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1995 DIGILAW 402 (CAL)

Indian Oil Corporation Ltd. v. India Carbon Ltd.

1995-11-17

Nikhil Nath Bhattacharjee

body1995
JUDGMENT N. K. Bhattacharjee, J.: This is an application under s. 34 of the Arbitration Act, 1940 for stay of suit No. 180 of 1994 (India Carbon Ltd. vs. Indian Oil Corporation Ltd.) and for injunction restraining the respondent from taking any step or further steps in connection with the said suit till disposal of tile arbitration proceeding pending with the arbitrator. The factual aspects arc summarised below: 2. Raw Petroleum Coke (RPC) was a canalised item for the purpose of import and the petitioner IOC was authorised and empowered to import such RPC from abroad. RPC is tile raw material required by the respondent ICL in its manufacturing activities. Pursuant to the discussions and negotiations between IOC and ICL an agreement between them was entered into for sale of a consignment of 3000 MT of imported RPC from Agrentina to the LCL on the terms and conditions, inter alia as follows: (a) The Sale would be on 'High Seas' basis. (b) The provisional price payable by the ICL was Rs. 3700 per MT exclusive of all duties and taxes which would be borne and paid by the ICL alone. (c) Any dispute or difference between the parties were to be referred to arbitration. 3. By an endorsement dated 29th May, 1991 on the letter of offer dated 25th May, 1991, ICL signified its full and complete acceptance of the said other and all its terms and conditions. 4. In terms of the said contract the petitioner IOC imported 3000 MT of RPC from Argentina and the respondent ICL accepted the consignment. IOC duly raised a provisional bill on the basis of provisional price and the respondent paid Rs. 1,16,55,000/- in June, 1991. In view of the rise in the value of dollar, the IOC had to pay a higher amount in terms of rupees in respect of the said import and the IOC raised a Debit Note on 31st July, 1991 for Rs. 29,70,450/- and debited the account of the ICL with the said sum of Rs. 29,70,450/-. ICL objected to the said Debit Note. 5. By a letter dated 11th Feb., 1992 IOC reduced its purported claim on account of the imported RPC from Rs. 29,70,450/- to Rs. 25,19,433/- and gave credit to the ICL for the difference. 29,70,450/- and debited the account of the ICL with the said sum of Rs. 29,70,450/-. ICL objected to the said Debit Note. 5. By a letter dated 11th Feb., 1992 IOC reduced its purported claim on account of the imported RPC from Rs. 29,70,450/- to Rs. 25,19,433/- and gave credit to the ICL for the difference. On 8th June, 1993 when the said account was reconciled for the period from 1st April 1986 to 31st March, 1992 it was found that a sum of Rs. 5,50,004.92 p. was lying to the credit of the plaintiff in the said account in addition to the disputed debit made in the said account for Rs. 25,19,433/- on account of purported claim of the IOC in respect of the imported RPC. 6. At the relevant time, besides being the canalising agent for imported RPC, IOC also used to control sale of all indigenously produced RPC, a product of the Refineries. For the purpose of procuring such indigenously produced RPC, ICL from time to time used to deposit with the IOC, in advance, value of such RPC agreed to be supplied by the IOC and accordingly an open, current and continuous account was maintained by the parties in relation to the transactions relating to sale and purchase of indigenously manufactured RPC. Huge amount of money lay in deposit as advance payment in the said account of ICL with the IOC on amount of indigenously manufactured RPC. I.O.C's claim of Rs. 25,19,433/- in respect of the imported RPC against ICL was debited in the said account of ICL for indegenous RPC. 7. LCL objected to the said Debit Note but on 27th December, 1993 IOC by a letter requested its Director (Marketing) to commence arbitration with regard to the alleged dispute relating to the said Debit Note between the parties. The Director (Marketing) appointed Mr. P. S. Gobinda Rajan, General Manager (Planning), IOC stationed at Bombay to act as the sale arbitrator to adjudicate upon the said dispute and difference. The said arbitrator by a letter dated 22 Feb., 194 informed ICL of such appointment and directed the IOC to file its statement of claim with him. The Director (Marketing) appointed Mr. P. S. Gobinda Rajan, General Manager (Planning), IOC stationed at Bombay to act as the sale arbitrator to adjudicate upon the said dispute and difference. The said arbitrator by a letter dated 22 Feb., 194 informed ICL of such appointment and directed the IOC to file its statement of claim with him. ICL was directed to file its reply within twenty days from the date of receipt of the statement of claim; Statement of claim of the IOC was submitted with the arbitrator and the same was served upon ICL under cover of its letter dated 15th March, 1994. On 2nd May, 1994, the respondent made an application before this Hon'ble High Court under s. 33 and s. 41 of the Arbitration Act in the matter of the said Arbitration agreement dated 25th May, 1991 being mailer No. 208 of 1995 inter alia praying as follows: (a) The effect of the Arbitration agreement contained in the supply order dated 25th March, 1991 determined as to whether arbitration proceedings pursuant to the Arbitration agreement can be held within the jurisdiction of the Bombay Court and/or any other Court outside the city of Calcutta. (b) Injunction restraining the respondent from taking any step or further steps in connection with the arbitration proceeding. (c) Ad interim order. 