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1999 DIGILAW 546 (KER)

TREASA v. TRAVANCORE TITANIUM PRODUCTS

1999-11-03

G.SIVARAJAN, P.A.MOHAMMAD

body1999
JUDGMENT P. A. MOHAMMED, J. - The plaintiff in an arbitration suit (O.S. (Arb.) No. 358 of 1986) on the file of the Principal Sub-Court, Trivandrum is the appellant. The defendants in the suit are the respondents herein. This appeal is against the judgment of the Court below dismissing the above suit holding that the plaintiff is not entitled to get an Arbitrator appointed by the Court for settlement of disputes and difference between the parties. The main point emphatically stressed by the counsel for the appellant is that the Court below grievously erred in dismissing the suit. He further pleads that this is a fit case where an Arbitrator ought to have been appointed by the Court to settle the difference and dispute between the parties in view of the arbitration clause contained in Ext. B1 agreement. It was executed between the appellant and first respondent-company on 17.3.1986 whereby the appellant-contract or had agreed with the respondent-company for the performance of the work of transport of 10,000 to 15,000 M.Ts. of Ilmenite from Kerala Minerals and Metals Limited, Koilthottam, Quilon to Travancore Titanium Products Limited, Trivandrum-21. Later certain dispute and difference arose between the parties in the performance of the contract and therefore the appellant issued notice to the second respondent seeking reference. It was not responded and hence the suit was filed for appointment of an Arbitrator to settle the dispute between the parties. The arbitration clause contained in Ext. B1 agreement is as follows : "It is agreed by and between the parties hereto that all disputes and differences between the parties in relation to, out of, or in connection with this contract shall be referred to the Sole Arbitration of Chairman of the company or his nominee as the Sole Arbitrator as envisaged under the provisions of the Indian Arbitration Act 1940, irrespective of whether the Chairman had occasion to deal with the file or has expressed his views thereon, or not and his award shall be final and conclusive between the parties hereto. Provided however, in case the Chairman fails to nominate an Arbitrator within a period of 15 days from the date of request made to him for entering on the reference or for nomination of the Arbitrator it is specifically understood that there shall not be any arbitration at all." The first point came up for decision before the trial Court is whether there were disputes and differences between the parties to Ext. B1 agreement to be settled. After analysing the pleadings and evidence the Court came to the positive conclusion that there are disputes and differences to be settled between the plaintiff and defendants. This point is concluded in favour of the appellant and hence we need not cogitate any further on this aspect. Let us now examine whether the Court below having so found has applied the law properly. In this context it is quite appropriate to know the underlying principle behind the reference of the dispute by the Court. In G. Ramachandra Reddy & Co. vs. Chief Engineer ((1994) 5 SCC 142 = 1994 (2) Arb. LR 61 (SC)), the Supreme Court said that the Court should endeavour that the contract should always be given effect to, though the contracting party had failed to act according to contract. Some inadvertent omission or minor defects in the pleading may not destroy the effectiveness of the terms in the agreement authorising the arbitration of the dispute and difference between the parties. It shall be the duty of the Court to refer the dispute to arbitration in view of the terms of the contract provided there is substantial compliance with the requirements for reference. Adherence to strict compliance may sometimes defeat the very object of the arbitration clause contained in an agreement and thus derogate the very purpose of the Act itself. It must be recalled that neither the plaintiff nor the defendants came forward to tender oral evidence in support of their respective contentions. Both sides were refrained from examining witnesses to prove their case. Thus what is before us is only the pleadings and the documents available in the case. The inevitable result is that we have to decide this case purely depending upon the said materials. Along with the plaint, the appellant has produced the true copy of the notice dated 4.8.1986 issued by her through the advocate to the second respondent. Thus what is before us is only the pleadings and the documents available in the case. The inevitable result is that we have to decide this case purely depending upon the said materials. Along with the plaint, the appellant has produced the true copy of the notice dated 4.8.1986 issued by her through the advocate to the second respondent. The acceptance of this notice is not disputed and in the written statement filed by the Chairman and Managing Director of the Company it has been stated that the defendant had replied to the notice sent by the plaintiff on 4.8.1986. That notice which is available in the case records was received by the second respondent on 6.8.1986 as evident from the acknowledgement receipt. By the said notice the appellant requested to settle the claims or to refer the dispute to an impartial Arbitrator. No reply was given to the notice within 15 days of the receipt as required under sub-section (2) of Section 8 of the Arbitration Act, 1940 (hereinafter referred to as 'the Act'). Therefore the appellant filed O.S. (Arb.) No. 358 of 1986 before the Court below on 25.3.1986 under Sections 5, 8, 11, and 20 of the Act praying inter alia, to direct the defendant to file the agreement in Court and to refer the dispute to an Arbitrator appointed by the Court for deciding the dispute between the parties. While so, the appellant had received a reply notice dated 25.3.1986 from the first respondent. That notice was sent to her by the registered post on 30.8.1986, that is to say, after the filing of the above suit. That obviously indicates that the