The Apex Court also in the case of Union of India vs.
D.N. Revri and Co., AIR 1976 SC 2257, held that a
commercial document between the parties must be
interpreted in such a manner as to give efficacy to the
contract rather than to invalidate it. The learned Judges
clarified it by saying: -
"7. It must be remembered that a contract is a
commercial document between the parties and it
must be interpreted in such a manner as to give
efficacy to the contract rather than to invalidate
it. It would not be right while interpreting a
contract, entered into between two lay parties, to
apply strict rules of construction which are
ordinarily applicable to a conveyance and other
formal documents. The meaning of such a
contract must be gathered by adopting a
common sense approach and it must not be
allowed to be thwarted by a narrow, pedantic
and legalistic interpretation."
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.11438 OF 2014
(Arising out of SLP(C)No. 20990 of 2013 )
M/s. Govind Rubber Ltd. ...Appellant (s)
versus
M/s. Louids Dreyfus Commodities
Asia Pvt. Ltd. ...Respondent(s)
Citation; (2015) 13 SCC 477.
M.Y. Eqbal, J.:
Leave granted.
2. This appeal by special leave is directed againstjudgment
and order dated 4.2.2013 of the High Court of Judicature at
Bombay whereby learned Single Judge allowed the arbitration
petition preferred by the respondent under Sections 47 and 48
of the Arbitration & Conciliation Act, 1996 (in short, "the Act").
By the aforesaid petition, respondent had inter alia sought
direction to enforce and execute the foreign award dated 18 th
December, 2009 as decreed in favour of the respondent and
against the appellant.
3. The factual matrix of the case is that the appellant is
carrying on business at Mumbai inter alia of import and
export of commodities and the respondent company is having
its office at Singapore. On 20 th August, 2008, the appellant
through the broker B.B. Rubber Pvt. Ltd. (in short, `Broker')
confirmed the offer for purchase of natural rubber RSS-3
(Thailand origin). The respondent issued a sales contract
bearing No.03S8733 for 200 Metric Tons (MT) of Thai RSS-3 at
US $2,880 per metric ton, CIF Nhava Sheva, India with
payment term 100% against Letter of Credit for shipment in
September, 2008. The said sale contract, signed by the
representative of the respondent, provided the governing terms
as "Singapore Commodity Exchange". The name of the
appellant was described as buyer, who issued purchase Order
No.BOM:PO:2008-09:286 dated 21 st August, 2008. As pleaded
by the appellant, by this purchase order, the appellant placed
orders on the terms and conditions set out therein. The
appellant thereafter requested to change the payment term in
the said sales contract to be 10% advance by TT (Telegraph
Transfer) and balance 90% by DP (documents against
payment) at sight through e-mail dated 26 th August, 2008.
This request for amendment was accepted by the respondent
and accordingly it issued invoice dated 27 th August, 2008 for
the 10% advance payment for 200 metric tons RSS 3 at the
rate of US$ 2,880/MT. It is the case of the respondent that
latter the invoice was split into two invoices of 100 metric tons
each for which 10% of contract value was US$28,800. Cargo
of 200 MT RSS-3 was accordingly shipped to Nahava Sheva
and original documents of shipments were couriered to the
appellant's Bank.
4. On 11th October, 2008, the broker sent a letter to the
appellant to confirm acceptance of their request to split bills of
lading separately as conditions for payment upon
presentation. The respondent on 17 th October, 2008 requested
for return of the documents from Indian Overseas Bank of the
appellant in order to split the bills of lading into smaller lots as
requested by the appellant. On 31st October, 2008, the
respondent sent the revised split bills of lading and invoices
for resubmission on Indian Overseas Bank for payment. On
31st October, 2008, the appellant confirmed acceptance of
non-negotiable documents for both contracts and requested
for price deduction as conditions to make payment, which was
not accepted by the respondent. On 10th November, 2008, the
broker emailed to the appellant to insist performance of the
contracts and recapping the sequence of events of the
contracts. The appellant, however, did not make payment.
