Bombay High Court
Taj Air Ltd vs Aviators on 11 June, 2012
Author: Anoop V. Mohta
Bench: Anoop V. Mohta
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 1180 OF 2010
Taj Air Ltd.
(Formerly "Megapode Airlines Ltd.")
Mandlik House,
Mandil Road,
Mumbai 400 001. ......Petitioner.
Vs.
Aviators,
1309, Brigade Towers,
135 Brigade Road,
Bangalore 560 025 ......Respondent.
Mr. Janak Dwarkadas, Senior Advocate a/w Mr. Rohan Cama a/w Ms.
Simran Gurnani i/by M/s. Mulla & Mulla for the Petitioner.
Mr. Shirish Deshmukh with Mr. Vishwanathan Iyer i/by M/s.
Vishwanathan Iyer & Co. for the Respondent.
CORAM :- ANOOP V. MOHTA, J.
JUDGMENT RESERVED ON :- 27 APRIL 2012.
JUDGMENT PRONOUNCED ON :- 11 June 2012.
JUDGMENT:-
The Petitioner has invoked Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act) for setting aside the award dated 4 June 2010 passed by the Arbitral Tribunal ::: Downloaded on - 09/06/2013 18:39:26 ::: 2 arbp1180.10.sxw ssm constituted as per the agreement clause between the parties, as the dispute arose.
2 The operative part of the award is as under:-
i) The Respondent do pay to the Claimant a sum of Rs.23,38,322/- (Rupees twenty three lakhs thirty eight thousand three hundred twenty two only) being of 7 percent of revenue due to the claimant under clause 1.2, read with clauses 7 and 9 of the Agreement with interest at the rate of 12 percent per annum from 1st April 2004 to the date of this Award.
ii) The Respondent do pay the Claimant a sum of Rs.17,85,000/- (Rupees Seventeen lakh eighty five thousand only) by way of cost of arbitration.
iii) The Respondent do pay the Claimant interest on the sum directed to be paid to the Claimant by this award from the date of the award till the date of payment at the statutory rate of 18% p.a. as set out in section 31(7)(b) of the Arbitration and Conciliation Act, 1996.
iv) All other claims and counter claims are rejected.
3 The Respondent/Claimant deals in all sort of aviation business solution includes aircraft sales, executive air charter, aircraft management and operational support services. The Petitioner-
Respondent being owner of certain aircrafts, on the representation by the Respondent that it had policy to generate revenue by ::: Downloaded on - 09/06/2013 18:39:26 ::: 3 arbp1180.10.sxw ssm advertisement in aircraft of unused hours subject to commission, entered into a Sales and Marketing management Agreement (for short, "the Agreement") dated 1 February 2002. The Agreement was upto 31 March 2004.
4 As per the Agreement, the Respondent-Claimant is required to promote, sell, take reservations, market, advertise and manage the marketing interest in the Petitioner's Aircraft. The Agreement contemplated that the Respondent to generate minimum revenue of Rs.8,75,00,000/- during the tenure of the Agreement from 1 February 2002 to 31 march 2004. It was also contemplated that the Petitioner would pay to the Respondent 7% commission on all charters and revenue generated, directly or indirectly, subject to the conditions including raising of invoices. The provision for early termination in the event of non-performance was also provided.
5 The petitioner by letter dated 15 February 2000 invoked Clause 10.2 and terminated the Agreement w.e.f. 15 March 2003, basically on the ground of unsatisfactory performance. The Respondent based upon the Agreement clause 10.2 claimed 7% interest, as the contract was prematurily terminated and also for the reason that 92.07% of ::: Downloaded on - 09/06/2013 18:39:26 ::: 4 arbp1180.10.sxw ssm the target was achieved between 1 February 2002 to 15 March 2003.
There arose dispute between the parties. The bills could not be settled in spite of repeated reminders and details provided. The Respondent (Original Claimant), therefore, invoked Arbitration proceeding on 2 May 2006.
6 The Arbitral Tribunal was accordingly constituted of three members. The matter proceeded as per the directions given by the Tribunal from time to time. The Respondent led evidence through its proprietor. The Petitioner examined three witnesses. The statement of claim, written statement and counter-claim were filed, so also the supporting documents.
7 The following issues were framed for determination:-
1) Whether the claim filed by the claimant on 7th August 2007 is barred by limitation?
