Andhra HC (Pre-Telangana)
Explosives Consultation And ... vs Idl Industries Ltd. on 16 February, 2001
Equivalent citations: AIR2001AP256, 2001(2)ALT378, AIR 2001 ANDHRA PRADESH 256, (2001) 2 ANDHLD 475 (2001) 2 ANDH LT 378, (2001) 2 ANDH LT 378
Author: Satyabrata Sinha
Bench: Satyabrata Sinha
ORDER Satyabrata Sinha, C.J.
1. This application under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (for short 'the Act') has been filed by the petitioner herein for appointment of arbitrator for adjudication of the claims and disputes between the parties hereto.
2. A Distribution Agreement dated 1-1-1993 had been entered into between the parties for distribution of the explosives and other accessories manufactured by the respondent herein. Disputes and differences having arisen between the parties, the applicant made several requests for referring the disputes to an arbitrator making a claim of US $ 707,710.80 covering FOB value of defective goods delivered and disbursement costs incurred by it on several counts. The respondent in its letter dated 15-2-2000 recorded that the claim of US $ 707,710.80 against the total FOB value of US $ 279,988.40 is totally unsustainable and contrary to the specific terms agreed upon governing the supply. It was further recorded that as per General Terms of Sale, the maximum liability of IDL is US$ 279,988.40. Thereafter, the applicant issued a notice on 10-3-2000 which is in the following terms :
"Mr. R. M. Unni Senior Executive Director IDL Industries Limited Kukatpally, Hyderabad.
Dear sir, Ref : ECA claims for defective products delivered.
Please refer to our letter dated 31st January, 2000 and your (IDL) letter dated 15th February, 2000.
We noted your contentions stipulated in your letter dated 15th February, 2000, but humbly beg to defer. We maintain our claims made totalling to US $ 707,710.80 is a valid claim for compensation and defrayaljust as we reaffirm the contentions in our letter dated 31st January, 2000.
Essentially, the said IDL General Terms of Sales are not exhaustive of the rights and liabilities of the parties as its silence on the defective products liabilities and the danger it pose till its locally authorised/licensed disposal. Your reference and interpretation of Clause 14 of the General Terms of Sales is unfair and in our opinion NOT applicable.
It is our humble opinion that IDL liability has to be determined not only with reference of the said General Terms of Sales but also its mutually agreed qualified acceptance stipulated in FCA letter dated 18th September, 1992 which clearly states "Product quality complaints must be the responsibility of your company", statutory law including the rights and liabilities arising under the Sale of Goods Act, 1930.
We are of the opinion that IDL Export Manager admissions in the various correspondences and also course of conduct clearly establish that any restriction in IDL liability has been waived even if it is assumed that the relevant clause applies to our claims.
Consequently, we cannot possibly accept your contention that our claim is limited to defective products FOB value of US $ 279,988.40.
It is clear from the above that our claims at this stage cannot be resolved amicably due to the substantial difference in amount in dispute and almost the total claims of defective products were manufactured before the tenure of your goodself and Mr. S. Pramanik.
We sincerely regret our forbearance and corporate courtesy extended to seek an amicable settlement has not bear fruit but lingered on to be a burden.
Since you have expressed Corporate IDL willingness to have our claims adjudicated by arbitration, we feel that is the only course available to both of us to settle our disputes without exposing the greater interests of Corporate IDL to public scrutiny. We herein agree for the same provided that our total claims of US $ 707,710.80 is referred to the arbitrators for adjudication. Your contention that the General Terms of Sales limits IDL liability could also be raised and decided in the said arbitration.
As it is our mutual interest to resolve the dispute expeditiously, we propose that Justice (Retd.) T.N.C. Rangarajan be appointed as a Sole Arbitrator by both of us. In which case, ECA stand steadfast to respect and honour Justice (Retd.) T.N.C. Rangarajan ruling is final and legally binding.
Kindly discern and let us have your early revert.
Yours faithfully, Mr. Tan Kaik Hock Managing Director."
3. The said proposal has been rejected by the respondent in terms of its letter dated 29-4-2000 stating as under :
"Please refer to your letter dated 10th March, 2000 on the above subject. As desired by you, we are prepared to refer your claims to an arbitration process.
However, this is based on our General Terms of Sale to which ECA has an agreement. We are not, however, agreeable for the arbitration process to decide whether the General Terms of Sale is applicable in settlement of the claim. Our view is that the arbitration process is a consequence of our General Terms of Sale. In the last paragraph of your letter, you have proposed sole Arbitrator for both ECA and IDL.