5. It is pleaded by the respondent that on 22nd August,
2008, upon receiving brokers confirmation of order and advice
to fax over the sales contracts, the respondent issued sales
contract on 25th August, 2008 bearing No.03S8739 for 201.6
Metric tons (mt) of SIR20 at us $ 2,895/mt CIF Nhava Sheva,
India, with payment term 100% Letter of Credit for shipment
in September, 2008 with the respondent's contract stating
governing terms as Singapore Commodity Exchange to the
appellant which issued its purchase Order No. BOM:PO:
208-09:290 (in short, the said contract is referred to as
"second sales contract"). By email dated 27 th August, 2008 the
appellant requested to change payment terms in respect of the
said second sales contract and the respondent accepted new
payment terms as requested by the appellant.
6. The dispute arose between the parties in respect of this
second sales contract. The respondent, therefore, vide letter
dated 12th May, 2009, referred the matter to Singapore
Commodity Exchange for arbitration in accordance with the
terms of sale contract and attached points of claim in
5
arbitration. The appellant vide letter dated 23 rd May, 2009 to
SICOM Rubber Contract Dispute Resolution Committee, the
Singapore Commodity Exchange, contended that the
appellant had incurred huge loss in view of the failure on the
part of the respondent to supply the goods in time with
standard of second party in quantity. By the said letter, the
appellant lodged its counter claim on the first party for US $
3734036.25 and also agreed for acceptance of nomination to
Mr. Leon Tim Fook as their sole arbitrator. The appellant
contended that the Singapore Commodity Exchange or its
committee did not have any jurisdiction. It was submitted
that the jurisdiction shall be in Mumbai. The Arbitral
Tribunal made award dated 18th December, 2009 directing the
appellant to pay to the respondent a sum of US $716283 for
breach of contract and also to bear cost and expenses of said
arbitration amounting to Singapore dollar 20330. The Arbitral
Tribunal, rejected the counter claim made by the appellant
and recorded a finding that SICOM and its arbitral tribunal
had arbitration jurisdiction over two contracts in dispute and
the said two sales contracts existed and were valid.
7. The appellant did not challenge the aforesaid award
before the High Court. On the other hand, in the year 2010,
appellant filed a suit against the respondent in the High Court
inter alia praying for damages. The respondent has also filed
notice of motion in the said proceedings. During the pendency
of the said suit, respondent filed arbitration petition on 11 th
January, 2012 for enforcement and execution of the said
award as decree. After hearing learned counsel on either side
and going through the materials placed before the Court,
learned Single Judge allowed the arbitration petition observing
that the appellant has not furnished any proof as to why the
enforcement of the foreign award dated 18 th December, 2009
can be refused. The appellant had made counter claim before
the arbitral tribunal and thereafter did not challenge the
award passed in favour of the respondent and rejection of the
7
counter claim against the appellant in any court of law.
According to the learned Single Judge, the said foreign award
is enforceable under Part II and is binding for all purposes on
the parties under Section 46 of the Arbitration & Conciliation
Act, 1996. After holding that that the said foreign award is
enforceable, High Court directed the respondent to put the
award in execution in accordance with the rules of this court.
The High Court also directed the appellant to produce on oath,
complete inventory of its assets and properties as prayer for in
prayer clause (b) within the period of four weeks from the date
of impugned order.
8. Hence, this appeal by special leave under Article 136 of
the Constitution is preferred by the appellant raising
substantial question of law as to whether in the absence of a
valid arbitration agreement between the parties as
contemplated under Section 7 of the Act, the Singapore
Commodity Exchange had jurisdiction to appoint any
arbitrator on behalf of the appellant or to proceed with the
arbitration. It is the case of the appellant that the entire
arbitral proceedings before the Singapore Commodity
Exchange, at the instance of the respondent, was without
jurisdiction and cannot bind the appellant.
