Shree Krishna Vanaspati ... vs Virgoz Oils & Fats Pte Ltd & Anr.
2009 Latest Caselaw 2319 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                     CS(OS)No. 1038/2009


%                         Date of decision: 29th May, 2009

SHREE KRISHNA VANASPATI
INDUSTRIES (P) LTD.                                   ....... Plaintiff
                              Through: Mr. Chetan Sharma, Sr. Advocate
                                        with Mr. Sanjay Abbot and Ms.
                                        Chanchal, Advocates.

                                 Versus

VIRGOZ OILS & FATS PTE LTD & 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 suit came up yesterday first for admission. Doubts were

expressed by this Court as to the maintainability thereof. The suit

was as such adjourned to today. The senior counsel for the plaintiff

as well as the counsel for the plaintiff in another CS(OS) No.

1101/2009 listed today for the first time and involving inter alia the

same questions as in the present suit, have been heard. However

separate order is pronounced with respect to CS(OS) No. 1101/2009.

2. The plaintiff in this suit claims, to be engaged in the business

of manufacture, distribution and marketing of Vanaspati; Palm Oil is

one of the main raw materials in manufacture of Vanaspati; the

plaintiff has been importing Palm Oil from Malaysia and other Palm

Oil producing countries; the plaintiff has been buying Palm Oil either

directly from Malaysia or through traders and brokers; the plaintiff

in or about July, 2008 contacted and made enquiries from two Indian

brokers (who have not been impleaded as parties to the suit) of the

price and availability of Palm Oil; the said brokers offered the rates

and also informed the required goods being readily available with

the defendant No. 1 a Singapore based Company. It is the case of the

plaintiff that though it had only made enquiries but it was surprised

to receive three several Sales Contracts of which two were dated

24th July, 2008 and one 7th August, 2008 from the defendant No.1.

The plaintiff pleads that immediately on receipt of the Sale Contracts

aforesaid it made enquiries from the brokers and informed the

brokers that the plaintiff was then not in a position to establish

Letter of Credit and was thus not in a position to enter into any

contract as forwarded by the defendant No. 1. It is the case of the

plaintiff that upon the plaintiff so informing the brokers, and the

plaintiff having thus not accepted the contracts, no concluded

contract came into being between the plaintiff and the defendant No.

1. At this stage, it may be stated that the written contracts stated to

have been received by the plaintiff from the defendant No.1 and filed

before this Court are in the nature of confirmation of a transaction

already concluded and contain a notation:-

"The validity of this contract will be unaffected by the non- return of the counter confirmation duly signed by your goodselves."

3. The said contracts are signed on behalf of the defendant No. 1

and according to the plaintiff have not been signed by the plaintiff at

the place marked and not returned to the defendant. The said sales

contracts proceed on the premise of an agreement having already

been entered into between the parties and envisage the plaintiff

opening the Letter of Credit in pursuance thereto. The said sales

contracts inter also provide:-

"All other terms and conditions to be in accordance with FOSFA 81 currently in force. Arbitration, if any, shall take place in Malaysia in accordance with the PORAM Rules of arbitration and appeal in force at the date of contract. This contract shall be governed by Malaysian Law."

4. It is the case of the plaintiff that notwithstanding the aforesaid,

the plaintiff received a letter dated 20th September, 2008 from the

defendant No. 1 informing the plaintiff that as the plaintiff had

defaulted in performing the obligations under the three sales

contracts aforesaid, i.e. of failing to establish a letter of credit, the

defendant No. 1 would be initiating arbitration proceedings against

the plaintiff for recovery of the purported loss suffered by the

defendant No. 1 owing to the fluctuation in the price of the goods to

which the sales contracts pertained.

5. Thereafter the correspondence ensued in which the plaintiff

denied any contract and the defendant No. 1 and the brokers

reiterated that contract had been entered into by one Mr. Manoj

Agarwal on behalf of the plaintiff. The correspondence shows that

the plaintiff does not dispute Mr. Manoj Agarwal to be one of the

owners of the plaintiff company but has contended that the said Mr.

Manoj Agarwal was not concerned with international purchase and

was not authorized to make the purchase via the brokers and the

said fact was to the knowledge of the brokers. The present suit has

been filed by the plaintiff Company through its Manager

(Commercial). No affidavit of Mr. Manoj Agarwal has been filed. The

correspondence also is by officials/directors/owners of the plaintiff

other than Mr. Manoj Agarwal. According to the brokers the

contracts had been entered into by them on behalf of the plaintiff

acting through Mr. Manoj Agarwal, with the defendant No. 1 validly.

The plaintiff has in the plaint contended the said brokers to be of the

defendant No. 1 and not of the plaintiff.

6. It appears that the defendant No. 1 lodged a claim with

PORAM (Palm Oil Refiners Association of Malaysia) who have been

impleaded as the defendant No. 2 in the suit and who in accordance

with their Rules of arbitration requested the plaintiff to nominate its

arbitrator.

7. The plaintiff again replied that it had not entered into any

agreement and had not signed any arbitration agreement and thus

there can be no question of reference of any dispute to arbitration.

The plaintiff has also pleaded of one En. Mohamed Abd Majed being

appointed as the arbitrator by the defendant No. 1 and alleged the

same being part of a racket. It is argued that the same En. Mohamed

Abd Majed has been appointed arbitrator in similar transactions qua

other importers of Palm Oil in India also. It is alleged that the

defendants are in collusions with certain brokers in India and are

similarly making claims against several parties in India.

