Companies Act Case Law Alva Aluminium Ltd Bangkok Vs Gabriel India Limited

 

 

REPORTABLE

 

Companies Act Case Law

Alva Aluminium Ltd. Bangkok Vs Gabriel India Limited

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICITION

ARBITRATION PETITION NO.2 OF 2010
Alva Aluminium Ltd. Bangkok …Applicant
Versus
Gabriel India Limited …Respondent

 
JUDGMENT

 

T.S. THAKUR, J.

 

This petition has been filed under sub-sections (5) and

(9) of Section 11 of the Arbitration and Conciliation Act,

1996 for the appointment of an independent and impartial

person as a sole arbitrator for the adjudication of the

disputes that have arisen between the parties. The
2
respondent has appeared to contest the petition primarily on

the ground that no valid arbitration agreement exists

between the parties so as to call for the appointment of an

arbitrator in terms thereof. The respondent’s case precisely

is that the contract document which the petitioner relies

upon has not been signed on its behalf by an authorized

person and is not, therefore, binding or enforceable against

it. Two questions essentially arise for determination in the

light of the pleadings of the parties and the submissions

made by them at the bar. These are :

 

(1) Whether this Court is in a petition under Sections 11(5)

and 11(9) of the Arbitration and Conciliation Act, 1996

required to determine the existence of an arbitration

agreement between the parties? and

(2) Whether any such agreement has indeed been

executed between the parties in the present case to call

for the appointment of an arbitrator for adjudication of
3
the disputes and differences that have arisen between

them?

 

I shall presently deal with both these questions but

before I do so I may set out the facts necessary for the

determination of the said questions.

 

The petitioner is a joint venture company between the

G.P. Group in Thailand and Kliss Group in India,

incorporated under the provisions of the laws of Thailand.

The respondent, on the other hand, is an Indian company

incorporated under the provisions of Companies Act, 1956.

The disputes sought to be referred for adjudication thus

involves international commercial arbitration within the

meaning of Section 11(9) read with Section 2(f) of the Act

aforementioned.

 

The petitioner-company appears to have had

commercial transactions with the respondent for sometime
4
past. One of the transactions which they appear to have

entered into in the course of their business relationship was

contract No.057/2008 for the sale by the petitioner and

purchase by the respondent of 75 MTs of “Aluminium alloy

ingots ADC 12”. The present proceedings, however, do not

concern the said contract. These proceedings relate to

contract No.073/2008 executed on 30th July, 2008 for the

sale by the petitioner and the purchase by the respondent of

150 MTs of “Aluminium Alloy Ingots AC2B” on the terms and

conditions stipulated in the said contract. The contract

among other terms and conditions stipulated the price of the

goods to be US $ 3490 per MT (CIF) payable by a 100%

Letter of Credit (LC).

 

The petitioner’s case is that the contract was duly

signed on its behalf and forwarded to the respondent for its

signature. A photocopy of the duly signed version of the

contract was then returned to the petitioner by the

respondent. It is not in dispute that the contract document,
5
a copy whereof has been placed on record, contained the

following arbitration clause:

 

“Disputes & Arbitration: Should a claim for
quantity and/or quality arise, the buyer has
to duly notify the seller within 10 days upon
receipt of material at buyer’s factory along
with proof of deviation from quantity or
quality as agreed between both parties.

The seller shall then amicably settle the claim
with the buyer.

As per the International Trade 0.5% of
Weight Calibration is acceptable on Net
Weight.

In case both parties are unable to resolve
any disputes amicably in connection to the
contract or breach thereof, results from the
arbitration carried out in accordance with
laws of India shall be final and binding upon
both parties. Arbitration charges and any
other charges in this connection shall be
borne or reimbursed by the losing party.”
The above was followed by an addendum dated 24th

September, 2009. The execution of the contract and an

addendum to the same notwithstanding the respondent did

not open the requisite Letter of Credit despite repeated
6
requests and reminders sent by the petitioner company to

the former. The petitioner company in that view instructed

its Advocates & Solicitors to send a legal notice in which the

respondent was given a final opportunity to open a letter of

credit in favour of the petitioner within seven days of the

receipt of the notice failing which the petitioner proposed to

initiate appropriate legal proceedings in which the petitioner

would hold the respondent responsible for all the damages

and costs suffered by the petitioner on account of the breach

of the terms of the contract. The notice did not evoke any

response from the respondents nor did the subsequent two

notices sent on behalf of the petitioner.

