Orissa High Court

Acc Ltd vs Subrat Ranjan Dash on 14 September, 2022

                 IN THE HIGH COURT OF ORISSA AT CUTTACK

                               ARBA No.9 of 2020
                              (Through hybrid mode)

            ACC Ltd.                               ....             Appellant

                                     Mr. Saswat Kumar Acharya, Advocate


                                        -versus-

            Subrat Ranjan Dash                     ....           Respondent
                                                   Mr. Avijit Pal, Advocate


                       CORAM: JUSTICE ARINDAM SINHA
                                       ORDER

14.09.2022 Order No.

11. 1. Mr. Acharya, learned advocate appears on behalf of

appellant. He submits, there were two agreements entered into

between his client as principal and respondent as the clearing

and forwarding (C&F) agent. The first agreement was executed

on 1st April, 2005. Clause-26 in it is reproduced below.

"Clause 26: It is agreed between the parties to this contract that in the event of any dispute of any nature arising out of this contract, the same shall be referred to the Company which will appoint two of its Officers to conduct an enquiry and the decision arrived at by them for resolving such dispute shall be final and binding between the parties. In the

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event of any matter being referred to a Court of Law only those Courts in whose jurisdiction Kolkota Regional Office is situated will have the exclusive jurisdiction to entertain the same."

2. On 25th July, 2007 another agreement was executed

between the parties. Said agreement was given retrospective

commencement from 1st July, 2007. Clause-22 in it provided

for arbitration. Under the clause, reference of disputes could

only be of disputes arising out of, or in relation to said

agreement or any interpretation or implementation of any

clause including any dispute with respect to the existence or

validity thereof or the breach thereof. He submits, of the claims

awarded, except claim no.9, the awards were in respect of

disputes arising out of the earlier agreement. It could not have

been arbitrated upon by the Tribunal. His client made

application under section 16 in Arbitration and Conciliation

Act, 1996. Paragraph 4 from the application is reproduced

below.

"4. That upon perusal of the claim items it can be seen that certain claim items emanate from the earlier contract and relate to the period under that contract for which the same are not only barred by limitation but do not arise out of any provisions of

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Arbitration Clause which is only provided in the agreement under Annexure-2 and the dispute has been referred to the Hon'ble Arbitrator in accordance with Clause-22 of the Second Agreement only. It has also been made clear in the second Agreement under Annexure-2 in Clause-25 that the second Agreement supersedes all prior understandings and the agreements on the subject matter and as such there cannot be any arbitration on the claims which relate to the period under first agreement."

3. With reference to reasoning in impugned judgment

dated 15th November, 2019 he submits, though the Court below

struck down award on claim nos. 1 and 6 as relating to period

prior to the 2005 agreement, on ground that no reason was

assigned in the award, said Court erred, as apparent on face of

the judgment, in thereby taking into consideration claims arisen

under the 2005 agreement. He reiterates, said agreement had no

arbitration clause. He refers to a passage in the judgment,

reproduced below.

"Learned Arbitrator has analyzed the true purport of the agreements, while considering the petition U/s. 16 of the Act, 1996, so also in Issue No.2 as regard to the claim of the petitioner that the same was barred by law of limitation and arrived at a conclusion that all

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the claims are arbitriable. There appear justified reasons assigned by the learned sole Arbitrator in view of the fact that a bare reading of the aforesaid clauses, in two different agreements would go to show that there was no substantial change in the agreement and one agreement is substituted by other. The supersession/substitution itself takes in its fold the earlier agreement, which merges with the subsequent agreement in terms of Sec.62 of the Indian Contract Act and therefore, Clause-22 of the Agreement 2007, which refers to Arbitration Clause, takes it in its domain all the disputes arose between 2005 till the agreement is finally concluded by the parties."

He submits, there is error of law apparent in above reasoning

inasmuch as there can be no merger on novation, provided by

section 62 in Contract Act, 1872. Furthermore, where terms of

the two agreements are inconsistent, there cannot also be

substitution. He submits, clause-26 in the first agreement

provided for approach to Court and clause-22 in the subsequent

agreement, to arbitration. The two clauses are inconsistent. The

second agreement, therefore, cannot be said to have substituted

the first. He relies on judgment of the Supreme Court in Lata

Construction v. Rameshchandra Ramniklal Shah reported

in (2000) 1 SCC 586, paragraph-12 (Manupatra print)

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reproduced below.

