Finnpap (Finish Paper Mills ... vs The Stc Of India Ltd.
2005 Latest Caselaw 493 Del

JUDGMENT

Pradeep Nandrajog, J.

1. On award dated 17.12.1998 published by the arbitral tribunal consisting of Justice M.K. Chawla (Retd.), Justice S.S. Chadha (Retd.) and Justice Satish Chandra (Retd.) being received in this Court, notice of filing of the award was served upon the parties. Objections have been filed to the award by State Trading Corporation (STC) by and under IA. No. 4731/1999. Present order disposes of the same.

2. Shri S.K. Bandhopadhaya, learned counsel for the objector/STC urged three submissions at the hearing held on 7.3.2005.

3. The three submissions were as under :

i) There was no arbitration clause in the contract between the parties and, therefore, award was a nullity. As a limb of this submission, it was urged that the arbitrators had no jurisdiction to decide the issue whether contract between the par ties contained an arbitration clause.

ii) Constitution of the arbitral tribunal was illegal for the reason, when Justice S.S. Chadha (Retd.), was nominated as member of the tribunal, he was not on the panel of the arbitrators of the Indian Council for Arbitration and, therefore, constitution of the arbitral tribunal was illegal.

iii) Majority award pertaining to damages awarded to the petitioner was vitiated on account of non-appreciation of evidence on record.

4. Dealing with the factual matrix of the first objection, record of the arbitrators would reveal that they framed issue No. 1 as under :

"Whether there is no valid arbitration agreement between the parties?"

5. Learned arbitrators have taken note of six letters/telex messages exchanged between the parties on issue No. 1 and in light thereof have concluded the issue against the objector. It would be advisable to have a look at the letters/telex messages referred to by the learned arbitrators on this issue.

6. Contractual relationship between the parties is to be traced back to a telex message dated 16/17.9.1991 issued by STC to the petitioner. Said telex message invited offers for supply of a glazed and standard news print. It was indicated in the telex message that offers were invited AS PER STC'S STANDARD SPECIFICATIONS. Local representative of the petitioner, Amika International Pvt. Ltd. responded vide letter dated 30.9.1991. It enclosed with the said letter, offer of the petitioner received by it on telex.

7. The telex message of the petitioner which was submitted as the petitioner's offer by the Indian representative under cover of letter dated 30.9.1991 offered to supply glazed news print as per tender enquiry.

8. It may be noted that the tender enquiry was as per the telex message dated 16/17.9.1991. Petitioner's offer was accepted by STC by and under a telex message dated 16.10.1991. It was indicated in the said telex message that :

"All other terms n conditions will be as per STC's Standard Terms N conditions for import of glazed news print."

9. Offer which was accepted by STC was a confirmed offer in respect of 9000 MT of glazed news print with further stipulation that STC had an option to purchase another 5000 MT by placing a firm order by 31.12.1991.

10. On 7.11.1991, STC forwarded to the petitioner three copies of contract agreement having a date being 16.10.1991, to be signed by the petitioner and returned for record. The said agreement dated 16.10.1991 which was transmitted under the cover of letter dated 7.11.1991 contained an arbitration clause as under :

"17. ARBITRATION:

All disputes or differences what so ever arising between the parties out of or relating to construction, meaning and operation or effect of this contract or the breach thereof shall be settled by Arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration, New Delhi, and the award made in pursuance thereof shall be final and binding on the parties. Contract shall in all its aspects be governed by the Laws of India."

11. On 17.12.1991, Indian representative of the petitioner wrote to STC on behalf of the petitioner. Following was communicated by the Indian representative of the petitioner to STC :-

  "Ref : KLV/GS-2                                                  17th December 1991
 

Mr. S.A. Raza 

Executive Director 

The STC of India Ltd.
Jawahar Vyapar Bhavan 

Tolstoy Marg 

New Delhi 110001
 

Dear Sir:
 

Re: 9000 tons firm and 5000 tons optional GLAZED NEWSPRINT from FINNPAP.
 

We have now received Contract No. STC/NP/FINNPAP/ 31/91-92 dated 16.10.91 for 9000 tons firm and 5000 tons optional Glazed Newsprint from STC.
 

Our principals have gone through the Contract and before signing the same have asked for the following clarifications.
 

a. Clause 10 - Packing and Marketing.
 

