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2003 DIGILAW 718 (KER)

Grasim Industries Ltd. v. State of Kerala

2003-11-21

R.RAJENDRA BABU

body2003
Judgment :- 1. Grasim Industries Ltd., Kozhikode, filed this application for the appointment of arbitrator and to make a reference for adjudicating all the claims raised by the applicant as against the respondent, the State of Kerala to the two arbitrators. 2. The applicant, a company registered under the Companies Act was engaged in the manufacture of rayon grade wood pulp in the Kozhikode District. By Annexure-I agreement dt. 3.5.1958, the company obtained a grant from the Government of Kerala for the exclusive right and licence to fell, cut and remove bamboo from certain areas in the Nilambur valley for the purpose of converting the same into rayon grade wood pulp and connected activities. The above right and licence was for a term of 20 years from the date of actual commencement of the regular working of the company. The regular working of the company started in 1963. There was an arbitration clause in Annexure-I agreement for adjudicating the disputes between the parties. The arbitration Clause.16 of Annexure-I would read: "If at any time hereafter either during the continuance or after the termination of the Agreement, any doubt, difference or dispute shall arise between the parties hereto touching or concerning their respective rights or privileges hereunder or otherwise arising out of these presents then the same shall be referred to the arbitration of three independent persons as arbitrators, one to be appointed by each party to the reference and the third, by both the parties thereto, and the unanimous decision of the said arbitrators or, in the event of any difference of opinion amongst them the decision of the majority of them, shall be binding and conclusive on the parties to the reference and every such reference shall be deemed to be a reference to arbitration under the Indian Arbitration Act, 1940 and shall be regulated and conducted accordingly." Later Annexure-II supplementary agreement was executed between the parties on 6.8.1962 including certain additional contract areas. By Annexure-III second supplementary agreement executed on 10.7.1974, there was revision of rates. The arbitration clause was also modified. By Annexure-III second supplementary agreement executed on 10.7.1974, there was revision of rates. The arbitration clause was also modified. The above arbitration clause XV of Annexure-III would read: "In the event of there arising any future disputes or differences under or by virtue of the terms and conditions herein contained read with those which are contained in the Principal Agreement and the First Supplemental Agreement, the same shall be referred for Arbitration and award by two arbitrators, one to be nominated and appointed by each of the contracting parties thereto. Upon the appointment of the two arbitrators by the parties hereto, the arbitrators so appointed shall nominate and appoint an Umpire as contemplated in the Arbitration Act, 1940, and the jurisdiction of the Umpire over the reference arising only on expression of difference of opinion between the two arbitrators in their respective awards. Subject to the provisions of this clause, the provisions in the Arbitration Act, 1940 shall apply in respect of arbitration between the parties thereto". Again Annexure-IV, the third supplementary agreement, was executed on 16th November 1976 mainly on the rules and regulations relating to the collection and removal of the ensured quantity of the raw materials. Lastly on 27.10.1988 Annexure-V (fourth supplementary agreement) was executed wherein the arbitration provision in the earlier agreements had been reviewed and a new arbitration clause was incorporated. Clause.9 of the above agreement (Annexure-V) would read: "Subject to Clause.6, where the supply of raw materials by the Government, is less than the agreed quantity of two lakhs tonnes in any year, the company shall be entitled to claim compensation from the Government. Subject to Clause.6, where the company does not extract the agreed quantity of two lakhs tonnes of raw materials supplied in any year fully, the Government shall be entitled to claim compensation from the company. The compensation mentioned above shall be determined by the Tribunal, consisting of a representative each of the Government and the company and a independent Chairman agreed upon by the parties. The Tribunal shall determine the compensation, if any, within a period of 30 days from the end of each contract year, and shall be payable immediately thereafter by the parties concerned. The company shall have the option to adjust the amount of compensation against the price of raw materials supplied in subsequent years". The Tribunal shall determine the compensation, if any, within a period of 30 days from the end of each contract year, and shall be payable immediately thereafter by the parties concerned. The company shall have the option to adjust the amount of compensation against the price of raw materials supplied in subsequent years". (emphasis supplied by me) Annexure-V agreement would reveal that the company was lying closed from 1985 onwards. The Government wanted to open the factory at the interest of public at large and hence agreed the supply of raw materials viz., bamboo and eucalyptus trees in specified quantities. For regularising