Punjab-Haryana High Court
Food Corporation Of India vs Brij Lal Bharat Bhushan on 10 August, 1999
Equivalent citations: (1999)123PLR658
Author: R.L. Anand
Bench: R.L. Anand
JUDGMENT R.L. Anand, J.
1.This is a civil revision and it has been directed against the order dated 19-10-1982 passed by the Court of Sub-Judge 1st Class, Chandigarh who allowed the petition under Section 8 of the Arbitration Act filed by M/s. Brij Lal Bharat Bhushan and gave direction to the Managing Director of the Food Corporation of India to appoint an Arbitrator in terms of agreement who would enter the reference and to conduct arbitration proceedings with regard to the dispute between the parties to the agreement and to give his award according to law.
2. The brief facts of the case are that M/s. Brij Lal Bharat Bhushan filed a petition under Section 2-A of the Arbitration Act against the Food Corporation of India, New Delhi, the District Manager and the Senior Regional Manager for the appointment of an Arbitrator. It is pleaded by the petitioner that it is partnership firm and is carrying on its business of Kiryana and Flour Mills in 109-110, Industrial Area, Chandigarh, while Bharat Bhushan is its registered partner. The Corporation invited tenders for milling 55,760 quintals of paddy of export quality and their tender was accepted. The petitioner has averred that in pursuance of acceptance of their tender, they complied with all the requirements relating to the deposit of earnest money, security amount and they also furnished bank guarantee to the tune of Rs. 2,00,000/-. The applicant has averred that regular agreement was executed and they spent lot of money for milling the rice but strangely enough on 23-5-1980, they received a telegram from the respondent that the contract for milling 55,750 quintals of paddy stands cancelled because the firm failed to complete tender formalities within the stipulated period. The petitioner has averred in terms of the arbitration clause they called upon the respondent to appoint some Arbitrator but the respondent has not taken any steps for the appointment of the Arbitrator. Therefore, they have prayed that an Arbitrator may be appointed under Section 8 of the Arbitration Act.
3. Notice of the petition was given to the Corporation which filed reply and pleaded that condition precedent for the contract to come into existence was that the applicant was to furnish bank guarantee in the sum of Rs. 2,00,000/- but the applicant failed to furnish the said bank guarantee within the stipulated time and the contract for shelling paddy never natured and as such the arbitration clause in the agreement is not binding upon the respondents. The respondent then has pleaded that Bharat Bhushan has no locus-standi to file the present petition. However, it was admitted by the Corporation that agreement was entered on 28-3-1980 and as per this agreement the petitioner was supposed to give bank guarantee by 31-3-1980 but it was given in the month of April.
4. On the pleadings of the parties, learned trial Court framed the following issues :
(1) Whether the application is not maintainable as urged in para 1 of the preliminary objection ? OPP (2) Whether Bharat Bhushan has the locus standi to file the present application ? OPA (3) Whether there exists some dispute between the parties that merits reference to an arbitrator ? OPP (4) Relief.
5. The parties led evidence in this case, Issue No. 1 was decided in favour of the petitioner and issue No. 3 was also decided in favour of the petitioner and finally the petition was allowed. Aggrieved by the order, the present revision.
6. I have heard Shri Gopi Chand, Advocate on behalf of the petitioner. Nobody has appeared on behalf of the respondent inspite of the fact that this petition was shown in the cause list for final disposal.
7. The agreement which was entered into between the parties is Ex. P. 1 on the record. As per this agreement the applicant mill was supposed to give band guarantee by 31-3-1980. The petitioner was also supposed to deposit a sum of Rs. 33,000/- which was not deposited within stipulated time. The petitioner submitted bank guarantee was furnished only on 28-4-1980. These were the basis ingredients of the agreement which was entered into between the petitioner and the Corporation. The Lower Court held that since the agreement did not contemplate that in the event the petitioner does not deposit the amount and furnish bank guarantee, the agreement would become unenforceable, therefore, it is not open to the Corporation to say that there was no enforceable agreement and binding contract for the purpose of Section 8 of the Act.
