1 HIGH COURT OF MADHYA PRADESH PRINCIPAL SEAT AT JABALPUR MISCELLANEOUS APPEAL NO. 2092 OF 2002 [ENTITY] Versus. [ENTITY] and anr. For appellant : Shri [ENTITY], Sr Advocate with Shri [ENTITY], Advocate. For respondent No.1 : Shri [ENTITY], Advocate For Respondent No.2. : Shri [ENTITY], Advocate. ORDER
(04.03.2015)
1. The appellant has filed this appeal against the order dated 22.11.2002 passed in [CASE NUMBER].
2. On 07.01.1998, the appellant had entered into a contract with the respondent no.2 as [CASE NUMBER] for supply of Indian Toasted Soyabean Extraction FAQ of about 2100/2200 MTS at the Seller's option for delivery in January 1998. On 09.01.1998, the aforesaid Contract was amended and it was converted into a Tripartite Agreement. In this contract, the appellant was relegated as the Supplier and the respondent no.2 was relegated as the Seller. A copy of the addendum has been filed as (Annexure-A-3) along with the appeal of memo. It is mentioned in the addendum that "this addendum forms an integral part of the above Contract, all other terms and conditions remain unchanged."
3. On 10.01.1998, the appellant raised an invoice on the respondent No.1 under [CASE NUMBER] for goods supplied to it valued at Rs. 1,71,58,008/-. The respondent No.1 made a payment of Rs.1,52,69,400/-. The aforesaid payment was towards first payment for 1974 MT dispatched to Vizag, subsequently, a dispute arose between the parties in regard to aforesaid Contract.
4. The respondent no.1 instituted a suit against the appellant and respondent no.2 for recovery of an amount of Rs.49,87,972/-. The respondent No,1 pleaded that it had released an amount of Rs.1,53,00,000.00 to the defendant no.1 for supply of 1974 MTs. However, the defendants had supplied only 1838.425 MTs and the same quantity was received at Vizag and out of quantity which was supplied by the defendant 792.495 MTs was acceptable at the instance by the buyer by the defendant no.2. Accordingly, the defendant no.2 released the payment to the plaintiff 792.195 MTs. The plaintiff suffered a loss on account of defendant's lesser supply. The defendant no.1 did not supply the balance quantity and defendant/appellant is liable to pay outstanding amount of Rs.49,87,972/- with penal interest.
5. The respondent no.2 filed an application before the Court under [SECTION] of the [ACT] (hereinafter in short 'the Act of 1996') for stay of the suit proceedings and further pleaded that the Civil suit is not maintainable in view of the arbitration clause contained in the agreement. That application has been rejected by the Court vide order dated 14.05.2002. It was observed by the Court that plaintiff prayed a relief against both the defendants and Civil Court would be appropriate forum to decide the dispute.
6. After this, the present appellant filed an application under [SECTION] of the Act of 1996. The plaintiff pleaded that in accordance with the terms and conditions of the Contract which contained arbitration Clause. The Arbitration would be in accordance with the [SECTION] of the [ACT] and in view of the aforesaid arbitration Clause, the Civil suit is not maintainable. That application has been rejected by the Court vide impugned order.
7. Learned Senior counsel appearing on behalf of the appellant has contended that the order passed by the Court is illegal because the earlier application was filed under [SECTION] of the Act 1996, however, the provision of [SECTION] of the Act 1996 would not be applicable in view of the arbitration agreement and the provision of [SECTION] would be applicable, hence, the findings recorded by the trial Court that the order dated 14.05.2002 passed on the application of defendant no.2 operates as resjudicata, is perverse. He further submits that Arbitration Clause ousts the jurisdiction of the Civil Court hence, the Civil Court has no jurisdiction to entertain the dispute arising out of the Contract which contained Arbitration Clause.
8. In view of the aforesaid facts, it is clear that subsequently vide addendum dated 9.1.1998, the earlier contract was converted into a tripartite contract. In the aforesaid contract, the seller was State Trading Corporation and supplier- in the present appeal M.P. Oil Extraction buyer respondent no.2/defendant no.2. It is clearly mentioned in the addendum that this addendum forms an integral part of above contract and other terms and conditions remain unchanged. It means that original terms and conditions will govern the contract. One of the terms and condition of the original contract dated 07.01.1998 is as under:-
" Other Terms: All other terms and conditions as per [CASE NUMBER] currently in force. Both the buyer and selle hereby acknowledge familiarity with the text of the said GAFTA contracts and agree be bound by its terms and conditions. Arbitration in Loan. During the process of Arbitration and its appeal, both the parties will not apply to Court for any action which may delay the progress of the arbitration. Both the parties accept the arbitration award as final and will settle the award within two weeks. Seller guarantees export licence. Any export, taxes, duties etc. present and/or future to be for seller's account Buyer guarantees import licence any import taxes, duties etc. present and/or future to be for buyer's account."
9. In accordance with the aforesaid terms of the Contract, the arbitration would be in London and it would be in accordance with [ACT]. Copy of the [ACT] has also filed along with the appeal memo. In the aforesaid rule, the details of arbitration procedure, Award of arbitration, provisions of appeal has been prescribed. [SECTION] of the Act 1996 defines which reads as under:-
"44. Definition.- In this Chapter, unless the context otherwise requires, "foreign award" means an arbitral award on differences between persons arising out of legal relationship, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960-
(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and
(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies."
