Madhya Pradesh High Court
M/S Primus Chemicals Ltd. vs M/S Arrowhead Separations ... on 1 February, 2018
1 A.C. NO. 28/2007
HIGH COURT OF MADHYA PRADESH: BENCH: INDORE
(SINGLE BENCH: HON.MR.JUSTICE PRAKASH SHRIVASTAVA)
ARBITRATION CASE NO.28/2007
M/s.Primus Chemicals Ltd
Vs.
M/s. Arrowhead Separations Engineering Pvt. Ltd
For applicant: Shri Sanjeev Kumar Rawat, the Director of
the applicant company present in person.
For respondent: Shri. A.S.Kutumble, learned Sr.Counsel with
Shri Deepak Dharmadhikari, learned counsel.
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ORDER
(Passed 01st February, 2018) [1] This Arbitration Case u/S.11 of the Arbitration and
Conciliation Act has been filed for appointment of the independent arbitrator for resolving the dispute between the parties. [2] The case of the applicant is that it had placed a purchase order dated 4/3/1996 to the respondent for supply of the Continuous Particulate Dryer for Bon/Tobias Acid and Gamma/J Acid and along with the purchase order had paid a sum of Rs.5,53,000/- as advance and the purchase order contains the arbitration clause. In pursuant thereto there was exchange of letters between the parties, but the Dryer was not supplied by the respondent as a result of which the applicant company had to face acute problem resulting into closure of the same, hence the applicant had issued the notice dated 4/10/2005 for refund of Rs.5,53,000/- but the respondent vide 2 A.C. NO. 28/2007 communication dated 26/10/2005 had refused to refund the amount and cancelled the contract, therefore, the applicant had sent the notice dated 1/12/2005 for appointment of arbitrator for resolving the dispute, but vide reply dated 29/12/2005 the respondent had conveyed the refusal. The arbitration case was originally filed before the District Judge, Ujjain on 7/7/2005, but after the judgment of the supreme court in the matter of S.B.P. & Co. Vs. M/s. Patel Engineering Ltd and another AIR 2006 SC 450 it has been transferred to this Court vide order dated 8/2/2006 and registered accordingly.
[3] The respondent has filed reply opposing the application and taking the stand that the order was placed by one Standard Engineers and there is no contract with the present applicant and also denying the other averments in the arbitration case. By way of rejoinder and additional rejoinder, the applicant had reiterated its stand.
[4] Learned counsel for applicant submits that since the arbitration agreement exists between the parties and the applicant had paid the advance for supplying the Dryer and neither the Dryer has been supplied nor the amount has been refunded, therefore, the dispute has arisen.
[5] As against this, the learned counsel for respondent has opposed the arbitration case submitting that there is no agreement between the parties and the alleged arbitration clause refers to the 3 A.C. NO. 28/2007 Act of 1940 and the claim has become time barred and this court has no jurisdiction.
[6] I have heard the learned counsel for parties and perused the record.
[7] The first argument of learned counsel for respondent is that no agreement exists between the parties. This issue is required to be decided in the light of the provisions contained in Sec.7 of the Arbitration Act, 1996 which defines Arbitration Agreement and includes an agreement in writing contained in any document signed by the parties, exchange of letters, telex etc. or other means of telecommunications providing a record of agreement or even exchange of statement of claim and defence.
