Saraswati Industrial Syndicate ... vs Apollo Tyres Limited
1986 Latest Caselaw 324 Del

JUDGMENT

Mahesh Chandra, J.

(1) This order disposes of defendant's application under Section 34, Arbitration Act. The facts giving rise to this application are that the plaintiff-M/s. Saraswati Industrial Syndicate Ltd. had filed a suit for recovery of Rs. l,60,633.83P as principal and Rs. 3,87,592.34P as interest against defendant-M/s. Apollo Tyres Limited on the ground that on 11th February 1975 the 'plaintiff had entered into an agreement with the defendant for supply/erection and commissioning of two coal fired/water tube boilers and after the said job was completed by the plaintiff some differences arose between the parties on the question of amounts due to the plaintiff and vide settlement dated 25th February 1982 between the parties it was agreed that the defendant would in all pay a sum of Rs. 3,21,267.66P apart from interest which was to be decided by the managing directors of the plaintiff and defendant and in pursuance of the said settlement dated 25th February, 1982 a sum of Rs. 1,60,633.83P was paid by the defendant to the plaintiff by means of cheque No. 240650 dated 13th May 1982 and the remaining amount of Rs. 1,60,633.83P due in pursuance of the said settlement had not been paid and as such this suit for recovery of the said amount together with interest.

(2) The defendant has filed this application under Section 34, Arbitration Act, on the ground that the agreement dated 11th February 1975, inter alia, provided vide clause 9.05 thereof that disputes or differences of opinion between the parties arising out of or in connection with the said agreement would be referred to adjudication of two arbitrators, one each to be nominated by the parties and that the defendant had by a legal notice on 30th August 1982 maintained that the supply of coal/oil fired water boiler was defective and substandard and as such the said differences were liable to be referred to arbitration and the defendant has been and was still ready and willing to have the disputes between the parties adjudicated by the arbitrators and as such the proceedings in the suit should be stayed. With regard to the settlement dated 25th February 1982, it was submitted on behalf of the defendant in para4 of the application that "defendants were compelled and coerced to sign minutes which in the plaint are referred to as "Settlement". The said application of the defendant has been contested on behalf of the plaintiff on the plea that it was misconceived and not maintainable; that there was no compulsion or coercion brought upon the defendant to sign the minutes of the meeting held at Calcutta on 25th February 1982 and the said settlement was arrived at between the parties voluntarily with .free will and was even acted upon by the defendant as certain payment was made in pursuance thereto ; that the defendant was not at appropriate time ready and willing to refer the dispute to arbitration; that the defendant had, in fact, repudiated the arbitration agreement; that the application was only an after thought on the part of the defendant ; that the settlement dated 25th February 1982 has already been arrived at between the parties and the same is binding upon the defendant and the defendant cannot repudiate the same and as such the present application be dismissed.

(3) I have heard the learned counsel for the parties and have gone through the file and after giving my considered thought to the matter before me I have come to the following findings.

(4) To entitle it a stay of further proceedings in the suit it is necessary for the defendant to, inter alia, establish that there was a subsisting arbitration agreement between the parties to the suit and that the defendant was at all material times unconditionally ready and willing to do everything necessary for the proper conduct of arbitration.

(5) In support of his contention the learned counsel for the defendant has referred to clause 9.05 of the agreement dated 11th February 1975 as also to plaintiff's letter No. E-220/1061 dated 27th April 1984 and defendant's reply thereto No. ATL/ LMC/623 dated 12th May 1984. He has also drawn my attention to Food Corporation of India & Another v. Yadav Engineer & Contractor, in which it was held that : "When in breach of an arbitration agreement a party to the agreement rushes to the Court, unless a clear case to the contrary is made out the approach of the Court should be to hold parties to their bargain provided necessary conditions for invoking Section 34 are satisfied."

