Dismissed

Essar Shipping Ltd. v. Oil and Natural Gas Corporation Ltd.

Bombay HC4 Dec 2009ARAPP/5/2009

Case brief

AI extract

What is this about?

The High Court dismissed an appeal against an Arbitral Tribunal's order terminating proceedings for lack of jurisdiction. The Court upheld the Tribunal's finding that no valid arbitration agreement existed between the parties because the offeree had explicitly rejected the arbitration clause in the tender document, rendering the parties not ad idem. Consequently, the Tribunal correctly lacked juri

What did the court decide?

The appeal was dismissed with costs; the impugned order upholding the termination of arbitration proceedings for lack of jurisdiction was affirmed.

Essar Shipping Ltd. Vs Oil and Natural Gas Corporation Ltd. — Arbitration | Bombay HC (2009)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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ARBITRATION APPEAL NO.5 OF 2009

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Essar Shipping Ports & Logistics Ltd., } Essar House, P. O. Box No.7945, } Mahalaxmi, Mumbai 400 034. } .. Appellants (Org. Claimant) V/s. Oil & Natural Gas Corporation Ltd., } Kurla Complex, Bandra (E) } Mumbai 400 051. } .. Respondents (Org. Respondent)

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Mr. Sanath Mukherji a/w. A.S.Kamat i/b. Ashok Purohit for the Appellants.

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Mr. Pankaj Sawant a/w. Mr. Aziz Khan, Ms. Razat Ansari i/b. Divya Shah Associates for the Respondent.

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CORAM:- A.M.KHANWILKAR, J.

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JUDGMENT RESERVED ON: November 27, 2009. JUDGMENT PRONOUNCED ON: December 04, 2009.

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JUDGMENT:

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This appeal is filed under Section 37 of the Arbitration and Conciliation Act, 1996 against the order dated 6^th October, 2007 and 16^th January, 2008 passed by the Arbitral Tribunal consisting of sole Arbitrator. In the order dated 6^th October, 2007, the Arbitral Tribunal negatived the objection taken by the Appellant-Claimant that the substituted Arbitrator cannot examine the issue of jurisdiction of the Arbitrator, as it was raised by the Respondent and rejected by the Former Arbitrator on 8^th August, 2003. The Arbitrator instead, on analysis of the relevant provisions and the reported decisions, took the view that the order recorded by the Former Arbitrator was not a decision at all as the Former Arbitrator had clearly recorded in the order that the reasons for the conclusion noted would be given in the final award. Considering the fact situation of the present case and keeping in mind the relevant provisions of the Act and the principle enunciated in reported decisions, the Arbitral Tribunal was of the opinion that the issue of jurisdiction raised by the Respondent will have to be treated as preliminary issue and required to be decided first in point of time. In the circumstances, in the said order the Arbitral Tribunal issued following directions.

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“For the aforesaid reasons, the following directions are given:-

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(a) As provided under section 15(3) of the Arbitration & Conciliation, 1996, in absence of agreement between the parties, fresh hearing on the contention raised by the respondent under Section 16 of the Act of 1996 will be held.

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(b) It is directed and clarified that it would be open to either party to request the Tribunal to present its case by leading further oral or documentary evidence and to make submissions on the preliminary point raised by the respondent.

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Ordered accordingly.”

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Although correctness of the above order has been challenged in the

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present appeal, during the hearing, the Counsel for the Appellant did not pursue the objection that the substituted Arbitrator could not re-examine the issue of jurisdiction afresh. Instead, the Learned Counsel appearing for the Appellant in all fairness submitted that he would confine the present appeal in relation to the question arising from the subsequent order passed by the Arbitral Tribunal dated 16^th January, 2008, which is also subject matter of challenge in the present appeal, on its own merits. In the circumstances, the scope of present Appeal is confined to the issues arising from the findings and conclusion reached by the Arbitral Tribunal

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in the impugned order dated 16^th January, 2008 wherein upon analysis of relevant evidence on record it is found as of fact that there was no Arbitration Agreement between the parties and in absence of Arbitration Agreement, the Arbitral Tribunal has no jurisdiction to adjudicate the dispute between the parties. This is the only controversy that needs to be addressed by me.

