CASE COMMENT

2.1 LAW OF CONTRACTS

Submitted By:

Kanchan Daswani

UID: UG2018-42

B.A.LL.B. (Hons.) I Year-II Semester

Submitted To:

Dr. Manish Yadav

(Assistant Professor of Law)

MAHARASHTRA NATIONAL LAW UNIVERSITY, NAGPUR

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 TABLE OF ABBREVIATION

SC Supreme Court
HC High Court
Sec Section
CPC Code of Civil Procedure
v. Versus
Hon’ble Honourable
Co. Company
Ors. others

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 TABLE OF CASES

Name of Cases Pg. no.

State of Punjab v. Shri Jagan Nath Vig. 10
Punjab State v. Mauji Ram. 10
K. Swaminathan Padiachy v. Moona China Andi Ambalam. 10
Bachna Ram Sawan Ram v. The State Of Punjab. 11
Simla Banking And Industrial Co. Ltd. 11
Harbans Singh v. Punjab state. 11
UOI v. M/s. K.D. Mehta Manohar Singh and Co. 11
Clements v. County of Devon Insurance Committee. 11

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 TABLE OF CONTENTS

INTRODUCTION .................................................................................................................................. 6
RESEARCH METHODOLOGY ............................................................................................................ 7
ARBITRATION ..................................................................................................................................... 8
BRIEF FACTS OF THE CASE .............................................................................................................. 9
ISSUES RAISED IN THE COURT OF LAW ..................................................................................... 10
ARGUMENTS OF COUNSELLORS .................................................................................................. 10
JUDGEMENT....................................................................................................................................... 12
OBITER DICTA ................................................................................................................................... 13
COMMENT .......................................................................................................................................... 14
CONCLUSION ..................................................................................................................................... 15
ANNEXURE......................................................................................................................................... 16

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5
 INTRODUCTION

In India, the number of cases filed in court is increasing substantially. And it takes number of
years to decide each case. On an average the pendency of any case in our 21 High Courts is 3
years, average pendency of any case in any of the Subordinate Court is 6 years, and the time
taken on an average for a case that goes to SC is more than 13 years1. The number of pending
cases in the SC as on 01st Jan 2019 is 57,3462. The plethora of cases coming to courts daily
and the cases pending for hearing has put huge burden on the judiciary. Due to this time
consuming procedure of courts, there has been a shift of ideology towards arbitration.
Arbitration is a comparatively quicker, less expensive, more expeditious and less formal than
ordinary courts3. Arbitration includes amicable resolution of disputes among parties by a
person selected by both the parties on mutual agreement. This selected person known as
arbitrator acts as a quasi- judicial body and have full power to hear evidences and
proceedings and give the decision. The case which is being dealt here questions the validity
of an arbitration agreement which does not include the words ‘arbitrator’ and ‘arbitration’. In
this project, it would be analysed that whether intention of parties is mere necessity for a
valid arbitration agreement or the construction of clause with precise words is needed to form
a valid arbitration agreement.

1
Harish Narasappa, The Long, Expensive Road to Justice, I.T., May 9, 2016.
2
See Supreme Court of India/statistics (https://www.sci.gov.in/statistics) (last visited on Jan 07, 2019).
3
Ram Lal- Jagan Nath v. State of Punjab, AIR 1966 P H 436 (India).

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 RESEARCH METHODOLOGY

RESEARCH DESIGN-

The researcher has used doctrinal method of research. The researcher has read various case
laws, articles and books related to the topic and developed an understanding of the topic.

AIMS AND OBJECTIVES-

The project aims to understand the ambit of arbitration agreements. The research tries to find
out the necessary requirements to constitute an arbitration agreement. The researcher aims to
understand various clauses of arbitration.

RESEARCH QUESTIONS-

1. What is an arbitration agreement?

2. What does the term ‘reference’ means in arbitration?
3. Are words ‘arbitrator and ‘arbitration’ necessary to constitute an arbitration
agreement?

HYPOTHESIS-

The researcher formulates the hypothesis that in an arbitration agreement, the only
requirement is that there should be consensus ad idem4 as to the terms of arbitration. There
should be a clear intention on the part of both the parties to refer all their disputes to an
arbitrator and form an arbitration agreement.

