Calcutta High Court
Hindustan Cables Ltd. vs Bombay Metal Company on 30 May, 1991
Equivalent citations: AIR1991CAL350, (1991)2CALLT164(HC), AIR 1991 CALCUTTA 350, (1991) 2 CALLT 164
ORDER Monoranjan Mallick, J.
1. This is an appeal against the Order dated 23rd Feb., 1979 passed by the Judge, 10th Bench, City Civil Court at Calcutta dismissing the appellant's application u/S. 34 of the Arbitration Act. Briefly the facts are as follows:--
The appellant, Hindusthan Cables Limited being interested in disposing of twenty items of scrap materials issued a tender being SPC-762/LSA-82 in various leading Newspapers between 16th March and 27th March, 1974. Pursuant to the aforesaid tender notice several interested parties submitted the quotation including the respondent in the prescribed form. The aforesaid tender documents specially under general terms and conditions of the said tender contains an arbitration clause which is as follows:--
"All disputes and differences except the matters decisions whereof are specifically provided for under the clause of terms and conditions of this tender should be referred to the arbitration of the Managing Director of the Company or his nominee whose decision shall be final and conclusive under the proceedings of Arbitration Act, 1940 and the rules thereunder and the statutory modifications thereon, if any, shall be deemed to apply. If, however, no award can be made by the arbitrator within a period of 4 months from the date of entering on the reference by him, the arbitrator can enlarge time for making the award with the consent of all the parties to the arbitration proceedings."
2. On or about April, 15, 1974 the appellant accepted the offer of the respondent for Items Nos. 1,3,4 and 14 respectively and requested the respondent to arrange for immediate remittance of the full value. In view of the terms of the contract, contract by and between the appellant and the respondent was concluded on the 15th April, 1974. The petitioner, thereafter, by a letter dated April 19, 1974 issued a formal letter of acceptance by way of and/or in compliance with the formalities prevalent in the appellant company. The aforesaid letter of acceptance was a mere formality as, indeed, would be evident, inter alia, from the course of conduct and/or dealings by and between the parties herein. However, in spite of repeated requests made in letters dated 29-4-74 and 7-5-74 respectively, the respondent failed and neglected to deposit the full value of stores within the stipulated period or within the extended time as granted by the petitioner. The time to deposit the full value of the materials was extended and last of such extension was made on May 7, 1974. Ultimately, by an Express Telegram dated May 17, 1974 the appellant informed the respondent as they had failed and neglected to deposit the full value of the items in breach of the contractual terms and/or in violation thereof the earnest money lying to the credit of the contract was forfeited and have been taking steps for re-sale of the items at the respondent's risk and costs. Thereafter, materials covered on the aforesaid items Nos. 1, 2 and 3 were sold to one M/ s. Mohon Metal Stores of 157, Netaji Subhas Road, Cal-cutta-1 and item No. 14 was sold to M/s. Hindusthan Drum & Supply Co. of No. 71, Princes Street, Calcutta-13 as a result whereof the appellant has suffered loss and damages to the tune of Rs. 2,02,415/-. The appellant thereafter by a letter dated 8th March, 1976 duly informed the respondent about the said loss sustained by them and demanded payment of the aforesaid sum from the respondent. Inasmuch as the respondent wrongfully failed and neglected to pay the above sum of Rs. 2,02,415/- or portion thereof, the appellant by a letter dated March 21, 1977 invoked arbitration in terms of the aforesaid contract and duly referred the dispute to the arbitration of the Managing Director of the appellant. The Managing Director by a letter dated March 24, 1977 nominated and/or appointed in terms of the aforesaid arbitration clause one Mr. R. Sen and requested him to adjudicate upon the dispute. Mr. Sen, the Ld. arbitrator directed the appellant to file the statement of claim by May 26, 1977 and the respondent to file their counter-statement of claim within a period of fortnight from the date of receipt of the said statement of claim. On or about May 23, 1977 the appellant duly filed its statement or claim before the Ld. arbitrator. On or about June 8, 1977 the respondent requested the appellant to furnish certain particulars and to give inspection thereon as the same were absolutely necessary for them to file their counter-statement. Thereupon on June 30, 1977 the appellant acceded to the request for giving particulars and inspection of the documents sought for by the respondent and accordingly on or about July 13, 1977 the Ld. sole arbitrator gave direction for inspection of the documents and further extended time to file their counter-statement of facts by July 19, 1977. By a telegram dated 15-7-77 the respondent unequivocally sought for inspection of the documents on July 16, 1977 and accordingly the representatives of the respondent inspected the said documents on July 16, 1977. In the premises aforesaid, the respondent unequivocally and/or unconditionally submitted to the jurisdiction of the Ld. arbitrator and, as such, they would be estopped and/or precluded from denying the jurisdiction of the said Ld. arbitrator. However, on or about July 22, 1977 the appellant received a letter from the Ld. arbitrator wherein he informed the appellant that the respondent had filed a suit and further alleged that the subject-matter of the arbitration proceeding is covered by a suit filed before the City Civil Court at Calcutta being T.S. No. 1021/77. Therefore, it is now gathered that on or about 20th July, 1977 the respondent in violation of the terms and conditions of the aforesaid contract particularly of the aforesaid arbitration clause instituted before the City Civil Court at Calcutta a suit against the appellant claiming, inter alia, a declaration that no valid and/or binding agreement between the appellant and the respondent was entered into pursuant to the appellant's invitation to tender and praying for a decree directing the appellant to deliver up the respondent's tender document so that the same might be cancelled and for further certain incidental reliefs.