8. On the said application B. L. Jain, J. upon hearing the learned Counsel appearing for ICL extended the time for filing counter-statement which expired on 19th April, 1994 by seven days and directed the arbitrator to accept the counterstatement if the same was filed within 10th May, 1994. No order was passed in respect of the venue of the arbitration. In the said order, however leave to serve the Bombay office of the Advocate-on-Record of the IOC by courier service was given. 9. On 17th May, 1994 the said Court passed an order for filing of Affidavit-in-Opposition and reply and directed that during the pendency of the application if the arbitrator called any meeting, the petitioner ICL without prejudice to its rights and contention in the pending application will be entitled to attend such meeting called by the arbitrator. The petitioner could also seek such direction as may be necessary from the arbitrator without prejudice to its rights and contentions in the pending application. 10. LCL filed its counter-statement before the arbitrator. The petitioner could also seek such direction as may be necessary from the arbitrator without prejudice to its rights and contentions in the pending application. 10. LCL filed its counter-statement before the arbitrator. In the counterstatement ICL disputed petitioner's claim and prayed for an award of Rs. 23,79,006/- together with interest @18 per cent per annum which was said to be a wrongful appropriation of the moneys belonging to ICL by the claimant which was not the subject-matter of reference or of the arbitration agreement. Arbitrator's jurisdiction to adjudicate on the dispute was also questioned. 11. On 17th may, 1994 while the said application under s. 33 and s. 41 of the Arbitration Act was being heard, ILC tiled the suit being suit No. 180 of 1994 (India Carbon Ltd. v. Indian Oil Corporation Ltd.) for recovery of Rs. 25,19,433/- being the amount allegedly wrongfully debited in the account of indigenous RPC for the purported claim in respect of imported RPC together with interest amounting to Rs. 16,62,045/- upto 15th May, 1994, total aggregating to Rs. 41,81,476/-. 12. After receipt of the writ of summons in September 1994, the petitioner IOC is said to have instructed its Solicitor to make an application under s. 34 of the Arbitration Act. Since the arbitration proceeding was being looked after by Bombay Solicitor and consultations were necessary, the application allegedly could not be made ready before the 3rd week of January 1995. It was however stated that the IOC all along acted diligently and bona fide and there was no laches on its part in making this application. It is the petitioner that the subject matter and the claim made in the said suit are already referred to the learned Arbitrator by the parties, particularly the dispute relating to appropriation and or adjustment by the petitioner was specifically referred to by the parties to the Learned Arbitrator and the parties have submitted to the jurisdiction of the Learned Arbitrator and the same is also covered by the arbitration clause mentioned in the letter dated 25th May, 1991. It was stated that the petitioner IOC at all material times was and still is ready and willing to do all things necessary for proper conduct of the arbitration proceeding and this application for stay of the suit has been made at the earliest opportunity. 13. It was stated that the petitioner IOC at all material times was and still is ready and willing to do all things necessary for proper conduct of the arbitration proceeding and this application for stay of the suit has been made at the earliest opportunity. 13. By an order dated February 6th, 1995, Ajoy Nath Roy, J. passed an interim order staying further proceedings of the suit. 14. Thereafter the s. 34 application was taken up for hearing but objection was raised by the IOC about maintainability of the said application in the suit court on the plea that the application being under the Arbitration Act and there being a separate bench for hearing of all arbitration matters, the said application could be decided by the bench hearing arbitration matter. The plea was however negatived by me by an order dated 13th April, 1995, on the ground that s. 34 application filed in a suit for stay of the suit is an interlocutory proceeding in the suit and the bench before which the suit is pending is only competent to hear out the application. IOC preferred an appeal against the said order but allowed it to be dismissed as not being pressed. 