Spentex Industries Ltd vs Dunavant Sa & Anr
2009 Latest Caselaw 2317 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                        CS(OS)1101/2009

%                              Date of decision: 29th May, 2009

SPENTEX INDUSTRIES LTD                             .......        Plaintiff
                          Through: Mr. Sudheer Pandey, Advocate.

                                Versus

DUNAVANT SA & ANR                               ....... Defendants
                         Through: None.

CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.     Whether reporters of Local papers may
       be allowed to see the judgment?   yes

2.     To be referred to the reporter or not?     yes

3.     Whether the judgment should be reported
       in the Digest?                                   yes


RAJIV SAHAI ENDLAW, J.

1. The counsel for the plaintiff has been heard on the aspect of

maintainability of the suit on the first date of hearing of the suit

itself. Yet another suit being CS(OS)1038/2009 involving the similar

question as to maintainability as in the present suit was listed

yesterday for admission. Doubts having been expressed as to the

maintainability of that suit, the same was also posted for hearing on

maintainability today. The senior counsel for the plaintiff in

CS(OS)1038/2009 has also been heard alongwith the counsel for the

plaintiff in the present suit. However, separate order is pronounced

with respect to CS(OS) No. 1038/2009.

2. The plaintiff herein, an Indian company, inter alia, carrying on

business as manufacturer and merchandiser of yarn and yarn

products has instituted the present suit against the defendant No.1,

a Swiss company trading in Uzbek raw cotton crop, also through

their Indian agent an Indian company impleaded as defendant No.2.

It is the case of the plaintiff that the defendant No.1 through the

defendant No.2 had approached the plaintiff for sale and Uzbek raw

cotton crop; that the defendant No.2 on behalf of the defendant no.1

had negotiated with the plaintiff; a sample was also supplied to the

plaintiff; the plaintiff got the said sample tested and found the same

as per its requirement; that the plaintiff thereafter expressed

interest to purchase 750 MT of the said goods in three instalments;

that the defendant No.1 through the defendant No.2 placed sales

confirmation on the plaintiff; that the said 750 MT of Uzbek Raw

Cotton was to be shipped in three consignments of 250 MT each; in

pursuance to the sale confirmation, a standard form of contract was

issued by the defendant No.1; the said contract had some errors and

it was reissued; that though it was contemplated that each of the

three installments shall be of 250 MT each, but subsequently the

first two consignments were agreed to be of 225 MT each for which

the plaintiff was to open independent Letter of Credit (LC) and the

last consignment of 300 MT; that it was further agreed between the

plaintiff and the defendant No.2 that only after the first two

consignments had been received and found to be as per

specifications and sample, the Letter of Credit for the third

consignment of 300 MT would be opened; that variation in the

agreement with the defendant No.2 as the agent of the defendant

No.1 was in consonance with the market custom and the practice of

trade and not documented, though emails in confirmation of the

same are pleaded to have been exchanged.

3. It is the case of the plaintiff that the first two consignments

were delivered but were found not to be as per the specifications and

sample and the defendants were immediately notified of the same

and thus the LC for the third consignment was not issued; that the

defendants, however, contrary to the agreement called upon the

plaintiff to open the LC for the third consignment also; that though

the plaintiff was entitled to repudiate the contract for the first two

consignments and not bound to accept the defective goods but the

same were utilized for production of yarn with a view to mitigate

losses, as the plaintiff would have incurred far greater costs by

incurring demurrage in storing the goods and in shipment costs for

shipping the goods back to defendant No.1. It is further the case of

the plaintiff that the defendant No.1 notwithstanding the aforesaid

position and further notwithstanding that the purported contract for

delivery of the remaining 300 MT was in the nature of a letter of

intent only and was to become binding only upon the plaintiff

opening a LC with respect thereto, and further notwithstanding the

oral agreement of the plaintiff with the defendant No.2 that the

venue of adjudication of disputes arising out of the contracts shall be

Delhi, the defendant No.1 in accordance with the written agreement

providing for arbitration of International Cotton Association,

approached the said Association for resolution of its claims for the

reason of the plaintiff having not opened the LC for the third

consignment of 300 MT and appointed an arbitrator.

4. The plaintiff, upon the receipt of communication from

International Cotton Association to appoint the plaintiff‟s arbitrator,

admits to have been constrained to appoint an arbitrator. The

International Cotton Association appointed the third

arbitrator/chairman. The plaintiff has in the plaint in para 24

averred that the plaintiff had owing to the defective quality of goods

of the first two consignments suffered loss of USD 3,52,378. The

plaintiff has in para 27 of the plaint further averred that the arbitral

tribunal so constituted "on the said filing of the claim and counter

claim by the parties, ignoring and declining the plaintiff‟s request to

represent and explain the chairman/arbitration tribunal in person,

passed an arbitral award in haste vide order/award dated 9.4.2009".

