IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 18TH DAY OF JULY, 2019 BEFORE THE HON'BLE MR. JUSTICE B. VEERAPPA CIVIL MISCELLANEOUS PETITION NO.233/2015 c/w CIVIL MISCELLANEOUS PETITION NO.234/2015 CIVIL MISCELLANEOUS PETITION NO.235/2015 IN C.M.P.No.233/2015 BETWEEN:
M/s. TATA MOTORS LIMITED Having its Registered office at:
Bombay House 24, Homi Mody Street, Mumbai – 400001. ... Petitioner (By Sri. Kiran Kumar.H.S., Advocate) AND:
1. Karnataka State Road Transport Corporation Through Mechanical Engineering (Production) Department Central Office, K H Road, Shanthinagar, Bengaluru-560027.
2. Karnataka State Road Transport Corporation Through the Chief Accounts Officer and Finance Advisor Central Office, K H Road, Shanthinagar, Bengaluru-560027. ... Respondents (By Sri. P.D. Surana, Advocate for R1 & R2) This Civil Miscellaneous Petition is filed under section 11(6) of the Arbitration and Conciliation act, 1996, praying to direct the Respondent to file the original Tender No.T-87 dated 21/01/2011 consisting of arbitration clause in this Hon’ble Court and to appoint an arbitrator in terms of the arbitration clause being sub clause (k) and (l) of clause 15 of the Tender No.T-87 dated 21/1/2011 for adjudication of the disputes/claims detailed above along with costs.
IN C.M.P.No.234/2015 BETWEEN:
M/s. TATA MOTORS LIMITED Having its Registered office at:
Bombay House 24, Homi Mody Street, Mumbai – 400001. ... Petitioner (By Sri. Kiran Kumar.H.S., Advocate) AND:
1. Karnataka State Road Transport Corporation Through Mechanical Engineering (Production) Department Central Office, K H Road, Shanthinagar, Bengaluru-560027.
2. Karnataka State Road Transport Corporation Through the Chief Accounts Officer and Finance Advisor, Central Office, K H Road, Shanthinagar, Bengaluru-560027. ... Respondents (By Sri. P.D. Surana, Advocate) This Civil Miscellaneous Petition is filed under section 11(6) of the Arbitration and Conciliation act, 1996, praying to direct the Respondent to file the original Tender No.T-88/2010-11 dated 14/02/2011 consisting of arbitration clause in this Hon’ble Court and to appoint an arbitrator in terms of the arbitration clause being sub clause (j) of clause 18 of the Tender No.T- 88/2010-11 dated 14/2/2011 for adjudication of the disputes/claims detailed above along with costs.
IN C.M.P.No.235/2015 BETWEEN:
M/s. TATA MOTORS LIMITED Having its Registered office at:
Bombay House 24, Homi Mody Street, Mumbai – 400001. ... Petitioner (By Sri. Kiran Kumar.H.S., Advocate) AND:
1. Karnataka State Road Transport Corporation Through Mechanical Engineering (Production) Department Central Office, K H Road, Shanthinagar, Bengaluru-560027.
2. Karnataka State Road Transport Corporation Through the Chief Accounts Officer and Finance Advisor, Central Office, K H Road, Shanthinagar, Bengaluru-560027. ... Respondents (By Sri. P.D. Surana, Advocate) This Civil Miscellaneous Petition is filed under section 11(6) of the Arbitration and Conciliation act, 1996, praying to direct the Respondent to file the original Tender No.T-91/2011-12 dated 13/06/2011 consisting of arbitration clause in this Hon’ble Court and to appoint an arbitrator in terms of the arbitration clause being sub clause (j) of clause 18 of the Tender No.T- 91/2011-12 dated 13/6/2011 for adjudication of the disputes/claims detailed above along with costs.
These Petitions coming on for Hearing, this day, the court made the following:
O R D E R All these civil miscellaneous petitions are filed to enforce the arbitration clause in terms of sub-clause (k) and (l) of clause 15 of the Tender No.T-87/2010-11 dated 21-1- 2011 due on 22-2-2011 in CMP.No.233/2015, in CMP.No.234/2015 sub-clause (j) of clause 18 of the Tender No.T-88/2010-11 dated 14-2-2011 & in CMP.No.235/2015 sub-clause (j) of clause 18 of the Tender No.T-91/2011-12 dated 13-6-2011 for adjudication of dispute between the parties.
2. It is the case of the petitioner in all these civil miscellaneous petitions that the petitioner is a Company incorporated under provisions of Companies Act, 1913 and applicant inter-alia engaged in the manufacture and sale of motor vehicles and has its vehicles manufacturing plants all over India. The present application is being signed, verified and filed by Ms. Thinlay Chukki, working as Manager (Legal) with the petitioner who has been duly authorized by the letter of Authority dated 08-8-2014 to sign, verify and file the application and to appear before this Court on behalf of the petitioner/applicant in all legal proceedings. It is further case of the petitioner that the first respondent floated a tender bearing No.T-87/2010-11 dated 21-1-2011 due on 22-2-2011 for procurement of Buses fitted with BS-III. The petitioner downloaded the tender and all other relevant forms from e-Procurement portal of the respondent and submitted its bid to the tender. As per the tender, the successful tenderers were to deliver the chassis to the authorized body builder for construction of bus bodies with intimation to the respondents and the respondents wanted separate bills to be raised for chassis and bus body.