We are not agreeable to this. In our General Terms of Sale, the arbitration procedure/appointment of Arbitrator etc. is clearly defined and we would have to go by that relevant clause of our General Terms of Sale."
4. Thereafter, another notice had been issued by the applicant on 9-6-2000 in terms of Clause 13 of the IDL General Terms of Sales Contract informing the respondent that it had already appointed its arbitrator Mr. Justice A. Gopal Rao, Retired Judge, High Court of A. P. and called upon the respondent to appoint their arbitrator within fifteen days of the said notice. As the said notice has not been attended to, the instant application has been filed.
5. It is not in dispute that the aforementioned Distribution Agreement dated 1-1-1993 entered into by the parties does not contain any arbitration agreement. However, the General Terms of Sale did contain an arbitration clause in Clause 13.
6. Having regard to the contents of the aforementioned letters, it appears that no dispute existed as to the absence of any arbitration agreement, but, only quantum of claim has been disputed. In fact parties agree that there exist an arbitration agreement.
7. The learned counsel appearing on behalf of the respondent, however, submitted that, in the instant case. Clause 13 of the Distribution Agreement prevail over the General Terms of Sale.
Clause 13 of the Distribution Agreement reads as under :
"Any dispute between the Principal and Distributor regarding these presents or any other matter or thing arising thereunder shall be decided by the appropriate Court in India having the required jurisdiction."
The said stand is contrary to and inconsistent with the stand taken by the respondent in their letter dated 29-4-2000. The Distribution Agreement was entered into on 1st January, 1993. It has not been disputed that the conditions of contract are governed by the General Terms of Sale. Clause 13 of General Terms of Sale contained an arbitration agreement which is to the following effect :
"Arbitration and Law applicable :
Any dispute arising under this contract shall be referred to the adjudication of two arbitrators, one to be appointed by each party, and the arbitration proceedings shall be conducted in India according to Indian laws and in the event of said arbitrators not agreeing, then to the adjudication of an umpire to be appointed by the President of the Federation of Indian Chambers of Commerce and Industry, New Delhi, and the decision of the umpire shall be final and binding on all parties to this agreement. The arbitrators, in making their decision shall base their determination upon the governing law of this agreement, recognized international commercial customs, the reasonable expectations and intentions of the parties as of the Execution Date, but they shall not be empowered to modify any of the terms of this Agreement. If the arbitral process is unduly protracted say beyond one year, then either party may litigate the dispute in a Court of competent jurisdiction in India or pursue any other remedies available under the law governing this agreement."
8. The contention of the learned counsel for the respondent is that there being no refusal on the part of the respondent herein to refer the matter to the Arbitral Tribunal, the provisions of Section 11(6) cannot be said to have any application. Reliance in this connection has been placed on the decision of the Apex Court in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan, . In the said case, the Apex Court considered a question where there existed different arbitral clauses in the connecting agreements. Speaking for the Bench, Jagannadha Rao, J. held :
"14. It will be noticed that under the Act of 1996 the arbitral tribunal is now invested with power under Sub-section (1) of Section 16 to rule on its own jurisdiction including ruling on any objection with respect to the existence or validity of the arbitration agreement and for that purpose, the arbitration clause which forms part of the contract shall be treated as an agreement independent of the other terms of the contract and any decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure affect the validity of the arbitration clause. This is clear from Clause (b) of Section 16(1) which states that a decision by the arbitral tribunal that the main contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
15. In the present context Sub-sections (2) and (3) of Section 16 are relevant. They refer to two types of pleas and the stages at which they can be raised. Under Sub-section (2) a plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submissions of the statement of defence : however, a party shall not be precluded from raising such a plea merely because he has appointed or participated in the appointment of an arbitrator. Under Sub-section (3) a plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. These limitations in Sub-sections (2) and (3) are subject to the power given to the arbitrator under Sub-section (4) of Section 16 that the tribunal may, in either of the cases referred to in Sub-section (2) or Sub-section (3), admit a later plea if it considered the delay justified. Sub-section (5) requires the arbitral tribunal to decide on the pleas referred to in Sub-section (2) or Sub-section (3) at that stage itself. It is further provided that if either of the pleas is rejected and the arbitral tribunal holds in favour of its own jurisdiction, the tribunal will continue with the arbitral proceedings and proceed to make the arbitral award. Then comes Sub-section (6), which states that the party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34."
