M/s. Cauvery Coffee
Traders, Mangalore Vs. M/s. Hornor Resources (Intern.) Co. Ltd.
J U D G M E N T
Dr. B.S. CHAUHAN, J.
1.
The
arbitration applications under Section 11(5) & (9) of the Arbitration and Conciliation
Act, 1996, hereinafter called the "Act 1996" have been filed for
appointment of Arbitrator in an international arbitration dispute to adjudicate
the disputes/differences which have arisen between the parties.
2.
The
applicants are a partnership concern incorporated under the Indian Partnership Act,
1932 and have filed two applications as the dispute raised herein relate to two
consignments. However, for convenience, facts and issues related to Petition
No.7/2009 are being considered.
3.
On
24.6.2008, a Purchase Contract bearing No. CCT/SST/027/ 240608 was entered and
executed by and between the applicants and the respondents wherein the applicants
agreed to sell and the respondents agreed to purchase Calibrated Lumpy Ore Fines
of the approximate quantity of 40,000/- Wet Metric Tones (hereinafter called as
`WMT') (10% more or less at buyers' option) at the price and on the terms and
conditions stipulated in the said agreement. The agreement provided for the
chemical specification/composition of the Ore and for guaranteed level of Fe
i.e. iron content in the contracted goods which could not be less than 63%. In
case the iron content was less than 63%, the buyer would have a right to reject
the cargo.
4.
A
large quantity of Ore had been supplied to the respondents which had been
accepted and payments had been made. Pursuant to the purchase contract, the applicants
on 6.8.2008 shipped a total consignment of 24,500 Dry MT of Calibrated Lumpy
Ore from New Mangalore Port, India to the port of discharge viz. Rizhao Port,
China by vessel named "MV. FUJIN". The applicants raised a
provisional invoice for a sum of US$ 32,13,529.11 and sent a Certificate of
Origin and the Bill of Lading dated 6.8.2008 as issued by the carriers in respect
of the carriage of the goods from Mangalore Port, India to Rizhao Port, China. The
material so supplied had been sent after proper analysis and it had been
certified by the analyst in India that the goods supplied contained more than
63% Fe contents. The said goods reached at China Port. The delivery of the same
was taken by the respondents and on chemical analysis, according to them, the iron
contents Fe, were found to be 62.74%. The goods reached the Port of Discharge, and
were accepted by the respondents-buyers who promised that payment would be made
without any delay.
5.
The
respondents vide email dated 19.9.2008 informed the applicants that a provisional
payment would be released for the shipment in question based on revised rates
and, in case, the applicants were willing to accept the revised rates stipulated
therein, the respondents would request their end buyers' confirmation to
release the payment, and for that purpose, applicants were asked to send
necessary instructions through their banker. The respondents vide email dated 7.10.2008
informed the applicants that US$ 1.5 million could be the amount for the final
settlement in respect of the shipment in question, 3in spite of the fact that
the agreed amount had been US$ 18,91,204.00. By the said email, applicants were
asked by the respondents to inform through their banker in case of their acceptance
to the said proposal. Under these peculiar facts and circumstances, as the
goods had already reached China and applicants were in dire need of money, they
informed through their banker that they agreed to receive payment under the
Letter of Credit in a sum of total claim of US$ 18,91,204.00. By email dated 7.10.2008
the respondents stated that the applicants should accept US$ 1.5 million in
full and final settlement. Accordingly, an amount of US$ 1.5 million had been
received by them. Subsequent thereto, the applicants had repeatedly been sending
reminders to the respondents to make good the balance payment under the said
purchase contract, but no payment had been made. As the respondents failed to make
the payment of the balance amount, the applicants sent a legal notice dated
14.11.2008 to call upon the respondents to pay the balance amount under the
purchase contract and further provided that, in view of the arbitration clause
18 contained in the purchase agreement, they should carry on friendly negotiations
to settle the dispute accrued between the parties. As per the terms of the purchase
agreement, arbitration can be held only in a third country. The applicants
suggested to have the arbitration proceedings either in Singapore or in
Australia. In spite of receiving the said notice, neither the payment of the
balance amount was made, nor the respondents came forward for friendly negotiations.
Therefore, a further reminder was sent by the applicants to the respondents calling
upon them to indicate the place of arbitration. As neither the payment had been
made, nor the respondents have agreed for arbitration proceedings, they have approached
this Court by filing these applications.
6.