5. The plaintiff has contended that the arbitral award without

giving an opportunity of hearing is against the principles of natural

justice and public policy and could not be given any credit. From the

averments aforesaid in the plaint it appears that the plaintiff had

also preferred its claims for damages for defective quality of the first

two consignments to the arbitral tribunal. A reading of the

arbitration award, copy of which, has been filed before this court

also suggests so.

6. The plaintiff after making further averments challenging the

arbitration award aforesaid has sought the following reliefs in the

plaint:

"a. declare the purported contract/letter of intent dated 24th July, 2008 and 20.08.2008 as null and viod;

b. Declare the purported Arbitration Clause (Arbitration Agreement) contained in the purported contract dated 24th July, 2008 and 20.08.2008 as non-est and unenforceable;

c. Declare the arbitral award dated 09.04.2009 as null and void and unenforceable;

d. Pass a decree of permanent injunction against the enforcement of the Arbitral Award;

e. Pass a decree for damages of rupees twenty two lakhs only;

f. Pass a decree for recovery of Rupess five lakhs for the excess payments made towards the substandard good supplied;

g. Pass such other/further order as this Hon‟ble court deems fit and proper in the facts and circumstances of this case."

The plaintiff has also applied for interim relief of restraining the

defendants from enforcing the arbitral award.

7. As aforesaid, yesterday doubts were expressed as to the

maintainability of CS(OS)1038/2009. It was informed to the senior

counsel for the plaintiff in that suit that I have recently in Roshan

Lal Gupta vs. Sh. Parasram Holdings Pvt. Ltd. 157 (2009) DLT

712, in relation to a domestic arbitration held that a suit for

declaration that an agreement containing an arbitration clause relied

upon by the other party was fabricated, forged and thus void and for

perpetual injunction restraining the other party as well as the

arbitrator named in the agreement (in that case „Stock Exchange)

from taking any arbitration proceedings did not lie. While holding so,

reliance was inter alia placed upon the judgment of the Apex Court

in K.V. Aerner Cementation India Ltd. vs. Bajranglal Agarwal,

IV (2001) SLT 535= 2001 (6) Supreme 265, and which for easy

reference is set out hereinbelow:-

"1. These special leave applications are directed against an order of a learned Single Judge of Bombay High Court refusing to interfere with an order of the Civil Court vacating an interim order of injunction granted by it earlier. The suit in question had been filed for a declaration that there does not exist any arbitration clause and as such the arbitral proceedings are without jurisdiction. The learned Single Judge of Bombay High Court came to hold that in view of Section 5 of the Arbitration and Conciliation Act, 1996 read with Section 16 thereof since the arbitral Tribunal has the power and jurisdiction to make rule on its own jurisdiction, the Civil Court would not pass any injunction against an arbitral proceeding.

2. Mr. Dave, the learned Senior Counsel appearing for the petitioner contends that the jurisdiction of the civil Court need not be inferentially held to be ousted unless any statute on the face of it excludes the same and judged from that angle when a party assails the existence of an arbitration agreement, which would confer jurisdiction on an arbitral Tribunal, the Court committed error in not granting an order of injunction. There cannot be any dispute that in the absence of any arbitration clause in the agreement, no dispute could be referred for arbitration to an arbitral Tribunal. But, bearing in mind the very object with which the Arbitration and Conciliation Act, 1996 has been enacted and the provisions thereof contained in Section 16 conferring the power on the arbitral Tribunal to rule on its own jurisdiction including ruling on any objection with respect to existence or validity of the arbitration agreement, we have no doubt in our mind that the Civil Court cannot have jurisdiction to go into that question. A bare reading of Section 16 makes it explicitly clear that the arbitral Tribunal has the power to‟ rule on its own jurisdiction even when any objection with respect to existence or validity of the arbitration agreement is raised and a conjoint reading of Sub-section (2), (4) and (6) of Section 16 would make it clear that such a decision would be amenable to be assailed within the ambit of Section 34 of the Act. In this view of the matter, we see no infirmity with the impugned order so as to be interfered with by this Court. The petitioner who is a party to the arbitral proceedings may raise the question of jurisdiction of the Arbitrator as well as the objection on the ground of non-existence of any arbitration agreement in the so-called dispute in question and such an objection being raised, the Arbitrator would do well in disposing of the same as a preliminary issue so that it may not be necessary to go into the entire gamut of arbitration proceedings."

8. I had thus enquired from the senior counsel for the plaintiff in

other suit and from counsel for the plaintiff in this suit as to why the

aforesaid law in relation to domestic arbitration, will not apply to

international commercial arbitration as well.