9. The arbitration clause contained in General Terms of Sale refers to "any dispute arising under this contract" which is of wide amplitude and this aspect of the matter has been considered in Renusagar Power Co. Ltd. v. General Electric Co. . The Apex Court in Olympus Superstructures case held :
".........If there is a situation where there are disputes and differences in connection with the main agreement and also disputes in regard to "other matters" "connected" with the subject-matter of the main agreement then in such a situation, in our view, we are governed by the general arbitration Clause 39 of the main agreement under which disputes under the main agreement and disputes connected therewith can be referred to the same arbitral tribunal. This Clause 39 no doubt does not refer to any named arbitrators. So far as Clause 5 of the Interior Design Agreement is concerned, it refers to disputes and differences arising from that agreement which can be referred to named arbitrators and the said Clause 5, in our opinion, comes into play only in a situation where there are no disputes and differences in relation to the main agreement and the disputes and differences are solely confined to the Interior Design Agreement. That, in our view, is the true intention of the parties and that is the only way by which the general arbitration provision in Clause 39 of the main agreement and the arbitration provision for a named arbitrator contained in Clause 5 of the Interior Design Agreement can be harmonised or reconciled. Therefore, in a case like the present where the disputes and differences cover the main agreement as well as the Interior Design Agreement, -- (that there are disputes arising under the main agreement and the Interior Design Agreement is not in dispute) -- it is the general arbitration Clause 39 in the main agreement that governs because the questions arise also in regard to disputes relating to the overlapping items in the schedule to the main agreement and the Interior Design Agreement, as detailed earlier. There cannot be conflicting awards in regard to Items which overlap the two agreements. Such a situation was never contemplated by the parties. The intention of the parties when they incorporated Clause 39 in the main agreement and Clause 5 in the Interior Design Agreement was that the former clause was to apply to situations when there were disputes arising under both agreements and the latter was to apply to a situation where there were no disputes or differences arising under the main contract but the disputes and differences were confined only to the Interior Design Agreement. A case containing two agreements with arbitration clauses arose before this Court in Agarwal Engg. Co. v. Technoimpex Hungarian Machine Industries Foreign Trade Co. . There were arbitration clauses in two contracts, one for sale of two machines to the appellant and the other appointing the appellant as sales representative. On the facts of the case, it was held that both the clauses operated separately and this conclusion was based on the specific clause in the sale contract that it was the "sole repository" of the sale transaction of the two machines. Krishna Iyer, J., held that if that were so, then there was no jurisdiction for travelling beyond the sale contract. The language of the other agreement appointing the appellant as sales representative was prospective and related to a sales agency and "later purchases", other than the purchases of these two machines. There was, therefore, no overlapping. The case before us and the above case exemplify contrary situations. In one case the disputes are connected and in the other they are distinct and not connected. Thus in the present case, Clause 39 of the main agreement applies.
10. The Apex Court in Konkan Railway Corporation Ltd. v. Mehul Construction Co. held that an order under Section 11 of the Act being administrative in nature, the same cannot be subject to judicial scrutiny under Article 136 of the Constitution of India and thus no application for grant of special leave can be entertained. It was further observed that "It is clarified that the learned Chief Justice not having functioned as a Court or Tribunal and the order being administrative in nature, the observations and findings are not binding and will not be taken into consideration by the Arbitral Tribunal, if an objection to validity or existence of arbitration agreement is taken before it.................."
The said view has been followed in Malaysian Airlines Systems BHD v. Stic Travels (P) Ltd., 2000 (8) Supreme Today 145 : (2000 AIR SCW 4524), wherein Jagannadha Rao, J., despite noticing that the point is now pending consideration before a larger Bench, in Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd., observed :
"...... .In view of the said three-Judge judgment, I decline deciding these preliminary issues and direct that the matter be straightway referred to an arbitrator."
11. In the instant case, as noticed hereinbefore, there is no dispute as regards the existence of an arbitration agreement in the General Terms of Sale. Herein, only the quantum of claim is in dispute. So far as the applicability of Sub-section (6) of Section 11 is concerned, this Court is of the opinion that the contention of the respondent that the application is not maintainable under the said provision has no force. The respondent having failed to appoint an arbitrator within thirty days from the date of receipt of the request from the applicant, there is no bar in invoking the arbitration clause before this Court.
12. For the reasons aforementioned, this application is allowed. Having regard to the nature of the dispute and the quantum of the amount involved therein, Hon'ble Mr. Justice K. Jayachandra Reddy, Retd. Supreme Court Judge, is appointed as arbitrator on usual terms.