Jayaswal Neco Industries LTD vs. Krupay Industries

Facts

Jayaswal Neco Industries Ltd. (the applicant) filed an application under Sections 11(5) and (6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an Arbitrator. The applicant, a manufacturer, had issued purchase orders to Krupay Industries (the respondent), a manufacturer of MS Saw Pipes. The applicant made advance payments totaling Rs. 11,375,376.00 (inclusive of GST) against Proforma Invoices. Despite these payments and subsequent assurances, the respondent failed to supply the materials within the agreed timeline, causing financial losses to the applicant. The respondent acknowledged an outstanding amount of Rs. 69,85,491/-. The applicant issued a demand letter for the refund of this amount plus interest, totaling Rs. 78,23,747/-. A security cheque issued by the respondent was dishonoured for insufficient funds. The applicant initiated proceedings under Section 138 of the Negotiable Instruments Act, 1881. The applicant contended that a dispute arose due to the respondent's failure to supply materials and refund the advance payments. The General Terms and Conditions, which included an arbitration clause (Clause 20), were attached to one purchase order and were known to the respondent, who accepted all purchase orders without objection.

Held

The Court held that a dispute concerning non-payment of dues has arisen between the parties due to the respondent's failure to fulfill its obligations. The Court found that the applicant had no other option but to approach the High Court for the appointment of an arbitrator. The Court noted that the respondent had acknowledged the outstanding amount and failed to supply the materials or refund the advance payments. The respondent's reply to the arbitration notice disputed the arbitration clause and rejected the request for appointment. In view of these facts, the Court found it appropriate to appoint an arbitrator. The Court directed the appointment of Hon’ble Mr. Justice N.K. Agrawal, a retired Judge of the High Court, to act as the Sole Arbitrator to resolve the dispute. The remuneration of the Arbitrator shall be settled by mutual consent of the parties. The arbitration request petition was allowed.

Key Issues

1. Whether an arbitration agreement exists between the applicant and the respondent, as contemplated under Section 7 of the Arbitration and Conciliation Act, 1996, given that the General Terms and Conditions containing the arbitration clause were attached to only one of the four purchase orders, but the respondent was aware of and accepted all purchase orders? 2. Whether the Court has the jurisdiction to appoint an Arbitrator under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996, when the respondent has disputed the arbitration clause and refused to appoint an arbitrator? Contentions of the Applicant: The applicant argued that a valid arbitration agreement exists because the respondent was aware of the General Terms and Conditions, including the arbitration clause, and accepted all purchase orders without objection. They further contended that a dispute has arisen due to the respondent's failure to supply materials and refund advance payments, and since the respondent has refused to appoint an arbitrator, the Court should step in under Section 11 of the Act. The applicant relied on the fact that the respondent acknowledged the outstanding amount and failed to adhere to agreed timelines for supply and refund. Contentions of the Respondent: The respondent disputed the arbitration clause and rejected the applicant's request to appoint a sole arbitrator. No further arguments were recorded for the respondent.