4
Latin phrase , meaning ‘meeting of the minds’. Used to refer to the intention of the parties.

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 ARBITRATION

The Indian law of arbitration is contained in the Arbitration and Conciliation Act
19965. The Act is a composite piece of legislation. It provides for domestic
arbitration; international commercial arbitration; enforcement of foreign award and
conciliation. Part I contains the provisions for domestic and international commercial
arbitration in India. All arbitration conducted in India would be governed by Part I,
irrespective of the nationalities of the parties. Part II provides for enforcement of
foreign awards. The subject matter of arbitration includes any commercial matter
including an action in tort if it arises out of or relates to a contract 6. Arbitration
minimises the role of the court. In relation to arbitration proceedings, parties can
approach the Court only for two purposes: (a) for any interim measure of protection or
injunction or for any appointment of receiver etc.; or (b) for the appointment of an
arbitrator in the event a party fails to appoint an arbitrator or if two appointed
arbitrators fail to agree upon the third arbitrator7.
It is necessary to understand the meaning of arbitration agreement for the analysis of
the instant case:
“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 not8. An arbitration agreement may
be in the form of an arbitration clause in a contract or in the form of a separate
agreement9.

5
Full text of the act can be achieved on (https://www.wipo.int/edocs/lexdocs/laws/en/in/in063en.pdf) (last
visited on Jan 07,2019).
6
Sumeet Kachwaha and Dharmendra Rautray, ARBITRATION IN INDIA: AN OVERVIEW, IPBA
(https://ipba.org/media/fck/files/Arbitration%20in%20India.pdf) (last visited on Jan 07, 2019).
7
Sec. 11 of the Arbitration and Conciliation Act 1996.
8
Sec. 7 (1) of the Arbitration and Conciliation Act 1996.
9
Sec. 7 (2) of the Arbitration and Conciliation Act 1996.

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 BRIEF FACTS OF THE CASE

M/s Ram Lal Jagan Nath and State of Punjab entered into a contract for the construction of
houses and bridges and for putting earth along the second Bhakra main line. Disputes arose
between the parties related to overpayment in several cases. The contractors approached the
settlement committee, Patiala, for arbitration. But since the issue was related to work orders
and as it was given in the clause that Superintending Engineer has to be approached in cases
relating settlement of disputes related to work orders. So they had to approach Shri B.S.
Bansal, Superintending Engineer, for arbitration.

The matter was referred to single judge in Punjab H.C. He held that arbitration rests on
mutual voluntary agreement of parties to submit their matters of difference to a selected
person on a mutual agreement. He said that it is not necessary to have word “arbitration” and
“arbitrator” in an agreement for it being valid arbitration agreement. An arbitration agreement
may arise by containing a document having an arbitration clause. He further said that the
essential requirement is that the parties should intend to make a reference or submission to
arbitration and should have consensus over this issue. No particular form appears to have
been laid down as universal for framing an arbitration agreement, the only certain thing is
that the words should clearly imply that parties want to refer to arbitration; the words should
not be mere possibility.

The petitioner challenged this arbitration on the ground that it was not a valid arbitration
agreement. This issue was raised before a single bench, who dismissed the suit. Now a
revision petition is filed before a full bench.

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 ISSUES RAISED IN THE COURT OF LAW

These two were the main issues which were meant to be determined by the court in the given
case:

1. Whether the use of words “arbitrator” or “arbitration” is mandatory to constitute an

arbitration agreement?
2. Whether the following clause constitutes arbitration agreement-
“In matter of dispute the case shall be referred to the Superintending Engineer of the
Circle, whose order shall be final.”?

ARGUMENTS OF COUNSELLORS

The petitioner argued before the court that the clause containing the terms of arbitration
(condition no. 5)10 does not constitute an arbitration agreement. In support of this argument,
he placed reliance on the case of State of Punjab V. Shri Jagan Nath Vig11. In the decision
given by this court in this case held that the absence of words arbitration or arbitrator makes
the terms of the contract vague. It regards absence of these terms as a matter of great
significance as all the cases he had dealt with earlier had these terms as a part of contract.

Another case to which reference was made before bench is State of Punjab v. Mauji Ram12
was not considered to be of much assistance because the question of whether the clause
amounted to arbitration agreement was not raised in this case.

A reference of the case K. Swaminathan Padiachy v. Moona China Andi Ambalam13was

made in the case of Jagan Nath Vig. In this case the parties agreed to refer to superintendent
of land records in case of any dispute. It was held in this case that the absence of these terms
showed that the intention was not expressed with sufficient clarity.

The petitioners counsel also submitted that the clauses in contracts which refer to arbitration
requires strict construction because they exclude the jurisdiction of ordinary courts and a
clear intention should be there to make it enforceable by court.

