Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ARB. A. (COMM.) 11/2017
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Reserved on: 18 January, 2018
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Date of decision: 5 April, 2018
BENARA BEARING & PISTONS LTD ..... Appellant
Through: Mr.Ramji Srinivasan, Sr.Adv.
With Mr.Jayant K Mehtra,
Mr.Ayush Agrawal, Mr.Himanshu
Gupta & Mr.Tushar Bhardwaj,
Advs.
versus
MAHLE ENGINE COMPONENTS INDIA PVT LTD
..... Respondent
Through: Mr.Arvind Nigam, Sr. Adv. with
Mr.Sudhir Sharma, Mr.Sanjeev
Kumar Sharma, Mr.Akhil Anand,
Mr.Abhishek Swaroop,
Mr.Anirudh Krishan Gandhi &
Ms.Abhilasha Vig, Mr.Mahboob
Singh Sandhu, Advs.
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
1. This appeal has been filed by the appellant under Section 37(2)(a)
of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as
the ‘Act’) challenging the order dated 12.01.2017 passed by the Sole
Arbitrator holding that there is no concluded Arbitration Agreement
between the parties.
ARB. A. (COMM.) 11/2017 Page 1
2. The main contention of the learned senior counsel for the appellant
is that the Arbitrator in the Impugned Order has given “ prima facie ”
findings on the non existence of the Arbitration Agreement. He submits
that under Section 16 of the Act the Arbitrator is under an obligation to
finally determine the issue of existence of the Arbitration Agreement and
cannot refuse to proceed with the arbitration only on the basis of prima
facie conclusion as to the non existence of the Arbitration Agreement
between the parties. He submits that as the findings of the Arbitrator are
stated to be “ prima facie ” in nature, the Impugned Order is liable to be
set aside and parties are to be relegated to the arbitration proceedings.
3. On the other hand, the learned senior counsel for the respondent
submits that though the Arbitrator has referred to his findings on the
existence of the arbitration agreement as “ prima facie ” in nature, these
are in fact, based on appreciation of the correspondence between the
parties and is a final determination on this issue. He further submits that
the Arbitrator has named such findings as ‘ prima facie’ only because of
the submissions of the appellant that the Arbitrator should examine the
question of existence of Arbitration Agreement only on a prima facie
basis as the existence of the Arbitration Agreement is interconnected with
the issue of the existence and binding nature of the Distribution
Agreement dated 17.03.2016. He submits that in view of the submissions
of the appellant that the Arbitrator must confine his examination of the
existence or otherwise of the Arbitration Agreement only on a prima
facie basis, it cannot now be heard to complain against the same. He in
this regard places reliance upon paragraph 42, 44 and 48 of the Impugned
Order and these are quoted herein below:-
ARB. A. (COMM.) 11/2017 Page 2
42. I am also mindful about considering the Claimant’s alternative
submission (as well as the Respondent’s objections to this. Since
they submit this was not part of the Request for Arbitration) that
even if there was no concluded contract, whether there was
nevertheless prima facie an arbitration agreement in the form of a
“separate agreement” or in “an exchange of letters, telex,
telegrams or other means of telecommunication including
communication through electronic means which provide a record
of the agreement” within the terms of Section 7(2) and (4) of the
IACA.
Xxxxxx
44. The Respondent in its submissions did not dispute the
Claimant’s submission that the standard in which the existence of
the arbitration agreement and/or a concluded contract should be
examined at this stage should be on a prima facie basis, although
neither party in their submissions elaborated on this issue.
Xxxxxx
48. The Claimant is dissatisfied with the 26 August 2016 High
Court Judgment and is appealing against it. The Claimant’s
position is that I have the power to hear and decide, on a fresh
prima facie basis, the issue of the existence of the arbitration
agreement and concluded contract, without being bound by the
said Judgment, for the following reasons :
(a) (b) (c)……….”
(emphasis supplied)
4. I have considered the submissions made by the counsel for the
parties. It is apparent from the above mentioned paragraphs from the
Impugned Order that it was the appellant’s own case before the Arbitrator
that the Arbitrator must decide the issue of existence of the Arbitration
Agreement on a prima facie basis. It seems that the said submission was
made by the appellant being alive to the fact that the said submission is
ARB. A. (COMM.) 11/2017 Page 3
connected to a great deal with the issue of the existence of the
Distribution Agreement between the parties as also, in the alternative,
arrangement thereof. It seems that the appellant did not want the decision
of the Arbitrator to finally conclude on this issue as this would have
prejudiced, in fact, barred the appellant from raising such issue in a
regular Civil Suit.
5. Paragraph 2.9 of the reply filed by the appellant to the respondent’s
application under Section 16 of the Act is also important while
considering this issue and is quoted herein below:-
“2.9 In is stated that on the basis of correspondence, exchange of
mails, etc. the Claimant shall endeavor to establish that there is a
valid and concluded Contract between the Parties, and in any
event the Claimant shall atleast (without leading evidence in the
matter) at this stage seek to atleast establish prima facie existence
of a Contract between the Parties, which in the Claimant’s
submissions is the only requirement at this stage. ”
(emphasis supplied)
6. The appellant having, therefore, requested the Arbitrator to decide
this issue only on a prima facie basis, cannot be heard to complain
against the same.
7. In any case, it is not the case of the appellant that it wanted to lead
any oral evidence on this issue and was denied such opportunity by the
Arbitrator. In absence of the same, it was only a question of interpretation
of correspondence exchanged between the parties for the arbitrator to
arrive at a conclusion as to whether an Arbitration Agreement duly came
into existence between the parties or not.
8. The Arbitrator in the Impugned Order has in detail, analyzed the
correspondence exchanged between the parties and has concluded that in
ARB. A. (COMM.) 11/2017 Page 4
his opinion an Arbitration Agreement between the parties did not come
into existence. The question in the present appeal, therefore, would have
to be whether such finding of the Arbitrator is open to any interference by
this Court or not. In my opinion, merely because the Arbitrator calls this
finding as a ‘ prima facie’ finding, would not be sufficient to set aside the
Impugned Order. As noted above, it is not the case of the appellant that
the appellant wanted to lead oral evidence on this issue and was denied
such opportunity by the Arbitrator. Therefore, reliance of the appellant on
the judgment of the Supreme Court in Shin-etsu Chemical Co. Ltd. v.
Aksh Optifibre Ltd. & Anr , (2005) 7 SCC 234, is ill-founded.
9. As far as the main issue, which is whether there was an Arbitration
Agreement in existence between the parties, it is an admitted case of the
appellant that there is no duly signed Arbitration Agreement between the
parties. The Arbitration Agreement relied upon by the appellant is signed
only by the appellant and not by the respondent and therefore, admittedly
the conditions set out in Section 7(4)(a) of the Act are not fulfilled. The
learned senior counsel for the appellant, therefore, has taken me through
the various correspondence exchanged between the parties to contend
that from such correspondence it can be concluded that an Arbitration
Agreement between the parties came into existence, though a formal
agreement in this regard was not signed by the respondent. He places
reliance on Section 7(4)(b) of the Act.
