Saturday, October 5, 2013

Arbitration Agreements in Writing: a recent Bombay High Court decision

In a judgment delivered on September 19, 2013, in the case of Mody v. Kerwala, a learned Single Judge of the Bombay High Court has considered the requirement that an arbitration agreement must be in writing. The learned single Judge has held that s. 7 not only imposes a requirement that the arbitration agreement must be in writing; but also provides for the exclusive modes of proving the existence of the written agreement.

An application was filed before the learned Single Judge u/s 11 of the Arbitration & Conciliation Act, 1996; for appointment of an arbitrator. In the application, it was averred that there was a written arbitration agreement between the parties in 1975. That arbitration agreement itself was not annexed to the petition; but it was averred that the existence of a written arbitration agreement would be proved by oral evidence in accordance with the principles contained in s. 63 of the Evidence Act. (Under s. 63(5), “oral accounts of the contents of a document given by some person who has himself seen it…” are considered to be secondary evidence. S. 65 of the Evidence Act provides for cases in which secondary evidence relating to documents may be given.)

There would have been no difficulty in following the reasoning of the learned Single Judge, had the Single Judge found that none of the clauses of s. 65 (Evidence Act) were engaged in this case. Instead, the learned Single Judge rejected the application u/s 11 on the basis that the requirements u/s 7 of the Arbitration Act were not satisfied. The learned Single Judge held:
"Section 7 (4) is exhaustive… It does not contemplate that an oral account of a document signed by the parties would also be an arbitration agreement… An arbitration agreement is in writing only if it falls within sub-section a, b or c of s. 7(4)…"

With respect, it is submitted that this reasoning does not at all address the argument of the Applicant. The Applicant was not denying that the arbitration agreement must be in writing, and “writing” contemplates one of the modes specified in s. 7(4). What it was arguing, however, was that s. 7 nowhere deals with the mode of proof for the arbitration agreement: while ordinarily the best evidence of a written document is the document itself, there may be cases where secondary evidence is permissible. Secondary evidence was sought to be led in order to show that there was an arbitration agreement in a document, i.e. in one of the forms accepted u/s 7(4). With respect, the learned Single Judge appears to have not separately analysed the requirement of when an arbitration agreement is in writing, and how that agreement in writing is to be proved. The former turns on s. 7 of the Arbitration Act. The issue before the learned single Judge was whether s. 7 also covers the modes of proving a written agreement. On the face of it, the clauses in s. 7 deal with what a 'written' agreement is: not with how it is to be proved. The Applicant's case was that there was an arbitration agreement in writing (falling within s. 7): it's case was that s. 7 did not lay down how one should prove the existence of that written agreement. To answer the Applicant’s arguments it was therefore essential to point out why secondary evidence of the written agreement could not be led under principles of the law of evidence: asserting that the agreement must be in writing as contemplated by s. 7 is surely insufficient, unless one also shows how s. 7 is exhaustive of the modes of proof. The Applicant's case in the application was that the agreement was contained in a document in writing. The question was how that is to be proven as a fact; and whether secondary evidence can be led in the absence of the document itself. The issue may require further elaboration in an appropriate case.

1 comment:

Anonymous said...

Dear Sir,

In different jurisdictions form requirement has been relaxed, e.g. Article 1 of the Swedish Arbitration Act does not require any particular form for such agreement, equally section 5 of English Arbitration is very liberal on writing requirement. Further the amended article 7(option II) of UNCITRAL Model Law on Arbitration can be taken as a confirmation that the written form requirement is not meant as an obstacle to employing the means of communication commonly used by business community.
In the light of aforementioned developments, whether the stringent form requirement under the Indian Arbitration and Conciliation Act, 1996 is desirable?