3, The appellant has, thereafter, filed this application u/s. 34 of the Arbitration Act praying for stay of the suit No. 1021/77 u/s. 34 of the Arbitration Act contending, inter alia, that the aforesaid suit was filed when the arbitration proceeding was pending before the Ld. sole arbitrator and after the respondent unequivocally submitted to the jurisdiction of the Ld. arbitrator and sought for inspection of the document on July 5, 1977, that the aforesaid suit was instituted in order to wriggle out from the aforesaid arbitration clause and indeed in violation thereof the said suit was instituted, that at all material times the dispute raised in the suit by and between the parties are well within the ambit of the arbitration clause, that the respondent deliberately made false allegations that there was no valid and binding agreement between the parties with a view to rendering the arbitration clause including the proceeding nugatory and that the appellant was at all material times ready and is still ready and willing to refer the aforesaid dispute to the arbitration and in fact, the appellant had already preferred the claim before the Ld. arbitrator in pursuance of the aforesaid arbitration clause and there is, therefore, no reason as to why the suit being T.S. 1021/77 should not be permanently stayed.
4. The present respondent contested the said application contending, inter alia, that there was no concluded agreement between the parties that the terms of the contract was vague and unenfoceable and that the appellant's letter dated April 19,1974 was by way of a counter-offer which the respondent did not accept and consequently there was no concluded contract and the present suit which was for a declaration that there was no concluded contract between the parties cannot be stayed u/s. 34 of the Arbitration Act.
5. The Ld. Trial Judge by his impugned order came to the finding that there was a concluded contract between the parties but refused to stay the suit on the ground that the instant suit has been filed not in respect of any dispute arising out of the contract but the legality and the validity of the contract itself has been challenged in this suit and undoubtedly the arbitrator cannot decide that question and the sole arbitrator having got no jurisdiction to decide that question the ap-
plication u/s. 34 of the Arbitration Act cannot stand on merits.
6. Being aggrieved the appellant has preferred this appeal contending, inter alia, that the Ld. Trial Judge has come to the finding that there was a concluded contract between the parties and then all disputes between the parties have to be resolved by arbitration in view of the arbitration clause in the contract in which the respondent did not deny and dispute.
7. The respondent contests this appeal while supporting the rejection of the petition u/ s. 34 of the Arbitration Act the respondent does not accept the finding of the Ld. Trial Judge that there was a concluded contract between the parties. It is contended that the language of the letter dated 19th April, 1974 clearly shows that it was a counter-offer in which the respondent was asked to sign the duplicate copy of the letter and to forward the same to the appellant which would indicate that it was a counter-offer which the respondent did not accept by signing the duplicate copy and forwarding the same to the appellant and consequently there was no concluded contract between the parties. It is, therefore, contended that the Ld. Trial Judge has exercised his discretion properly by refusing to stay the suit in which the respondent has specificaly prayed for a declaration that there was no concluded contract between the parties and the Appellate Court should not interfere with such discretion. It is also submitted that as in the meantime the reference has also become invalid as the arbitrator has long become functus officio and as the defendant in his written statement in the suit can very well take the plea that there was concluded contract and may also claim damages as sought to be referred to the arbitrator in terms of the arbitration agreement the Civil Court in the event of accepting the plea of the appellant could very well award him appropriate damages and that the appellant cannot be prejudiced if the suit is allowed to continue.