10. There is no dispute on the legal proposition that in view of Section
7(4)(b), even in absence of a written document signed by the parties, an
Arbitration Agreement can be said to have come into existence, if from
the exchange of letters, telex, telegrams or other means of
ARB. A. (COMM.) 11/2017 Page 5
telecommunications it can be shown that the parties were ad idem on the
Arbitration Agreement and in that event, mere fact of one party not
signing the agreement, cannot absolve him from the liability under the
agreement. In the present case, therefore, one would have to examine the
correspondence exchanged between the parties to determine whether or
not an Arbitration Agreement came into existence between the parties
and the parties were ad idem on the issue of arbitration.
11. The appellant was appointed as an exclusive distributor for
motorcycle pistons, etc. by the respondent and an agreement dated
01.01.2014 was entered into between the parties. The said agreement was
amended vide agreement dated 20.03.2015.
12. On 25.08.2015 the appellant sent an email to the respondent
expressing its intention to continue with the business relationship. The
respondent vide its return email of the same date agreed to explore the
revival of the business relationship with the appellant.
13. Vide an email dated 26.08.2015, the respondent stated that the
proposed new business opportunities would be a new set-up with
different working terms and conditions under a new agreement. The
respondent also sent a proposal for commercial viability to the appellant.
14. The appellant being unhappy with the proposal sent by the
respondent, vide its email dated 28.08.2015, requested the respondent to
have a relook on the same. The respondent, vide its email dated
04.09.2015, sent a revised proposal with revised MRP structure to the
appellant.
15. The appellant contends that vide its email dated 11.09.2015 it gave
its unconditional acceptance to the proposal sent by the respondent as far
ARB. A. (COMM.) 11/2017 Page 6
as the MRP structure is concerned. This email is of some relevance and is
reproduced herein under:-
“As discussed, we have informed Mr. Bhatia and also asked him to
request you to look at margins, etc. as per our discussions in
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Shanghai. I did receive some information from Mr. Bhatia on 4
September, I am yet to re work on that. But it seems from your
email that your offer is non negotiable, I have to accept it the way
it is coming and we do accept it the way it is coming.
Please advise next steps to conclude the matter as we also need to
start with our planning for sales / purchases accordingly.”
(emphasis supplied)
16. The respondent vide its email dated 11.09.2015, while expressing
its happiness on the acceptance of the terms by the appellant, suggested
that the parties consult with their respective legal consultants to draft an
agreement and in the meantime, the commercial relationship be resumed
as it is in common interest of both the parties.
17. By another email dated 14.09.2015, the respondent inter alia
informed the appellant that the target for the signing of the new
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agreement would be 1 October. The email further stated that the MRP
will be applied as per the revised arrangement as communicated to the
appellant on 04.09.2015.
18. By the email dated 15.09.2015, the appellant, while responding to
the above email of the respondent, called upon the respondent to
exchange the format of the agreement as soon as possible and also stated
as under:-
“ We shall try to adjust to most of the issues as mentioned above
except the ones which decrease our margins from here on.
ARB. A. (COMM.) 11/2017 Page 7
st rd
Next meeting planned between 21 – 23 Sep.
We also have an issue with currency depreciation in India which
needs to be offsetted as per the currency depreciation in China. All
our suppliers have done the same and we expect the same to be
followed also with Mahle.
We also requested to look into Piston Rings pricing and would like
to know the plan to offset the same to help us increase the benefits
from the proposed change. This is very important for us to retain
lost profits.
We also request Mahle to carry stocks at local level since the
products are being billed at CST. This shall help us save on stocks
carrying cost / interest cost, etc.
We hope with all the above changes as per Mahle and as per Benara,
it will be more economical to sell the products and compete in the
marketplace which shall also support us in our endeavour of having
some margins after deduction of costs till we are able to develop
alternate means of generation of income from other businesses /
product lines.”
(emphasis supplied)
19. Though the counsel for the appellant sought to contend that the
email dated 11.09.2015 and 15.09.2015 amount to acceptance of all the
commercial terms by the appellant, a bare reading of the above emails
leads to a contrary conclusion. These emails were in the form of a
counter offer being given by the appellant, which required further
discussion between the parties before resulting in a concluded contract
between them. This is also evident from the subsequent conduct of the
parties.
20. The above discussion had resulted in a Memorandum of
Understanding dated 29.09.2015. Some of the terms of this MOU are
relevant for the purposes of the present appeal and are reproduced herein
ARB. A. (COMM.) 11/2017 Page 8
below:-
“WHEREAS
xxxxxxx
D. The parties had positive negotiations on board commercial
terms and intends to enter into this MOU with the sole objective to
enter into a new business model, for distribution of Engine
Components products of MAHLE in aftermarket suitable to
MAHLE objectives.
E. The Parties intends to enter into a legally binding
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Distribution Agreement effective from 01 January 2016 as soon
as detailed terms and conditions are mutually agreed but not later
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than 01 January 2016.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. OBJECTIVES
As a result of positive negotiations on broad commercial terms,
MAHLE and BENARA hereby enter into this MOU aiming to enter
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into a detailed Distribution Agreement effective from 01 January
2016, provided that all the business requirements of MAHLE are
accepted and complied by BENARA.
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4. VALIDITY
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This MOU shall stand valid till 31 December 2015 or the
execution of the detailed Distribution Agreement between the
Parties, whichever is earlier.”
21. A reading of the above MOU would clearly show that the parties
were still negotiating on the commercial terms for a proper Distribution
Agreement to be signed and to be effective between the parties w.e.f.
01.01.2016. This MOU was therefore, executed as an ad hoc
ARB. A. (COMM.) 11/2017 Page 9
arrangement, valid only till 31.12.2015. Though the said MOU contains
an Arbitration Agreement, admittedly the disputes raised by the appellant
before the Arbitrator were not based on the said MOU. The very fact that
the MOU was entered into for this limited period with the stipulation that
the parties intend to enter into a legally binding Distribution Agreement
effective from 01.01.2016 “as soon as detailed terms and conditions are
mutually agreed” shows that the prior correspondence exchanged
between the parties had still not fructified into a binding contract on all
the issues.
22. The appellant placed an order of 2,38,950 units of piston assembly
for the period of January, 2016 to March, 2016 vide its email dated
03.11.2015. The counsel for the appellant places reliance on this email to
contend that as the order was to be supplied after the expiry of the MOU
referred above, it infers that all the terms of the agreement had been
mutually agreed between the parties. I am unable to agree with the same
as the subsequent email dated 04.12.2015 from the appellant to the
respondent and specially the email dated 06.12.2015 from the respondent
to the appellant shows that the new business relationship between the
parties including the billing price / cost structure for all products with
MRP etc., were being discussed between the parties.
23. Relying upon the email dated 16.12.2015 from the respondent to
the appellant and the draft agreement annexed thereto, the learned senior
counsel for the appellant contended that as the issue of MRP had been
duly settled and agreed between the parties, the draft agreement sent by
the respondent to the appellant did not mention about the same. This
submission cannot be accepted as vide email dated 18.12.2015, the
ARB. A. (COMM.) 11/2017 Page 10
appellant had given its comments on the draft agreement sent by the
respondent and it is not the case of the appellant that it accepted such
terms unconditionally and or signed the said agreement at that stage. The
subsequent correspondence also belies such submission.
