Watersweet Limited And Anr. vs The Fertilisers And Chemicals And ...
2006 Latest Caselaw 980 Del

JUDGMENT

Sanjay Kishan Kaul, J.

1. The petitioners and the respondent entered into a charter party agreement dated 11.10.2001 for bulk supply of sulphur to be transported from Jubail to Cochin. The contract inter alia provided as under:

9. DEMURRAGE:

If the Vessel is detained longer than the time allowed for loading and/or discharging, demurrage shall be paid at US 4000/- (UNITED States Dollars Four Thousand Only) per running day prorata and dispatch money for working time saved at the loading and discharging port to be paid to Chatterers at half the demurrage rate.

63. All claims towards demurrage/dispatch/dead freight etc. at load port to be settled directly Between owners and Suppliers. However, Chatterers will assist owners in settlement of owners claim with Supplies.

2. Prior to the execution of the charter party agreement, the respondent had entered into a contract with the seller, M/s. ICEC Ltd. Gibraltar dated 15.9.2001. The relevant clauses of the contract are as under:

18.6. All claims at the load port like demurrage, dispatch, dead freight, etc., shall be settled directly between the Seller and the vessel owner. Suitable provision shall be made to this effect in the Charter Party. FACT shall render assistance, if required, to the Seller/owner in settling such claims.

18.7. Seller shall be liable for any demurrage incurred at the loadport on account of any delay in loading course the permissible laytime. Any delay due to the vessel's condition or breakdown or inability of the vessel's facility to load cargo within the time allowed, shall not count as used laytime.

3. The shipment was made and received but there was delay at port of loading. The petitioners claimed amounts in terms of Clause 9 of the charter party agreement and in view of the existence of the arbitration clause between the parties in the charter party agreement, the disputes were referred to arbitration. The said arbitration Clause 46 is as under:

46. All disputes arising under this charter Party shall be settled in India in accordance with the Provisions of the Arbitration and Conciliation Act, 1996 ( No. 26 of 1996) or any further amendments thereof and under the Maritime Arbitration Rules of the Indian Council of Arbitration. The Arbitrators to be appointed from out of the Maritime Panel of Arbitrators of Indian Council of Arbitration. The Arbitrators shall be commercial men.

4. The arbitrators were appointed in pursuance of the aforesaid clause, who made and published their award dated 11.4.2005. The petitioners aggrieved by the same filed objections under Sub-section (2) of Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as 'the Act').

5. The petitioners are aggrieved by the award in view of the fact that the claim of the petitioner has been rejected even though it was found that there was indisputable delay at the port of loading. Learned counsel first contends that in view of the charter party agreement, the clauses must be construed in a manner as to give meaning to all the clauses and the petitioners must be compensated for the delay which has occurred at the port of loading on account of the conduct of the seller.

6. Learned counsel for the petitioners contends that Clause 63 should be read in a manner wherein the word 'assist' in respect of settlement of the claims of the petitioners by the supplier, must be construed to imply that the respondent is liable to the petitioners and the seller would in turn be liable to the respondent. Learned counsel concedes that the clause is not very happily worded but submits that in such a case the construction of the clause should be in a manner which promotes the object of the contract and not defeats the same. In this behalf learned Counsel has referred to the Judgment of the House of Lords in Investors Compensation Scheme Ltd. v. West Bromwich Building Society, Investors Compensation Scheme Ltd. v. Hopkin and Sons (a firm) and Ors. Alford v. West Bromwich Building Society and Ors. and Armitage v. West Bromwich Building Society and Ors. All England Law Reports [1998] 1 All ER 98, wherein Lord Hoffmann observed as under:

(5) The 'rule' that words should be given their 'natural and ordinary meaning' reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Cia Naviera SA v. Salen Rederierna AB, The Antaios [1984] 3 All ER 229 at 233 : [1985] AC 191 at 201:

... if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.

7. A reading of the aforesaid Judgment shows that though normally a contract must be construed by giving the words used in the same their natural meaning, but the same should not result in mere semantic, as the object with which the contract was entered into must also be kept in mind even where the words used in the contract may not be absolutely apposite.

