Wednesday, 21 June 2017

Whether court can refer matter to arbitration if agreement containing arbitration clause has expired?

The Court:
The challenge is made to an Order No. 6 dated 30th August, 2016 passed
by the learned Civil Judge (Senior Division), Additional Court, Hooghly in Title
Suit No. 296 of 2016 by which an application under Section 8 of the Arbitration
and Conciliation Act, 1996 is allowed.
The Trial Court held that the subject dispute is covered by an arbitration
clause contained in an agreement dated 20th April, 2015 and therefore the Civil
Court cannot adjudicate such dispute but to refer the parties to arbitration.
The meaningful reading of the agreement dated 28.04.2015 does not
bring any sense of doubt that the same was operative during the specified period
and came to an end by efflux of time. It is nobody’s case that any dispute arose
during the subsistence of the said agreement.There is no clause present in the said agreement that the tenure can be
extended by mutual agreement. Once the agreement runs its tenure in absence
of any express conditions it cannot be unilaterally extended. None of the
correspondences exchanged between the parties would indicate that the lift of
spent grain was permitted under the said expired agreement so as to presume
the extension of period provided therein.
This Court, therefore, could not persuade itself to find any element
constituting arbitration agreement within the four corners of Section 7 of the said
Act.
HIGH COURT AT CALCUTTA
CIVIL REVISIONAL JURISDICTION
C.O. 3414 of 2016
M/s Rajib Basu Ray Vs Carlsberg India Pvt. Ltd. & Anr.
Present: Hon’ble Justice Harish Tandon

Judgment On: 06/10/2016.
Citation: AIR 2017(NOC) 130 Cal

The Court:
The challenge is made to an Order No. 6 dated 30th August, 2016 passed
by the learned Civil Judge (Senior Division), Additional Court, Hooghly in Title
Suit No. 296 of 2016 by which an application under Section 8 of the Arbitration
and Conciliation Act, 1996 is allowed.
The Trial Court held that the subject dispute is covered by an arbitration
clause contained in an agreement dated 20th April, 2015 and therefore the Civil
Court cannot adjudicate such dispute but to refer the parties to arbitration.
 The plaintiff / petitioner filed the said suit for declaration that it has an
exclusive right to purchase and lift “spent grain” from the defendant / opposite
party who has no right to enter into an agreement with any party / parties save
and except the plaintiff / petitioner. A further declaration is sought that the
decision of the defendant / opposite party in permitting the plaintiff / petitioner
to purchase 50% of the total produce of spent grain is not binding and contrary
to the correspondences exchanged between the parties.In a nutshell, the case made out in the plaint is that the defendant /
opposite party company manufactures the drink ‘beer’ in its plant and by
manufacturing process a product named as ‘spent grain’ is produced as a waste
which can be used for cattle feed. The opposite party company invited a bid by
floating a tender in the month of April, 2015 and awarded the contract to the
plaintiff / petitioner being the highest bidder. An agreement was entered into in
writing between the parties hereto which clearly provides its tenure from
01.05.2015 to 30.04.2016. Clause 7 of the said agreement contains the
termination clause and Clause 9 thereof is the alleged arbitration clause. The
rate per kg is reflected in the annexure appended to Clause 2 of the said
agreement, which is Rs. 4.90 per kg. After the expiration of the tenure stipulated
in the said agreement a further bid was invited for the next term and petitioner
was again adjudged as the highest bidder. The plaint proceeds that the opposite
party company informed the petitioner that the agreement for the said period
would be sent shortly, for execution. By this time the rate was quoted as Rs. 5.90
per kg for the said spent grain and it is not in dispute that the opposite party
company allowed the petitioner to lift the spent grain at new rate.
On 31st May, 2016 the defendant company sent an e-mail to the petitioner
to revise the said rate, which was replied on the same date. The plaintiff showed
his inability to increase the said rate quoted for the year 2016-17 as the said rate
is the maximum rate for the said product, which the petitioner can offer. On 16th
June, 2016 another e-mail was received by the petitioner wherein it was
proposed that they would be allowed to lift 50% of the total waste at the rateoffered by the petitioner as the company’s policy has changed requiring at least
two vendors to lift the same.
