Delhi High Court
Ramesh Chander Arora vs Kashmir Saree Kendra & Anr on 6 January, 2011
Author: Mool Chand Garg
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO.No.416/2005 & C.M. 17787/2005
% Reserved On: 20.12.2010
Decided On: 06.01.2011
RAMESH CHANDER ARORA .... Appellant
Through: Mr. G.L. Rawal, Sr. Adv. with Mr.
Kuljeet Rawal, Adv.
Versus
KASHMIR SAREE KENDRA .... Respondent
Through: Mr. Sunil Lalwani, Adv.
CORAM:
HON'BLE MR. JUSTICE MOOL CHAND GARG
1. Whether reporters of Local papers may be Yes
allowed to see the judgment?
2. To be referred to the reporter or not? Yes
3. Whether the judgment should be reported in Yes
the Digest?
: MOOL CHAND GARG, J.
1. The present appeal has been filed to assail the order dated
5.10.2005 passed by the learned ADJ, whereby objections filed by the
appellant against the arbitral award dated 9.11.2004 were dismissed.
2. The brief factual matrix of the case is as follows. That the
appellant is a readymade garments exporter whereas the respondent is
a fabric supplier. The appellant entered into a commercial transaction
with the respondent for the supply of 25,000 meters of silk at the rate of
Rs. 85/- per meter. The respondent supplied the goods through three
bills to the appellant. Disputes arose between the parties primarily over
the issue of supply of defective goods by the respondent and non-
payment of bills of the goods. I will not go into the details of the dispute
for the sake of brevity but focus on the main issue.
3. It is the stand of the appellant that neither there was any
arbitration agreement between the parties nor the claim of the
respondent was within limitation, despite that the Arbitrator has
allowed the claim of the appellant and in this manner has mis-
conducted the proceedings and therefore, the said proceedings are
liable to be set aside. However, the learned ADJ has simply brushed
aside the legal issue i.e. there being no arbitration agreement between
the parties and the claim filed by the respondent being beyond
limitation despite specific objection taken about it by the appellants in
having filed an application under Section 16 of the Arbitration and
Conciliation Act, 1994.
4. To appreciate the aforesaid contention of the appellant, I may
observe that out of the three bills on which reliance has been placed
upon by the respondent to contend that there was an arbitration
clause, as far as the bill dated 15.1.2000 is considered, it does not
contain any clause that the disputes will be decided by way of
arbitration. As far as the other two bills are concerned, even though
these have a clause printed on the back of it, it does not reflect any
agreement between the parties that the disputes will be decided
subject to a decision of the Delhi Hindustani Mercantile
Association by way of an arbitration. The said clause reads as
under:-
"clause 3: All the disputes will be decided by Delhi
Mercantile Association as well as Courts within Delhi."
5. The claim has been lodged by the respondent on 7.02.2003.
Thus, the claim was barred by limitation yet the Arbitrator before whom
also a specific objection regarding limitation was taken up by moving an
application under Section 16 of the Arbitration and Conciliation Act on
the point of limitation, has given no decision on the aforesaid
application even though the Ld. Arbitrator heard the application and
deferred it to be decided along with the judgment of the claim petition
and he gave the arbitral award dated 9.11.2004 in the favour of the
respondent whereby an amount of `4,91,046.43 as principal amount
and `4,42,500 as interest at the rate of 18 percent till 18.08.2003 and
`10,000/- as costs of Suit totaling to `9,43,546.43 has been awarded.
6. After the award was passed the appellant filed objections against
the award dated 9.11.2004 objecting to the jurisdiction of the Arbitrator
and also on account of limitation. The Ld. ADJ framed the following
issues:-
1. Whether there exists any arbitration agreement
between the claimant and the respondent?
2. Whether the claimant is a registered Partnership firm?
If not, what is its effect on the present case?
3. Whether the claim of the claimant is within limitation?
4. Whether the claimant is entitled to recover the claim
amount including the interest and cost from the
respondent. if yes, interest at what rate?
7. Objections have been disposed of by making following
observations:-
"8. The other objection with regard to the jurisdiction and
limitation have also been dealt by the arbitrator. The
arbitrator was of the view that there is a printed clause on
the bill no.1 and 2 which says that the dispute shall be
subject matter of the arbitration of the Delhi Hindustani
Mercantile Association. So far the bill no.3 is concerned, that
was the part of the continuous transaction between the
respondent no.1 and the petitioner and the same could also
be dealt under the arbitration along with the other bills
being a part of the continuous transactions between the
parties. The objection raised by the objector that the claim
against the bill no.1 is barred by limitation is also without
any basis. The Ld. Arbitrator has also categorically dealt with
this aspect. Admittedly, the respondent no.1 has made the
payment of Rs. 25,000/- as the part of payment of the
transactions which brings the claim of the respondent no.1
within the period of limitation. In brief, the objection raised
by the petitioner against the award of the arbitrator are
without any basis and not supported by any factual or legal
standard.