"12. One of the essential requirements of `Novation'; as contemplated by Section 62, is that there should be complete substitution of a new contract in place of the old. It is in that situation that the original contract need not be performed. Substitution of a new contract in place of the old contract which would have the effect of rescinding or completely altering the terms of the original contract, has to be by agreement between the parties. A substituted contract should rescind or alter or extinguish the previous contract. But if the terms of the two contracts are inconsistent and they cannot stand together, the subsequent contract cannot be said to be in substitution of the earlier contract."

He submits, apart from claim no.9, award on claims in respect

of the earlier agreement be set aside in appeal.

4. Mr. Pal, learned advocate appears on behalf of

respondent. He submits, there was reference to arbitration upon

request made to the Chief Justice. By order dated 27th August,

2015 there was appointment of the arbitrator. It would appear

from said order that the Bench noticed the two agreements. On

finding no appointment had been made as per the second

agreement, power under section 11(6) was exercised to appoint

the arbitrator.

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5. He relies on, relevant to the case, judgment of the Supreme Court in SBP and Co. v. Patel Engineering Ltd. reported in (2005) 8 SCC 618, paragraph-20. A passage therefrom is extracted and reproduced below.

"20. Section 16 is said to be the recognition of the principle of Kompetenz-Kompetenz. The fact that the arbitral tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can and possibly, ought to decide them. This can happen when the parties have gone to the arbitral tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these Sections, before a reference is made, Section 16 cannot be held to empower the arbitral tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the arbitral tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that creates it. That is the position arising out of Section 11(7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act, are

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incapable of being reopened before the arbitral tribunal xx xx xx."

He submits, following the judgment appellant's application

under section 16 was misconceived. His client all along duly

acted as the C&F agent. Of claims made some were rejected.

His client has accepted the award and seeks execution thereof.

There should not be interference in appeal.

6. The patent illegality apparent on face of the award

urged in appeal by appellant is that apart from claim no.9, the

claims awarded were in respect of disputes arisen under the

first agreement, which was outside four corners of the second

agreement bearing the arbitration clause. Hence, the arbitrator

travelled beyond his jurisdiction in awarding on those claims.

Ground by entry (iv) in clause (a) under sub-section (2) of

section 34 (prior to amendment) stands satisfied for

interference in appeal to set aside award on those claims. This

is the only ground urged.

7. Court is unable to accept appellant's contention that the

second agreement, at least so far as dispute resolution clauses

are concerned, could not have been a substitution of the first.

This is because there was alteration of the term, of approach to

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Court in the first agreement to be reference to arbitration in the

second agreement. This was novation. However, there could

not have been merger of terms of the first agreement on

execution of the subsequent agreement, under section 62 in

Contract Act, 1872. This appears to be an erroneous

appreciation of the law of novation, where terms of the original

agreement need not be performed. It is arguable whether 'need

not be performed' is a bar to perform but that can be decided in

an appropriate case. Still, for adjudication on the appeal, it is

necessary to look at both the agreements.

8. Agreements dated 1st April, 2005 and 25th July, 2007

are agency agreements where appellant is principal and

respondent, its C&F agent. Arbitration clause is part of the

second agreement. Also in the second agreement there is a term

by clause-4, extracted and reproduced below.

"4. Term The term of this Agreement shall commence with retrospective effect from 1st July, 2007 and shall continue until 30.06.2010, unless terminated earlier as per Clause 12 hereinafter. This Agreement may be renewed at the sole discretion of ACC and on such terms and conditions as may be agreed to by ACC. The earlier agreement signed with C&FA on

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1st April, 2005 which was valid up to 31.03.2008 is hereby cancelled."

(emphasis supplied)

By the second agreement, earlier agreement dated 1st April,

2005, valid up to 31st March, 2008, was cancelled. As a

consequence, when there was notice for commencement of the

reference, there was only the agreement dated 25th July, 2007.

Clause-22 in the agreement is of wide amplitude in

encompassing disputes that may arise in connection with the

agreement. The earlier agreement stood cancelled by this

agreement and as such it is but natural that disputes arising out

of the cancelled agreement stood connected to this agreement.

9. The request for appointment of arbitrator under section

11(6) was made by respondent. It was confined to the clearing

and forwarding agency agreement dated 25th July, 2007. The

law as it stood on 27th August, 2015 (date of appointment of

arbitrator) required judicial exercise in making the

appointment. It was made. The appointment thus made eclipsed

operation of section 16 in enabling the Tribunal to decide on its