the constant supply the arbitration clause also has been modified. Clause.11 of Annexure-V agreement would make it clear that the arbitration clause in the earlier agreements would stand modified in accordance with the clauses of the Annexure-V agreement. Clause.11 of the above agreement reads: "Subject to the modifications mentioned above, the Principal Agreement and the First, Second and Third Supplemental Agreements shall remain in force and effect". The period of the above agreement (Annexure-V) expired in 1993 as the above concession was granted for a period of five years (clause 4). After 1993 the materials were supplied by the State on the basis of undertakings given by the company. Ext.R(3) pages 1 to 3 would relate to the period 1996-97, pages 4 to 6 to the year 1997-98 and pages 7 to 12 to the period 1998-99. 3. The main case put forward by the company was that the State had not supplied the required quantity of raw materials in pursuance to the agreement and the company was entitled to compensation and disputes arose between the parties and all these disputes are to be referred for adjudication in accordance with the arbitration clause in the agreement. The learned Advocate General Sri. Ratna Singh submitted that the original arbitration clause in the agreements viz., Annexure-I to IV were modified by Annexure-V supplementary agreement wherein a new arbitration clause had been introduced and in view of the above arbitration clause, the disputes should be decided by an Arbitral Tribunal to be constituted as provided therein and the dispute be decided within a period of 30 days from the end of each contract year. It was further submitted that when there was a specific provision for arbitration in the agreement and time also had been fixed for deciding the disputes, such disputes should have been raised and decided within the stipulated time and such disputes cannot be referred for arbitration after a long lapse of time. It was further submitted that the cause for arbitration and the entire time had been barred by limitation and as such the application for appointment of arbitrator has only to be dismissed. 4. The learned counsel for the applicant Sri. P.K. Kurien submitted that the order to be passed by this Court is only in the nature of an administrative one and this Court cannot go into the contentions issues raised by the parties and pass an order on these issues. Reliance was placed on the decision of the Supreme Court in Konkan Railway Corporation Ltd. v. Rani Construction P. Ltd., (2002) 2 SCC 388. It is true that all the contentions raised by the respondent cannot be gone into by this Court while deciding the matter, as the order to be passed by this Court is in the form of an administrative one. But here is a case where the arbitration clause in the 5th supplementary agreement prescribes a time limit for raising the issue regarding the nonsupply of the quantity of raw materials and to have it adjudicated by an arbitral Tribunal within a prescribed time. Clause.9 says that subject to Clause.6 where the supply of raw materials by the Government was less than the agreed quantity of two lakh tonnes in any year, the company shall be entitled to claim compensation from the Government and that the compensation mentioned above shall be determined by a Tribunal consisting of representatives each of the Government and the company and an independent Chairman agreed by the parties and the Tribunal shall determine the compensation, if any, within a period of 30 days from the end of each contract year and shall be payable immediately thereafter by the parties concerned. It would be relevant to consider Clause.5 and 6 in the above 4th supplementary agreement (Annexure-V). Clause.5 reads: "To facilitate replanting of the allotted areas the company shall be allowed to coppice, convert, collect and transport Eucalyptus from the allotted areas during the period of eight months from 1st September to 30th April. It would be relevant to consider Clause.5 and 6 in the above 4th supplementary agreement (Annexure-V). Clause.5 reads: "To facilitate replanting of the allotted areas the company shall be allowed to coppice, convert, collect and transport Eucalyptus from the allotted areas during the period of eight months from 1st September to 30th April. In case the company is unable to complete transport of Eucalyptus by 30th April, the Company shall be entitled to time till 31st May". Clause 6 reads: "For the purpose of this agreement the contract year shall be from 1st September to 31st August. In view of the fact that the allotment in respect of the contract year 1988-89 will be done only in the first week of November 1988, the contract year 1988-89 will be treated only as half a year and hence the quantity to be allotted will be one lakh tonnes. It is consequently made clear that one lakh tonnes, being part of the supplies of two lakhs tonnes, to be made by the Government during the contract year 1993-94 will be paid for on the basis of the price specified in this agreement". If there was any shortage, the claim should be made within 30 days from 31st August of the respective years and it has to be settled within 30 days from August 31st. That means all claims should be raised before 31st August of the concerned year. 5. In the present case the 4th supplementary agreement was executed on 27.10.1988 and it was valid for a period of five years. Thereafter the applicant