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M/S. System For International Agencies (Petitioner) Versus M/S. Rahul Coach Builders Pvt. Ltd.(Respondent)

Arbitration Petition No.: 6 of 2014 Case decided on: - 16-2-2015. Facts of the Case: There existed an agreement between above mentioned parties. The arbitration clause incorporated in the agreement regarding sale contract dated 2nd May, 2011 stated as follows: "Disputes: In case of any dispute arising out of this agreement between the parties, the same shall be referred to the arbitration under the bylaws of Indian Companies Act, 1956 (“Act”) and all amendments of this Act up to date or shall be settled and decided by arbitration as per International Trade Laws and all amendments of this Act up to date." According to the facts of the case, it was very clear that the parties to the agreement had agreed to settle down any dispute through arbitration, but under the provisions of the byelaws of the “Companies Act, 1956”. Issue In Question:
  • Can an arbitrator be appointed if the clause regarding to the arbitration is very vague?
Arguments & Contentions:
  • The learned counsel contends that there are no bylaws framed under the provisions of the Indian Companies Act, 1956 regarding settlement of Disputes through arbitration process.
  • Even though an effort was made to show that in a reply to a winding up petition, one of the parties had agreed to refer the matter to arbitration, but there was vagueness and that willingness to refer the dispute to an arbitrator cannot be said to be an arbitration agreement.
Judgment: Upon perusal of the above mentioned clause, it is clear that the clause with regard to arbitration is quite vague and as there are no bylaws framed under the provisions of the Act, no arbitrator can be appointed. On account of the aforesaid vagueness in the arbitration clause incorporated in the sale contract dated 2nd May, 2011, there cannot be any arbitration and therefore, this petition made under the provision of Section 11(6) of the Arbitration and Conciliation Act, 1996 fails. Hence, the petition to appoint an arbitrator is dismissed. Conclusion: Whenever, the parties to any agreement are inserting the “Arbitration Clause” for resolving any dispute, the parties to the agreement should ensure that a proper clause with the specific Governing Law has been drafted in the agreement itself.  
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