10
Condition no. 5 says that, “In matter of dispute the case shall be referred to the Superintending Engineer of
the Circle, whose order shall be final.”
11
Unreported judgement; F.A.O. 47 of 1957
Unreported Judgements are the decisions of the court which are not published.
12
58 P.L.R. 567.
13
A.I.R. 1933 Rang. 407.

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The respondent’s counsel pointed out that the decision of court in Jagan Nath Vig’s case was
not drawn towards provisions of Indian Arbitration Act and other relevant decided cases.

He referred case of Governor General in Council v. Simla Banking And Industrial Co. Ltd.
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decided by Lahore High Court. The court dismissed this case also on the ground that
argument advanced from this case is not similar to the present case and hence this case has no
connection with the present case.

The case of Bachna Ram Sawan Ram v. The State Of Punjab15 was also referred. Here similar
clause was assumed. The decision in this case was similar to Mauji Ram’s case.

Another case referred by the respondent’s counsel was Harbans Singh V. Punjab State16. In
this case the language of arbitration included ‘shall be referred for arbitration to
superintendent’ amounted to valid arbitration agreement.

In the case of UOI v. M/s. K.D. Mehta Manohar Singh and Co.17 referred by the respondent’s
counsel the clause containing terms of arbitration didn’t included words like arbitration and
arbitrator but amounted to valid arbitration agreement.

In a decision of Court of Appeal in the case of Clements v. County of Devon Insurance

Committee18, no words like arbitrator or arbitration were said but it was held that the clause
referred to arbitration. Reference was made to commissioners as arbitrators.

14
A.I.R. 1947 Lah. 215.
15
A.I.R. 1962 Punj. 85.
16
A.I.R. 1960 Punj. 182.
17
1965 P.L.R. 166.
18
L.R. (1918) 1 K.B.D. 94.

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 JUDGEMENT

After hearing the arguments of both the sides and analysing different cites cases the court
held that arbitration rest on mutual voluntary agreement of the parties to submit their
differences to a specific person whose decision would be final in resolving the issue. He says
that the object of arbitration is the final determination of differences among the parties in a
comparatively quicker and less expensive manner than that of court. The most crucial
element is that both the parties should intend to make a reference to arbitration. The condition
no. 519 of the work order shows that both the parties unequivocally intend to abide by the
order of Superintending Engineer.

It says he finds absence of words arbitrator and arbitration highly immaterial and points out
that the respondent’s counsel has not given any alternate construction of the statement of this
clause.

The case of In Re, Carus Wilson and Greene has been brought before the court but the court
do not find the ratio that this clause refers to mere agreement to valuation and not to
arbitration. In the decision by Lord Esher, he distinguished between arbitration agreement
and valuation agreement; which was one of the issues raised by the respondent’s counsel. If it
appears from the terms of contract that the parties intend to submit to another person for
judicial enquiry and hear cases and evidence and settle disputes therewith than such an
agreement is an arbitration agreement, but in cases where a person is appointed for
ascertaining some matter for preventing difference from arising in future then such a case is
of mere valuation and not of arbitration.

In this case it is difficult to contend that superintending engineer was appointed for
preventing any dispute from arising.

Another contention made by the learned counsel of petitioner was that the language of clause
shall clearly refer to arbitration as it excludes the jurisdiction of courts. The court dismisses
the contention saying this clause should again aim at discovering the intention of parties and
no question of strict or liberal interpretation of language arises. Also the disputes by

19
Condition no. 5 says that, “In matter of dispute the case shall be referred to the Superintending Engineer of
the Circle, whose order shall be final.”

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arbitration are not contrary to public policy but it is a recognised method of settling disputes
in a quick and cheap manner.

The court also rejected petitioner’s attempt to urge that government unduly influenced them
to sign on the agreement.

The government has redrafted the clause in order to obviate future problems. But this cannot
be the reason to accept that the present clause didn’t amount to arbitration agreement. Only to
avoid future conflicts, the government redrafted the arbitration clause.

The court supports the view of Lahore HC in the case of Simla Banking And Industrial
Company and finds it difficult to support the judgement in Jagan Nath Vig’s case. The
revision petition is dismissed by the court. The court held that this agreement is an arbitration
agreement and to constitute an arbitration agreement intention and consensus of both the
parties is necessary and not the use of words arbitrator and arbitration. Mere reference to
arbitration is enough to constitute an arbitration agreement.

OBITER DICTA

The court highlights the importance of reported decisions. It says if the decision of Jagan
Nath Vig’s case was reported earlier then this issue which is now raised would have been
decided by a larger bench much earlier.

