K.LINK HEALTHCARE(INDIA)PVT.LTD v. GEORGE ALEXANDER

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** ## **THE HONOURABLE MR.JUSTICE K.HARILAL** **MONDAY, THE 4TH DAY OF AUGUST 2014/13TH SRAVANA, 1936** ## **CRP.No. 472 of 2010 (C )** ## **------------------------** **IA 2851/2010 IN OS 71/2010 of II ADDL.SUB COURT,ERNAKULAM .........** ## **REVISION PETITIONER(S)/PETITIONERS/DEFENDANTS:** **---------------------------------------------------------------------------** ## **1. K.LINK HEALTHCARE(INDIA)PVT.LTD,** **A REGISTERED COMPANY, WITH ITS REGISTERED OFFICE AT DOOR NO.103/A, 7TH FLOOR, NAVIN'S PRESIDIUM NELSON MANICKAM ROAD, AMINJIKARAI, CHENNAI-600029 REP.BY ITS DIRECTOR, PAYYAKKAL DEVADAS.** ## **2. PAYYAKKAL DEVADAS,AGED 45 YEARS,** **S/O.KVK NAIR, 53, TEACHERS COLLEGE KAMARAJ AVENUE, ADAYAR, CHENNAI-600 020.** ## **3. K-LINK HEALTHCARE(INDIA),PVT.LTD,** **KERALA, BRANCH OFFICE, THEJUS SHOPPING COMPLEX THAMMANAM ROAD, PALARIVATTOM, COCHIN-25 REP.BY THE BRANCH MANAGER, SUNIL.G.P.** ## **BY ADV. SRI.P.NANDAKUMAR** ## **RESPONDENT(S)/RESPONDENT/PLAINTIFF:** **-------------------------------------------------------------** **GEORGE ALEXANDER,AGED 42 YEARS, S/O.K.O.ALEXANDER, RESIDING AT FLAT NO.303, AREENA APARTMENTS, FATHIMA CHURCH ROAD, ELAMKULAM KADAVANTHRA.P.O, COCHIN-682020.** **BY ADV. SRI.DINESH R.SHENOY BY ADV. SRI.G.HARIKRISHNAN (TRIPUNITHURA) BY ADV. SRI.MAHESH MENON** **THIS CIVIL REVISION PETITION HAVING BEEN FINALLY HEARD ON 04-08-2014, ALONG WITH CRP. 571/2010 & CRP. 572/2010, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **okb** **'C.R.'** ## **K.HARILAL, J.** **_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _** **C.R.P. Nos. 472, 571 and 572 of 2010** **_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _** Dated this the 4[th] day of August, 2014 ## **ORDER** The revision petitioners 1 to 3 in all these Revision Petitions are one and the same, a Private Ltd. Company, its Director and the Branch Office respectively. The common order passed in I.A. No.2851/10 in O.S.No.71/10, I.A.No.2849/10 in O.S.No.65/10 and I.A. No.2852/10 in O.S.No.66/10 on the files of the II Additional Sub Court, Ernakulam, is challenged respectively in the above Revision Petitions. All the above Original Suits are filed by the respective respondents in all these Revision Petitions against the revision petitioners. Thus, though the plaintiffs in all the suits are different, the defendants are one and the same. 2. The above suits are instituted for recovery of money from the revision petitioners/defendants. The parties are referred to as in the Original Suit. The first defendant _**CRP.472/10 & conn. cases**_ **:2:** company was involved in a network marketing in health-care products in India. The products are sold by “independent distributors” and through “Words of Mouth” Advertisements only. The second defendant is the Director of the first defendant company and the third defendant is the first defendant's branch office in Kerala. The plaintiffs joined the network of the first defendant company as distributors. The plaintiffs have claimed recovery of money from the defendants under various heads. 3. The defendants have filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, within the specified time alleging that as per the existing Rules and Regulations of the first defendant company, any dispute arising between a member and the company in respect of the company's policies and procedures, the terms and conditions of the membership or any other activity of the member of the company shall be resolved under the Indian Arbitration and Conciliation Act, 1996, by a sole Arbitrator to be appointed by the company. It was also alleged that the arbitration proceedings would be held at Chennai and the Courts in Chennai alone have exclusive jurisdiction. _**CRP.472/10 & conn. cases**_ **:3:** 4. The plaintiffs have filed separate counter affidavits in each suit contending that there is no arbitration clause in the agreement between the plaintiffs and the defendants. It is contended that when the plaintiffs joined the network as distributors, a starter kit imported from Malaysia was given and it did not contain any agreement or any rules or regulations for arbitration. The current Rules and Regulations commenced from 2003 under the second starter kit, which contain arbitration agreement, do not apply to the plaintiffs or the original distributors, who had joined in the year 2002. The plaintiffs would contend that they had never signed or accepted the revised rules containing arbitration clause introduced by the second starter kit in the year 2003. The said arbitration clause does not operate with retrospective effect covering those who have joined the network before 2003. After considering the rival contentions, the learned Sub Judge dismissed all the I.As. on a finding