[8] Examining the present case in the light of the above position in law, it is noticed that initially Standard Engineers had placed the purchase order dated 4/3/1996 to the respondent for supply of two Dryers at the price of Rs.27,65,000/- and the purchase order states that the advance amount of Rs.5,53,000/- was paid vide demand draft dated 4/3/1996. In this purchase order, the details of the applicant Primus Chemicals Ltd were mentioned as the factory site for issuing the invoice. The respondent had vide communication dated 7/3/1996 had confirmed and accepted the purchase order subject to certain conditions and thereafter Standard Engineers had sent the communication dated 19/2/1997 to the respondent in respect of modification of the purchase order and requesting the 4 A.C. NO. 28/2007 respondent to debit the account of the Standard Engineers in the name of the applicant apropos the purchase order and making a request to confirm it so that the applicant can avail the disbursement. Thereafter the applicant had sent the communication dated 14/4/1997 for amending/cancelling the purchase order placed on the respondent and the respondent had sent the communication dated 1/1/1998 to the applicant intimating that the Dryers are ready and as a special case the advance paid by the applicant will be distributed over two Dryers and the proforma invoice dated 1/1/1998 was also sent by the respondent to the applicant. The applicant had thereafter sent the modified purchase order dated 27/2/1999 again containing the similar arbitration clause to the respondent and thereafter on 17/4/2000 had sent the letter to the respondent informing that the civil structure was not received. The subsequent communications dated 16/1/2001, 27/11/2001, 28/8/2002, 26/4/2003 etc were sent and the respondent vide communication dated 25/11/2004 had informed the applicant that the applicant had committed a default in taking the delivery of the equipment. The applicant then vide communication dated 26th August, 2005 had requested the respondent to refund the amount of Rs.5,53,000/- which was paid by demand draft earlier. The receipt of this letter has been acknowledged by the respondent in the communication dated 23/9/2005 sent to the applicant. By this communication addressed by the respondent to the applicant the 5 A.C. NO. 28/2007 contract has been cancelled and the respondent has refused to refund the advance by stating that the respondent was still prepared to offer the equipment at the current price. [9] The above purchase order dated 4/3/1996 and 27/2/1999 and the exchange of letters in pursuant thereof clearly reveal that the agreement in terms of Sec.7 of the Act was arrived at between the parties and action was taken by both the parties in pursuant to the purchase order/agreement dated 4/3/1996 and 27/2/1999. [10] The original purchase order dated 4/3/1996 as also the modified purchase order dated 27/2/1999 contain identical arbitration clause to the following effect:-
"12.0--ARBITRATION:
12.1-- Should a dispute of difference whatsoever arise between the Purchaser and the Contractor upon, or in relation to, or in connection with the contract, either party may forth with give to the other notice in writing and the existence of such question, dispute or difference, and the same shall be referred to the adjudication of two arbitrators, one to be nominated by the Purchaser and the other to be nominated by the Contractor, or in the case of the said arbitrators none agreeing, then to the adjudication of an Umpire to be appointed by arbitrators in writing, before proceeding with the reference, and the award of the arbitrator, in the event of their not agreeing the decision of the Umpire appointed by them, shall be final and of binding on the parties, and the provisions of the Indian Arbitrator Act, 1940, and all the rules thereunder and any statutory modification thereof shall be deemed to have been applied incorporated in this contract.
Work under the contract shall be continued by the Contractor during the arbitration proceeding, unless otherwise directed in writing by the purchaser or unless the matter is such that the work cannot possibly be continued until the decision of the arbitrators or of the Umpire, as the case may be, is obtained, and save as those which are 6 A.C. NO. 28/2007 otherwise expressly provided in the Contract, no payment due or payable by the purchaser shall be with-held on account of such arbitration proceeding, unless it is the subject matter or one of the subject matters thereof." [11] Hence, the arbitration agreement exists between the parties. The exchange of letters noted above also revealed that the dispute exists between the parties in respect of supply of two Dryers and refund of advance for which the applicant vide communication dated 1/12/2005 had appointed Mr.Ashutosh Mandloi, Advocate as his Arbitrator and requested the respondent to appoint his Arbitrator in terms of the arbitration clause and the respondent vide communication dated 29th December, 2005 had refused the same on the ground that the contract has already been terminated. [12] The respondent has raised an issue of territorial jurisdiction to entertain the present arbitration case. The record reflects that the applicant is at Ujjain. The original purchase order dated 4/3/1996 as also the modified purchase order dated 27/2/1999 was sent from Ujjain. The demand draft for the advance amount of Rs.5,53,000/- was also sent from Ujjain and the Drier were to be supplied and installed at Ujjain, hence part of cause of action has arisen at Ujjain. That apart, both the purchase orders contained in clause No.15 as the jurisdiction Clause to the following effect:-
"15-- JURISDICTION:
15.0--This contract shall be subject to the jurisdiction of the courts of Ujjain only."7 A.C. NO. 28/2007
[13] The supreme court in the matter of Hakam Singh Vs. M/s Gammon (India) Ltd AIR 1971 SC 740 has held that though the parties cannot by agreement confer jurisdiction on court not possessed by it under the Code, but the agreement that one of the courts having such jurisdiction alone shall try dispute is not contrary to public policy and does not contravene Sec.28 of the Contract Act.