2) Whether the Claimant has complied with their obligations including the obligations of advertising and marketing of the Falcon 2009 Aircraft under the Sales and marketing Management Agreement dated 15th February 2003 ("the Agreement")?
3) Whether the termination of the Agreement by the Respondent is bad in law?::: Downloaded on - 09/06/2013 18:39:26 :::
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4) Whether the Claimant is entitled to the claimed amount of Rs.23,38,322/- together with 7% of other revenue earned by the Respondent until the date of termination together with interest at the rate of 18% per annum under the Agreement?
5) Whether the Claimant is entitled to damages as prayed for in the Statement of Claim?
6) Whether the Respondent is entitled to a sum of Rs.2,71,833,333/- or any part thereof with interest at the rate of 18% per annum as a result of the losses to them caused due to the lapses and failures of the Claimant under the Agreement?
7) Whether the Counter Claim of the Respondent is within the jurisdiction of the Hon'ble Tribunal?
8) Whether the Claimant is entitled to damages as prayed for in the Statement of Claim?
9) Whether the Claimant/Respondent are entitled to costs and if so, for what amount?
8 There is no serious dispute, as discussed by the learned Arbitral Tribunal, with regard to the termination of the contract. The basic dispute is about amount payable to the Respondent-claimant by way of commission for the period from the commencement of the contract till the termination. Admittedly, the Petitioner, considering the material, vide letter dated 18 August 2005 forwarded a cheque for a sum of Rs. 4.74 lacs on account of commission due to the Claimant in full and final settlement of the claim of the Respondent, which they ::: Downloaded on - 09/06/2013 18:39:26 ::: 6 arbp1180.10.sxw ssm refused to accept. The Respondent's claim was in a sum of Rs.23,38,322/- on the basis of the record of charter available with them. It is observed that "the Respondent does not dispute the figure of commission of Rs.23,38,322/- claimed by the Claimant on the revenue of Rs.3,34,04,606/-. The only grievance of the Respondent is that this figure of revenue arrived by the Claimant is erroneous." The pleadings were raised in the written statement. The learned Arbitral Tribunal based upon the clauses gave finding that "the language of the clause is clear and unambiguous and makes express provision that all revenue generated "direct or indirect" shall be to the credit of the Claimant. The only deduction has to be made is that the "revenue generated from flights/charters of MAL/Tata Companies/political parties as mutually agreed upon".
9 Ultimately, the finding is recorded in para 34 of the award as under:-
34. In view of the forgoing, the claim of the Respondent for exclusion of charter by parties other than those mentioned in clause 9 is wholly untenable and hence rejected. As a result, the Claimant is entitled to commission of a sum of Rs.23,38,322/- (Rupees twenty three lakh thirty eight thousand three hundred twenty two only) being 7% of the revenue amounting to Rs.3,34,04,606/- (Rupees three crore thirty four lakh four thousand six hundred six only) ::: Downloaded on - 09/06/2013 18:39:26 ::: 7 arbp1180.10.sxw ssm generated under clause 1.2 read with clause 9 of the agreement. In the absence of any material before us in regard to the other charter/revenue, further claim of the Claimant cannot be allowed."
10 The learned Arbitral Tribunal dealt with all the issues by a common reasoning. The learned counsel appearing for the Petitioner, has raised the issue of limitation that the claim filed by the claimant on 18 August 2005 is barred by limitation. Admittedly, date of agreement is 1 February 2002. The Arbitration clause invoked on 15 Feb 2003. The contract was terminated on 15 March 2003. The commission so claimed was of the period between these two days.
The same was awarded with 12% interest from 1 April 2004 till the date of the award.
11 Admittedly, the parties exchanged the correspondences with regard to the commission amount in question. By letter dated 18 August 2005, as contended and observed, the Petitioner accepted and quantified the amount of stating it to be of Rs.4,74,726/-. The finding is therefore, given by the learned Arbitral Tribunal that the Respondent-Petitioner having once quantified the amount and accordingly issued a cheque. Therefore, the claim is not barred by limitation.
::: Downloaded on - 09/06/2013 18:39:26 :::8 arbp1180.10.sxw ssm 12 The relevant contents of the letter dated 18 February 2005 is as under:-
"Dear Capt. Sharma, This refers to the recent discussions we had on the above subject.
I have reviewed all the agreement executed between us and am of the opinion that a sum of Rs.4,74,726/- becomes due towards commission for business sources through your organization.
A cheque for Rs.4,74,726/- is enclosed towards full and final settlement of your claim.
