@JUDGMENTTAG-ORDER
Hon''ble Mr. Alok Aradhe, J.@mdashthis batch of writ petitions since common questions of law and facts arise, they were heard analogously and are being decided by this order. In W.P. No. 4197/09 and W.P. No. 4199/09, Shin-Etsu Chemicals Co. Ltd. (hereinafter referred to as ''the petitioner'') has challenged the validity of the orders dated 30-11-2006 passed by IVth Additional District Judge, Rewa in Civil Appeal No. 24/06 and Civil Appeal No. 25/06 and have sought for a direction to refer the dispute in terms of the arbitration clause contained in the agreement executed between the parties.
2. In W.P. No. 18746/09, Vindhya Telelinks Ltd., and its sister concern Optic Fibre have challenged the findings recorded in Paragraphs 18, 20 and consequential portion of Para 26 of the order dated 30-11-2006 passed by IVth Additional District Judge in Civil Appeal No. 24/06 wherein it has been held that dispute sought to be referred for arbitration is not tripartite. In the aforesaid writ petitions a direction is sought to remand the matter to the Appellate Court to adjudicate the issue of existence of the tripartite dispute de novo. Similarly, in W.P. No. 18957/06, Birla Ericson Optical Ltd., and Optic Fibre, Goa have challenged the validity of the order dated 30-11-2006 passed by IVth Additional District Judge, Rewa in Civil Appeal No. 25/06, wherein the petitioners have assailed the findings recorded in Paragraphs 18, 20 and consequential portion of Para 26 of the said order.
3. In order to appreciate the challenge to the aforesaid orders, few relevant facts need mention which are stated infra. Two long term sale and purchase agreements dated 23-1-2001 and 24-1-2001 were executed between the petitioner, Vindhya Telelinks Ltd., (hereinafter referred to as ''the respondent No. V) and its sister concern namely Birla Ericsson Optical Ltd., (hereafter referred to as ''the respondent No. 2'') for purchase of "Preform", a new material used for manufacture of optical fibre. Clause 10 of general terms and conditions forming part of the agreements provide that the agreements shall be governed by and construed and interpreted under the laws of Japan. Clause 10 further provides that all disputes arising out of or in relation to the agreements Which cannot be settled by mutual accord, would be settled by arbitration at Tokyo, Japan, in accordance with rules and procedures of Japan Commercial Arbitration Association. The payments for "Preform" purchased under the agreement were to be made by "two irrevocable and without recourse automatic revolving letters of credit" issued by State Bank of India, Satna. The said letters of credit were initially valid for a period of one year and its validity could be extended up to maximum of four times. The petitioner under the agreements commenced the shipment of Preform from October, 2001, which continued till March, 2002. The respondent No. 2 by a communication dated 22-4-2002 proposed that the agreements be amended so as to reduce the supply of Preform to 175 Kgs. The respondent No. 2 agreed to purchase the balance quantity of Preform in the months of April, 2003 to September, 2003 in addition to 350 Kgs., agreed to be purchased in those months. The respondent No. 2 further agreed to open separate letter of credit for additional quantities for the months of April, 2003 to September, 2003.
4. However, the respondent No. 2 did not carry out the amendment to original letter of credit. The petitioner vide fax message dated 11-10-2002 asked the respondent No. 2 to ensure that letters of credit are renewed. Thereafter, by another fax message dated 16-10-2002, the petitioner informed the respondent No. 2 that shipment of Preform for the month of October, 2002 was being despatched. The respondent No. 2, vide fax message dated 21-10-2002 informed the petitioner that issues raised by the petitioner in its fax message dated 16-10-2002 is between the petitioner and the State Bank of India and the petitioner should sort out the issue with the State Bank of India failing which, the respondent No. 2 would not be responsible.
5. Thereafter, the petitioner vide Letter dated 30-10-2002 informed the respondent No. 2, that if letters of credit are not renewed, the respondent No. 2 should make alternative arrangements for payment of price of goods to be delivered under the agreement failing which the petitioner would commence legal action against respondent No. 2 for breach of the agreement. Thereafter, a legal notice dated 13-11 -2002 was sent on behalf of the petitioner by which respondent No. 2 was apprised to obtain substitute letter of credit failing which petitioner would be constrained to initiate arbitration proceedings. However, the respondent No. 2 did not substitute the letter of credit. Thereupon, the petitioner informed respondent No. 2 that petitioner would initiate arbitration proceedings.
