Delhi High Court: A written arbitration agreement cannot be superseded by any oral demand or agreement

Delhi-High-Court

In the case of Mother Boon Foods Pvt Ltd. v. Mindscape One Marketing Pvt Ltd. O.M.P. (COMM) 136/2017 decided on 27.08.2018, the Delhi High Court dealt with the issue of whether a written arbitration agreement can be superseded by a later oral agreement between the parties. Detailed case analysis given below:

Factual Matrix

Mindscape, a bread manufacturing company, entered into a manufacturing agreement with Mother Boon on agreed specifications. Certain dispute arose amongst the parties which resulted in termination of agreement. Mindscape initiated the arbitration by appointing the arbitral tribunal. This constitution of tribunal was challenged by Mother Boon. Further, Mother Boon did not participate in the arbitration and an ex parte award was passed. This award was challenged under Section 34 of the Indian of Arbitration Act.

Arbitration Clause

“17.2 Arbitration

17.2.1 Any and all claims, disputes, questions or controversies-involving the Parties and arising out of or in connection with or relating to this Agreement, or the execution, interpretation, validity, performance, breach or termination hereof, including, without limitation, the provisions of this Clause (individually, a Dispute) that is not settled to the satisfaction of the Parties under Article 17.1 above shall be finally resolved by arbitration in accordance with the rules of Indian Arbitration and Conciliation Act, 1996 and any amendment of the same effected and enacted from time to time.

17.2.2 For the purpose of such arbitration, the Company shall appoint the Sole Arbitrator.

17.2.3 The place of arbitration shall be Delhi.”

Parties’ Contention

The Mother Boon argued that as per the arbitration clause the arbitration needs to be conducted by a sole arbitrator whereas Mindscape appointed a three-member tribunal.  Hence the tribunal’s constitution being contrary to the agreement, the award passed is not sustainable. Mindscape contended that a three-member tribunal was constituted at the instance of Mother Boon, who during the settlement meeting demanded for a three-member tribunal. Further, Mother Boon submitted that the constitution of a three-member tribunal was done to give a fairer adjudication process for the Mindscape.

Analysis

The Court observed that a perusal of the arbitration clause reveals that the same contemplated the appointment, only of a Sole Arbitrator, by the Mindscape. The court found it strange as to how a three-member tribunal came to be constituted by the Mindscape. There was nothing on record to show that the Mother Boon indeed demanded for constitution of a three-member tribunal.

The Court also observed that even if Mindscape decided to adopt a fair attitude by appointing a three-member tribunal, the same ought to have been done with the consent of the Mother Boon and in accordance with the provisions of the Act. The arbitration agreement, as per the Act, has to be in writing and since the arbitration clause, which is a part of the contract, was in writing, the same could not have been superseded by any oral demand or agreement.

Though the Court observed that there is a possibility that Mother Boon may have been clever in orally demanding a three-member tribunal but it is clear that the procedure adopted by Mindscape is impermissible.

Conclusion

A written arbitration agreement cannot be superseded by any oral demand or agreement and therefore the Court set aside the award finding that the arbitral tribunal being not in accordance with the arbitration agreement between the parties.

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