(6) The learned counsel for the plaintiff has not disputed the principle of law enunciated in Food Corporation of India v. Yadav Engineer & Contractor (supra) but has further submitted that even though agreement dated 11th February 1975 did contain, clause 9.05 but the parties had by a settlement dated 25th February 1982 resolved their disputes and differences and the defendant had acted upon the said settlement and as such recourse cannot be had to the arbitration clause now. It would be appropriate to first reproduce the arbitration clause in the instant case. Clause 9.05 of agreement dated 11th February 1975 provides as under : "9.05-ARBITRATION: In the event of any disputes or differences of opinion between the parties hereto arising out of or in connection with this agreement or with regard to performance of any obligation here under by either party, the parties hereto shall use their best efforts to settle such dispute or difference of opinion amicably by mutual negotiations. Should agreement not be reached, either party may forthwith give to the other notice in writing of the existence of such question, dispute or difference and the same shall be referred to the adJudication of two arbitrators one to be nominated by the PUR- Chaser and the other to be nominated by the Contractor or in the case the said arbitrators not agreeing then the adjudication of an umpire appointed by the arbitrators in writing before proceeding with the reference and the award of the arbitrators or the umpire as the case may be shall be final and binding on the parties hereto. The provisions of the Indian Arbitration Act, 1940 and of the Rules there under or any statutory modifications. thereof for the time being in force shall be deemed to be applied to and be incorporated in this agreement."

(7) I have been taken through the settlement dated 25th February 1982. The said settlement provides as under :

"Minutes of the meeting held at Calcutta between Isgec John Thompson and Apollo Tyres Limited on 25th February 1982."

"...PRESENT:

ISGEC John Thompson (IJT)-1. Mr. R. K. Sundaram, Chief Accountant.

APOLLOTyresLtd.(ATL).-1. Mr. P. K. Chcwdhary.

Matter relating to the following subjects were discussed :-

1.Outstanding dues :

Atlas confirmed that the following dues are payable by them to Ijt :

(I)for supply and erection of the Boiler-Rs. 2,00,000.00

(II)escalation charges on the Boiler--Rs. 1,21,267.66

TOTAL:Rs. 3,21,267.66

Atlas requested Ijt to give them some more time to clear the above dues and Atl has assured that they will be paying off the above dues in two equal Installments; the first by 31st May 1982 and the second by 30th June 1982. Atl has further stated that they would endeavor to clear the above dues earlier: than the above dates.

2.Interest Charges : Ijt has raised interest claims at the rate of 18 per cent annum on the outstanding dues starting from 1976 and the total claim so far received by Atl up to 30th April 1980 amounts to Rs. 2,05,694.27 and further interest charges from 1-5-80 has already accrued. Atl has however not accounted for these interest claims in their books. Atl has requested Ijt to waive the interest charges which request Ijt has not yet considered. Atl has requested that the matter relating to the interest charges may be left to be decided by Mr. D. D. Puri, Managing Director of Ijt and Mr. Raunaq Singh, Managing Director of ATL.

3.Spares for Boiler : Atl has been writing to Ijt for supply of Spares to ensure smooth operation of the Boiler. Ijt has not been responding to the letters of Atl in view of pending settlement of outstanding dues. It is hereby agreed that Ijt will send quotation in response to the enquiries of ATL. Execution of purchase orders, however, will be after Ijt has received the dues amounting to Rs. 3,21,267.66 payable by ATL. In the event of Atl clearing the dues of Rs. 3,21,267.66 earlier than the stipulated schedule, the supply of Spares will be executed by Ijt earlier. Such Spares order will be executed on mutually acceptable terms.

4.Mechanical coal stoker : Atl has already requested Ajt to help in the disposal of the Coal Stoker for the Boiler, which, according to Atl, has never been used by them. Ijt agrees to render assistance to Atl in the disposal of this Coal Stoker.

"...PERFORMANCEof Boiler : Atl is experiencing certain difficulties for the last few years in the operation of the Boiler. The details are given hereunder in brief:

(A)The Oil Heater cannot raise a temperature sufficient to atomise Oil. The temperature should be at least 110 C..

(B)Slug formation and Clinker formation at Burner core and flame fouling with the adjacent tubes near the Burner has reduced, which needs to be eliminated completely.

(C)Flame sweeping to the rear wall tubes (opposite to the Burner) at peak level.

(D)Remote water level controller zero suppression is yet to be supplied.

(E)All electrical starters need to be replaced as present starters do not have auxiliary contact.