According to the terms and conditions of the said tender, the tenderer was required to supply the ordered quantity as per mutual agreement and delivery schedule given in the purchase order. It is further case of the petitioner that the tender was submitted according to the terms and conditions of tender and was awarded the contract for supply of aforesaid chassis as per the issued purchase orders and consequently the respondents issued purchase orders as under:
Purchase Order No. Purchase Order Date No.of Vehicles to be supplied KST:CO:ME:SK:04:2011-12 15-7-2011 300 numbers KST:CO:ME:SK:01:2012-13 20-4-2012 75 numbers (25% of 300 numbers 3. The said purchase orders were also incorporated with the delivery schedule and rate for supply of aforesaid chassis. The rate per chassis was Rs.9,38,284/- and the end rate after availing prompt payment discount of 3.5% for payment within 60 working days from the date of receipt of chassis (inclusive of statutory levies) was Rs.9,05,444/-. Similarly, a separate work order was placed by the respondents on the authorized bus body builder. In accordance with the terms of tender, following agreements were also entered between the petitioner and the respondents on the similar terms and conditions:
Purchase Order No. Purchase Order Date Date of the Agreements KST:CO:ME:SK:04:2011-12 15-7-2011 14-3-2012 KST:CO:ME:SK:01:2012-13 20-4-2012 17-10-2012 4. It is further case of the petitioner that in accordance with the terms of purchase orders and the delivery schedule mentioned therein, the petitioner supplied 300 chassis as per the specifications/quality standards and delivery schedule mentioned in the tender, the purchase orders and the agreements in different batches from 10-8-2011 to 19-5-2012 which were duly accepted by the respondents. In respect of these chassis the respondents made payment to the applicant/petitioner and the last payment of Rs.1,70,78,653/- was received by the applicant on 10-11-2012. It is further contended that the petitioner later on found that while making the payment of chassis, the respondents have deducted prompt payment discount of 3.5% towards 131 chassis, although the payment of these 131 chassis was made much after the period of 60 working days from the date of delivery of the buses. Therefore the respondents are not entitled to any prompt payment discount of 3.5% as stipulated in Clause 5 of the tender for these 131 chassis. It is evident from the column 9 (No.of days delay) of aforesaid sheet that the respondents never made payment within 60 working days from the date of receipt of chassis which would have entitled them to avail prompt payment discount of 3.5%. However, while making payment for the chassis supplied to the respondents by the petitioner, the respondents deducted Rs.43,64,312/- towards prompt payment discount being 3.5% of the invoice value. Therefore, the petitioner has been continuously calling upon the respondents to refund the aforesaid wrongly deducted sum of Rs.43,64,312/- as the payment was made by the respondents after the due date. By way of calls/letters/e-mails different dates in the years 2012, 2013, 2014 and 2015, the petitioner has requested the respondents to make the payment but despite repeated assurances and undertakings to make payment to the petitioner, the respondents have failed and neglected to do so.
5. It is further contended that in terms of the tender bearing No.T-87/2010-11 dated 21-1-2011 had covenants regarding arbitration at sub-clause (k) and (l) of clause 15 and both the parties have submitted themselves for adjudication by way of arbitration of a sole arbitrator to be mutually appointed by the applicant and the respondents. It is further stated that the transactions between the petitioner and the respondents were commercial in nature and the respondents are also liable to pay interest to the petitioner at rate of 18% per annum from the date when the respondents illegally and malafidely deducted the prompt payment discount from the payment outstanding till January 31, 2015 amounting to a sum of Rs.24,53,846/-. Since the respondents failed to pay the above mentioned amount to the petitioner despite repeated requests and reminders, the petitioner sent a legal notice calling upon the respondents to pay a sum of Rs.43,64,312/- towards the amount deducted as prompt payment discount and Rs.24,53,846/- towards interest, totaling to an amount of Rs.68,18,158/-, within a period of 15 days from the date of receipt of the said notice. The respondents received the legal notice on 10-2-2015 but neither agreed for appointment of arbitrator nor refused it. Therefore, the petitioner is before this Court in these Civil Miscellaneous Petitions for the reliefs as sought for.
6. The respondents filed statement of objections in all these civil miscellaneous petitions and contended that the very petitions filed before this Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 are not maintainable and also further admitted that they have issued purchase orders dated 15-7-2011 & 20-4-2012 for supply of bus chassis and admitted that the agreements have been entered between the parties respectively on 14-3-2012 & 17-10-2012. It is further contended that a perusal of Annexures-E & F clearly discloses that there is no arbitration agreement between the parties which provides for resolving the disputes amongst the parties by invoking the provisions of Arbitration Act. Further contended that the petitioner is relying on Clause 28 of the agreement dated 14-3-2012 which reads as under:
“If any dispute as to the workmanship or the quality of material used arises the decision of the Managing Director, KSRTC shall be final & binding.”
The said provision does not provide for resolution of dispute between the parties, if any with regard to the payment of money pursuant to the supply made. The said provisions only relates to the workmanship or quality of the materials used for manufacture of bus chassis. The very same provision does not enable the petitioner to maintain the above petitions and seek reference for arbitration of the alleged dispute as alleged by the petitioner. It is further contended that Clause 15(k) of Annexure-B namely the standard terms and conditions of the tender are only applicable to the tender process. Once the tender process is completed, the purchase order issued governs the terms of the purchase. The purchase order at para-28 relates to workmanship and quality of material used for manufacturing the bus chassis. In para-29 of the purchase order, it is clearly stated that in case of any litigation in the matter concerning with the tender or agreement terms, the same shall lie within the jurisdiction of Bengaluru.
7. It is further contended that Clauses 28 & 29 of Annexure-E does not provide for the mechanism for referring the parties to the arbitration as stated above. Clause 28 deals with the workmanship or the quality of material used and Clause 29 deals with the litigation should lie within the jurisdiction of Bengaluru. Further the additional agreement dated 17-10-2012 produced at Annexure-F is the continuation of the earlier agreement dated 14-3-2012 vide Annexure-E. Clause 5 of the agreement dated 17-10-2012 reiterates the facts that all the terms and conditions contained in the agreement dated 14-3-2012 will apply to the supplies contemplated as per the agreement dated 17- 10-2012. Therefore, the petitioner cannot maintain the present civil miscellaneous petitions.
8. It is further contended that the transactions happened between the parties relates to the supply of bus chassis. The payment is to be made within the period of 60 days from the date of receipt of busses and avail the prompt payment discount. In case of supply of goods, the limitation for recovery of the amount representing the price of goods commences from the date of supply of goods or when the payment is liable to be made. The limitation for maintaining the claim arises on each date of supply. The supplies are made as per Annexure-H. There are 131 bills referred in the Annexure-H. Whenever number of supplies are made, the limitation for recovery of amounts for each of the supplies is whether as on the due date of payment or as on the date of supply? The payments made in respect of the supplies are to be appropriated in the order of debt. According to the table furnished at Annexure-H, the payments are made between the periods from 04-11-2011 to 20-1-2012. The notice at Annexure-M is issued on 19-3-2015. As on 19-3- 2015 the alleged claim of the petitioner is barred by time for the reason that the last supply referred to in Annexure-H is dated 14-10-2011 and the payment in respect of this bill stated to be made in Annexure-H is on 20-1-2012. The claim with regard to each of the bills mentioned at serial Nos.1 to 131 gets time barred on expiry of three years from the due date on which payment is payable for each of the supply.