24. Email dated 03.02.2016 addressed by the respondent to the
appellant clearly shows that further meetings were held between the
parties and their consultants on the conclusion of the 2016 business
model and result thereof was sought to be encapsulated by the respondent
in its email dated 03.02.2016. The appellant vide its email dated
09.02.2016 raised various issues including the issues of margin. Some of
the relevant portion of the email is reproduced herein below:-
“As and when we talk – which could be anything convenient to you
tomorrow in the second half of Indian time, I can call you once you
have gone through the contents of email / point discussed with Mr.
Franz.
Shanghai Visit was fruitful until we realized that the
last mail exchanged with you before you closed this
issue had very little left for us in margins. We agreed
for the concept and are with you to help us be
established for some time – till we are able to sustain
our business / develop it – so that I can personally
sustain with income that is being generated with this
business. You had very kindly accepted our request in
Shanghai but later on we realized that the margins
are not what were discussed with us. We feel left out
and have no choice but to plead to the authorities
concerned.
We are always committed to Mahle for long term. We
are ready to share margins in appropriate manner
and don’t want that everything should be taken away
by us at one go.
xxxxxxx
ARB. A. (COMM.) 11/2017 Page 11
We are also uncomfortable with only a couple of
issues in the contract proposed. Please help us in
resolving the same.
Piston Rings price issue – with Margins co relation is
still unresolved. This shall help us to work more
comfortably without any loss to Mahle.
We are willing to share all details for margin that
shall be earned by us in the new proposal for billing
for 2016.”
25. A reading of the above email clearly shows that the contention of
the learned senior counsel for the appellant, that all commercial terms
had been duly accepted and concluded between the parties as far back as
11.09.2015 or 15.09.2015, cannot be accepted. These issues were
pending discussions between the parties is also evident from the
appellant’s own email dated 25.02.2016 as well.
26. Though the draft agreement was being discussed between the
parties, it is evident from the email dated 25.02.2016 addressed by the
appellant to the respondent that the issue of MRP and margin was still
being discussed between the parties as on that date. Even with the email
dated 11.03.2016, with which another draft of agreement was sent by the
respondent to the appellant, the respondent sought a confirmation in the
form of a legal opinion on the issue of MRP from the appellant.
27. The respondent vide its email dated 16.03.2016, while suggesting
certain changes in the agreement, informed the appellant that its
ARB. A. (COMM.) 11/2017 Page 12
representatives are visiting the appellant with duly printed copies of the
agreement on a stamp paper for obtaining signatures of the appellant.
28. By another email dated 18.03.2016 the respondent, while seeking
confirmation on the signing of the agreement from the appellant, also
informed it of the legal opinion received by the respondent which
suggested that the MRP was to be affixed by the respondent before
invoicing the goods to the appellant. It however, proposed to adopt the
MRP / selling structure as per its email dated 03.02.2016.
29. By its email dated 21.03.2016 the appellant informed the
respondent that it would be sending signed copy of the agreement to the
appellant for its signatures and as far as the issue of MRP is concerned, it
would abide by the final confirmation given by it in September, 2015.
30. It is the submission of the appellant that upon sending of the signed
copy of the agreement by the appellant, not only did the Arbitration
Agreement between the parties come into existence and stood concluded
but also the issue of MRP value as well as affixation thereof by the
respondent stood accepted by the appellant and a contract in that regard
was also concluded. On the other hand, it is the contention of the counsel
for the respondent that by email dated 11.03.2016 and 14.03.2016, the
revised agreement had been sent by the respondent to the appellant on an
understanding that the issue of MRP as well as affixation thereof stood
settled. Such settlement was that the respondent would declare and affix
the MRP before sending the goods to the appellant. However, the email
dated 21.03.2016 from the appellant, clearly suggested that the appellant
was not agreeable to such arrangement and sought to refer to its
communication of September, 2015, which in any case was a conditional
ARB. A. (COMM.) 11/2017 Page 13
acceptance and not the one proposed by the respondent in its email dated
03.02.2016. As the parties could not reach the conclusion on the financial
terms, the respondent vide its email dated 21.04.2016 terminated its
business relationship with the appellant, leading to a dispute between the
parties and the reference thereof to the Sole Arbitrator.
31. In the above facts, the primary issue between the parties was as to
whether by signing of the agreement by the appellant an Arbitration
Agreement can be said to have come into existence between the parties.
The learned senior counsel for the petitioner submitted that there was an
unqualified acceptance of the commercial terms as well as other terms of
the Distribution Agreement between the parties and therefore, a
concluded contract between the parties had come into existence. He
submits that the parties had agreed to both – MRP value to be affixed and
also who will affix the MRP and the issue of “margin” was a mere non
issue for the agreement between the parties. In any case, the Arbitration
Agreement being distinct and severable from the main agreement, the
parties being ad idem on the same, the Arbitration Agreement came into
existence. He places reliance on the judgment of this Court in Lets
Engineering & Technology Services Pvt. Ltd. v. Manoj Das (2013) 198
DLT 630 and of the Supreme Court in Rickmers Verwaltung Gmbh v.
Indian Oil Corporation Ltd. , (1999) 1 SCC 1 and Govind Rubber
Limited v. Louis Dreyfus Commodities Asia Private Limited, (2015) 13
SCC 477.
32. On the other hand, the learned senior counsel for the respondent
submitted that the issue of MRP and its affixation was a fundamental
term of the contract. The parties had been in negotiation for arriving at a
ARB. A. (COMM.) 11/2017 Page 14
settlement of such terms and by the email dated 03.02.2016 the
respondent had made it clear to the appellant that the respondent shall
import parts from China, carry out custom clearance and discharge the
related tax liabilities and also declare and affix MRP lable on the goods.
By another email dated 14.03.2016 the respondent made it clear to the
appellant that it would not consider any change of this fundamental
condition and that it would be able to conduct the business only in
accordance with its plan. However, the appellant, while forwarding
signed copy of the Distribution Agreement did not agree to the above
condition and therefore, merely because the appellant signed the draft
Distribution Agreement sent by the respondent to the appellant, it cannot
be said that a binding Distribution Agreement or even an Arbitration
Agreement came into existence between the parties. In this regard he
places reliance on the judgment of this Court in Ralli Estate Pvt. Ltd. v.
NDMC (2006) 126 DLT 703 and UOI v. M/s Uttam Singh Duggal &
co.Pvt. Ltd AIR 1972 Del 110. He further submits that the claim before
the Sole Arbitrator was based on the Distribution Agreement signed by
the appellant and sent to the respondent and not on any ad hoc
arrangement, therefore, the question before the Sole Arbitrator was
whether the Distribution Agreement amounts to a concluded contract
containing an Arbitration Agreement between the parties. The Arbitrator
having considered the said issue, it was not open for this Court to
interfere with the same. The learned senior counsel places reliance on the
following judgments in support of his submission:-
i) Oberoi Constructions Pvt. Ltd. v. Worli Shivshali Co-op. Hsg.