8. Learned counsel for the respondent on the other hand contends that the intention of the parties was clear as would be apparent even from the contract entered into between the respondent and the seller where Clause 18.7 provided that in so far as the liability for demurrages incurred at the loading port on account of any delay is concerned, the same was to be the liability of the seller but had to be directly settled with the vessel owner (the petitioner). It is thus submitted that the charter party agreement executed subsequently between the parties here was in furtherance of clauses 18.6 and 18.7.

9. Learned counsel for the respondent further contends that there is a rationality behind the said clauses since the port of loading was at Jubail and only the petitioners and the seller were available there. As to who is responsible for the delay, if any, and the consequent demurrage, was thus to be settled between the petitioner and the seller.

10. The arbitrators had taken a view that the petitioners consciously entered into this agreement. The petitioners are not novice, but are persons of the trade and thus would know consequences of entering into such a loose arrangement. In scrutinizing the award, it must be kept in mind that the jurisdiction of this Court is limited to what is envisaged in Sub-section (2) of Section 34 of the said Act, as expounded by the Apex Court in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. . It is not the function of this Court to sit as a Court of Appeal. An important aspect to be kept in mind is that the arbitration clause envisages the appointment of arbitrators by the Indian Council of Arbitration from the Maritime Panel of Arbitrators of the said Council. The award has been rendered by a panel of three arbitrators. Such persons on the panel would be those who are persons of the trade and are fully familiar with the subject matter. Any court would thus be slow in interfering with an award given by such experts.

11.The interpretation given by the arbitrators in respect of the Clauses must thus be given due weight. It is not a case where there is absence of provisions in the contract and the arbitrators being creatures of the contract have gone on to award something which is not at all provided for in the contract. The question was one of interpretation of the clauses of the contract and merely because a Court may come to another equally plausible view, would also not be a ground to interfere with the award.

12. A perusal of the clauses and the award, in my considered view, leaves no manner of doubt of the arbitrators having adopted the correct approach in so far as the interpretation of the clauses are concerned. I find force in the contention of the learned Counsel for the respondent that reading of the charter party agreement and the contract between the respondent and the seller leave no manner of doubt that in so far as the issue of demurrage on account of delay at the port of loading is concerned, the same was a matter to be sorted out between the petitioners and the seller. If the petitioners had any claim, it was for the petitioners to have taken out appropriate proceedings against the seller.

13. Learned counsel for the petitioners also seeks to contend that if the clauses including Clause 63 is construed in this manner, it would be in violation of Section 28 of the Indian Contract Act, 1872. The said Section reads as under:

28. Agreements in restraint of legal proceedings, void. - [Every agreement,

(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or

(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent.]

14. Learned counsel contends that the petitioners are being left remediless and are unable to enforce the rights if the view taken by the arbitrators is accepted. Learned counsel further contends by reference to Section 23 of the Contract Act that as long as the consideration or object of an agreement is lawful, the same has to be given full force unless it would defeat the provisions of any law. Section 23 reads as under:

23. What consideration and objects are lawfully, and what not. - The consideration or object of an agreement is lawful, unless-

It is forbidden by law; or

is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or

involves or implies, injury to the person or property of another; or

the Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

15. Learned counsel thus contends that the interpretation sought to be given by the arbitrators would be in violation of Section 28 of the Contract Act and thus such an interpretation is not acceptable.

16. Learned counsel in this behalf further contends that it is not as if the whole contract would collapse if the clause is so interpreted and contends that the blue pencil rule has to be applied by scoring out relevant portion of the clause. If the clause is interpreted in a particular manner or is taken away, the restraint would be taken away but the substratum of the contract would be maintained. Learned counsel in this behalf referred to the Judgment of the Apex Court in Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. . The matter in issue related to the interpretation of arbitration clause which provided that the arbitrator's determination was to be final and binding and the effect of that portion of the clause was in question. The said clause reads as under:

23. Arbitration.- Any dispute arising from the interpretation or from any matter relating to the performance of this agreement or relating to any right or obligation herein contained which cannot be resolved by the parties shall be referred to and finally resolved by arbitration under the Rules of the United Nations Commission on International Trade Law (UNCITRAL). The arbitration shall be held in New Delhi and shall be in the English language. The arbitrator's determination shall be final and binding between the parties and the parties waive all rights of appeal or objection in any jurisdiction. The costs of the arbitration shall be shared by the parties equally.