Shri
V.A. Mohta, learned senior counsel appearing for the applicants, has submitted
that in spite of the fact that the supply of iron ore has been made strictly in
terms of the purchase contract and the outstanding payments have not been made even
after several reminders, the applicants served a notice on the respondents for appointment
of Arbitrator in the third country in terms of Clause 18 of the Purchase
Agreement but the respondents did not make any effort either to come for friendly
negotiations or to refer the matter for arbitration, therefore, this Court must
refer the matter to the Arbitrator in a third country preferably Singapore or
Australia.
7.
On
the contrary, Shri Ashok K. Srivastava, learned senior counsel appearing for the
respondents, has vehemently opposed the applications contending that the applications
themselves are not maintainable as the purchase agreement can be dealt with
Part-II and certainly not under Part-I of the Act 1996. Therefore, the
applications under Section 11(5) & (9) of Act 1996 are not maintainable, even
otherwise, there has been a complete settlement between the parties and the applicants
have accepted the full and final settlement as suggested by the respondents in
view of the fact that Fe contents were not as per the specifications and
certain terms had been offered to the applicants for settlement, which had been
agreed by them. The question of making the reference to arbitration proceedings
does not arise.
8.
I
have considered the rival submissions made by learned counsel for the parties
and perused the record.
9.
So
far as the issue relating to maintainability of the application itself is
concerned, is no more res integra. This court in Bhatia International v. Bulk
Trading S.A, (2002) 4 SCC 105, held as under: ".....notwithstanding the provisions
of Section 2(2) of the Arbitration and Conciliation Act, 1996, indicating that Part
I of the said Act would apply where the place of arbitration is in India, even in
respect of international commercial agreements, which are to be governed by the
laws of another country, the parties would be entitled to invoke the provisions
of Part I of the aforesaid Act and consequently the application made under
Section 11 thereof would be maintainable. It clearly lays down that the provisions
of Part I of the Arbitration and Conciliation Act, 1996, would be equally
applicable to international commercial arbitrations held outside India, unless
any of the said provisions are excluded by agreement between the parties
expressly or by implication, which is not so in the instant case."(See
also: Indtel Technical Services Private Limited v. W.S. Atkins Rail Limited, (2008)
10 SCC 308; and Citation Infowares Limited v. Equinox Corporation, (2009) 7 SCC
220).
10.
In
Venture Global Engg. Case v. Satyam Computer Services Ltd. (2008) 4 SCC 190, this
Court considered the similar issue and after considering various earlier
judgments, came to the conclusion that implied exclusion of provision of Part-I
cannot be inferred and therefore the principles regarding the arbitral reference
laid down in Bhatia International (supra) are applicable. . Hon'ble Mr. R.C.
Lahoti, J. (as His Lordship then was) however, has taken a contrary view as in Shreejee
Traco (I) Pvt. Ltd. v. Paperline International Inc., (2003) 9 SCC 79; it was
held:
11.
"8.
So far as the language employed by Parliament in drafting sub-section (2) of
Section 2 of the Act is concerned, suffice it to say that the language is clear
and unambiguous. Saying that this Part would apply where the place of arbitration
is in India tantamounts to saying that it will not apply where the place of
arbitration is not in India." However, considering the fact that Bhatia
International (supra) is a three-Judge Bench judgment and has consistently been
followed, the judgment of the learned Single Judge in Shreejee Traco (I) Pvt. Ltd.
(supra) does not have binding effect. As a consequence, the application is held
to be maintainable.
12.
The
Relevant part of the Purchase Agreement dated 28.6.2008 reads as under: "Clause
5: Price Adjustment For Fe content: In respect of iron ore which does not meet
the Fe specifications set forth in Clause 3 the base price referred to in Clause
4 shall be adjusted in accordance with Fe content as determined pursuant to the
provisions of Clause 8 as follows: The base price shall be increased by single
prorate (USD2.2) per dry metric tonne for each 1% Fe below 63.5% upto 63.0
fraction prorate. 8 The Buyer has the right to reject the cargo if Fe content
is below 63.0% . Clause 15: Title and Risk The title with respect to each shipment
shall pass from Seller to the Buyers when Seller receives reimbursement of the proceeds
from the opening bank through the negotiating bank against the relative
shipping documents as set forth in clause 6 after completion of loading on
board the vessel at loading port, with effect retrospective to the time of delivery
of ore. Clause 18: Arbitration All disputes in connection with this contract or
the execution thereof shall be settled amicably by friendly negotiations
between the two parties. If no settlement can be reached, the case in dispute
shall then be submitted for arbitration to a third country, which shall be agreed
upon by both parties. The arbitration award shall be final and binding on both
the parties and may be enforced in any court having jurisdiction over the party
against which enforcement is sought. The cost of arbitration shall be borne by
the losing party." Thus, from the Purchase Agreement it is evident that
the ore supplied must contain Fe contents not less than 63%. In case the Fe contents
are less than the specified percentage, the buyers would have a right to reject
the cargo. The Purchase Agreement also contains a clause providing for price
adjustment in case the supplied ore does not meet the requirement of
specification provided for iron ore. In case of 9any dispute between the
parties, the agreement provides for arbitration in any third country.
