Calcutta High Court
Raymond Woolen Mills Ltd. vs Coal India Limited & Anr. on 19 November, 1997
Equivalent citations: (1998)1CALLT382(HC), 1998(1)CHN53, [1998(79)FLR581]
Author: Umesh Chandra Banerjee
Bench: Umesh Chandra Banerjee
JUDGMENT S. Narayan, J.
1. For an easy and early resolve of a dispute arising out of a commercial deal, it is now mostly preferred to go for an arbitration proceeding, of course, only in the event of failure by way of mutual consultation. There is thus an arbitration clause necessarily appended to an agreement pertaining to commercial dealings. Even though such a clause is purposely resorted to promote an element of trust between the parties and also to ward of legal strategy, a controversy is often raised before a court of law to construe a deed of agreement and to interprete the arbitration clause therein. In the instant case as well, the parties have joined Issue whether the arbitration clause of an admitted agreement was enforceable by an entity, who though not being a signatory to the agreement, had an involvement and also felt aggrieved.
2. Upon a dispute having arisen with regard to the quality of supply of coal and the co-related payment/refund of the price thereof, the appellant-purchaser, Raymond Woolen Mills Ltd., moved an application under section 20 of the Arbitration Act, 1940 to enforce the arbitration clause of an agreement. This was objected to by the respondent-supplier, Coal India Ltd., and its subsidiary, South Eastern Coalfield Ltd., before the learned single bench of this court, who, by the impugned order dated April 11, 1996, upheld the stand taken by the respondents and dismissed the application while observing that the appellant being the Individual purchaser--member of the Cement Manufacturers' Association had no right to enforce the arbitration clause, rather tt (the appellant) should approach the said Association to seek redressal of the dispute through arbitration It may be added here that the Agreement-in-question being dated January 1, 1985 was recorded apparently only between the respondent. Coal India Ltd. and the Cement Manufacturers' Association. The appellant individually was not a direct party or signatory to the Agreement deed.
3. For convenience's sake, it seems necessary to unfold some more materials on the factual matrix of the case. The respondent, Coal India Ltd. (CIL in short) being a country-wide undertaking of the Union Government of India was under contractual obligation to supply coal to the different cement manufacturing works or entitles on certain commercial terms of purchase. The appellant, Raymond Woolen Mills Ltd. having its Division as Raymond Cement Works was one of such purchasers. Such purchasers, all being 25 in numbers as cement manufacturers had constituted a body known as Cement Manufacturers' Association. As per the commercial terms of supply, the payments for coal supplies were to be made by the Cement companies Individually; and such payments were to be regulated by the results of joint sampling and analysis. To that effect there was an agreement as per the Agreement deed dated January I, 1985 (referred to above), vide clause 3 : 12 of the deed.
4. Admittedly, the appellant was not a direct party to the deed but its name as Raymond Cement Works did appear at SL. No. 16 of the annexure to the deed, containing list of cement companies, who had authorised the Association to undertake Joint sampling and analysis of coal on their behalf.
5. The Agreement Incorporated an arbitration clause being clause No. 5, which may be extracted as below :--
"ARBITRATION CLAUSE :
Any dispute arising out of the provisions or Interpretation of this agreement will be settled by mutual consultation In the unlikely event of any dispute between the purchaser and the supplier not finding a mutual solution the same shall be referred to the sole arbitration of a person jointly appointed by the President of the Association and the Chairman, Coal India, whose decision/award in the matter shall be final and binding on the parties. The provisions of the Arbitration Act, 1940, with its statutory notification Issued from time to time shall be applicable to such reference."
6. Be it also mentioned with emphasis on factual score that the validity of the aforesaid arbitration clause as also the capacity of the Association to enforce the same has not at all been challenged by the respondent CIL. The impugned order also is candid on the point with approval that the appellant should, instead of any direct move, approach the Association to enforce the arbitration clause against the respondents. To put in other words the actual involvement of the appellant and its interest in the matter has rather been affirmed in the order of the learned trial court. And, the respondent--CIL or its subsidiary (respondent No. 2) has not opted any cross-objection and the procedure, suggested, stands at rest. This, in fact, was clear indicative of the respondent's objection merely being technical as to who could actually initiate the enforcement of the arbitration. Here, it would be also pertinent to note that there was no manner of conflict or clash of interest inter se between the appellant and its Association.