The Supreme Court applied the blue pencil rule and observed as under:

14. In the light of submissions of the learned Counsel, let me consider legal position:

In Halsbury's Laws of England (4th Edn. Vol.9) p.297, para 430, it has been stated:

430. Severance of illegal and void possessions . -- A contract will rarely be totally illegal or void and certain parts of it may be entirely lawful in themselves. The question therefore arises whether the illegal or void parts may be separated or 'severed' from the contract and the rest of the contract enforced without them. Nearly all the cases arise in the context of restraint of trade, but the following principles are applicable to contracts in general.

First, as a general rule, severance is probably not possible where the objectionable parts of the contract involve illegality and not mere void promises. In one type of case, however, the courts have adopted what amounts almost to a principle of severance by holding that if a statute allows works to be done up to a financial limit without a license but requires a license above that limit, then, where works are done under a contract which does not specify an amount but which in the event exceeds the financial limit permitted without license, the cost of the works up to that limit is recoverable.

Secondly, where severance is allowed, it must be possible simply to strike out the offending parts but the court will not rewrite or rearrange the contract.

Thirdly, even if the promises can be struck out as aforementioned, the court will not do this if to do so would alter entirely the scope and intention of the agreement.

Fourthly, the contract, shorn of the offending parts, must retain the characteristics of a valid contract, so that if severance will remove the whole or main consideration given by one party the contract becomes unenforceable. Otherwise, the offending promise simply drops out and the other parts of the contract are enforceable.

Reference may be made to Chitty on Contracts (29th Edn. Vol.1) pp.1048-49:

16-188. Introductory.-- Where all the terms of a contract are illegal or against public policy or where the whole contract is prohibited by statute, clearly no action can be brought by the guilty party on the contract; but sometimes, although parts of a contract are unenforceable for such reasons, other parts, were they to stand alone, would be unobjectionable. The question then arises whether the unobjectionable may be enforced and the objectionable disregarded or 'severed'. The same question arises in relation to bonds where the condition is partly against the law.

16-189. Partial Statutory invalidity. -- It was laid down in some of the older cases that there is a distinction between a deed or condition which is void in part by statute and one which is void in part at common law. This distinction must now be understood to apply only to cases where the statute enacts that an agreement or deed made in violation of its provisions shall be wholly void. Unless that is so, then provided the good part is separable from and not dependent on the bad, that part only will be void which contravenes the provisions of the statute. The general rule is that 'where by cannot sever the illegal from the legal part of a contract, the contract is altogether void; but, where how can sever them, whether the illegality be created by statute or by the common law, you may reject the bad part and retain the good'. Thus, a covenant in a lease that the tenant should pay 'all parliamentary taxes', only included such as he might lawfully pay, and a separate covenant to pay the landlord's property tax, which it was illegal for a tenant to contract to pay, although void, did not affect the validity of the instrument. In some situations where there is a statutory requirement to obtain a license for work above a stipulated financial limit but up to that limit no license is required, the courts will enforce a contract up to that limit. There is some doubt whether this applies to a lump sum contract 'for a single and indivisible work'. Even in this situation if the cost element can be divided into its legal and illegal components, the courts will enforce the former but not the latter.

15. It is no doubt true that a court of law will lead the agreement as it is and cannot rewrite nor create a new one. It is also true that the c contract must be read as a whole and it is not open to dissect it by taking out a part treating it to be contrary to law and by ordering enforcement of the rest if otherwise it is not permissible. But it is well settled that if the contract is in several parts, some of which are legal and enforceable and some are unenforceable, lawful parts can be enforced provided they are severable.