9. Mr. Jayant Bhushan, learned senior counsel appearing
for the appellant, at the very outset submitted that the sale
contract issued by the respondent containing and referring the
arbitration to Singapore Commodity Exchange was not signed
and returned by the appellant. On the contrary the purchase
order sent to the respondent contains commercial terms and
conditions including exclusive jurisdiction of Bombay High
Court. The said purchase order was accepted by the
respondent and was concluded. Hence, Singapore Commodity
Exchange did not have jurisdiction to decide the disputes
inasmuch as the parties were not ad idem to refer the dispute
for arbitration. Learned counsel submitted that the High
Court has failed to appreciate the case of the appellant and
grossly erred in holding that the appellant did not raise
jurisdiction in the counter claim filed by it. Leaned counsel
submitted that as against the specific conditions fixed in the
purchase order regarding the jurisdiction of Bombay High
Court, the respondent did not respond to the said letter
objecting to the jurisdiction of the Bombay High Court. Mr.
Bhushan then submitted that making a counter claim in
response to the notice sent by the Arbitrator will not amount
to waiver of jurisdiction. Lastly learned counsel submitted
that the High Court has further gravely erred by recording a
finding that the appellant has acted upon the sale contract as
concluded contract.
10. Per contra, Mr. Jay Savla, learned advocate firstly
contended that the sales contract is a concluded contract and
the appellant acted on the terms of the sales contract and
issued the supply order to the respondent. The appellant
thereafter requested to change the terms of payment
mentioned in the sales contract to be 10% advance by TT and
the 90% by DP. The said request for amendment in the sales
contract was accepted by the respondent. Learned counsel
submitted that the appellant always referred the sales contract
which is evident from the fact that no amendment in the
payment terms in the supply order was ever sought for.
Learned counsel submitted that the request for splitting the
bills referring the sales contract was also accepted and
payments were made as per the amended terms in the sales
contract. According to the learned counsel, the High Court
has rightly appreciated all these facts then submitted that the
parties were ad idem in the matter of terms of the sale contract
which contained the resolution of dispute by arbitration
through Singapore Commodity Exchange. Learned counsel
put reliance on the decision of this Court in the case of M.R.
Engineers and Contractors (Pvt.) vs. Som Dutt Builders
Ltd., (2009) 7 SCC 696.
11. We have heard the learned counsel appearing for the
parties and have perused and considered all the facts and the
documents brought on record.
12. There may not be any dispute with regard to the settled
proposition of law that an agreement even if not signed by the
parties can be spelt out from correspondence exchanged
between the parties. However it is the duty of the Court to
construe correspondence with a view to arrive at the
conclusion whether there was any meeting of mind between
the parties which could create a binding contract between
them. It is necessary for the Court to find out from the
correspondence as to whether the parties were ad idem to the
terms of contract.
13. It is equally well settled that while construing an
arbitration agreement or arbitration clause, the Courts have to
adopt a pragmatic and not technical approach. In the case of
Rukmanibai Gupta vs. Collector, (1980) 4 SCC 556, this
Court held that:-
"6. Arbitration agreement is not required to be in
any particular form. What is required to be
ascertained is whether the parties have agreed
that if disputes arise between them in respect of
the subject-matter of contract such dispute shall
be referred to arbitration, then such an
arrangement would spell out an arbitration
agreement."
14. So far as the first contention made by the learned
counsel for the appellant that since the appellant did not sign
the agreement, it cannot be said to be a party to the
agreement, we would like to refer Section 7 of the Arbitration
and Conciliation Act, which reads as under:
"7.Arbitration agreement:-
(1) In this Part, "arbitration agreement" means an
agreement by the parties to submit to arbitration all or
certain disputes which have arisen or which may arise
between them in respect of a defined legal relationship,
whether contractual or not.
(2) An arbitration agreement may be in the form of an
arbitration clause in a contract or in the form of a
separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is
contained in-
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or
other means of telecommunication which
provide a record of the agreement; or
(c) an exchange of statements of claim and
defence in which the existence of the agreement
is alleged by one party and not denied by the
other.
(5) The reference in a contract to a document
containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing and
the reference is such as to make that arbitration
clause part of the contract."