8. The arbitration proceedings having been informed to have

been commenced, the plaintiff has instituted the present suit for the

following reliefs:-

"(a) Declaration that the initiation of the Arbitration

Proceedings by the defendant No. 2 as per the PORAM

Rules in Malaysia is malafide, illegal null and void ab-

initio;

(b) Declaration that the Arbitral Tribunal constituted by the

defendant No. 2 pursuant to the Notice dated January 7,

2009 is not competent and lacks Jurisdiction;

       (c)      Declaration that the purported sales contracts being

               SG/08/0561/107B01           dated           24th       July,        2008,

               SG/08/0560/07B04        also     dated      24th    July,   2008     and

               SG/08/0623/08B01         dated 7th August, 2008 are nonest

               and void-ab-initio;

      (d)      Mandatory/Perpetual             Injection          restraining        the

               defendants,   its     agents,    servants      and     assigns      from

proceeding with the Arbitration or from taking any steps

and or causing any steps to be taken in the Arbitration

initiated by the Defendant No. 1;

(e) Pass such further or other order (s) as this Hon‟ble Court

may deem fit and proper in the facts and circumstances

of the present case."

The plaintiff along with the suit has also applied for interim

relief restraining the defendants from taking any further steps in the

arbitration.

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

maintainability of the suit. It was informed to the senior counsel for

the plaintiff 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."

10. I had thus enquired from the senior counsel for the plaintiff as

to why the aforesaid law in relation to domestic arbitration, will not

apply to international commercial arbitration as well.

11. The senior counsel for the plaintiff has 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 Malaysia.

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 CS(OS) No. 1101/2009 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 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 CS(OS) No. 1101/2009

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 CS(OS) No. 1101/2009

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.

12. The contention of the senior counsel for the plaintiff 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.

13. 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.

14. 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).

15. 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.

16. 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.

17. The senior counsel for the plaintiff has vehemently contended

that an arbitration agreement is required to be in writing and in the

present case there is no writing and even if the plea of the brokers

and the defendants, of a transaction/contract having been concluded

by Mr. Manoj Agarwal of the plaintiff is to be believed, there is

admittedly no written arbitration agreement. It is contended that the

suit ought to be entertained in these circumstances. However, in my

view, the same would not make any difference. What emerges is that

the brokers had placed an agreement on the defendant No. 1. The

plaintiff contends that the brokers are of the defendant No. 1. The

existence of such brokers in the trade is not disputed. Whether said

brokers are the agents of the plaintiff or of the defendant No. 1 and

whether there is any agreement in writing by the said brokers with

the defendant No. 1 so as to bring an arbitration clause into

operation cannot be permitted to be adjudicated in this suit. The

spirit of change in the arbitration law, even independently of Bhatia

International was to minimize the intervention of the Court in

arbitration proceedings and to expedite the same. If the suits as the

present one are to be entertained, it would give tool in the hands of

the party who is interested in delaying the arbitration (as one party

is generally found to be) to in every case of arbitration first institute

a suit for determination of validity thereof.

18. Though Bhatia International aforesaid has held the

provisions of Part I of the Arbitration Act to be applicable to

International Commercial Arbitrations also and which would include

Section 16 as well, I had repeatedly asked from the senior counsel

for the plaintiff as to whether the Arbitration Forum relied upon by

defendants did not permit the plaintiff to take the pleas as taken in

the plaint in this suit. The plaintiff in para 20 of the plaint has also

stated that the defendant No. 2 also asked the plaintiff to take all

such pleas before the arbitral tribunal. The senior counsel for the

plaintiff candidly states that though it was open to the plaintiff to

take all the said pleas but the inconvenience, costs and harassment

to the plaintiff would be tremendous. I am afraid that cannot change

the law as aforesaid. The parties are not strangers to each other,

both being in the trade and both having transacted in the past also.

The plaintiff in para 21 of the plaint claims to have not taken any

steps for the past relationship with the defendant No. 1. In these

circumstances, the factual controversy ought to be gone into by the

arbitral tribunal only. If the plaintiff succeeds in establishing before

the arbitral tribunal that there is no agreement, the plaintiff can

certainly claim costs of arbitration.

19. 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, before the arbitral tribunal itself

is found to be alternative efficacious remedy.

20. The defendant No. 2 is a Chamber of Commerce as Delhi

Hindustani Mercantile Association. All persons dealing with such

chambers/associations and trading therein are aware that all their

transactions would be governed by the arbitration of such

associations/bodies. The plaintiff admittedly in the trade of buying of

Palm Oil, is presumed to know that all transactions are subject

matter of arbitration of the defendant No. 2. The plaintiff now cannot

be permitted to thwart/frustrate the arbitration by institution of the

present suit.

21. Though the reliefs in prayer paragraph (c) of declaration with

respect to the agreements as distinct from the relief of declaration

qua the arbitration agreement strictly would not be covered by the

law discussed above but in my view no purpose would be served in

confining the suit to the said relief and issuing notice to the

defendant No. 1 only qua the same inasmuch as the defendant No.1

having already initiated arbitration proceedings and the same having

been pleaded by the plaintiff himself, the alternative remedy for

seeking the said relief is also found to be the arbitral tribunal only.

22. The suit as filed is thus found to be not maintainable and is

dismissed.

RAJIV SAHAI ENDLAW (JUDGE) May 29, 2009 rb