9. Consequently, I do not find any substance in the
objections and I am of the considered opinion that there is
no ground made out for set-asiding the award dated
9.11.2004. The issue is accordingly decided against the
object/petitioner."
8. To appreciate the averments made by the appellant whereby they
have objected to not only the arbitration of Delhi Hindustani Mercantile
Association: the respondent firm being not a registered partnership firm
and the claim petition being hopelessly time barred. The averments
made in paragraph 8 of the appeal are reproduced hereunder for the
sake of reference:-
"8. Appellant submits that after the said arbitration
proceedings were thrust own upon the appellant who
contested the said proceedings by filing written statement
thereof. In nutshell appellant agitated before the so-called
Arbitrator to the following:-
i) That the claimant firm is not a registered partnership
firm and Shri Ghulam Qadir is not one of the registered
partner of the alleged firm, hence claim is not maintainable.
ii) Claim petition is hopelessly time barred.
iii) Claim petition is not maintainable in view of the fact
that the Tribunal did not have jurisdiction to entertain
and/or to try the subject dispute between parties. There
was no valid or existing claim clause between the parties as,
never any such Agreement was executed between the parties
containing arbitration clause.
iv) Without prejudice and alternate it was submitted that
there is no appointment of Arbitrator as per law and
reference thereof as not as per the requirements thereof."
9. To appreciate the averments made on behalf of the appellant, I
have already referred to the relevant arbitration clause relied upon by
the respondents printed on the back of the two bills i.e. clause 3 in
paragraph 4 above. A bare reading of the relevant clause reflects that
the printed term does not require the disputes to be referred to for
arbitration to Delhi Hindustani Mercantile Association but only refers
to Delhi Mercantile Association.
10. Now coming to the second plea of the appellant that they had
raised specific objections with regard to the arbitrability of the disputes
by the aforesaid Association by writing a letter copy of which has been
annexed along with the appeal as Annexure 2 available at page 32
reads as under:
"To,
Delhi Hindustani Merkentile
Association,
1210/16, Chandni Chowk,
Delhi-110006.
Sub:- Your Letter dated 13.02.2003
Ref: No.306/2002-03.
D/Sir
In this connection we are sorry to state that we can't
take cognizance of above mentioned letter as we are not
subject to jurisdiction any association by the name of "Delhi
Hindustani Markentile Association" 1210/16, Chandni
Chowk, Delhi-6.
Kindly note that our terms of contract entered between
Kashmir Saree Kendra & us was very clear on the point that
no arbitrator without the mutual consent of both the parties
will be appointed and no reference can be made for
arbitration unilaterally. Kindly let us know our consent
letter or signed agreement on this account.
In any case we append below various reminders sent
to Kashmir Sarees Kendra for your information and records.
Thanking you,
Yours Faithfully
For Rachna Exports."
11. The original of the aforesaid letter is available on record of the
Arbitrator and a reference thereof also finds mention in the ordersheet
of the Arbitrator dated 27.05.2003 except that there is no disposal of
the aforesaid objection by the Arbitrator in the award.
12. As far as the issue of the respondent-firm being not a registered
partnership firm, there is nothing on record which may take away this
objection. Even the Arbitrator has also not repelled this objection. The
arbitrator has only tried to say that for a dispute being referred to
Mercantile Association, it is not necessary that the partnership firm
shoud be registered under the Partnership Act.
13. To explain as to how the claim of the respondent was time
barred, the appellant has referred to claim petition filed before the
Arbtirator. It is shown that in the said claim, the claimant themselves
have referred to three separate claim, i.e., claim No.1, Claim No.2 and
Claim No.3. The details of those claims, as mentioned at page 4 of the
claim is as follows:-
1. Claim No.1 `4,54,070.00
2. Claim No.2 ` 13,882.68
3. Claim No.3 ` 23,093.75
----------------------------
`4,91,046.43
______________________
14. Now coming to claim No.3, further details by the respondent is as
follows:
"The respondent further supplied 506.25 meter of silk @
`95/- per meter vide Bill No.1137 dated 15.01.2000 and the
sale price comes to `48,093.15 and out of this amount the
respondent paid only `25,000/- to the claimant and thus, an
amount of `23,095.75 is outstanding against the
respondent.