6. Thereafter, respondent No. 2 vide letter dated 27-1-2-2002 took a stand that agreements had been breached and rescinded by the petitioner. The petitioner vide fax message dated 6-12-2002 informed the respondent No. 2 that it is left with no option but to initiate arbitration proceedings against respondent Nos. 1 and 2 and to institute a civil suit against State Bank of India, Satna. Thereafter, on or about 20-11-2002, respondent Nos. 1 and 2 filed Civil Suit No. 39-A/04 and Civil Suit No. 38-A/2004 in the Court of 1st Civil Judge Class I, Rewa, in which respondent Nos. 1 and 2 sought a declaration that agreements dated 23-1-2001 and24-l-2001 are null and void.
7. The petitioner on receipt of summons of the suit, filed an application under Order 7 Rule 11 read with Sections 5 and 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ''the Act''). The Trial Court vide order dated 14-7-2003 dismissed the applications preferred by the petitioner. Being aggrieved by the aforesaid orders, the petitioner filed two Civil Revisions namely Civil Revision No. 811/2003 and Civil Revision No. 812/2003 before this Court in which order passed by the Trial Court was affirmed by this Court vide order dated 26-8-2003. The petitioner challenged the validity of the orders dated 26-8-2003 passed by this Court in Special Leave Petitions before the Supreme Court. The Special Leave Petitions preferred by the petitioner were decided by the Supreme Court vide order dated 7-12-2005. The Supreme Court set aside the order passed by the Trial Court as well as this Court and remanded the matter to the Trial Court to decide the applications preferred by the petitioner as those u/s 45 of the Act and to dispose of the applications in terms of the majority view expressed by the Supreme Court in
8. In pursuance of the order of remand, the Trial Court, vide order dated 31-3-2006 held that dispute sought to be referred to the arbitration is tripartite as the same involves State Bank of India, Satna also and, therefore, the same could not be referred for arbitration. The Trial Court while dismissing the applications preferred by the petitioner u/s 45 of the Act directed the petitioner to file written statements in the civil suits. The aforesaid orders passed by the Trial Court were subject matter of challenge in Civil Appeal No. 24/06 and Civil Appeal No. 25/06 before the Additional Sessions Judge, Rewa. The Appellate Court vide order dated 30-11-2006 though held that the dispute sought to be referred for arbitration is not tripartite, yet the matter was remanded to the Trial Court on the ground that it did not deal with the other objections raised by respondent Nos. 1 and 2 while deciding the application u/s 45 of the Act.
9. The petitioner challenged the orders of remand dated 30-i 1-2006 in SLP before the Supreme Court. The Supreme Court vide order dated 27-3-2009 dismissed the appeals preferred by the petitioner with the liberty to the petitioner to avail the remedy under Article 227 of the Constitution of India. In the aforesaid factual background, the parties have approached this Court under Article 227 of the Constitution of India by filing the aforesaid four writ petitions.