STC has stipulated a new condition which has not been included in earlier STC Contracts, i.e. Name of the Mill, country of origin and date of manufacture. Our principals have not difficulty in marking these details on the reels. However now it appears hat STC required these details to be sencilled also on the side of the reels, which is not possible for them, since their packing and marking is all computerized and there is no provision in any of their programmers for marking on the sides of the reels.

Therefore they have informed us that it is not possible for them to accept this condition.

b. Clause 13-Delay in arrival of vessel after fixing lay days.

Our principals have pointed out that one month period is too long for the reason that when they are making offers they are not taking such delays into consideration, which may cost them over 1% of the cost of the material, plus storage charges. Therefore they are agreeable only for 10 days delay period at the load port without any extra cost to the buyer, beyond the agreed upon lay days.

They accept part two of this clause that the shipment period will be considered from the date of receipt of the LC in acceptable form.

In case there is any delay in the opening of LC or giving of the specifications on the part of STC, that period will not be considered as delayed period.

Therefore we would request you kindly to amend the above mentioned clauses accordingly, so that our principals can sign and return the said Contract for your records.

Thanking you and with kind regards, yours very truly for ANIKA INTERNATIONAL PVT. LTD.

Sd/-

Vig K. Lal

Managing Director

cc: M/s. FINNPAP, Overseas and Trading, Helsinki (Finland)"

12. Notwithstanding the fact that the letter dated 17.12.1991 was written by the Indian Representative, petitioner effected supply of 9000 MT glazed newsprint and received payment for the same. On 30.12.1991, by a telex message, STC exercised option to import further 5000 MT of glazed newsprint at the same price and terms and conditions. Petitioner was required to confirm to STC, enabling it to release specifications. Indian Representative of the petitioner confirmed acceptance for supply of additional 5000 MT of glazed newsprint vide letter dated 31.12.1991. The same reads as under :

  "Ref : KLV/GS-2                                                  17th December 1991
 

Mr. P.S. Sehrawat 

Marketing Manager 

The STC of India Ltd. 

Jawahar Vyapar Bhavan 

Tolstoy Marg 

New Delhi 110001
 

Dear Sir:
 

This has reference to your fax/telex sent direct to our principals in Finland, FINNPAP, confirming the order for the optional quantity of 5000 tons glazed newsprint.
 

We, on behalf of our principals FINNPAP, hereby confirm acceptance of this 5000 tons glazed newsprint for shipment January-February 1992, on the same terms and conditions.
 

We would therefore request you to please immediately release the specifications so that we can plan the production of this quantity during January and February accordingly.
 

Thanking you and with kind regards, yours very truly for ANIKA INTERNATIONAL PVT. LTD.
 

Sd/- 

Vig K. Lal 

Managing Director
 

cc: M/s. FINNPAP Helsinki"
 

13. Specifications were released by STC. On 13.1.1992, STC issued a telex message to the petitioner canceling the order for supply of 5000 MT of glazed newsprint. Reason stated was that it was facing foreign exchange problems. It was also stated in the telex message that the petitioner had not returned the contract duly signed.

14. Issue raised before the learned arbitrators by STC was that there was no concluded contract containing an arbitration clause and, therefore, the petitioner could not rely upon Clause 17 of the document dated 16.10.1991 for the reason petitioner did not sign the same. Additionally, STC relied upon another telex message dated 17.1.1992 sent by the petitioner wherein, in para 2, petitioner wrote as under :

"2.Regarding arbitration (point 17 in contract), we naturally can only accept that all disputes of concerns in connection with this contract will be settled by arbitration in the country of the defendant according to law applicable in the defends country (as per previous contract STC/NP/FINPAP/9/91-92 dated 22.3.1991)."

15. Learned arbitrators by a unanimous award on issue No. 1 after taking note of the telex messages noted above including para 2 of the telex message dated 17.1.1992 addressed by the petitioner held as under :