Society Ltd. [MANU/MH/1045/2008]
ARB. A. (COMM.) 11/2017 Page 15
ii) Nasir Husain Films (P) Ltd. v. Saregama India Ltd. and
Another (MANU/MH/1570/2008]
iii) U.P Rajkiya Nirman Nigam v. Indure Pvt. Ltd. (1996) 2 SCC
667
iv) Zodiac Electricals v. Union of India, Civil Appeal No.
1957/1984
v) IOCL v. Niloufer Siddiqui & others , Civil Appeal No.
7266/2009
vi) Mrs. Aliakutty Paul v. State of Kerela AIR 1995 Ker 291
vii) Pushpa Bai v. Dr. Williams & others 2001 SCC Online Mad
303
33. Before I consider the above submissions made by the senior
counsels for the parties, the summary of facts would not be complete
without making a reference to the order dated 26.08.2016 passed by this
Court in O.M.P.(I) (COMM.) 153/2016 Benara Bearings & Pistons Ltd.
v. Mahle Engine Components India Pvt. Ltd . In the said order, this
Court, discussing the correspondence exchanged between the parties,
held as under:-
“ 39. It is clearly apparent from the above that the parties were ad
idem as far as the terms of the Distribution Agreement are
concerned but were unable to finalise the commercial terms. The
clauses of the proposed Distribution Agreement had been
effectively discussed and negotiated between the parties. However,
other issues regarding their proposed commercial functioning
continued to persist.
40. As indicated above in the Benara’s email of 25.02.2016,
Benara had pointed out certain issues - 15 in number -
which required to be resolved. Benara had sent an email
ARB. A. (COMM.) 11/2017 Page 16
requesting that the issues relating to the agreement be kept
separate and the other issues be dealt with separately. Again
by an email of 02.03.2016, Benara had requested for fixing
of a time frame for resolution of the said issues. Benara had
again referred to the issues of MRP as well as its Margins in
its email dated 07.03.2016. Mahle’s response of 14.03.2016
to the aforesaid email is important. Mahle had unequivocally
stated that they were not considering the conditions attached
- which meant the MRP and Margin issues - as the business
plan had been presented to Mahle’s Board and the same
would not be put in discussion at any level. This clearly
indicated that Mahle was proceeding with the finalization of
the Distribution Agreement on the basis that Benara was
accepting its business plan and had unequivocally stated
that Benara’s issues with regard to MRP would not be
entertained. It is seen that on 18.03.2016, Mahle asked for a
confirmation of the signed contract and at the same time
also forwarded a legal opinion with regard to fixing of the
MRP before invoicing goods to Benara. Mahle further
confirmed that Mahle’s management had accepted the said
opinion. Mahle’s e-mails - particularly of 14.03.2016 and
18.03.2016 - made it clear that it was proceeding on the
premise that the commercial issues with regard to the MRP
and Margins between the parties stood concluded and the
commercial model as indicated in the mail of 03.02.2016
would be implemented. Although Benara sent a signed
agreement to Mahle alongwith its mail of 21.03.2016, it also
asserted that it was standing by its stand of September, 2015
in respect of the issues related to MRP; in other words, it
was not accepting Mahle’s commercial terms/model. Thus
the commercial model on the basis of which the Distribution
Agreement was to be worked remained a subject of discord.
xxxxxxx
42. It is difficult to accept Mr Nayar’s contention that the
issues relating to MRP and Margins were completely
divorced from the Distribution Agreement that was being
negotiated by the parties. The correspondence between the
ARB. A. (COMM.) 11/2017 Page 17
parties clearly indicates that the parties were ad idem in
respect of the terms of the Distribution Agreement, which
outlined their business relationship. However, an agreement
as to the commercial terms/business model on the basis of
which the parties were to conduct their business - which was
also simultaneously being negotiated by the parties -
remained elusive. The issues with regard to margin,
invoicing, fixing of MRP are fundamental to the business
arrangement proposed between the parties; clearly, without
the consensus in regard to those issues, the question of
proceeding forward would not arise. It is in this context, that
Mahle had on 14.03.2016 unequivocally stated that the other
issues being raised were not being taken into consideration
and the business would have to conform to the business plan
already approved by its management. The said e-mail must
be read in the context of Benara’s previous mail requesting
that the day to day management issues be resolved
separately from the issues related to the Distribution
Agreement. The Distribution Agreement between the parties
is for distribution of Mahle’s products. In absence of the
parties being ad idem as to the commercial terms, the
Distribution Agreement would be a non starter.
43. It is trite law that a party’s signatures are not necessary
for a binding contract and the same can be inferred by
correspondence between the parties. An agreement can also
be oral. In the present case, Mahle’s email dated 18.03.2016
which called upon Benara to sign the draft Distribution
Agreement is clearly a proposal within the meaning of
section 2(a) of the Contract Act and its acceptance would
result in a binding contract. This is also Mr Nayar’s
contention and, to that extent, is merited. However, Mahle’s
e-mail apart from calling upon Benara to sign the Draft
Distribution Agreement also stated that “we propose to
adopt the MRP/Selling structure per our mail dtd 3rd Feb”;
there is no reason to exclude this part of the e-mail from the
scope of Mahle’s proposal. In other words, Mahle’s
proposal as communicated to Benara was to enter into the
ARB. A. (COMM.) 11/2017 Page 18
Distribution Agreement for distribution of Mahle’s products
with the MRP/Selling structure as per their mail of
03.02.2016. Whilst, Benara accepted the Distribution
Agreement, it did not accept the attendant commercial terms.
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45. As stated above, signatures on an agreement may not be
material in a case where the contract between the parties
can be ascertained; however, where the parties reduce their
understanding to writing and it is understood that parties
are to sign the agreement, it is not always safe to proceed on
the basis that their signatures are not necessary. In most
cases, affixing signatures on an agreement are meant to
signify the party’s commitment to the written agreement and
its refusal to sign renders the agreement inchoate. Affixing
signatures on an agreement cannot be readily inferred as an
empty formality. The question as to whether the parties have
mutually committed to each other has also to be viewed in
the context of the nature of the contract. In a case of sale and
purchase of goods, a commitment to supply within a
specified period at a stated price and the acceptance of such
commitment by the other party – as in the case of Trimex
(supra) - is sufficient to hold that there is a contract. But, in
cases where the agreement is complex or entails defining a
continual relationship/association, the number of material
terms on which consensus is required for inferring a binding
contract is significantly larger. In such cases, signatures on
the agreement reduced in writing assume a larger
significance. A party may withhold its signatures – as it
appears to have happened in this case – unless it is sure the
other party has also understood and agreed to perform the
agreement in the same manner.
46. In order to result in a binding contract the offer must be
accepted unconditionally. Benara’s e-mail of 21.03.2016,
cannot be read as an unconditional acceptance of the
Mahle’s proposal since the proposal to adopt MRP/Selling
ARB. A. (COMM.) 11/2017 Page 19
rd
structure as per their e-mail of 3 Feb, 2016 was not
accepted by Benara. In this perspective the principal
question as to whether there was any meeting of minds
between the parties resulting in a binding contract must be
answered in the negative.”