13.
The
documents on record reveal that parties had been negotiating for the goods supplied
and also in respect of payment for the same (vide emails dated 25.6.2008 and
8.9.2008). Relevant part of the email dated 25.9.2008 reads as under: "......Both
cargos were rejected by end buyers due to the quality failure. In such case, we
regret to say that the maximum CFR price we can work here is $110 for Zhongqiang
II AND $120 FOR Fujin. Pls note current market price for cargo below 63 is only
$100 and market is still on the down trend. However in consideration of the long
term good cooperation between the two companies, we are offering to bear at
least a $10-20 loss on our side and with the huge risks of further slide of
market, which actually is foreseeable. ......Our above offer is valid till this
Friday (26th September, 2008) only..."
14.
The
email dated 7.10.2008 sent by the applicants to the respondents reads as under:
"Further to telecom just now, pls note as per latest mutual agreement between
seller and buyer, the said USD1.50 million shall be final settlement for subj.shipment,
so please request your bank to revise the swift msg as follows: "beneficiary
agrees to receive USD1,500,000.00 for full and final payment for this set of documents
and under this letter of credit, after release of this amount, the letter of credit
shall be considered expired and cancelled." (Emphasis added)
15.
Subsequently,
the applicants sent an email to the respondents dated 14.11.2008 which provided
inter-alia, as under: "Clause 8 of the Purchase Contract provided for the
remedies available in the event of there being a difference in percentage of the
Fe content as compared to the specifications mentioned in the Contract. The
said Contract also provided that all disputes would be settled amicably and
that if no settlement could be reached, the disputes would be submitted to arbitration
to a third country to be agreed upon by both the parties. .......Since the
Arbitration clause provides for the dispute being submitted for arbitration to a
third country, our clients would suggest conduct of the arbitration either in
Singapore under the auspices of the Singapore International Arbitration Centre and/or
Australia under the Rules of the Institute of Arbitrators and Mediators,
Australia."
16.
The
applicants again asked the respondents for reference to Arbitrator vide email
dated 21.11.2008, but in vein.
17.
Stand
of the respondents throughout had been that under Clause 5 of the Purchase
Contract dated 24.6.2008 in respect of the iron ore; 1the buyers had a right to
reject the whole consignment in case the iron contents were less than 63%, as
has been in the instant case. However, considering other factors that goods had
already reached the port of discharge in China, the buyers accepted the delivery
thereof and therefore, the buyers made a proposal for adjustment of price. Negotiations
started as is evident from the email messages dated 8.9.2008, 25.9.2008 and 7.10.2008
as referred to hereinabove, and it was in pursuance of these negotiations that the
applicants had instructed their banker to accept the proposal made by the
respondents and it was in pursuance of their instructions, the banker vide email
dated 8.10.2009 accepted the proposal and agreed to receive a sum of US$500,000.00
as full and final settlement for the consignment in issue. The payment made was
accepted by the applicants and it was after 3 months thereafter that they served
a legal notice dated 14.11.2008 for making a reference to the Arbitrator. The
applicants in the present application do not dispute the negotiations or giving
instructions to their banker or in respect of the email by their banker to the
respondents or receiving the money in lieu thereof. Therefore, the question does
arise as to whether the banker's acceptance of instructions given by the applicants
can be treated as full and final 1settlement of the dispute. The main ground in
this regard had been taken in this application in Paragraph (P) as under: "In
spite of the fact that the Applicants had specifically informed their Bankers
that an amount of US$ 1.5 million was to be received in lieu of provisional payment,
an erroneous message was forwarded by the Applicants' Bankers to the Respondents
that the beneficiary being the Applicants herein had agreed to receive an amount
of US$ 1.5 million towards full and final payment and that the Letters of Credit
would be considered expired and cancelled on receipt of the said payment."
