ETOILE CREATIONS v. SARL DANSET DECO: Legal Analysis on Arbitration Clause Enforcement and Dispute Resolution

This case involves the petition filed by Etoile Creations, a proprietorship firm, seeking the appointment of a sole arbitrator for the resolution of disputes that arose between the petitioner and the respondent, SARL Danset Deco, in relation to the ‘Buyers Agreement’ dated 18.10.2012. The petitioner claims that the respondent failed to pay the agreed-upon amount as stipulated in the agreement and breached various terms by cancelling orders and purchasing goods from other suppliers. The petitioner invoked the arbitration clause under Clause 14 of the agreement and sought legal remedy through arbitration proceedings.

Introduction:

Etoile Creations, a Delhi-based manufacturer of home furnishing products, had a long-standing business relationship with the French company SARL Danset Deco. The companies entered into a formal ‘Buyers Agreement’ on 18.10.2012, where Etoile Creations agreed to supply goods to SARL Danset Deco for resale in France. The agreement outlined payment terms and other obligations related to the delivery of goods. The petitioner alleges that despite numerous reminders, SARL Danset Deco failed to clear outstanding dues and cancelled orders, which led to financial losses. The petitioner, therefore, invoked the arbitration clause in the agreement and sought the appointment of a sole arbitrator for dispute resolution.

Petitioner’s Arguments:

The petitioner argues that there was a breach of the ‘Buyers Agreement’ by the respondent, as the respondent failed to make payments as stipulated in the agreement, including the outstanding dues of Euro 367814.80. The petitioner also claims that the respondent’s action of cancelling orders worth Euro 272368.25 and diverting orders to other suppliers violated the terms of the agreement. The petitioner emphasized that Clause 2.2 of the agreement imposed a restriction on Etoile Creations from supplying goods to other parties in France, but the respondent breached this clause by purchasing the same products from other suppliers. Furthermore, the petitioner alleges that SARL Danset Deco failed to maintain business commitments as per Schedule II of the agreement.

The petitioner submits that the arbitration clause, under Clause 14 of the agreement, provides for the resolution of any disputes by arbitration, and the petitioner had already initiated the process by nominating an arbitrator. The petitioner asserts that the disputes related to the breach of the agreement, unpaid dues, and cancelled orders should be resolved through arbitration. The petitioner also claims that SARL Danset Deco’s refusal to pay the outstanding invoices has caused significant financial harm to the business, and compensation along with interest at the rate of 24% per annum should be awarded.

Respondent’s Arguments:

The respondent, SARL Danset Deco, contests the petitioner’s claims, arguing that the cancellation of orders was justified based on business circumstances, and that the payments were delayed due to operational reasons. The respondent maintains that the payment terms were not violated intentionally, and the delays were a result of cash flow issues. The respondent denies any breach of the agreement and asserts that the petitioner’s invocation of arbitration was premature, as there were ongoing negotiations to resolve the payment dispute. The respondent argues that the case should not be referred to arbitration at this stage and that the disputes could be settled amicably without resorting to arbitration.

The respondent also disputes the petitioner’s claim regarding the sale of goods to other suppliers, arguing that the supplies in question were part of a business strategy that did not breach the exclusivity clause of the agreement. The respondent submits that no terms of the agreement were violated in such transactions and that the petitioner’s claims for compensation and interest are without merit. The respondent further contends that the appointment of an arbitrator is not warranted, and the matter should be resolved through other legal avenues.

The Court’s Analysis:

The Supreme Court carefully examined the arbitration clause under Clause 14 of the ‘Buyers Agreement’ and the provisions of the Arbitration and Conciliation Act, 1996. The Court observed that the agreement explicitly provided for arbitration in case of disputes, and both parties had agreed to resolve any disagreements through arbitration. The Court noted that the parties had not yet agreed upon a resolution and that the dispute, which involved issues such as unpaid invoices, breach of contract, and wrongful cancellation of orders, was covered by the arbitration clause.

The Court referred to the principles of judicial intervention in cases where arbitration agreements exist and emphasized that arbitration should be the preferred method of resolving disputes when parties have agreed to it in a contract. The Court further noted that SARL Danset Deco’s refusal to nominate an arbitrator and its delay in resolving the issue were a violation of the agreement’s terms. The Court ruled that the matter should indeed be referred to arbitration, in line with the agreement between the parties.

The Court also considered the legal grounds for appointing an arbitrator under Section 11(5) read with Section 11(9) of the Arbitration and Conciliation Act, 1996, and found that the petitioner had made a valid request for the appointment of a sole arbitrator. The Court concluded that, in the absence of the respondent’s cooperation, the appointment of an arbitrator was necessary to resolve the disputes between the parties. The Court appointed a former judge of the Delhi High Court, Mr. Justice Kailash Gambhir, as the sole arbitrator for adjudicating the disputes in accordance with the terms of the agreement.

Conclusion:

The Supreme Court allowed the petition and appointed Mr. Justice Kailash Gambhir as the sole arbitrator for adjudicating the disputes arising from the ‘Buyers Agreement’ dated 18.10.2012 between Etoile Creations and SARL Danset Deco. The Court directed the parties to present their claims and counterclaims before the arbitrator, who would resolve the issues related to unpaid dues, cancelled orders, and the breach of contractual terms. The Court emphasized that the arbitration process should be carried out in accordance with the Arbitration and Conciliation Act, 1996, and that the arbitrator would have the authority to determine the compensation and other remedies for the petitioner. The petition was allowed with no order as to costs.

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