Royal Foundry vs Union Of India (Uoi) And Anr.
2004 Latest Caselaw 973 Del

JUDGMENT

R.C. Jain, J.

1. The above named petitioner has filed this petition under Section 20 of the Arbitration Act, 1940 (hereinafter referred to as the ''Act'') a direction on the respondent to file the Arbitration Agreement in the court and for referring the disputes between the parties to an Arbitrator which may be appointed by this Court.

2. The petition has been filed with the averments and allegations that the petitioner is a partnership firm duly registered under the Partnership Act and is engaged in the manufacture and supply of machinery and equipment for industrial purposes inter-alia including radial drilling machines. Vide a Contract Agreement dated 2.4.1992, the respondent No. 2 awarded a contract to the petitioner for supply of 22 Nos. of radial drilling machines at different destinations. However, the formal Agreement on the contract form was executed on 29.9.1992. After the award of the work and completing the requisite formalities the petitioner undertook the manufacturing of the machines and actually supplied 9 radial drilling machines at various destinations. The remaining machines could not be supplied within the stipulated period and the period for supply was extended up to 30.9.1994 but due to exigencies inter-alia arising out of force majeur conditions. the petitioner could not supply the balance number of machines. Vide a letter No. DGET-7(4)/92-CPIU/PE dated 16.2.1995 the respondent No. 2 terminated the Contract Agreement. Vide another communication dated 16.2.1995, the respondent No. 2 threatened to initiate action for forfeiture of the Performance Guarantee o.B/G 38/24 dated 14.7.1992 in the sum of Rs. 4,71,704/- which was issued by the State bank of India, Batala (Punjab) on the request of the petitioner. The petitioner tried to explain to the respondent the circumstances under which the balance number of radial drilling machines could not be supplied but to no avail.

3. It is alleged that the Contract Agreement dated 2.4.1992 and 29.9.1992 contain an Arbitration Agreement in Clause 15 which reads as under:

''15.0 Settlement of disputes and arbitration:

15.1 It is specifically agreed to between the parties that all differences or disputes between them arising out of this contract shall be settled by the process of Resolution of Disputes as specified in Clause 27.0, Section GCC of Conditions of Contract Vol. I and Clause 12.0 of Special Conditions of Contract Vol. IA. (Delhi Courts alone shall have exclusive jurisdiction.)

Clause 27.0 Section GCC of Conditions of Contract Vol. I also contain a similar clause.

27. Resolution of Disputes:

27.1 The purchaser and the Supplier shall make every effort to resolve amicably by direct informal negotiations any disagreement of dispute arising between them under or in connection with the contract.

27.2 If, after thirty days from the commencement of such informal negotiations, the Purchaser and the Supplier have been unable to resolve amicably a Contract dispute, either party may require that the dispute be referred for resolution to the formal mechanism which may include, but are not restricted to, conciliation mediated by a third party, adjudication in an agreed national or international forum, and/ or international arbitration. The precise mechanism shall be specified in the Special conditions of contract.''

(c ) Clause 12.0 of Special Conditions of Contract Vol. IA. as under:

12.0 Resolution of Dispute (Clause 27.0)

The dispute resolution mechanism to be applied pursuant to clause 27 of the General Conditions shall be as follows:

(a ) In the case of a dispute between the Purchaser and a Indian Supplier, i.e. a citizen and/or or permanent resident of India, a firm or a company duly registered or incorporated in India, the Arbitration shall be conducted by three arbitrators, one each to be nominated by the supplier and the purchaser, and third to be named by the President of Institution of Engineer, India. If either of the parties fails to appoint its arbitrators within 60 days after receipt of a notice from either party invoking the arbitration clause, the President of Institution of Engineers, India shall have the power at the request of either of the a parties to appoint the arbitrator. A certified copy of the said President making such an appointment shall be furnished to both the parties. The arbitration shall be conducted in accordance with the provisions of Indian Arbitration Act, 1940, or any statutory modifications thereof. The venue of arbitration shall be New Delhi, India.

