Calcutta High Court
Korp Gems (India) Pvt. Limited And Ors. vs Precious Diamond Limited And Ors. on 27 June, 2006
Equivalent citations: 2007(3)ARBLR32(CAL), (2007)1CALLT136(HC), AIRONLINE 2006 CAL 1
Author: Ashim Kumar Banerjee
Bench: Ashim Kumar Banerjee
JUDGMENT Ashim Kumar Banerjee, J.
1. Plaintiff and the defendant No. 1 entered into an agreement on December 23, 2005 for sale and purchase of 28001 MT of iron ore for an aggregate value of US$ 12602285 equivalent of Rs. 5,68,02,825.00. Under the contract the freight was payable as per the charter party. The cargo was loaded at Haldia and Paradeep. The vessel reached the discharge port in China on February 3, 2006 and the defendant No. l refused to issue bill of lading in terms of mate receipts and as a result the plaintiff could not negotiate the letter of credit for realization of the value of the cargo by causing delivery of the same to its buyer. The defendant No. 1 contended that since the freight was not paid they were entitled to have a lien on the goods. It was contended that the buyer of the goods did not pay the freight charges and as such bill of lading was not issued. The plaintiff filed the above suit, inter alia, claiming for decree for US$7,28,000 as well as for mandatory injunction directing the defendant No. 1 as well as defendant No. 2 being the agent of the defendant No. 1 to issue bill of lading.
2. Pending Applications:
(1) G.A. No. 531 of 2006: This application was filed by the plaintiff, inter alia, asking for mandatory direction upon the respondents to issue bill of lading in terms of the mate receipts dated January 19 and January 22, 2006.
(2) G.A. No. 637 of 2006: This application was also filed by the plaintiff, inter alia, praying for direction upon the respondents to issue bill of lading in terms of the advocate's letter dated March 2, 2006 as well as for variation and/or modification of the order dated March 2, 2006 passed in G.A. No. 531 of 2006.
(3) G.A. No. 1164 of 2006: This application was filed by the respondent/defendant No. 1, inter alia, praying for stay of the suit as well as all pending proceedings there under, inter alia, under Section 45 of the Arbitration and Conciliation Act, 1996 with a further direction for continuance of the bank guarantee furnished by the plaintiff until the disposal of the arbitration proceedings.
(4) G.A. No. 1649 of 2006: This application was filed by the plaintiff, inter alia, praying for an order of injunction restraining the respondent No. 1 from proceeding with the pending arbitration proceeding at Hongkong pertaining to the subject matter of the above suit.
Interim Orders passed by this Court:
3. March 2, 2006 - Sengupta, J directed the shipper to issue necessary bill of lading upon payment of actual freight charges by the plaintiff. The payment of freight charge was directed to be made to the Advocate-on-Record for the defendant No. 1 who was in turn directed to take steps for remittance after issuance of the bill of lading. With regard to the balance claim as per information dated February 10, 2006 His Lordship directed the plaintiff to furnish a bank guarantee from any nationalized bank in favour of the Registrar, High Court, Original Side to be kept renewed to the credit of the suit. The interim order was made without prejudice to the rights and contentions of the parties.
March 10, 2006 - This order was passed by Sengupta, J while disposing of G.A. No. 640 of 2006. It was contended on behalf of the plaintiff that despite payment of freight charges bill of lading was not issued. Dispute arose with regard to the hand written clause incorporated in the draft bill of lading by the defendant No. 1. His Lordship directed the defendant No. 1 to carry out the order forthwith. His Lordship also reserved the right of the plaintiff for raising objection with regard to the quality and quantity of the goods and directed the defendant No. l to issue of bill of lading as per the description given in the mate receipts.
March 24, 2006 - Sengupta, J by consent of parties extended the time to furnish the bank guarantee.
Subsequent Development:
4. Although there had been some initial disputes with regard to the issuance of bill of lading ultimately the bill of lading was issued and the goods were released. The bank guarantee was also furnished by the plaintiff for the balance claim of the defendant No. 1. In fact by the subsequent development the grievance of the plaintiff was almost met, what was left is adjudication of the claims of the rival parties. The plaintiff claimed damage because of the delay in discharging of the cargo and they made the defendant No. 1 responsible for the same as they delayed the process of issuance of bill of lading. The defendant No. 1 claimed damages because of the sufferance of the defendant No. 1 for non-payment of freight at the appropriate time and thereby delayed the process of delivery. Parties started corresponding with each other with regard to the claims and cross claims through their respective advocates. The defendant No. 1 referred the dispute to arbitration at Hongkong. They nominated their arbitrator and asked the plaintiff to nominate their arbitrator or to concur such appointment. The arbitral tribunal at Hongkong also wrote to the plaintiff suggesting name of one individual to act as the arbitrator of the plaintiff. Plaintiff, however, refused to appoint arbitrator and contended that there was no arbitration agreement between the parties and the disputes would have to be resolved in the suit. This resulted in the G.A. No. 1164 of 2006 made by the defendant No. 1 for stay of the suit under Section 45 of the Arbitration and Conciliation Act, 1996 and G.A. No. 1649 of 2006 made by the plaintiff for stay of the pending arbitration proceeding at Hongkong.