15. Upon the factual background as aforesaid the question for determination is how far IOC's application for stay of further proceedings of the suit is liable to be allowed. 16. Section 34 of the Arbitration Act deals with power of the Court to stay legal proceedings where there is an arbitration agreement. 17. The wordings of the section, particularly the expressions "where any party to an arbitration agreement.......................commences any legal proceedings against any other party to the agreement........................ in respect of any matter agreed to be referred" are sufficiently indicative that the judicial proceeding which is sought to be stayed must be between the parties to the agreement which has a clause for arbitration in respect of any matter pertaining to the agreement. It is therefore to be seen how far suit no. 180 of 1994 or more precisely, the cause of action or claim in the suit arises out of an agreement where parties have agreed to refer their dispute to arbitration. 18. It is therefore to be seen how far suit no. 180 of 1994 or more precisely, the cause of action or claim in the suit arises out of an agreement where parties have agreed to refer their dispute to arbitration. 18. From the factual aspects it would be apparent that there were two contracts between the parties-one dated 25th may, 1991 for supply of imported RPC which contains an arbitration clause and the other is the contract for supply of indigenous RPC where there is no arbitration agreement. It is undisputed that for the consignment of RPC imported from Argentina ICL duly paid the provisional bill raised by the IOC and that IOC later on had to pay further amount for the said importation due to devaluation of rupee against dollar. Whether ICL is liable to pay to IOC the said increase in value for the importation is a question pertaining to the contract dated 25th May, 1991. Undisputedly for sale of indigenous RPC there was no written contract but eventually a contract came into being by virtue of which ICL kept a fund at the disposal of IOC for supply of indigenous RPC and appropriation of the sale price therefrom after supply from time to time and eventually a joint and running account was created between the IOC and the ICL in respect of indigenous RPC. There is no denying that in the said running account huge money accumulated. It appears that IOC by raising the Debit Note is after appropriation and adjustment of its claim in respect of increase in price of imported RPC from the said fund of ICL and ICL having objected to it referred the matter to arbitration, The two contracts are distinctly separate having no nexus between them and whereas in the import contract the parties had agreed to refer there dispute and differences to arbitration, in respect of the contract for supply of indigenous RPC, there was no written agreement, far to say of any agreement for referring any dispute or difference arising therefrom to arbitration. It was not in the minds of the parties when tile agreement as to sale of indigenous RPC was entered into that the dispute and difference arising out of that agreement would be referred to arbitration nor that the arbitration clause in the agreement dated 25th May, 1991 would be made applicable thereto. 19. It was not in the minds of the parties when tile agreement as to sale of indigenous RPC was entered into that the dispute and difference arising out of that agreement would be referred to arbitration nor that the arbitration clause in the agreement dated 25th May, 1991 would be made applicable thereto. 19. The suit is for recovery of the excess amount. lying in the said fund standing to the credit of ICL in respect of indigenous RPC. It is beyond comprehension how such a claim of the plaintiff ICL, which has no nexus with tile imported RPC or with IOC's claim for recovery of further amount from the ICL on account of imported RPC can at all be stayed. IOC may have a rightful claim as against ICL for recovery of amount which IOC was required to pay because of devaluation of rupees. But how such a claim can be connected with ICL's claim for refund of excess amount lying in deposti in respect of the other contract is beyond any guess. The change in exchange rate may give rise to further claim against ICL in respect of the import contract. But IOC's obligation to refund the money received from ICL and held by it on account of indigenous RPC arising out of an altogether separate contract is independent of the import contract and accordingly can have no bearing on the arbitration proceeding. The right to appropriate or adjust by the IOC between the two claim, one made by it on account of indigenous RPC is not a question which would arise for consideration in the suit or in the arbitration agreement. The cause of action in the suit is deposit of money and non-supply of indigenous RPC or failure to refund the money lying in deposit. This dispute has nothing to do with the importation of RPC by virtue of the agreement dated 25th May, 1991 and accordingly no clement of s. 34 for stay of the suit "where there is an arbitration agreement" arises. 