10. Mr. Dhruv Mehta, learned Senior Counsel for the petitioner submitted that the Judicial Authority has to mandatorily refer the dispute to arbitration, if conditions specified in Section 45 of the Act are fulfilled and the agreement is not found to be null and void, inoperative or incapable of being performed. The Trial Court vide orders dated 31-3-2006 has declined to refer the dispute for arbitration on the sole ground that the dispute is tripartite in nature. It was further submitted that in case respondent Nos. 1 and 2 wanted to attack any finding recorded by the Trial Court, they ought to have filed a cross-objection under Order 41 Rule 22 of the Code of Civil Procedure. The respondent Nos. 1 and 2 neither filed any cross-objection nor filed any appeal against the orders of the Trial Court that objections raised by them to the applications u/s 45 of the Act have not been decided, therefore, the Appellate Court suo motu ought not to have remanded the matter to the Trial Court on the ground that other objections preferred by the respondent Nos. 1 and 2 to the application u/s 45 of the Act should be decided afresh. In support of aforesaid submission, learned Senior Counsel has placed reliance on a decision of the Supreme Court in the case of
11. It was further submitted that the Court while considering the application u/s 45 of the Act is required to take a prima facie view of the matter. For this proposition, learned Senior Counsel has relied on a decision of Delhi High Court in Usha Draeger Pvt. Ltd. Vs. Dragerwerk Aktiengesellschaft 128 (2006) DLT 764. The agreement between the parties was acted upon under which 18 shipments were received by respondent Nos. 1 and 2 and, therefore, the respondent Nos. 1 and 2 cannot challenge the agreement on the ground that same is either inoperative or is void. The respondent Nos. 1 and 2 cannot be allowed to approbate and reprobate. In this connection, reference has been made to the decisions in the case of
12. It was also submitted that arbitration clause as well as letter of credit is independent of the main contract. In support of the aforesaid proposition, reference has been made to the decisions of the Supreme Court in
13. On the other hand, Mr. Dushyant Dave, learned Senior Counsel for the respondent while opposing the submissions advanced on behalf of the petitioner, submitted that the Appellate Court while remanding the matter has directed the Trial Court to deal with all the issues which is an eminently just view taken by the Appellate Court which does not call for any interference in exercise of power under Article 227 of the Constitution of India. The power under Article 227 of the Constitution of India should be exercised sparingly and should be exercised for promotion of larger public interest and not for relief in individual cases. In this connection reference has been made to the decision of the Supreme Court in
14. The agreements dated 23-1-2001 and 24-1-2001 are null and void, inoperative and incapable of being performed. The persons who are not parties to the arbitration agreements cannot be referred to the arbitration and the only remedy in such a case is to file a civil suit. For this proposition, learned Senior Counsel has relied on decisions of Supreme Court in
15. I have considered the submissions made on both sides. The Arbitration and Conciliation Act, 1996 is based on the United Nations Commission on International Trade Law, which is an Act to consolidate and amend the law relating to Domestic Arbitration, International Commercial Arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. The object of the Act is to provide speedy and alternative solution to the dispute and to avoid protraction of litigation and to minimize the supervisory role of the Courts. See :
45. Power of Judicial Authority to refer parties to arbitration.-
Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a Judicial Authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.
16. The question whether the Judicial Authority while exercising power u/s 45 of the Act should decide the objection on a prima facie view of the matter and render prima facie finding or a final finding on merits after affording the parties such opportunity as the justice of the case may demand, having regard to the facts of the case arose for consideration before the Supreme Court in Shin Etsu Co. Ltd. Vs. Aksh Opti Fibre (supra). The Supreme Court by majority judgment (2:1) held that while dealing with the application u/s 45 of the Act, the Court has to form a prima facie view with regard to the factors enumerated in Section 45 of the Act. It was held that two basic requirements namely expedition at a pre-reference stage and a fair opportunity to contest the award after full trial would be fully satisfied by interpreting Section 45 of the Act enabling the Court to act on a prima facie view. It was further held that proof of foreign law which may be applicable to an arbitration agreement, would have to be rendered on the lines of proving the facts in a trial. It was further held that at pre-reference stage contemplated by Section 45, the Court is required to take only a prima facie view for making a reference leaving the parties to a full trial either before the Arbitral Tribunal or before the Court at the post award stage. The Court has to record a prima facie finding as to the validity or otherwise of the arbitration agreement. Thus, the application u/s 45 of the Act is required to be determined by the Trial Court after arriving at a prima facie satisfaction that there exists an arbitral agreement, which is not null and void, inoperative or incapable of being performed. Hon''ble Justice D.M. Dharmadhikari, in his separate opinion however while agreeing with the view taken by Hon''ble Justice B.N. Shrikrishna, held that in case on a prima facie view of the matter which is required to be objectively taken on the basis of material and evidence produced by the parties, if the Court is required to reject the request for reference on the ground that agreement is null and void or inoperative or incapable of being performed within the meaning of Section 45 of the Act, the Judicial Authority or the Court must afford full opportunity to the parties to lead evidence and to decide the question like trial of a preliminary issue, on jurisdiction or limitation in a regular civil suit and pass an elaborate and reasoned order. It has not been disputed before this Court by the learned Senior Counsel for the parties and rightly so that majority opinion in Aksh Opti Fibre (supra) has been delivered by Hon''ble Justice B.N. Shrikrishna and Hon''ble Justice D.M. Dharmadhikari.