 

Fourth and final notice was eventually sent by the

petitioner through their legal consultants in which the

petitioner reiterated that the respondent had failed to fulfill

its obligations under the contract resulting in heavy losses to

the petitioner which the petitioner assessed at USD

338,286.34 equivalent to Rs.1,69,75,208.54. A demand for
7
payment of that amount was accordingly made against the

respondent. It was only, at this stage, that the respondent

broke its silence and sent a reply through Padmanabhan

Associates their Advocates & Solicitors in which the

respondent for the first time came out with the defence that

the contract referred to by the petitioner had not been

signed by an authorized person. Mr. Sandeep K. Dabir who

had signed the contract document was not, alleged the

respondent, authorised to sign the contract. It was further

alleged that the documents, information and correspondence

provided by the respondent to the petitioner company was

only “some sort of negotiation” in respect of the purchase of

the material in question. According to the respondent while

Shri Dabir was authorized to negotiate the terms of

purchase he was at no point of time authorized to enter into

a contract. It was asserted that his signatures were obtained

by misguiding/ enticing and misdirecting him. The alleged

contract was, therefore, repudiated as being void and

unenforceable.
8
The petitioner sent a rejoinder to the reply in which he

pointed out that the respondent had been represented not

only by Shri Sandeep K. Dabir but even by Shri S. Sengupta

with whom considerable correspondence had been

exchanged. It was further asserted that at no stage during

the correspondence was any indication given to the

petitioner that Shri Dabir and Shri Sengupta were not

competent to finalise and sign the contract in question.

 

The parties having thus taken totally contradictory

positions, the petitioner informed the respondent that it had

nominated Shri Rahul Narichania as a sole Arbitrator to

adjudicate upon the disputes and that in case they had any

objection to his acting as a sole Arbitrator, the respondent

could nominate an Arbitrator on their behalf. Since the

respondent stuck to its stand that there was no valid

contract between the parties and consequently there existed

no arbitration agreement for referring the dispute for

arbitration, the petitioner was left with no alternative except
9
to file the present petition seeking appointment of an

independent Arbitrator.

 

The petition has been, as noticed earlier, opposed by

the respondent not only on the merits of the claim made by

the petitioner but also on the ground that no arbitration

agreement exists between the parties that could provide a

basis for making a reference. According to the respondent,

the petitioner had obtained the signature of Shri Dabir for

blackmailing the respondent company. It is further alleged

that the respondent company had not only taken disciplinary

action against Shri Dabir but refused to ratify the

unauthorized act of its employee. It is alleged that it was

only Shri Sengupta who was competent to enter into a

contract and that the earlier contract dated 7th July 2008

signed by the said officer on behalf of the respondent had

been honoured.
10
In the rejoinder to the petition, the petitioner has

denied the allegation that Shri Dabir was not competent or

that he had been induced to sign the contract for mala fide

reasons. It is further alleged that the issue whether Shri

Dabir was authorized to execute the contract in question or

not cannot be raised in the present petition.

 

It is in the above background that two questions which

have been formulated in the beginning of this order arise for

my consideration which may now be taken up ad seriatim.

 

Regarding Question No. (1)

 

There is a long line of decisions of this Court in which

this Court has examined the nature and the scope of the

enquiry and the jurisdiction of the Chief Justice or his

designate while dealing with petitions under Section 11 of

the Arbitration and Conciliation Act, 1996. References to all

those decisions is unnecessary for the question that falls for
11
determination here, stands concluded by two recent

decisions of this Court which alone should suffice for the

present.

 

In National Insurance Co. Ltd. v. Boghara Polyfab

(P) Ltd. 2009 (1) SCC 267, this Court examined the

provisions of Section 11 of the Act and categorized the

issues that may arise for determination in a petition under

Section 11 before the Chief Justice or his designate and the

approach to be adopted qua the same. The Court said:
“22.1. The issues (first category) which the
Chief Justice/his designate will have to decide
are:

(a) Whether the party making the application
has approached the appropriate High Court.

(b) Whether there is an arbitration agreement
and whether the party who has applied under
Section 11 of the Act, is a party to such an
agreement.

22.2. The issues (second category) which the
Chief Justice/his designate may choose to
decide (or leave them to the decision of the
Arbitral Tribunal) are:
12

(a) Whether the claim is a dead (long-barred)
claim or a live claim.

(b) Whether the parties have concluded the
contract/transaction by recording satisfaction of
their mutual rights and obligation or by
receiving the final payment without objection.