8. Before us a supplementary affidavit has been filed annexing certain documents in support of the plea that there was no concluded contract between the parties and that the letter dated 15th April, 1974 was nothing but a counter-offer. An Affidavit-in-Opposition has been filed to the supplementary affidavit on behalf of the appellant to challenge the above contention and annexing the general terms and conditions of the tender in question for the sale of scrap materials as per the list attached. It is not disputed by the respondent that the concerned tender floated by the appellant contained some general terms and conditions of the tender and on the tender being accepted and a contract having been concluded in terms thereof any dispute in respect of such contract is liable to be referred to Arbitration in terms of the Arbitration clause already set out in the above. But the main contention between the parties is as to whether there was a concluded contract between the parties or not. It is the case of the appellant that the general terms and conditions of the contract which have been annexed in the Affidavit-in-Opposition to the supplementary affidavit by the respondent would clearly show that as soon as the appellant intimated about the acceptance of the offer of the respondent there was a concluded contract between the parties. It is also submitted that the contention raised by the respondent that when the respondent offered to purchase 14 items of the tender and the appellant purported to accept only 4 items being Serial Nos. 1, 3, 4 and 14 of the tender schedule there was no concluded contract and the letter dated 19th April, 1974 would clearly show that it was a counter-offer which the respondent was to accept by signing the duplicate copy of the letter and forwarding to the same to the appellant and when the respondent did not accept the said counter-offer by signing the duplicate copy, there was no concluded contract between the parties. We have carefully perused the general terms and conditions of the tender in question for the sale of scrap materials as per list attached thereto. Mr. Mullick appearing for the appellant has drawn our attention to the relevant portions of the general terms and conditions of the contract of the tender where the appellant had the absolute discretion either to accept or to reject any tender. He has drawn our attention to Clause 7 which reads as follows:--
"There is no binding whatsoever on the part of the company to accept the highest or any tender. The right to accept or reject any tender either in whole or in part thereof and to withdraw any item or all items declared for disposal, in whole or in part thereof, is reserved. Also, it is left to the company's discretion to divide the job under the contract amongst the tenderers as the company deems it fit".
9. He also draws our attention to Clauses 2 and 4 of the General Terms and Conditions:--
"2. The successful tenderers will be intimated about the acceptance of their offers, under registered post with A/D. On receipt of such intimation and after the contract is awarded the contractors will pay the full value of the stores by cash or by Demand Draft together with the Sales Tax (Provincial) and other leviable duties and taxes, if any, within 5 days and on proof of payment of the full value of the scrap materials, the Sales Department will issue the Delivery Advice and the contractors will be allowed only 30 days time to take complete delivery of the materials, from the date of issue of delivery advice if not otherwise agreed to by the company.
4. Failure on the part of the successful tenderers, to pay the full value of the stores, together with the requisite tax and duties either in whole or in part as may be decided by the company by Demand Draft within 5 days or otherwise agreed to by the company, from the date of receipt of intimation of the acceptance of tender will constitute a breach of contract and the security money shall be liable to be forfeited by the company. Intimation under registered post to the addresses of the successful tenderers, will be sufficient notice for this purpose. In the event of failure on the part of successful tenderers, to deposit the full value of the stores together with the taxes and duties either in whole or in part, the company besides forfeiting the security money, will be free to resale the stores, in the manner the company deems it fit, at the risk and cost of the contractor".
10. He has also drawn our attention to Clause 13 in which the tenderers were given the option to tender for any particular item or part thereof according to their means and choice. It is, therefore, contended that the Ld. Trial Judge was correct in finding that there was a concluded contract between the parties. But according to Mr. Mullick the Ld. Trial Judge after coming to the above finding illegally refused to stay the suit. It is submitted that when the Trial Judge found that there was a concluded contract then the Arbitration clause would come into play and the present suit was liable to be stayed and the parties would have to settle the disputes by Arbitration. It is also submitted that the respondent participated in the Arbitration by submitting to the jurisdiction of the Arbitrator and as a step preliminary to the filing of the counter-statement of the fact obtained inspection of document, but thereafter in violation of the terms of the contract filed the suit which was liable to be stayed permanently.
11. The sheet-anchor of the respondent's case is the letter dated 19th April, 1974, which according to the respondent, was nothing but a counter-offer. It is gathered that the appellant by a phonogram dated 15th April, 1974 accepted the offer of the respondent for items 1, 3, 4 and 14 and directed the respondent to arrange remittance of the full value. The phonogram, however, indicates that the letter used to follow and the phonogram was also issued without prejudice of this tender.
