Petitioner seeks appointment of an arbitrator to resolve disputes between the parties arising out of two contracts both dated 27.09.2007. The respondent, however, opposes such petition on the sole ground that such contracts stand cancelled and that therefore, there is no scope for appointment of an arbitrator. To appreciate the controversy, few facts would be necessary.
On 27.09.2007, petitioner and respondent entered into two separate contracts. Terms and conditions thereof were similar. Respondent agreed to supply certain quantity of "iron ore fines" of specified quality. It is not in dispute that for purchase of such material, the petitioner made advance payment of Rs. 38,03,000/- to the respondent. It appears that while the respondent supplied part of the agreed quantity of iron ore fines, the petitioner was not satisfied about the quality thereof.
Undisputedly, the agreements contained clause for arbitration in following terms:
" Clause
13. Arbitration All disputes in connection with this contract or the execution thereof shall be settled amicably by friendly negotiations between the two parties. If no settlement can be reached, the case in dispute shall then be submitted for arbitration in India, which shall be agreed upon by both parties. The contract shall be governed and construed by Indian Law.
We may notice that such agreements contained Clause 15 which pertained to default/ late delivery. Clause 15 read as under:
Clause 15: Default/Late Delivery In the event the supplier is not able to effect delivery of cargo as per specified schedule, buyer may at their option either
i) Recover from supplier, as liquidated damages a sum equal to two percent per week or part thereof of the value of goods not delivered, subject to a maximum of 5% of the value of the order or;
ii) Purchase elsewhere on account and at the risk and cost of the supplier or intermediary or both, for the goods not delivered or;
iii) Cancel the order without prejudice to the rights of Buyer under (i & ii) above On 10.01.2008, the petitioner wrote to the respondent that the iron ore fines of 505.970 metric tons supplied by the respondent was of lower grade and the same has been returned back. The petitioner has not received any supply thereafter. The petitioner would, therefore, invoke Clause 15 of the Contract which pertains to default/late delivery. The petitioner requested the respondent to pay amount of Rs. 1,19,35,000/- being 5% of the contract value. It was stated that the claim/claimant was without prejudice to other action which may be taken for breach committed by the respondent. It is not in dispute that such letter was received by the respondent. It is also not in dispute that respondent did not reply to this letter.
On 08.02.2008, the petitioner once again wrote to the respondent and informed that the petitioner would be depositing three separate cheques totalling to Rs. 30 lacs issued by the respondent. The petitioner requested that the respondent should ensure that such cheques were passed. After adjusting such sum of Rs. 30 lacs, the petitioner asserted that the respondents still had to pay a total sum of Rs. 89,35,000/-. Admittedly, such letter was also received by the respondent and admittedly such letter also remained un-replied.
It appears that three different cheques totaling to Rs. 30 lacs, referred to in notice dated 08.02.2008, bounced upon presentation. Petitioner, therefore, has initiated proceedings under Section 138 after issuing statutory notice of the Negotiable Instruments Act.
On 11.12.2010, the petitioner issued notice to the respondent for appointment of an arbitrator failing which the petitioner contended that it would move the High Court for appointment under Section 11 of the Arbitration and Conciliation Act, 1996. In such notice, the petitioner reiterated that the respondent had supplied only 505.970 metric tones of iron ore fines which was not in terms of the contract between the parties. Since the material was also of lower grade, the same was lifted back by the respondent. Thus the petitioner received no supply of goods from the respondent. The petitioner had, therefore, invoked Clause 15 of the contract and demanded sum of Rs. 1,19,35,000/- being 5% of the contract value. It was also pointed out that the cheques issued by the respondent had dishonoured and that therefore, after issuing notices, proceedings were filed under Section 138 of the Negotiable Instruments Act. The petitioner therefore, desired to resort to arbitration in terms of Clause 13 of the contract. It was conveyed that:
"We state that accordingly, we are left with no option but to seek to refer the disputes to arbitration. We request you to agree on reference of the disputes to arbitration of a retired Hon'ble High Court Judge based at Ahmedabad. You are requested to give your consent for the reference to arbitration within a period of one month from the date of receipt of the present notice, failing which we shall be constrained to move an appropriate application as per the provisions of Section 11 of the Arbitration and Conciliation Act, 1996."
It is not in dispute that such letter was also received by the respondent but no reply was given.
Finally, therefore, the petitioner approached this Court by filing present petition and prayed that in terms of Section 11 of the Arbitration and Conciliation Act, 1996, an Arbitrator be appointed to resolve the disputes between the parties arising out of said two contracts.
In response to notice issued, respondent appeared and filed an affidavit dated 24.06.2011. In the affidavit, it is principally contended that the contracts between the parties dated 27.09.2007 were cancelled. The respondent has relied on three letters dated 07.12.2007, 09.12.2007 and 14.12.2007 purportedly issued by the petitioner to establish this. In the letter dated 07.12.2007, it was stated as under:
"Dear Sir, We have received your Cheque No. GA 1559120 for Rs. 1,50,000/- towards cancellation of Contracts No. SF/LMB/IOF/FOR/207/001 & SF/LMB/IOF/FOR/2007/002 against our mutual understanding.
Your Security cheque shall be returned afterwards."
The other two letters dated 09.12.2007 and 14.12.2007 contains similar statements but for the difference in the cheque numbers and the amounts of such cheques.