7 In the above back drop, a question was thus posed for answer of this court with regard to the legal capacity of the appellant to enforce the arbitration under section 20 of the Arbitration Act, 1940.
8. Mr. S. N. Mukherjee, learned counsel appearing for the appellant placed the main thrust on the point that the Association has no capacity other than to act as an agent of the appellant under the deed of Agreement and it was the appellant being the principal, who was the real beneficiary of the agreement; and therefore In that capacity, it was a deemed party to the agreement and had also a legal right to enforce the agreement.
9. First, our attention was drawn to the preamble of the Agreement Itself which runs as follows :--
"PREAMBLE This contract is made this First day of January nineteen eighty five between COAL INDIA LIMITED, a company registered under the Companies Act. 1956, and having Its registered office at 10, Netaji Subhas Road, Calcutta 700 001, hereinafter called the "Supplier" (which term shall unless excluded by or repugnant to the subject or context include its heirs, legal representatives and successors) of the ONE PART and the CEMENT ASSOCIATION hereinafter called "Association" (which term shall unless excluded by or repugnant to the subject or context, Include its heirs, legal representatives, successors) of the OTHER PART, representing the Cement Plants hereinafter called "the purchaser" which term shall unless excluded by or repugnant to the subject or context, include its heirs, successors, legal representatives."
10. Obviously, it was an agreement involving the interest of two parties, better termed as The "Supplier" and the "purchaser". Whereas the supplier was the respondent-CIL, one of the purchasers was the Raymond Cement Works (mentioned at Sl. No. 16 of the annexure to the Agreement), being a Division of the appellant. Raymond Woolen Mills Ltd. Explicit as it was in the preamble is that the Association was a represent the Cement Plants i.e., the Cement Manufacturers, who, in fact, had constituted and authorised the Association to act as such. Was there any other capacity of the Association to act independently? Possibly, the plain reading of the Agreement on the whole was to depict only the representative character of the Association, acting for and in the interest of its members. And as noted above in the factual matrix and also determined in the Impugned order there was no clash of Interest between the Association and Its member and, accordingly, the appellant should approach the Association to enforce the arbitration. In any view of the matter, it was not certainly an admitted position on the record that the Association was the representative of the appellant and 11 had been authorised by the appellant to undertake joint sampling and analysis of coal on its behalf.
11. Here, Mr. Mukherjee, counsel for the appellant has turned our attention to the definitions of the words, "Agent" and "Act of representatlng another", which, in our considered opinion, would certainly establish in the contextual facts that the Association was just an agent of the appellant to represent it as per authority granted and referred to in terms of the Agreement on the record. The definitions of the words, Agent and Act of representing another as contained the Black's Law Dictionary are as follows :
"Agent :--A person authorised by another (principal) to act for or in place of him: One who represents and acts for another under the contract or relation on agency."
"Act of representing another :--To represent a person is to stand in his place to speak or act with authority on behalf of such person."
12. Hence, there was no manner of doubt that the Association was to act as an agent of the appellant in the matter of the Agreement. And in fact, the Association did function like that. It may be mentioned here that upon the dispute having arisen, the appellant, by a letter dated August 9, 1994, asked the Association and the CIL to enforce the Arbitration clause of the Agreement and, in response thereto, the Association, in its turn, acted accordingly and wrote a letter dated August 30, 1994 to the CIL suggesting the names of the arbitrator to be appointed to adjudicate the dispute between the parties. What more could be expected of an agent? The Association did act to the tune of its Principal i.e. the appellant.
13. Having determined the role of the Association as that of an agent, we would also record our concurrence to the submission of Mr. Mukherjee that in accordance with the provision of law under section 320 of the Indian Contract Act, 1872, the Association being an agent of the appellant could not personally enforce contract entered into by it on behalf of the principal in absence of any contract to that effect. The Association was thus not lawfully entitled to invoke or enforce the arbitration agreement by initiating proceeding under section 20 of the Arbitration Act, 1940. In this view of the matter, it was only for the appellant being the Principal to make an application under section 20 of the said Act.