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The Arbitral Tribunal while examining the question under consideration, in the first place, rejected the plea of the AppellantClaimant that since this Court while considering Arbitration Application No. 53/2000 by order dated 9^th February, 2001 directed the appointment of Arbitrator, for that reason, it was not open for the Respondent to raise the question of existence or absence of Arbitration Agreement and jurisdiction of the Arbitral Tribunal. This plea has been rejected keeping in mind the observations made by the Apex Court in the case of SBP & Co. v/s. Patel Engineering Ltd. & ors. reported in (2005) 8 SCC 618, as also in the case of Konkan Railways Corporation v/s. Rane Constructions 2002 (2) SCC 388. In so far as that finding reached by the Arbitral Tribunal is concerned, it is unexceptionable. That is the correct position in law. It is not necessary to burden this order with the said

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aspect.

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The Arbitral Tribunal then proceeded to consider the crucial

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question. It found that Section-16 of the Act, inter alia, provides that Arbitral Tribunal may rule on its own jurisdiction including ruling on any objection with respect to the existence or validity of the Arbitration Agreement. It noted that the answer to the question of jurisdiction would depend on the existence of Arbitration clause. It found as of fact that in the instant case, admittedly, there was no written contract between the parties. That position can be discerned even from the averments in Paragraph 21 of the claim statement where it is stated that it is an admitted position that no contract was signed between the parties. It is further averred that ad hoc rate structure prevailed and the contract though awarded was not yet finalised on account of non-finalisation of charter hire rates. The Tribunal has then adverted to Section 2(b) of the Act which defines expression ‘Arbitration Agreement’. Reference is also made to Section-7 of the Act and in particular to Section 7(3) and Section 7(4)(b). The Tribunal has noted that there was no document signed by the parties which contains an Arbitration Agreement including the fact that admittedly there was no contract document containing Arbitration

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Clause.

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To assert that there was Arbitration Agreement between the parties, the Claimant relied on the Arbitration Clause in the Tender document. The Appellant-Claimant also relied on other contemporaneous documents to assert that the only inference that can be drawn is that the parties were ad idem about the Arbitration Agreement. The Tribunal has adverted to relevant documents which were pressed into service. To buttress this plea, virtually, the same documents have been pressed into service to bring home that point even before this Court. The Tribunal in the first place noted that the Appellant-Claimant did not accept the Arbitration Clause in the Tender document and infact wanted it to be modified. That position was evident from the minutes recorded in the meeting dated 25^th September, 1986 which reads thus:-

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“The arbitration clause of one arbitrator member of the Commission was not accepted by ESSAR. They stated that the arbitration clause as given in clause 20 in the ONGC contract for OSVs should be accepted by ONGC. They further stated that in the Land Rings contract, ONGC has agreed for similar arbitration clause as OSVs. ONGC would examine this matter.” (emphasis supplied)

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The Tribunal has also noted as of fact that the said minutes were not

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only signed by the authorised officers of the Respondents but also by Shri

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S.N.Roy-Senior Executive of ESSAR Shipping Ltd.-Claimant. The correctness of this minutes were never challenged. From the minutes as recorded it was evident that the Arbitration Clause as appeared in the Tender document was not acceptable to the Appellant-Claimant. I have no hesitation in upholding the view so taken by the Arbitral Tribunal. Reliance on the other contemporaneous documents placed by the Appellant-Claimant was infact founded on the Arbitration Clause contained in the Tender document. In the first place, the Arbitral Tribunal has rightly noted that the Tender document cannot be treated as a contract. In any case, the Arbitration Clause in the said Tender document was of no avail as it was not acceptable to the Appellant-Claimant. There is nothing on record to even remotely counter the position emerging from the minutes of meeting dated 25^th September, 1986. The Claimant had at no point of time agreed to accept the Arbitration Clause contained in the Tender document. This being the state of affairs, the Arbitration Clause in the Tender document was of no consequence-assuming that the said document could be taken into account alongwith other contemporaneous documents.