15. This goes to show that the third bill dated 15.01.2000 was for a
sum of `48,093.15 and out of the aforesaid amount the respondent
adjusted a sum of `25,000/- towards the aforesaid bill which was paid
by the appellant on 07.02.2007 and debited the balance of rs.23,095.75
as the amount payable with respect to Claim No.3 as stated above.
16. According to the appellant this goes to show that the three claims
were being dealt separately by the respondents themselves. The first
claim which was regarding supply of 25000 meters of silk, supplies
were made till 21.07.1997 and in this regard, the bill which was left
payable by the appellant as on 07.08.1997 was to the tune of
`4,54,070/-. Whereas with respect to the second claim, out of the
order of 2200 meters of silk, the order was complied with by the
respondent as per Bill No.5721 and 5728 and out of the aforesaid
amount only a sum of `12,882.68 was due and payable by the
appellant to the respondent. Obviously, these two bills are prior to
raising of the third claim which pertains to Bill No.1137 dated
15.01.2000. Thus, it is the case of the appellant that all the claims of
the respondent were prior to 15.01.2000 and, therefore, raising a
dispute on 16.02.2003 makes the entire claim barred by limitation. It
is submitted that the effort made on the part of the respondent to bring
the entire claim within limitation on the basis of a receipt of a sum of
`25,000/- which they themselves have adjusted towards the payment
of the third bill and not towards the payment of the entire outstanding
amount is not sustainable in law so as to bring the entire claim within
limitation.
17. It is thus, pleaded that before the Arbitrator also it was the case
of the appellant that not only the arbitrator had no jurisdiction to try
the dispute between the parties, the claim of the respondent was also
barred by limitation.
18. My attention has also been drawn by the learned counsel for the
appellant to the written statement filed by them before the Arbitrator.
In this written statement also specific objections have been taken with
respect to all the three aspects inasmuch as in preliminary objections
No.1, the plea of the respondent-firm being not registered as a
partnership firm has been taken; in preliminary objection No.2, issue of
limitation has been specifically taken while in preliminary objections
No.3, the issue with regard to the jurisdiction of the Arbitration
Tribunal/Mercantile Association has been taken. Despite all these
specific objections, perusal of the record goes to show that the
Arbitrator has brushed aside all the aforesaid three objections.
19. I have gone through the award given by the Arbitrator. In the
award various issues raised by the appellant stands mentioned as
issues. However, while dealing with the first objection regarding the
Arbitral Forum as mentioned on the back of the two bills being Delhi
Mercantile Association: it has simply been mentioned that in the bills of
claim there is a mention of Delhi Hindustani Mercantile Association
(Regd.), which is contrary to record. None of such bill which contain
the terms and conditions that the disputes will be referred to Delhi
Hindustani Mercantile Association is available on the arbitration record
rather the bills of which mention has been made by the appellant
before this Court, there is a mention of only Delhi Mercantile
Association and not Delhi Hindustani Mercantile Association. As far as
the arbitration record is concerned, only photocopies of the bills are
available which do not have the back of the bills.
20. As regards the second objection regarding registration of the
partnership firm being not there, the Arbitrator has simply stated that
the said registration is not required as per the rules of Delhi Hindustani
Mercantile Association. Such rules which are contrary to law cannot be
taken cognizance of. In this regard we may refer to Section 69 of the
Indian Partnership Act, 1932 which reads as under:
"69. EFFECT OF NON-REGISTRATION.-
(1) No suit to enforce a right arising from a contract or
conferred by this Act shall be instituted in any Court by or
on a behalf of any persons suing as a partner in a firm
against the firm or any person alleged to be or to have been a
partner in the firm unless the firm is registered and the
person suing is or has been shown in the Register of Firms
as a partner in the firm:
Provided that the requirement of registration of firm under
this sub-section shall not apply to the suits or proceedings
instituted by the heirs or legal representatives of the
deceased partner of a firm for accounts of the firm or to
realise the property of the firm.
(2) No suit to enforce a right arising from a contract shall be
instituted in any court by or on behalf of a firm against any
third party unless the firm is registered and the persons
suing are or have been shown in the Register of Firms as
partners in the firm.
(2A) No suit to enforce any right for the dissolution of a firm
or for accounts of a dissolved firm or any right or power to
realise the property of a dissolved firm shall be instituted in
any Court by or on behalf of any person suing as a partner
in a firm against the firm or any person alleged to be or have
been a partner in the firm, unless the firm is registered and
the person suing is or has been shown in the Register of
Firms as a partner in the firm:
Provided that the requirement of registration of firm under
this sub-section shall not apply to the suits or proceedings
instituted by the heirs or legal representatives of the
deceased partner of a firm for accounts of a dissolved firm or
to realise the property of a dissolved firm.