14. Possibly, banking upon the doctrine of privity it was urged on behalf of the respondent that since the appellant was not a party direct to the Agreement in question, it had no right to enforce it, Mr. P.C. Sen, learned counsel for the respondent, while harping on the point, also pointed out a clause at para 3.2 of the Agreement, which somewhat appears to be an ouster clause, running as follows :--
"3.2--Coal India shall not entertain any complaints or correspondence from individual purchaser but only from the Association In respect of joint sampling and analysis."
15. First, the above clause apparently does not however mean that the appellant being an individual purchaser was not entitled to initiate or enforce the arbitration clause. So far as the complaint or correspondence was concerned, we have noticed above that the appellant wrote a letter of complaint dated August 9, 1994 to the Association and, thereupon, the Association addressed a letter dated August 30, 1994 to the respondent, CIL. The so-called ouster clause was thus of no avail to the respondent and it, in no view of the matter, takes away the legal right of a principal so, as to vest exclusive power to an agent.
16. Secondly, it would be apt to refer to paras 335 and 336 of Halsbury's Law of England (4th Edition), volume 9 :--
"Exceptions to the Doctrine of Privity 335. General. The doctrine of privily of contract outlined above is subject to very many exceptions, actual or apparent, at common law, in equity or by statute."
"336. Common Law exceptions. Partly for reasons of expediency, even the common law was forced to accept a number of real or apparent exceptions to the doctrine of privity :
Agency. The relationship of agency arises when A (the principal) authorises B (the agent) to act on his behalf in making a contract with C(the third party). Amongst the legal consequences of the agency relationship between A and B are the following : The general rule is that B is neither liable under nor entitled to enforce a contract he makes on behalf of A. Whereas there is a direct contractual relationship between A and C; but exceptionally B may be liable or entitled under that contract because he contracts personally, or as co-principal, or acts for a principal who is undisclosed, unnamed or non-existent. Even if it be only an apparent exception to the doctrine of privily where B, by acting within his actual authority, binds A to a contract with C, there is a real exception where B does so notwithstanding that his act is unauthorised or where A becomes a party to a contract by reason of the doctrines of ratification undisclosed principal or agency by necessity. The principles relating to agency have also been used to explain how the benefit of an exemption clause in a bill of lading might be extended to cover all who assist in the transportation process."
17. Almost on the above line of thought, our attention was drawn, on behalf of the appellant, also to a decision of the High Court of Australia in the case of Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd., reported in 1989 Law Reports of the Commonwealth (Comm. L.R).l. It was held therein as follows :--
"The long established rule that a contract could be enforced only by the parties to that contract had caused considerable injustice and Inconvenience in the context of contracts of liability insurance. The existence of the privity rule had provoked criticism by judges, academics and law reforms agencies alike and in some jurisdictions statutory abrogation of the rule had occurred It would be unjust in the present case to apply the rule and preclude the respondent from enforcing the policy of insurance."
18. We would, most certainly, record our concurrence to the view as approved above. The Doctrine of Privity has thus no manner of application in the Instant case and, in any view of the matter, we would not recommend the doctrine to be taken recourse to by the respondents in the given facts of this case.
19. There was yet another approach of the matter. This is by way of determining the propriety as to who ought to Initiate or enforce the arbitration.
20. Whosoever may be a party to a contract, a pertinent question always remains there as to who is in fact the beneficiary under the contract. There may be Instances of some such contracts or agreements in which the beneficiary is someone other than the actual participants thereof If the Interest of the actual beneficiary of the contract is not safeguarded and is left to the risk of technical aspect of the matter, the whole purpose of the contract would be frustrated. Hence, in order to secure the interest of Justice or to subserve the real purpose behind the contract, it is but natural for any court of law to always take care of the Interest of the beneficiary to the contract, of course, only when the contract is not determined to be void or voidable ab initio or voidable at the option of the eilher party. In the instant case, we find that though it was the Cement Manufacturers' Association, who entered into contract with the respondent/CIL the tenet and the real purport of the contract was to safeguard the interest of each individual member of the Association against joint sampling of the supply of coal made by the respondent/CIL. To put in other words, the Cement Manufacturers1 Association had no Independent or individual interest of its own excepting that of Its members. It may be pointed out without risk of repeatation that the Association had, in fact, acted to prosecute the cause of arbitration by writing letters to the respondent/CIL on the request of its member i.e. the appellant. Therefore, we would prefer to record in no uncertain terms that the appellant was the actual beneficiary under the Agreement dated January 1, 1994 and, accordingly, it as for the appellant to enforce the arbitration clause of the said Agreement.
