State Trading Corporation Of ... vs Vishwa Oil Corporation Ltd.
1991 Latest Caselaw 558 Del

JUDGMENT

J.K. Mehra, J.

(1) By this order I am disposing of the application of the petitioner for stay of the arbitration proceedings before the arbitrators who have been appointed by the Indian Chambers of Commerce purporting to be acting under the arbitration agreement between the parties.

(2) The Madhya Pradesh Exports Corporation Limited (herein after referred to as 'MPEC') and the respondents had entered into two agreements dated 18.12.85 and 30.9.86 with the Petitioner-Corporation for the supply of Indian Toasted Soyabean Extraction Meal (pure yellow) for further export to Onab, Algeria in terms of the contract which the petitioner-Corporation had entered into with the said M/s. Onab, Algeria. Under both the said agreements, parties to the agreement had agreed to settle all disputes and differences amicably and failing that by arbitration between Petitioner on the one hand and Mpec and the Respondent on the other. The relevant clause for the purpose of the present case is one relating to the arbitration which is identical in both agreements reads as under :-Arbitration:Should there be any difference or dispute between the STC and the foreign buyer in respect or arising out of the export contract due to any default on the part of Mpec and the supplier,the Stc shall keep the Mpec and the supplier informed and shalltry to resolve the dispute amicably in consultation with Mpec and the supplier. If, however, such dispute is not resolved amicably,the same shall be settled as per the provisions contained in the export contract. Any award, decree or order passed or settlement of any dispute reached by the Stc with the foreign buyer, shall be fully binding on the Mpec and the supplier in all respects whoshall, at their own cost, jointly and severally, discharge all obligations of the Si C under or by virtue of any such award, decree,or settlement. In the event of any arbitration and/or litigation between the Sic and the foreign buyer, if so desired by Stc, the MPEC and the supplier shall, without demur, become parties to such arbitration/litigation at their own cost and expense and shall fully cooperate with and assist the Stc in connection therewith.Any dispute between the Stc on the one hand and the MPEC and the supplier on the other, in respect of any matter, other than the matter forming subject-matter of the dispute between the STC and the foreign buyer, shall be endeavor to be settled amicably and in case the same is not resolved amicably, it shall be referred to the arbitration of the Indian Council of Arbitration at New Delhi whose award shall be final and binding on both sides. The parties shall jointly submit to the jurisdiction of the Indian Council of Arbitration and shall also require the Arbitrators to make a reasoned award.Notwithstanding anything contained in this agreement, any position or stand that may, at any time, be taken by the Stc in relation to inc foreign buyer in respect of any matter under or concerning the export contract, shall not be construed to bein derogation of STC'S rights against the Mpec and/or the supplier, nor shall the same in any manner prejudice,curtail, diminish or impair STC'S rights against Mpec and thesupplier or the obligations and responsibilities of the Mpec and the supplier to STC. Neither Mpec nor the supplier shall have any right whatsoever to plead any inconsistency or conflict in the stand of the Stc vis-a-vis the foreign buyer on the one hand and the Mpec and the supplier on the other as in any mannerextinguishing, diminishing or impairing any of the obligations and responsibilities of the Mpec and the supplier to the STC. Nor shall the supplier have any right to raise any claim, counter claim,plea or defense whatsoever against the Stc on the ground if any conflict or inconsistency between the laws of India and the laws with reference to or based on which any arbitral award or Court decision may have been made or any settlement reached in any dispute between the Stc and the foreign buyer."

