R.M.
Investments & Trading Co. Pvt. Ltd. Vs. Boeing Co [1994] INSC 107 (10 February 1994)
Agrawal, S.C. (J) Agrawal, S.C. (J) Mukherjee M.K. (J)
CITATION:
1994 AIR 1136 1994 SCC (4) 541 JT 1994 (1) 615 1994 SCALE (1)506
ACT:
HEAD NOTE:
The
Judgment of the Court was delivered by S.C. AGRAWAL, J.- Since these special
leave petitions arise out of the same proceedings in the High Court they are
being disposed of by a common order.
2.R.M.
Investment & Trading Co. Pvt. Limited (for short "RMI"), the
petitioner in these petitions, is a company incorporated under the Companies
Act, 1956. Sometime in or around 1986, RMI entered into an agreement with
Boeing Company (for short "Boeing"), a company incorporated under the
laws of the State of Delaware in the United States of America, whereunder RMI
agreed to provide Boeing with consultant services for promotion of sale of
Boeing aircraft in India. The said agreement was initially to be operative till
31-12-1986, but by subsequent agreement it was
extended till 30-4-1987. In August 1987, Definitive
Purchase Agreements for purchase of two aircraft were executed between Boeing
and Air India, a body corporate constituted under
the Air Corporation Act, 1953. RMI claimed commission from Boeing on the said
transaction but Boeing refused to pay the same and thereupon in April 1990, RMI
filed a suit (Suit No. 363 of 1990) on the original side of the Calcutta High
Court against Boeing for the recovery of U.S. $ 17.5 million equivalent to Rs
10,07,12,500,00 (sic) by way of compensation and remuneration on the basis of
the terms of Consultant Services Agreement along with other incidental reliefs.
The Consultant Services Agreement contains (in paragraph 10) an arbitration
clause which provides that "any controversy or claim arising out of or
relating to this agreement, or any breach thereof, which the parties have not
been able with due diligence to settle amicably, shall be settled by
arbitration conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association". In the said suit RMI filed an
application for injunction and an interim order was passed by a learned Single
Judge of the High Court on 17-7-1992,
whereby it was directed that if any payment is made by Air India to Boeing, Boeing shall retain a
sum of U.S. $ 17.5 million with Air India. On 13-8-1992, Boeing moved an application under Section 3 of the
Foreign Awards (Recognition & Enforcement) Act, 1961 (hereinafter referred
to as the 'Act') for the stay of the said suit on the ground that the
subject-matter of the suit was covered by the arbitration clause and that
Boeing was willing to do everything necessary for the proper conduct of the
arbitration. On the same date RMI filed an application for amendment of the
plaint and for addition of Air India as a
party defendant to the suit. On 14-8-1992, learned trial Judge passed an order staying the suit and all
proceedings except the pending interlocutory application.
On
18-81992, Boeing moved an application for vacating the interim order passed on on
17-7-1992. By order dated 5-4- 1993, the
learned trial Judge dismissed the application filed by Boeing for staying the
suit. Boeing filed an appeal (Appeal No. 295 of 1993) against the said order of
the learned trial Judge. The said appeal has been allowed by a Division Bench
of the High Court by judgment dated 14- 10-1993. Special Leave Petition (Civil) No.
20139 of 544 1993 is directed against the said judgment of the Division Bench
of the High Court.
3. By
order dated 30-7-1993, the application for amendment as
well as for addition of Air India as a
party was allowed by the learned trial Judge. Boeing and Air India filed separate appeals (Appeal Nos.
606 and 607 of 1993 respectively) against the said order of learned Judge. Both
the appeals have been allowed by a Division Bench of the High Court by judgment
dated 21-12-1993. Special Leave Petitions (Civil)
Nos. 121-22 of 1994 are directed against the said judgment of the Division
Bench of the High Court.
4. We
have heard Shri Shanti Bhushan, the learned Senior Counsel appearing for RMI,
and Shri N.A. Palkhivala and Shri N.N. Gooptu, learned Senior Counsel appearing
for Boeing and Air India respectively.
