Court While Referring Parties To Arbitration Cannot Direct That Arbitral Award Should Be Filed Before It: Jammu & Kashmir High Court

Brief Facts:

The defendant had approached the plaintiff for the supply of fruit boxes for resale. It was agreed that the defendant would sell the fruit at higher rates, deduct 1% commission and expenses from the sale proceeds, provide funds to the plaintiff as required, and supply items such as boxes, waste paper, and pesticides at genuine and reasonable rates.

According to the plaintiff, he maintained a true and correct account of all dispatches and transactions based on information received from the defendant. However, the defendant violated the agreed terms by selling the plaintiff's fruit at very low rates, causing him financial loss.

The defendant also failed to maintain proper accounts, which prevented the plaintiff from making payments to orchard owners. When the plaintiff requested a settlement of accounts at the end of the year, the defendant refused.

Based on these allegations, the plaintiff sought a preliminary decree for settlement of accounts, a final decree for recovery of the outstanding amount, and an injunction restraining the defendant from recovering any amount from him or interfering in his business.

The Defendant appeared and submitted that in terms of Section 8(5) the Arbitration Act, the dispute between the parties is required to be referred to arbitration of the sole Arbitrator of the Union of Kashmir Fruit Growers and Dealers Association, Fruit Mandi, Sopore and that civil court has no jurisdiction to adjudicate upon the issues raised in the suit.

In the reply, the plaintiff denied the existence of arbitration clause and pleaded that there is a condition in the agreement executed between the parties which cannot be termed as an arbitration clause.

The learned trial court after hearing the parties passed the impugned order dated 12.06.2024 and observed that there exists an arbitration clause in the agreement executed between the parties.

Against the above order, the present petition has been filed.

Observations:

The court noted that the Supreme Court in K. K. Modi vs. K. N. Modi, (1998) held that For an agreement to be considered an arbitration agreement, it must fulfill certain essential criteria. First, it must contemplate that the decision of the arbitral tribunal will be binding on the parties. Second, the tribunal's jurisdiction must arise from the consent of the parties, a court order, or a statute that clearly designates the process as arbitration.

It further added that third, the agreement must provide that the tribunal will decide the substantive rights of the parties involved. Fourth, the tribunal must act in an impartial and judicial manner, with a duty of fairness toward both sides. Fifth, the parties must intend that the tribunal's decision will be legally enforceable. Lastly, the agreement must relate to a specific dispute that has already been formulated at the time of reference to the tribunal.

Similarly, the Supreme Court in Jagdish Chander vs. Ramesh Chander & Ors. (2007) held that the intention of the parties to enter into an arbitration agreement must be gathered from the terms of the agreement. If the agreement clearly shows that the parties intended to refer their disputes to a private tribunal and be bound by its decision, it constitutes an arbitration agreement.

Based on the above, the court held that the nomenclature of an agreement is not decisive in determining whether the parties have agreed to arbitration. What matters is whether the parties have expressly agreed that any disputes arising between them in relation to the subject matter of the contract would be referred to arbitration and that the decision of the arbitral tribunal would be binding.

It further said that the agreement must clearly specify that the parties' rights will be adjudicated by the agreed tribunal based on evidence presented and after hearing both sides. The intention to resolve disputes through arbitration must be unambiguous and explicitly reflected in the terms of the agreement.

The court further opined that from an analysis of the Bye-laws, it is clear that the Chairman of the Association is vested with the power to adjudicate disputes between traders, orchard owners, and other persons associated with the fruit trade. The Chairman is required to hear the parties, summon them if necessary, and adjudicate the disputes, thereby indicating the existence of a complete adjudicatory process.

Based on the above, it held that the note appended to the agreement executed between the parties, which stipulates that disputes shall be decided by the Union in accordance with the Bye-laws of the Fruit Growers and Dealers Association, when read with Section 8 of the said Bye-laws, clearly constitutes an arbitration clause.

It further added that it fulfills all the essential requirements of an arbitration agreement. The language of the clause, specifically that disputes shall be decided “only and only” in terms of the said clause, reflects the parties' intention to be bound by the decision of the Union rendered under its Bye-laws.

The court concluded that an application under Section 8 of the Arbitration Act was filed by the respondent/defendant before submitting the written statement on merits. Accordingly, the trial court was bound to refer the parties to arbitration.

It further observed that however, the court's direction requiring the arbitral award to be filed before it is not envisaged under Section 8 of the Arbitration Act. Therefore, that part of the impugned order is legally unsustainable. Except for this direction, the rest of the trial court's order was upheld, and accordingly, the present petition was dismissed.

Case Title: GHULAM RASOOL BHAT Vs. SHAFEEQ FRUIT COMPANY

Citation: 2025 LiveLaw (JKL) 181

Judgment Date: 06/05/2025

For Petitioner: Mr. Yasir Nabi Rather, Advocate.

For Respondent: Mr. Ibrahim Mehraj, Advocate.

Click Here To Read/Download The Order