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Counsel appearing for the Appellant criticized the observation made by the Tribunal that on account of conduct of the parties it should be inferred that there was valid and binding Arbitration Agreement. According to him, however, the Tribunal has misunderstood the submission made on behalf of the Claimant. Assuming that the above fact recorded in Paragraph-13 of the impugned Judgment is to be discarded, that would not take the matter any further. For, to succeed, the Appellant will have to point out from the evidence on record that there was any exchange of letters/telex/telegrams or other means of telecommunications which provide a record of the Arbitration Agreement. The Appellant had relied on documents C-1 dated 12^th September, 1986; terms and conditions of the Tender document; letter dated 15^th January, 1987 written by the Respondent, besides the oral evidence of their witness. The Tribunal has analyzed the said documents as well as oral evidence. In so far as the documents are concerned, it found that the said documents even if were to be taken as it is, would not establish the fact that there existed an Arbitration Agreement between the parties. The argument of the Appellant that since the said documents make no reference to the discussion held in the meeting dated 25^th September, 1986, it should be inferred that the Arbitration Agreement existed between the

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parties has also been rejected. In so far as the oral evidence is concerned,

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the Tribunal has adverted to the fact that witness admitted in his crossexamination that there was no written contract and the Arbitration Clause in the Tender was not accepted by the Claimant. It is only after analysis of the oral as well as the documentary evidence and keeping in mind the provisions of Section 7(3) and 7(4)(b) of the Act, the Tribunal has found that there was no Arbitration Agreement between the parties which was the quintessence to bestow jurisdiction in the Arbitral Tribunal to adjudicate dispute between the parties. The Tribunal found that there was no written document showing that the Claimant had entered into an Arbitration Agreement with or without modification of the Arbitration Clause in Tender documents, as contended by the Claimant. On this finding, the Tribunal proceeded to hold that for want of evidence that the parties were ad idem and there was free consent regarding the Arbitration Agreement, there was no enforceable contract in law. The Tribunal has unambiguously noted that even if all the correspondence and documents, which are referred to and relied upon by the Claimant are taken into consideration, it cannot be said that there is any written agreement between the parties to refer the disputes to arbitration. It is on this clinching opinion noted by the Arbitral Tribunal, it proceeded to hold that

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for want of arbitration agreement between the parties, the Arbitral Tribunal had no jurisdiction to adjudicate the disputes between the parties-for which reason it proceeded to pass order that the proceedings are terminated under Section 32(2)(c) of the Act.

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Even on close scrutiny of the documents pressed into service by the Appellant before this Court, it is not possible to deviate from the finding of fact reached by the Arbitral Tribunal about absence of Arbitration Agreement between the parties. Much emphasis was placed on the covering letter accompanying the Tender document which was forwarded to the Appellant. This submission clearly overlooks that the covering letter only records the fact that a complete set of Tender document made in the name of the Appellant is being handed over to the representative of the Appellant on payment of charges. Indeed, the said document refers to the Arbitration Clause being clause 31.0. However, the evidence on record persuades me to uphold the finding of the Tribunal that as a matter of fact the Arbitration Clause contained in the Tender document was not acceptable to the Appellant. The concomitant of that finding is that the Arbitration Clause in the said Tender document will be of no avail and cannot be the basis to answer the point in issue.