17. The Supreme Court by an order dated 7-12-2005 while setting aside the order passed by the Trial Court as well as by this Court, remanded the matter to the Trial Court to decide the application preferred by the petitioner afresh as treating the same to be one u/s 45 of the Act. The Trial Court was further directed to dispose of the application in terms of the majority view expressed by this Court in the case of Aksh Opti Fibre (supra).
18. The scope of jurisdiction of this Court under Article 227 of the Constitution, which is well settled by catena of decisions of the Supreme Court. In the celebrated case of
19. In
20. Similarly, in
21. After having noticed the scope of jurisdiction under Article 227. reference may be made to the proceeding before the Trial Court as well as the Appellate Court. In the suit instituted by the respondent Nos. 1 and 2, petitioner filed an application seeking reference to the arbitration. The application submitted by the petitioner was contested by the respondent Nos. 1 and 2, inter alia on the grounds that the agreement is null and void as the same has been executed under the undue influence. The dispute is tripartite and, therefore, the same cannot be referred to arbitration. As per the arbitration clause, the dispute can be referred to the arbitration only if it cannot be resolved by mutual accord. The petitioner did not make any attempt for resolution of the dispute by mutual accord and, therefore, the arbitration clause in such a case is inoperative. It was further pleaded that the agreement is null and void in view of Articles 788 and 793 of law. concerning proceedings for general pressing of notice and arbitration proceedings law No. 29 of 1890.
22. The Trial Court vide orders dated 31-3-2006 by taking into account the majority view in Aksh Opti Fibre (supra), held that while deciding the application u/s 45 of the Act, prima facie view with regard to the factors mentioned in Section 45 of the Act has to be taken. It was further held by the Trial Court that if on a prima facie view of the matter it is found that the arbitration clause is not null and void or is inoperative or is incapable of being performed, the parties should be referred to arbitration. It was also held that foreign law can be examined during the course of the trial. It was further held that the issue whether or not any attempt was made by the petitioner to resolve the dispute by mutual accord can also be established only after recording the evidence. However, the Trial Court held that on a prima facie view the dispute being tripartite, the matter cannot be referred to the arbitration.
23. The petitioner being aggrieved by the order of the Trial Court, filed appeals before the Appellate Court. The Appellate Court vide orders dated 30-11-2006 held that the dispute between the parties is not a tripartite and the State Bank of India was not a necessary party to the dispute. Accordingly, the finding recorded by the Trial Court that the dispute being tripartite, the same cannot be referred for arbitration, was set aside. However, the Appellate Court remanded the matter to the Trial Court with a direction to decide the application preferred by the petitioner u/s 45 of the Act in accordance with the observations made by Hon''ble Justice D.M. Dharmadhikari in Para 111 of the judgment in Aksh Opti Fibre (supra).
24. It is well settled in law that respondent/defendant in an appeal, without filing cross-objection can attack an adverse finding upon which a decree in part has been passed against the respondent for the purposes of sustaining the decree. Thus, filing of cross-objection after the 1976 amendment in the CPC is purely optional and is not mandatory. See :
25. A close scrutiny of the judgment of Supreme Court in Aksh Opti Fibre (supra), leaves no manner of doubt that the Appellate Court has misinterpreted the ratio in the aforesaid case while deciding the appeal and in remitting the matter to the Trial Court to decide the application u/s 45 of the Act in accordance with the process prescribed in Para 111 of the judgment of Aksh Opti Fibre (supra). The majority view in Aksh Opti Fibre (supra), is that only a prima facie view is required to be taken while dealing with the application u/s 45 of the Act with regard to factors mentioned in Section 45 of the Act. The observation made in Para 111 of the judgment comes into play only when the Court on a prima facie view of the matter is inclined to reject the request for reference on the ground that agreements are null and void and are inoperative or incapable of being performed. The Trial Court on prima facie view did not find the agreements to be null and void, inoperative or incapable of being performed. Therefore, the direction issued by the Appellate Court to the Trial Court to consider the application u/s 45 of the Act filed by the respondents in the light of observations made in Para 111 of the judgment in Aksh Opti Fibre (supra), is clearly in excess of jurisdiction. Thus, the order passed by the Appellate Court suffers from jurisdictional infirmity.