(b) In the case of dispute between the Purchaser and the foreign supplier, the dispute shall be settled in accordance with the provision of the United Nations Commission with the provision of the United Nations Commission on International Trade Law (UNC TRAL) arbitration rules. However, the arbitration shall be conducted at New Delhi, India.''

4. Along with the petition, the petitioner also moved an application under Order XXXIX Rule 1 and 2 CPC seeking for an ad-interim injunction for restraining the respondents from invoking and encashing the bank guarantee given by the petitioner pursuant to the said contract and vide an order dated 25.5.1995 this Court granted ex-parte injunction restraining the respondents from encashing/revoking the bank guarantee furnished by the petitioner.

5. The respondent has opposed the petition and filed a reply raising preliminary objections about the maintainability of the petition for the reason that the petitioner failed to fulfilll its contractual obligations in regard to the supply of equipment and its instalation despite repeated extensions granted to him and consequently the respondent was left with no option except to cancel the contract. It is also stated that the project for which the equipment and machinery was required was aided by the World Bank and it came to an end on 31.3.1996 and the World Bank has been adversely criticised the inordinate delay in supply of the machinery and non-utilisation of the requisite funds within the stipulated period. On merits it is not disputed that a contract was entered into between the parties for supply of the drilling machines and that only 9 machines out of 22 machines were supplied and only three machines were installed on different dates during the extended period. The existence of Arbitration Agreement for settlement of disputes/differences between the parties is also not denied but it is contended that the petitioner has not subsisting claim against the respondent as the respondent has rightly cancelled the contract of the petitioner for hi-failure to meet contractual obligations and consequently the respondent was within its right to invoke the performance guarantee given by the petitioner.

6. In the rejoinder the petitioner has controverter the objections/pleas raised in the reply and has reiterated the averments as made in the petition.

7. On the pleadings of the parties following issues were framed:

''1. Whether the present petition is not maintainable?

2. Whether the claims raised in the petition are disputes within the meaning of the arbitration agreement between the parties and if so whether it could be referred to an arbitrator in terms of the Arbitration Agreement.

3. Relief?

8. As the respondent absented from the proceedings on several dates, vide order dated 29.8.2003, the respondent was ordered to be proceeded against ex-parte. Petitioner has led his evidence through affidavit of Shri K. R. Sareen one of the partners of the petitioner.

9. I have heard Mr. Jagdish Singh, learned counsel representing the petitioner but did not have the advantage of hearing the learned counsel for the respondent as the respondent was proceeded ex-parte and no one appeared on behalf of the respondent at the time of final hearing of the petition. In this case, the existence of an Arbitration Agreement between the parties as also that the disputes cannot be disputed because according to the petitioner his contract was wrongfully terminated by the respondent while according to the respondent they have rightly and validity terminated the contract because of the failure of the petitioner to supply the balance number of machines despite several extensions of time granted to the petitioner. The question whether the contract was rightly or wrongfully terminated constitutes ''dispute'' within the meaning of the term and is liable to be settled through the mechanism of Arbitration. This Court finds nothing on record on the strength of which it can be said that the present petition is not maintainable or is hit by any provision of law. Accordingly, this Court is of the considered opinion that the petition deserves to be allowed and the disputes between the parties are liable to be referred to arbitration for is settlement within the meaning of Clause 15 of the Agreement and Clauses 27.0 of the General Conditions of Contract Vol-I and Clause 12.0 of Special Conditions of Contract Vol.-IA.

10. In the result, this petition succeeds and is hereby allowed and the disputes raised by the parties are hereby referred for arbitration. Mr. Y. S. Jaunwal, Retd. Additional District and Sessions Judge, Delhi, is hereby appointed as the Sole Arbitrator to settle the disputes/differences between the parties. The learned Arbitrator may enter upon the reference and make and publish his Award within a period of four months from the date of entering upon the reference. The remuneration of the Arbitrators fixed at Rs. 50,000/- which shall be shared by both the parties initially.

A copy of this order be forwarded to the sole Arbitrator for information and necessary action.

Parties are directed to appear before the Sole Arbitrator on 4th October, 2004 at 4.00 p.m.