Calcutta High Court
M/S. Inspiration Cloths & U vs Yash Traders on 22 December, 2014
Author: I.P.Mukerji
Bench: I.P. Mukerji
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
Present :
THE HON'BLE JUSTICE I.P. MUKERJI
A.P. No. 408 of 2008
M/S. Inspiration Cloths & U
Vs.
Yash Traders
For the petitioner:- Abhijit Chatterjee; senior Adv.
Amitesh Banerjee; Adv.
B. Boral; Adv.
For the respondents:- Samit Talukdar; senior Adv.
Sakya Sen; Adv.
S. Singhania; Adv.
Nilanjana Adhya; Adv.
Heard On:- 04.12.2014, 11.12.2014
Judgement On:- 22.12.2014
I.P. MUKERJI, J.
This is an application under Section 34 of the Arbitration and Conciliation Act, 1996. It is made by M/s Inspiration Clothes & U, a registered partnership firm. It does business from 32, Shakespeare Sarani, Kolkata- 700017. They want an arbitral award dated 14th March, 2008 published by the Bharat Merchants' Chamber, Mumbai to be set aside.
By the award the petitioner was directed to pay to the respondent Rs.11,35,026.95 as principal, Rs.15,42,862 as interest and Rs.3000 as arbitration cost, all aggregating to Rs.26,80,888 within 15 days of publication of the award. If there was default the petitioner would have to pay additional interest at the rate of Rs.1.50 per cent per month on the awarded amount till the date of making the payment. The arbitral tribunal comprised of two arbitrators and one presiding arbitrator. It was a unanimous award.
Two things are most important. The petitioner never appeared before the tribunal. Secondly, the award is without any reasons whatsoever. I will set out the material part of it:-
24. "On perusal of the relevant documents in connection with the dispute produced by Plaintiffs and Defendants we have concluded that the Defendants are liable to pay by the Plaintiffs a sum of Rs.
11,35,026.95 being principal due on the account of Plaintiffs.
25. The Defendants are also liable to pay in the Plaintiff a sum of Rs.15,42,862.05 for the year wise interest at the rate of 18% p.a. up to 14.3.2008, thus aggregating to Rs.26,77,889/-.
26. However remaining claims does not pertain to Plaintiff's firm but to their sister firm, which cannot be included in this Arbitration. These claims can be adjudicated by the respective firm/company by launching separate proceeding but not under this Arbitration, hence the remaining amounts are separated from this reference.
27. In view of the facts, the Defendants are hereby directed to: "PAY TO THE PLAINTIFFS THE SUM OF RS.11,35,026.95 BEING THE PRINCIPAL DUE, AND RS.15,42,862.05 BY WAY OF INTEREST AND RS.3,000.00 ARBITRATION COST" aggregating to Rs.26,80,889.00 within a period of 15 days from the date of this Award.
28. We also Award that if the Defendants do not pay the aforesaid amount to Plaintiffs within a specified period they will pay separately to Plaintiffs the additional interest @ Rs.1.50% per month on the Awarded amount till date if making the payment". Under the new Act of 1996, the beneficiary of an award has an uphill task of justifying it when it is both ex parte and without reasons.
At this point of time a short background of the case is necessary. The respondent allegedly sold fabrics to the petitioner between 1999 and 2004, through one Mr. Yogi Agarwal. They raised invoices upon the petitioner. These invoices were allegedly signed by Mr. Yogi Agarwal and contained an arbitration clause for resolution of any dispute that might arise between the parties by the Bharat Merchants' Chamber, Mumbai. On 19th August 2003, Mr. Yogi Agarwal the respondent issued a notice to the petitioner, invoking the alleged arbitration clause and asking for an arbitration reference to adjudicate upon their claim for Rs.26,93,813.36.
Meanwhile, the petitioner filed a civil suit in the learned City Civil Court at Calcutta (T.S. No. 397 of 2003) against Ardy International Pvt. Ltd. and Yogi Agarwal as sole proprietor of Yash Traders praying for a decree of a sum of Rs.9,48,143,45. Incidentally, it may be stated that Yogi Agarwal is a Director of Ardy International Pvt. Ltd.
On or about 11th October 2003 the respondent filed a formal claim with the said Chamber for Rs.29,82,090.16 with future interest.
On 13th October 2003, Bharat Merchants' Chamber directed the petitioner, in a notice to file their counter-statement.
At or about the same time, the petitioner filed an application for injunction under Order XXXIX rules 1 and 2 of the Code of Civil Procedure in the said suit before the learned City Civil Court praying for stay of the arbitration proceeding.
On 21st October 2003 the petitioner wrote to the Chamber denying the existence of an arbitration clause which was replied to, by the respondent on 3rd November 2003. It might also be mentioned that the petitioner mentioned in their letter dated 21st October 2003 that the question of existence of the arbitration clause was subjudice, before the learned City Civil Court.