22.3. The issues (third category) which the
Chief Justice/his designate should leave
exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the
arbitration clause (as for example, a
matter which is reserved for final decision
of a departmental authority and excepted
or excluded from arbitration).

(ii) Merits or any claim involved in the
arbitration.”

 

The question whether there is an arbitration agreement

and whether the party who has applied under Section 11 of

the Act is a party to such an agreement in terms of the

above decision falls in category (1) and has, therefore, to be

decided by the Chief Justice or his designate.

 

The above decision was followed in A.P. Tourism

Development Corpn. Ltd. v. Pampa Hotels Ltd. 2010 (5)

SCC 425 where also one of the questions that fell for
13
determination was whether existence or validity of the

arbitration agreement is a matter to be decided by the Chief

Justice/designate while considering a petition under Section

11 of the Act or the same has to be decided by the

Arbitrator. Relying upon the decision of this Court in SBP &

Co. v. Patel Engg. Ltd. 2005 (8) SCC 618 and National

Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. 2009

(1) SCC 267, this Court held that the question had to be

decided by the Chief Justice or his designate. The Court

observed:
“It is held in SBP & Co. v. Patel Engg.
Ltd.and National Insurance Co. Ltd. v.
Boghara Polyfab (P) Ltd. that the question
whether there is an arbitration agreement
and whether the party who has applied under
Section 11 of the Act, is a party to such an
agreement, is an issue which is to be decided
by the Chief Justice or his designate under
Section 11 of the Act before appointing an
arbitrator. Therefore there can be no doubt
that the issue ought to have been decided by
the learned designate of the Chief Justice and
could not have been left to the arbitrator.

…………………………………………………………..

On account of the prospective overruling
direction in SBP, any appointment of an
arbitrator under Section 11 of the Act made
prior to 26-10-2005 has to be treated as
14
valid and all objections including the
existence or validity of the arbitration
agreement, have to be decided by the
arbitrator under Section 16 of the Act. The
legal position enunciated in the judgment in
SBP will govern only the applications to be
filed under Section 11 of the Act from 26-10-
2005 as also the applications under Section
11(6) of the Act pending as on 26-10-2005
(where the arbitrator was not yet
appointed).”

 

It is in the light of above pronouncements, unnecessary

to delve any further on this issue. It is clear that once the

existence of the arbitration agreement itself is questioned by

any party to the proceeding initiated under Section 11 of the

Act, the same will have to be decided by the Chief

Justice/designate as the case may be. That is because

existence of an arbitration agreement is a jurisdictional fact

which will have to be addressed while making an order on a

petition under Section 11 of the Act. The position may be

different where arbitration proceedings are initiated before a

nominated arbitral Tribunal but the opposite party appears

to dispute the existence of the arbitration agreement. In
15
any such situation the Arbitral Tribunal can itself decide the

issue in exercise of its powers under Section 16(1) of the Act

which reads as under:

 

“Jurisdiction of arbitral tribunals

16.Competence of arbitral tribunal to rule on
its jurisdiction.- (1) The arbitral tribunal may
rule on its own jurisdiction, including ruling
on any objections with respect to the
existence or validity of the arbitration
agreement, and for that purpose, –

(a) an arbitration clause which forms part of
a contract shall be treated as an agreement
independent of the other terms of the
contract; and

(b) a decision by the arbitral tribunal that the
contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.”

 

So also the parties may without approaching the Chief

Justice refer the matters in dispute to the nominated

Tribunal including the question whether there exists an

arbitration agreement. In any such case also the Arbitral

Tribunal can determine the existence of the arbitration

agreement. Suffice it to say that the power available to the
16
Arbitral Tribunal under Section 16 of the Act does not imply

that the issue can be or ought to be left to be determined by

the Arbitral Tribunal even in cases where one of the parties

has filed a petition under Section 11 of the Act and the other

party opposes the making of a reference on the ground that

there exists no arbitration agreement between them. It is

quite evident that the question whether or not an arbitration

agreement exists between the parties will have to be

answered for it is only if the answer to that question is in the

affirmative that the Chief Justice or his designate can pass

an order of reference of the disputes for adjudication.

Question No. (1) is answered accordingly.