5.We
will first take up Special Leave Petition (Civil) No. 20139 of 1993 which is
directed against the judgment dated 14-10-1993, whereby the application filed
by Boeing under Section 3 of the Act has been allowed and the proceedings in
the suit filed by RMI have been stayed. In the said judgment the Division Bench
of the High Court has held that in view of the definition of the expression
'foreign award' contained in Section 2 of the Act, a suit cannot be stayed
under Section 3 unless the Court is satisfied that the parties to the
arbitration agreement stand in such legal relationship to each other which can
be considered as "commercial". The learned Judges have construed the
word "commercial" in the light of the decisions of this Court in Atiabari
Tea Co. Ltd. v. State of Assam' and Fatehchand Himmatlal v. State of
Maharashtra2 and the Model Law prepared by UNCITRAL and have held that
"the transaction between RMI and Boeing is commercial and they do stand in
commercial relationship" and, on that view, it has been held that the suit
is liable to be stayed under Section 3 of the Act since the conditions required
to be fulfilled for the application of Section 3 as indicated by this Court in Renusagar
Power Co. Ltd. v. General Electric Co.3 are fulfilled in the case.
6. Shri
Shanti Bhushan has urged that the learned Judges of the High Court have erred
in holding that the Consultant Services Agreement between RMI and Boeing is in
the nature of a commercial contract. According to Shri Shanti Bhushan a
commercial contract is mercantile in nature involving sale and purchase of
goods and a service agreement providing for rendering consultancy services
cannot be treated as a commercial agreement. In support of the aforesaid
submission Shri Shanti Bhushan has placed reliance on the decision of a learned
Single Judge of the Calcutta High Court in Micopri S.P.A. v. Sansouci Pvt.
Ltd.4 and the decision of the Bombay High 1 (1961) 1 SCR 809: AIR 1961 SC 232 2
(1977)2SCC670:(1977)2SCR828 3(1984) 4 SCC 679 : (1985) 1 SCR 432 4 (1982) 1 CLJ
511 545 Court in Kamani Engineering Corpn. Ltd. v. Societe De Traction Et. D' Electricite
Societies Anonyme5.
7.
Before we consider the meaning to be assigned to the word commercial" in
Section 2 of the Act, we would briefly refer to the terms of the agreement
between RMI and Boeing.
In the
said agreement RMI has been described as 'Consultant'. Under the heading
'Recitals', in the agreement, it is stated:
"A.
Boeing desires to engage Consultant to (i)provide assistance in promoting the
sale within India (the 'Territory') of new Boeing Model 737, 747, 757 and 767
type aircraft and Boeing owned used aircraft (hereinafter referred to
individually and collectively as "Aircraft") to customers and
(ii)Assist Boeing in concluding contracts for the sale of such Aircraft.
B.Consultant
desires to promote such sales and render such assistance and represents that
consultant has the resources and experience necessary to do so
effectively."
8.
Under the heading 'Agreements' in paragraph 2 dealing with 'Service of
Consultant and Sale of Aircraft' it is stated:
"2.1
During the term of this agreement and strictly subject to the limitations of
paragraph 3, Consultant shall- (a)use consultant's best efforts to promote the
sale (as defined in paragraph 2.2) of Aircraft to customers;
(b)promptly
inform Boeing whenever a Customer is interested in discussing the purchase of
Aircraft, and at Boeing's request, arrange to bring Boeing and such customer
together for negotiations;
(c)provide
any cultural, commercial and managerial assistance and information which may be
helpful to Boeing's sales efforts with customers;
(d)render
such assistance as Boeing may reasonably require in concluding contracts with
customers for the sale of Aircraft; and (e) maintain whatever organisation and
resources are reasonably necessary for providing the aforementioned services."
(emphasis supplied)
9. In
paragraph 3 relating to 'Representations and Obligations of Consultant' it is
stated:
"3.2
Consultant shall assume for its own account and shall pay all costs, expenses
and charges necessary or incidental to Consultant's operations hereunder."