(Emphasis added)
18.
Error
means - a mistake in judgment/assessment in a process or proceedings; some wrong
decision taken inadvertently; unintentional mistakes; something incorrectly done
through ignorance or inadvertence; mistake occurred from an accidental slip;
deviation from standard or course of right or accuracy - unintentionally; to be
wrong about; to think or understand wrongly; an omission made not by design,
but by mischance.
19.
In
Nathani Steels Ltd. v. Associated Constructions, 1995 Supp (3) SCC 324, while
dealing with a similar issue, this Court held: "......once the parties
have arrived at a settlement in respect of any dispute or difference arising
under a contract and that dispute or the difference is amicably settled by way
of a final settlement by and 1 between the parties, unless that settlement is set
aside in proper proceedings, it cannot lie in the mouth of one of the parties to
the settlement to spurn it on the ground that it was a mistake and proceed to
invoke the Arbitration clause. If this is permitted the sanctity of contract, the
settlement also being a contract, would be wholly lost and it would be open to
one party to take the benefit under the settlement and then to question the
same on the ground of mistake without having the settlement set aside. In the circumstances,
we think that in the instant case since the dispute or difference was finally
settled and payments were made as per the settlement, it was not open to the respondent
unilaterally to treat the settlement as non est and proceed to invoke the
Arbitration clause...." A similar view has been re-iterated in State of
Maharashtra v. Nav Bharat Builders, 1994 Supp (3) SCC 83.
20.
This
Court in M/s. P.K. Ramaiah & Company v. Chairman & Managing Director,
NTPC, (1994) Supp. 3 SCC 126 considered the ambit of accord and satisfaction by
the parties voluntarily entered into and dispute raised thereunder. This Court
after considering the entire controversy held that: "Admittedly the full and
final satisfaction was acknowledged by a receipt in writing and the amount was received
unconditionally. Thus there is accord and satisfaction by final settlement of
the claims. The subsequent allegation of coercion is an afterthought and a devise
to get over the settlement of the dispute, acceptance of the payment and
receipt voluntarily given.... Having acknowledged the settlement and also accepted
measurements and having received the amount in full and final settlement of the
claim, there is accord and satisfaction. There is no existing arbitrable dispute
for reference to the arbitration." (Emphasis added)
21.
In
National Insurance Company Limited v. M/s. Boghara Polyfab Private Limited, AIR
2009 SC 170, this Court held: "26. When we refer to a discharge of contract
by an agreement signed by both the parties or by execution of a full and final
discharge voucher/receipt by one of the parties, we refer to an agreement or discharge
voucher which is validly and voluntarily executed. If the party which has executed
the discharge agreement or discharge voucher, alleges that the execution of such
discharge agreement or voucher was on account of fraud/coercion/undue influence
practised by the other party and is able to establish the same, then obviously
the discharge of the contract by such agreement/voucher is rendered void and
cannot be acted upon. Consequently, any dispute raised by such party would be
arbitrable." (Emphasis added). xx xx xx 29. It is thus clear that the
arbitration agreement contained in a contract cannot be invoked to seek reference
of any dispute to arbitration, in the following circumstances, when the contract
is discharged on account of performance, or accord and satisfaction, or mutual agreement,
and the same is reduced to writing (and signed by both the parties or by the
party seeking arbitration): 1 (a) where the obligations under a contract are fully
performed and discharge of the contract by performance is acknowledged by a full
and final discharge voucher/receipt, nothing survives in regard to such
discharged contract; (b) where the parties to the contract, by mutual agreement,
accept performance of altered, modified and substituted obligations and confirm
in writing the discharge of contract by performance of the altered, modified or
substituted obligations; (c) where the parties to a contract, by mutual agreement,
absolve each other from performance of their respective obligations (either on account
of frustration or otherwise) and consequently cancel the agreement and confirm that
there are no outstanding claims or disputes." (Emphasis added)
22.