Kindly acknowledge the receipt of the same."
13 Admittedly, the said amount was never accepted by the Respondent and also not accepted it to be the full and final settlement of its claim. The cheque was accordingly returned. By that time 2½ years were gone in discussion. The parties unable to settle the dispute.
14 By legal notice dated 2 May 2006, the Respondent invoked the Arbitration clause to resolve the dispute and requested the Petitioner to appoint the Arbitrator. The same was resisted by the Petitioner through its advocate dated 30 May 2006. They agreed to appoint ::: Downloaded on - 09/06/2013 18:39:26 ::: 9 arbp1180.10.sxw ssm the Arbitrators. The Arbitrators were accordingly appointed. The statement of claim is dated 7 August 2007.
15 Whether the claim is barred by law of limitation or not should be decided on the facts. The mandate of Section 3 of the Limitation Act provides for dismissal of the Suit on the ground of limitation although the same has not been set up as a defence, if such case is made out. I have already taken note of (Sealand Shipping & Export Pvt. Ltd. Vs. Kinship Services (India) Pvt. Ltd. 1 ) the mandate of Section 3 of the Limitation Act, thereby reiterated the settled principle. In the present case, the said point was raised, discussed but dismissed by the Arbitral Tribunal. The letter so reproduced above, the Arbitral Tribunal treated the same as acknowledgement of liability as demanded under Section 19 of the Limitation Act and based upon the same, granted the award.
16 Admittedly, the amount so awarded, never admitted by the Petitioner. Therefore, the acknowledgement of the amount so mentioned, that could have been treated as an acknowledgement of liability for the purpose of Limitation Act. But as noted, the Petitioner 1 2011(5) Bom. C.R. 572 ::: Downloaded on - 09/06/2013 18:39:26 ::: 10 arbp1180.10.sxw ssm to the alleged demand so made, agreed to pay the amount as mentioned towards the full and final payment of the liability.
Admittedly, the same was not accepted by the other side.
17 The learned Arbitral Tribunal, treated the acknowledgement of the full amount so claimed by the Respondent and treated the claim within limitation. The Respondent never agreed and/or accepted the claimed amount. Therefore, to say that the letter so referred above, itself amounts to acknowledgement of liability, in my view, is not correct. At the most, the admitted amount which the Respondent agreed for the same could have been treated as acknowledgement of the liability to that extent only. The learned Arbitral Tribunal, however, wrong in granting the award of the whole amount so claimed.
18 The party, in a given case to settle the matter and/or to end the litigation, without prejudice to their rights, agreed to settle the matter by making lump sum amount. The contents of the letter so referred above shows that the Petitioner's intention was to settle the matter by paying the lump sum amount, but as the Respondent failed to accept the same, in my view, it cannot be stated to be the acknowledgement ::: Downloaded on - 09/06/2013 18:39:26 ::: 11 arbp1180.10.sxw ssm of liability of whole amount so claimed, as accepted and considered by the learned Arbitral Tribunal in the present case. Other than above letter/acknowledgement no material whatsoever placed on record by the Respondent. The Respondent never pleaded and/or made such ground to claim the exemption of limitation and/or to bring the claim within limitation. In the present case, therefore, I am not inclined to accept the case of the Respondent and/or reasoning given by the learned Arbitral Tribunal. The claim so raised, the amount so awarded, was never admitted by the Petitioner within the period of limitation. Therefore, there was no acknowledgement in writing and/or signed by the Parties. All these basic elements are missing in the present case. Therefore, without going further into the merits of the matter, in view of the above position on record, I am inclined to set aside the award.
19 Strikingly, in Paragraph 15, the Arbitral Tribunal has observed as under:-
"15 As the issue was unresolved, the Claimant initiated arbitration proceedings on 5.3.2006.........
In para 27, it is observed that:-
"27 ...............The reference to arbitration was also to ::: Downloaded on - 09/06/2013 18:39:26 ::: 12 arbp1180.10.sxw ssm resolve the dispute regarding the amount due to the Claimant, which is clear from letter dated 2 nd May 2006 of the Advocate for the Claimant Mr. K.N. Suresh invoking arbitration."
20 The reference was made to letter of 5 March 2006 in para 32 also, but it was in connection with the reply dated 30 May 2006 which was in fact answer to letter dated 2 May 2006. There was no such letter referring to date 5 March 2006 as mentioned in the award by the Arbitral Tribunal. Annexure at C-7 nowhere mentioned such date neither any other letters from 18 January 2003 to 23 February 2005 and 2 May 2006. The Respondent in his Written Statement also referred and relied on the said date i.e. 2 May 2006, Exhibit "C".