9. The senior counsel for the plaintiff in other suit and counsel for

the plaintiff in this suit have today made the following contentions:-

A. Firstly it is contended that the Apex Court in K.V.

Aerner (supra) has inter alia relied upon Section 5 and Section

16 of the Arbitration and Conciliation Act, 1996 and both of

which are contained in part I of the said Act and which as per

Section 2 (2) thereof applies only when the place of arbitration

is in India. It is contended that in the present case as per the

agreement alleged by the defendants the place of arbitration is

not in India but in England.

B. Secondly it is contended that Section 45 in part II of the

Act relating to Enforcement of Certain Foreign Awards is in

diversion from the para materia Section 8 in part I relating to

domestic awards. Under Section 45, the judicial authority

seized of a matter, which is the subject matter of an agreement

for arbitration, is on the request of either party required to

refer the parties to arbitration " unless it finds that the said

agreement is null and void, inoperative or incapable of being

performed."

C. Reliance is also placed on para 18 of S.B.P. & Co. Vs.

Patel Engineering Ltd. AIR 2006 SC 450 to contend that the

court looses the jurisdiction only when the other party applies

for reference to arbitration owing to existence of an arbitration

agreement; else the suit is maintainable.

D. The counsel for the plaintiff in this suit has in support of

the aforesaid proposition also referred to Roshan Lal Gupta

(supra) and Ministry of Sound International Ltd. vs. Indus

Renaissance Partners 156 (2009) DLT 406 also holding that

the suit even if subject matter thereof is subject matter of

arbitration agreement is not barred at the threshold.

E. The senior counsel for the plaintiff in other suit also

relies on order dated 17th April, 2009 in CS(OS) No. 682/2009

Union of India vs. Cairn Energy India PTY. Limited

whereby a Single Judge of this Court had registered the plaint

and restrained the defendants therein from taking any further

steps to prosecute any arbitration proceedings and restrained

the defendant No. 3 in that case from constituting an arbitral

tribunal.

F. Reliance is also placed on the order dated 27th January,

2009 of a Single Judge of the Calcutta High Court in CS No.

11/2009 SESA International Ltd. vs. Macsteel

International FZCO whereby also ex parte injunction

informed to be in restraint of arbitration pursuant to

international commercial arbitration was, issued.

G. The counsel for the plaintiff in this suit also relied upon

Bharti Televentures Ltd. vs. DSS Enterprises P. Ltd. 123

(2005) DLT 532, whereby another Single Judge of this Court

had restrained arbitration by ICC, International Court of

Arbitration during the pendency of the suit.

H. The counsel for the plaintiff in this suit also referred to

Shin-Etsu Chemical Co. Ltd. vs. M/s. Aksh Optifibre Ltd.

2005 (6) SCALE 561 where the Apex Court by majority of 2:1

held that when a suit is filed for a declaration and injunction

for cancellation of document and declaration that long term

sale and purchase agreement including arbitration clause was

void on the ground that terms of agreement are

unconscionable, unfair and unreasonable and an application

under Section 45 of the Arbitration Act is moved therein, the

findings therein are only prima facie and not final.

10. The contention, of this Court being required to take a different

view in relation to International Commercial Arbitration than that

taken by the Apex Court in K.V. Aerner (supra) for the reason of

Sections 5 and 16 being applicable only to Part I relating to domestic

arbitration and not to an International Commercial Arbitration in

Part II of the Arbitration Act is not found to be correct or in

accordance with the law. The Apex Court in Bhatia International

vs. Bulk Trading S.A. 2002 (4) SCC 105 has held that the

provisions of part I of the Arbitration Act apply to all arbitrations and

to all proceedings relating thereto; where such arbitration is held in

India the provisions of part I would compulsorily apply and parties

are free to deviate only to the extent permitted by the derogable

provisions of part I; in cases of international commercial arbitrations

held out of India, the provisions of Part I would apply unless the

parties by agreement, express or implied, exclude all or any of its

provisions and in that case the laws or rules chosen by the parties

would prevail; any provision in Part I, which is contrary to or

excluded by that law or rules will not apply. Section 9 was thus held

applicable to International Commercial Arbitrations.

11. The Apex Court again in Venture Global Engineering vs.

Satyam Computers Services Ltd. AIR 2008 SC 1061 not only

followed Bhatia International (supra) and further held that the

provisions of Section 34 of the Act to be also applicable to

International Commercial Arbitrations but otherwise also, in my

view, the said judgment squarely applies to the facts of the present

case. In that case a suit was filed before the Civil Court

Secunderabad seeking a declaration to set aside the Award, and

permanent injunction on the transfer of shares under Award. An

application under Order 7 Rule 11 of the CPC was filed for rejection

of the plaint. The trial court allowed the said application and rejected

the plaint. The challenge thereto before the High Court did not

succeed. The High Court held that the Award cannot be challenged

even if it is against the public policy and in contravention of

statutory provisions. Against the said order the appeal was preferred

to the Apex Court. The Apex Court did not interfere with the

rejection of the plaint and proceeded on the premise that though the

suit was not maintainable but the same could be converted into

objections to the Award under Section 34 of the Act. The Apex Court

thus upheld the non-maintainability of a suit and provided for the

remedies under the Arbitration Act only.