that the amended rules contained in the second starter kit are not binding on the distributors appointed prior to the amendment. Feeling aggrieved, all these Revision Petitions are filed on various grounds. _**CRP.472/10 & conn. cases**_ **:4:** 5. The learned counsel for the revision petitioners/ defendants advanced arguments highlighting the applicability of the Rules and Regulations including arbitration clauses contained in the second starter kit. It is also contended that as per the first starter kit given to the plaintiffs, the plaintiffs are bound by the subsequent amendments to the Rules and Regulations made by the defendants. The defendants had reserved the right to amend or modify the existing rules unilaterally and, therefore, the Rules and Regulations, which are now in force and mentioned in the second starter kit issued in the year 2003, are binding on the plaintiffs. In short, the arbitration clause contained in the second starter kit given in the year 2003 to the plaintiffs are binding on the plaintiffs, as the same has come into force retrospectively. 6. Per contra, the learned counsel for the respondents/plaintiffs submits that the Rules and Regulations commenced under the second starter kit issued by the defendants in the year 2003 are not binding on the plaintiffs as the plaintiffs have never admitted or acknowledged it in writing. So, the amendments made in the Rules and Regulations, including the arbitration clause are not binding _**CRP.472/10 & conn. cases**_ **:5:** on them in view of Section 7 of the Arbitration and Conciliation Act, 1996. In short, according to the plaintiffs, the defendants have no right to unilaterally change or modify the terms and conditions of the transactions between the parties by incorporating an arbitration clause in the new starter kit issued in the year 2003. 7. I have heard Sri. P. Nandakumar, the learned counsel for the revision petitioner and Sri. Dinesh R. Shenoy, the learned counsel for the respondents. 8. In view of the rival contentions debated at the Bar, the point to be considered is whether the arbitration clause contained in the second starter kit issued by the defendants is binding on the plaintiffs with retrospective effect? The question of law is, can an arbitration clause be unilaterally introduced in the agreement or Rules by any one of the parties to the agreement, on the basis of the right reserved by him in the agreement or consent given by the other party to add, delete or amend the Rules, as and when the former deems it appropriate and necessary? 9. Going by the impugned common order, it is seen that the learned Judge rightly appreciated the matter in issue, in _**CRP.472/10 & conn. cases**_ **:6:** view of Section 7 of the Arbitration and Conciliation Act, 1996. Admittedly, the plaintiffs joined the network on the basis of the terms and conditions contained in the first starter kit which did not contain an arbitration clause or even the clause confining jurisdiction for courts at Chennai only. It is also true that the first defendant company reserved the right to amend the rules as and when the company deems it appropriate and necessary and invoking that provision the first defendant company amended the rule with effect from 1-9-2003, including an arbitration clause. The learned Judge observed that in the second starter kit it is specifically mentioned that the Rules and Regulations shall be effective from 1-9-2003. If that be so, the point to be considered is whether the arbitration clause is binding on the plaintiffs? 10. Admittedly, the defendants did not take any written acknowledgement or undertaking from the plaintiffs that the new Rules and Regulations were accepted or admitted by the plaintiffs. But the Rules and Regulations appended to the 1[st] starter kit accepted by the plaintiffs contain a clause, which reserved the right to add, delete or amend without notice, the rules as and when the company deems it appropriate and _**CRP.472/10 & conn. cases**_ **:7:** necessary. According to Section 10 of the Indian Contract Act, all the agreements are contracts, if they are made by the free consent of parties competent to contract. Therefore, to make an agreement enforceable by law, free consent of both parties is sine qua non. If that be so, the point to be considered is, had there been any consent or acknowledgement of the plaintiffs, in making the arbitration clause applicable to them? 11. Section 7(2)(b) defines an arbitration agreement. Section 7 is extracted hereunder: **“7. Arbitration Agreement** .--(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. - (3) An arbitration agreement shall be in writing. - (4) An arbitration agreement is in writing if it is contained in -- _**CRP.472/10 & conn. cases**_ **:8:** - (a) a document signed by the parties; - (b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or - (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. - (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.” 