In
R.L. Kalathia v. State of Gujarat, (2011) 2 SCC 400, this court considered a
similar issue and held: "(i) Merely because the contractor has issued
"no- dues certificate", if there is an acceptable claim, the court cannot
reject the same on the ground of issuance of "no-dues certificate". (ii)
Inasmuch as it is common that unless a discharge certificate is given in advance
by the contractor, payment of bills are generally delayed, hence such a clause
in the contract would not be an absolute bar to a contractor raising claims which
are genuine at a later date even after submission of such "no-claim
certificate". (iii) Even after execution of full and final discharge voucher/receipt
by one of the parties, if the said party is able to establish that he is
entitled to further amount for which he is having adequate materials, he is not
barred from claiming such amount merely because of acceptance of the final bill
by mentioning "without prejudice" or by issuing "no-dues certificate".
23.
In
view of the above, law on the issue stands crystallised to the effect that, in
case, final settlement has been reached amicably between the parties even by making
certain adjustments and without any misrepresentation or fraud or coercion,
then, acceptance of money as full and final settlement/issuance of receipt or vouchers
etc. would conclude the controversy and it is not open to either of the parties
to lay any claim/demand against the other party.
24.
The
applicants have not pleaded that there has been any kind of misrepresentation
or fraud or coercion on the part of the respondents. Nor it is their case that
payment was sent by the respondents without any settlement/agreement with the
applicants, and was a unilateral act on their part. The applicants reached the final
settlement with their eyes open and instructed their banker to accept the money
as proposed by the respondents. Proposal itself was on the basis of clause 5 of
the Purchase Contract which provided for Price Adjustment. For a period 1of
three months after acceptance of the money under the full and final settlement,
applicants did not raise any dispute in respect of the agreement of price
adjustment. In such a fact-situation, the plea that instructions were given by the
applicants to the banker erroneously, being, afterthought is not worth
acceptance. The transaction stood concluded between the parties, not on account
of any unintentional error, but after extensive and exhaustive bilateral
deliberations with a clear intention to bring about a quietus to the dispute. These
negotiations, therefore, are self-explanatory steps of the intent and conduct of
the parties to end the dispute and not to carry it further.
25.
In
R.N. Gosain v. Yashpal Dhir, AIR 1993 SC 352, this Court has observed as
under:- "Law does not permit a person to both approbate and reprobate. This
principle is based on the doctrine of election which postulates that no party can
accept and reject the same instrument and that "a person cannot say at one
time that a transaction is valid and thereby obtain some advantage, to which he
could only be entitled on the footing that it is valid, and then turn round and
say it is void for the purpose of securing some other advantage."
26.
A
party cannot be permitted to "blow hot and cold", "fast and loose"
or "approbate and reprobate". Where one knowingly accepts the benefits
of a contract or conveyance or an order, is estopped to deny the validity or binding
effect on him of such contract or conveyance or order. This rule is applied to
do equity, however, it must not be applied in a manner as to violate the
principles of right and good conscience. (Vide: Nagubai Ammal & Ors. v. B.
Shama Rao & Ors., AIR 1956 SC 593; C.I.T. Vs. MR. P. Firm Maur, AIR 1965 SC
1216; Maharashtra State Road Transport Corporation v. Balwant Regular Motor
Service, Amravati & Ors., AIR 1969 SC 329; P.R. Deshpande v. Maruti Balaram
Haibatti, AIR 1998 SC 2979; Babu Ram v. Indrapal Singh, AIR 1998 SC 3021; Chairman
and MD, NTPC Ltd. v. Reshmi Constructions, Builders & Contractors, AIR 2004
SC 1330; Ramesh Chandra Sankla & Ors. v. Vikram Cement & Ors., AIR 2009
SC 713; and Pradeep Oil Corporation v. Municipal Corporation of Delhi &
Anr., (2011) 5 SCC 270).
27.
Thus,
it is evident that the doctrine of election is based on the rule of estoppel- the
principle that one cannot approbate and reprobate inheres in it. The doctrine
of estoppel by election is one of the species of estoppels in pais (or
equitable estoppel), which is a rule in equity. 1By that law, a person may be
precluded by his actions or conduct or silence when it is his duty to speak, from
asserting a right which he otherwise would have had.
28.
In
the facts and circumstances of the case, as the respondents resorted to clause 5
of the Purchase Agreement dated 28/6/2008, regarding price adjustment and the offer
so made by the respondents has been accepted by the applicants and agreed to
receive a particular sum offered by the respondents as a full and final settlement,
the dispute comes to an end. The applicants cannot take a complete somersault
and agitate the issue that the offer made by the respondents had erroneously been
accepted. In view of the above, as no dispute survives, the applications are dismissed.
...........................J.
(Dr. B.S. CHAUHAN)
New
Delhi,
September
13, 2011
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