Safiya Malik

A recent judgement by the Bombay High Court has resolved a dispute concerning the continuation of an arbitration agreement beyond the initial contractual period. The Court has set aside an arbitral tribunal’s judgement that declined jurisdiction over a commercial dispute between a garment manufacturer and its distributor. The judgment examined whether an arbitration clause persisted beyond the formal expiration of a distribution agreement, considering continued business relations between the parties.

The dispute arose between Raymond Limited, a well-known manufacturer of branded garments, and M/s. Miltex Apparels, its distributor. The parties had entered into a Distributor Agreement on June 9, 2015, granting Miltex exclusive distribution rights in specific territories for two years. The agreement stipulated that Miltex would act as Raymond’s distributor in Mumbai, Navi Mumbai, Thane up to Dahanu Road, and Raigad District.

Under Clause 13.1 of the agreement, the contractual period was set for two years, with a provision for extension upon mutual agreement in writing. Additionally, Clause 18.1 contained the arbitration clause, which stated that disputes arising under the agreement would be referred to arbitration.

Raymond argued that despite the formal expiration of the agreement in June 2017, the business relationship continued under the same terms through ongoing transactions and consistent dealings. The company invoked arbitration on July 11, 2022, citing outstanding dues from Miltex. Miltex challenged the tribunal’s jurisdiction under Section 16 of the Arbitration and Conciliation Act, 1996, contending that since the agreement had not been formally renewed in writing, the arbitration clause was no longer binding.

The arbitral tribunal, in an order dated October 4, 2023, upheld Miltex’s challenge, concluding that since the Distributor Agreement had expired by efflux of time, the arbitration clause also ceased to exist. It held that arbitration could only be invoked if an express written renewal or separate arbitration agreement existed. Dissatisfied with this ruling, Raymond filed an appeal under Section 37(2)(a) of the Arbitration Act before the Bombay High Court.

The Bombay High Court conducted a detailed review of the factual background and legal framework. The Court noted that despite the expiration of the written agreement, Miltex had continued to distribute Raymond’s products in the agreed territories, placing orders, and engaging in transactions in the same manner as during the contractual term.

A key document considered was a letter dated September 2, 2022, from Miltex’s legal counsel, which stated, "My clients state that even after expiry of the said Agreement (after two years), the said business continued on the same terms and conditions as mentioned therein. My clients further state that they were always in direct communication with your client's Managers / Representatives for all approvals through Emails, Whatsapp chats, and verbal calls. The said Agreement was impliedly renewed by the parties by their respective conduct."

The Court noted that this communication directly contradicted Miltex’s argument before the arbitral tribunal that no contractual relationship existed after the expiration of the agreement.

The High Court referred to the Supreme Court’s ruling in Bharat Petroleum Corporation Ltd. v. Great Eastern Shipping Co. Ltd. (2008) 1 SCC 503, which held that an arbitration clause, being a separate agreement, could survive the termination of the principal contract. The Court observed that the continued conduct of the parties, particularly the placement of orders and invoicing under the same terms, suggested an implicit renewal of the Distributor Agreement.

Additionally, the Court examined the arbitral tribunal’s reliance on A.N. Traders Pvt. Ltd. v. Shriram Distribution Services Pvt. Ltd., a Delhi High Court case, where the court ruled that an arbitration clause must be reaffirmed in writing upon contract extension. The High Court found that the tribunal applied this precedent too rigidly, without considering that in the present case, both parties had explicitly acknowledged, in legal correspondence, that the business relationship continued on identical terms.

The Court also noted that Miltex had issued debit notes for transactions conducted between 2018 and 2022, well beyond the formal expiration of the agreement. The debit notes specifically referred to outstanding payments and financial obligations arising from transactions based on the Distributor Agreement, reinforcing the argument that the contractual relationship was effectively extended.

After examining the evidence, the Bombay High Court set aside the arbitral tribunal’s ruling. The Court directed that:

• The arbitral tribunal must consider the Statement of Defence and allow both parties to present evidence regarding the continued applicability of the Distributor Agreement.

• The tribunal must determine, based on factual and legal considerations, whether the agreement was extended by conduct and if the arbitration clause remains valid.

• The proceedings must resume, and the tribunal should reassess jurisdiction only after examining all relevant material, including communications and transactions between the parties.

The High Court refrained from imposing costs, citing the complexity of legal issues involved in the case and the necessity of clarifying the law regarding arbitration agreements in extended contractual relationships.

Case Title: Raymond Limited v. M/s. Miltex Apparels & Others

Case Number: Arbitration Petition (L.) No. 232 of 2024

Bench: Justice Somasekhar Sundaresan

[Read/Download order]