The petitioner replied on 17.06.2016 stating that once the bid has been
finalised, the subsequent acceptance of the bid and restricting the lifting of the
spent grain to the extent of 50% of the total produce is unacceptable. In turn, the
company by e-mail dated 20th June, 2016 took a firm stand that the said
agreement dated 28th April, 2015 does not contain any statement that it would
get automatically terminated on the expiration of the date intimated therein and
in view of Clause 2 thereof the rates so quoted can be enhanced and the
enhanced rate was paid in the month of May, 2016 by way of revision. However,
the company further reiterated that the petitioner can only be allowed to lift 50%
of the total produce and invited the company to confirm to the same.
In the meantime an agreement was sent on 30th May, 2016 for the period
from 01.06.2016 to 31st March, 2017 containing an arbitration clause inviting
the petitioner to confirm to the terms and conditions embodied therein. Since the
petitioner could not agree to the aforesaid proposals, the defendant company
terminated the contract and precisely for such reasons, the present suit was filed
for the above mentioned reliefs.
An application for temporary injunction was filed therein for interim order
and the Trial Court passed an ex-parte ad interim order of injunction restraining
the defendant company from interfering with the right of the petitioner in lifting
the spent grain in violation of an agreement dated 30th May, 2016. After the
service of notice the defendant company appeared and filed an application underSection 5 and 8 of the Arbitration and Conciliation Act for an order that the
parties may be referred to arbitration.
 It would be relevant to adumbrate the statements made in the said
application to ascertain the stand of the defendant company before the Trial
Court. In Paragraph 8 of the said application the defendant company
categorically states that the only agreement governing the relationship between
the parties is the agreement dated 28.04.2015 containing an arbitration clause
and in Paragraph 9 thereof it is expressly stated that there is no other contract or
agreement between the parties other than the one indicated above. In Paragraph
11 of the said application the defendant company asserts that the agreement for
the year 2016-17 is merely a proposed agreement and therefore banks upon the
agreement dated 28.04.2015 for invoking the provisions contained under Section
8 of the Arbitration and Conciliation Act.
The Trial Court proceeded to allow the said application going by the terms
of the agreement dated 28.04.2015 and held that in view of the arbitration
clause, the civil suit is not competent before the judicial authority and referred
the parties to arbitration.
Mr. S.N. Mukherjee, learned Senior Advocate appearing for the petitioner
submits that once the agreement dated 28.04.2015 runs its full tenure it
automatically ceases to operate and therefore the arbitration clause contained
therein cannot be invoked. He, further submits that in view of the categorical
stand of the defendant company that there is no other agreement entered into
between the parties except the one i.e. 28.04.2015, the arbitration clausecontained in the proposed agreement is of no consequence. In alternative, it is
stated that Clause 9 of the agreement dated 28th April, 2015 containing so called
arbitration agreement cannot be construed as such and therefore the Trial Court
have proceeded erroneously in construing the same as arbitration agreement. He,
thus, submits that the order impugned suffers from illegality and is liable to be
set aside.
On the other hand, Mr. Bikash Ranjan Bhattachaya, learned Senior
Advocate appearing for the defendant company submits that there was no bid
offered for the year 2016-17 and even though the agreement for the year 2016-17
has not been finalized, yet the petitioner was allowed to lift the spent grain under
Clause 2 of the agreement dated 28.04.2015, which permits the increase of the
rate. He, thus submits that the tenure of the agreement was extended and in
absence of any express provision of expiration of the tenure, it cannot be
presumed that the same was not acted upon and continued further. He thus
submits that the defendant company has terminated the said agreement on 6th
July, 2016 indicating the last date of lifting of spent grain to be 10th July, 2016.
Finally, he submits whether the termination is bad or not, can only be resolved
by an Arbitrator in view of the arbitration agreement and therefore there is no
infirmity in the order of the Trial Court in allowing an application under Section
8 of the said Act.
On the basis of the aforesaid undisputed facts, first and foremost question
arises before this Court whether the agreement dated 28.04.2015 was in effect
continuing so as to bind the parties or lost its forms after the expiration of thetenure provided therein. There is no difficulty in saying that the proposed
agreement for the year 2016-17 did not mature as a contract as the defendant
company itself admits that there is no other contract than the agreement dated
28.04.2015.