(F)Steam flow meter integrator is reading higher compared to water flow.

Atlas present is operating at almost 90 per cent capacity utilisation and therefore it is necessary for them to have trouble free operation of the Boiler. In this context Atl requests Ut to attend to these difficulties at the earliest. Ijt has agreed to look into this matter at the earliest and immediately on receipt of remittance from Atl, Ijt will render assistance in this behalf."

(8) The most important question to be considered in this case is the effect of this settlement dated 25th February 1982. The settlement is not disputed on behalf of the defendant, rather what is stated by the defendant in para 4 of the application is that "defendants were compelled and coerced to sign minute which in the plaint are referred to as 'Settlement'. This fact, however, has been denied by the plaintiff in its reply wherein it has been denied by the plaintiff that "there was any compulsion or coercion brought upon the defendant to sign the minutes of the meeting held at Calcutta on 25th February 1982. The settlement was arrived at between the parties and the minutes were signed voluntarily with free will and.... .. ....". There is nothing else on record to suggest that any compulsion or coercion was, in fact, brought upon the defendant to sign the above . mentioned settlement, rather my attention has been drawn by the learned counsel for the plaintiff to the fact that this settlement was, in fact, acted upon by the defendant in so far as a sum of Rs. 1,60,633/83P was actually paid by the defendant vide cheque No. 240650 dated 13th May 1982 to the plaintiff and in this behalf my attention has also been drawn to letter No. CON/74/ 325 & FIN/131/RKS dated 21st May 1982 from Shri R. K. Sundaram, Chief Accountant of the plaintiff, to Shri P. K. Chowdhary of the defendant. The contents of this letter also have not been disputed on behalf of the defendant and on the other hand this fact of payment is admitted in copy of notice dated 30th August, 1982 served by defendant upon the plaintiff in para 3 whereof it was mentioned that "our clients have also paid certain amount which was not lawfully payable by our clients........". Copy of the settlement and the letters above referred have been placed on record by the plaintiff. A perusal of these documents does go to show that settlement dated 25th February 1982 was actually arrived at without any compulsion or coercion between the parties and it was also acted I upon by the parties. This would show that whatever differences had arisen between the parties had been settled by the parties through their representatives mutually and consequently it would follow that the arbitration agreement incorporated in clause 9.05 of the original agreement dated 11th February 1975 was given a go by the parties themselves. It would also be appropriate to mention here that this was done by the parties in pursuance of the first part of clause 9.05 which lays down that : "In the event of any disputes or differences of opinion between the parties hereto arising out of or in connection with this agreement or with regard to performance of any obligation here under by either party, the parties hereto shall use their best efforts to settle such dispute or difference of opinion amicably by mutual understandings."

In the face of this conclusion it would be difficult to accept that it would be now open to the defendant to have recourse to Section 34 on the force of clause 9.05 of the original agreement between the parties. Once the arbitration agreement has been given a go by and the parties arrived at some mutual settlement the arbitration agreement would be deemed to have been abrogated and abandoned by the parties and would stand discharged and cannot be thereafter revived by any of the parties and consequently provisions thereof cannot be invoked by the parties any longer. The disputes and differences between the parties would merge into the new settlement and thereafter the parties cannot revert back to the original arbitration agreement.

(9) There could be no doubt that where the parties agreed to refer their disputes and differences to arbitration but subsequently ignoring the arbitration agreement the parties mutually through their representatives agree and arrive at a settlement and that settlement is acted upon as well in part, then only the subsequently arrived at settlement would govern the relations of the parties thereafter and the parties cannot be permitted to ignore such a settlement so as to have recourse to the original arbitration agreement. In these circumstances, the arbitration agreement stands discharged, abrogated and abandoned and the same becomes infructuous and cannot be revived by any of the parties. Such is the position in the instant ease and in these circumstances the defendant would be estopped from invoking the provision of arbitration agreement and cannot be permitted to have recourse to it through the instrumentality of Section 34, Arbitration Act.

