Reportable  IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION[C] NO.29333/2008      [CCNO.15612/2008]

Yogi Agarwal ………. Petitioner Vs. M/s. Inspiration Clothes & U, and Ors. ………. Respondents

O R D E R

R.V. Raveendran J.

Dismissal  of  an  application  under  Section  8  of  the Arbitration  and  Conciliation  Act,  1996  (‘the  Act’  for short), filed by the defendants in a money suit (filed by the first respondent herein against three defendants, that is, third respondent company, and its two directors namely, petitioner  and  second  respondent),  affirmed  by  the  High Court,  has  led  to  the  filing  of  this  special  leave petition. For convenience, we will refer to the parties by their rank in the suit.

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2. There is a delay of 182 days in filing this petition. The  only  reason  assigned  by  the  petitioner,  a  seasoned businessman, to explain the delay is that he was confused by diverse opinions about filing of special leave petition. The explanation is neither satisfactory nor sufficient to condone  the  delay.  Even  assuming  that  the  delay  is condonable,  we  find  that  the  special  leave  petition  is liable to be rejected on merits.  

3. The plaintiff filed the suit on 9.9.2003 for recovery of Rs.9,48,143 with interest allegedly due in regard to (i) price  of  two  consignments  supplied  by  plaintiff  to  the nominees of the first defendant company and (ii) value of nine samples made available by the plaintiff to defendants. In  the  said  suit,  defendants  made  an  application  dated 17.12.2005 under section 8 of the Act, for referring the parties  to  arbitration.  To  show  the  existence  of arbitration  agreement,  the  defendants  relied  upon  three invoices of ‘Yash Traders’, a proprietary concern of the second  defendant  (petitioner  herein),  dated  2.11.1999, 22.6.2001 and 11.2.2003 in regard to the sale of cotton fabric by the said Yash Traders to the plaintiff containing the  following  note:  “All  disputes  pertaining  to  this

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transaction if any will be subject to the Arbitration Rules & Regulations of Bharat Merchant Chamber”. The defendants alleged  that  the  said  invoices  were  accepted  by  the plaintiff  thus  resulting  in  a  binding  arbitration agreement.  

4. The trial court noted that there was no arbitration agreement in regard to the suit transactions and that the defendants  wanted  the  three  invoices  (containing  a provision  for  arbitration)  relating  to  some  other transactions  to  be  treated  as  an  arbitration  agreement between  parties  in  regard  to  the  suit  transactions.  It examined the three invoices and held that the said invoices could not be treated as containing an arbitration agreement within the meaning of Section 7 of the Act, as the invoices were  signed  only  by  ‘Yash  Traders’  and  not  by  the plaintiff. The said decision has been affirmed by the High Court.  

5. The petitioner has filed this special leave petition, contending  that  to  constitute  a  valid  arbitration agreement, a document containing the arbitration agreement need  not  be  signed  by  all  parties.  According  to  the petitioner,  if  an  invoice  signed  by  the  seller  is

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acknowledged or accepted or acted upon by the buyer, a term in  the  invoice  providing  for  arbitration  will  be  an “arbitration  agreement”  as  between  the  seller  and  the buyer,  irrespective  of  whether  the  buyer  signed  the document  or  not. We do  not propose to  examine the said contention as it does not really arise for consideration in this case.  

6. The fundamental lacuna in the claim of defendants for reference to arbitration is the absence of an arbitration agreement  between  the  parties,  in  regard  to  the  suit transactions. The three invoices containing a provision for arbitration  relied  upon  by  the  petitioner  (second defendant), do not relate to the suit transactions at all. The plaintiff, as noticed above, filed a suit for recovery of  the  amounts  allegedly  due  in  regard  to  some  samples supplied by him to the defendants and certain supplies made to the nominees of the first defendant company. The three invoices relied on by the defendants, on the other hand, relate  to  sale  of  goods  by  the  proprietary  concern  of second defendant to the plaintiff. The said invoices have nothing to do with the suit transactions. Such unconnected documents  cannot  be  pressed  into  service  to  claim  the existence of an arbitration agreement.  

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7. When  a  defendant  invokes  section  8  of  the  Act  by alleging existence of an arbitration agreement, he should establish that such arbitration agreement related to, or is applicable to, the suit transaction/contract. The parties may enter into different contracts at different points of time or may enter into a series of unrelated transactions. It is possible that in regard to some, they may provide for arbitration and in regard to others, may not provide for arbitration.  Obviously,  the  existence  of  an  arbitration agreement with reference to some other transaction/contract to which plaintiff was or is a party, unconnected with the transactions or contracts to which a suit relates, cannot be considered as existence of an ‘arbitration agreement’ in regard to the suit transactions/contracts. When sections 7 and 8 of the Act refer to the existence of an arbitration agreement between the parties, they necessarily refer to an arbitration  agreement  in  regard  to  the  current  dispute between the parties or the subject matter of the suit. It is  fundamental  that  a  provision  for  arbitration,  to constitute  an  arbitration  agreement  for  the  purposes  of sections 7 and 8 of the Act, should satisfy two conditions. Firstly, it should be between the parties to the dispute. Secondly, it should relate to or applicable to the dispute.  

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8. In  this  case,  neither  of  the  two  conditions  was satisfied. Firstly, the suit related to transactions said to have taken place between plaintiff and first defendant company and its two directors, whereas the documents put forth as containing the arbitration agreement related to some transactions between a proprietary concern of second defendant  and  plaintiff.  Secondly,  the  provision  for arbitration is not contained in any contract or document relating  to  the  suit  transactions,  but  contained  in documents  relating  to  some  unconnected  independent transactions. It is significant that, in their application under section 8 of the Act, the defendants did not even allege that there was an arbitration agreement in regard to the subject matter of the suit. What they alleged was that ‘subject matter of the suit’ was similar to or identical with  the  ‘subject  matter  of  the  arbitration  agreement’. That does not entitle them to seek relief under section 8 of the Act. As there was no ‘arbitration agreement’, the requirements of section 7 were not met.  

9. As there is no arbitration agreement with reference to the  subject-matter  of  the  suit  filed  by  the  plaintiff

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(first  respondent  herein),  rejection  of  the  application filed by defendants under Section 8 of the Act, does not call  for  interference.  The  special  leave  petition  is, therefore, dismissed both on the ground of delay and on merits.

…………………………………………..J. (R V Raveendran)

New Delhi; …………………………………………..J. December 1, 2008. (D K Jain)            

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