12. In view of the aforesaid settled position of law, I am not

persuaded to hold otherwise on the basis of the ex parte orders of

this Court and Calcutta High Court cited above or the judgment in

Bharti Televentures (supra).

13. As far as the reliance on the observations in SBP & Co. (supra)

is concerned, the same is in relation to an application under Section

8 of the Arbitration Act. In fact Section 8 of the Arbitration Act as

now interpretated is not different from section 45. Though the

language as in Section 45 and as quoted above does not form part of

Section 8 but the courts have nevertheless held that the court can

refer the parties to arbitration only upon being satisfied of the

existence of the arbitration agreement and not mechanically.

14. Though in Shin-Etsu Chemical (supra), a suit as in the

present case and/or as in K.V. Aerner (supra) had been filed but the

same cannot be said to be a judgment on the maintainability of such

a suit. The Apex Court in that case only proceeded to adjudicate the

nature of the Order under Section 45 of the Act. It is well settled that

a judgment of the Court has to be read in the context of question

which arose for consideration in the case in which the judgment was

delivered. The detailed discussion in this regard in para 4 of Bharti

Televentures (supra), need not to be repeated herein.

15. There is yet another consideration which prevails upon me to

hold the suit to be not maintainable. The reliefs of declaration and

injunction claimed in the suit fall within the domain of Specific Relief

Act and are discretionary reliefs and circumscribed by the provisions

of the Specific Relief Act, to be available only when there is no

alternative efficacious remedy available. The remedy of taking the

plea as by way of the present suit, by way of objection to the arbitral

award or at the time of enforcement thereof is found to be

alternative efficacious remedy.

16. Even otherwise, the plaintiff having participated in the

arbitration proceedings in terms of the arbitration agreement

between the parties is now not found entitled to maintain the present

suit and remedy, if any, of plaintiff is under the Arbitration Act itself.

17. The counsel for the plaintiff at the fag end of the hearing had

contended that even if the suit for declaration qua the arbitration

clause and the arbitration agreement and for injunction against the

enforcement thereof was found to be not maintainable, insofar as for

the relief of recovery of damages ought to be entertained. Though I

had indicated at that time that if it was so, the plaintiff would be

called upon to delete the averments in the pliant for the relief qua

declaration and injunction and confine the suit to that for claim of

damages but on further consideration I find that the plaintiff having

participated in the arbitration proceedings and having preferred a

claim for damages allegedly suffered, in the arbitration proceedings

and the arbitral award having found that the plaintiff in not entitled

to recover any damages, is not entitled to re-litigate and that too by

way of this suit or claim damages again on account of the defective

goods supplied by the defendants. The plaintiff made a choice, upon

the defendant No.1 invoking the arbitration clause in the written

contract signed by the parties. The plaintiff not only appointed its

own arbitrator in terms of the rules of the International Cotton

Association but also preferred its claims against the defendant No.1

before the arbitral tribunal so constituted. The plaintiff after having

lost in its claims in the said proceedings cannot now make the same

claims the subject matter of the present suit.

The plaintiff is thus not found to relief in that regard also.

IA.No. 7773/2009 (of the plaintiff u/S 149 CPC)

18. The plaintiff has valued the suit for the purposes of court fee

and jurisdiction at Rs 27,04,000/- and as per the averments in the

plaint, the court fee of Rs 31,692/- is payable thereon. The plaintiff

however did not pay the requisite court fee on the plaint and filed

this application stating that the plaintiff is undergoing a cash

liquidity crunch and could not arrange the funds and gave an

undertaking to make good the aforesaid deficiency in court fee

within the time directed by this court. Though the suit of the

plaintiff has not been found to be maintainable but the plaintiff is

nevertheless liable to pay the court fee. In fact, the suit has been

considered on the basis of this application of the plaintiff, else it

would not have been listed even before this court. The plaintiff is

thus nevertheless to pay the court fee. A time of four weeks is

granted to the plaintiff to pay the said court fee. The undertaking of

the plaintiff through its representative Mr Ranjan Mangtani whose

affidavit has been filed alongwith the application is accepted by this

court and the said Mr Ranjan Mangtani and other directors of the

plaintiff are ordered to be bound by the same. If the court fee is not

deposited by the plaintiff within four weeks, the registry to list the

matter before the court for appropriate action for breach of

undertaking against the directors aforesaid of plaintiff.

RAJIV SAHAI ENDLAW (JUDGE) May, 29 2009 M