9. It is further contended that the petitioner has made a statement in Para-21 with regard to cause of action which is misleading one. The cause of action if any for recovery of money in respect of the goods supplied arises from the date of supply or on the due date when the payment to be made and each transaction of supply gives raise to a independent cause of action for each of the supply. Therefore, the petitioner cannot bundle up all the cause of action together and say that the cause of action for maintaining a claim arises as on the date of issue of notices. Therefore, sought for dismissal of the petitions.
10. I have heard the learned counsels for the parties to the lis.
11. Sri. Kiran Kumar H.S, learned counsel for the petitioner reiterating the averments made in the civil miscellaneous petitions has contended that in terms of the tender bearing No.T-87/2010-11 dated 21-1-2011 in CMP.No.233/2015, in CMP.No.234/2015 sub-clause (j) of clause 18 of the Tender No.T-88/2010-11 dated 14-2-2011 & in CMP.No.235/2015 sub-clause (j) of clause 18 of the Tender No.T-91/2011-12 dated 13-6-2011 had covenants regarding arbitration at above stated sub-clauses, all the disputes or differences whatsoever arising under these agreements out of or relating to the construction, meaning operation or effect of these agreements or breach there of shall be referred to arbitration for appointing one arbitrator. In the event, if the parties fail to agree to the appointment of one arbitrator then three arbitrators to be appointed, one each appointed by the parties and the third to be appointed by the said two arbitrators. The arbitration shall survive the termination of these agreements.
12. He further contended that arbitration at sub-clause (k) and (l) of clause 15 the arbitration proceeding shall be held in accordance with the Arbitration and Conciliation Act, 1996, and the rules made there under at Bengaluru. In spite of repeated requests and issuance of legal notice, the respondents have not refunded the amount/payment in terms of the agreement. He further contended that the subsequent purchase order is independent and has nothing to do with the terms and conditions of the tender document i.e., tender bearing No.T-87/2010-11 dated 21-1-2011 and other tender documents.
13. In support of his contention, learned counsel for the petitioner relied upon the Division Bench judgment of this Court in the case of MYSORE MINERALS LIMITED, REP., BY ITS MANAGING DIRECTOR, BANGALORE vs. TAM-TAM PEDDA GURUVA REDDY reported in ILR 2014 KAR 1152 to the effect that, merely because the agreement does not contain the arbitration clause would not debar the respondent to invoke the arbitration clause contained in the tender notification. Since the tender notification is referred to not only in the Letter of Intent but also in the agreement entered into between the parties and also in the work order issued to the respondent by the appellant, the same should be read as part and parcel of the agreement itself. Therefore, the parties are bound by the tender conditions also and sought to allow the petitions.
14. Per contra, Sri. P.D.Surana, learned counsel for the respondents reiterating the objections filed to the petitions, contended that the very civil miscellaneous petitions filed before this Court are not maintainable and are liable to be dismissed. He contended that the claim made by the petitioners in all these petitions is barred by time and the petitioner has to approach the competent civil court for redressal of his grievance. He further contended that in the purchase order dated 15-7-2011, in terms of Clause 25, an agreement shall be entered in to on Karnataka Government Stamp paper (Rupees 200 stamp paper) incorporating the Terms and Conditions of the purchase order for the satisfactory fulfillment, it is requested to depute a responsible representatives duly authorized to enter into an agreement. Accordingly, in terms of Clause 28 of the purchase order dated 15-7-2011 “ARBITRATION: If any dispute as to the workmanship or the quality of material used arises the Managing Director KSRTC shall be final & binding”.
He also invited Clause 29 that “In case any litigation in the matter concerning with the Tender or agreement terms the same shall lie within the jurisdiction of Bangalore”.
15. He further contended that the tender document is subsequently considered in the purchase order and thereafter an agreement came to be entered into between the parties on 17-10-2012, wherein it is specifically stated that the 1st Party has now decided to procure additional 75 Nos. (25% of 300 Nos. tendered quantity) fully built Karnataka Sarige Buses as per clause 23 of the agreement entered into with M/s. TATA Motors Ltd. on 14-3-2012 in view of the terms and conditions of Tender and has placed PO No. KST: CO: ME:SK: 01: 2012-13 dated: 20-4-2012 and Amended PO No.KST:CO:ME:SK:1923:2012-13 dated 16-8-2012 for supply of 75 Nos. Tata LPO 1512TC/53 210WB BSIII chassis. He also referred to an agreement and stated that now this agreement being additional agreement, in continuation of the agreement dated 14-3-2012, the parties have agreed to the modified terms and conditions. Therefore, he sought to dismiss the petitions.
16. In support of his contention, learned counsel for the respondents relied upon the judgment of Hon’ble Supreme Court in the case of THE UNION OF INDIA v. KISHORILAL GUPTA AND BROS reported in AIR 1959 SC 1362.
17. Learned counsel for the respondents also brought to the notice of this Court that in similar circumstances between the same parties in respect of different tender notification, this Court in C.M.P.No.277/2015 & connected matters vide order dated 09-6-2017 observed that insofar as Clause 20(h) is concerned, it is not in the nature of an arbitration clause but at best the Internal Conciliation Mechanism wherein the petitioner may raise his grievance to seek resolution, before availing the remedy in accordance with law. On the aspect as to whether the Clause as referred to should be considered is not necessary inasmuch as the Hon’ble Supreme Court in the case of INTERNATIONAL AMUSEMENT LTD., v. INDIA TRADE PROMOTION ORGANIZATION reported in (2015) 12 SCC 677 has considered an analogous clause and has arrived at the conclusion that it cannot be construed as an Arbitration clause governing the parties. Hence, the prayer to appoint an Arbitrator does not arise. Accordingly, the petitions were disposed of reserving liberty to approach the Managing Director, KSRTC with his grievance and if no resolution is reached, the petitioner may avail its remedies in accordance with law before the civil court. Subsequently, the present petitioner filed three separate suits, which are pending. Therefore, he sought to dismiss the present petitions.
