Intent of parties must guide interpretation of vague Arbitration clause: SC

The intention of parties to settle disputes by arbitration must be prioritised when the relevant contract clause does not provide for arbitration as the only option. The Supreme Court yesterday had occasion to endorse this principle while disposing of a petition brought by a Chinese company against an Indian one..Both parties were engaged in the elevator manufacturing industry. The Chinese company, Zhejiang Bonly Elevator Guide Rail Manufacture Co. Ltd. (‘Zhejiang’) had filed an arbitration petition under Section 11(5) of the Arbitration and Conciliation Act, 1996. The petition was filed after the Indian Company, Jade Elevator Components (‘Jade’), refused to concur with the proposal to settle a dispute between them through arbitration..Section 11 (5) allows parties to approach the Court for the appointment of an arbitrator, where the parties themselves are unable to agree on such appointment..In this case the Zhejiang had proposed that former Delhi High Court Judge, VS Agarwal be appointed as the sole arbitrator. However, Jade refused to concur with this proposal last April..In their submissions before the Bench of Chief Justice Dipak Misra and Justices AM Khanwilkar and DY Chandrachud, Jade argued that the dispute should be decided by a Court and not by an arbitrator, as per Clause 15 of the contract between the parties..Zhejiang, however, contended that the clause offers a choice between the appointment of an arbitrator or adjudication by a Court for dispute settlement, once consultation fails..The clause in question, as loosely translated from Chinese, stated as follows,.“15. Dispute handling: Common processing contract disputes, the parties should be settled through consultation; consultation fails by treatment of to the arbitration body for arbitration or the court.”.The Court noted that it was undisputed that the clause made reference to both arbitration and court in laying down potential avenues for dispute resolution. This meant that the parties could choose between either arbitration or Court adjudication..“On a query being made, learned counsel for the parties very fairly stated that though the translation is not happily worded, yet it postulates that the words “arbitration or the court” are undisputable as far as the adjudication of the disputes is concerned. .There is assertion that disputes have arisen between the parties. The intention of the parties, as it flows from the clause, is that efforts have to be made to settle the disputes in an amicable manner and, therefore, two options are available, either to go for arbitration or for litigation in a court of law.“.In this backdrop, the Court made reference to the case of INDTEL Technical Services Private Limited v WS Atkins Rail Limited, which involved a similar dispute settlement clause with a choice between arbitration and court adjudication. In that case, the Court proceeded to appoint an arbitrator after concluding that the parties clearly intended to refer disputes to arbitration by the relevant clause..The Bench, therefore, opined that it is the intention of the parties which should determine whether or not the dispute should be referred for arbitration. Referring to the INDTEL case, the Court observed,.“The aforesaid passage makes it clear as crystal that emphasis has been laid on the intention of the parties to have their disputes resolved by arbitration.“.In the instant case, Zhejiang’s invocation of the arbitration option prompted the Court to conclude that the dispute should be referred for arbitration..“In the case at hand, as we find, Clause 15 refers to arbitration or court. Thus, there is an option and the petitioner has invoked the arbitration clause and, therefore, we have no hesitation, in the obtaining factual matrix of the case, for appointment of an arbitrator… “.Accordingly, the Court appointed former Supreme Court judge, Prakash Prabhakar Naolekar as the sole arbitrator to settle the dispute between Zhejiang and Jade..Advocate Nandini Gidwaney Sharma made arguments for Zhejiang, assisted by Advocate Mudit Sharma. Jade was represented by Advocates DN Ray, Lokesh K Choudhary, Disha Ray, Dilip Kumar Nayak and Sumita Ray..Read the Judgment: