Bharat
Petroleum Corporation Ltd Vs. The Great Eastern Shipping Co. Ltd [2007] Insc
1055 (12 October 2007)
Tarun
Chatterjee & D.K. Jain
[Arising
out of S.L.P. (C) No. 17687 of 2005) D.K. JAIN, J.:
Leave
granted.
2.
This appeal by Special Leave arises out of a judgment and order dated 1st
March, 2005 rendered by the High Court of Judicature at Bombay, whereby the
learned Single Judge has set aside the order passed by the Arbitral Tribunal,
holding that they did not have jurisdiction to entertain and try the claim and
counter claim made by the parties.
3. In
order to appreciate the issue, requiring determination, a few relevant facts
may be stated.
The
appellant M/s. Bharat Petroleum Corporation Limited is a Government of India
Undertaking, under the administrative control of the Ministry of Petroleum
& Natural Gas and is engaged in refining, distributing and selling of
petroleum products all over the country. The respondent M/s. Great Eastern
Shipping Company Limited is engaged in the business of shipping and allied
activities and owns a fleet of tanker vessels for charter, including the vessel
known as JAG PRAJA.
4. An
agreement, called the Time Charter Party in legal parlance, was
entered into between the appellant and the respondent on 6th May, 1997 for
letting on hire vessels for a period of two years from 22nd September, 1996 to
30th June, 1997 and from 1st July, 1997 to 30th June, 1998, on the terms and
conditions set out in the said agreement.
However,
before the Charter Party was to come to an end, on 29th June, 1998, the Indian
Oil Corporation Limited (for short IOC), acting as agent of the
appellant, issued a fax to various ship owners, including the respondent
herein, requesting them to extend the validity of the Charter Party Agreement
dated 6th May, 1997 beyond 30th June, 1998 for a period of one month from 1st
July, 1998 with option for two further extensions of 15 days each.
The
respondent agreed to the said proposal. Accordingly, on 29th June, 1998 an addendum was signed between the
parties whereby the validity period of Charter Party was extended for one month
with an option for two further extensions for a period of 15 days each. The
terms and conditions; exceptions and exemptions contained in the Charter Party
dated 6th May, 1997 remained unaltered. The parties are
ad idem that the Charter Party dated 6th May, 1997 was extended till 31st August, 1998.
5. It
appears that since Charter Party dated 6th May, 1997 was coming to an end on
31st August, 1998, the Oil Companies sought permission of the Oil Co-ordination
Committee, a wing of the Ministry of Petroleum and Natural Gas for further
extension of the Charter Party. However, the Oil Coordination Committee, by
their fax message dated 26th
August, 1998, declined
the request of the Oil Companies, including the appellant, for further
extension of Charter Party beyond 31st August, 1998. The said fax message was an
internal communication between the Oil Coordination Committee and the Oil
Companies.
6.
Thereafter, in September, 1998, the IOC for and on behalf of the Oil Industry,
floated a fresh tender for carriage of petroleum products along the Indian
coast on time charter basis for a period of one year commencing from 1st
September, 1998 to 31st August, 1999, on the terms and conditions set out in
the tender document. In response to the said tender, the respondent and other
vessel owners submitted their bids. It seems that being aggrieved of the
decision of the IOC to invite revised price bids after opening of the sealed
tenders, one of the bidders filed a writ petition in the Bombay High Court,
questioning the said decision. The appellant intervened in the said matter. The
writ petition was disposed of vide order dated 20th August, 1999. While disapproving in principle, the action of the IOC in
inviting fresh price bids after opening the bids, but without recording final
opinion on the merits of the issues raised in writ petition, the Court disposed
of the petition, inter alia, directing that (i) the charter hire rates should
be fixed by the Tender Evaluation Committee and (ii) as the tender was for the
period ending 31st August, 1999 and the writ petition was being decided on 20th
August, 1999, the IOC will not be required to enter into a contract for the
period from 1st September, 1998 to 31st August, 1999. It is not in dispute that
the vessel JAG PRAJA, with which we are concerned, continued to be
chartered by the appellant till 31st August, 1999.
7. It
appears that pending finalization of a new charter party for the period
commencing 1st
September, 1998,
certain meetings took place between the Oil Companies and the Ship Owners,
including the respondent herein. On 12th October, 1998, the respondent informed
the IOC that if all its nine vessels, mentioned in the letter, are used at a fair
and reasonable rate for one year, from 1st September, 1998 to 31st August, 1999
for which the tender had been floated, they were agreeable to apply the new
agreed rates for use of the said nine vessels from 1st July, 1998. On 31st
October, 1998 the IOC faxed to the respondent relevant portion of the message
received by them from Oil Co- ordination Committee, extending the period of
usage of the existing coastal tanker fleet for the month of October, 1998, at
80% charter hire rates, prevailing till 30th June, 1998, on provisional basis,
subject to adjustment of provisional charter hire with retrospective date from
1st September, 1998 against the revised charter hire, to be finalised by the
Oil Industry in response to the tender floated by IOC on 1st September, 1998.
Respondents consent was asked for. The respondent responded immediately
vide their letter dated 5th November, 1998, agreeing in principle that revised
charter hire rates, as and when finalized in response to tender floated by the
IOC on 1st September, 1998, would be applicable to the vessels which are
selected under the tender, retrospectively from 1st September, 1998. It was
pointed out that the vessels which are not chartered under the tender floated
would be at a disadvantage. It was clearly stated that since the tender was not
finalized, the owners will be guided by the existing terms and conditions. Some
other objections, not relevant at this stage, were also indicated. As such, all
said and done, Oil Co-ordination Committees proposal was not accepted.
Nevertheless, some suggestions to resolve the controversy were given.
8.
Thus, the proposal by the Oil Co-ordination Committee was not accepted by the
respondent. In the alternative, it was suggested by the respondent that the
charter period be extended by six months on the existing terms and conditions
at a mutually discussed time charter rate.
Admittedly,
the vessels continued to be chartered by the appellant beyond the date of this
letter.
9.
Thereafter, for almost two months, there was no communication between the
parties. It was only on 31st December, 1998 when the IOC issued a fax to the
respondent, enclosing draft letter regarding charter party agreement to be
signed between the charterers and owners (with minor modification, if necessary),
requesting the respondent to sign as per proposal by the 4th January, 1999, on
which date the respondent expressed its disinclination, stating in reply fax
that as per usual practice, pending finalization of new charter, the existing
terms and conditions of the charter party continue to apply. Finally, it was
suggested that:
We,
therefore, suggest that we sign an agreement with you for the period from 1st September, 1998 until the matter is finally decided
by you under the tender on the existing terms and conditions with the charter
hire being provisionally paid on an ad hoc basis at 90% of the rate which was
prevailing under the existing Charter Party.
Kindly
confirm in order to draw up a suitable agreement accordingly. [Emphasis
supplied]
10. Vide
letter of even date, i.e. 4th January, 1999, the appellant suggested to the
respondent that in the absence of a formal charter party with effect from 1st
September, 1998, a provisional arrangement for a period of four months
effective from 1st September, 1998 with an option for extension of one month
may be mutually agreed to by payment at the rate of 80% on charter hire
prevailing on 30th June, 1998, as ad hoc hire. The respondent was asked to
convey their acceptance to the said suggestion. It appears that the respondent
did not respond to the said suggestion by the appellant but all the same its
vessel continued to be on charter with the appellant.
11.
The writ petition was ultimately disposed of on 20th August, 1999. It was only after a gap of about seven months that on 15th March, 2000, the IOC informed the respondent
about the evaluation of the tenders in terms of the order passed by the High
Court. Charter hire rate worked out by the Committee for vessel JAG
PRAJA for the period from 1st September, 1998 to 31st August,
1999 was communicated
to the respondent. In response, the respondent, while expressing their
disappointment with the rate but purportedly, in view of their long business
relations with the appellant conveyed their acceptance of the proposed rate in
respect of each of the vessels named in separate letters, all dated 1st
May, 2000, with the expectation that their outstanding balance of the hire
shall be paid to them at the earliest. However, the respondent did not convey
their acceptance of the charter hire rates for two vessels, viz. JAG
PRAJA and JAG PRAYOG. It appears that the respondent wrote
various letters to the appellant for upward revision of the rate in respect of
these two vessels but seemingly their request was ultimately turned down on 2nd
November, 2000, on receipt of which, the respondent slammed a legal notice
dated 6th November, 2000, on the appellant, inter alia, requesting them to
revise the rates on the basis of mutual discussions and settle the accounts.
Having failed to receive any reply to the said notice, by another legal notice
dated 1st December, 2000, the respondent called upon the appellant to pay
balance amount of Rs.43,947,517/- to them as charter hire in respect of vessel
JAG PRAJA for the period from 1st September, 1998 to 31st August,
1999 within 15 days from date of receipt of the said notice or treat it as an
arbitration notice. The name of the arbitrator was also communicated to the
appellant. It seems that pursuant to the said notice and some subsequent
correspondence exchanged between the parties, an Arbitral Tribunal was
constituted.
12.
Claims and counter claims were filed before the Arbitral Tribunal. On the basis
of the pleadings of the parties, the Arbitral Tribunal framed as many as eight
issues. However, arguments were heard only on the following three issues:
Issue
No.1:- Whether the Honble Arbitral Tribunal has no jurisdiction to
adjudicate upon the dispute between the Claimant and the Respondent for the
period September, 1998 to August, 1999 in respect of the vessel Jag Praja for
the reasons stated in para 1 of the written statement? Issue No.2:- Whether
there is any common practice that if the vessel is not re-delivered at the end
of the period mentioned in the time charter the vessel would be governed by the
charter party under which originally it was chartered? Issue No.5:- Whether the
time charter party dated 6th
May, 1997 came to an
end by efflux of time on 30th
August, 1998?
13.
Vide order dated 12th May, 2003 the Arbitral Tribunal came to the conclusion
that the appellant having invoked the arbitration clause contained in charter
party agreement dated 6th May, 1997, which was valid upto 31st August, 1998 and
as the dispute between the parties related to the period subsequent to 31st
August, 1998, they had no jurisdiction to decide the Reference. The learned
Tribunal found issue No.2 in the negative and issue No.5 in the affirmative.
According to the Tribunal on and after 1st September, 1998, charter party
agreement dated 6th May, 1997 was superseded by a fresh agreement and a term of
the agreement was that the charter hire rate would be determined by the Oil
Co-ordination Committee of the IOC.
In
nutshell, the Tribunal was of the view that with the performance, original
charter party dated 6th
May, 1997 got
extinguished.
14.
The respondent challenged the said Award before the High Court. By the impugned
order, the learned Single Judge has set aside the said Award, inter alia,
holding that Arbitral Tribunal has the jurisdiction to adjudicate the disputes
between the parties as the vessel continued to be hired by the appellant for
the period subsequent to 31st August, 1998 on the same terms and conditions, as
were contained in the charter party dated 6th May, 1997, only subject to the
revision or modification of the rate of hire to be determined by the Oil
Co-ordination Committee.
The
learned Judge also felt that the Tribunal had erred in totally excluding from
its consideration clauses 23 and
4.1 of
the charter party dated 6th
May, 1997, whereunder
the charter party was to come to an end on re-delivery of the vessel.
Admittedly, after 31st
August, 1998, re-
delivery of vessel did not take place and, therefore, in terms of clause 23,
the vessel continued to be hired on the same terms and conditions except the
term as to the hire charges, on which there was disagreement between the
parties. It was thus, held that the charter party dated 6th May, 1997 did not
come to an end by efflux of time and it was extended by the parties on the same
terms and conditions except the rate of hire. Correctness of this order of the
High Court is questioned in this appeal.
15.
Mr. Sudhir Chandra, learned senior counsel appearing on behalf of the appellant
has assailed the impugned order on the sole ground that the Charter Party dated
6th May, 1997 having come to an end by efflux of time on 31st August, 1998, the
arbitration clause contained in it also perished and, therefore, in the absence
of a fresh arbitration agreement, claim of the respondent relating to the
period 1st September, 1998 to 31st August, 1999 could not be referred to
arbitration by invoking arbitration clause in Charter Party dated 6th May,
1997. Laying emphasis on the fax message dated 26th August, 1998 addressed by
the Oil Co-ordination Committee to the oil companies, including the appellant,
inter alia, informing them that no further extension of the Current
Charter Hire Rate will be allowed, learned counsel submitted that the said
message made it clear to all concerned that Charter Party dated 6th May, 1997
would not be extended under any circumstance.
16.
Mr. Shyam Divan, learned senior counsel appearing on behalf of the respondent,
on the other hand, submitted that notwithstanding the fact that the period
fixed originally under the Charter Party or under the Addendum dated 29th June,
1998 had come to an end, the subsequent conduct of the parties goes to show
that charter of the vessel by the appellant beyond 31st August, 1998 continued
to be governed by the terms and conditions stipulated in charter party dated
6th May, 1997 and, therefore, an arbitration agreement did exist between the
parties.
Learned
counsel argued that even otherwise till the vessel was not re-delivered in
terms of Clauses 4 and 23 of Charter Party dated 6th May, 1997, the said agreement could not come to an end. It was
pointed out that all the obligations of the owners as well as of the charterers
during the period the vessel was in use continued to be discharged under the
Charter Party dated 6th
May, 1997 even after
the expiry of the period of the Charter Party. In support of the proposition
that the concurrence of a party can be gathered from his conduct, like
continued user of the vessel in the present case, without any objection to
respondents letter dated 4th January, 1999,
reliance is placed on a decision of this Court in The Godhra Anr. . It was also
submitted that the view taken by the High Court being a plausible view,
interference in exercise of extra-ordinary jurisdiction under Article 136 of
the Constitution is unwarranted.
17.
Thus, the short question for determination is whether on the expiry of the
extended period of charter hire on 31st August, 1998, Charter Party dated 6th
May, 1997 came to an end and the arbitration agreement between the parties
perished with it?
18.
Before we proceed to examine the rival stands, we may note, at the outset, that
neither the Arbitral Tribunal nor the High Court have gone into the question
whether the claim made by the respondent would otherwise fall within the ambit
of the arbitration clause in the Charter Party or not. What is in dispute is
whether the arbitration agreement between the parties had got extinguished
after 31st August, 1998, i.e. the date of expiry of the
extended period of the Charter Party. Therefore, we refrain from expressing any
opinion on the scope and ambit of the arbitration clause though, prime facie,
it appears to be quite widely worded.
19. It
is, no doubt, true that the general rule is that an offer is not accepted by
mere silence on the part of the offerree, yet it does not mean that an
acceptance always has to be given in so many words. Under certain
circumstances, offerrees silence, coupled with his conduct, which takes
the form of a positive act, may constitute an acceptance an agreement sub silentio.
Therefore,
the terms of a contract between the parties can be proved not only by their
words but also by their conduct.
20. In
our view, the principle of sub silentio is clearly attracted in the present
case. As noted above, after the extended period of Charter Party dated 6th May,
1997 had come to an end on 31st August, 1998 and the bids received pursuant to
fresh invitation were pending finalization, vide their letter dated 12th
October, 1998, the respondent had informed the appellant that they were
agreeable to apply new rates for use of the vessel from 1st July, 1998 provided
all the nine vessels are used. However, on 31st October, 1998, the appellant faxed IOCs
message informing them of the extension of the existing coastal tanker fleet
for the month of October, 1998 at reduced rates, viz. 80% of the Charter Party
rates prevailing till 30th
August, 1998. On
receipt of the said letter, the respondent vide their letter dated 5th
November, 1998, protested against the revision of the rates for the vessel not
being considered under the new bid and stated in unequivocal terms that it was
not possible for them to accept the proposal of the Oil Co-ordination
Committee, communicated to them vide letter dated 12th October, 1998. Yet again
while responding to appellants fax dated 31st December, 1998, whereby the
respondent was required to sign a provisional charter party by 4th January,
1999, vide their letter dated 4th January, 1999, the respondent, pointed out to
the appellant that usual practice is that pending finalization of the new
Charter, the existing terms and conditions of the Charter Party continue to
apply and, therefore, they were willing to sign the agreement as contemplated
by the appellant based on the existing terms and conditions. It was suggested
that an agreement may be signed between them for the period from 1st September, 1998 until the matter was finally
decided by the appellant under the tender, on the existing terms and conditions
with the charter hire being provisionally paid on ad hoc basis at 90% of the
rate which was prevailing under the existing Charter Party. As noted
hereinabove, there was no response by the appellant to respondents letter
dated 4th January, 1999 though it appears that vide their
letter of even date, the appellant did suggest to the respondent that as a
token of formal agreement the said letter may be jointly signed by the charterers
and the vessel owners.
Admittedly,
no such agreement was signed between the parties. Indubitably, there was no further
exchange of correspondence between the parties during the year.
Nevertheless,
the appellant continued to use the vessel on hire with them under the time
charter dated 6th May,
1997.
The
conduct of the parties, as evidenced in the said correspondence and, in
particular appellants silence on respondents letters dated 5th
November, 1998 and 4th January, 1999, coupled with the fact that they continued
to use the vessel, manifestly goes to show that except for the charter rate,
there was no other dispute between the parties. They accepted the stand of the
respondent sub silentio and thus, continued to bind themselves by other terms
and conditions contained in the Charter Party dated 6th May, 1997, which obviously included the arbitration clause.
21. We
may examine the issue from another angle, based on respondents stand that
charter party dated 6th
May, 1997 continues to
be in vogue till the chartered vessel is re- delivered. In this context, it
would be appropriate to refer to Clauses 4 and 23 of the Charter Party dated 6th May, 1997. These are in the following terms:
4.
Delivery & Redelivery
4.1
The vessel shall continue to be on charter to charterers in direct continuation
from 2348 hrs. 22.09.1996 to 30.06.1998.
The
vessel shall be re-delivered by charterers to owners on dropping last outward
pilot at any port on west coast of India at charterers option. Charterers to give owners 15 days notice to
probable port of re-delivery.
4.2 Charterers
to load last three cargoes clean and re-deliver the vessel in clean condition.
23.
Final Voyage Should the vessel be on her voyage towards the port of redelivery
at the time of payment of hire is due, payment of hire shall be made for such
length of time as Owners and Charterers may agree upon as being estimated time
necessary to complete the voyage, less any disbursements made or expected to be
made or expenses incurred or expected to be incurred by Charterers for owners
account and less the estimated amount of bunker fuel remaining at the
termination of the voyage and when the vessel is redelivered any overpayment
shall be refunded by the owners or underpayment paid by Charterers.
Notwithstanding
the provisions of clause 4 hereof should the vessel be upon voyage at the
expiry of the period of this charter, Charterers shall have the use of vessel
at the same rate and conditions for such extended time as may be necessary for
the completion of the round voyage on which she is engaged and her return to a
port of redelivery as provided by the Charter.
22. On
a conjoint reading of the said clauses, it is plain that the appellant was
under an obligation to re- deliver the vessel as per the procedure contemplated
in the afore-noted clauses. Indisputably, the vessel in question had not been
re-delivered at least during the relevant period and the appellant continued to
use the vessel beyond 31st
August, 1998. Having
failed to re- deliver the vessel in terms of Clause 4.1 of the Charter Party,
the appellant cannot plead that the Charter Party had been fully worked out. It
is clear from the pleadings and issue No.2, framed by the Arbitral Tribunal,
that it was respondents consistent stand that since the hired vessel had
not been re-delivered at the end of the time charter party, the vessel would be
governed by the terms and conditions in the Charter Party dated 6th May, 1997.
However,
the Arbitral Tribunal answered the said issue against the respondent. It
appears to us that even the question in regard to the effect and consequences
of non- delivery of the vessel in terms of the Clause 4.1 and 23 would by
itself be a dispute arising under the said Charter Party. With
respect, the learned Arbitral Tribunal overlooked this aspect of the matter.
23. We
are, therefore, of the opinion that though performance of the Charter Party
agreement dated 6th May, 1997 may have come to an end on 31st August, 1998 but
it was still in existence for some purposes, viz. the effect of vessels
non re-delivery as per the prescribed mechanism and its continued use beyond
the stipulated time and, thus, the arbitration clause in the said Charter Party
operated in respect of these and other allied purposes. Therefore, the factual
scenario in the instant case leads to an inescapable conclusion that
notwithstanding the expiry of the period fixed in the time charter party dated
6th May, 1997, the said charter party did not get extinguished, inter alia, for
the purpose of determination of the disputes arising thereunder and the
arbitration clause contained therein could be invoked by the respondent.
24. In
view of the foregoing discussion, we do not find any infirmity in the view
taken by the High Court that Charter Party dated 6th May, 1997 had not come to an end by efflux of time and it got
extended by the conduct of the parties, warranting interference.
25.
Having come to the conclusion that an arbitration agreement existed between the
parties, the question which remains to be considered is whether the disputes
between the parties should be referred to the same Arbitral Tribunal which had
come to the conclusion that in the absence of any arbitration agreement it did
not have jurisdiction to entertain and try the claims and counter claims. We
feel that it would be proper and expedient to constitute a fresh Arbitral
Tribunal. Accordingly, we constitute an Arbitral Tribunal consisting of Justice
M. Jagannadha Rao (Presiding Arbitrator), Justice D.P. Wadhwa and Justice S.N. Variava,
former Judges of this Court to adjudicate upon the claim/counter claim by the
parties, subject to their consent and such terms and conditions as they may
deem fit and proper. It goes without saying that the learned Tribunal shall
deal with the matter uninfluenced by any observations in this order on the
respective stands of the parties.
26.
Resultantly, the appeal being devoid of any merit is liable to be dismissed,
which we do, leaving the parties to bear their own costs.
27.
The Registry is directed to communicate this order to the learned Members of
the Arbitral Tribunal to enable them to enter upon the Reference and decide the
matter as expeditiously as practicable.
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