18. Having heard the learned counsels for the parties, in all these civil miscellaneous petitions, the petitioner has sought relief on the basis of the original tender No.T-87/2010-11 dated 21-1-2011 invoking the arbitration clause (k) & (l) of clause 15 of tender document, original tender No.T-88/2010-11 dated 14-10-2011 arbitration clause (j) of clause 18 of the tender document dated 14-2-2010 for adjudication and original tender No. T-91/2011-12 dated 13-6-2011 is consisting of sub-clause for arbitration clause to appoint an arbitrator in terms of clause (j). Clause 18 of the tender document dated 13-6-2011 is for adjudication between the parties. As per tender document dated 21-1-2011, the clauses (k) & (l) relied upon by the petitioner reads as under:
“(k) Any order/directions/award of the arbitrators shall be final and binding on both parties. Arbitrator shall pass a speaking order / award. The arbitration proceeding shall be held in accordance with the arbitration and conciliation act 1996, and the rules made there under at Bangalore. Each party shall pay their own cost and expenses of appointment of arbitrator. The parties share equally the Cost and Expenses of the presiding arbitrator.
(l) Tenderer shall furnish true/correct information in tender form. In the event of furnishing incorrect information, KSRTC reserves the right to black list the Tenderer for a period ranging from 1 year to three years besides forfeiture the EMD.”
In CMP.No.234/2015, tender No.T-88/2010-11, dated 14-2-2011, clause 18 sub-clause (j) reads as under:
“j) Disputes:
i) All disputes or differences whatsoever arising under this agreement out of or relating to the construction, meaning operation or effect of this agreement or breach there of shall be referred to arbitration of one Arbitrator. In the even the parties fail to agree to the appointment of one arbitrator then three arbitrators to be appointed one each appointed by the parties and the third to be appointed by the said two arbitrators. The Arbitration shall survive the termination of his agreement.
ii) Any order/directions/award of the arbitrators shall be final and binding on both the parties. Arbitrator shall pass a speaking order/award. The arbitration proceeding shall be held in accordance with the arbitration and conciliation act 1996, and the rules made there under at Bangalore. Each party shall pay their own cost and expenses of appointment of arbitrator. The parties share equally the Cost and Expenses of the presiding arbitrator.
19. It is also not in dispute that subsequently, the parties have entered into purchase agreement on 15-7-2011 in terms of clause 25, which reads as under:
“25. An agreement shall be entered in to on Karnataka Government Stamp paper (Rupees 200 stamp paper) incorporating the Terms and Conditions of the purchase order for the satisfactory fulfillment, it is requested to depute a responsible representatives duly authorized to enter into an agreement.”
20. It is also not in dispute that subsequently on the basis of purchase order, the parties have entered into an additional agreement dated 17-10-2012 and subsequent clauses under purchase order clearly depicts that the arbitration dispute if any as to the workmanship or quality material used arising MD-KSRTC shall be final & binding and in case litigation in the matter concerning with the tender or agreement terms, the same shall lie within the jurisdiction of Bangalore.
21. In view of the above, rival contentions urged by the learned counsels for the parties and on careful reading of the tender conditions Annexure-B, in all the petitions on different dates and subsequent agreement/purchase order dated 15-7-2011, whereby, in the tender it is mentioned that supply of 300 Nos. LPO 1512 TC 53 210” WB BS-III chassis as per the negotiated Rates, Terms and Conditions finalized in the Tender No.T-87 dated 21-1-2011 and other tender documents wherein it is stated that “We are pleased to inform you that KSRTC has decided to place Purchase order for supply of 300 Nos. LPO 1512 TC 53 210” WB BS-III chassis as per the negotiated Rates, Terms and Conditions finalized in the Tender No.T-87 dated 21-1-2011”. The details are as follows:
“1. QUANTITY:
Sl.No.
1 Type of Chassis with specification Tata LPO 1512 TC 53 210” WB BS-
III chassis fitted with 136 HP front engines, seven Tyres. The chassis should be supplied as per the specification furnished along with Quantity in Nos.
300 the tender.
2. RATES:
Particulars Rate per chassis in Rs.
*End rate reflected after availing cash discount of 3.5% for payment within 60 working days from the date of receipt of buses and inclusive of the statutory levies.
3. Bills to be submitted in triplicate to CAO-FA KSRTC, C.O. Bangalore.27.
4. Delivery schedule:- The chassis should be invoiced and delivered to M/s. K.M.S. Coach Builders Pvt. Ltd., Bangalore so that the fully built buses are delivered to KSRTC as below:
2 September- 60 2011 3 October- 70 2011 Total 150 5. The delivery schedule for supply of balance 150 chassis will be furnished separately. In case of any change in delivery schedule the same will be intimated in advance.
6. The rate indicated is for delivery of chassis at M/s. K.M.S. Coach Builders Pvt. Ltd., Kengeri, Bangalore.
7. The rate shall be valid for the entire quantity ordered in the purchase order and under no circumstances the rate will be increased.
8. In the event of lower rate if quoted by M/s. Tata Motors Ltd., to any of the STUs or any customer in the Country, the same shall be extended to KSRTC also.
9. WARRANTY: The chassis should be covered under Warranty of 2.5 Lakhs Kms. Or 24 months whichever is earlier against any premature failures. Any defect, which may develop in the major aggregators of the chassis within the warranty period due to defective material or workmanship, the same shall be attended/replaced free of cost without any loss of time.
10. Security Deposit: M/s. Tata Motors Limited should furnish Bank Guarantee for 5% value of the Purchase Order towards the Security Deposit for the due fulfillment of the terms and conditions of this Purchase Order. Further, M/s. Tata Motors will have to extend the validity period of the same Bank Guarantee for a further period of 02 years from the day the last completed bus against this Purchase Order is put into operation by the Corporation. Failure to abide by the terms and conditions of the Purchase Order and non- compliance of the warranty conditions warrants forfeiture of the Security Deposit and EMD. The Security Deposit/EMD will be refunded after the successful completion of Warranty period.