The court also regrets non citation of Lahore HC decision at the time of Jagan Nath Vig’s
case so that this matter would have been solved much earlier.

The court highlights the importance of liberal reporting. It says in this democratic set up it is
much important to publicise important rulings which decide substantial questions of law. So
that any conflict regarding it can be solved without any undue delay. Liberal reporting would
facilitate quicker judicial scrutiny and review by superior courts which will further help in
healthy development of judicial precedents.

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 COMMENT

I support the judgement given by this court in the instant case. I appreciate the reasoning
given by the bench against each argument given by the counsels. The judgement was given
by analysing various precedents cited by the counsellors to support their arguments. The
reasoning of the court was based on the critical analysis of the cases. The bench took out
those extracts from the cases which supported the case. The decision given by the court
holding that intention is the most crucial element for formulation of an arbitration agreement.
The use of words ‘arbitrator’ and ‘arbitration’ are not mandatory for formulation of an
arbitration agreement. Mere reference to arbitration in any form may result in constituting an
arbitration agreement. For construction of a valid arbitration agreement it is not necessary
that the words of the clause should be strict20. 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.21
This definition of arbitration agreement also highlights that there should be an agreement
between parties to submit their disputes to arbitrator which also means that there requires a
mutual voluntary agreement and there is no need for giving specific reference to the words
‘arbitrator’ and ‘arbitration’. In the instant case Indian Arbitration Act, 1940 is applicable. In
this section also “arbitration agreement means a written agreement to submit present future
differences to arbitration, whether an arbitrator is named therein or not”22. Here also the same
is specified.

The decision still holds good and is cited in various cases in SC and HC as reference. The SC
in its decision in the case of State Of U.P. v. Tipper Chand23 cited the decision given by HC
in this case as a reference and also said as a passing remark that here the agreement is rightly
interpreted as arbitration agreement.

This decision acted as a landmark decision and resolved many issues in advance which might
have arose if the given case was not resolved.

20
Ram Lal- Jagan Nath v. State of Punjab, AIR 1966 P H 436 (India).
21
Sec. 7 (1) of the Arbitration and Conciliation Act 1996.
22
Sec. 2(a) of Indian Arbitration Act, 1940.
23
A.I.R 1980 SC 1522.

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 CONCLUSION

The hypothesis formed by the researcher still holds good. In the instant case it was held that
intention of parties is the mere necessity of the arbitration agreement. Now a clear
understanding of arbitration and arbitration agreement is formed. Also a proper understanding
of the relevant statutes from the given case is achieved. The judgement of the HC resolved an
important question of law. This helped in understanding what the requirements of an
arbitration agreement are.

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 ANNEXURE

1. Name of the Case : RAM LAL- JAGAN NATH (Petitioners) V. THE PUNJAB
STATE AND ANOTHER (Respondents) (AIR 1966 P H 436);
2. Composition of the Bench: Punjab High Court: Full bench

Name of Judges: Hon’ble Mr. Justice Inder Dev Dua, Hon’ble Mr. Justice Shamsher
Bahadur and Hon’ble Mr. Justice R.S. Narula

3. Area of Law: Civil Law; Law of Contracts.

4. Jurisdiction: The petitioner has approached the hon’ble HC under S. 115 of CPC.

(1)] The High Court may call for the record of an case which has been decided by
any Court subordinate to such High Court and in which no appeal lies thereto, and if
such subordinate Court appears

(a) to have exercised a jurisdiction not vested in it by law, or

(b) to have failed to exercise a jurisdiction so vested, or

(c) to have acted in the exercise of its jurisdiction illegally or with material
irregularity.

In this case appeal cannot be made to Supreme Court because the first appeal was
decided by a single judge bench and no second appeal can lie against the decree
passed by a single judge of high court. (S. 100A of CPC24).

Hence the jurisdiction of S. 115 of CPC in the given case is valid.

5. Question of Law:

24
S. 100A. No further appeal in certain cases: Notwithstanding anything contained in any Letters Patent for any
High Court or in any other instrument having the force of law or in any other law for the time being in force,
where any appeal from an original or appellate decree or order is heard and decided by a single Judge of a High
Court, no further appeal shall lie from the judgment and decree of such single Judge.

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 The petitioner filed a revision petition under S. 115 of CPC. The petitioner was not
convinced that the clause in the agreement amounted to arbitration because the
words arbitrator and arbitration were missing from the clause. To challenge the
validity of the arbitration agreement the petitioner filed this revision petition.

6. Reliance on Relevant

(i) Statues: The case relied on S. 2(a)25 and 2(e)26 of The Arbitration Act
1940.