21 Therefore, it is clear that the Arbitration proceedings were initiated on 2 May 2006 and not on 5 March 2006 as mentioned by the learned Arbitral Tribunal. Therefore, to give one more chance, I have listed this matter on 27 April 2012. The Petitioner, therefore, filed an affidavit dated 27 April 2012 clarifying the above position that date 5 March 2006 so mentioned in the award is nothing but the typographical error/mistake. The relevant date is 2 May 2006.
However, as it goes to the root of the matter. The matter was kept on 9 May 2012, with directions to give notice and serve the copy of the ::: Downloaded on - 09/06/2013 18:39:26 ::: 13 arbp1180.10.sxw ssm affidavit to other side. The other side appeared for the first time on 9 May 2012 and the matter, as requested, adjourned to 11 May 2012, for pronouncement of judgment.
22 The Respondent on 11 May 2012 submitted to permit their argument though they were absent initially. In the interest of justice and as consented also, permitted to make the submissions.
23 The learned counsel appearing for the Respondent restricted the argument on the ground of limitation. Considering the material on record, he was unable to dislodge the contention raised by the learned counsel appearing for the Petitioner that 2 May 2006 was the date of invocation of arbitration and not 5 March 2006, as mentioned in the Award. He fairly conceded that for the purposes of deciding limitation and in view of the undisputed material on record, the date of initiation of arbitration need to be read as 2 May 2006 and not 5 March 2006.
24 The learned counsel appearing for the Respondent has relied on Mst. Rukhmabai v. Lala Laxminarayan,2 though based on 2 AIR 1960 SC 335 ::: Downloaded on - 09/06/2013 18:39:26 ::: 14 arbp1180.10.sxw ssm Limitation Act, 1908, Article 120, contended that "the right to sue accrues" when there is clear and unequivocal denial to the same. He further relied on Union of India v. West Coast Paper Mills Ltd, 3 based upon Limitation Act, 1963, Articles 58 and 113. Here we are concerned with a monetary claim. The period of limitation is three years which begins to run from the date of right to sue accrues. He further relied on M. Mangilal vs. M/s. M. S. Ramkrishna Gupta and Bros.,4 and thereby contended that the cause of action arose from the date of communication of such refusal by the other side and not from the date of notice sent by the Plaintiff rescinding the contract. The proposition of law as settled by the Supreme Court need no further discussion. In the present case, we have to consider the contract and its relevant commercial clauses between the parties. Therefore, the facts and circumstances always play important role while dealing with such type of contracts and the claim arising out of the same.
25 The terms and condition were as under :
"7.2 This commission shall be payable within 7 (seven) business days after AVIATORS has completed its obligation to provide revenue of Rs.8,75,00,000 (Indian Rupees eight crores seventy five lakhs only) on or by 31 3 AIR 2004 SC 1596 4 AIR 2006 Karnataka 250 ::: Downloaded on - 09/06/2013 18:39:26 ::: 15 arbp1180.10.sxw ssm March 2004 (hereinafter referred to as "the Guaranteed Revenue") and such Guaranteed Revenue has been fully realized in the books of MAL.
7.3 No commission will be payable if AVIATORS does not meet its obligation of the Guaranteed Revenue as on 31 March 2004.
7.4 AVIATORS shall continue receiving commission at the rate of 7% till 31 March 2004 even though it has achieved its target of Rs.8,75,00,000 (Indian Rupees eight crores seventy five lakhs only) revenue for all direct and indirect Charters.
10.2 MAL shall have the right to cancel this Agreement :
a. If MAL following review of performance after 12 months from 1st February 2002 concludes that it is not satisfied with the results as reasonably expected shall give AVIATORS written notice of 30 days for termination of this Agreement. Such Performance shall be based on AVIATORS having achieved an average of 20 hours of revenue earning Charter time per month.
b. In case of early termination of this Agreement under the circumstances of non-performance mentioned hereinabove, MAL shall compensate AVIATORS towards Charters at the rate of 7% of the total revenue generated until the date of early termination."