Contention of the Plaintiff:
5. Mr. Anindya Mitra, learned senior counsel appearing for the plaintiffs, contended as follows:
(1) As per the mate receipt the plaintiff was entitled to the bill of lading. The defendant No. 1 refused to issue the same which compelled the plaintiff to file the above suit on February 28, 2006 in this Court.
(2) Fixture Note or mate receipt could not be considered as concluded agreement and in any event those did not in fact contain any arbitration clause which could entitle the defendant No. 1 to refer the disputes to arbitration or claim stay of the suit under Section 45 of the said Act, 1996.
(3) Assuming that the defendant No. 1 was entitled to refer the dispute to arbitration there was no quantification of claim by the defendant No. 1 which could be referred to arbitration.
(4) Assuming bill of lading contained an arbitration clause such clause was not binding upon the plaintiff as it was not agreed upon by and between the parties as the same was issued in terms of the order of the Court and that too without prejudice to the rights and contentions of the parties.
Contention of the Defendant No. 1:
6. Mr. Sudipto Sarkar, learned senior counsel appearing for the defendant No. 1, contended as follows:
(1) The bill of lading was the concluded contract between the parties. The claims and cross claims between the parties arose from the said agreement being the bill of lading.
(2) Bill of lading provided that all terms and conditions mentioned in the original charter party would be applicable.
(3) Original charter party contained an arbitration clause and the same was valid and binding upon the parties to the bill of lading.
(4) Section 5 of the Act of 1996 specifically barred the Civil Court to proceed with any suit where arbitration agreement was existing between the parties.
(5) Section 8 provided for stay of suit.
(6) Section 16 empowered the arbitral tribunal to decide its own jurisdiction. Hence, assuming the plaintiff wanted to dispute the jurisdiction of the arbitral tribunal they would have to approach the tribunal itself under Section 16.
(7) Under Section 45 the suit was liable to be stayed.
(8) Foreign arbitration could not be stayed by this Court as prayed by the plaintiff and this Court had no other alternative but to stay the suit under Section 45 of the said Act, 1996.
(9) The fixture note was issued in January, 2006 before the filing of the suit and Clause 11 of the fixture note was sufficient enough to bind the parties with the terms of the charter party including the arbitration clause.
Cases Cited:
7. Mr. Mitra did not cite any decision whereas Mr. Sarkar cited the following decisions:
(1). Anand Gqjapathi Raju and Ors. v. P.V.G. Raju (Dead) and Ors.
(2) Owners and Parties Interested in the vessel M.V. "Baltic Confidence" and Anr. v. State Trading of India Ltd. and Anr.
(3) Bhatia International v. Bulk Trading S.A. and Anr.
(4) Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd.
(5) 108, Calcutta Weekly Notes, Page 1018 Stephen Commerce Pvt. Ltd. v. Owners and Parties Interested in the vessel M.V. "Wise King".
The law on the subject and the Apex Court decisions on this score:
8. The Act of 1996 is a comprehensive law enacted by the legislature which includes the entire field of arbitration including the foreign arbitration. Section 5 of the Act debars judicial intervention where the parties agreed to resolve the disputes through arbitration save and except the scope and limitation as provided in the said Act itself. Section 8 has given a mandate to the judicial forum to refer the dispute. Rending before it to arbitration in case there had been an agreement to the said effect Section 16 empowers the arbitral tribunal to decide its own jurisdiction if it is questioned by any party.
9. Section 45 deals with the foreign arbitration. It is a similar provision like Section 8 giving mandate to the judicial forum to refer the disputes to the tribunal by staying its own proceeding in case there had been a valid agreement to the said effect.
10. These particular provisions by this time have been interpreted by the High Courts as well as the Apex Court and it is now well settled principles of law that in case there had been a valid arbitration agreement between the parties the judicial forum would have no other alternative but to stay its own hand and refer the disputes pending before it to arbitration as per the agreement.
11. With regard to the admiralty transaction involved through a bill of lading where goods are carried by sea the conditions stipulated in charter party are considered to be applicable and binding upon the parties to a bill of lading in case the bill of lading contains a clause to the said effect. This particular issue was widely discussed in Baltic Confidence (supra) by the Apex Court. In the case of Wise King (supra) I held that in case a suit was filed before a Court of law within the prescribed period of limitation and as long as the defendant did not take any plea of arbitration the suit was to be tried by the said Court. Once the defendant approached the Court with a valid arbitration agreement, in my view the Court had no other alternative but to refer the disputes to arbitration.
12. Hence, considering the law on the subject I am only to find out whether there had been a valid arbitration agreement between the parties. If the test is positive the suit is liable to stayed, if not the plaintiff would be entitled to proceed with the suit. However, in my view, the law does not permit me as discussed above to stay any foreign arbitration proceeding initiated by one of the parties while suit is pending for adjudication before this Court.
