PRACTICAL PAPER-IV ASSIGNMENT

~Neharika Krishnan 0181BBL012

OVERVIEW

The Significance of an eloquent agreement cannot be over-emphasized, more so in the case of

arbitration agreements which are often drafted neglectfully and tactlessly. A loosely drafted
arbitration agreement or clause plays a pivotal role in determining the arbitrability factor when
disputes arise. Every contract discerns procedure to be followed to settle dispute; as and when
it arises, describing the specific authority or mannerism to approach. Standard set by the Act
u/s 7 clearly defines certain essential constituent of a valid arbitration agreement or clause.

GTL INFRASTRUCTURE V VODAFONE LTD

The case at hand, is true in the statutory format but lacks enforcement. The nature of clause is
disputable by mere remiss of verbatim. The dispute revolved around settlement of dispute via
invocation of arbitration proceedings which in accordance to the discorded Master Service
Agreement had a dispute settlement clause with contentious expression as to the means of
settlement.

The clause stated as follows: -

“Any dispute/disagreement or controversy arising between the parties out of the agreement, as
contemplated, is to be resolved by co-ordination committee or through mediation, but if it could
not be so resolved, then the matter may be referred by mutual agreement amongst the parties
for ‘Arbitration’ to be conducted in accordance with the Arbitration and Conciliation Act,
1996.”

The arguments advanced in court centred on the wording of the clause; specifically, the term
‘may’, which was used as the medium to chart out statutory procedure and enforcement
measures in the case. The mandate to refer the dispute to arbitration was deliberated in light of
inference drawn by each party supporting their arguments through judicial principles. It was
vehemently contested that consensus of parties was obtained for amicable settlement of
disputes via mediation or co-ordination committee and on exhausting these measures may, after
acquiring mutual consensus, refer to arbitration. This blatantly rules out arbitration as a
mandate as per the clause and only a recourse at the party’s disposal. Such an argument was
rejected by the opponent counsel claiming it as veil of manipulation of verbatim to draw
tailored interpretation whereby the conduct of the parties is relevant and ultimately if the parties
have understood a particular clause, to be an arbitration clause, it is not open for the Court to
unravel the understanding. It was observed that subsequent arguments in court are of no
consequence if the agreement states otherwise nor can they be permitted to act in contravention
to it. The court, in light of the facts and circumstances of the case, agreed absence of a valid
arbitration agreement and rejected to grant relief to Petitioner u/s 9 of the Act.

LAW POINT

There are two pertinent questions arising herein; firstly, whether the dispute settlement clause
under Master service Agreement makes arbitration a mandate? And secondly, whether an
arbitration clause providing discretion to the parties to refer to arbitration is an arbitration
clause?

CRITICAL ANALYSIS

In response to the first question, it must be noted that the verbatim of arbitration clauses as well
as intention of parties are crucial factors in arbitration agreements. Jargon used shall signify a
clear and definite intention of the parties. For example, use of word such as “parties can, if they
so desire, refer their disputes to arbitration” or “in the event of any dispute, the parties may also
agree to refer the same to arbitration” or “if any disputes arise between the parties, they shall
consider settlement by arbitration” in a clause relating to settlement of disputes, indicate that
the clause is not intended to be an arbitration agreement. Rationale behind major judicial
pronouncement1 in akin matters is to impose greater importance to the substance of a clause,
predicated upon the evident intention of the parties, to choose a specific form of dispute
resolution to manage the conflict between them. The intention of the parties that flows from
the substance of the agreement to resolve their dispute by arbitration, must be given due
weightage. In case of apparent ambiguity caused by the language of the arbitration clause, the
clause must not be read by itself, but must be read conjointly with correspondence between the
2
parties and attendant circumstances. Several judgments of the Supreme Court3 have

1
(2009) 2 SCC 55, (2010) 2 Arblr 286
2
2011 (6) All.M.R. 919
3
(2018) 9 SCC 774, (2007) 5 SCC 719
contended that in case where the Dispute Resolution Clause gave an option to the parties to
refer the dispute to arbitration, or the court, a party having then invoked the arbitration clause,
the matter would have to be referred to arbitration and that the use of the of the word "may" or
"shall" was not the decisive factor for referring the matter to arbitration. The central principle
here being the intention of parties.

As for the second question at hand, the ball game of discretionary enforcement herein
catechizes such agreements. When discretionary terms are used it must be clarified whether
such agreements should be construed as arbitration agreements or clauses. A specific clause in
an agreement is not an imperative mandate if it does not conform to the fundamental
characteristics of an Arbitration Agreement as defined in Sections 2(b) and 7 of the Act. 4 It
may not be necessary to set out the attributes of an arbitration agreement to make it so unless
there is a specific and direct expression of intent to have the disputes settled by arbitration, but
where the clause relating to dispute settlement contains words that specifically exclude any of
the attributes of an arbitration agreement, it will not amount to arbitration. Unless the wording
of a clause contained, in an agreement between the parties, unambiguously indicate the
intention and agreement, of both the parties, enforceable in law, to refer disputes to adjudication
of the arbitrator, the clause cannot be construed as ‘arbitration clause’, necessitating a reference
to arbitration.

CONCLUSION

This case illustrated the importance of the use of language in a commercial agreement in
determining what kind of matter is intended by the parties to be covered by the arbitration
clause. In addition, the language used would also affect the parties that are covered by the
arbitration clause. While the judgement sheds light on the nature of interpretation of such tiered
arbitration clauses, parties to a commercial contract must be very cautious when defining the
pre-conditions or pre-arbitral obligations, and it ought to be performed with high clarity and
precision so that disputes regarding the interpretation of the same can be prevented and the
ultimate goal of quick and efficient dispute resolution can be achieved. It would assist the
parties in fully understanding and attempting to comply with such commitments. Furthermore,

4
AIR 1956 Cal. 280
it would allow the parties to investigate the potential of peaceful settlement of their issues
without compromising on arbitration, and in some situations, it might result in successful
settlements, saving the parties time and money.