16. That learned Counsel for the petitioner, in my opinion, rightly submitted that the court must consider the question keeping in view the settled legal position and record a finding whether or not the agreement is severable. If the court holds the agreement severable, it should implement and enforce that part which is legal, valid and in consonance with law.

17. In several cases, courts have held that partial invalidity in contract will not ipso facto make the whole contract void or unenforceable. Wherever a contract contains legal as well as illegal parts and objectionable parts can be severed, effect has been given to legal and valid parts striking out the offending parts.

18. In Goldsoll v. Goldman the defendant was a dealer in limitation jewellery in London. He sold his business to the plaintiff and covenated not to compete with the plaintiff as a 'dealer in real or imitation jewellery in any part of the United Kingdom, the United States of America, Russia or Spain'. When the covenant was sought to be enforced, it was contended that the same was in restraint of trade and could not be enforced. It was, however, held that the covenant was unreasonable and unenforceable insofar as it extended to 'real' jewellery and also to competition outside the United Kingdom. But it was valid, reasonable and enforceable with regard to rest, namely, dealing in imitation jewellery and in the United Kingdom. According to the Court, the words 'real or' and the listed places outside the United Kingdom could be served leaving only reasonable covenant which was enforceable.

19. In Attwood v Lamont the plaintiff was carrying on business as a draper, tailor and general outfitter at Kidderminster. By a contract for employment, the defendant agreed with the plaintiff that he would not, at any time thereafter either on his own account or on that of any wife of his or in partnership with or as assistant, servant or agent to any other person, persons or company carry on or be in any way directly or indirectly concerned in any of the following trades or business, that is to say, the trade or business of a tailor, dressmaker, general draper, milliner, hatter, haberdasher, gentlemen's, ladies' or children's outfitter at any place within a radius of ten miles of

Kidderminster. The defendant, however, subsequently set up business as a tailor at Worcester, outside the ten-mile limit, but obtained and executed tailoring orders in Kidderminster. When the plaintiff brought an action, it was contended by the defendant that the agreement was illegal and could not be enforced. The Court, however, held that various parts of the contract were severable and valid part thereof could be enforced. Upholding the argument of the plaintiff and granting relief in his favor, the Court observed that the courts would sever in a proper case, where the severance can be made by using a 'blue pencil'. But it could be done only in those cases where the part so enforceable is clearly severable and not where it could not be severed. By such process, main purport and substance of the clause cannot be ignored or overlooked. Thus, a covenant 'not to carry on business in Birmingham or within 100 miles' may be severed so as to reduce the area to Birmingham, but a covenant 'not to carry on business within 100 miles of Birmingham' will not be severed so as to read 'will not carry on business in Birmingham'. The distinction may appear to be artificial, but is well settled.

26. In the present case, Clause 23 relates to arbitration. It is in various parts. The first part mandates that, if there is a dispute between the parties, it shall be referred to and finally resolved by arbitration. It clarifies that the Rule of UNCITRAL would apply to such arbitration. It then directs that the arbitration shall be held in Delhi and will be in English language. It stipulates that the costs of arbitration shall be shared by the parties equally. The offending and objectionable part, no doubt, expressly makes the arbitrator's determination 'final and binding between the parties' and declares that the parties have waived the rights of appeal or objection ' in any jurisdiction'. The said objectionable part, in my opinion, however, is clearly severable as it is independent of the dispute being referred to and resolved by an arbitrator. Hence, even in the absence of any other clause, the part as to referring the dispute to an arbitrator can be given effect to and enforced. By implementing that part, it cannot be said that the Court is doing something which is not contemplated by the parties or by 'interpretative process', the Court is rewriting the contract which is in the nature of 'novatio'. The intention of the parties is explicitly clear and they have agreed that the dispute, if any, would be referred to an arbitrator. To that extent, therefore, the agreement is legal, lawful and the offending part as to the finality and restraint in approaching a court of law can be separated and severed by using a 'blue pencil'.

