 for the  

sale by the petitioner and the purchase by the respondent of  

150 MTs of “Aluminium Alloy Ingots AC2B” on the terms and  

conditions  stipulated  in  the  said  contract.  The  contract  

among other terms and conditions stipulated the price of the  

goods to be US $ 3490 per MT (CIF) payable by a 100%  

Letter of Credit (LC).

The  petitioner’s  case  is  that  the  contract  was  duly  

signed on its behalf and forwarded to the respondent for its  

signature.  A  photocopy  of  the  duly  signed version  of  the  

contract  was  then  returned  to  the  petitioner  by  the  

respondent.  It is not in dispute that the contract document,  

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a copy whereof has been placed on record, contained the  

following arbitration clause:

“Disputes & Arbitration: Should a claim for  quantity and/or quality arise, the buyer has  to duly notify the seller within 10 days upon  receipt  of  material  at  buyer’s  factory  along  with  proof  of  deviation  from  quantity  or  quality as agreed between both parties.

The seller shall then amicably settle the claim  with the buyer.

As  per  the  International  Trade  0.5%  of  Weight  Calibration  is  acceptable  on  Net  Weight.

In  case  both  parties  are  unable  to  resolve  any disputes  amicably  in  connection  to  the  contract or breach thereof, results from the  arbitration  carried  out  in  accordance  with  laws of India shall be final and binding upon  both  parties.   Arbitration  charges  and  any  other  charges  in  this  connection  shall  be  borne or reimbursed by the losing party.”   

The above was followed by an addendum dated 24th  

September,  2009.   The  execution  of  the  contract  and an  

addendum to the same notwithstanding the respondent did  

not  open  the  requisite  Letter  of  Credit  despite  repeated  

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requests and reminders sent by the petitioner company to  

the former. The petitioner company in that view instructed  

its Advocates & Solicitors to send a legal notice in which the  

respondent was given a final opportunity to open a letter of  

credit in favour of the petitioner within seven days of the  

receipt of the notice failing which the petitioner proposed to  

initiate appropriate legal proceedings in which the petitioner  

would hold the respondent responsible for all the damages  

and costs suffered by the petitioner on account of the breach  

of the  terms of the contract. The notice did not evoke any  

response from the respondents nor did the subsequent two  

notices sent on behalf of the petitioner.    

Fourth  and  final  notice  was  eventually  sent  by  the  

petitioner  through  their  legal  consultants  in  which  the  

petitioner reiterated that the respondent had failed to fulfill  

its obligations under the contract resulting in heavy losses to  

the  petitioner  which  the  petitioner  assessed  at  USD  

338,286.34 equivalent to Rs.1,69,75,208.54.  A demand for  

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payment of that amount was accordingly made against the  

respondent.   It was only, at this stage, that the respondent  

broke  its  silence  and  sent  a  reply  through  Padmanabhan  

Associates  their  Advocates  &  Solicitors  in  which  the  

respondent for the first time came out with the defence that  

the  contract  referred  to  by  the  petitioner  had  not  been  

signed by an authorized person.  Mr. Sandeep K. Dabir who  

had  signed  the  contract  document  was  not,  alleged  the  

respondent, authorised to sign the contract.  It was further  

alleged that the documents, information and correspondence  

provided by the respondent to the petitioner company was  

only “some sort of negotiation” in respect of the purchase of  

the material in question.  According to the respondent while  

Shri  Dabir  was  authorized  to  negotiate  the  terms  of  

purchase he was at no point of time authorized to enter into  

a contract. It was asserted that his signatures were obtained  

by misguiding/ enticing and misdirecting him. The alleged  

contract  was,  therefore,  repudiated  as  being  void  and  

unenforceable.   

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The petitioner sent a rejoinder to the reply in which he  

pointed out that the respondent had been represented not  

only by Shri Sandeep K. Dabir but even by Shri S. Sengupta  

with  whom  considerable  correspondence  had  been  

exchanged.  It was further asserted that at no stage during  

the  correspondence  was  any  indication  given  to  the  

petitioner  that  Shri  Dabir  and  Shri  Sengupta  were  not  

competent to finalise and sign the contract in question.   

The  parties  having  thus  taken  totally  contradictory  

positions, the petitioner informed the respondent that it had  

nominated  Shri  Rahul  Narichania  as  a  sole  Arbitrator  to  

adjudicate upon the disputes and that in case they had any  

objection to his acting as a sole Arbitrator, the respondent  

could  nominate  an  Arbitrator  on  their  behalf.  Since  the  

respondent  stuck  to  its  stand  that  there  was  no  valid  

contract between the parties and consequently there existed  

no  arbitration  agreement  for  referring  the  dispute  for  

arbitration, the petitioner was left with no alternative except  

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to  file  the  present  petition  seeking  appointment  of  an  

independent Arbitrator.  