11. GURANTEE ON FUEL PERFORMANCE: The Buses constructed on Chassis supplied against this order shall achieve a minimum Division average HSD KMPL as per the enclosed Annexure. If the variation in the actual performance is less by 2% or more, compared to the Division average KMPL during Warranty period, the Corporation will have the right to invoke the Guarantee clause to recover the difference in Diesel consumption cost from the Security Deposit or from any pending amount with the Corporation.
12. M/s. Tata Motors should ensure that fully built buses supplied shall meet all the requirements of the registration. If any documents required for the registration of the fully built buses, the same should be furnished by the suppliers.
13. Chassis of latest arrival only should be supplied.
14. The chassis shall be delivered strictly according to the Tender specifications.
15. Deviations and deficiencies noticed on the chassis during inspection shall be attended by M/s. Tata Motors or their authorized dealers within three days from the date of intimation.
16. M/s. Tata Motors should furnish maintenance instructions manual along with each chassis.
17. Tyres fitted to the chassis should be of reputed make and shall not be more than 6 months old. M/s. Tata Motors Limited shall stand guarantee for any premature failure of tyres during warranty period for manufacturer defects.
18. Batteries fitted to the chassis shall be of reputed make and latest manufacturing date. M/s. Tata Motors Limited shall stand guarantee for any premature failure of batteries during warranty period.
19. KSRTC reserves the right to alter the quantity in the event of exigencies.
20. RISK PURCHASE CLAUSE:
a. In the event of non-supply of chassis as per the delivery schedule, Rates, Terms and Conditions specified above, KSRTC is at liberty to procure from any other source and the difference in cost if any shall be borne by M/s. Tata Motors Limited. The losses if any arising out of non-fulfillment of contractual obligations shall be made good by M/s. Tata Motors Limited.
b. The chassis should meet the specifications as prescribed in the Tender. If the chassis do not conform to the specification and if the supplies are not effected to meet the delivery schedule of the buses, KSRTC reserves the right to cancel the purchase order in part or whole and penalty of Rs.2000/- delayed day/buses will be imposed if the buses are not supplied as per delivery schedule.
21. In case of any reduction/increase in the statutory levies by the Government at any point of time, the relative effect shall be passed on to KSRTC.
22. KSRTC has the discretion to alter the Tender quantity to the extent of 25% based on its requirement.
23. M/s. Tata Motors has to arrange training to the Officers/Driver/Mechanical Staff for operation and maintenance of the buses from time to time at all the concerned depots at free of cost.
24. Entry Tax, Freight charges, Transportation Charges, Insurance Charges, PDI charges and any other levies on chassis shall be borne by M/s. Tata Motors Limited.
25. An agreement shall be entered in to on Karnataka Government Stamp paper (Rupees 200 stamp paper) incorporating the Terms and Conditions of the purchase order for the satisfactory fulfillment, it is requested to depute a responsible representatives duly authorized to enter into an agreement.
26. Inspection:-
a) The inspection of the chassis jointly be done by the representative of M/s. Tata Motors Limited., and KSRTC.
b) The stagewise inspection of the buses jointly be done by the representative of M/s. Tata Motors Limited., and KSRTC at M/s. K.M.S. Coach Builders Pvt. Ltd., Bangalore.
27. M/s. Tata Motors Limited will stands guarantee for the materials used in the Bus Body or workmanship of Fully Built Buses.
28. ARBITRATION: If any dispute as to the workmanship or the quality of material used arises the Managing Director KSRTC shall be final & binding.
29. In case any litigation in the matter concerning with the Tender or agreement terms the same shall lie within the jurisdiction of Bangalore.
30. Besides the above the other terms and conditions furnished in the Tender is also applicable. Please acknowledge the receipt of Purchase Order. If no reply is received in this behalf, it will be presumed that you are agreeable to all the condition of the Purchase Order.”
22. It is also not in dispute that in identical circumstances between the same parties in separate agreements for purchase of buses, this Court in C.M.P.No.277/2015 & connected matters vide order dated 09-6-2017 considering the identical circumstances at Paragraph Nos.3, 4 & 5 held as under:
“3. The learned counsel for the petitioners in addition to the said clause would also refer to Clause 20(h) of the Terms and Conditions to point out that the Clause contained therein indicates that the dispute between the parties is to be decided by the Managing Director, KSRTC and the same is to be construed as an Arbitration Clause and a Sole Arbitrator be appointed.
4. Though such contention is put forth I am unable to accede to the same inasmuch as rightly pointed out, Clause 34 in any event would not arise in the instant case. Insofar as Clause 20(h) is concerned, it is not in the nature of an arbitration clause but at best the Internal Conciliation Mechanism wherein the petitioner may raise his grievance to seek resolution, before availing the remedy in accordance with law. On the aspect as to whether the Clause as referred to should be considered as an arbitration clause or not, a detailed discussion is not necessary inasmuch as the Hon’ble Supreme Court in the case of International Amusement Ltd., Vs. India Trade Promotion Organisation reported in (2015) 12 SCC 677 has considered an analogous clause and has arrived at the conclusion that it cannot be construed as an Arbitration clause governing the parties. Hence, the prayer to appoint an Arbitrator does not arise.
5. The petition is disposed of with liberty to approach the Managing Director, KSRTC with his grievance and if no resolution is reached, the petitioner may avail its remedies in accordance with law before the Civil Court.”
23. It is also not in dispute that the subsequent agreement entered into between the parties, i.e., the additional agreement dated 17-10-2012 which clearly refers to both the tender documents and purchase agreement and it is specifically stated that the first party floated a tender bearing No.T-87/2010-11 dated 21.1.2011 due on 22.2.2011 for procurement of Buses fitted with BS-III. As per purchase order dated 15-7-2011, the same was supplied. The 1st Party has now decided to procure additional 75 Nos. (25% of 300 Nos. tendered quantity) fully built Karnataka Sarige Buses as per clause 23 of the agreement entered in to with M/s TATA Motors Ltd on 14-3-2012 in view of the terms and conditions of Tender and has placed purchase order and ultimately, it is specifically stated that “Now this agreement being additional agreement, in continuation of the agreement dated 14-3-2012, the parties have agreed to the following modified terms and conditions”. In view of the subsequent purchase agreement and subsequent additional agreement entered into between the parties, the original tender conditions do not legally exist and arbitration clause cannot operate for long as it is also void.