34. The above order was carried in appeal by the appellant by way of
FAO (OS) (COMM) 66/2016 and was dismissed by the Division Bench
of this Court vide its order dated 01.03.2017 reported in 2017 SCC
OnLine DEL 7226 . In the said order the Division Bench again examined
the emails exchanged between the parties and held as under:-
“15. It will be seen from the e-mail dated 18.03.2016 that Mahle
was insisting that the MRP be affixed by them before invoicing the
goods to the appellant and they propose to adopt the MRP/selling
rd
structure as per their earlier e-mail dated the 3 of February. On
the other hand, the e-mail of 21.03.2016, while it indicates that the
appellant had signed the distribution agreement, also makes it
clear that the appellant was sticking to its stand on the MRP as per
its final confirmation in September, 2015. By virtue of the e-mail
dated 21.03.2016, the appellant also requested Mahle to sign the
distribution agreement before commencement of business for the
year. It is an admitted position that Mahle never signed the
distribution agreement. It is also clear that Mahle withdrew from
the negotiations with regard to the distribution arrangement by
virtue of its subsequent letter dated 21.04.2016. Furthermore,
there was no consensus with regard to the issue of MRP. We are of
the view that without the business model and the issue of MRP
having been sorted out, the distribution agreement, even if it had
been signed by Mahle, would be unworkable. We agree with the
learned Single Judge who found that although the parties could be
regarded as being ad idem insofar as the terms of the distribution
agreement were concerned, they were certainly not ad idem with
ARB. A. (COMM.) 11/2017 Page 20
regard to the commercial terms. We also entirely agree with the
observation of the learned Single Judge that the commercial model
on the basis of which the distribution agreement was to be worked
remained a subject of discord. We also agree with the finding that
the issues relating to MRP and margins were not divorced from
and, in fact, were intertwined and interlaced with the distribution
agreement that was being proposed by the parties. We fully
endorse the following observations of the learned Single Judge on
this aspect of the matter.
“42. It is difficult to accept Mr Nayar's contention that the
issues relating to MRP and Margins were completely
divorced from the Distribution Agreement that was being
negotiated by the parties. The correspondence between the
parties clearly indicates that the parties were ad idem in
respect of the terms of the Distribution Agreement, which
outlined their business relationship. However, an agreement
as to the commercial terms/business model on the basis of
which the parties were to conduct their business - which was
also simultaneously being negotiated by the parties -
remained elusive. The issues with regard to margin,
invoicing, fixing of MRP are fundamental to the business
arrangement proposed between the parties; clearly, without
the consensus in regard to those issues, the question of
proceeding forward would not arise. It is in this context, that
Mahle had on 14.03.2016 unequivocally stated that the
other issues being raised were not being taken into
consideration and the business would have to conform to the
business plan already approved by its management. The said
e-mail must be read in the context of Benara's previous mail
requesting that the day to day management issues be
resolved separately from the issues related to the
Distribution Agreement. The Distribution Agreement
between the parties is for distribution of Mahle's products.
ARB. A. (COMM.) 11/2017 Page 21
In absence of the parties being ad idem as to the commercial
terms, the Distribution Agreement would be a non starter.”
16. We may also point out that if the e-mail dated 18.03.2016 is a
proposal, then the e-mail dated 21.03.2016 could have been
regarded as an acceptance of the proposal only if it had not been
clarified by the appellant that they would stick to the stand of MRP
as per their final confirmation in September, 2015. The e-mail
dated 21.03.2016 would, therefore, not operate as an acceptance
but as a counter-proposal which was never accepted by Mahle and
negotiations were finally dropped by Mahless letter of 21.04.2016.
17. A point had been raised by the learned counsel for the
appellant that Mahle had by its conduct indicated that the
distribution agreement dated 17.03.2016 had culminated into a
binding contract. However, we are in complete agreement with the
observation of the learned Single Judge that the fact that Mahle
supplied its products to the appellant while the distribution
agreement and the commercial terms were being negotiated, did
not mean that the appellant was appointed as an exclusive
distributor of Mahle products or that the proposed distribution
agreement dated 17.03.2016 had matured into a binding
contract.”
35. The appellant challenged the above order by way of SLP (C)
9925/2017, which was dismissed by the Supreme Court vide its order
dated 10.04.2017, however, clarifying as under:-
“It is however essential for us to clarify, that the factual
determination arrived at by the High Court, while passing the
impugned order under Section 9 of the Arbitration and
Conciliation Act, 1996, shall be treated as a provisional finding,
limited to the determination rendered by the High Court, in the
application filed under Section 9 of the Act.”
ARB. A. (COMM.) 11/2017 Page 22
36. I have narrated the above orders and the findings of this Court only
because the learned senior counsels for the parties have also made
submissions as to whether the Arbitrator could have relied upon the
orders of this Court in passing his Impugned Order and was bound by the
same or not. In my view, as the Supreme Court had in its order dated
10.04.2017 clarified that the observations made by this Court while
disposing of the application under Section 9 of the Act would be treated
as only a provisional finding, the Arbitrator was not bound by the
findings of this Court in the above mentioned orders and had to reach his
own conclusion. Therefore, a question would arise and has been
contended by the learned senior counsels for the parties, with both having
a divergent stand, as to whether the Arbitrator, in passing the Impugned
Order relied solely on the findings of this Court.
37. In my opinion, the Arbitrator has given his own findings after fully
deliberating on the correspondence exchanged between the parties and
though he has made reference to the orders passed by this Court, it is not
as if the Impugned Order is passed solely thereon. I would therefore, now
quote the relevant findings of the Arbitrator on this issue:-
“40. I agree with the Claimant’s submission that, under Articles
6(3) and 6(9) of the ICC Rules read with Section 16(1) of the
IACA, the Tribunal’s consideration and decision in relation to the
Respondent’s Jurisdictional Objection at this Stage ought to be
limited to the question of existence of an arbitration agreement
between the Parties by which the parties agreed to submit disputes
between them to ICC arbitration and the scope of such an
arbitration agreement.
xxxxxx
ARB. A. (COMM.) 11/2017 Page 23
42. I am also mindful about considering the Claimant’s alternative
submission (as well as the Respondent’s objections to this, since
they submit this was not part of the Request for Arbitration) that
even if there was no concluded contract, whether there was
nevertheless prima facie an arbitration agreement in the form of a
“separate agreement or in “an exchange of letters, telex,
telegrams or other means of telecommunication including
communication through electronic means which provide a record
of the agreement within the terms of Section 7(2) and (4) of the
IACA.
xxxxxx
55. Therefore, in this Award, I have taken the approach that in
case the 26 August 2016 High Court Judgment turns out to be not
binding on this arbitration for any reasons (including but not
limited to those stated in paragraphs 53 and 54 above, or in case
any relevant parts of the 26 August 2016 High Court Judgment are
revised on appeal), I have a duly nevertheless to consider the
arguments raised by the parties as regards the Jurisdictional
Objections and record my decisions thereon in this award,
pursuant to my duty under the “kompetenz-kompetenz” principle
to do so under Section 16(1) of IACA as well as Articles 6(3) and
6(9) of the ICC Rules.
56. I also add that even if the 26 August 2016 High Court
Judgment is not binding on me for any reason (such as those stated
in paragraphs 53 to 55 above) there are certain parts of that
Judgment, which I shall refer to below which are relevant and of
persuasive value on the issues the Parties have placed before me.
