Food Corporation of India v. National Collateral Management Services Limited on 4 November 2019
Food Corporation of India Appellant
National Collateral Management Services Limited Respondent
The Appellant and the Respondent entered into an Agency Agreement. The agreement contained a clause which stated that any disputes arising between the parties, out of this agreement or pertaining to any matter which is the subject- matter of this Agency Agreement, shall be referred to the Chairman or Managing Director of Food Corporation of India(F.C.I)/ Principal for settlement. The agreement also states that the decision of the Chairman or Managing Director of F.C.I shall be final and binding on the F.C.I/Principal and the Agent. The agreement also stated that if the dispute subsists even after referring it to the Chairman, then Civil Court shall have jurisdiction to adjudicate the same.
The High Court held that by drafting such an agreement, the parties intended to resolve their disputes through the medium of arbitration. The High Court considered the dispute resolution clause stated in the Agency Agreement as a valid Arbitration Agreement. Aggrieved by the decision of the High Court the Food Corporation of India filed an appeal with the Supreme Court of India.
- Whether a clause in an agreement providing for the settlement of disputes between the parties to the Chairman and Managing Director, can be construed as an arbitration clause?
- Dasaratharama Reddy Complex vs. Government of Karnataka & Anr.- In this case, the parties entered into an agreement that stated that any dispute arising between the parties has to be referred to the Chief Engineer or the Designated Officer of the Department. If the dispute still subsists the parties may approach the Court for settlement of disputes. In this case, it was pointed out that after completion of the arbitration proceedings the parties may approach the court for setting aside the arbitration award and not for “settlement of disputes”. But in this case, the agreement stated that if the dispute subsists after referring it to the Chief Engineer or the Designated Officer of the Department, then the parties may approach the Court. Hence, the decisions taken by the Chief Engineer cannot be treated as an award of the Arbitrator.
The Supreme Court held that the agreement in the present case merely predicate that dispute should be referred to the Chairman or Managing Director of Food Corporation of India (F.C.I)/ Principal for “settlement” and the decision of the Chairman or Managing Director shall be final and binding on the parties. It was held that such an agreement cannot be construed as an arbitration agreement. This judgment was based on the rule laid down in P. Dasaratharama Reddy Complex vs. Government of Karnataka & Anr. The Court was also of the opinion that the High Court had committed a manifest error by considering the aforesaid agreement as an arbitration agreement.
The Court also stated that the parties may pursue their claims by way of other appropriate remedies.
The arbitration petition was dismissed.