20. Mr. Hirak Mittel', Learned Counsel, appearing for the ICL urged tl1at to establish its claim in the suit all that tl1e ICL is required to establish is that money is being held by the IOC and tl1at against such money IOC was neither delivering any RPC nor was returning the money. 20. Mr. Hirak Mittel', Learned Counsel, appearing for the ICL urged tl1at to establish its claim in the suit all that tl1e ICL is required to establish is that money is being held by the IOC and tl1at against such money IOC was neither delivering any RPC nor was returning the money. According to him the question whether debiting was wrongful or otherwise is not a matter which ICL is required to establish to get a decree in the suit. He argued that this is in fact a surplusage and no issue is required to be framed as to IOC's right of appropriation or adjustment against the surplusage. lie maintained that the contract dated 25th May, 1991 did not contemplate deposit of any money for supply of indigenous RPC and that even if it is decided that due to devaluation of rupee IOC was entitled to a higher amount yet the said decision will have no bearing upon the suit and hence the subject-matter of the suit is not covered by the arbitration agreement. He placed his reliance on a Supreme Court decision reported in AIR 1967 SC 688 (Union of India vs. Birla Colton and Spinning Mills Ltd.) wherein it was held as follows: “Before an order for stay of a proceeding may be made under s. 34 of the Arbitration Act, the following conditions must co-exist: (i) there must be a subsisting and binding arbitration agreement capable of being enforced between the parties; (ii) the subject-matter in dispute in the proceeding sought to be stayed must be within the scope of the arbitration agreement; and (iii) the petition must be made to the judicial authority by a party to the arbitration agreement or some person claiming under him at the earliest stage of the proceeding, i.e., before the filing of the written statement or taking any other step in the proceeding. The judicial authority may, if these conditions exist, grant stay, if it is satisfied that the party applying is and has also been at all material times before the proceedings were commenced ready and willing to do all things necessary for the proper conduct of the arbitration and there is no sufficient reason for not referring the matter in accordance with the arbitration agreement." 21. Needless to point out that there is no subsisting and binding arbitration agreement in respect of the subject-matter of the suit which is beyond the scope of any arbitration agreement and accordingly stay of further proceedings of the suit cannot arise. 22. Mr. S. Pal, Learned Counsel, appearing for the lac submitted that the approach of the ICL is extremely unfair as it seeks to approbate and reprobate in order to have the best of both the worlds. His contention is that if the ICL's case is that the claim in the suit is not covered by the arbitration proceedings then it should not have obtained an injunction restraining the arbitration proceedings and if that be so the application for stay of the arbitration proceedings should be dismissed. The application for stay of the arbitration proceedings is not pending before this Court and accordingly it is not proper to say anything in this regard. The petitioner herein may take appropriate steps for vacating injunction order, if any in respect to the arbitration proceeding. Here we me concerned with whether further proceeding of the suit is to he stayed or not. ICL's stand in the other proceeding for stay of arbitration is nut an issue and can hardly be gone into. 23. Mr. Pal's next contention is that in the plaint a dispute has been raised as to whether. the lac is bound to refund the amount of Rs. 25,19,433/- already adjusted or whether it has the right to withhold the said amount because of its claim on account of increase in price of imported RPC due to devaluation and determination of such dispute must necessarily involve a recourse to the import contract containing the arbitration clause and that being so the suit cannot proceed when the arbitration is pending. His further agreement is that in order to find out whether dispute in the suit is covered or not by the agreement containing arbitration, the defence to be raised by the applicant/defendant in the suit will be perfectly relevant. In this connection Mr. Pal placed his reliance on a decision of this Court reported in AIR 1948 Cal 230. 24. In my view for a decision in this suit recourse to the import contract is totally unnecessary. Regarding whether defence to be raised in the suit it has a bearing on arbitration, the suit is liable to be stayed, Mr. Pal placed his reliance on a decision of this Court reported in AIR 1948 Cal 230. 