12. The Clause 2 of the general terms and conditions of the contract shows that the successful tenderers will be intimated about the acceptance of their offer by registered post with A/D. and on receipt of such intimation and after the contract is awarded the contractors will pay the full value of the stores by Cash or by Demand Draft together with Sales Tax etc. within five days and on proof of full value of the scrap materials, Sales Department will issue the delivery advice. Clause 4 shows that failure on the part of the successful tenderers to pay the full value would constitute a breach of contract.
13. However, the letter dated 19th April, 1974 indicates that the acceptance letter was being issued in duplicate, one copy of which might be returned to them duly signifying their acceptance of the contents of the letter. The general terms and conditions do not stipulate any such formal acceptance being communicated by signing the duplicate copy. It is contended on behalf of the appellant that it was an idle formality and that the phonogram dated 15th April, 1974 has ciearly signified the acceptance of the offer of the respondent in respect of the four items and the subsequent letter dated 19th April, 1974 was merely a formal letter.
14. But Clause 2 clearly indicates that the acceptance has to be intimated by a letter sent by registered post with A/D. Therefore, the acceptance through phonogram was not acceptance. When the acceptance was to be intimated by registered post with A/D then is the letter be taken on its face value then the respondent has to accept the terms of the acceptance duly signifying their acceptance of the contents of the letter by signing the duplicate copy and sending it to the appellants. It is the case of the respondent that the respondent did not accept the contents of the letter by signing the duplicate copy thereof and sending it to the appellant. So, according to the respondent the terms and conditions of the letter of acceptance sent by the appellant was not accepted by the respondent.
15. We are of the view that it requires a thorough probe by a Court of Law as to whether the letter dated 19th April, 1974 was an idle formality or whether the said letter was a counter-offer which was required to be duly accepted by the respondent by signing duplicate copy thereof and sending the same to the appellant. Therefore, in our view there is a bona fide contention raised by the respondent in the Civil Suit as to whether there was a concluded contract between the parties or not. The Ld. Trial Judge does not appear to have given his attention to this part of the case when he has come to the finding that there was a concluded contract between the parties. It is well-settled that until and unless the parties were ad idem there was no concluded contract between the parties and when a Civil suit has been filed by the respondent alleging that there was no concluded contract between the parties and when we are of the view that such contention requires a thorough probe by a Court of Law then until and unless the Court comes to the finding that there was a concluded contract there could be no reference of dispute to Arbitration. In Waverly Jute Mills v. Ramon & Co., , the Supreme Court has clearly held that the Sine qua non for the jurisdiction of the Court to grant the stay if the existence of the valid arbitration agreement and when the existence of valid arbitration is necessary, then if a contract is illegal and void, an agreement (arbitration) clause contained therein shall also perish along with it and therefore such a dispute as to the validity of the contract is to be decided by the Court and not by the Arbitrator.
16. We are of the view that whether there was a concluded contract or not is itself in dispute before the Court of Law and that requires valid adjudication by a Court of Law then the Civil Court cannot grant stay of the suit and it is for the Civil Court to decide as to whether there is a concluded contract or not.
17. On behalf of the appellant it is contended that the petitioner having participated in the arbitration is estopped from contending that there was no valid arbitration agreement. We find from the record that the respondent wanted inspection of the documents without prejudice to his rights and contentions and immediately on inspection of the documents filed his suit for a declaration that there was no valid contract between the parties. Therefore, it is not a case in which we shall have to hold that the respondent has been estopped from challenging the validity of the contract after participating in the arbitration agreement. The respondent did not file any counter-statement of fact and only asked for inspection of the relevant documents and that too "without prejudice" and immediately after that inspection filed the present suit, so no question of estoppel arises in this case.
18. The appellant before the Arbitrator claimed for damages for breach of contract.
Mr. Roy appearing for the respondent has pointed out that it could claim such damages in the written statement also by way of a counter-claim and even if the present suit is not stayed the appellant will not be prejudiced and the respondent will be prejudiced if the suit filed by the respondent is stayed by the Court. We are of the view that this is a fit case in which the Court should not exercise the discretion to stay the suit in which the very existence of the contract has been challenged and requires proper adjudication by a Court of Law and it is well-settled that such a dispute regarding the existence of the contract is not a matter for adjudication by the Arbitrator.
19. In the result the appeal fails which is dismissed. We would, however, direct both the parties to bear the respective costs of this appeal themselves. No formal decree need be passed. The records be sent down at once.
Manabendra Nath Roy, J.
20. I agree.
21. Later on stay of operation of this judgment is prayed for on behalf of the appellant with a prayer for staying the hearing of the suit for two Weeks.
The prayer is rejected.
22. Appeal dismissed.