Among the 'Obligations of Boeing' as mentioned in paragraph 4 is the
obligation- 5 AIR 1965 Bom 114: 66 Bom LR 7 8 546 "(a) to furnish
Consultant from time to time with such promotional data and other information
as Boeing deems necessary for the performance of Consultant's obligations under
this Agreement; and (b)to pay Consultant compensation for Consultant's
performance of this Agreement in the amount and under the circumstances
described in paragraphs 5 and 8 herein;
provided,
however, if any customer or any relevant Government prohibits or limits in any
manner the amount of compensation which may be paid to Consultant pursuant to
this Agreement, then notwithstanding any other provision in this Agreement to
the contrary, Boeing shall not be obligated to pay Consultant any compensation
in excess of such prohibition or limitation. In no event shall Boeing be
obligated to pay Consultant any more compensation than that specified in
paragraph 5." 10.In paragraph 5.1 the following provision is made for
payment of compensation to Consultant-
"(a)
an annual retainer in the amount of United States Dollars Four Hundred Twenty
Thousand (U.S. $ 420,000). Such amount shall be paid to Consultant by Boeing in
equal quarterly payments. Such quarterly payments shall be made by Boeing
commencing on 1-4-1986 with subsequent payments made in three (3) month
intervals thereafter; provided, however, if the date of execution of this
Agreement is less than thirty (30) days prior to or is after the date any quarterly
payment is due then any such payment shall be made within thirty (30) days
after such execution date;
(b)for
the Sale of each Aircraft made during the term of this Agreement an amount in
United States Dollars equal to five per cent (5%) times the invoiced purchase
price of such Aircraft as determined pursuant to the purchase agreement therefor;
(c)compensation
to Consultant pursuant to paragraph 5(b) for the Sale of Aircraft shall be
reduced by the retainer amount theretofore paid to Consultant under paragraph
5. 1 (a) and by any retainer amounts yet to be paid to Consultant pursuant to
said paragraph 5. 1 (a).
(d)Consultant
shall not receive compensation on the sale of any special equipment or training
which are not included in the purchase price for such Aircraft, nor on the
spare parts of spare engines."
11.From
the terms of the Agreement referred to above it appears that RMI rendered
consultancy services to Boeing as an independent contractor. The said services
were for promoting the sales of new Boeing Model 737, 747, 757 and 767 types of
aircraft in India and to assist Boeing in the sale of
such aircraft. While RMI was entitled to payment of compensation for such
services, the costs, expenses and charges necessary or incidental to R.M.l.'s
operations were to be borne by RMI 12.It is not disputed that the sale of
aircraft by Boeing to customers in India was to be a commercial transaction.
The
question is whether rendering of consultancy services by RMI for promoting such
commercial transaction 547 as consultant under the Agreement is not a
"commercial transaction". We are of the view that the High Court was
right in holding that the agreement to render consultancy services by RMI to
Boeing is commercial in nature and that RMI and Boeing do stand in commercial
relationship with each other. While construing the expression
"commercial" in Section 2 of the Act it has to be borne in mind that
the "Act is calculated and designed to sub serve the cause of facilitating
international trade and promotion thereof by providing for speedy settlement of
disputes arising in such trade through arbitration and any expression or phrase
occurring therein should receive, consistent with its literal and grammatical
sense, a liberal construction." [See :
Renusagar
Power Co. Ltd. v. General Electric Co.3 (SCC at p. 723-24 : SCR at p. 492) and
Koch Navigation Inc. v. Hindustan Petroleum Corpn. Ltd.6 (SCC at p.
262: SCR at p. 75).] The expression "commercial" should, therefore,
be construed broadly having regard to the manifold activities which are
integral part of international trade today.
13.In
the context of Article 301 which assures freedom of trade, commerce and
intercourse, it has been held:
"Trade
and commerce do not mean merely traffic in goods, i.e., exchange of commodities
for money or other commodities. In the complexities of modern conditions, in
their wide sweep are included carriage of persons and goods by road, rail, air
and waterways, contracts, banking, insurance, transactions in the stock
exchanges and forward markets, communication of information, supply of energy,
postal and telegraphic services and many more activities - too numerous to be
exhaustively enumerated - which may be called commercial inter-course." (emphasis
Supplied) (Atiabari Tea Co. Ltd. v. State of Assaml SCR at p. 874, Shah, J.)
14.
While construing the expression 'commercial relationship' in Section 2 of the
Act, aid can also be taken from the Model Law prepared by UNCITRAL wherein
relationships of a commercial nature include commercial representation or
agency" and "consulting".
