Sanshin Chemicals Industry Case- A Critical Analysis.

Appellants: Sanshin Chemicals Industry
vs.
Respondent: Oriental Carbons and Chemicals Ltd. and Ors.

A three judge bench of the Supreme Court of India on 16.02.2001 decided the case of Sanshin Chemicals Industry vs. Oriental Carbons and Chemicals Ltd. and Ors. It was held that a dispute related to determination of venue for initiating arbitration proceedings between parties cannot be considered as an ‘award’ for the purposes of Section 34 of the Indian Arbitration and Conciliation Act, 1996. As per the relevant clauses of the agreement at issue, a Joint Arbitration Committee was to be constituted in case the two parties could not decide the venue as per Art. 20(1).  The two relevant clauses in the agreement are reproduced herein below for a better understanding of the commentator’s analysis;

"Clause 8.4 - Any dispute or claim arising out of or relating to this Agreement shall be settled by arbitration. If the arbitration is to be held in India, the dispute shall be submitted to the Arbitration Tribunal of the Federation of Indian Chambers of Commerce and Industry and shall be conducted in accordance with the Rules of that Tribunal. If the arbitration is to be held in Japan, it shall be conducted in accordance with the Rules of the Japan Commercial Arbitration Association.

In the event that the parties have not designated the place of arbitration or are unable to agree thereon within thirty (30) days after the demand for arbitration has been made, the place of arbitration shall be determined by a Joint Arbitration Committee of three members, one to be appointed by the Arbitration sub-committee of the Federation, another by the Japan Commercial Arbitration Association and the third of a nationality other than that of any one of the parties to act as Chairman to be chosen by the other two members. In deciding the place of arbitration, the Joint Arbitration Committee shall consider among others the principle that, if only the quality of the good is in dispute and/or inspection of the goods is necessary, arbitration of such case shall take place at the place where the merchandise is located. The party demanding arbitration according as it is resident in India or Japan shall give notice to the Arbitration Tribunal of the Federation or the Japan Commercial Arbitration Association, as the case may be. The Arbitration Tribunal of the Federation or the Japan Commercial Arbitration Association, as the case may be, shall request both the parties to submit their agreement and reasons within thirty (30) days for preference regarding the place of arbitration. The determination of the place by the Joint Arbitration Committee shall be final and binding."

"9.7. The terms and conditions herein contained constitute the entire agreement between the parties and shall supersede all previous communication, either oral or written, between the parties with respect to the subject matter hereof, and no agreement or understanding varying or extending the same shall be binding upon either party unless in writing signed by a duly authorized representative thereof in which writing this Agreement is expressly referred to."

The learned senior counsel for the Appellants, Mr. Ashok H. Desai contended that the agreement contained two arbitration clauses, Joint Arbitration Committee and Arbitral Tribunal. Using the principles laid down in K.K Modi vs. K.N Modi and Ors., pertaining to what constitutes an arbitration agreement, the Court adjudicated that JAC was not an arbitration clause. Apart from relying upon the supra judgment, it admitted in para 9 of its judgment that as contended by the Appellant a decision upon the venue of arbitration is of utmost importance as it leads to application of the substantive law of that country. If I may further quote the verbatim following this ratio of the bench;

“But the further contention that an aggrieved party has no right to assail the same, once the said decision is not assailed at this stage, does not appear to be correct. The ultimate arbitral award could be assailed on the grounds indicated in sub-section(2) of Section 34 and an erroneous decision on the question of venue, which ultimately affected the procedure that has been followed in the arbitral proceeding could come within the sweep of Section 34(2) and as such it cannot be said that an aggrieved party has no remedy at all.”

To the understanding of the author, the Court considers that because a remedy to question the rationality of the venue decided by the authorized institution or person is available at a later stage, the decision which cannot be considered as an award, cannot be challenged before this court of law unless the poor litigant spends/squanders all his money and time in asserting his claims in accordance with a substantive law which in the first place may not be the legally correct position to adopt. The basic objective behind the Arbitration and Conciliation Act, 1996 was to make disposal of cases and litigation faster and less cumbersome. Does this ratio not go against the principle objective of the Act?

Also while adjudicating upon whether JAC was an arbitration clause or not, the court seemed to have only read the words dispute mentioned in Clause 8.4 and not given any attention to the words any claims arising out of this agreement. Is not the right determination of venue one of the claims available to a party as per the terms of this agreement? The word claim can also be construed as to mean a right. Is it not the Appellant’s right to enforce the arbitral proceedings at the right venue?

About The Author:-

Gehna Banga
3rd Year, BBA-LLB (Hons.)
FOL, IFHE, Hyderabad

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