24. In my view for a decision in this suit recourse to the import contract is totally unnecessary. Regarding whether defence to be raised in the suit it has a bearing on arbitration, the suit is liable to be stayed, Mr. Mitter's submission is that AIR 1948 Cal 230 is no longer a good law in view of the subsequent decision in AIR 1981 NOC 81 (Cal), (New Central Jute Mills Company Ltd. vs. Hari & Mahesh (Pvt.) Ltd.) Matter No. 1816 of 1980 decided on 12.1.1981. In that case it was held that wherefrom the plaint if it appears that the basie disputes in a suit me outside the ambit of arbitration clause contained in the contract, the defendant by claiming a set off on another transaction subject to arbitration, cannot claim that all disputes are referable to arbitration. Stay of the suit will not be granted in such circumstances. The decision in AIR 1984 Cal 230 was dissented from. 25. Mr. Pal's next contention is that whether the applicant/defendant has a right to appropriate or adjust under the agreement dated 25th May, 1991 is within the exclusive jurisdiction of the arbitrator in the arbitration proceeding and it is irrespective or any contractual right as it is a right conferred by law and is recognised by the Civil Procedure Code, vide Order 8 Rule 6. 26. On the other hand, Mr. Hirak Miller referred to the following decisions: (i) AIR 1972 Cal 198 (Chartered Bank vs. Commissioner for the Port of Calcutta) wherein it was held that where the decision of the arbitrator could not give the plaintiff the relief he has claimed' in the suit and the plaintiff would have to file suit for the reliefs even after the award of the arbitrator, the stay of the suit would not be granted. In the instant case even if the arbitrator holds that the increase. in price due to difference in exchange rate is payable by the ICL, the plaintiff would not get any relief in regard to its claim in the suit which is for refund of the surplus amount lying to his credit for supply of indigenous RPC. (ii) AIR 1967 SC. in price due to difference in exchange rate is payable by the ICL, the plaintiff would not get any relief in regard to its claim in the suit which is for refund of the surplus amount lying to his credit for supply of indigenous RPC. (ii) AIR 1967 SC. 688 (Union of India vs. Birla Cotton Spinning and Weaving Mills Ltd.) wherein it was held that where an arbitration clause in a contract for supply of goods provides for reference to arbitration of disputes not only-arising under the covenant of the eon tract but also under conditions general or special and the defendant refuses to pay any part of the agreed amount because he desires to appropriate the balance to a claim arising under a separate contract, the dispute arising as a result of the refusal cannot be said to be a dispute arising under or in connection with the contract under which the liability sought to be enforced has arisen. Plaintiff's suit for recovery of the balance cannot be stayed under s. 34. (iii) AIR 1985 SC 1156 (Renusager Power co. Ltd. vs. General Electric Co.): It was held that to decide whether a dispute inclusive of the arbitrator's jurisdiction comes within the scope or purview of an arbitration clause or not, Court has to look into the terms of the arbitration clause, it being always the question of what the pm-ties intended to provide and what language they employed. In the instant case the covenant as to arbitration is not only restricted to import ,contract but also does not imply by any stretch of imagination to the indigenous RPC agreement and accordingly an arbitration arising out of the one can have no bearing upon claims arising out of the other. It was never the intention of the parties that claims arising out of one could be adjusted by appropriation against claims arising of the other contract of the other party and that being so, the question of stay of the suit pending arbitration arising from the other does not and cannot arise. 27. Upon considering the points of law involved and the submissions of the Learned Counsels and the authorities cited I hold that there is no justification for granting stay of further proceedings of the suit as prayed for and accordingly the application for stay stands dismissed but in the circumstances without cost. 28. 27. Upon considering the points of law involved and the submissions of the Learned Counsels and the authorities cited I hold that there is no justification for granting stay of further proceedings of the suit as prayed for and accordingly the application for stay stands dismissed but in the circumstances without cost. 28. After the order is pronounced, the learned advocate for the petitioner, Indian Oil Corporation, prays for stay of operation of the order, but there is nothing to stay the order and accordingly the prayer is rejected. 29. All pm-ties to act on the signed copy of the operative part of this judgment and order on the usual undertaking. Application dismissed.