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Nilesh Sanghani v.

Rakesh Zangada

Judge: Swatanter Kumar

Question: Whether there is binding arbitration agreement between the parties?

Brief Facts:
1. Applicant and respondent were friends who ran a software firm.
2. Some disputes arose between them, and led to the intervention of Mr. Niranjan
Nanavati, a leading stockbroker. Both parties were fine with his interference,
as they had trust and confidence in him.
3. As a result of discussions arising out of this interference, the applicant
submitted his resignation as director of one of the respondents companies.
4. One of the clauses in the letter was that in case of any disputes regarding
valuation of shares, the decision of Mr. Nanavati would be final.
5. This condition was not fulfilled with regard to valuation, and hence the
applicant filed this suit.
6. Respondents contended that not only had the shares been valued correctly, but
also there was no arbitration agreement between the parties, and hence Mr.
Nanavati could not act as sole arbitrator, and the application was not
maintainable.

Judgment:

@4: Letter of resignation reproduced. It said that resignation would become final
subject to the fulfillment of certain conditions. Condition (h) was that In case
of any dispute in valuation, the decision of Mr. Nanavati will be final.
@5: The letter is a unilateral act of the applicant. The signature of Rakesh Zangada
on the letter can only be treated as acknowledgment of receipt of the letter,
and not as conclusion of any contract between them. Further, the clause is not
an arbitration clause because it is vague in terms of the arbitration and/or
arbitral tribunal.

According to Section 7 of the Act, the three primary characteristics of an


arbitration agreement are:
a. It must be in writing.
b. Must be signed.
c. Must clearly demonstrate the intention of parties to resolve their disputes and
differences by reference to arbitration.
These ingredients must be satisfied before an arbitrator can be appointed. In the
instant case, the terms of the letter were orally agreed upon, so clearly the
arbitration agreement was not in writing. There exists no signature on the said
agreement, so it is impossible to conclude that consensus ad idem existed between
the parties in terms of the competence of Mr. Nanavati. At best, the letter can be
termed as a unilateral offer from the applicant to resign. The disputes between the
parties go beyond the valuation of shares, and that itself shows that with regard to
the present dispute, Mr. Nanavati could not be a sole arbitrator and the parties
were not bound to refer the dispute to him.
Therefore, there is no arbitration agreement under Sections 2 and 7 of the Act.
@6: The Court refers to the Supreme Courts judgment in the case of Jagdish
Chander v. Ramesh Chander to lay down four essentials of an arbitration
agreement:
a. Intention of parties to enter into an arbitration agreement: not just a possibility
of arbitration, but an obligation to enter into the same.
b. Even if the words arbitration or arbitral tribunal are not used, there can be
a valid arbitration agreement if the essentials of Section 7 are complied with.
The converse is also true.
c. If arbitration agreement specifically excludes any attribute of arbitration, then
it is not valid.
d. Invalid if it allows parties to choose to resort or not to resort to arbitration.
@7: Therefore, the mental element concerning arbitration is critical, and must
explained with certainty and clarity. Consensus ad idem between parties to
arbitrate must be clearly visible in the exchange of documents, contract and
signature between/of parties.

In this case, no contract, so would not bind the party not writing the letter (since
the condition itself is unilateral). Therefore, no arbitration clause.