The petition has been, as noticed earlier, opposed by  

the respondent not only on the merits of the claim made by  

the  petitioner  but  also  on  the  ground  that  no  arbitration  

agreement exists between the parties that could provide a  

basis for making a reference. According to the respondent,  

the petitioner had obtained the signature of Shri Dabir for  

blackmailing the respondent company.  It is further alleged  

that the respondent company had not only taken disciplinary  

action  against  Shri  Dabir  but  refused  to  ratify  the  

unauthorized act of its employee.  It is alleged that it was  

only  Shri  Sengupta  who  was  competent  to  enter  into  a  

contract  and that the earlier  contract  dated 7th July 2008  

signed by the said officer on behalf of the respondent had  

been honoured.  

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In  the  rejoinder  to  the  petition,  the  petitioner  has  

denied the allegation that Shri Dabir was not competent or  

that he had been induced to sign the contract for mala fide  

reasons.  It is further alleged that the issue whether Shri  

Dabir was authorized to execute the contract in question or  

not cannot be raised in the present petition.

It is in the above background that two questions which  

have been formulated in the beginning of this order arise for  

my consideration which may now be taken up ad seriatim.  

Regarding Question No. (1)

There is a long line of decisions of this Court in which  

this Court has examined the nature and the scope of the  

enquiry  and  the  jurisdiction  of  the  Chief  Justice  or  his  

designate while dealing with petitions under Section 11 of  

the Arbitration and Conciliation Act, 1996.  References to all  

those decisions is unnecessary for the question that falls for  

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determination  here,  stands  concluded  by  two  recent  

decisions  of  this  Court  which  alone  should  suffice  for  the  

present.  

In National Insurance Co. Ltd. v. Boghara Polyfab  

(P)  Ltd.  2009  (1)  SCC  267,  this  Court  examined  the  

provisions  of  Section  11  of  the  Act  and  categorized  the  

issues that may arise for determination in a petition under  

Section 11 before the Chief Justice or his designate and the  

approach to be adopted qua the same. The Court said:

“22.1. The  issues  (first  category)  which  the  Chief Justice/his designate will  have to decide  are:

(a)  Whether  the party making the  application  has approached the appropriate High Court.

(b) Whether there is an arbitration agreement  and whether the party who has applied under  Section  11 of  the  Act,  is  a  party  to  such  an  agreement.

22.2. The issues (second category) which the  Chief  Justice/his  designate  may  choose  to  decide  (or  leave  them to  the  decision  of  the  Arbitral Tribunal) are:

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(a) Whether the claim is a dead (long-barred)  claim or a live claim.

(b)  Whether  the  parties  have  concluded  the  contract/transaction by recording satisfaction of  their  mutual  rights  and  obligation  or  by  receiving the final payment without objection.

22.3. The  issues  (third  category)  which  the  Chief  Justice/his  designate  should  leave  exclusively to the Arbitral Tribunal are:

(i) Whether  a  claim  made  falls  within  the  arbitration  clause  (as  for  example,  a  matter which is reserved for final decision  of a departmental authority and excepted  or excluded from arbitration).

(ii) Merits  or  any  claim  involved  in  the  arbitration.”

The question whether there is an arbitration agreement  

and whether the party who has applied under Section 11 of  

the Act  is  a  party to such an agreement in  terms of  the  

above decision falls in category (1) and has, therefore, to be  

decided by the Chief Justice or his designate.   

The  above  decision  was  followed  in  A.P.  Tourism  

Development Corpn. Ltd. v. Pampa Hotels Ltd. 2010 (5)  

SCC  425  where  also  one  of  the  questions  that  fell  for  

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determination  was  whether  existence  or  validity  of  the  

arbitration agreement is a matter to be decided by the Chief  

Justice/designate while considering a petition under Section  

11  of  the  Act  or  the  same  has  to  be  decided  by  the  

Arbitrator.  Relying upon the decision of this Court in SBP &  

Co.  v.  Patel Engg. Ltd.  2005 (8) SCC 618 and  National  

Insurance Co. Ltd.  v.  Boghara Polyfab (P) Ltd.  2009  

(1) SCC 267, this Court held that the question had to be  

decided  by  the  Chief  Justice  or  his  designate.  The  Court  

observed:    

“It  is  held  in  SBP  &  Co. v.  Patel  Engg.  Ltd.and  National  Insurance  Co.  Ltd. v.  Boghara  Polyfab  (P)  Ltd.  that  the  question  whether  there  is  an  arbitration  agreement  and whether the party who has applied under  Section 11 of the Act, is a party to such an  agreement, is an issue which is to be decided  by the Chief  Justice or his designate under  Section 11 of  the  Act  before appointing an  arbitrator.  Therefore there can be no doubt  that the issue ought to have been decided by  the learned designate of the Chief Justice and  could not have been left to the arbitrator.