12. What are the statutory requirements to constitute a valid and enforceable arbitration agreement? Generally, where there is any meeting of minds between two parties on the same point, which could create a binding contract between them, the fusion of both minds on the same resolution makes an agreement binding on both parties. An agreement may be either oral or written. But in the case of written agreement such consensus of minds manifests on record by making agreement in writing, signed by both parties. In the matter of arbitration agreement, to make it _**CRP.472/10 & conn. cases**_ **:9:** valid and enforceable, such manifestation of minds on record agreeing forum of arbitration, in case of dispute, signed by both parties, or exchange of statements which provide a record of arbitration agreement, or communication claiming arbitration agreement and not denied by the other party is required and mandated under sub-sections (2) to (5) of Section 7 of the Arbitration and Conciliation Act. In this analysis, I am of the opinion that the right reserved by one of the parties or consent given in advance by one of the parties to amend, add or delete the rules or agreement does not satisfy the statutory requirement under sub-sections (2) to (5) of Section 7 of the Arbitration and Conciliation Act. Such consent given in advance or right reserved may be sufficient for adding or altering the terms of business transactions. But, arbitration agreement requires statutory compliance under Section 7 of the Arbitration and Conciliation Act and the consent given in advance or right reserved to make alterations or additions does not satisfy those statutory requirements. So, such amendments or additions in the agreement or rules unilaterally incorporating arbitration clause are invalid and unenforceable. It is to be borne in _**CRP.472/10 & conn. cases**_ **:10:** mind that an arbitration clause if agreed by both parties minimises the jurisdiction of the civil court and in such circumstances, express written consent, signed by both parties or an exchange of communication or statement containing arbitration clause, admitted by both parties is required to make it valid and enforceable. An arbitration clause is neither presumable nor deducible from agreement by way of interpretations or inferences. It must be explicit, unequivocal and manifested in writing or acknowledged by both parties as provided under Section 7(1) of the Arbitration and Conciliation Act. 13. In the above analysis, I find that the arbitration clause included by way of amendment unilaterally made in the second starter kit, by the defendants is not binding on the plaintiffs. Moreover, in the new starter kit, it is specifically mentioned that the Rules and Regulations shall be effective from 1-9-2003 only. Thus, the amended rules have no retrospective effect in operation. 14. In the light of the above discussions, I find that there is no illegality or impropriety in the finding that the matter in issue involved in the suits is not liable to be referred _**CRP.472/10 & conn. cases**_ **:11:** to the Arbitrator in the absence of a binding arbitration clause in the agreement between the parties. 15. The learned counsel for the revision petitioners cited the decision reported in **Hindustan Petroleum Corpn.** **Ltd. v. Pinkcity Midway Petroleums ((2003) 6 SCC 503)** and drew my attention to paragraphs 14, 15 and 16 and submits that the question whether there is a binding arbitration clause is also a matter requires to be considered by the Arbitrator. But, on an analysis of the proposition laid down in the above mentioned paragraphs of the decision, I am unable to accept the argument made by the learned counsel. 16. Having considered the discussions in the above mentioned paragraphs, I find that, there, the arbitration clause was accepted by both parties. But, the contention of one of the parties is that the arbitration clause is not binding on them as the issue does not come within the purview of “dispute” referred to under Section 8 of the Arbitration and Conciliation Act. In the above context, the Court held that, when the existence of the arbitration clause is admitted, in view of the mandatory language of Section 8 of the said Act, the court below ought to have referred the dispute to _**CRP.472/10 & conn. cases**_ **:12:** arbitration. But, in the instant case, the arbitration clause is not admitted by both parties. So, the above decision would not render any help, assistance or aid to fortify the argument advanced by the learned counsel for the revision petitioners. Hence all these Revision Petitions are devoid of merits and dismissed accordingly. Sd/- **(K.HARILAL, JUDGE)** okb.