had executed certain undertakings and on the basis of which supply of raw materials was made. The Government had prepared a draft agreement for the period from 27.10.1993 to 31.8.1999 and it was informed to the petitioner for approval. But the company had not approved the above draft agreement so far. The present claim made by the petitioner is seen in Annexure X. The claim relates to the period from 1988-89 to 1999-2000. It appears that the applicant company remained closed down from May 1999 onwards (as seen from Annexure-IX). The draft with supplemental agreement was not executed by the company. No documents were there to show that the State had a commitment to supply any specified quantity of raw material after 1993. It appears that the applicant company remained closed down from May 1999 onwards (as seen from Annexure-IX). The draft with supplemental agreement was not executed by the company. No documents were there to show that the State had a commitment to supply any specified quantity of raw material after 1993. Annexure XI notice was issued to the Government for appointing an arbitrator invoking the arbitration clause on 8 May 2002. In view of the specific provision in the arbitration clause for raising the claim within the same year and to have it settled by the arbitral Tribunal within the specified time, the above request for arbitration was beyond the period prescribed in the arbitration clause. When the arbitration clause itself prescribes a time limit for raising the disputes by appointing an arbitral Tribunal and to have it settled within 30 days., the same procedure should be followed or adopted within the time specified. The applicant did not make a demand for appointment of an arbitral Tribunal within a stipulated time. The notice itself was issued long after the time stipulated in the arbitration agreement. It appears that the company was closed down and the company wanted to dispose of the raw materials and the State did not permit as materials had been supplied to the company at a concessional rate. It was at that time the notice was issued for the arbitration. 6. It would be relevant to consider the object of having such an arbitration clause in Annexure V. When the above agreement was executed in 1988, the company was remaining closed. The preamble portion of the agreement reads: "Whereas by an agreement between the parties hereto dated 3.5.1958 (hereinafter referred to as the Principal Agreement) as modified by the First Supplemental Agreement dated 6.8.1962. Second Supplemental Agreement dated 10.7.1976, the Government ensured supply to the Company of two lakhs tonnes of raw materials; Whereas certain disputes arose between the parties hereto and the above disputes are pending before the various Courts, Arbitrators and authorities and the parties hereto have agreed to settle all disputes mentioned above; Whereas the factory of the company at Mavoor has not been functioning from 7th July 1985 which has rendered jobless large number of employees of the Company with resultant hardships to the employees and their families. Whereas it is felt necessary in public interest to facilitate the reopening of the Factory; Whereas the reopening and functioning of the factory are in the larger interest of all concerned:" All earlier disputes were pending consideration in different forums. Raw materials had to be supplied to the company for the proper functioning of the same and if there was shortage in supply, it should be compensated then and there. There was another clause in the arbitration agreement that if the supplied materials were not lifted by the company within the time, then the State was entitled to compensation so that such materials might not be totally destroyed or damaged by efflux of time. Thus the above clause relating to the making of a claim within a specified time had been consciously included in the agreement for avoiding loss or damage and compensation had been specifically provided. When there was any allegation of shortages in the supply of raw materials, the company should have claimed damages or compensation within the stipulated time invoking the arbitration clause. The terms of the arbitration clause would make it clear that the cause of action for arbitration would survive only for a limited period and if the arbitration clause was not invoked within the specified time, the cause of action for arbitration would cease to exist. Hence the claim put forward by the applicant was against the terms of the arbitration clause in the agreement and this court was fully competent to consider the above arbitration clause and to decide as to whether in view of such prohibition, an arbitrator can be appointed. 7. It is not actually a decision on the claim made under Annexure-X, but it is a decision of the arbitration clause in the agreement. Apart from that, the claim put forward by the applicant in respect of the shortage of supply of raw materials from 1988-89 onwards also is barred by limitation under Art.137 of the Limitation Act. The Supreme Court in Steel Authority of India Ltd. v. J.C. Budharaja, (1999) 8 SCC 122) held that the provisions of Art.137 of the Limitation Act would apply and any action should be brought within three years from the date when the cause of action to recover the amount arose. Thus the request for appointment of arbitrator will have only to be rejected. In the result this application is dismissed.