26. Thus, for the aforementioned reasons, it is a case where the Appellate Court has exercised the jurisdiction in a manner which tantamounts to over-stepping the limits of its jurisdiction. In the opinion of this Court, if the order passed by the Appellate Court is allowed to stand, the same would result in grave injustice, as the same would amount to defeating the object of the Arbitration and Conciliation Act, which is an Act enacted with the object to provide speedy and alternative solution to the dispute and to. avoid protraction of litigation. Therefore, in the facts and circumstances of the case, in the opinion of this Court, it is eminently a fit case where the powers under Article 227 of the Constitution of India have to be exercised and appropriate directions have to be issued to avoid multiple rounds of litigation.
27. At this stage, it is relevant to mention here that the Trial Court has dealt with the following two objections raised on behalf of the respondents with regard to the application u/s 45 of the Act in Paras 19 and 20 of its order namely : (i) the agreement is null and avoid in view of the provisions contained in Japanese Law; (ii) the arbitration clause is inoperative as the petitioner failed to resolve the dispute through mutual accord.
The respondents have not challenged the aforesaid findings before the Appellate Court, therefore, in the absence of challenge to the aforesaid findings, the same have become final.
28. From perusal of the orders passed by the Trial Court, it is apparent that the Trial Court has not dealt with the objection raised by the respondents with regard to the undue influence and, therefore, this Court shall consider the aforesaid objection. Before proceeding to consider the objection that agreements are null and void on account of undue influence, at the cost of repetition, it has to be stated that only a prima facie view has to be taken whether or not the agreement is inoperative as it is vitiated on account of undue influence. The respondents have assailed the agreements on the ground of undue influence mainly on the basis that there was inequality of bargaining power in as much as, the petitioner was monopolistic supplier of the goods namely "Preform" and the respondents having made large investment, were solely dependent upon the petitioner for supply of the product and were thus a weaker party. The contract in question in unconscionable. It is relevant to mention here that the contract in question is a commercial contract. It has been held by the Supreme Court in
(d) A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.
Thus, for this reason also, the contract cannot be said to be induced by undue influence.
29. In Erick Gnapp Ltd. Vs. Petroleum Board (1949) All. ER 980, it has been held that a party is bound to accept the terms of the contract offered by a Government Board because it is a sole supplier of the goods to be sold, does not make it a contract obtained by undue influence. The respondents having entered into an agreement with the petitioner and having derived benefit under the agreement, cannot be permitted to approbate or reprobate. The respondents had the choice to enter into the contract however, after electing to enter into the contract and after accepting the benefit under the contract, the respondents are estopped from denying the validity or the binding effect of the contract. See :
30. In W.P. No. 18746/06 and W.P. No. 18957/06, the respondents have assailed the findings recorded by the Appellate Court that agreement in question is not a tripartite agreement. Therefore, aforesaid challenge may be examined. It has been contended on behalf of the respondents that the dispute is tripartite in nature and presence of State Bank of India is necessary to adjudicate the nature of transaction between the parties. Since, the State Bank of India is not a party to the arbitration agreement, therefore, the dispute cannot be referred to arbitration. The Supreme Court in
31. It has also been argued on behalf of the petitioner that where the agreement itself is vitiated by undue influence, then the arbitration clause also does not survive, does not deserve acceptance. An arbitration clause is a collateral term in the contract which relates to resolution of disputes and not performance. Even if, performance of the contract comes to an end on account of repudiation, frustration or breach of contract, the arbitration would survive for the purpose of resolution of the disputes. The aforesaid position is now statutorily recognized in the form of Section 16 (1) of the Act. Section 16 (1) (a) provides that an arbitration clause, which forms part of the contract, shall be treated as an agreement independent of the other terms of the contract. See :
32. Thus, in view of the preceding analysis, the order passed by the Trial Court as well as the Appellate Court are set aside. The dispute between the parties is referred to the arbitration in terms of the arbitration clause contained in the agreements dated 23-1-2001 and 24-1-2001. The applications preferred by the petitioner u/s 45 of the Act are allowed. In the result, Writ Petition Nos. 18746/2006 and 18957/2006 filed by Vindhya Telelinks Ltd., and others and Birla Ericsson Optical Ltd., respectively, are dismissed. The writ petitions preferred by the petitioner Shin Etsu Chemical Co. Ltd., namely W.P. Nos. 4197/09 and 4199/09 are hereby allowed.