15. Perusal of the aforesaid provisions would show that in
order to constitute an arbitration agreement, it need not be
signed by all the parties. Section 7(3) of the Act provides that
the arbitration agreement shall be in writing, which is a
mandatory requirement. Section 7(4) states that the
arbitration agreement shall be in writing, if it is a document
signed by all the parties. But a perusal of clauses (b) & (c) of
Section 7(4) would show that a written document which may
not be signed by the parties even then it can be arbitration
agreement. Section 7(4)(b) provides that an arbitration
agreement can be culled out from an exchange of letters, telex,
telegrams or other means of telecommunication which provide
a record of the agreement.
16. Reading the provisions it can safely be concluded that
an arbitration agreement even though in writing need not be
signed by the parties if the record of agreement is provided
by exchange of letters, telex, telegrams or other means of
telecommunication. Section 7(4)(c) provides there can be an
arbitration agreement in the exchange of statements of
claims and defence in which the existence of the agreement
is alleged by one party and not denied by the other. If it can
be prima facie shown that the parties are at ad idem, then
mere fact of one party not signing the agreement cannot
absolve himself from the liability under the agreement. In the
present day of E-commerce, in cases of internet purchases,
tele purchases, ticket booking on internet and in standard
forms of contract, terms and conditions are agreed upon. In
such agreements, if the identity of the parties is established,
and there is a record of agreement it becomes an arbitration
agreement if there is an arbitration clause showing ad idem
between the parties. Therefore, signature is not a formal
requirement under Section 7(4)(b) or 7(4)(c) or under 7(5) of
the Act.
17. We are also of the opinion that a commercial document
having arbitration clause has to be interpreted in such a
manner as to give effect to the agreement rather than
invalidate it. On the principle of construction of a
commercial agreement, Scrutton on Charter Parties (17th
Edition, Sweet & Maxwell, London, 1964) explained that
commercial agreement has to be construed, according to the
sense and meaning as collected in the first place from the
terms used and understood in the plain, ordinary and
popular sense (See Article 6 at page 16). The learned Author
also said that the agreement has to be interpreted 'in order
to effectuate the immediate intention of the parties'.
Similarly, Russel on Arbitration (21st Edition) opined, relying
on Astro Vendeor Compania Naviera SA vs. Mabanaft
GmbH (1970) 2 Llyod's Rep.267, that the Court should, if the
circumstances allow, lean in favour of giving effect to the
arbitration clause to which the parties have agreed. The
learned Author has also referred to another judgment in Paul
Smith Ltd v. H and S International Holdings Inc. (1991) 2
Llyod's Rep.127 in order to emphasize that in construing an
arbitration agreement the Court should seek to 'give effect to
the intentions of the parties'. (See page 28 of the book).
18. The Apex Court also in the case of Union of India vs.
D.N. Revri and Co., AIR 1976 SC 2257, held that a
commercial document between the parties must be
interpreted in such a manner as to give efficacy to the
contract rather than to invalidate it. The learned Judges
clarified it by saying: -
"7. It must be remembered that a contract is a
commercial document between the parties and it
must be interpreted in such a manner as to give
efficacy to the contract rather than to invalidate
it. It would not be right while interpreting a
contract, entered into between two lay parties, to
apply strict rules of construction which are
ordinarily applicable to a conveyance and other
formal documents. The meaning of such a
contract must be gathered by adopting a
common sense approach and it must not be
allowed to be thwarted by a narrow, pedantic
and legalistic interpretation."
19. In the instant case, admittedly, the respondent issued a
sale contract for supply of goods incorporating in the said sale
contract various terms including hundred percent payment
against letter of credit and also providing the governing terms
as "Singapore Commodity Exchange". Though the appellant
issued purchase order dated 21 st August, 2008 on terms and
conditions set out therein but the appellant requested the
respondent to change the payment terms mentioned in the
sales contract. The request for amendment was accepted by
the respondent. At this juncture, we would like to quote
hereinbelow the Email dated 27 th August, 2008 sent by the
appellant acknowledging the amendments on the payment
term in the sale contract.