…………………………………………………………..   On  account  of  the  prospective  overruling  direction  in  SBP,  any  appointment  of  an  arbitrator under Section 11 of the Act made  prior  to  26-10-2005  has  to  be  treated  as  

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valid  and  all  objections  including  the  existence  or  validity  of  the  arbitration  agreement,  have  to  be  decided  by  the  arbitrator under Section 16 of  the Act.  The  legal position enunciated in the judgment in  SBP will  govern only the applications to be  filed under Section 11 of the Act from 26-10- 2005 as also the applications under Section  11(6) of the Act pending as on 26-10-2005  (where  the  arbitrator  was  not  yet  appointed).”

It is in the light of above pronouncements, unnecessary  

to delve any further on this issue.  It is clear that once the  

existence of the arbitration agreement itself is questioned by  

any party to the proceeding initiated under Section 11 of the  

Act,  the  same  will  have  to  be  decided  by  the  Chief  

Justice/designate  as  the  case  may  be.  That  is  because  

existence of an arbitration agreement is a jurisdictional fact  

which will have to be addressed while making an order on a  

petition under Section 11 of the Act.  The position may be  

different where arbitration proceedings are initiated before a  

nominated arbitral Tribunal but the opposite party appears  

to dispute the existence of the arbitration agreement.  In  

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any such situation the Arbitral Tribunal can itself decide the  

issue in exercise of its powers under Section 16(1) of the Act  

which reads as under:

“Jurisdiction of arbitral tribunals

16.Competence of arbitral tribunal to rule on  its jurisdiction.- (1) The arbitral tribunal may  rule on its own jurisdiction, including ruling  on  any  objections  with  respect  to  the  existence  or  validity  of  the  arbitration  agreement, and for that purpose, -

(a) an arbitration clause which forms part of  a contract shall be treated as an agreement  independent  of  the  other  terms  of  the  contract; and

(b) a decision by the arbitral tribunal that the  contract is null and void shall not entail ipso  jure the invalidity of the arbitration clause.”

So also the parties may without approaching the Chief  

Justice  refer  the  matters  in  dispute  to  the  nominated  

Tribunal  including  the  question  whether  there  exists  an  

arbitration  agreement.  In  any  such  case  also  the  Arbitral  

Tribunal  can  determine  the  existence  of  the  arbitration  

agreement. Suffice it to say that the power available to the  

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Arbitral Tribunal under Section 16 of the Act does not imply  

that the issue can be or ought to be left to be determined by  

the Arbitral Tribunal even in cases where one of the parties  

has filed a petition under Section 11 of the Act and the other  

party opposes the making of a reference on the ground that  

there exists no arbitration agreement between them. It is  

quite evident that the question whether or not an arbitration  

agreement  exists  between  the  parties  will  have  to  be  

answered for it is only if the answer to that question is in the  

affirmative that the Chief Justice or his designate can pass  

an  order  of  reference  of  the  disputes  for  adjudication.  

Question No. (1) is answered accordingly.

Regarding Question No. 2

That there is a written contract document between the  

parties, is not in dispute.  That an arbitration clause is found  

in the said contract is also not in dispute. That Shri Sandeep  

K.  Dabir  had  negotiated  the  contract  on  behalf  of  the  

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respondent  is  also  a  fact  that  is  not  disputed.  That  

correspondence between the parties was exchanged before  

the signing of  the document and the said correspondence  

was not only with Shri Dabir but with Shri Sengupta, who  

according to the respondent, was the competent authority to  

sign  the  document  is  also  not  in  dispute.  All  that  the  

respondent  in  the  above  backdrop  argues  is  that  Shri  

Sandeep K. Dabir was not competent to sign the contract  

and  that  Shri  Dabir  had  been  misdirected/  

enticed/misdirected to initial the contract which is according  

to the respondent, void in terms of the Contract Act, 1872.  