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Be that as it may, reliance was then placed on document at Exhibit

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‘D’ dated 16^th January, 1987 at page-92 of the compilation, which is communication addressed to the Appellant by the Dy. General Manager of the Respondent. It invites the attention of the Appellant to the offer of the Appellant and subsequent correspondence in respect of the Tender in question and calls upon the Appellant to confirm and accept the rates + 15% price difference admissible on those rates for the quoted vessels for further consideration. The fact that this document refers to the offer does

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not take the matter any further. For, in the offer submitted by the Appellant pursuant to the Tender document the arbitration clause was not acceptable to the Appellant. That is clearly discerned from the minutes dated 25^th September, 1986 duly signed by the representative of the Appellant. Therefore, it follows that parties were not ad idem on the Arbitration Clause and as such there was no agreement enforceable by law. The fact that the Appellant submitted confirmation in response to the

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said letter does not undo the fact situation that there was no consensus between the parties regarding the Arbitration Clause. Much emphasis was placed while relying on the other documents Exhibit-F at page-97 of the compilation dated 21^st January, 1987 as also the letter format

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accompanying the Tender document at page-5 and the invoices from page-100 onwards and communications exchanged between the parties dated 11^th March, 1988 Exhibit ‘H’ page-112, dated 14^th March, 1989 at page-114 and dated 12^th March, 1989 Exhibit ‘J’ at page-115. It was vehemently argued that it was more than evident that inspite of the fact that there was no written contract, the Appellant was called upon to discharge its obligation and in fact the Appellant performed its part of the contract. The fact that there was contract between the parties and the Appellant discharged its obligation thereunder does not necessarily mean that there was also an Arbitration Agreement between the parties. Suffice it to observe that the communications relied upon as referred to earlier merely revolve around the terms in relation to rates and such matters. In none of this correspondence, there is even remote suggestion that in case of any dispute, the parties should settle the same by resorting to Arbitration proceedings. The fact that there was contract between the parties and which in fact has been acted upon does not presuppose that the parties were ad idem on the Arbitration Agreement as such. That evidence is not forthcoming. In absence of such evidence, no fault can be found with the conclusion reached by the Arbitral Tribunal that it had no jurisdiction.

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To get over this position, Counsel for the Appellant heavily relied on the exposition in the case of Unissi (India) Pvt. Ltd. v/s. Post

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Graduate Institute of Medical Education and Research reported in SC-2008-1357. Even in that case, contends Learned Counsel, both the parties had not signed the agreement which contained Arbitration Clause but nevertheless, the Court relying on the Arbitration Clause in Tender document and the circumstance of acceptance of the Tender of the Appellant therein by the Respondent, found that there was valid Arbitration Agreement between the parties. The Apex Court considered its earlier decision in the case of Smita Conductors Ltd. v/s. Euro Alloys Ltd. reported in 2001 (7) SCC page 728 . None of these decisions are of any avail to the facts of the present case. In the case of Smita Conductors (supra), the Apex Court found as of fact that there is no letter or telegram confirming the contract as such, but there was certain correspondence which indicated a reference to the contract in opening the letters of credit addressed to the Bank. Significantly, it proceeded on the finding that there was no correspondence between the parties either disagreeing with the terms of contract or Arbitration Clause. In the present case, there is clear record to indicate that the parties were not ad

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idem on the Arbitration Clause contained in the Tender document. Even in the case of Unnisi (supra), the Apex Court proceeded on the basis that the Tender document contains Arbitration Clause and the offer given by the Appellant was accepted by the Respondent.

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In the present case, no doubt the Appellant submitted the acceptance of the Tender, but did not accept the Arbitration Clause as is noted in the minutes dated 25^th September, 1986. In other words, the parties were never ad idem with regard to the Arbitration Clause contained in the Tender document. Even the witness examined by the Appellant has conceded that there was no written contract and the Arbitration Clause in the Tender was never accepted by the Claimant.

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Considering the above, no fault can be found with the view taken by the Arbitral Tribunal. The Appeal is devoid of merits. The same is dismissed with costs.

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A.M.KHANWILKAR, J

Essar Shipping Ltd. v. Oil and Natural Gas Corporation Ltd.

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Essar Shipping Ltd. v. Oil and Natural Gas Corporation Ltd.

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