Applying the law in the present scenario:
13. Test: On January 6, 2006 the fixture note was issued appearing at page 56 of the petition being G.A. No. 1164 of 2006. In terms of Clause 11 of the fixture note the freight was payable as per bill of lading and bill of lading was to be issued strictly in accordance with the mate receipt. The mate receipt was issued by the defendant No. 2 as an agent of the defendant No. 1, inter alia, on January 19, 2006 and January 22, 2006. Neither the fixture note nor the mate receipt contained any arbitration clause. In an admiralty transaction when goods are booked on board and mate receipt and fixture note are issued the shipper always have a lien on cargo till the freight is paid of. Once freight is paid of and goods are booked on board bill of lading is issued which can be negotiated through letter of credit. Bill of lading is a document of title by which a party is entitled to receive delivery of the goods through negotiation of letter of credit. Hence, in my view, until and unless the bill of lading is issued the transaction is not complete. Mr. Sarkar drew my attention to clause 29 of the fixture note dated May 5, 2006 which contained an arbitration clause. The same is quoted below:
Bimco standard law and arbitration clause 1998 would apply with English Law and Hongkong arbitration.
14. This particular clause provided an information to the parties with regard to the law and venue applicable for arbitration. The arbitration clause which would have a binding effect on a party in admiralty transaction is generally incorporated in the original charter party itself. Such arbitration clause is a standard clause incorporated in the charter party by which the vessel is chartered for shipment of cargo. Charter party is an agreement between the owner of the ship and the party who is taking the vessel on charter. Hence, any claim with regard to any goods on board is a claim attached to the ship and as such, such arbitration clause is made binding upon the persons claming under the charterer when a bill of lading is issued in respect of a cargo. The original arbitration clause is made binding upon the holder of the bill of lading and that is incorporated in the bill of lading itself. This is the usual practice in an admiralty transaction. In the instant case, mate receipt was issued in support of the fact that the goods were on board. The fixture note is a document giving details of the vessel, charter and other particulars of the voyage. These are, in my view, documents in process of completion of the transaction. These would enable at best a party to claim that subject goods are on board the vessel as mentioned in the fixture note and mate receipt. So long the freight is not paid the shipper and/or the charterer is not obliged to issue the bill of lading which would complete the transaction between the parties. Once the bill of lading is issued the agreement between the parties is complete and by virtue of the original charter party the arbitration clause incorporated therein is made binding upon the parties to the contract being the holder of the bill of lading and the person issuing the same and/or his principal as the case may be.
15. In the instant case, the plaintiff approached this Court at a stage when there was no concluded contract between the parties. In terms of the order of this Court the bill of lading was issued and that too without prejudice to the rights and contentions of the parties. Hence, it cannot be said that the arbitration clause stipulated in the charter party would have a binding effect on the plaintiff. The clause relating to arbitration mentioned in fixture note, in my view, is not an appropriate arbitration clause which could bind the plaintiff. The plaintiff filed the suit in this Court for specific performance of the contract between the parties, inter alia, for compelling the defendants for issuance of the bill of lading. The same was done in terms of the order of the Court which was interim in nature and that too without prejudice to the rights and contentions of the parties. Hence, in my view, the arbitration clause contained in the bill of lading would have no binding effect on the plaintiff. Secondly, the defendant No. 11 is not entitled to have an order of stay of the instant suit under Section 45 of the said Act of 1996 in absence of a valid arbitration agreement between the parties.
16. The plaintiff is also not entitled to have the arbitration pending at Hongkong stayed as the Civil Court has no jurisdiction to entertain such application. In my view, the plaintiff already got almost the final relief as claimed in the suit. It only requires final adjudication with regard to the respective liabilities of the parties at the stage when no bill of lading was issued. The interim order was passed by His Lordship protecting the rights and privileges of the respective parties. The parties are already protected by such orders and I only wish to confirm the same by directing those orders to be continued till the disposal of the suit. Similarly I keep the issue of pending arbitration open to be decided before the appropriate forum.
Conclusion:
17. G.A. No. 531 of 2006 and G.A. No. (337of 2006 are disposed of by confirming the interim order passed by Sengupta, J on March 2, 2006 as modified on March 10, 2006. The bank guarantee furnished by the plaintiff would continue till the disposal of the suit. The plaintiff must keep the same renewed from time to time until further orders of this Court and till the disposal of the suit whichever period is earlier.
18. G.A. No. 1164 of 2006 is dismissed.
19. G.A. No. 1649 of 2006 is dismissed.
20. There would be no order as to casts on any of the applications.
21. It Is further made clear that I have not decided the rights and privileges of the parties in question in the pending arbitration proceeding before the Hongkong Arbitral Tribunal and leave the issue open to the parties to agitate before the appropriate forum.
Urgent xerox certified copies would be given to the parties, if applied for.