15.In Micopri
S.P.A. v. Sansouci Pvt. Ltd.4 a learned Single Judge of the Calcutta High Court
has construed the term "commercial" in the light of the provisions
contained in Rule 1 of Chapter XII of the rules of the Original Side of the
Calcutta High Court which specifies the nature of suits covered by the
expression "commercial Quits". We do not find any reason for thus
restricting the meaning of the term "commercial" in Section 2 of the
Act on the basis of the provisions contained in the rules of the High Court.
16. Kamani
Engineering Corpn. case5 related to a contract for technical assistance in
electrification of railways and in that case it was found that the said
contract did not involve the Consultant into business and/or any 6 (1989) 4 SCC
259, 262 (para 8): 1989 Supp (1') SCR 70, 75 548 contracts of the plaintiffs
and they had kept themselves out of any commercial relations with the
plaintiffs. The said decision has, therefore, no application to the facts of
the present case.
17.In
the present case, on the other hand, the Consultant (RMI) was required to play
an active role in promoting the sale of the aircraft of Boeing to customers and
was required to provide "commercial and managerial assistance and
information which may be helpful to Boeing's sales efforts with
customers". This would show that relationship between RMI and Boeing was
commercial in nature.
18.Shri
Shanti Bhushan has, however, urged that since the agreement between Boeing and
Air India was executed after the Consultant
Services Agreement had expired on April 30, 1987, the claim made by RMI in the suit
cannot be said to be a claim arising under the said agreement. We have been
taken through the plaint of the suit and we are unable to hold that the claim
in the suit is dehors the Consultant Services Agreement and is not a claim
arising under the said agreement.
19.Shri
Shanti Bhushan has also contended that the suit has been filed against Boeing
as well as Air India and that even if the suit is liable
to be stayed under Section 3 of the Act it could only be stayed as against
Boeing and it should have been allowed to proceed against Air India. We, however, find that Air India
was not originally impleaded as a defendant in the suit and was impleaded as a
party only after the filing of the application of stay under Section 3 by
Boeing. Even after impleadment of Air India as a defendant the main relief in the suit is claimed against Boeing
and Air India has been impleaded as a defendant
only to obtain discovery and production of certain documents. If the suit
against Boeing has to be stayed under Section 3 of the Act it is difficult to
appreciate how it could proceed against Air India alone.
20.In
the circumstances, we find no merit in SLP (Civil) No.
20139
of 1993 and the same is liable to be dismissed.
21.Coming
to SLP (Civil) Nos. 121-22 of 1994 which are directed against the judgment of
the Division Bench of the High Court dated 21-12-1993, setting aside the order
of learned Single Judge allowing the application for amendment of the plaint as
well as the impleadment of Air India as defendant, we find that on 19-4-1993,
the Division Bench of the High Court, while admitting Appeal No. 295 of 1993
against the order of the learned Single Judge dated 5-4-1993 rejecting the
application for stay of the suit under Section 3 of the Act, had passed an
interim order in the following terms- " [T]here shall also be an order of
stay of the suit being No. 363 of 1990 (RMI) till the hearing of the appeal."
22.In spite of the said interim order the learned Single Judge dealt with
application for amendment and passed the order allowing the said application on
13-7-1993. The only contention that was urged
before the Division Bench of the High Court was that the interim order dated
549 19-4-1993, did not preclude the learned Single Judge from dealing with the
application for amendment and that he was competent to pass interlocutory
orders in the suit. The Division Bench of the High Court has, however, found that
in view of the said order passed by the Court on 19-4-1993, the trial court no
longer had any jurisdiction to proceed in respect of the suit in any way
whatsoever and could not proceed with the hearing of the amendment application
and to allow the amendment of the plaint. The Division Bench has further
observed that "no specific order staying the hearing of the amendment
application was passed by the Court for the reason that the Court was granting
stay of the suit itself and it is not necessary to pass any specific order in
respect of any interlocutory proceeding in the suit". We do not find any
infirmity in the said approach of the Division Bench of the High Court. SLP
(Civil) Nos. 121-22 of 1994 are also liable to be dismissed.
23.In
the result all the three special leave petitions filed by the petitioner (RMI)
are dismissed.
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