Calcutta High Court
Skipper Steels Limited vs The Oriental Bank Of Commerce & Anr on 2 July, 2010
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
GA No. 3933 of 2007
GA NO. 1542 OF 2008
GA NO. 1895 OF 2008
CS No. 254 of 2007
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
SKIPPER STEELS LIMITED
Versus
THE ORIENTAL BANK OF COMMERCE & ANR.
BEFORE:
The Hon'ble JUSTICE SANJIB BANERJEE
Date : 2nd July, 2010.
Appearance:
Mr. Abhrajit Mitra, Adv.
Mr. J. Chowdhury, Adv.
Ms. Rajshree Kajaria, Adv.
Mr. Dinesh Chandra Roy, Adv.
Mr. Dhruba Mukherjee, Adv.
The Court : The suit is one claiming an injunction in respect of a bank guarantee furnished by the first defendant in favour of the second defendant beneficiary at the behest of the plaintiff. The plaintiff says that the bank guarantee is conditional and that not only 2 had the second defendant attempted to fraudulently invoke it, the condition precedent to the invocation thereof had not been complied with.
The second defendant has applied, by way of GA No.1895 of 2008, for a reference of the disputes being the subject-matter of the suit to arbitration. The second defendant says that Clause 43 of the general conditions of the contract that formed part of the tender documents includes an arbitration clause which provides as follows:
"20.1 In the event of any question, dispute or difference arising under this agreement or in connection there - with except as to matters, the decision to which is specifically provided under this agreement, the same shall be referred to the sole arbitration of the CGM Karnataka Circle, Bangalore-08, or in case his designation is changed or his office is abolished, then in such case to the sole arbitration of the officer for the time being entrusted (whether in addition to his own duties or otherwise) with the functions of the CGM, Karnataka Circle, Bangalore-08, or by whatever designation such an officer may be called (hereinafter referred to as the said officer), and if the CGM or the said officer is unable or unwilling to act as such, then to sole arbitration or some other person appointed by the CGM or the said officer. The agreement to appoint an arbitrator will be in accordance with the Arbitration and Conciliation Act, 3 1996. There will be no objection to any such appointment on the ground that the arbitrator is Government Servant or that he has to deal with the matter to which the agreement relates or that in the course of his duties as a Government Servant he has expressed his views on all or any of the matters in dispute. The award of the arbitrator shall be final and binding on the parties to the agreement. In the event of such an arbitrator to whom the matter is originally referred, being transferred or vacating his office or being unable to act for any reason whatsoever, such CGM or the said officer shall appoint another person to act as an arbitrator in accordance with terms of the agreement and the person so appointed shall be entitled to proceed from the stage at which it was left out by his predecessors."
The second defendant contends that since the bank guarantee was furnished in connection with the plaintiff's obligation to furnish the performance guarantee, the expression "dispute or difference arising under this agreement" contained in the arbitration clause is wide enough to incorporate the subject-matter of the present proceedings. The second defendant says that the bank guarantee was required to be furnished in accordance with the tender terms and notwithstanding the bank guarantee being an independent transaction between the banker and the beneficiary, it was something which was 4 done pursuant to the tender terms and was capable of being brought within the fold of the expression "under this agreement" contained in the arbitration clause.
The second defendant submits that under Section 8 of the Arbitration and Conciliation Act, 1996, the Court has no choice in the matter and once an arbitration agreement is cited the Court has to allow the subject-matter of the suit to be carried to a reference. The second defendant relies on the judgments reported at (2006) 7 SCC 275; (2003) 6 SCC 503 and (2006) 1 SCC 417 for the proposition that the Section mandates that the Court shall refer the disputes to arbitration and that implies that the suit cannot be proceeded with or be adjudicated in the court any further.