Reply sent by the respondent to the notices served upon it  

summarises the twin objections to the contract set up by the  

petitioner in the following words:

“4.  The  documents,  information  and  correspondence provided by our client clearly  suggest that what was going on between M/s  Kliss Trading Pvt. Ltd. the representatives of  your client and certain officials of our client  was only some sort of negotiation in respect  of  the purchase of  150 MTAC2B aluminium  ingots.   At  no point  of  time our  client  had  

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entered  into  any  contract  with  you  for  the  purchase of the above said material.

8. Our client further states that since your  client  had  misguided/  enticed/  misdirected  Mr. Dabir to initial the said contract the same  is also void under the provision of the Indian  Contract Act, 1872.”

The question, therefore, is whether the contract set up  

by the petitioners can be held  non est for the two reasons  

indicated in paragraph 4 and 8 extracted above. The defence  

set  up  by  the  respondent  that  the  information  and  

correspondence  provided  by  the  respondent  was  only  

suggestive of “some sort of negotiation” between the parties  

has  not  impressed  me.  The  documents,  information  and  

correspondence when taken in their totality especially in the  

light  of  the  signed  contract  document  that  stipulates  the  

mutual rights and obligations of the parties do not show that  

the  parties  were  simply  negotiating  a  contract.  The  

information  provided,  the  correspondence  exchanged  and  

the  documents  executed  are  on  the  contrary  clearly  

suggestive  of  the  parties  having  finalized  and  signed  a  

contract.  

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So  also  the  assertion  of  the  respondent  that  the  

petitioner had mis-directed, enticed or mis-guided Shri Dabri  

who was admittedly negotiating the contract on its behalf,  

had  no  authority  to  do  so  need  be  noticed  only  to  be  

rejected.  There are no particulars leave alone any material  

to establish that the signatures appended by Shri Dabir to  

the  contract  document  in  token  of  its  acceptance,  was  

vitiated  by  any  misrepresentation  or  such  other  

considerations  that  could  have  the  effect  of  vitiating  the  

contract. In the absence of details and particulars of what,  

according to the respondent, constituted inducement, mis-

guidance or mis-direction referred to in paragraph 8, it  is  

difficult to see how a fluent use of such expressions can help  

the respondent in avoiding a contract  that had come into  

existence between the parties.  A heavy duty lies upon the  

party who seeks to avoid a contract on the ground of mis-

representation,  fraud  or  coercion  to  prove  any  such  

allegation.  Nothing of the sort has been done in the instant  

case by the respondent. So much so the respondent has not  

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even placed on record any charter of duties and powers of  

Shri Dabir and Shri Sengupta nor has it chosen to place on  

record any material to suggest that any action was indeed  

taken against Shri Dabir for the alleged transgression of the  

limits of his authority and if so the nature of the disciplinary  

action taken against him. All this information and material  

was within the special knowledge of the respondent. Non-  

furnishing of such information must, therefore, give rise to  

an adverse interference against it.  The petitioner company  

had in any event no reason to believe or even suspect that  

Shri  Dabir  with  whom  it  was  dealing  did  not  have  the  

authority to sign the contract which was finalized between  

the  two  companies  acting  through  their  representatives.  

That is so especially when even according to the respondent,  

Shri Dabir had been authorized to negotiate the terms on  

behalf of the respondent.  If Shri Dabir was competent to  

negotiate the terms of the contract, the petitioner cannot be  

said to have induced or defrauded him into signing of the  

contract, which was forwarded to the respondent and which  

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was returned duly signed by Shri Dabir.  The petitioner was  

in this backdrop justified in proceeding on the basis that the  

contract  was duly negotiated and signed on behalf  of the  

respondent company.    

In the totality of the above circumstances, I have no  

doubt  that  a  legally  valid  contract  had  indeed  come into  

existence between the parties which contained an arbitration  

clause for adjudication of disputes that may arise between  

them.  Question  No.(2)  is  accordingly  answered  in  the  

affirmative.

In the   result,   I  allow   this  petition  and  appoint  

Mr. Justice Anil Dev Singh, former Chief Justice of Rajasthan  

High Court as sole Arbitrator for adjudication of the disputes  

between the parties arising out of the contract referred to in  

the petition. The Arbitrator shall be free to fix his fee and  

charges and the ratio in which the same shall be paid by the  

parties. The parties shall appear before the Arbitrator on 10th  

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December,  2010  for  further  directions.   Registry  shall  

forthwith  forward  a  copy  of  this  order  to  the  worthy  

Arbitrator for information and necessary action.    

……………………………J. (T.S. THAKUR)

New Delhi November 16, 2010

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