(10) It is always open to a party to waive its right under the arbitration agreement. Suppose the defendant had chosen not to file this application under Section 34, Arbitration Act and had rather filed its written statement, the arbitration agreement would have stood waived. Such is precisely the position even now since the parties have mutually settled their disputes and differences by settlement dated 25th February 1982 and thereby abrogated and waived the said arbitration agreement. What the law requires is a subsisting arbitration agreement and not an arbitration agreement which has been abrogated, abandoned or waived. In view thereof, an abrogated, abandoned and waived arbitration agreement would not be of any consequence so as to help the defendant.

(11) It has been submitted by the learned counsel for the defendant that the defendant is experiencing certain difficulties in the operation of the boiler and as such recourse can be had to the arbitration agreement. However, reference to para 5 of the settlement dated 25th February 1982 reproduced above would show that even this aspect of the matter has been looked after in the said settlement.

(12) The learned counsel for the plaintiff has further submitted that even assuming, though not conceding, that the arbitration agreement still subsists between the parties, even then the defendant is not entitled to stay of the suit under Section 34 in as much the defendant was not prepared unconditionally to refer the matter in dispute .to arbitration at appropriate time and in this behalf my attention has been drawn to letter No. E-220/1061 dated 27th April, 1984 sent by the plaintiff to the defendant and the reply No. ATL/LMC/623 dated May 12, 1984, received from the defendant, copies whereof have been filed by the parties on record. A perusal of these letters does go to show that the defendant was not unconditionally prepared to refer the matter in dispute to arbitration. In para 3 of this letter dated 12th May, 1984, the defendant had categorically stated that "we also deny that you are entitled to refer the matter to adjudication by arbitration". Similarly in para 5 thereof, the defendant had stated that "please note that the arbitration proceedings are required to be held at Cochin" which shows that it is not strictly in accordance with clause 9.06 of the original agreement dated 11th February 1975 which provides that "all suits arising out of this agreement shall, be instituted in a competent New Delhi Court" which implies that even the arbitration proceedings would be held in New Delhi rather than at Cochin as suggested by the defendant in its reply. On facts of this case, therefore, it is difficult to accept that the defendant was prepared at relevant time to refer the matter in dispute to adjudication by arbitration unconditionally and consequently readiness of the defendant at this stage when the suit has been filed by the plaintiff could be of no help to the defendant inasmuch as law envisages the unconditional readiness on the part of defendant to refer the dispute to arbitration and does not admit of readiness which is subject to any condition as in the instant case. Thus, where a party invoking the arbitration clause had not only denied the right of the other party to refer the matter to adjudication by arbitration but also was not ready and willing to refer the disputes and differences to arbitration unconditionally, it cannot be permitted to take an about turn later on when a suit is filed by the other party so as to get a stay of that suit by wrongly representing that it was prepared to refer the disputes and differences to arbitration while it was not actually so prepared. The preparedness of the parties has to be seen all throughout rather than merely at the time of filing of the application under Section 34, Arbitration Act.

(13) My attention has been drawn in this context to Food Corporation of India v. M/s. Thakur Shipping Co. Ltd. & Others, , wherein it was held that :- "Under section 34, one of the conditions that the applicant for stay should satisfy the court is that not only he is but also was, at the commencement of the proceedings, ready and willing to do everything necessary for the proper conduct of the arbitration ............................" --- *** ---

Reliance has also been placed on behalf of the plaintiff upon M/s. National Small Industries Corporation Ltd., New Delhi 7, M/s. Punjab Tin Printing & Metal Industries, Ajraunda, Faridabad (Haryana) & Others, Air 1979 Delhi 59(3), in which it was held that "to stay a suit, there must be an existing dispute between the parties. If there was no dispute, there is nothing to arbitrate..........................". It has been submitted that whatever disputes or differences had arisen between the parties stood resolved by settlement dated 25th February 1982.1 find force in this submission of the plaintiff's counsel. A reading of the plaint would show that the entire claim of the plaintiff is based upon the settlement incorporated in the minutes dated 25th February, 1982 reproduced above. The claim of the plaintiff is only for recovery of the balance amount due there under together with interest at the rate of 18 per cent per annum and in view thereof also the defendant is not entitled to stay of suit. 14. For my discussion and findings above, I find no force in this application and the same is dismissed.

September 2, 1986..