(3) The provisions of sub-sections (1), (2) and (2A) shall apply
also to a claim of set-off or other proceedings to enforce a
right arising from a contract but shall not affect
(a) the firms constituted for a duration upto six months or
with a capital upto two thousand rupees;
or;
(b) the powers of an official assigned, receiver or Court under
the Presidency Towns Insolvency Act, 1909, or the Provincial
Insolvency Act, 1920, to realise the property of an insolvent
partner.
(4) This section shall not apply
(a) to firms or partners in firm which have no place of
business in the territories to which this Act extends, or
whose places of business in the said territories are situated
in areas to which, by notification under section 56 this
Chapter does not apply, or
(b) to any suit or claim of set-off not exceeding one hundred
rupees in value which, in the presidency towns, is not of a
kind specified in section 19 of the Presidency Small Cause
Courts Act, 1882, or outside the Presidency towns, is not of
a kind specified in the Second Schedule to the Provincial
Small Cause Courts Act, 1887, or to any proceeding in
execution or other proceeding incidental to or arising from
any such suit or claim."
21. Now coming to the objection of the appellant with regard to plea
of limitation, I find that the Arbitrator has ignored the claim of the
respondent itself who have adjusted a sum of `25,000/- only in the
third bill and not in account because no running account has been
placed on record which may go to show that the adjustment was in a
running account. Moreover, the third bill was subject to Srinagar
jurisdiction.
22. All these objections which were raised by the appellant before the
Arbitrator as also before the learned ADJ were legal objections and go
to show that the award given by the Arbitrator was contrary to law and
thus, comes in the ambit of being violative of public policy which is a
ground to raise such objections under Section 34(2)(b) of the
Arbitration and Conciliation Act, 1996 which reads as under:
"34. Application for setting aside arbitral award.-
1. xxxxx
2. An arbitral award may be set aside by the Court only
if--
(a) xxxxx
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time
being in force, or
(ii) the arbitral award is in conflict with the public policy
of India."
23. As far as public policy and its interpretation is concerned, the law
is now well settled. The Supreme Court in the case of in the case of
ONGC VS. SAWPIPES, 2003 (5) SCC 705. has been pleased to interpret
as follows:-
"WHAT MEANING COULD BE ASSIGNED TO THE
PHRASE 'PUBLIC POLICY OF INDIA'?
16. The next clause which requires interpretation is
Clause (ii) of Sub-section 2(b) of Section 34 which inter
alia provides that the Court may set aside arbitral award
if it is in conflict with the 'Public Policy of India'. The
phrase 'Public Policy of India' is not defined under the
Act. Hence, the said term is required to be given meaning
in context and also considering the purpose of the section
and scheme of the Act. It has been repeatedly stated by
various authorities that the expression 'public policy' does
not admit of precise definition and may vary from
generation to generation and from time to time. Hence,
the concept 'public policy' is considered to be vague,
susceptible to narrow or wider meaning depending upon
the context in which it is used. Lacking precedent the
Court has to give its meaning in the light and principles
underlying the Arbitration Act, Contract Act and
Constitutional provisions.
17. For this purpose, we would refer to few decisions
referred to by the learned counsel for the parties. While
dealing with the concept of public policy, this Court in
Central Inland Water Transport Corporation Limited
and Anr. v. Brojo Nath Ganguly and Anr.
(1986)IILLJ171SC has observed thus:--
"92. The Indian Contract Act does not define the
expression "public policy" or "opposed to public policy".
From the very nature of things, the expressions "public
policy", "opposed to public policy", or "contrary to public
policy" are incapable of precise definition. Public policy,
however, is not the policy of a particular government. It
connotes some matter which concerns the public good
and the public interest. The concept of what is for the
public good or in the public interest or what would be
injurious or harmful to the public good or the public
interest has varied from time to time. As new concepts
take the place of old, transactions which were once
considered against public policy are now being upheld by
the courts and similarly where there has been a well
recognised head of public policy, the courts have not
shirked from extending it to the new transactions and
changed circumstances and have at times not even
flinched from inventing a new head of public policy.