26 Admittedly, the contract in question was terminated on 15,03,2003 i.e. immediately after 45 days from the date of the commencement of the contract i.e. 1.2.2002. Therefore, as dispute ::: Downloaded on - 09/06/2013 18:39:26 ::: 16 arbp1180.10.sxw ssm arose, the arbitration clause no.14 was invoked on 2 May 2006, thought the contract was terminated on 15 March 2003. The claim of the Respondent was of Rs.23,38,322/- by way of 7% commission under clause 10.2. The Petitioner, however, considering the total revenue generated by the Respondent during the subsistence of the agreement as it was Rs.67,81,806/- and therefore agreed to make the lump sum payment, of 7% commission thereon amounting to Rs.7,74,726/-. The letter was accordingly forwarded along with the cheque. The same was not accepted on 25 August 2005. Admittedly, there were correspondences going on immediately after termination of the contract. Even the dispute arose with regard to the revenue generated during the terms of the contract. As per the agreement, therefore, the cause of action arose, the moment the contract was terminated. The amount so accrued, based upon clause 10.2 in view of the agreed contract/clause between the parties, were crystalised and well within the knowledge of the Respondent. The right to sue accrued immediately on the date of pre-mature termination of the contract i.e. 15 March 2003. There was no question of awaiting any acknowledgment and/or liability and/or any denial of the amount of commission based upon the agreement between the parties. The invocation of arbitration on 2 May 2006, therefore, as rightly ::: Downloaded on - 09/06/2013 18:39:26 ::: 17 arbp1180.10.sxw ssm contended, was beyond the period of limitation from the date of accrual of cause of action to claim agreed compensation. It is no-
where mentioned, as well as, agreed at any point of time, by the parties and neither there is any clause referred and/or pointed out that the claim was subject to furnishing details of the revenue generated during the terms of the agreement. Considering the nature of contract, the Respondent had knowledge, as well as, the account of the revenue generated as that was the basic foundation for 7% of commission under clause 10.2. The statement of claim was filed on 7 August 2007 before the Arbitral Tribunal.
27 The Petitioner replied and resisted the claim by its written statement and raised counter claim. It is to be noted here that in the present Petition, the Petitioner not pressed the issue of counter claim.
It is already recorded and disposed of as not pressed.
28 The learned Arbtiral Tribunal, however, considering the letter as offer was made by the Petitioner on 18 August 2005, held that the claim so filed from that date is within limitation by treating the same to be the acknowledgment of liability/admission of liability as per the law. There are no sufficient reasons provided. The judgments so ::: Downloaded on - 09/06/2013 18:39:26 ::: 18 arbp1180.10.sxw ssm referred above by the learned counsel appearing for the Respondent on the point of limitation, neither cited nor referred and no such submissions were even made and/or raised before the learned Tribunal. The Tribunal admittedly has dealt with the aspect of limitation in four sentences reasoning as recorded above. Those reasoning, in no way, sufficient to overlook the undisputed position of record basically when admittedly arbitration itself was invoked on 2 May 2006 and not on 15 March 2006 as recorded wrongly. This date goes to the root of th matter. After going through the record as well as submissions made by the rival parties and as recorded above, I am also of the view that the Respondent has invoked the arbitration on 2 May 2006, that was admittedly beyond the period of three years from the date of accrual of cause of action to claim 7% commission in view of the pre-determination of the contract i.e. 15 March 2003 with effect from 15 March 2003. As I am inclined to reject the claim of the original Respondents on the ground of limitation itself, therefore, there is no question of going into further merits of the matter.
29 So far as the cost is concerned, in view of the facts and circumstances and the reasoning given above as I am inclined to set aside the Award, therefore, the cost so awarded against the Petitioner ::: Downloaded on - 09/06/2013 18:39:26 ::: 19 arbp1180.10.sxw ssm also need to be modified. Both the parties to share the cost equally.
There is no question of putting burden of cost of proceedings only upon the Petitioner as awarded. There is no question of award of interest once the basic claim of the Respondent is rejected as referred above.
30 Therefore, taking overall view of the matter, including the reasoning given by the learned Tribunal as well as the submissions so made by the learned counsel appearing for the Respondent for the first time in Section 34 Petition and taking overall view of the law as well as the facts, I am inclined to pass the following order :
ORDER
a) The Arbitral Award dated 4 June 2010 is quashed and set aside to the following extend i.e. Clause Nos. (I) and (iii).
b) Clause (ii) - Both the parties to share the costs equally.
c) Clause (iv) - maintained.
d) No order as to costs.
(ANOOP V. MOHTA, J.)
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