57. Therefore, irrespective of the effect of the 26 August 2016 High
Court Judgment, I will set out in the following part of this Award
my decisions on the issues placed by the Parties before me – both
as regards the issue of the existence of “concluded contract
between the Parties” (within which the purported arbitration
agreement is housed) and the Claimant’s alternative submission of
a “separate arbitration agreement” or an arbitration agreement
arising from the Parties exchange of correspondence.
ARB. A. (COMM.) 11/2017 Page 24
xxxxxx
61. The absence of a concluded contract and a consensus ad idem
for a concluded contract coming into being is prima facie apparent
from the undisputed existence of the chain of events and documents
referred above. This prima facie factual background was also
recognized in the 26 August 2016 Judgment of the Delhi High
Court (at paragraph 4 to 10; 18 to 41 thereof) in coming to its
decision that there was no concluded contract between the Parties.
62. I should add here that not only did the parties not become ad
idem on an important material business term (i.e. on the MRP
issue); certain essential requirements under the Indian Contracts
Act 1872 (the “Contracts Act”) for the formation of a contract,
which are elaborated in paragraphs 85 to 88 below were not
satisfied.
xxxxxx
67. In view, it is clear on a prima facie basis (i.e. on the face of the
events and undisputed documentation and evidence listed in
paragraph 60), that during this interim period in the first quarter
of 2016, they were at that time still negotiating both the “business
terms” (including the MRP requirements) as well as the
finalization of a “new distribution agreement”. It is patently clear
that there was no contract in the form of a “distribution
agreement” entered into between the Parties as yet, even whilst
they were conduction the Interim Period Activities with each other.
xxxxxxx
71. In my view, it is clear from the documents placed before me
that the Parties were in discussions in late March and in April
2016 because they were still genuinely trying to work out the
possibility of agreement and closure of the on-going ad hoc
transactions. There was the hope that perhaps the MRP and
margins issues could be resolved and an agreement reached on
ARB. A. (COMM.) 11/2017 Page 25
these issues leaving open a possibility of still entering into a new
distribution agreement if and when they could work out the
commercial issues. The events do not show that the Parties had
become ad idem on the main point of difference between them – i.e.
on the MRP issue or that the Respondent had subsequently
accepted the Claimant’s counter-proposal of 21 March 2016. The
fact remains and it is patently clear that the Parties did not in any
case come to any agreement on the MRP or margins issues that the
Respondent did not sign the NDA and there was no concluded
contract between them. In those circumstances, it is also artificial
and contrived to consider that there was a concluded agreement,
when the Respondent’s email of 21 April 2016 stated:
“During this period, we were unable to create a positive
business case which could meet the requirements of
both….Now, we are convinced that there is no such business
plan that exists and accordingly, we would like to inform
you that with immediate effect we withdraw ourselves from
the exercise.”
72. This is certainly not the kind of scenario which even suggests
anything near to a concluded contract on a prima facie basis. The
“bottom line” on this issue is that the end result is that the
Respondent (rightly or wrongly) considered that the Parties were
not ad idem on commercial issues and did not proceed with the
NDA; and on the face of it, there remained “no concluded
contract”.
xxxxxx
77. However, in my view, these submissions by the Claimant
ignore the undisputed backdrop and discussions on the formation
of the NDA as summarized in paragraph 60 above. This was
particularly so since the Respondent had repeatedly stated in their
emails of February and March 2016 and at meetings that the
Respondent’s management was firm on the MRP issue as part of
its new proposed business model. The importance of the MRP issue
is clear from the Claimant’s own email of 7 March 2016 stating it
was looking forward to quickly resolving the MRP and margins
ARB. A. (COMM.) 11/2017 Page 26
issues, as well as from the Respondent’s emails of 3 February 2016
and 14 March 2016 quoted in paragraph 60 above.
78. The MRP issue had an important bearing on the Parties selling
price structure and margins of each Party, as discussed at
meetings and in correspondence. Furthermore, it was a question of
compliance with the law and regulations of India which according
to the Respondent’s Advisors entalled the importer of the products
(i.e. the Respondent) to affix MRP on the imported products; and if
the Parties had agreed on the Claimant affixing the MRP, this
would have resulted in a transgression of legal requirements,
thereby rendering the object of the alleged agreement unlawful
under Section 23 of the Contracts Act. The Claimant had not
represented otherwise nor produced any legal opinions as to
whether it was permissible for the Claimant to affix the MRP
instead. The Respondent sent a copy of the NDA to the Claimant
on 16 March 2016 on the understanding the Claimant would
accept or had accepted the Respondent’s position on MRP (i.e.
that the Respondent would affix the MRP).
79. The qualification from the Claimant at this late stage of
negotiation, on 21 March 2016, occurred even after the
Respondent again re-iterated its position on the MRP issue, by
sending the Written Opinion and re-iterating its stand expressed in
its emails of 3 February 2016, which it confirmed in its email of 14
March 2016 it would not put in discussion “at any level.”
xxxxxx
82. In my view, it is trite that Section 4 of the Contracts Act which
is cited by the Claimant has to be applied appropriately in the
context of each case. Trimex was a very different case from the
present case. The differences in Trimex will be elaborated further
below in this Award. From the chain of events summarized at
paragraph 60 above, it is obvious (on the face of the evidence and
documents produced by the parties, including those by the
Claimant especially its own email of 21 March 2016) that the MRP
issue was an important fundamental and material part of the
ARB. A. (COMM.) 11/2017 Page 27
dealings between the Parties pursuant to the Respondent’s new
model for distributing its goods in India. It is artificial and
contrived to consider otherwise; or that the abovementioned
general provision in Clause 3.2 of the NDA disposed of this issue
in the NDA and it could be sorted out later as merely a procedural
matter given the importance placed in it by both Parties (not only
by the Respondent but by the Claimant as well). The Claimant was
very well aware of this even though there were no (inadvertent or
otherwise) express clause in the NDA on this considering that it
was important enough for the Respondent to re-iterate it in its
email of 18 March 2016 and for the Claimant to also do so in its
email of 21 March 2016.
xxxxxxx
86. On a basic legal and contractual level, there was no formation
of a contract. Ultimately there was no “acceptance” of a
“proposal” under the Contracts Act. As provided by Section 7 of
the Contracts Act, in order to convert a proposal into a promise
the acceptance must be absolute and unqualified and be expressed
in some usual and reasonable manner. A condition or qualified by
which a material difference is imposed becomes a counter-
proposal, which in order to be deemed as a concluded contract
must be accepted by the other party under Section 2(a), (b), (h)
and 7 of the Contracts Act.
xxxxxx
88. By the qualification in the email on 21 March 2016, the
Claimant had even prior to completing their own signing of
the NDA (which occurred on 22 March 2016) and prior to the
Respondent receiving the NDA, communicated a condition or
qualification, in legal effect a counter-offer or counter-
proposal, which made a material difference to the contract
between the Parties, i.e. as to who is to affix the MRP label.