[14] Hence, by agreement the parties had given exclusive jurisdiction to Ujjain Court where part of cause of action has arisen. Thus, I am of the opinion that this court has the territorial jurisdiction to entertain the present arbitration case.
[15] Another argument advanced by the learned counsel for respondent is that the arbitration clause provides for the arbitration in terms of the Arbitration Act of 1940, therefore, the present application under the Act of 1996 cannot be entertained. [16] The record reflects that the first purchase order was placed on 4/3/1996, at that time the Act of 1996 had not come in force. The Act of 1996 has been notified subsequently on 16th August, 1996 and has come in force with effect from 22/8/1996. The arbitration clause contained in the purchase order clearly stipulates that the provisions of Arbitration Act, 1940 and any statutory modification thereof shall be deemed to have been applied and incorporated in the contract. By virtue of this Clause the provisions of the Act of 1996 are clearly attracted.
8 A.C. NO. 28/2007[17] The supreme court in the matter of Thyssen Stahlunion GMBH Vs. Steel Authority of India Ltd AIR 1999 SC 3923 has held that:-
"44--Parties can agree to the applicability of the new Act even before the new Act comes into force and when the old Act is still holding the field. There is nothing in the language of Section 85(2)(a) which bars the parties from so agreeing. There is, however, a bar that they cannot agree to the applicability of the old Act after the new Act has come into force when arbitral proceedings under the old Act have not commenced though the arbitral agreement was under
the old Act. Arbitration clause in the contract in the case of Rani Constructions (Civil Appeal 61 of 1999) uses the expression "for the time being in force"
meaning thereby that provision of that Act would apply to the arbitration proceedings which will be in force at the relevant time when arbitration proceedings are held. We have been referred to two decisions - one of Bombay High Court and the other of Madhya Pradesh High Court on the interpretation of the expression "for the time being in force" and we agree with them that the expression aforementioned not only refers to the law in force at the time the arbitration agreement was entered into but also to any law that may be in force for the conduct of arbitration proceedings, which would also include the enforcement of the award as well. Expression "unless otherwise agreed" as appearing in Section 85(2)(a) of the new Act would clearly apply in the case of Rani Construction in Civil Appeal No. 61 of 1999. Parties were clear in their minds that it would be the old Act or any statutory modification or re- enactment of that Act which would govern the arbitration. We accept the submission of the appellant Rani Construction that parties could anticipate that the new enactment may come into operation at the time the disputes arise. We have seen Section 28 of the Contract Act. It is difficult for us to comprehend that arbitration agreement could be said to be in restraint of legal proceedings. There is no substance in the submission of respondent that parties could not have 9 A.C. NO. 28/2007 agreed to the application of the new Act till they knew the provisions thereof and that would mean that any such agreement as mentioned in the arbitration clause could be entered into only after the new Act had come into force. When the agreement uses the expressions "unless otherwise agreed" and "law in force" it does give option to the parties to agree that new Act would apply to the pending arbitration proceedings. That agreement can be entered into even before the new Act comes into force and it cannot be said that agreement has to be entered into only after coming into force of the new Act."
[18] The supreme court in this regard in the matter of Mahipatlal Patel Vs. Chief engineer and another (2008) 12 SCC 64 has also held as under:-
"9--Having heard the learned counsel for the parties and after considering the impugned order rejecting the application for appointment of arbitrator and the provisions under Section 85 of the Act and Clause 50 of the agreement in detail, we are of the view that the order of the High Court is not sustainable in law. An order of the Orissa High Court on the question of existence of an Arbitration Tribunal was brought to our notice by the learned counsel for the parties from which it clearly appears that the Arbitration Tribunal created under the Arbitration Act, 1940 does not exist for deciding the disputes which had arisen out of an agreement entered into after the Arbitration Act, 1940 was repealed. Accordingly, it has been held that the Arbitration Tribunal set up by the Arbitration Act, 1940 does not exist as on date and the present dispute between the parties cannot be referred to the said Tribunal, which is not in existence in the eye of the law. It has also been accepted by the learned counsel for the parties that against this order of the High Court, no appeal was filed or steps taken by either of the parties, that is to say, that it has now been accepted that there is no existence of any Arbitration Tribunal. On the basis of the 10 A.C. NO. 28/2007 aforesaid judgment of the Chief Justice of the High Court, it has been accepted that no Arbitration Tribunal is in existence. Therefore, without going into the merits and in view of the aforesaid decision of the Orissa High Court, we are of the view that in the absence of existence of any Arbitration Tribunal, it is only for the High Court to exercise its power under Section 11 of the Act to appoint an arbitrator to go into the disputes and differences between the parties. Accordingly, we set aside the order of the High Court."