8. We all know that the Corporation while entering into such types of contracts lays down certain stipulations such as for the deposit of the security and for taking bank guarantee because the Corporation is to part valuable paddy to the Millers for the purpose of shelling. The purpose of depositing money and taking bank guarantee is condition precedent and integral part of the agreement. The applicant Mill was supposed to comply with these terms and it is common case of the parties that the bank guarantee was furnished on 28-4-1980 much after the stipulated dated i.e., 31-3-1980. In these circumstances, there was no concluded agreement or contract between the parties. Section 8 of the Indian Arbitration Act deals with the power of the Court to appoint an Arbitrator or Umpire in any of the following cases :
(a) Where an arbitration agreement provides that the reference shall be to one of more Arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments; or
(b) xxx xxx xxx xxx
(c) xxx xxx xxx xxx
9. We have to interpret the words meaning given by law to the term "Arbitration Agreement". The Arbitration Agreement has also been defined in Section 2-A of the Arbitration Act which means a written statement to submit present or future difference to arbitration whether an Arbitrator is named therein or not. A reading of the term arbitration agreement means that enforceable agreement. An agreement which is not enforceable by law or which is not concluded agreement such an agreement cannot be acted under. Agreement has to be seen in substance and not in form. Of course, there was an agreement between the Miller and the Corporation but if that agreement is not valid agreement for the purpose of arbitration agreement, such an agreement cannot be invoked for the purpose of Section 8 of the Indian Arbitration Act. The case of the Corporation is that since the Miller did not furnish bank guarantee, therefore, there was no enforceability of the arbitration agreement. There is a merit in the contention of the learned counsel for the petitioner Shri Gopi Chand. It has been held in The Saraswati Industrial Syndicate Limited v. The Chairman Sugar Mill ((1990-1) 97 PLR 286.), that arbitration agreement for the purpose of Section 2(a) is to be seen in substance and not the form of an arbitration clause which is material. The Court held that if there is no valid arbitration agreement between the parties, the dispute cannot be referred to the Arbitrator. In order to refer to matter to the arbitration there should be a valid and binding arbitration agreement and there should be an intention to refer the matter to the arbitration. Such an agreement must be in respect of present or future disputes and it must be in writing of course, the signatures of the parties on the agreement are not required. The stand which taken by the Miller before the Trial Court was that this aspect of the case whether there is valid arbitration agreement or not will be examined by the Arbitrator. This plea is not acceptable. In M/s. Chiranji Lal Multani R.B. Pvt. Ltd. v. Union of India (AIR 1963 Punjab 372.), it was held that "no arbitration clause in a contract can include the power of an Arbitrator to adjudicate upon a question repudiating the whole contract, which alleges matters de hors the contract, but which render it null and void. It is not within the competence of an Arbitrator to adjudicate upon the enforceability of a contract either on account of lacuna of law or by virtue of pre-disposal conditions."
10. Learned counsel for the petitioner has attacked the order of the Trial Court from yet another angle. He submitted that as per agreement it was agreed upon between the parties that the Managing Director of the Corporation will appoint an Arbitrator. In these circumstances, the Court could not order for appointment of an Arbitrator at its own level. It is within the domain of the Managing Director of the Corporation to appoint an Arbitrator or not. The Court cannot under Section 8 of the Arbitration Act, refer the matter to the arbitration. Learned counsel submitted that the parties by an agreement cannot confer jurisdiction of any Court which it otherwise does not possess. Again there is merit in this contention. A reading of Section 8 would show that the Court can interfere only when the arbitration agreement provides that the reference shall be to one or more Arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments. Here is the case where it was stipulated between the parties that in the event of arising of differences, the Managing Director of the Corporation shall appoint an Arbitrator. If the Managing Director does not discharge its duties in appointing an Arbitrator, in that eventuality, the parties can go to the Civil Court seeking directions against the Managing Director to appoint an Arbitrator by deriving the jurisdiction under the agreement.
11. In the light of the above discussion, this revision succeeds and the order of the learned Trial Court is hereby set aside and it is held that with the non-furnishing of the bank guarantee by 31-3-1980 no enforceable arbitration agreement came into existence which is condition precedent for invoking the provisions of Section 8 of the Indian Arbitration Act. The petition under Section 8 of the Act filed by Miller/firm is hereby dismissed. No order as to costs.
12. Revision petition allowed.