24. In view of the purchase order and agreement, the original contract is existing by substituted one. The arbitration clause of original contract persists in view of the subsequent purchase order and subsequent agreement entered into between the parties. Therefore, the petitioner cannot maintain present CMPs for the relief sought for before this Court.
25. Insofar as the judgment relied upon by the learned counsel for the petitioner in the case of MYSORE MINERALS LIMITED, REP., BY ITS MANAGING DIRECTOR, BANGALORE vs. TAM-TAM PEDDA GURUVA REDDY reported in ILR 2014 KAR 1152, it was a case, where the subsequent document refers to subsequent agreement entered into between the parties as also the work order issued, the same should be read as part and parcel of the original tender agreement. In those circumstances, this Court held that the parties are bound by the original tender conditions also. Admittedly, in the present cases, the subsequent purchase order and subsequent agreement entered into between the parties dilute the terms and conditions of original tender document and not retain any of the conditions of the tenders. Therefore, the subsequent purchase order and agreement and the words used are “Now, the parties entered into between the terms and conditions”. Therefore, the said judgment relied upon by the learned counsel for the petitioner is not applicable to the facts and circumstances of the present cases.
26. The Hon’ble Supreme Court, while considering the provisions of Section 62 of the Contract Act in the case of THE UNION OF INDIA v. KISHORILAL GUPTA AND BROS reported in AIR 1959 SC 1362, wherein at paragraphs 6 & 10 it is held as under:
“6. The contracts stand finally concluded in terms of the settlement and no party will have further or other claim against the other."
Broadly speaking, this settlement was a comprehensive one including therein the earlier settlements and providing for the recovery of the amounts agreed to be paid under the said two earlier settlements. The concluding paragraph is more analogous to that of the settlement of the second contract rather than that of the first. Under the final settlement, between October 28, 1948, and January 17, 1949, the respondents paid a, total sum of Rs.9,000 to the Government under the first two settlements of the contracts. Between March 10, 1949, and October 31, 1949, the respondents paid a total sum of Rs.11,000 in installments to the Government, though the amounts paid were less than the amount payable in accordance with the agreed installments. Some correspondence passed between the Government and the respondents, the former demanding the balance of the amount payable under the installments and the latter putting it off on one ground or other. Finally on August 10, 1949, the Government wrote a letter to the respondents demanding the payment of Rs.1,51,723 payable to them under the three original contracts, ignoring the three settlements. The Government followed that letter with another one of the same date informing the respondents that they had appointed Bakshi Shiv Charan Singh as their arbitrator and calling upon the respondents to nominate their arbitrator. The respondents did not co- operate 'in the scheme of arbitration and instead Kishori Lal Gupta as sole proprietor of the respondent-firm made an application under s. 33 of the Arbitration Act, 1940, in the Original Side of the High Court of Calcutta for a declara- tion that the arbitration agreement was no longer in existence. That application was dismissed by Banerjee, J., of the said High Court on the ground that it was not maintainable as the two other partners of the respondent-firm were not made parties to the said proceeding. But in the course of the judgment, the learned Judge made some observation on the merits of the case. Thereafter the Government filed their statement of facts before the arbitrator and the respondents filed a counter- affidavit challenging the arbitrator's jurisdiction and also the correctness of the claims made by the Government. On July 31, 1951, the arbitrator made an award in favour of the Government for a total sum of Rs.1,16,446-11-5 in respect of the first and the third contracts and gave liberty to the Government to recover the amount due to them under the second contract in a suit. The award was duly filed in the High Court, and, on receiving the notice, the respondents filed an application in the High Court for setting aside the award and in the alternative for' declaration that the arbitration clause in the three contracts ceased to have any effect and stood finally determined by the settlement of the disputes between the parties. Bachawat, J., held that the first contract was to be finally determined only on payment in terms of the settlement, and, as such payment was not made, the original contract and its arbitration clause continued to exist. As regards the third contract, the learned Judge came to the conclusion that by the third settlement, there was accord and satisfaction of the original contract and the substituted agreement discharged the existing cause of action and therefore the arbitrator had no jurisdiction to entertain any claim with regard to that contract. As the award on the face of it was a lump sum award, the learned Judge held that it was not severable and therefore the whole award was bad. In the result, he gave the declaration that the arbitration clause contained in the contract dated September 22,1944, for "Kettles Camp" had ceased to exist since the settlement contract dated February 22, 1949, and that the entire award was void and invalid. The present appeal by special leave was filed by the Government against the said order of the High Court.
2. At the outset, a preliminary objection taken by Shri Aggarwal, the learned Counsel for the respondents, may be disposed of. The learned Counsel contends that the special leave granted by this Court should be revoked on the ground that an appeal lay against the order of the learned Judge to an appellate bench of the same High Court both under Cl. 15 of the Letters Patent and S. 39 of the Arbitration Act. It is not, and cannot be, contended that this Court has no jurisdiction to entertain an appeal against the order of a Court when an appeal lies from that order to another Court. The provisions of Art. 136 of the Constitution are not' circumscribed by any such limitation. But what is argued, in our view legitimately, is that when an appeal lay to the appellate bench of the Calcutta High Court, this Court should not have given special leave and thereby short- circuited the legal procedure prescribed. There is much force in this argument. If the application for revoking the special leave had been taken at the earliest point of time and if this Court was satisfied that an appeal lay to an appellate bench of the Calcutta High Court, the leave obtained without mentioning that fact would have been revoked. But in the present case, the special leave was granted on March 29, 1954, and the present application for revoking the leave was made five years after the grant of special leave and the learned Counsel could not give any valid reason to explain this inordinate delay. In the circumstances, if we revoked the special leave, the appellant would be prejudiced, for if this objection had been taken at the earliest point of time, the appellant would have had the opportunity to prefer a Letters Patent appeal to the appellate bench of the Calcutta High Court. The appellant cannot be made to suffer for the default of the respondents. In the circumstances, we did not entertain that application for revoking the special leave and did not express our opinion on the merits of the question raised by the learned Counsel.
