Purposive Interpretation Necessary: High Court at Calcutta Clarifies Arbitration Scope

“Justice Bhattacharyya Appoints Sole Arbitrator in Iron-Ore Dispute, Emphasizes Comprehensive Clause Reading”

The High Court at Calcutta, in a landmark judgment delivered by Justice Sabyasachi Bhattacharyya, has clarified the scope of arbitration clauses in commercial agreements, emphasizing the necessity for a purposive interpretation. The court allowed the application under Section 11(6) of the Arbitration and Conciliation Act, 1996, appointing an arbitrator to resolve disputes arising from a repayment agreement between Mala Roy & Others and M/s. Jai Balaji Industries Limited.

The petitioners, Mala Roy & Others, had entered into an Agreement for Settlement with M/s. Jai Balaji Industries Limited on May 12, 2013, concerning the repayment schedule for the sale price of iron-ore and fines amounting to ₹1,90,36,023/-. The agreement included clauses for repayment through post-dated cheques and purchase orders for iron-ore. Due to government-imposed restrictions on mining operations, the petitioners were unable to supply iron-ore, leading to a dispute which the petitioners sought to resolve through arbitration.

Justice Bhattacharyya extensively analyzed the arbitration clause (Clause 13) and the forum selection clause (Clause 14) within the agreement. The court underscored the importance of a holistic interpretation of contractual clauses to avoid redundancy and to honor the evident intent of the parties to resolve disputes through arbitration.

The court noted that the arbitration clause covered disputes “arising out of or in relation to the agreement,” and was not limited solely to the validity of the agreement. This interpretation aligns with the principles of giving effect to all expressions within a clause. “Purposive interpretation is essential to give meaning to all parts of a contract and avoid rendering any phrase redundant,” the judgment emphasized.

Justice Bhattacharyya highlighted that the forum selection clause, which conferred exclusive jurisdiction to the courts in Calcutta, did not negate the arbitration clause but rather supplemented it, ensuring that disputes would be resolved through arbitration in Kolkata.

The petitioners argued that government restrictions on mining operations constituted a force majeure event, justifying their inability to perform under the agreement. The court found this issue to be arguable and requiring adjudication by the arbitrator. “The question of limitation is intricately linked to the facts of the case and must be decided on merits by the arbitrator,” the judgment stated.

The court reiterated that arbitration clauses must be interpreted pragmatically to reflect the intent of the parties to arbitrate. The judgment referenced several Supreme Court rulings to support this view, including Enercon (India) Limited v. Enercon GMBH and Visa International Ltd. V. Continental Resources (USA) Ltd., which advocate for a common-sense approach to arbitration agreements.

Justice Bhattacharyya observed, “The expressions ‘arising out of’ and ‘in relation to’ encompass a broad spectrum of disputes, including those incidentally related to the agreement.” He further noted, “It is a cardinal rule of construction to avoid attributing redundancy to any of the expressions used in a document.”

The High Court’s judgment in this case underscores the judiciary’s commitment to facilitating dispute resolution through arbitration, respecting the parties’ agreement. By appointing Sri Krishnaraj Thakker as the sole arbitrator, the court has reinforced the principle of minimizing court interference in arbitral proceedings. This decision is expected to have significant implications for the interpretation of arbitration clauses in commercial contracts, promoting a purposive and pragmatic approach.

Date of Decision: 02 July 2024