respondents failed to perform the obligation arising out of the agreement to refer the dispute to arbitration within the specified time-frame. In view of the terms contained in Ext. B1 agreement the respondents ought to have referred the dispute between the parties to the Chairman of the company who is the sole Arbitrator or his nominee. This has not been done. Having failed to perform the duty as aforesaid the respondents shall not be allowed to rely on the term that in case the Chairman failed to act as specified within the period of fifteen days from the date of request there shall not be any arbitration at all. This would otherwise amount to 'putting a premium on inaction'. Having failed to perform the duty as aforesaid the respondents shall not be allowed to rely on the term that in case the Chairman failed to act as specified within the period of fifteen days from the date of request there shall not be any arbitration at all. This would otherwise amount to 'putting a premium on inaction'. In fact this is the contention raised by the counsel in this case on behalf of the respondents. It is apt to notice in this context that a similar contention had been raised by the counsel before the Supreme Court in Nandyal Co-op. Spinning Mills Limited vs. K. V. Mohan Rao ((1993) 2 SCC 654 = 1993 (1) Arb. LR 469 (SC)). While dealing with it the Supreme Court observed : "It would thus be clear that if no Arbitrator had been appointed in terms of the contract within 15 days from the date of receipt of the notice, the administrative head of the appellant had abdicated himself of the power to appoint Arbitrator under the contract." It further held : "The contract did not expressly provide for the appointment of a named Arbitrator. Instead power has been given to the administrative head of the appellant to appoint sole Arbitrator. When he failed to do so within the stipulated period of 15 days enjoined under Section 8(1)(a), then the respondent has been given right under clause 65.2 to avail the remedy under Section 8(1)(a) and request the Court to appoint an Arbitrator. If the contention of Shri Rao is given acceptance, it would amount to putting a premium on inaction depriving the contractor of the remedy of arbitration frustrating the contract itself." The power of the Court to appoint an Arbitrator in such an event had been upheld by the Supreme Court in G. Ramachandra Reddy & Co. vs. Chief Engineer (supra). Following the above decisions of the Supreme Court, a Division Bench of this Court in Divisional Railway Manager vs. Singara Raj (1999 (1) ILR 821), held that the Court gets jurisdiction to refer the dispute to the Arbitrator appointed by itself in such situations. As far as the present case is concerned the Court has power to command the first respondent to act as Arbitrator or by his nominee in view of the terms contained in the arbitration clause. As far as the present case is concerned the Court has power to command the first respondent to act as Arbitrator or by his nominee in view of the terms contained in the arbitration clause. It is no doubt true that the appellant had requested in the notice dated 4.8.1986 that the matter may be referred to an 'impartial Arbitrator'. It was not intended to destroy the terms contained in the agreement relating to reference. The agreement provides that the dispute shall be referred to the sole Arbitrator of Chairman of the company or his nominee as the sole Arbitrator. The appellant has used the word 'impartial Arbitrator' may be with reference to the nominee of the Chairman of the company. At any rate the notice issued by the appellant cannot be said to be vitiated for that reason. It can only be a desire in implementing the terms of the agreement and appointing a nominee by the Chairman of the company. The decision is no doubt left totally to the Chairman. Finally it is pointed out that inasmuch as the contract had already been terminated no relief can be given to the appellant. The contract was terminated only on 8.10.1986 as evident from paragraph 7 of the written statement. It was admittedly after the receipt of the notice issued by the appellant on 4.8.1986. As pointed out above, the respondents failed to perform their statutory obligation and thus became defaulters. The contract was terminated only after filing the suit before the Civil Court by the appellant. No person shall be allowed to take advantage arising out of his own faults. When the notice was received from the appellant it was the duty of the respondents to act as envisaged under the Act and if that course was not possible, the appellant should have been told of it by issuing reply notice within the time prescribed. When the default of the respondents is thus obvious they are disabled to take profits out of such default. The termination of the contract in this case has no consequence and it does not favour the respondents nor does it disfavour the appellant as it is totally invalid. When the default of the respondents is thus obvious they are disabled to take profits out of such default. The termination of the contract in this case has no consequence and it does not favour the respondents nor does it disfavour the appellant as it is totally invalid. In view of what is said above, the finding of the Court below on point No. (ii) namely that the plaintiff was not entitled to get an Arbitrator appointed by the Court for the settlement of the disputes is set aside. The plaintiff is entitled to get the relief prayed for in the suit in view of the finding recorded by the Court below on point No. (i) that there was dispute and difference between the parties to be referred to the arbitration. Accordingly the defendants are directed to file the agreement in Court and the Court below is thereafter directed to refer the disputes and difference between the parties to the Chairman of the company as sole Arbitrator or his nominee as the sole Arbitrator. In case the Chairman fails or refuses to act as above, the Court below shall appoint an Arbitrator by itself to adjudicate the dispute and difference between the parties. Appeal is allowed. No order as to costs.