India: Does An Arbitration Agreement Need To Be Signed?

Introduction

The Supreme Court, in M/S Caravel Shipping Services Pvt. Ltd. v. M/S Premier Sea Foods Exim Pvt. Ltd.¹, helpfully clarified that the only pre-requisite of a valid arbitration agreement is that it should be in writing and need not be signed in every case.

Factual background

The dispute as to the validity of an arbitration agreement arose against the background of an unsigned Bill of Lading. The reverse of the Bill of Lading contained a printed arbitration clause. The Bill of Lading categorically stated that the merchant would be bound by "all the terms, conditions, clauses and exceptions on both sides of the Bill of lading whether typed, printed or otherwise".

A suit was filed by the shipper against the carrier's agent before the Sub-Judge's Court in Kochi for recovery of damages. The shipper relied on the Bill of Lading as an integral part of its cause of action. The carrier sought a referral of the action to arbitration by invoking the arbitration clause on the reverse of the Bill of Lading. The carrier argued that the arbitration clause, though unsigned, was printed, annexed and expressly referred to in the Bill of Lading, which was binding on both the parties. On the other hand, the shipper relied on Section 7(4) of the Arbitration & Conciliation Act, 1996 (Act) which requires an arbitration agreement to be incorporated in a document that is signed by the parties. The shipper submitted that the arbitration clause was invalid and not binding as the Bill of Lading was unsigned. The trial court agreed with the shipper and refused to refer the dispute to arbitration. The appeal preferred by the carrier to the High Court was also dismissed by affirming the view of the trial court holding that an unsigned arbitration clause was invalid. The carrier's appeal to the Supreme Court succeeded as the court disagreed with the view adopted by the lower courts.

Supreme Court Judgment

The Supreme Court relying on its decision given in the case Jugal Kishore Rameshwardas vs. Mrs. Goolbai Hormusji², held that an arbitration agreement needs to be in writing although it may not be signed. The Court observed that Section 7(4) of the Act could not be rigidly applied and construed to imply that in all cases an arbitration agreement needs to be signed. The only pre- requisite to validity, according to the court, was that the arbitration agreement be in writing.

The Supreme Court found that the terms of the Bill of Lading indicated that the Respondent had expressly agreed to be bound by all terms of the Bill of Lading which evidently included the arbitration clause although it was a printed condition annexed to the Bill of Lading. Moreover, the Respondent had itself relied upon the Bill of Lading as part of its cause of action to recover the sum of Rs.26,53,593/- in the suit filed by it.

The Supreme Court accordingly referred the matter to arbitration uninhibited by the fact that trial of the cargo claim was at an advanced stage.

Conclusion

The judgement reaffirms the Supreme Court's pro-arbitral credentials. The decision is intended to transition India as a litigation heavy jurisdiction to one of consensual dispute resolution.

Footnotes

1 Civil Appeal Nos. 10800-10801 of 2018

2 1955 AIR 812,

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