"There is no dispute to these facts, the defendant floated on or about 16.9.1991 Global Tenders for import of 20000 MT of glazed and 65000 MT of standard newsprint. The copy of STC tender inquiry is Ext-4/STC's standard terms and conditions for standard/glazed newsprint imports. The claimant submitted their offer dated 30.9.1991. Ext-5/STC's documents through their agent and did not dispute any clause of standard terms and conditions. The Newsprint Purchase Committee of the defendant met on 16.10.1991 and decided to purchase 9000 MT firms and 5000 MT optional quantity of glazed newsprint. The defendant placed an order on the claimant vide its telex/fax dated 16.10.1991 Ext-1/STC's documents, for the import of 9000 MT firm and 5000 MT option to be exercised by the buyer by 31st December,1991, @ US$ 609.00 PMT FOR gross for net Kola, Rauma and Hamma for shipment during November/December 1991,, telex/fax dated 16.10.1991 reiterated that all other terms and conditions will be as per STC's standard terms and conditions for import of newsprint. The claimant having accepted the contract in its entirety had made the supplies of 9000 MT of the newsprint of the quality as ordered by the defendant without a demur. These fats are established by the affidavit dated 23.9.1996 of Shri Kasturi Lal Vig (paras 9 to 12) by affidavit dated 2.10.1996 of Mr. Pentiti Kallio (paras 8 to 1) filed on behalf of the claimant as well as by the affidavit of Shri R.P. Sehrawat, Chief Marketing Manager of STC dated 16.11.1996 [para 4(a)] and he deposes that "the claimant accepted the said order (i.e. the order vide its fax dated 16.10.1991) in toto."

The execution of a formal contract was not a pre-requisite to the coming into effect of A contract between the parties. Invitation to offer was made by the defendant in response to which an offer was made by the claimant in its offer dated 30.9.1991. The offer was accepted by the defendant on 16.10.1991 by letter/fax Ext-1, and contains all the material terms and conditions of the contract. As regards other terms, it states that all other terms and conditions will be as per STC's standard terms and conditions for the import of glazed newsprint. This letter dated 16.10.1991 does not reserve that the contract was not concluded till a formal written document is executed by an agreement by which the terms agreed upon are to be put in some formal shape does not prevent the coming into force of a binding contract. It may be open to the defendant typo prescribe that the contract would come into existence only on the formal contract being signed by the parties as a condition precedent to the formation of the contract, but in law, the acceptance of a proposal converts a proposal into contract. Both the parties proceeded on the premise that a binding contract stood concluded on 16.10.1991 and performed the contract so far a the firm order of 9000 MT is concerned despite the fact that the claimant had not signed and returned the copies of the formal contract dated 16.10.1991 by 31.12.1991, when the contract for 9000 MT was fully performed.

The contract for optional quantity of 5000 MT was concluded upon the defendant exercising the option by communication dated 30.12.1991, Ext-7/STC's documents. It refers to clause 4 of "our contract No. STC/NP/Finnap/31/91-92 dtd the 16th October 1991" wherein the defendant had retained option for 5000 MT glazed newsprint to be 3exercised by 31.12.1991. The defendant say that GG we hereby exercise the said option for import of 5000 MT glazed newsprint at he same price and other terms and conditions contained in our aforesaid contract". The defendant relied upon and rested the optional quantity of 5000 MT on an already concluded contract between the parties although the formal contract had not been signed by that time. The defendant asked for confirmation of the acceptance of this optional quantity of 5000 Mt and the defendant, through its agent accepted it on 31.12.1991, Ext-8/STC's documents for shipment January-February,1992 on the same terms and conditions. The parties proceeded at all material times on the concluded contract contained in the tender enquiry of the defendant the offer of the claimant and acceptance of the offer on 16.10.1991 will all other terms and conditions as per STC's standard terms an conditions. In this case, in our view, both the parties were one in asserting that they had entered into a binding contract containing, inter alia, the arbitration agreement quoted above as per STC's standard terms and conditions for the import of glazed newsprint."

16. Learned arbitrators have correctly applied principles of law of contract pertaining to offer and acceptance in the context of a complete contract. Learned arbitrators have also considered the law on the issue whether formal contract document being signed was a condition precedent or not before a journal relationship could come into existence between the parties.

17. It is settled law that the arbitrators are the final authority to adjudicate on the question of fact between the parties. Whether a concluded contract has come into existence is primarily a question of fact based on the principles of unconditional acceptance of an offer concluding a contract. Learned arbitrators have, in the context of telex messages exchanged between the parties concluded that the contract concluded when STC accepted the offer on 16.10.1991 and reiterated in the acceptance that terms and conditions of the contract were as per "STC's standard Terms N Conditions". Petitioner effected supply of 9000 MT glazed newsprint which was accepted by STC without demur, a fact duly noted by the learned arbitrator. Learned arbitrators have further noted that STC's standard terms and conditions of the contract were as incorporated in the document dated 16.10.1991 required to be signed by the petitioner.