(ii) Decided cases: The following cases were referred by the counsellors
before the court:
State of Punjab v. Shri Jagan Nath Vig.
Punjab State v. Mauji Ram.
K. Swaminathan Padiachy v. Moona China Andi Ambalam.
Bachna Ram Sawan Ram v. The State Of Punjab.
Simla Banking And Industrial Co. Ltd.
Harbans Singh v. Punjab state.
UOI v. M/s. K.D. Mehta Manohar Singh and Co.
Clements v. County of Devon Insurance Committee.
7. Legal issues of Determination:
These two were the main issues which were meant to be determined by the court in
the given case:
3. Whether the use of words “arbitrator” or “arbitration” is mandatory to
constitute an arbitration agreement?
4. Whether the following clause constitutes arbitration agreement-
“In matter of dispute the case shall be referred to the Superintending
Engineer of the Circle, whose order shall be final.”?

25
2(a) "arbitration agreement" means a written agreement to submit present future differences to arbitration,
whether an arbitrator is named therein or not.
26
2(e) "reference" means a reference to arbitration.

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 8. Nature of the issue:
Impugning the constitutional validity of:

Statue: The validity of S 2 (a)27 and 2(e)28 of Indian Arbitration Act 1940 was
disputed in the instant case.

Impugning the correctness of the judgment on the ground of:

Wrong appreciation of law: The judgement was challenged on the basis of

inappropriate interpretation of law. The ambit of S. 2(a)29 and 2(e)30 of the Indian
Arbitration Act, 1940 was in dispute. The petitioner opted for revision of the
judgement given by a single judge bench of the same HC. The challenge before the
court was whether such type of agreement as given in the case amounted to
arbitration.

Question of Interpretation of:

Statutory Provisions: The case was about interpretation of statutory provisions of

Indian Arbitration Act 1940.

9. Methodology of judging the issues involved:

The court analysed all the arguments advanced by both the parties critically. It
looked into the cases referred by them and the connection of those cases with the
present case. It referred to the previous cases judged by it regarding this issue. The
court took help of precedents in deciding this case. Through these methods court
developed reasoning and judged the given issue.
10. Whether the opinion of the court is:

27
2(a) "arbitration agreement" means a written agreement to submit present future differences to arbitration,
whether an arbitrator is named therein or not.
28
2(e) "reference" means a reference to arbitration.
29
Ibid.
30
Ibid.

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 Unanimous as on Judgement: The opinion of the court is unanimous on the
judgement. The other two judges are in consensus with the reasoning and
interpretation of Justice Dua. They support his views in the given case. All the three
judges share the same opinion regarding the case resolved.

11. Majority- The judgement was given by Justice Dua, the other two judges agreed with
his judgement.
12. Ratio of the majority opinion
Executive action or legislative action (Law) or Constitutional amendments quashed
Or upholds the same
Or merely interpreted the law

13. Whether the majority has issued

Any new rulings or new guidelines:
The court highlights the importance of reported decisions. It emphasises on liberal
reporting of the judgements of court which decide important question of law.

And new principle(s) of interpretation:

The court gave the interpretation that the words ‘arbitrator’ or ‘arbitration’ are not
necessary to constitute an arbitration agreement. Mere intention and consensus of
parties to refer to arbitration is necessary to constitute an arbitration agreement.

14. Whether the majority ruling in each issue/point

Still holds good: The ruling given by majority still holds good, this can be verified
by seeing this case cited as reference by Supreme Court in various judgements
relating this issue. The SC in its decision in the case of State Of U.P. v. Tipper
Chand31 cited the decision given by HC in this case as a reference and also said as a
passing remark that here the agreement is rightly interpreted as arbitration
agreement.

31
A.I.R 1980 SC 1522.

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 REFRENCES

1. https://www.scconline.com

2. https://indiankanoon.org/

3. https://www.manupatrafast.com/

4. Harish Narasappa, The Long, Expensive Road to Justice, I.T., May 9, 2016.

5. See Supreme Court of India/statistics (https://www.sci.gov.in/statistics) (last visited

on Jan 07, 2019).

6. Full text of the act can be achieved on

(https://www.wipo.int/edocs/lexdocs/laws/en/in/in063en.pdf) (last visited on Jan
07,2019).

7. Sumeet Kachwaha and Dharmendra Rautray, ARBITRATION IN INDIA: AN

OVERVIEW, IPBA (https://ipba.org/media/fck/files/Arbitration%20in%20India.pdf)
(last visited on Jan 07, 2019).

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