top of page

Are arbitration agreements binding if the original contract is signed by only one party? – What the

By – Team Advaya

The Delhi High Court (Court) recently (in the matter of Chaitanya Construction Company v. Delhi Jal Board[1]) examined whether an arbitration clause in an unsigned agreement is binding when the parties had initially agreed to a draft agreement and acted in furtherance of such an agreement.

Facts of the case

Delhi Jal Board (Board) issued notices inviting tenders for the supply of various materials. In response to the notices, Chaitanya Construction Company (Chaitanya) submitted its bids that were accepted by the Board. The Board sent to Chaitanya copies of the contracts (Contract) that contained the terms and conditions based on which specific work orders were to be issued by the Board. The Contract contained an arbitration clause.

Chaitanya executed the Contract on stamp papers and submitted it to the Board as per its instructions. The Board retained the Contract in its records but did not sign it. Thereafter, work orders were issued by the Board in favour of Chaitanya. The work orders did not contain an arbitration clause. Pertinently, it was a standard practice of the Board to issue work orders only after the bidder agreed to accept the terms and conditions of the Contract.

Disputes arose between the parties when despite the work orders the Board did not hand over the site of work to Chaitanya. Chaitanya invoked the arbitration clause in the Contract. When the Board failed to respond to the notice invoking arbitration, Chaitanya approached the Court for the appointment of an arbitrator under the Arbitration and Conciliation Act, 1996 (Act). The Board contended that there was no arbitration agreement between the parties.

Arguments advanced by the parties

Chaitanya asserted that despite issuing work orders in its favour, the Board neither handed over the site of work nor permitted Chaitanya to work there. This caused losses to Chaitanya and as a consequence of which it invoked arbitration. Chaitanya also contended that once its bid was accepted the Board specifically directed it to sign the Contract, which was a precondition to formulate the terms of the work order. It is only when Chaitanya signed the Contract that the Board issued the work orders. This indicated that the Board itself proposed the terms and conditions of the Contract including the arbitration clause to Chaitanya.

Board’s primary contention was that there was no arbitration agreement between the parties as the parties had not signed a formal contract containing an arbitration clause. Although Chaitanya submitted the Contract duly signed by it, the Board did not sign the Contract and therefore the Contract and the arbitration clause contained in it are inchoate documents. The Board sought to emphasize the difference between a draft agreement and a final agreement signed by the parties and contended that an arbitration clause in the unsigned Contract was not binding on the parties and mere issuance of a work order that does not contain the arbitration clause was not sufficient to invoke arbitration.

Findings of the Court

The Court noted that as a matter of practice the Board issued work orders only once the bidder agreed to accept the terms of the Contract. There was no doubt that the work orders could not have been issued without the parties being ad idem (i.e., agreeing to the same thing, in the same manner) about the terms of the Contract, which contained the arbitration clause. The Court opined that a conjoint reading of the documents exchanged between the parties and the turn of events reveal that the parties intended to resolve all disputes through arbitration. The mere fact that the work orders did not contain a specific arbitration clause will not be sufficient to hold that there was no arbitration clause and the Board cannot gain undue advantage of its deliberate omission to sign the Contract.

The Court further held that the Act itself provides that the arbitration agreement need not be in any concrete or particular form. The Act also provides alternative ways to ascertain the presence of an arbitration agreement including exchange of letters, telex, telegrams or other means of telecommunication that provide a record of the agreement. Thus, an arbitration agreement can be evidenced from the correspondence exchanged between the parties.

In view of the above, the Court allowed the petition filed by Chaitanya and proceeded to appoint an arbitrator to adjudicate the disputes between the parties.

Conclusion

The present judgement of the Court highlighted the fact that the arbitration agreement need not be in any particular form so long as it is in writing.

[1] ARB.P. 795/2019.

Comments


bottom of page