In the petitioner's application the learned City Civil Court did not pass any interim order. The petitioner moved this court by way of an appeal of which they informed the Arbitral Tribunal by their letter dated 6th February 2004. The respondent argued that since there was no stay of arbitration the existence of the arbitration agreement was to be decided by the learned arbitrator.
On 8th March 2004 this High Court in the appeal filed by the petitioner (FMAT No.339), passed an order directing the learned City Civil Court to dispose of the application for injunction filed by the petitioner treating the same as the application under Section 8 of the Arbitration and Conciliation Act, 1996.
On 30th April 2004, the learned City Civil Court dismissed the petitioner's application holding that there was a valid arbitration agreement.
The petitioner filed an appeal in this court. On 2nd December 2004, this court passed an order in the appeal setting aside the order dated 30th April 2004 holding that there was no arbitration agreement.
The respondent filed a special Leave Petition before the Supreme Court (SLP No. 3040 of 2005). On 8th December 2005 the Supreme Court disposed of the special Leave Petition and the appeal by setting aside the order dated 2nd December 2004 and asking the respondent to file a Section 8 application before the learned City Civil Court.
On 25th January 2006 the learned City Civil Court rejected the Section 8 application of the respondent.
The respondent preferred an appeal under Article 227 of the Constitution of India before this High Court. On 29th November 2007 this High Court dismissed that application. This order was affirmed by the judgment and order of the Supreme Court made on 1st December 2008.
The Supreme Court held on 1st December, 2008 that the three documents which were the foundation of the suit did not contain an arbitration clause. Hence, the Section 8 application had to be dismissed and was rightly dismissed by the learned City Civil Court and upheld by this Court in its Article 227 jurisdiction. The Supreme Court further held that the invoices on the basis of which the arbitration reference was commenced were different from those in the suit.
The Supreme Court held the following:
7. "The fundamental lacuna in the claim of the defendants for reference to arbitration is the absence of an arbitration agreement between the parties, in regard to the suit transactions. The three invoices containing a provision for arbitration relied upon by the petitioner (the second defendant), do not relate to the suit transactions at all. The plaintiff, as noticed above, filed a suit for recovery of the amounts allegedly due in regard to some samples supplied by him to the defendants and certain supplies made to the nominees of the first defendant company.
9. When a defendant invokes Section 8 of the Act by alleging existence of an arbitration agreement, he should establish that such arbitration agreement related to, or is applicable to, the suit transaction/contract. The parties may enter into different contracts at different points of time or may enter into a series of unrelated transactions. It is possible that in regard to some, they may provide for arbitration and in regard to others, may not provide for arbitration. Obviously, the existence of an arbitration agreement with reference to some other transaction/contract to which the plaintiff was or is a party, unconnected with the transactions or contracts to which a suit relates, cannot be considered as existence of an "arbitration agreement" in regard to the suit transactions/contracts.
11. In this case, neither of the two conditions was satisfied. Firstly, the suit related to the transactions said to have taken place between the plaintiff and the first defendant company and its two Directors, whereas the documents put forth as containing the arbitration agreement related to some transactions between a propriety concern of the second defendant and the plaintiff. Secondly, the provision for arbitration is not contained in any contract or document relating to the suit transactions, but contained in documents relating to some unconnected independent transactions". (See (2009) 1 SCC 372).
It was sought to be contended by the petitioner that the documents which were the foundation of the suit and the arbitration were identical and that by that analogy the Supreme Court while holding that the documents of the suit did not contain an arbitration clause also held that the documents on which arbitration was commenced did not contain an arbitration clause. This is plainly fallacious. On a reading of the Supreme Court judgment it is plain that the court identified two sets of documents, one set being the subject matter of the suit and the other set being the subject matter of arbitration. It held that the set which was the foundation of the suit did not contain an arbitration clause and hence the suit was maintainable and the Section 8 application liable to be dismissed. It did not say for a moment that the documents of the suit and the arbitration was identical. In fact, it held the contrary.
Nevertheless, neither did the Supreme Court decide whether the documents on which arbitration was started, contained a valid arbitration clause, as sought to be contended by the respondent. To take the Supreme Court judgment to that point would be stretching it beyond all limits.
It appears from the recitals in the award that the arbitral tribunal was aware of the stand of the petitioner that there was no arbitration agreement with regard to the disputes between the parties. In paragraph 3 of the Award it is recorded that the petitioner informed the tribunal of a money suit that had been filed by them before the learned City Civil Court at Calcutta, allegedly on the subject matter of the arbitration reference. Furthermore, it is recorded in paragraph 5 of the Award that the petitioner did not appoint their arbitrator.
Let us assume that the Supreme Court did not decide whether there was an arbitration agreement governing the subject reference. The Award was made on 14th March, 2008. The decision of the Supreme Court was made on 1st December, 2008. Whether the invoices which were the subject matter of the suit were the same as the invoices which were the subject matter of the Arbitration Agreement was not established and was subjudice either directly or indirectly. In those circumstances, the Arbitral Tribunal should have waited for the outcome of the case.