(3) We in the present case are concerned with the second para of the said arbitration Clause in the said agreements. Certain disputes are alleged to have arisen between the parties, i.e., the present petitioner and the respondent. The respondent by itself invoked the arbitration agreement and commenced arbitration proceedings vide its letter of 9.8.89 to the Indian Council of Arbitration against the petitioner. Such an invocation by the respondent alone was objected to by the petitioner before the Indian Council of Arbitration by means of an application. The petitioner wrote to the Indian Council of Arbitration without prejudice to its rights to consider its position ill the case before- filing any formal reply to the claim in its application before the Indian Council of Arbitration raised various objections,mainly based on non-joinder of MPEC. Indian Council of Arbitration has without dealing with the said application proceeded to appoint the arbitrators. It is to be noted that each party including the petitioner before the Court had nominated an arbitrator of its choice, but on each occasion, the petitioner was submitting letters with the expression that "those are without prejudice to their rights and contentions". The respondent has till date not imp leaded or joined Mpec in the said arbitration. Their main ground for non-joinder is that Mpec is only concerned with its overriding commission. Aggrieved by the action of Indian Council of Arbitration in not staying the arbitration nor directing the respondent to join Mpec the petitioner has filed the present petition challenging the jurisdiction of the arbitrators on various pleas. According to the petitioner, the following questions arise for determination in the present case, i.e., : 1. Whether a reference can be made by the respondent unilaterally without calling upon the parties to back-to-back agreement,viz, the petitioner herein and the Mpec to join in the making of the reference ?2. Whether the reference can at all be brought by the respondent without joining Mpec as a co-claimant or in the event of the refusal of Mpec to join in the reference, by joining Mpec asa respondent ?3. Whether a reference can be brought under the said arbitration Clause in respect of a dispute not involving the petitioner on the one hand and the respondent and the Mpec on the other hand ?4. Whether a reference can be brought in respect of a dispute which forms the subject-matter of a dispute between the petitioner and the foreign buyer ?

(4) However, at the time of hearing, Mr. Watal confined his arguments to point that the unilateral reference by the respondent alone without joining Mpec is invalid and ultra vires the agreement. It is contended that the expressions "any dispute between the Stc on the one hand and the MPEC and the supplier on the other" and the other that there is no valid submission to arbitration as "the parties shall jointly submit to the jurisdiction of the Indian Council of Arbitration...... ................." The contention of the petitioner is that the expression "MPEC and the supplier on the other" means that the dispute has to be between the Stc on the one hand and Mpec and the respondent jointly on the other hand. The argument of Counsel for the petitioner is that in case it was intended that the dispute between the Stc on the one hand and Mpec and/or the supplier on theother was intended, then the expression "and/or" would have been used in place of expression "and". It is further pointed out that wherever the parties intended the use of the expression "and/or", they have done so as is the case in the last paragraph of the said arbitration Clause where in lines 7 and 8, it is mentioned "..................... shall not be construed to bein derogation of STC'S rights against the Mpec and/or the supplier....................."No such expression has been used in the relevant para 2 of the arbitration Clause quoted above and it is for this reason that the petitioner contends that the present unilateral reference by the respondent alone is ultra vires the arbitration agreement. In the light of further expression quoted above from sub-para 2 of the arbitration Clause, it requires the parties to "jointly submit to jurisdiction of the Indian Council of Arbitration". It is further contended that the arbitrators entering upon such unilateral reference lack inherent jurisdiction to entertain the reference as there is no joint submission to arbitration as is the requirement of agreement between the parties. The Counsel for the petitioner has relied upon the case of Waverly Jute Mills Co. Ltd. v. Raymon & Co. (India) Lid : . The contention and submissions of the petitioner have been repelled by Council for the respondent who has stated that the letters written to the Indian Council of Arbitration and the appointment of its Arbitrator amounted to acquisecing into jurisdiction of the arbitrators and that the petitioner is now estopped from challenging the same before this Court. It has however not been disputed that the parties are entitled to refer the dispute for adjudication by the arbitrators only in accordance with the aforesaid sub. para 2 of the arbitration Clause. He had relied upon the case of Banwari Lal Kotiya v. P.C. Aggarwal: andP.C. Aggarwal v. K.N. Khosla and Others : reported as . None of the said cases deals with a situation prevailing in the present case as would appear from the following discussion.