21. The above view as taken recourse by us in the instant cause finds credence in abundance by the ratio of decision of a Bench of this court in the case of Khirod Behari Dutt v. Mann Gobind and Ors. reported in AIR 1934. Calcutta 682. In nutshell, the ratio of the decision determined that though ordinarily only a person who is a party to the contract can sue on it but where a contract fs made for the benefit of another person there may be an equity in favour of that person to sue upon the contract It was further approved therein that the equity rule was that the party to whose use or for whose benefit the contract had been entered into, has a remedy in equity against the person with whom it was expressed to be made,
22. We, further, feel inclined to refer to a decision of the Delhi High Court in the case of M/s Indian Mutual General Insurance Society Ltd. v. M/s Himalaya Finance and Construction Company and anr., , wherein the ratio decided speaks that the owners of the vehicle, who really have a legal interest in the property, could very easily come within the definition of beneficiary under an insurance policy and, therefore, such owner though not being a party to the insurance policy can enforce such policy entered into between the hierer and the insurance company. Possibly, this was to safeguard the Interest of the real beneficiary in the event of a party, Joining the contract on behalf of the beneficiary, neglects the contract.
23. Thus, banking upon the decisions as referred to above, we are of the considered opinion that in the instant case, the appellant being the real beneficiary of the contract (the, Manufacturers' Association being its agent) had a legal right to enforce to enter the Agreement-in-question and thereby to Initiate an arbitration proceeding in terms of the arbitration clause contained in the Agreement,
24. Before we conclude a technical aspect of the matter regarding averment in the plaint needs clarification.
25. Mr, Sen has strenuously urged that while as per the agreement-in-question it was Raymond Cement Works on whose behalf the Cement Manufacturers' Association had entered into the contract with his client i.e. the respondent--CIL, the present appellant brought the suit in its name as Raymond Woolen Mills Ltd. and not as Raymond Cement Works. We would, however, dispel this technical aspect by reason of the fact that the Raymond Cement Works was a division of the Raymond Woolen Mills Ltd, as it would be apparently borne out on the records. In this respect, it would not be out of place to point out certain factual aspects on the record. This was that the respondents have practically accepted that the agreement dated 1.1.1985 was applicable to the member-cement companies of the Cement Manufacturers' Association and was also binding upon the CIL and its subsidiary companies. This would be evident from the averments made in paragraph 3-6 of an application made by the respondent CIL under section 5 and 11 of the Arbitration Act. 1940. In this regard, furthermore, it was noticeable that the respondent No.2, South Eastern Coal Fields Limited communicated directly with the appellant with recognition of Raymond Cement Works as division of Raymond Woolen Mills Ltd., vide letter dated Sept. 16. 1993 and Nov. 12, 1993.
26. Yet another point raised on behalf of the respondent was that Cement Manufacturers' Association in itself was not made a parly to the suit before the learned single bench. True, it was that the Cement Manufacturers' Association has not been made a party but for the self same reasons as noticed in the proceeding paragraph, this sort of technical objection was, tn our opinion, not entertalnable in the instant appeal. No such defect of parly was raised so as to avoid the enforcement of arbitration clause before the learned trial court.
27. For the reasons, aforesaid, we are unable to find ourselves in agreement with the decision taken by the learned single Judge. The appeal is thus allowed and the Impugned order is set aside. Application of the appellant under section 20 of the Arbitration Act, 1940 is allowed so as to call upon the respondent to file the agreement and, thereupon, to refer the dispute to the arbitrator in terms of the Agreement dated January 1, 1985, There shall be thus an order in terms of prayer (c) of the Application dated 16.3.1995 under section 20 of the Arbitration Act, 1940. There shall be, however, no further order as to costs.
Prayer for stay made but refused.
Xerox certified copy of this Judgment be made available to the parties expeditiously upon usual undertaking.
U. C. Banerjee, J.
28. I agree.
29. Appeal allowed