The Respondent did not accept such a counter-offer,
consistently with their prior communications to the Claimant
that this was an important non-negotiable issue. It is
ARB. A. (COMM.) 11/2017 Page 28
undisputed that the Respondent then decided not to sign and
proceed with the NDA.
xxxxxx
97. Thus, in the present case, it is clear that the affixing of
Parties' signatures on the NDA was not an "empty formality"
and the Respondent's refusal to sign rendered the agreement
inchoate. As the Delhi High Court held in the 26 August 2016
High Court Judgment at [45]:
"As stated above, signatures on any agreement may not be
material in a case where the contract between the parties can
be ascertained; however, where the parties reduce their
understanding to writing and it is understood that parties are
to sign the agreement, it is not always safe to proceed on the
basis that their signatures are not necessary. In most cases,
affixing signatures on an agreement are meant to signify the
party's commitment to the written agreement and its refusal
to sign renders the agreement inchoate. Affixing signatures
on an agreement cannot be readily inferred as an empty
formality... "
xxxxxxx
104. I have mentioned above there was no concluded
contract (under Sections 2 and 7 of the Contracts Act) in a
"defined legal relationship" (under Section 7(1) of the IACA)
between the Parties. However, with respect to the specific
provisions of Sections 16(1) (a) and (b) of IACA I have just
referred to I would like to add that even if I have to look for
the existence of the "arbitration agreement" separately from
the question of a concluded commercial contract, the same
tests (i.e. for ingredients of the Contracts Act to be satisfied
and of a defined legal relationship" under the IACA) apply
equally and lead to the conclusion that there was prima facie
still no agreed separate "arbitration agreement" agreed
between the Parties:
(a) In the same way that there has to be an offer, acceptance,
and consideration for the formation of a commercial
ARB. A. (COMM.) 11/2017 Page 29
contract, there have to be the same ingredients for the
formation of an "arbitration agreement".
(b) In the present case, in the NDA which the Respondent
emailed to the Claimant on 16 March 2016 and in the two
engrossed copies of the NDA sent to the Claimant, the
Respondent had proposed to amend the place of arbitration
in Clause 15 from Germany to New Delhi. On this aspect, the
Claimant contends that this exchange of correspondence
shows that the Parties were ad idem as far the method of
dispute resolution between them was concerned, even if the
Respondent eventually refused to sign the NDA.
(c) However, the Claimant emailed to the Respondent with
what was in effect a counter-offer on a material and
fundamental aspect of the proposed contract, which was not
acceptable and not accepted by the Respondent (as I have
mentioned in paragraphs 85 to 88 above).
(d) Essentially, there eventually being no business or
commercial "agreement" between the Parties, it can also be
said that the whole "consideration" for the purported
"arbitration agreement" fell away, leaving no valid and
concluded "arbitration agreement".
(e) Therefore, it is clear on basic contractual· principles there
was prima facie and in effect no "arbitration agreement"
which satisfies, the elements of a contract to start with.
(f) Further, it is necessary to look at intent of Clause 15. The
proposed scope of the "arbitration agreement" is with respect
to “any and all disputes, differences, claims or questions
arising out of or in connection with or in relation to the
interpretation of any of the clause of this Agreement"
[emphasis added]. Thus, upon the agreement not coming into
existence by the matters aforesaid, then there is in effect
nothing further for the purported "arbitration agreement" to
apply to, and no "defined legal relationship under Section
7(1) of the IACA in relation to the purported "arbitration
agreement", i.e. not an "arbitration agreement" within the
definition in the IACA.”
xxxxxx
ARB. A. (COMM.) 11/2017 Page 30
119. My decisions on this issue are as follows:
(a) Firstly, I have to bear in mind that the Claimant's
Request for Arbitration is founded not in a separate
arbitration agreement contained in prior correspondence,
but in "in the form an arbitration clause of a contract" under
section 7(2) of the IACA. The Claimant has itself submitted
in its Request for Arbitration and submitted strenuously in its
submissions that the arbitration agreement in question is in
Clause 15 of the NDA. As I have decided above, on a prima
facie basis there is no concluded contract, and hence the
invalidity and ineffectiveness of that clause to form any
jurisdictional basis for this arbitration.
(b) My above-mentioned findings in paragraphs 104 to 109
above - the lack of contractual consensus ad idem between
the Parties, the unaccepted counter-offer and lack of
consideration for the formation of an
arbitration agreement separate from the contract - also
apply to the Claimant's alternative contention of an
arbitration agreement in the form of a “separate agreement"
or in "an exchange of letters, telex, telegrams or other means
of telecommunication including communication through
electronic means which provide a record of the agreement"
within the terms of the last part of Section 7(2) and Section
7(4) of the IACA.
(c) As I have mentioned above, just because the Parties
agreed on the wording of the arbitration clause in their
correspondence does not mean they intend to arbitrate in the
absence of the contract, in a vacuum, without any
substantive contract being concluded between the Parties.
(d) Since no contract or "defined legal relationship" within
the meaning of Section 7(1) of the IACA came into existence
during the process of and as a result of all the above
mentioned correspondence between the Parties, there was
eventually no subject matter of the arbitration agreement,
and hence no "arbitrable" matter between the Parties.”
xxxxxx
ARB. A. (COMM.) 11/2017 Page 31
129. In view of all my aforesaid findings, my conclusions are
as follows·
a. There was no concluded contract between the Parties in
the NDA. Hence there does not exist an "arbitration
agreement" between the Parties in Clause 15 of the NDA.
b. Neither is there any arbitration agreement in a separate
agreement or contained in an exchange of correspondence
between the Parties as regards the claims submitted to this
Arbitration.
c. The Claimant's Claims in the Request for Arbitration are
all purported to fall under the NOA and a "concluded
contract" between the Parties. In view of the above
conclusions, the Arbitrator appointed in this Arbitration
therefore does not have any jurisdiction to hear and consider
the Claimant's Claims submitted to this Arbitration.”
38. I have quoted the above findings of the Sole Arbitrator in detail
only to highlight that the Arbitrator has arrived at his findings on non-
existence of the Arbitration Agreement after duly scrutinizing all the
correspondence exchanged between the parties during their negotiation
and leading to the singing of the Distribution Agreement by the appellant
and the email dated 21.04.2016 from the respondent terminating its
business relationship with the appellant. The above findings also clearly
show that the Arbitrator has not relied on the findings of this Court in its
decision dated 26.08.2016, but has reached its conclusion independent of
the same. Though I see no reason to disagree with the findings of the
Arbitrator, I would briefly state the following only to supplement the
same.
39. As noted above, the negotiations for the new business relationship
upon the expiry of the earlier Distribution Agreement, started between
the parties with the email dated 26.08.2015 from the respondent to the
ARB. A. (COMM.) 11/2017 Page 32
appellant. Alongwith email dated 26.08.2015 the respondent had sent to
the appellant a “Pricing Proposal”. The appellant had some reservation
regarding the margins in the said proposal and by way of its email dated
28.08.2015 requested the respondent to re-consider the same.
40. The respondent sent a revised proposal under cover of its email
dated 04.09.2015 to the appellant. The appellant responded to the above
email by its own email dated 11.09.2015 wherein it inter alia mentioned
that it was to work on the proposal sent by the respondent. This certainly
cannot be read as an unconditional acceptance of the proposal sent by the
respondent.
