RASHTRIYA ISPAT NIGAM LIMITED AND ANR V. M/S VERMA TRANSPORT COMPANY INSC 486

Name of the case: RASHTRIYA ISPAT NIGAM LIMITED AND ANR V. M/S VERMA TRANSPORT COMPANY INSC Year decided: 8 August, 2006 Facts: Rashtriya Ispat Nigam Limited (RINL), a public sector enterprise, manufacturing Iron and Steel products and marketing the same, if going into any contract with a partnership firm acting as a consignment agent for handling and storage of materials, or any other purview thereof at Ludhiana, shall require the said company to file a declaration that you will seek proof against the involvement of the partnership firm in corruption before embarking on any further proceedings. The respondent firm and numerous other firms allegedly controlled by the partner Anil Verma conspired with some RINL officials to inflate the payment rates from ₹36 to ₹140 per metric tonne falsely claiming an additional transport fee levied by a local transport union, RINL alleged. The charges against Verma and those RINL officials was also referred to a CBI probe. Therefore, RINL revoked the contract with M/s Verma Transport Company w.e.f. May 23, 2002 and issued the show cause notice regarding its possible blacklisting. Issue: Whether the civil court was justified in submitting the above mentioned issue to arbitration in terms of Section 8 of the Arbitration and Conciliation Act, 1996, after the arbitration clause found in the contract with M/s Verma Transport Company and between RINL Decision: The civil court had been asked to refer the case to arbitration by application filed under Section 8 of the Arbitration and Conciliation Act, 1996, the Supreme Court said. The Court noted that, after a valid arbitration agreement came into effect and the parties agreed to go to arbitration before one of them declared the substance of the dispute, the judicial authority must refer the parties to arbitration. The Court found that the RINL had not done enough for it to submit to the court's jurisdiction and that it had submitted the application under Section 8 as soon as possible, taking this sign of the decision to arbitrate. Majority Decision Reasoning: Justice Sinha ruled that agreement with an arbitration provision is a condition that all disagreements caused by the contract must be referred for arbitration. The Court noted that RINL did not renounce its right to go further to arbitration and had taken recourse to the arbitration agreement as promptly as possible. The civil court had to send the case to arbitration as the content of the disagreement was covered by the arbitration agreement, which the Court also said should have been done. Dissenting Opinion Reasoning: Single ruling-Unanimous. Justice S.B. Sinha wrote the ruling, which said that disagreements that are subject to a legitimate arbitration agreement must go to arbitration as per Section 8 of the Arbitration and Conciliation Act, 1996. Impact of the case: Reasserted the Arbitration Agreement Primacy. But the ruling highlighted a basic tenet of court’s obligation to respect arbitration agreements and refer disputes to arbitration where they exist. Its endorsement of India's pro-arbitration stand also favoured the objective of the Arbitration and Conciliation Act, 1996 of limiting judicial intervention in arbitration. It clarified the Scope of Section 8 of the Arbitration and Conciliation Act, 1996. The case established that once a party applies for arbitration under Section 8 of the Act before submitting their first statement on the substance of the dispute, the court is bound to refer the matter to arbitration, provided: An arbitration agreement is valid. The dispute is covered by the agreement. There has been no waiver due to the right to arbitrate. Reduced Judicial Overreach The judgment limited excessive judicial intrusion by reiterating that courts can not examine the merits of the dispute in resolving whether to refer a case for arbitration. Contractual Dispute Resolution with Increased Certainty VISAIt also helped build the confidence to enforce arbitration clauses among businesses and stakeholders. Arbitration clauses became more and more a part of deciding parties, because they had little faith in its reliability in resolving disputes. Drafting and Invoking Arbitration Clauses – Guidance. In a judgment made public Monday, the court highlighted the importance of carefully defining arbitration clauses and the importance of prompt arbitration invocation to prevent being seen as subjecting to the court's jurisdiction when there are disputes. It is India’s Arbitration Ecosystem. One aspect of this case was that it added to India's caricature as an arbitration friendly jurisdiction which goes a long way in cordoning off foreign and domestic investments.