The plaintiff says that the plaint would reveal that the plaintiff has an independent cause of action against the bank in the bank failing to discharge the duty of care owed to the plaintiff at whose behest the bank guarantee had been furnished. The plaintiff contends that even if the bank guarantee was in pursuance of the performance guarantee clause contained in the tender documents, the bank had an independent obligation to the plaintiff, de hors the tender terms, for which the bank has been impleaded in the present suit and the cause of action against the second defendant is so intricately connected with 5 the cause of action against the bank, that the matters covered by the arbitration agreement - if there is any at all - cannot be dissected from the cause of action against the bank.
The plaintiff says that, even more fundamentally, there is no arbitration agreement between the parties. The plaintiff refers to the third paragraph of its affidavit used in opposition to the second defendant's petition under Section 8 of the said Act. The plaintiff says that there is no concluded contract between the parties. The plaintiff refers to clauses 1(e) and 1(f) of the tender terms that envisage the issuance of an advance purchase order and of a subsequent purchase order; and, of the contract between the parties coming into effect upon the issuance of the purchase order. The plaintiff says that there is no assertion in the petition filed by the second defendant that any purchase order was issued and, in fact, only the advance purchase order had been sought to be issued. The plaintiff relies on Clauses 27.1, 27.2 and 28.1 of the tender documents to suggest that there is no concluded contract.
The plaintiff says that the arbitration clause is contained in the general conditions of contract. The opening clause of the general conditions of the contract stipulates as follows:
"1. APPLICATION:6
The General Conditions shall apply in contracts made by the Purchaser for the procurement of Goods."
The plaintiff refers to a judgment reported at (2000) 6 SCC 861 for the principle that a letter of intent is not a concluded contract and it merely records the intention of the parties to enter into a contract. On a parity of reasoning, the plaintiff says that since there is no concluded contract in the instant case, as no purchase order had been issued, the general conditions of contract did not come into play. It is the plaintiff's submission that if the general conditions of the contract did not come into operation there is no question of the arbitration clause contained therein being effective.
The second defendant retorts by saying that a number of the clauses contained in the general conditions apply both to the stage prior to the issuance of the advance purchase order and prior to the issuance of the purchase order. The second defendant suggests that even if an arguable case is made out in support of an arbitration agreement, in view of Section 16 of the 1996 Act, the arbitral tribunal has exclusive authority to adjudicate upon its jurisdiction. The second defendant submits that the Court should permit the reference and leave the parties to have such matters adjudicated in the reference. 7
The opening clause of the general conditions of contract makes it abundantly clear that such general conditions would come into operation upon there being a contract between the parties. The fact that the general conditions were appended to the tender form as part of the tender documents was merely to make the offeror aware of the terms and conditions that the offeror would ultimately be bound by and the general conditions cannot be invoked at a stage where the contract between the parties has not been executed or concluded. There is no denial, at least in the hearing on behalf of the second defendant, to the assertion on behalf of the plaintiff that no purchase order had at all been issued. On the contrary, the advance purchase order which has been issued by the second defendant to the plaintiff is cited on behalf of the second defendant for the purpose of demonstrating that there was substantial transaction contemplated by such advance purchase order.
Even in the Dresser Rand judgment cited by the plaintiff, a similar situation had arisen and the Supreme Court was required to express an opinion as to whether the fact that the bid papers contained a document which included an arbitration clause, made the arbitration clause applicable prior to the parties executing a contract. In similar circumstances, the Supreme Court concluded that merely 8 because the general terms had been appended to the tender documents would not imply that the general terms would come into operation prior to the contract being concluded. Though the second defendant says that the Dresser Rand judgment was rendered in the context of an international arbitration agreement, the proposition of law for which it has been cited applies squarely in the present case.
The arbitration agreement that the second defendant has attempted to set up had not come into effect since there was no concluded agreement between the parties.
GA No.1895 of 2008 is dismissed. There will be no order as to costs.
GA No.3933 of 2007 and GA No.1542 of 2008 will appear in the monthly list of July, 2010.
Urgent certified photocopies of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(SANJIB BANERJEE, J.) kc.
A.R(C.R)