(5) The Counsel has relied upon the two rulings under the English Arbitration Law, namely. Adcock v. Wood and Rees. v. Waters reported as6 Ex 814 and 16 M. & W. 253 respectively. In the former case two parties of the one part and one of the other part bad submitted all matters to arbitration and the question for decision was as to whether one of the parties shall pay money to a stranger for the benefit of the other party is good and was answered in the positive. I am afraid that that case is clearly distinguishable where all the parties had submitted to the arbitration which is not the casehere. Similarly the case of Rees v. Waters has also no application to the facts of the present case. The Counsel has also relied upon a passage from20th Edition of Russel on Arbitration and has drawn my attention to pages95, 99 and 100 where the question of submission by only one of the two parties vis-a-vis the third had been considered and it was found that the expression is to be taken distributively. This expression is based on the law laid down in Adcock v. Wood. However, a perusal of that ruling shows that that, was a case of submission to arbitration by all, Moreover, in the present case there exists a specific agreement to the effect that submission to the jurisdiction will be joint. The Hon'ble Supreme Court in the case of Waverly Jute Mills (supra) has held that : Eagreement for arbitration is the very foundation on which the jurisdiction of the arbitrators to act rests and where that is not in existence at the time when they enter on their duties, the proceedings must be held to be wholly without jurisdiction. And this defect is not cured by the appearance of the parties in those proceedings even if that is without protest, because it is well settled that consent cannot confer jurisdiction."

Their Lordship of the Privy Council in the case of Florrie Edridge v.Rustomji Danjibhoy Sethna : reported as have laid down that, subsequent conduct of a party is irrelevant for the purpose of construing the agreement; the construction must depend on the intention of the parties when it was made, which is to be ascertained from its terms, read in the light of the facts known to both parties when it was concluded."

(6) Thus, in fact the jurisdiction of the Arbitrators really depends on the intention of the parties to be ascertained from the terms of the agreement in the light of the facts known to the parties at the time the agreement was entered into/concluded. While construing an agreement the Court should as far as possible construe it as a whole harmoniously so as no part of it is rendered redundant. The use of the expressions "AND" and "AND/OR" in the same Clause could not have been intended to be an interchangeableexpression. Further a specific provision for joint submission to the jurisdiction cannot be treated to be a meaningless addition to the agreement and has to be assigned a meaning intended by the parties to the agreement at the time the agreement was entered into.

(7) Counsel for the respondent cited the case of Pannalal Jagatmalv. State of M.P. reported as ; to support his argument that the petitioner cannot challenge the jurisdiction of the arbitrators, I amafraid that ruling does not help the respondent because in that case both the parties had lodged their respective claim and counter claim before theArbitrator and it was in that context held that the parties had submitted to the arbitration. In the present case the petitioner has not yet filed any pleading except its application to the Indian Council of Arbitration without prejudice to its contentions for impleading MPEC.

(8) My attention was also drawn to pages 99 and 100 of the same edition of Russel on Arbitration to butress the arguments that normally injunctions against arbitration are not granted. I find in that very commentary it has been noticed that "now it is well recognised that the Court has jurisdiction to grant injunction on that basis restraining either party or the arbitrator from proceeding with the reference." However, before the grant of injunction the Court has to consider the well recognised principles-that continuance of arbitration would be oppressive or vexatious or would amount to an abuse of the process of the Court and the well known principles of irreparable injury and the petitioner having a good prima facie case and the balance of convenience in his favor. In reply to this argument Counsel for the petitioner has referred to where in para28, it has been laid that there cannot be any acquiscence in arbitrationmatters. Mr. Watal has argued that the Arbitrators in the present case lacked inherent jurisdiction and wherever inherent lack of jurisdiction isthere, the matter can be taken up at any stage and there cannot be any estoppel against it.

(9) Taking into consideration the various arguments addressed, I find that even if it is considered that the respondent by itself could approach the Indian Council of Arbitration for a reference of the disputes to the arbitration, there could not be any such reference unless there was jointsubmission. The said expression does require careful examination/consideration in the light of the facts of this case as to whether it was intended to be a mandatory condition precedent in addition to the effect of the parties having chosen to use the expression "AND" and "AND/OR" in different subparas of the same clause regarding arbitration.

(10) In this view of the matter I am of the view that the balance of convenience is in favor of the petitioner who also has made out a prima facie case for interference and it would be just to grant the prayer for stay of arbitration proceedings. For the aforesaid reason, I accept this application and stay the proceedings before the Arbitrators pending the disposal ofO.M.P. No. 35 of 1991.

(11) I.A. stands disposed of.

(12) I also direct that the hearing of the main O.M.P. No. 35/91 beexpedited.