There are two schools of though -- "the narrow view"
school and "the broad view" school. According to the
former, courts cannot create new heads of public policy
whereas the latter countenances judicial law-making in
this area. The adherents of the "the narrow view" school
would not invalidate a contract on the ground of public
policy unless that particular ground had been well-
established by authorities. Hardly ever has the voice of
the timorous spoken more clearly and loudly than in
these words of Lord Davey in Janson v. Driefontein
Consolidated Gold Mines Ltd.(1902) AC 484: "Public
Policy is always an unsafe and treacherous ground
for legal decision". That was in the year 1902. Seventy-
eight years earlier, Burrough, J., in Richardson v. Mellish
(1824) 2 Bing 229 described public policy as "a very
unruly horse, and when once you get astride it you never
know where it will carry you." The Master of the Rolls
Lord Denning, however, was not a man to shy away from
unmanageable horse and in words which conjure up
before our eyes the picture of the young Alexander the
Great laming Bucephalus, he said in Enderby Town
Football Club Ltd. v. Football Assn. Ltd. (1971) Ch. 591;
"with a good man in the saddle, the unruly horse can be
kept in control. It can jump over obstacles". Had the
timorous always held the field, not only the doctrine of
public policy but even the Common Law or the principles
of Equity would never have evolved. Sir William
Holdsworth in his "History of English Law", Volume III,
page 55, has said:
In fact, a body of law like the common law, which
has grown up gradually with the growth of the
nation. necessarily acquires some fixed principles,
and if it is to maintain these principles it must be
able, on the ground of public policy or some other
like ground, to suppress practices which, under
ever new disguises seek to weaken or negative
them.
It is thus clear that the principles governing public policy
must be and are capable, on proper occasion, of
expansion or modification. Practices which were
considered perfectly normal at one time have today
become obnoxious and oppressive to public conscience. If
there is no head of public policy which covers a case, then
the court must in consonance with public conscience.
and in keeping with public good and public interest
declare such practice to be opposed to public policy.
Above all, in deciding any case which may not be covered
by authority our courts have before them the beacon light
of the Preamble to the Constitution. Lacking precedent,
the court can always be guided by that light and the
principles underlying the Fundamental Rights and the
Directive Principles enshrined in our Constitution.
93. The normal rule of Common Law has been that a
party who seeks to enforce an agreement which is
opposed to public policy will be non-suited. The case of A.
Schroeder Music Public Co. Ltd. v. Macaulay (1974) 1 WLR
1308, however, establishes that where a contract is
vitiated as being contrary to public policy, the party
adversely affected by it can sue to have it declared void.
The case may be different where the purpose of the
contract is illegal or immoral. In Kedar Nath Motani v.
Prahlad Rai [1960]1SCR861 , reversing the High Court
and restoring the decree passed by the trial court
declaring the appellants' tile to the lands in suit and
directing the respondents who were the appellants'
benamidars to restore possession, this Court, after
discussing the English and Indian law on the subject,
said (at page 873):
The correct position in law, in our opinion, is that
what one has to see is whether the illegality goes so
much to the root of the matter the plaintiff cannot
bring his action without relying upon the illegal
transaction into which he had entered. If the
illegality be trivial or venial, as stated by Williston
and the plaintiff is not required to rest his case
upon that illegality, then public policy demands
that the defendant should not be allowed to take
advantage of the position. A strict view, of course,
must be taken of the plaintiff's conduct, and he
should not be allowed to circumvent the illegality by
resorting to some subterfuge or by misstating the
facts. If, however, the matter is clear and the
illegality is not required to be pleaded or proved as
part of the cause of action and the plaintiff recanted
before the illegal purpose was achieved. then,
unless it be of such a gross nature as to outrage
the conscience of the court, the plea of the
defendant should not prevail.
94. The type of contract to which the principle
formulated by us above applies are not contracts which
are tainted with illegality but are contracts which contain
terms which are so unfair and unreasonable that they
shock the conscience of the court. They are opposed to
public policy and require to be adjudged void."
24. The violation of the statutory provision which in this case
involves violation of Section 16 of the Arbitration and Conciliation Act,
1996; violation of Section 69 of the Partnership Act as well as violation
of Limitation Act, establishes that the award given by the Arbitrator
was contrary to law and thus, against public policy. However, learned
ADJ has not taken note of any of these objections while deciding the
objections vide impugned order against which the appellant has come
in appeal before this Court.
25. A bare perusal of the aforesaid shows that neither the issue of
there being no arbitration clause as specifically alleged by the appellant
has been discussed by the ADJ in the impugned order, nor it has been
discussed by the arbitrator. Similarly, the issue of limitation has also
not been discussed. In these circumstances, the order of the ADJ
cannot be sustained. Consequently, the award given by the Arbitrator
is also set aside. Appeal is allowed with no order as to costs.
C.M. 17787/2005(stay)
Interim orders are made absolute.
The application is disposed of.
MOOL CHAND GARG,J
JANUARY 06, 2011
'anb'