On the basis of such letters, the respondent contends that when the contracts have been cancelled for such cancellation cheques have been issued, there is no question of appointment of an arbitrator in terms of such contract. In the reply stand of the respondent is that such letters were signed by one Dipen Chanchani, as authorized signatory of the petitioner company.
Petitioner has filed affidavit-in-rejoinder controverting the statements made in the reply. It is contended that no such letters were issued by the petitioners. It is specifically denied that Mr. Dipen Chanchani ever signed these letters. In short, the petitioner hotly disputes any such letters having been issued by the petitioner-company.
Affidavit-in-sur-rejoinder is filed by the respondent. In such affidavit, it is principally stated that the letters were not signed by Mr. Dipen Chanchani but by one Bhavin Vohra on behalf of the petitioner-company.
On the basis of such material on record, counsel for the parties have made detailed submissions before me. Counsel for the petitioner submitted that in view of the arbitration clause contained in the contract, this Court may exercise the powers under Section 11 of the Arbitration and Conciliation Act for appointment of an arbitrator to resolve the disputes. She submitted that the so called letters dated 07.12.2007, 09.12.2007 and 14.12.2007 have never been issued by the petitioner-company. Such letters, therefore, be ignored.
On the other hand, learned counsel Mr. Buch for the respondent submitted that when the contract itself stood terminated, appointment of an arbitrator cannot be made. He submitted that cheques mentioned in such letters were received by the petitioner and upon presentation before the bank, duly honoured. Such cheques were issued for discharge of the respondent's liability under the contracts.
From the record, it clearly emerges that, on 27.09.2007, parties entered into two separate contracts for supply of iron ore fines. Towards such supply, the petitioner made advance payment of Rs. 38,03,000/- to the respondent. Serious disputes arose with respect to the quality and quantity of iron ore fines supplied by the respondent. First consignment provided by the respondent, according to the petitioner, did not satisfy the specifications of quality. The respondent, therefore, took back the material. Thereafter, it appears that there was no further supply from the respondent.
To my mind, letters dated 07.12.2007, 09.12.2007 and 14.12.2007 cannot be accepted to hold that the contracts stood terminated. This is so for the following reasons:
1. The respondent, in the affidavit in reply, initially contended that such letters were written by Mr. Dipen Chanchani. Upon being pointed out in the rejoinder statement that Mr. Chanchani had never signed such letters, the respondent changed the stand and contended that the same were signed by Mr. Bhavin Vohra.
2. In the affidavit in sur rejoinder filed by the petitioner, it is specifically stated that the company had at no point of time appointed any person by the name Bhavin Vohra nor the company had authorized any such person to issue letters on its behalf. These averments have not been denied by the respondent.
3. Most significantly however is the conduct of the respondent which requires closer scrutiny. If, as contended by the respondent, the contracts stood cancelled in the month of December,2007, there was no cause for the petitioner to invoke the default Clause 15 contained in such contracts. This is precisely what the petitioner did vide its letter dated 10.01.2008. Such letter though received by the respondent, the respondent did not react to such communication. In fact, the petitioner issued yet another communication dated 08.02.2008 and asserted that in addition to Rs. 30 lacs covered under three different cheques issued by the respondent which the petitioner was in the process of depositing with its banker, the respondent had to pay further sum of Rs. 89,35,000/- towards the damages. Such letter also was received by the respondent, without any reaction.
4. Natural conduct of any party under such circumstances dispute would have been to immediately assert that the contracts have been cancelled, question of invocation of default clause would not arise. This was not done. In fact, the cheques upon presentation by the petitioner were dishonoured. For such dishonour of cheques, the petitioner also issued notices under Section 138 of the Negotiable Instruments Act and also has filed complaints before the Magistrate. In response to the such notices also the respondent did not take a stand that the contract had been cancelled and that therefore the respondent was not required to pay any further amount.
5. In the affidavit-in reply first filed by the respondent, to explain such contradiction, it was contended that since the author of these letters Mr. Dipen Chanchani orally discussed with the respondent that he would take necessary steps in this regard, the respondent did not file any reply. Here again the stand of the respondent is falsified. If Mr. Dipen Chanchani did actually speak to the respondent representative as contended it would have immediately come to light that he had never issued the so called letters dated 07.12.2007, 09.12.2007 and 14.12.2007.
6. Even in response to the notice for appointment of an arbitrator issued by the petitioner, no such stand was taken. In fact, no reply was given by the respondent to such a notice also.
In the result, I am firmly of the opinion that such stand of the respondent is merely an after thought and such so called letters dated 07.12.2007, 09.12.2007 and 14.12.2007 must be discarded from consideration.
I have no hesitation in coming to the conclusion that there was never such so called cancellation of the contract. Such defense is put forth only in order to prevent the petitioner from resorting to arbitration.
Other than this defense, no other grounds have been raised opposing this petition for appointment of an arbitrator. Resultantly, Hon'ble Justice R.A.Mehta (Retired Judge) is requested to act as as Sole Arbitrator to resolve the dispute arising between the parties out of the contract dated 27.09.2007. Petition is disposed of accordingly.
It is clarified that the observations made in this order are only for the purpose of appointment of an arbitrator. To put it differently, I have expressed no opinion on the main disputes between the parties.
[AKIL KURESHI, J.] JYOTI Top