An oral agreement can not replace a written agreement: Mother Boon Foods Pvt Ltd vs Mindscape One Marketing Pvt Ltd,
O.M.P. (COMM) 136/2017
On July 25, 2012, the petitioner, i.e., Mother Boon Foods Pvt Ltd and the respondent Mindscape One Marketing Pvt Ltd, signed a manufacturing agreement (the "Agreement"). The respondent appointed the petitioner to manufacture and package bread according to the respondent's specifications and needs, according to an agreement dated July 25, 2012. The bread's commercial production was started in July 2013. However, conflicts between the petitioner and the respondent arose, resulting in the cancellation of the agreement by letter dated March 14, 2014. The petitioner requested that a meeting be held to resolve the disagreement peacefully. The parties held a meeting on April 1, 2014, but they could not reach an agreement.
Because of the above, the petitioner wrote the respondent a letter dated April 2, 2014, in which the petitioner asserted many financial claims against the respondent. The respondent dismissed all of the petitioner's financial claims and invoked the arbitration following this created arbitral tribunal of three members. On April 16, 2014, the arbitral tribunal issued its first notice to the petitioner and respondent, following which the respondent filed its statement of claims on May 7, 2014. However, in a letter dated June 16, 2014, the petitioner questioned the arbitral tribunal's constitution. The arbitration procedures were conducted ex-parte because the petitioner did not show before the arbitral tribunal even after the tribunal sent a repeated summons to t arbitral tribunal issued an award dated July 15, 2014. As a result, the petitioner has filed this petition under Section 34(2) of the Arbitration and Conciliation Act, 1996, to overturn the arbitral tribunal's ruling dated July 15, 2014.
The Honourable Delhi High Court confirmed that the arbitration agreement dated July 25, 2012, expressly states that the arbitration clause requires the Respondent to appoint a lone arbitrator. An arbitration agreement should always be in writing, according to the Arbitration and Conciliation Act of 1996. It went on to say that any oral agreement or demand could not take the place of the written arbitration clause. The Hon'ble Court stated that, while the Respondent made the appointment to be on the safe side and at the Petitioner's request, there was nothing on record to show that the Petitioner had truly desired the establishment of a three-member arbitral tribunal. In contrast, the Petitioner's opposition to the arbitral panel's constitution was obvious from the letter dated June 16, 2014, despite which the arbitral tribunal proceeded with the case. As a result, the Hon'ble Court concluded that the Petitioner has the standing to question the arbitral tribunal's constitution under Section 34(2) of the Arbitration and Conciliation Act, 1996. Based on these facts, the court determined that the arbitral tribunal was not established following the July 25, 2012 agreement and the provisions of the Arbitration and Conciliation Act, 1996. As a result, the petitioner's petition was granted, and the award dated July 15, 2014, was overturned.
It is reasonable to say from the preceding case law that Section 7(3) of the Arbitration and Conciliation Act, 1996, which requires the arbitration agreement to be in writing, must be followed. In this case, the Respondent put himself in jeopardy by forming a tribunal that violated the stipulated agreement and hence unlawful. As the Delhi High Court correctly stated, the expression "better safe than sorry" cannot be used universally because the safest approach for the parties under an arbitration agreement is to abide by it and nothing else.
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