Want to know whether this statement is arbitration clause or not?

882 votes

Sir

First of all please note, that a clause cannot be interpreted in isolation, the entire agreement has to be read to find out what was the exact intention of the parties, in placing a particular clause. In other words, a clause can be read only in reference to its context.

However, notwithstanding my aforesaid comments, i would make the following the comment on the clause.

The clause may have two aspect : -

1) First Aspect

The test to determine the existence of a valid arbitration agreement are laid down by the Hon'ble Apex Court as under : -

(i) Even if there is no specific form of an arbitration agreement, yet the intention of the parties which can be gathered from the terms of the agreement should disclose a determination and obligation to go to arbitration;

(ii) non-use of the words "arbitration" and "arbitral tribunal" or "arbitrator" would not detract from a clause being interpreted as an arbitration agreement if the attributes or elements of arbitration agreement are established, i.e.,

(a) The agreement should be in writing.

(b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal.

(c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it.

(d) The parties should have agreed that the decision of the private tribunal in respect of the disputes will be binding on them; and

(iii) where there is specific exclusion of any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it would not be an arbitration agreement.

(iv) Where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement.

So if we interpret the aforesaid clause in light of the test laid down by the Apex Court, then the following aspects are highlighted : -
(a) That provisions is available for resolution of "Dispute" ;

(b) There is a provisions regarding a referring of a dispute to an Authority, here "Director"

(c) Nature of disputes which the Authority can decide are also stipulated i.e. "meaning and intent of any specifications, terms and conditions"

(d) However, according to me there are two elements which are missing (i) Power of Adjudication ; (2) adjudication in impartial manner.

The clause do not say that the Director shall "adjudicate" rather it only says that after reference of dispute, the decision of director shall be final and binding. It do not in any manner spell that the director shall "adjudicate" the dispute i.e. following the principle of natural justice, hearing the parties etc. In this case, there is no direct reference of referring a dispute to arbitrator, but it is one of construction, and when the clause is to be construed then all attributes of an arbitration clause must be found in the agreement, and any one missing attributes cannot be deemed construed to interpret an arbitration agreement.

Another aspect, associated with this clause is that the person conferred the power to give decision is "Director" a person interested in the proceedings and it cannot be said that he is impartial or independent.

Please note, there are some decision of the Apex Court in this regards, some in favor and some against, however ultimately ending and basing their decision on overall construction of Agreement.

In the case of Rukmanibai, the Apex Court was considering the following clause : -

"Whenever any doubt, difference or dispute shall hereafter arise touching the construction of these presents or anything herein contained or any matter or things connected with the said lands or the working or non-working thereof or the amount or payment of any rent or royalty reserved or made payable hereunder in the matter in difference shall be decided by the lessor whose decision shall be final"

This was held to be a valid agreement. The clause that you mentioned is somewhat very similar to the clause in this case. So, it can be said that your is an arbitration agreement, however, there are two aspect, which i believe would not make this case applicable to you

(A) In this case there is a word "Decide" i.e. "the dispute shall be decided by the lessor". The word "Decide" cannots legal process of adjudication,whereas in your clause, the word used is "Decision" which means final outcome. It do not postulate decision making process.

(B) The decision of the Apex Court in Rukmanibai Case, was considered by subsequent bench in case of Bhagyadhar Dash, wherein it was held that Decision of Rukmanibai "was decided on the special wording of the clause considered". So the judgment of Rukmanibai was not considered as universal principle or ratio of law.

So under the circumstances, i believe the clause that you mentioned is not an Arbitration Clause

2) SECOND ASPECT

Say if the agreement is interpreted as "Arbitration Clause" on the primises that under the law intent of the Agreement must be promoted and technicalities should be avoided, coupled with the trite legal position that the interpretation tilting in favor of construction of valid arbitration agreement must adhered to instead of one against Then in that event also, the Clause has to limitaton : -

(A) The clause only provides for difference in the nature of "meaning and intent of any specifications, terms and conditions etc., " and not on each and every aspect of the work. The word ETC. cannot be stretched beyond the proceeding nomenclatures or its context. So the agreement is not a full reference arbitration clause.

(B) "Director" is appointed as Arbitrator. Arbitration & Conciliation (Amendment) Act, 2015, amended Section 12, that prohibits any person to act and be appointed as Arbitrator if such person is "manager, director or part of the management" of the party directly involved in the matter in dispute. However, please note that, the said incapacity of arbitrator would not make the arbitration clause, void, (if the court held such as an arbitration agreement), and instead of Director any other person can be appointed as arbitrator as court may deem fit and proper.


The aforesaid is my opinion based on the interpretation of the aforesaid isolated clause. This is only for academic purpose and shall not be construed as legal advise.

Feel free to contact should you have any questions.

Best Regards
Vivek N Mapara

Advocate Vivek Mapara LawRato

942 votes

Yes this clause is arbitration clause. As the clause provides the final decision taken by the managing director of M/s M. V. Omni project (Pvt.) Ltd.
As the clause suggest taht final decision is taken by managinag director the clause is attact by Arbitration.

Advocate Nayan Mehta LawRato