41. The respondent vide its email dated 14.09.2015 inter alia reiterated
that the MRP will be applied as per the revised proposal sent by it on
04.09.2015. One important condition in this email was that the
respondent would also check the possibility of applying MRP in China.
Therefore, by this email there were two separate issues raised, one with
respect to the price i.e. MRP and the second with respect to the affixation
of the MRP.
42. The appellant responded to the above email vide its email dated
14/15.09.2015. As far as the issue of MRP is concerned, a vague reply
was given that the appellant would try to adjust to most of the issues
except the once which decrease its margin. The same, therefore, cannot
be said to be an un-conditional acceptance of the offer/proposal given by
the respondent.
43. Section 7 of the Indian Contract Act, 1872 states that in order to
convert a proposal into a promise the acceptance must be absolute and
ARB. A. (COMM.) 11/2017 Page 33
unqualified. In the present case, the email dated 14/15.09.2015 cannot be
read as an unqualified acceptance on the issue of MRP by the appellant.
44. A reading of the above correspondence as also the later
correspondence exchanged between the parties would also show that the
issue of MRP was not an ancillary issue but was a major condition of the
contract and in fact, the same was extensively discussed between the
parties, including obtaining legal opinion thereon. The subsequent
correspondence also shows that the parties could not arrive at an
agreement on this important condition of the contract. In fact, it was
because of this reason that the parties in the interim, while negotiating for
final terms of the agreement, executed a Memorandum of Understanding
dated 29.09.2015.
45. As far as subsequent correspondence is concerned, the email dated
03.02.2016 from the respondent to the appellant suggested that the
respondent would be importing the goods from China as also declaring
and affixing the MRP labels. This was reiterated by the respondent in its
email dated 08.02.2016. The appellant, vide its email dated 09.02.2016
again complained about the margin left for the appellant.
46. By its email dated 24.02.2016 the appellant undertook to get a
legal opinion on whether the appellant can be supplied the goods by the
respondent without affixing the MRP. By another email dated 07.03.2016
the appellant again requested the respondent to resolve the MRP issue
and also the issue of margin.
47. The respondent vide its email dated 11.03.2016, while sending the
revised draft of the Distribution Agreement again requested the appellant
ARB. A. (COMM.) 11/2017 Page 34
to send the legal opinion on the issue of supply being made by the
respondent without affixing the MRP.
48. The appellant, vide its email dated 15.03.2016 suggested to the
respondent that the Distribution Agreement can be executed while the
other issues are still under discussion. The respondent, however, vide its
email dated 18.03.2016, while sending the draft agreement for signature,
also informed the appellant that it has received legal opinion suggesting
that the MRP has to be affixed by the respondent before invoicing the
goods to the appellant. The respondent, therefore, proposed to adopt the
MRP / selling structure as per its email dated 03.02.2016 referred above.
The same can therefore be construed as an offer by the respondent to the
appellant which was also conditional on the appellant agreeing to the
MRP/selling structure as proposed by the respondent in its email dated
03.02.2016.
49. The appellant vide its email dated 21.03.2016 informed the
respondent that it had sent the signed copies of the Distribution
Agreement to the respondent. As far as the MRP issue is concerned, the
appellant stated that it would “stick to the stand of MRP as per our final
confirmation in September, 2015”. This certainly cannot again be read as
an unconditional acceptance of the proposal / offer given by the
respondent to the appellant.
50. As noted above, while the parties were discussing the terms of the
Distribution Agreement, they were also discussing the financial
arrangement including the issue of MRP affixation on the product.
Discussion on both the issues was going hand in hand and cannot be
divorced from each other. The learned senior counsel for the appellant
ARB. A. (COMM.) 11/2017 Page 35
has submitted that affixation of MRP was not a condition of the contract,
however, as noted above, from the correspondence exchanged between
the parties it can be safely concluded that this was certainly a major
condition being discussed between the parties and was a major stumbling
block to the execution of the Distribution Agreement.
51. Learned senior counsel for the appellant, in the alternative sought
to contend that the appellant had given an unconditional acceptance on
this issue vide its email dated 21.03.2016. I am unable to agree with the
same. The email dated 21.03.2016 refers to the confirmation in
September, 2015. As noted above, even the acceptance in September,
2015 was conditional in nature. In any case, the question of affixation of
MRP had been given importance thereafter and from the email dated
21.03.2016 it is impossible to come to a conclusion that the appellant had
given its unconditional acceptance on the affixation of MRP on the goods
by the respondent.
52. Learned senior counsel for the appellant has relied upon the
judgment of Govind Rubber Limited (Supra) to contend that an
agreement even if not signed by the parties can be spelled out from the
correspondence exchanged between the parties. Further in order to
constitute an Arbitration Agreement, it need not be signed by all the
parties if the record of agreement is provided by exchange of letters,
telex, telegram or other means of telecommunication. While there cannot
be any dispute on the above proposition of law, as noted above, from the
correspondence exchanged between the parties it cannot be said that the
parties had arrived at a consensus ad idem on the commercial relationship
between the parties.
ARB. A. (COMM.) 11/2017 Page 36
53. In Lets Engineering (Supra) , this Court after scrutinizing the
correspondence exchanged between the parties there in, had concluded
that the parties were ad idem with regard to all the Clauses in the
Marketing Agreement, including the Arbitration Agreement. Noticeably,
the Court in that judgment was exercising its powers under Section 11 of
the Act.
54. In Rickmers Verwaltung Gmbh (Supra) also the Supreme Court
has held as under:-
“Unless from the correspondence, it can unequivocally and clearly
emerge that the parties were ad idem to the terms, it cannot be said
that an agreement had come into existence between them through
correspondence.”
55. In UP Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd. And
Others, (1996) 2 SCC 667, the Supreme Court had reiterated that where
the contract is in a number of parts, it is essential for the validity of the
contract that the contracting parties should either have assented or taken
to have assented to the same thing in the same sense or as it is sometimes
put, there should be consensus ad idem . In absence of any consensus ad
idem on the material terms of the contract to be entered into between the
parties, no concluded contract can be said to have emerged between the
parties. Once the original contract itself was not a concluded contract,
there existed no Arbitration Agreement between the parties. The present
would be a similar position on facts. Once it is held that the Distribution
Agreement itself did not come into existence on mere signing of the same
by the appellant due to the conditional nature of acceptance given by it,
clearly the Arbitration Agreement contained in such Distribution
ARB. A. (COMM.) 11/2017 Page 37
Agreement cannot be said to have come into existence. There cannot be
an Arbitration Agreement in the vacuum. Though severable from the
main agreement, it has to have a foundation in some defined legal
relationship between the parties. The defined legal relationship would
require a consensus on the terms thereof between the parties. In the
absence of such consensus on the legal relationship, no Arbitration
Agreement can be said to have come into existence between the parties.
To put it differently, it cannot be said that the parties agreed to have their
dispute in relation to an agreement, settled through arbitration and would
be bound by the same even though such agreement never came into
existence as the parties could never reach consensus ad idem on terms
thereof.
56. In view of the above, I find no merit in the appeal and the same is
accordingly dismissed with cost quantified at Rs. 50,000/-.
NAVIN CHAWLA, J
APRIL 05, 2018/ rv
ARB. A. (COMM.) 11/2017 Page 38