 

Regarding Question No. 2

 

That there is a written contract document between the

parties, is not in dispute. That an arbitration clause is found

in the said contract is also not in dispute. That Shri Sandeep

K. Dabir had negotiated the contract on behalf of the
17
respondent is also a fact that is not disputed. That

correspondence between the parties was exchanged before

the signing of the document and the said correspondence

was not only with Shri Dabir but with Shri Sengupta, who

according to the respondent, was the competent authority to

sign the document is also not in dispute. All that the

respondent in the above backdrop argues is that Shri

Sandeep K. Dabir was not competent to sign the contract

and that Shri Dabir had been misdirected/

enticed/misdirected to initial the contract which is according

to the respondent, void in terms of the Contract Act, 1872.

Reply sent by the respondent to the notices served upon it

summarises the twin objections to the contract set up by the

petitioner in the following words:

“4. The documents, information and
correspondence provided by our client clearly
suggest that what was going on between M/s
Kliss Trading Pvt. Ltd. the representatives of
your client and certain officials of our client
was only some sort of negotiation in respect
of the purchase of 150 MTAC2B aluminium
ingots. At no point of time our client had
18
entered into any contract with you for the
purchase of the above said material.
8. Our client further states that since your
client had misguided/ enticed/ misdirected
Mr. Dabir to initial the said contract the same
is also void under the provision of the Indian
Contract Act, 1872.”
The question, therefore, is whether the contract set up

by the petitioners can be held non est for the two reasons

indicated in paragraph 4 and 8 extracted above. The defence

set up by the respondent that the information and

correspondence provided by the respondent was only

suggestive of “some sort of negotiation” between the parties

has not impressed me. The documents, information and

correspondence when taken in their totality especially in the

light of the signed contract document that stipulates the

mutual rights and obligations of the parties do not show that

the parties were simply negotiating a contract. The

information provided, the correspondence exchanged and

the documents executed are on the contrary clearly

suggestive of the parties having finalized and signed a

contract.
19
So also the assertion of the respondent that the

petitioner had mis-directed, enticed or mis-guided Shri Dabri

who was admittedly negotiating the contract on its behalf,

had no authority to do so need be noticed only to be

rejected. There are no particulars leave alone any material

to establish that the signatures appended by Shri Dabir to

the contract document in token of its acceptance, was

vitiated by any misrepresentation or such other

considerations that could have the effect of vitiating the

contract. In the absence of details and particulars of what,

according to the respondent, constituted inducement, mis-

guidance or mis-direction referred to in paragraph 8, it is

difficult to see how a fluent use of such expressions can help

the respondent in avoiding a contract that had come into

existence between the parties. A heavy duty lies upon the

party who seeks to avoid a contract on the ground of mis-

representation, fraud or coercion to prove any such

allegation. Nothing of the sort has been done in the instant

case by the respondent. So much so the respondent has not
20
even placed on record any charter of duties and powers of

Shri Dabir and Shri Sengupta nor has it chosen to place on

record any material to suggest that any action was indeed

taken against Shri Dabir for the alleged transgression of the

limits of his authority and if so the nature of the disciplinary

action taken against him. All this information and material

was within the special knowledge of the respondent. Non-

furnishing of such information must, therefore, give rise to

an adverse interference against it. The petitioner company

had in any event no reason to believe or even suspect that

Shri Dabir with whom it was dealing did not have the

authority to sign the contract which was finalized between

the two companies acting through their representatives.

That is so especially when even according to the respondent,

Shri Dabir had been authorized to negotiate the terms on

behalf of the respondent. If Shri Dabir was competent to

negotiate the terms of the contract, the petitioner cannot be

said to have induced or defrauded him into signing of the

contract, which was forwarded to the respondent and which
21
was returned duly signed by Shri Dabir. The petitioner was

in this backdrop justified in proceeding on the basis that the

contract was duly negotiated and signed on behalf of the

respondent company.

 

In the totality of the above circumstances, I have no

doubt that a legally valid contract had indeed come into

existence between the parties which contained an arbitration

clause for adjudication of disputes that may arise between

them. Question No.(2) is accordingly answered in the

affirmative.

 

In the result, I allow this petition and appoint

Mr. Justice Anil Dev Singh, former Chief Justice of Rajasthan

High Court as sole Arbitrator for adjudication of the disputes

between the parties arising out of the contract referred to in

the petition. The Arbitrator shall be free to fix his fee and

charges and the ratio in which the same shall be paid by the

parties. The parties shall appear before the Arbitrator on 10th
22
December, 2010 for further directions. Registry shall

forthwith forward a copy of this order to the worthy

Arbitrator for information and necessary action.

 
……………………………J.
(T.S. THAKUR)
New Delhi
November 16, 2010

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