18. It is clear that STC invited offers making it clear that offer should be as per STC's standard specifications vide telex message dated 16/17.9.1991. Petitioner submitted offer vide telex message forwarded to STC by its Indian Representative under cover of letter dated 30.9.1991. Offer was in reference to the tender enquiry dated 16.9.1991. STC accepted the offer vide telex message dated 16.10.1991 recording therein that STC's standard terms and conditions would govern the contract and pursuant thereto supply was effected and received by the two contracting parties.

19. Notwithstanding the fact that formal contract agreement was not executed, offer and acceptance, incorporated by reference, STC's Standard Terms and Conditions of the Contract, which contained an arbitration clause.

20. On the second limb of submission, being whether the arbitrators could have decided on the issue whether there existed an arbitration clause between the parties, award would show that learned arbitrators went into this issue as well.

21. Learned arbitrators noted that the arbitration clause used the words "arising out of" or "relating to", It was held that the arbitration clause was so widely worded that it included within its scope, question of the very existence of the arbitration clause, its validity and effect.

22. As noted by the learned arbitrators, Hon'ble Supreme Court in the decision reported as , Renusagar Power Co. Ltd. v. General Electric Company and Anr., in para 25, held as under :

"25. Four propositions emerge very clearly from the authorities discussed above:

1. Whether a given dispute inclusive of the arbitrator's jurisdiction comes within the scope of purview of an arbitration clause or not primarily depends upon the terms of the clause itself; it is a question of what the parties intend to provide and what language they employ.

2. Expressions such as "arising out of" or "in respect of" or "in connection with" or "in relation to" or "in consequence of" or "concerning" or "relating to" the contract are of the widest amplitude and content and include even questions as to the existence, validity and effect (scope) of the arbitration agreement.

3. Ordinarily as a rule an arbitrator cannot clothe himself with power to decide the questions of his own jurisdiction and it will be for the court to decide those questions, but there is nothing to prevent the parties from investing him with power to decide those questions, as for instance, by a collateral or separate agreement which will be effective and operative.

4. If however, the arbitration clause, so widely worded as to include within its scope questions of its existence, validity and effect (scope), is contained in the underlying commercial contract then decided cases have made a distinction between questions as to the existence and/or validity of the agreement on the one hand and its effect (scope) on the other and have held that in the case of former those questions cannot be decided by the arbitrator, as by sheer logic the arbitration clause must fall along with underlying commercial contract which is either non-existent or illegal while in the case of the latter it will ordinarily be for the arbitrator to decide the effect or scope of the arbitration agreement, i.e. to decide the issue of arbitrability of the claims preferred before him."

23. The first objection to the award is accordingly repelled. I find no infirmity in the award of the learned arbitrators pertaining to issue No. 1 framed by the arbitrators and as answered under the award.

24. Second ground as urged was that the constitution of the arbitral tribunal was illegal inasmuch as one of the arbitrator was not a member of the panel of arbitrators of Indian Council of Arbitration.

25. Arbitration clause required the matter to be settled in accordance with the Rules of Arbitration of the Indian Council of Arbitration. Rule 25 of the said body reads as under :

"Rule 25. Any party shall have the right to challenge the appointment of an arbitrator on receipt of the notice of his appointment for reasons which disqualify him as an impartial or independent arbitrator. The challenge of an arbitrator shall be made within 30 days after his appointment has been communicated to the challenging party or within 30 days of his becoming aware of the reasons for which the challenge is made. Copies of the communication of challenge shall be sent to the other parties and the arbitrators. The Committee shall be the sole judge of the grounds of challenge and its decision shall be final and binding on the parties."

26. Record of arbitrators would reveal that at the third hearing held on 7.5.1996, following order was passed :

"Respondents were required to file the written statement by 4th April,1996. The claimants were thereafter to file the rejoinder and the date was fixed for framing of issues. The respondents, however, not filed the written statement. Today the have filed the application challenging the appointment of one of the arbitrators (Mr. Justice S.S. Chadha) on the ground that he was not a member of the Panel of Arbitrators of the Council on the date he was appointed as arbitrator.

Our attention was drawn to Rule 25 of the Rules of Arbitration lo the Council. Mr. Ajay Verma, counsel for the defendant concede that the Committee i.e. Arbitration Committee of the Council is competent to decide such application challenging the appointment of an arbitrator. We, therefore, hold that this application is not maintainable before us.