"bbr@vsnl.com
To MeKwan.Yip@idcommodities.com
Cc:Andrew.Trevett@idcommodities.com
Christina.Chlia@idocmodities.com
Subject: Re: Govind Rubber
" Hi Mee Kwan,
As discussed & confirmed with Andrew y'd, Govind
Rubbeer's payment terms have been changed to:10%
ADVANCE BY TT, BALANCE AGAINST D/P AT SIGHT' SO,
PLEASE AMEND YOUR SALE CONTRACT ACCORDINGLY &
SEND ME THE SALE CONTRACT & PROFORMA INVOICE
FOR BOTH CONTRACTS SEPARATELY.
Await your earlier action, since Govind Rubber wants to
send the 10% advance TT today & is waiting for your
Proforma Invoice.
Rgds,
Biju
___Original Message__
From: MeeKwan.Yip@idcommodities.com
To: bbr@vsnl.com
Cc: Andrew.Trevatt@idcommodities.com;
Christina.Chia@idcommodities.com
Subject: Re: Govind Rubber."
20. From the documents available on record and also
referred in the impugned order, it is evident that at the request
of the appellant, the invoice was split into two invoices and in
the said letter of request reference was made to the sale
contract. The appellant proceeded to supply the goods on the
terms contained in the sale contract. The intention of the
parties, as appearing from the correspondence, it can safely be
inferred that there had been meeting of mind between the
parties and they were ad idem to the terms of sale contract
which contained the forum of dispute resolution at Singapore
Commodity Exchange. Apart from that, after the dispute was
referred to Singapore Commodity Exchange for arbitration, the
appellant in response to the notice made a counter claim
before the Arbitral Tribunal contending that the appellant had
incurred huge loss in view of the failure on the part of the
respondent to supply the goods in time. By making a counter
claim, the appellant indeed submitted to the jurisdiction of the
arbitrator.
21. The principles laid down by the House of Lords in the
case of Cairncross vs. Lorimer, (1860) 7 Jur NS 149 , were
approved of by the Judicial Committee in the case of Sarat
Chunder Dey vs. Gopal Chunder Laha, 19 IA 203. We may
also take the liberty of reading a passage from another Privy
Council decision where the general principle applicable to
such cases is stated. "On the whole, therefore, their Lordships
think that the appellant, having a clear knowledge of the
circumstances on which he might have founded an objection
to the arbitrators proceeding to make their award, did submit
to the arbitration going on; that he allowed the arbitrators to
deal with the case as it stood before them, taking his chance of
the decision being more or less favourable to himself; and that
it is too late for him, after the award has been made, and on
the application to file the award, to insist on this objection to
the filing of the award": see the case of Chowdhri
Murtaza-Hossein vs. Mt. Bibi Bechunnissa, 3 IA 209 . It is
true that the question in the present case is a question of
competence of the arbitrator which in a sense is a question of
jurisdiction, but it is not like the jurisdiction of a Court,
because the jurisdiction of arbitrators is derived from consent
of the parties.
22. It is clear that for construing an arbitration agreement,
the intention of the parties must be looked into. The
materials on record which have been discussed hereinabove
make it very clear that the appellant was prima facie acting
pursuant to the sale contract issued by the respondent. So,
it is not very material whether it was signed by the second
respondent or not.
23. It is not in dispute that although the appellant having full
notice and knowledge of the dispute having been decided by
the Arbitral Tribunal and an award was passed on 18th
December, 2009, the said award has not been challenged by
the appellant in any court of law. Instead, the appellant filed
the suit against the respondent in the High Court inter alia
praying for damages.
24. In the aforesaid premise, we do not find any valid ground
to oppose the enforcement of the foreign award. The High
Court in the impugned order has rightly held that the foreign
award is enforceable under Part II and is binding for all
purposes on the parties.
22
25. After giving our anxious consideration to the question
raised by the appellant, we do not find any merit in this appeal
and is accordingly dismissed, but with no order as to costs.
..................................J.
(M.Y. Eqbal)
.................................J.
(R. Banumathi)
New Delhi
December 16, 2014
The Apex Court also in the case of Union of India vs.
No comments:
Post a Comment