In order to constitute a valid and enforceable contract there must be an
existence of an element of promise, acceptance and the consideration which are
not opposed to law. Mere proposal without its concurrence cannot bind the
parties and therefore is not enforceable. The correspondences exchanged between
the parties sufficiently indicates that the petitioner never accepted the terms and
conditions embodied in the agreement dated 30th May, 2016 as proposed by the
defendant company.
Section 7 of the Arbitration and Conciliation Act defines the arbitration
agreement which not only imbibes within itself the agreement of the parties to
submit to arbitration all or certain disputes having arisen or may arise between
them in respect of a defined relationship whether contractual or not but such
agreement may be inferred from the document signed by the parties or by
exchange of letters, telegrams or other means of telecommunication or even by an
exchange of statements of claim and defence in which the existence of an
arbitration agreement is not denied by the other. The first and foremost
requirement under the aforesaid provision is that it must be in writing. The
another feature which can be seen from the said provision is that the arbitration
agreement may be separately entered into between the parties or may be found inexistence by reference in the form of arbitration clause forming part of the
contract.
It becomes therefore necessary to see whether the correspondences
exchanged between the parties would sufficiently constitute an arbitration
agreement to resolve the disputes between the parties. The core issue as it
appears from the respective stands of the parties are whether the tenure expires
by efflux of time or the parties extended the same so as to bind themselves to the
terms and conditions embodied therein. All the correspondences exchanged
between the parties contained the subject as confirmation of the spent grain
contract which necessarily infer that there was no enforceable contract entered
into by and between the parties for the year 2016-17. Clause 2 of the agreement
dated 28.04.2015 contains the broad head as ‘rates’ mentioned in Annexure 1
exclusive of the sales tax and the other taxes if levied or may be applicable as per
any new Government Rules. The argument of the defendant company is that the
said clause provides for increment of the rate with the cap of 5% and in the event
it has to be increased above the said rate, the consensus has to be arrived
between the parties by mutual agreement otherwise the defendant company has
a right to terminate the agreement with immediate effect. Clause 1 of the said
agreement specifically defines the period for which the said agreement shall
remain in force unless terminated in terms of Clause 7. By Clause 7 the parties
retain their rights to terminate the agreement by giving 15 days prior notice in
writing but the defendant company has a right to terminate the agreement with
immediate effect in case of breach by the petitioner of any of the terms andconditions of the said agreement or if any changes is brought in statutory
regulation by the Government or the Statutory Bodies which do not allow
continuance of such agreement.
The first of the correspondences exchanged between the parties can be
traced to be 30th May, 2016 when the defendant company forwarded an
agreement for sale of the cattle feed (spent grain) for the period between 1st June,
2016 to 31st March, 2017. The said proposed agreement contains statements that
in reference to the offer and subsequent discussions held between the parties,
the contract is awarded for lifting the spent grain on the terms and conditions
incorporated therein. There is no reflection of an earlier agreement dated
28.04.2015 nor the Annexure 1 appended thereto remotedly suggest that the
price so quoted was a revised one acceptable by the defendant company. It is not
in dispute that in between the 1st May, 2016 till the time the suit was instituted,
the petitioner was permitted to lift the spent grain at the rate indicated in the
proposed agreement without getting the same finalized or to make it an
enforceable contract.
Furthermore, the defendant company itself admits that the proposed
agreement dated 30th May, 2016 has not culminated into an enforceable
agreement and therefore the said agreement can not be looked into in the present
context. The meaningful reading of the agreement dated 28.04.2015 does not
bring any sense of doubt that the same was operative during the specified period
and came to an end by efflux of time. It is nobody’s case that any dispute arose
during the subsistence of the said agreement.There is no clause present in the said agreement that the tenure can be
extended by mutual agreement. Once the agreement runs its tenure in absence
of any express conditions it cannot be unilaterally extended. None of the
correspondences exchanged between the parties would indicate that the lift of
spent grain was permitted under the said expired agreement so as to presume
the extension of period provided therein.
This Court, therefore, could not persuade itself to find any element
constituting arbitration agreement within the four corners of Section 7 of the said
Act.
The Order of the Trial Court, therefore suffers from illegality and infirmity.
The same hereby set aside.
The revisional application is allowed.
There shall be no order as to costs.
(Harish Tandon, J.)
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