The respondents have filed written statement without prejudice that they may raise to challenge the appointment of one of us before the Committee. Copy of the written statement is given and the rejoinder will be submitted by the claimant within on week.

Parties would file the documents within two weeks with advance copy to the counsel for opposite party. Parties would file admission and denial before the next date of hearing i.e. on 27th May,1996 at 3 p.m. at the Federation House, Tansen Marg, New Delhi."

27. Admittedly the respondents did not take up the matter with the Indian Council of Arbitration for reconstitution of the arbitral tribunal by bringing its grievance to its notice. For record, I may note that the name of Justice S.S. Chadha (Retd.) was pending consideration to be brought on the panel of arbitrators. By the time award was pronounced/published, his name came on the panel of arbitrators.

28. Be that as it may, STC should have taken steps as per Rule 25 noted above. Having chosen not to do so, STC would be deemed to have acquiesced in the jurisdiction of the arbitral tribunal. Having opted to get a decision on merits, merely because the decision is against STC, would be no ground for STC to challenge the competence of the arbitral tribunal.

29. That takes me to the last and third submission urged to challenge the award.

30. It was urged that learned arbitrators have mis-read the evidence in awarding damages to the petitioner.

31.To complete the narration of facts which lead to filing of claim by the petitioner. Having placed further contract for supply of 5000 MT of glazed newsprint on 30.12.1991, acceptance whereof was communicated by the petitioner to STC on 31.10.1991, as noted above, STC issued telex message on 13.1.1992 canceling the order. Petitioner claimed that it had procured part of the quantity to be supplied in the meanwhile and remaining quantity was nearing production. Award of the learned arbitrators shows that the majority awarded compensation in the sum of US $ 1,30,681.52 to the petitioner for 1883.906 MT paper being the difference in the value at which petitioner had to see the newsprint and the price at which STC was to purchase he same. The majority award shows that the evidence lead by the petitioner has been considered. Letters dated 10.3.1997 and 18.3.1992 as also letters dated 6.4.1992 and 20.4.1997 have been considered. Oral evidence has been considered. The majority award has taken note of the fact that under the contract, reels to be supplied were to have 91.4 cm diameter. They have considered the evidence on record that the buyer to whom the supply was ultimately effected, wanted reels in diameter of 100 cm. They have considered the letters dated 4.5.1992 and 7.5.1992. in the context whether petitioner got the goods rewarded so as to increase the diameter of reels from 91.47 cm to 100 cm.

32. Being a pure question of fact and in view of the evidence on record, objection of STC cannot be sustained.

33. Learned counsel for the STC relied upon the minority award on the issue of quantification of damages to urge that the correct approach was as taken by minority award.

34.A perusal of the minority award shows that it agreed with majority on the issue of the arbitration clause and maintainability of the arbitration proceedings but held against the petitioner by holding that the petitioner could not establish that what was supplied to the third part was the material procured by the petitioner to be supplied to STC. The reading of the minority award shows that the same evidence which has been considered by the majority arbitrators has been considered but conclusion drawn is contrary to the conclusion drawn under the majority award.

35. A finding of fact recorded by an arbitrator can be challenged only on the ground that either there is no evidence to sustain the finding or that the award is perverse, in that no reasonable person would reach the conclusion on the given evidence.

Adequacy or inadequacy of evidence cannot be gone into on this issue. Merely because the one arbitrator has arrived at a finding on the same evidence contrary to the finding of majority, would not make the finding of majority a perverse evidence

36. It was not the submission of counsel for STC that it is a case of no evidence.

37. A perusal of the minority award would show that standard of proof sought by minority arbitrator was higher than the standard of proof set by the majority.

38. For record, counsel for the STC did not challenge the award on any other issue. The award was not challenged in so far as issue No. 2 and 3 were concerned.

39. I find no merits in the objections. IA. No. 4731/1999 is accordingly dismissed.

CS (OS) 346-A/1999 Since objections filed by STC to the award dated 17.12.1998 published by the arbitral tribunal consisting of Justice M.K. Chawla (Retd.) Mr. Justice S.S. Chadha (Retd.) and Justice Satish Chandra (Retd.) have been rejected, award dated 17.12.1998 is made a rule of the Court. Post decretal interest is awarded to the petitioner @ 9% per annum on the principle sum awarded till the date of payment.

No costs.