27. The proper test for deciding validity or otherwise of an agreement or order is 'substantial severability' and not 'textual divisibility'. It is the duty of the court to sever and separate trivial or technical parts by retaining the main or substantial part and by giving effect to the latter if it is legal, lawful and otherwise enforceable. In such cases, the court must consider the question whether the parties could have agreed on the valid terms of the agreement had they known that the other terms were invalid or unlawful. If the answer to the said question is in the affirmative, the doctrine of severability would apply and the valid terms of the agreement could be enforced, ignoring invalid terms. To hold otherwise would be to expose the covenanter to the almost inevitable risk of litigation which in nine cases out of ten he is very ill-able to afford, should he venture to act upon his own opinion as to how far the restraint upon him would be held by the court to be reasonable, while it may give the covenantee the full benefit of unreasonable provisions if the covenanter is unable to face litigation.

28. The agreement in the instant case can be enforced on an additional ground as well. As already noted, Clause 20 (severability) expressly states that if any provision of the agreement is held invalid, illegal or unenforceable, it would not prejudice the remainder. In my view, Clause 20 makes the matter free from doubt. The intention of the parties is abundantly clear and even if a part of the agreement is held unlawful, the lawful parts must be enforced. Reference to a dispute to an arbitrator, by no means can be declared illegal or unlawful. To that extent, therefore, no objection can be raised by the respondent against the agreement.'

17. There is no dispute in so far as the principle of law is concerned, but one has to see whether the same applies to the present case. The presumption is that the contract may be void or may not be given effect to, if a view is taken or a rule applied other than the aforesaid rule. The very premise of the submission of learned Counsel for the petitioners are based on the principle of ubi jus, ibi remedium. It is, thus, the submission of the petitioners if there is a right, there must be a remedy. However, the question to be considered by this Court is whether the remedy invoked by the petitioner was actually the remedy available to the petitioner. Unfortunately, the answer to the same has to be in the negative.

18. Learned counsel also referred to the Judgment of the Apex Court in Coats Viyella India Ltd. v. India Cement Ltd. And Anr. (2000) 9 SCC 376, wherein it was held that once there is a privity of contract between the parties, the right to pay demurrage could not be fastened on a third party. However, the most material aspect of the same is noted in para 3 itself which would show that relevant Clause 7 specified that the handling and other charges were payable by the said respondent to the petitioners and in view of that clause it was held that by subsequent Clause 14 the liability could not be fastened on the third party.

19. In the present case the clause in contract between the parties itself envisages the absence of liability of the respondent and the responsibility on the petitioners to settle the matter with seller. This is also what is envisaged in the contract between the respondent and the seller dated 15.9.2001. If both the contracts are read together, the natural conclusion is that the petitioners were not remediless but had to invoke its remedy against the seller and not against the respondent herein.

20. The contract between the respondent and the seller was the initial one dated 15.9.2001. The contract envisaged that in case of delay and demurrage arising at the port of loading, the seller was bound under the contract with the respondent to settle the claim with the purchaser. In fact clauses 18.6 and 18.7 of the said contract clearly provided that a suitable provision is to be made to this effect in the charter party agreement. The charter party agreement dated 11.10.2001 in turn has made the said provisions. Therefore, it is in pursuance of the contract dated 15.9.2001 that the seller has conferred the rights on the respondent to enter into a charter party agreement with a vessel owner where the seller would be responsible to settle the claim with vessel owner. It is in view thereof, I am of the considered view that the petitioners were not remediless for the grievance, if any, and could have taken recourse to legal remedy in accordance with law.

21. In the end, it may be observed that in case the petitioner were to initiate any proceeding against the seller in accordance with law, the respondent would be duty-bound under the contract to render assistance for recovery of such dues of the petitioners.

22. Learned counsel for the petitioners contends that this may require even execution of documents by the respondent. If that be so, so be it so long as the respondent is not put to any financial loss.

23. In view of the aforesaid, I do not find any merit in the petition and the same is dismissed, leaving the parties to bear their own costs.