The petitioner did not appear before the Arbitral Tribunal, it challenged the jurisdiction of the Arbitral Tribunal by correspondence. They contended that the Arbitral Tribunal had no jurisdiction because there was no arbitration clause in the agreement between the parties. The Arbitral Tribunal took this is an objection under Section 16 of the Arbitration and Conciliation Act, 1996 and pronounced its ruling on 17th September, 2004. It held that there was a valid arbitration clause. Thereafter, it went and made on published the Award which is challenged in this court.
The Section 16 plea, raised on behalf of the petitioner was not considered properly by the Arbitral Tribunal. The plea of the petitioner was that there was no Arbitration Agreement. What constitutes a valid Arbitration Agreement is contained in Section 7 of the Arbitration and Conciliation Act, 1996? Section 7 is set out below:-
"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-
(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".
According to the respondent the Arbitration Agreement was contained in the bills or invoices raised by the respondent on the petitioner. The bills stated "All disputes pertaining to this transaction if any will be the subject to the arbitral Rules and Regulations of Bharat Merchants' Chamber".
On a consideration of the aforesaid document it seems that according to the respondent the above bills were received by the petitioner and acted up by them. So they constituted a valid Arbitration Agreement between the parties.
Did this document constitute a valid arbitration agreement between the parties?
According to Section 7 an arbitration agreement has to be in writing. It is said to be in writing in three circumstances stipulated in Section 7 (4) of the Arbitration and Conciliation Act, 1996. The first is if the document is signed by the parties. Secondly, if there is an exchange of documents to show a record of the agreement. Thirdly, when the agreement is pleaded in the statement of claim and not denied by the respondent.
Admittedly, the bills or invoices were not signed or executed by the petitioner. Neither did they confirm the existence of the arbitration agreement in their statement of defence.
Now, the question arises whether there was an exchange of documents to show formation of the agreement.
I am afraid, not. The respondent unilaterally wrote on the bills that all disputes would be subject to the arbitration rules of Bharat Merchants' Chamber. There is no exchange of documents on the part of the petitioner to show acceptance of this term or clause. What is provided in Section 7 is an express acceptance of the arbitration agreement by means of telecommunication or by traditional methods of communication like letters, telex and telegrams. There is no such exchange between the parties to show acceptance of the arbitration clause by the petitioner. Acceptance of the bills by the petitioner will not do as it is not part of the method of communication expressed in 7(4)(b). Any act to show acquiescence will not do unless it is communication of the type mentioned in 7(4)(b).
Therefore, in my considered opinion the tribunal made a very erroneous decision under Section 16 of the Act. Such a decision is liable to be challenged under Section 34 as provided in Section 16 (6) of the Act. For this reason the subsequent Award becomes bad, is liable to be set aside..
It appears that the last date of the reference was fixed on 14th March, 2008. It is most interesting to read paragraph 23 of the Award which is set out hereunder:-
"The Arbitral Tribunal fixed the last meeting of the Arbitration reference on 14.3.2008 and by letter dated 25.2.2008 informed the parties that the reference will be closed on 14.3.2008. The notices were sent to both the parties, however the registered packet sent to Defendant has been received back from postal authorities with the remarks "Intimation served, 6.3.2008, not claimed".
The Arbitral Tribunal held the last meeting on 14.3.2008 in which meeting Plaintiff was present and Defendant remained absent. After hearing the parties present and on perusal of all the documents the Arbitral Tribunal closed the reference and decided to make and publish their Award".
Nothing has been shown by the respondent to prove that the notice of the last meeting of Arbitral Tribunal on 14th March, 2008 was received by the petitioner before the meeting. According to, Mr, Banerjee learned counsel for the petitioner this notice was received after conclusion of the reference, on 7th April 2008. Therefore, the Arbitral Award is vitiated under Section 34 (2) (a) (iii) of the said Act.
There is not a line of reason to support the Award. It is said on behalf of the respondent that the rules of the Bharat Merchants' Chamber which were made in 2006 did not enjoin the Arbitral Tribunal to give reasons. This kind of a rule was there prior to 2006. On the other hand, it is argued on behalf of the petitioner that the invoices are between 1991 and 2001. The rules of 2006 have no application. The Arbitral Tribunal was required to give reasons.
In my opinion, the Arbitral Tribunal was required to give reasons. . The language of Section 31(3)(a) of the Arbitration and Conciliation Act, 1996 is clear that reasons have to be given by the arbitrators, unless giving of reasons is waived by the parties. This waiver in my opinion has to be done by an express Act. The rules of a body cannot exempt an arbitrator from giving reasons, unless those rules are expressly accepted by the parties. Here there is nothing to show that any rule of Bharat Merchants' Chamber not requiring the arbitrator to give reasons, was expressly accepted by the petitioner. The invoices were signed by the respondent only.
Hence, the Arbitral award is bad for complete lack of reasons For all the above reasons the Award dated 14th March 2008 is set aside. This application is allowed in terms of Prayer (a) of the petition.
Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(I.P.Mukerji, J.)