3. Now coming to the merits, the main contentions of the parties may be stated at the outset. The argument of the Additional Solicitor-General for the appellant may be summarized in the following propositions: (1) The jurisdiction of the arbitrator depends upon the scope of the arbitration agreement or submission; (2) its scope would depend upon the language of the arbitration clause; (3) if the arbitration agreement in question is examined, it indicates that the dispute whether the original contracts have come to an end or not is within its scope; (4) on the facts of the case, there had been no novation or substitution of the original contracts; and (5) if there had been a novation of the original contracts, the non-perform- ance of the terms of the new contract revived the original contracts and therefore the parties to the original contracts could enforce their terms including the arbitration clause. The submission of Shri Aggarwal, Counsel for the respondents,may be stated thus : (1) Upon the facts of the case, there had been a recession of the old contracts and substitution of a new, legally enforceable and unconditional contract, which came into immediate effect; (2) the new contract can be legally supported either under S. 62 or S. 63 of the Indian Contract Act or under the general law of contracts; (3) the non-performance of the terms of the new contract did not have the effect of reviving the rights and obligations under the old contracts as they did not remain alive for any purpose; and (6) even if the arbitration clause did not remain alive after the new contract, the arbitrator was bound to decide the case in terms of the new contract, and he having not done so, the error is apparent on the face of the record and therefore the award is liable to be set aside.
4. So stated the controversy covers a much wider field than that necessary to solve the problem presented in this case. It would, therefore be convenient at this stage to clear the ground. Subtle distinctions sought to be made between the provisions of S. 62 and S. 63 of the Indian Contract Act need not detain its; nor need we consider the question whether the settlement contract in question falls under S. 62 or is covered by S. 63 of the Indian Contract Act, or is governed by the general principles of the law of contracts, for the validity of the said contract is not questioned by either party and indeed both rely upon it - one to contend ,that it wholly superseded the earlier ones and the other to rely upon its terms to bring out its contingent character. If so, the only two outstanding questions are: (i) what is the legal effect of the contract dated February 22, 1949, on the earlier contracts? ; and (ii) does the arbitration clause in the earlier contracts survive after the settlement contract ?
5. The law on the first point is well-settled. One of the modes by which a contract can be discharged is by the same process which created it, i.e., by mutual agreement; the parties to the original contract may enter into a new contract in substitution of the old one. The legal position was clarified by the Privy Council in Payana Reena Saminathan v. Pana Lana Palaniappa, 1914 Appellate Court 618 at P. 622. Lord Moulton defined the legal incidents of a substituted contract in the following terms at p. 622:
"The 'receipt' given by the appellants, and accepted by the respondent, and acted on by both parties proves conclusively that all the parties agreed to a settlement of all their existing disputes by the arrangement formulated in the 'receipt'. It is a clear example of what used to be well known in common law plea ding as "accord and satisfaction by a substituted agreement ". No matter what were the respective rights of the parties inter se they are abandoned in consideration of the acceptance by all of a new agreement. The consequence is that when such an accord and satisfaction takes place the prior rights of the parties are extinguished. They have in fact been exchanged for the new rights; and the new agreement becomes a new departure, and the rights of all the parties are fully represented by it.
"The House of Lords in Morris v. Baron and Co., 1918 AC 1 at p. 26, in the context of a contract for sale of goods brought out clearly the distinction between a contract which varies the terms of the earlier contract and a contract which rescinds the earlier one, in the following passage at p. 26:
"In the first case there are no such executory clauses in the second arrangement as would enable you to sue upon that alone if the first did not exist; in the second you could sue on the second arrangement alone, and the first contract is got rid of either 2 by express words to that effect, or because, the second dealing with the same subject-matter as the first but in a different way, it is impossible that the two should be both performed.”
Scrutton, L.J., in British Russian Gazette and Trade Outlook Limited v. Associated Newspaper, Limited 1933-2 KB 616 at pp. 643, 644, after referring to the authoritative text-books on the subject, describes the concept of “accord and satisfaction” thus at p. 643:
"Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative. Formerly it was necessary that the consideration should be executed…………. Later it was conceded that the consideration might be executor The consideration on each side might be an executory promise, the two mutual promise making an agreement enforceable in law, a contract……………… ‘An accord, with mutual promises to perform, is good, though 'the thing be not performed at the time of action; for the party has a remedy to compel the performance, that is to say, a cross action on the contract of accord…………………… If, however, it can be shown that what a creditor accepts in satisfaction is merely his debtor's promise and not the performance of that promise, the original cause of action is discharged from the date when the promise is made.
"The said observations indicate that an original cause of action can be discharged by an executory agreement if the intention to that effect is clear. The modern rule is stated by Cheshire and Fifoot in their Law of Contract, 3rd Edn., at p. 453: "The modern rule is, then, that if what the creditor has accepted in satisfaction is merely his debtor's promise to give consideration, and not the performance of that promise, the original cause of action is discharged from the date when the agreement is made.
This, therefore, raises a question of construction in each case, for it has to be decided as a fact whether it was the making of the promise itself or the performance of the promise that the creditor consented to take by way of satisfaction.”
"So too, Chitty in his book on Contracts, 31st Edn., states at p. 286:
"The plaintiff may agree to accept the performance of a substituted consideration in satisfaction, or he may agree to accept the promise of such performance. In the former there is no satisfaction until performance, and the debtor remains liable upon the original claim until the satisfaction is executed. In the latter, if the promise be not performed, the plaintiff's remedy is by action for the breach of the substituted agreement, and he has no right of resort to the original claim. "From the aforesaid authorities it is manifest that a contract may be discharged by the parties thereto by a substituted agreement and thereafter the original cause of action arising under the earlier contract is discharged and the parties are governed only by the terms of the substituted contract. The ascertainment of the intention of the parties is essentially a question of fact to be decided on the facts and circumstances of each case.