[19] The Delhi High Court also in the matter of Directorate General of Supplies and Disposal Vs. Machine Tools (India) Ltd Laws (DLH) 2008-5-402 in this regard considering the similar arbitration clause has held:-
"4-- THE decision of the Hon'ble Supreme Court reported as: (2004) 7 SCC 288 Milkfood Ltd. Vs. GMC Ice Cream (P) Ltd concludes the controversy arising out of the repeal of the Arbitration Act, 1940 with the promulgation of the Arbitration and Conciliation Act, 1996. In a nutshell, the decision holds that where arbitration proceedings commenced (commencing being when a party sought appointment of an arbitrator) before promulgation of the Arbitration and Conciliation Act, 1996, unless parties by consent agreed to be bound by the procedure of the Arbitration and Conciliation Act, 1996, all proceedings would be governed by the Arbitration Act, 1940. But where proceedings commenced after the Arbitration and Conciliation Act, 1996 was promulgated the procedure would be governed by the later Act.
Under both circumstances the original arbitration clause binds the parties. Thus, the reasoning of the learned Trial Judge that since parties had agreed to be bound by the procedure of the Arbitration Act, 1940 which stood repealed when reference was made to the arbitrator and hence the very appointment of the arbitrator is vitiated is a finding which is totally contrary to law."
[20] Counsel for respondent has relied upon single bench 11 A.C. NO. 28/2007 judgment of Patna High Court in the matter of Rajan Kumar Verma and another Vs. Sachchidanand Singh AIR 2006 Patna 01 but in that case the agreement was executed much after repeal of the Old Act, but the present case stands on different footing. [21] Having regard to the aforesaid and considering the fact that the reference to the Arbitrator has been made after coming into force of Act of 1996, I am of the opinion that the objection of the respondent cannot be sustained and is over-ruled by holding that the provisions of Act of 1996 are attracted in the matter. [22] The respondent has also raised an issue that the claim has become time barred, but such an issue is required to be gone into by the Arbitrator and this court is only required to see if the claim of the applicant is a dead claim. (See State of Goa Vs. Praveen Enterprises (2012) 12 SCC 581). The record reflects that the correspondence was going on between the parties in respect of supply of the item and the modified purchase order was sent by the applicant in the year 1999 and the termination of the contract was conveyed by the respondent on 23/9/2005 and that the present application for appointment of the Arbitrator was filed on 7/7/2005, hence in these circumstances it cannot be held that the claim of the applicant was a dead claim.
[23] Having regard to the aforesaid and considering the circumstances of the case, I am of the opinion that an independent Arbitrator need to be appointed for resolving the dispute between 12 A.C. NO. 28/2007 the parties. Accordingly, I propose to appoint Justice I.S.Shrivastava, Retired High Court Judge as independent arbitrator.
[24] Let the declaration in terms of Section 11(8) and 12(1) of the amended Arbitration Act in the prescribed form as contained in 6th Schedule of the Act be obtained from the proposed Arbitrator by the Principal Registrar of this Court before the next date of hearing. [25] List on 27/2/2018.
(PRAKASH SHRIVASTAVA) JUDGE VM Digitally signed by Varghese Mathew Varghese Mathew DN: c=IN, o=High Court of Madhya Pradesh, ou=Administration, postalCode=452001, st=Madhya Pradesh, 2.5.4.20=b06e85e8115fd7cc0bb34a0888d1d430f979382d4c898692d55d8dbb4d9 b937e, cn=Varghese Mathew Date: 2018.02.03 13:51:44 +05'30'