6. We have already given the sequence of events that led to the making of the contract dated February 22, 1949. To recapitulate briefly, the original three contracts were cancelled. by the Government on May 21, 1945, May 21, 1945, and March 9, 1946, respectively. Under the first contract, the Government made a claim for the price of the raw- materials supplied and there was no counter-claim by the respondents. Under the second and third contracts, there were counter- claims-the Government claiming amounts for the raw-materials supplied and the respondents claiming damages for the breach thereof. The disputes under the first two contracts were settled on the same day. As the claim was only on the part of the Government, the amount due to them was ascertained at Rs.3,164-8-0 and the first contract was expressly agreed to be finally determined on payment of that amount. The express terms of the settlement leave no room to doubt that the contract was to be determined only after the payment of the ascertained amount. But under the second settlement, which was a compromise of disputed claims, a sum of Rs.36,276 was fixed as the amount due from the respondents to the Government, presumably on taking into consideration the conflicting claims and on adjusting all the, amounts ascertained to be due from one to the other. The parties in express terms agreed that the earlier contract stood finally determined and that no party would have any claim thereunder against the other. A comparative study of the terms of the said two settlement contracts indicates that under the first settlement the original contract continued to govern the rights of the parties till payment, while under the second settlement contract, the original contract was determined and the rights and liabilities of the parties depended thereafter on the substituted contract. Coming to the third settlement, it was in the pattern of the second settlement. On the breach of the third contract, there were mutual claims, the Government claiming a large amount for raw- materials supplied to the respondents, and the latter on their side setting up a claim for damages. Further, though the earlier two contracts were settled on September 6, 1948, the amounts payable under the said two settlements were not paid. A comprehensive settlement, therefore, of the outstanding claims was arrived at between the parties, and the rights and liabilities were attempted to be crystallized and a suitable procedure designed for realising the amounts. In full and final settlement of the amounts due to the Government in respect of the raw-materials received against the contracts and the respondents' claim for compensation for cancellation of the contracts, it was agreed that the respondents should pay a sum of Rs. 45,000 to the Government and that the respondents should retain all the material, partly fabricated and fully fabricated stores lying with them. Clauses 3, 4 and 5 provide for the realisation of the entire amounts covered by the three settlements. Under cl. 3 the respondents agreed to pay the total amount payable under the three settlements in monthly instalments for the first three months commencing from March 10, 1949, at a sum of Rs.5,000 and thereafter at a sum of Rs.9,000 per month till the entire amount was paid. Clause 4 prescribed that in case of default of any monthly installment interest would be charged at the rate of 6% per annum and if the installments defaulted exceeded two in number the Government was given the right to realise the entire amount payable under the three contracts with interest not only from the security but also otherwise. Under cl. 5 it was stipulated that the respondents should hypothecate their moveable and immoveable properties described thereunder to provide cover for the moneys payable to the Government. Clause 6 in express terms declared that the contracts should be finally concluded in terms of the settlement and no party would have any claim against the other. Is there any justification for the contention that the substituted contract should either come into force after the hypothecation bond was executed or that it should cease to be effective if the said bond was not' executed within a reasonable time from the date of the settlement? We do not find any justification for this contention either in the express terms of the contract or in the surrounding circumstances whereunder the document came to be executed. It was a self-contained document; it did not depend upon the earlier contracts for its existence or enforcement. The liability was ascertained and the mode of recovery was provided for. The earlier contracts were superseded and the rights and liabilities of the parties were regulated thereunder. No condition either precedent or subsequent was expressly provided; nor was there any scope for necessarily implying one or either. The only argument in this direction, namely, that it is impossible to attribute any intention to the Government to take a mere promise on. the part of the respondents to hypothecate their properties "' as satisfaction " and therefore it should be held that the intention of the parties was that there would be no satisfaction till such a document was executed, does not appeal to us. We are concerned with the expressed intention of the parties and when the words are clear and unambiguous- they are undoubtedly clear in this case-there is no scope for drawing upon hypothetical considerations or supposed intentions of the parties; nor are we attracted by the argument that the description of the properties intended to be hypothecated was not made clear and therefore the presumed intention was to suspend the rights under the new contract till a valid document in respect of a definite and specified property was executed. Apart from the fact that we are not satisfied with the argument that the description was indefinite, we do not think that such a flaw either invalidates a document or suspends its operation till the defect is rectified or the ambiguity clarified. The substituted agreement gave a new cause of action and obliterated the earlier ones and if there was a valid defence against the enforcement of the new contract in whole or in part, the party affected must take the consequences. We have, therefore, no doubt that the contract dated February 22, 1949, was for valid consideration and the common intention of the parties was that it should be in substitution of the earlier ones and the parties thereto should thereafter look to it alone for enforcement of their claims. As the document does not disclose any ambiguity, no scrutiny of the subsequent conduct of the parties is called for to ascertain their intention.
10. The following principles relevant to the present case emerge from the aforesaid discussion: (1) An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but none the less it is an integral part of it; (2) however comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation; it perishes with the contract; (3) the contract may be non est in the sense that it never came legally into existence or it was void ab initio; (4) though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing their rights and liabilities thereunder; (5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void; in the latter case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it; and (6) between the two falls many categories of disputes in connection with a contract, such as the question of repudiation, frustration, breach etc. In those cases it is the performance of the contract that has come to an ended, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes.”
27. The Division Bench of Delhi High Court in the case of M/S. DADRI CEMENT CO. AND ANOTHER v. M/S. BIRD AND CO. PVT., LTD reported in AIR 1974 DELHI 223 at paragraph No.10 held as under:
“10. This substitution operated to bring about a novation of the original contract. According to Section 62 of the Contract Act if the parties to a contract agree to substitute a new contract for it, or to rescind it or alter it, the original contract need not be performed. The original contract of sale therefore, necessarily became inoperative and unenforceable and ceased to exist. The arbitration clause in the original contract perished with it. The submission, therefore, that the arbitration clause in the original contract should be held to survive to govern the substituted arrangement cannot be sustained.”
28. For the foregoing reasons, the petitioner has not made out any ground to entertain the present civil miscellaneous petitions under the provisions of Section 11(6) of the Arbitration and Conciliation Act. Accordingly, all the civil miscellaneous petitions are dismissed. However, liberty is reserved to the petitioner to approach the MD-KSRTC with his grievance and if no resolution is reached, the petitioner may also avail their remedies in accordance with law before the competent civil court.
Ordered accordingly.
Sd/- JUDGE SMJ