10. After perusal of the agreement quoted above in this order, it is clear that the parties had agreed in the Contract that the agreement shall be in accordance with GAFTA Contract and the arbitration would be in London. GAFTA contracts is being governed by GAFTA arbitration rules. It means that the parties had agreed to submit a dispute for arbitration in accordance with the provisions of the aforesaid rules and [SECTION] of the Act 1996 defines "foreign Awards". The dispute arising out of the Contract between the parties in the present case would be governed in accordance with [SECTION] of the Act 1996. The Hon'ble Supreme Court in the case of [PRECEDENT] Seven Trent Water Purification Inc. and others. [PRECEDENT] has considered the provisions of [SECTION] of the [ACT] and the provision of [SECTION] of the Act of 1996 and held as under:-
"1[SECTION]. The expression 'connection' means a link or relationship between people or things or the people with whom one has contact (Concise Oxford Dictionary (Indian Edition). 'Connection' means act of uniting; state of being united; a relative; relation between things one of which is bound up with (Law Lexicon 2nd Edn. 1997). Thus, even the dictionary meaning of this expression is liberally worded. It implies expansion in its operation and effect both. Connection can be direct or remote but it should not be fanciful or marginal. In other words, there should be relevant connection between the dispute and the agreement by specific words or by necessary implication like reference to all other agreements in one (principal) agreement. The expression appearing in clause 30 has to be given a meaningful interpretation particularly when the Principal Agreement itself, by specific words or by necessary implication, refers to all other agreements. This would imply that the other agreements originate from the Principal Agreement and hence, its terms and conditions would be applicable to those agreements. There are three agreements, as already noticed, which do not contain any specific arbitration clause. Both the Managing Director Agreement and the International Distributor Agreement directly relate to the Principal Agreement stating the manner in which the affairs would be managed and the Managing Directors be appointed. At the same time, the International Distributor Agreement is executed between the Severn Trent Water Purification Inc. the erstwhile Capital Control Company Inc. and the Capital Control India Private Ltd., the joint venture company. Firstly, the chances of dispute between the same group of companies were remote and secondly these were the companies which were held by the same management. The parties had also agreed to have relationship as that of seller and distributor to make the joint venture company a success. The interest of Capital Controls Company Inc. and that of the Capital Control India Private Ltd., to the extent of the former's share, were common. Furthermore, this being an integral part of the Principal Agreement would, in our opinion, be squarely covered by the arbitration clause contained in the [ACT]. This agreement has been specifically referred in clause 7 of the [ACT]. Not only that there is incorporation by reference of International Distribution Agreement in the [ACT] but, in fact, it is an integral part thereof."
156. The provisions of [SECTION] of the 1996 Act are to prevail over the provisions of the [ACT] and when the Court is satisfied that an agreement is enforceable, operative and is not null and void, it is obligatory upon the court to make a reference to arbitration and pass appropriate orders in relation to the legal proceedings before the court, in exercise of its inherent powers."
11. From the aforesaid judgment of the Hon'ble Supreme Court it is clear that the provisions of [SECTION] of the Act 1996 would prevail over the provisions of [ACT] and if the agreement is enforceable and operative, it would be obligatory on the part of the Court to make a reference to the arbitration. In the present case, vide addendum dated 09.01.1998, the agreement become tripartite. It was mentioned in the agreement that this addendum forms an integral part of the Contract and all other terms and conditions remain unchanged. The other terms and conditions of the Contract dated 07.1.1998 is mentioned in the order clearly establish that a GAFTA contract and the parties would be bound by the terms and conditions and arbitration would be in London. Both the parties would not apply for any action to Court for any action which may delay the progress of the arbitration and accept the arbitration award after becoming it final, the parties are bound by the aforesaid terms. The terms and conditions clearly excludes jurisdiction of other Court. The dispute for which the plaintiff filed a suit was covered by the agreement entered between the parties. In the civil suit the Court has to decide that whether the agreement was breached by the contracting party or not. In such circumstances, in my opinion, the Civil Court had no jurisdiction to entertain the suit. The Hon'ble Supreme Court in the above quoted judgment has also held that [SECTION] and [SECTION] of the Act 1996 are independent provisions to each other.
12. The findings recorded by the trial Court that the earlier order passed by the Court on an application filed by the defendant no.2 would operate as resjudicata is also contrary to law. Earlier application had been filed under [SECTION] of the Act 1996. When [SECTION] is applicable, then any application filed by the party under the provisions of [SECTION] and the order passed by the Court on the aforesaid application is without jurisdiction is nullity. The Hon'ble Court reiterated the aforesaid principle of law in the case of [PRECEDENT] and held as under:-
"6. The answer to these contentions must depend on what the position in law is when a Court entertains a suit or an appeal over which it has no jurisdiction, and what the effect of [SECTION] of the [ACT] is on that position. It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, & that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by a consent of parties. If the queston now under consideration fell to be determined only on the application of general principles governing the matter, there can be no doubt that the District Court of Monghyr was 'coram non judice', and that its judgment and decree would be nullities. The question is what is the effect of [SECTION] of the [ACT] on this position."
13. In this view of the matter, the earlier order passed by the Court dated 14.05.2002 on the application filed by the defendant no.2/respondent no.2 under [SECTION] of the Act 1996 would not operate as resjudicata.
14. In view of the above facts, the judgment cited by the learned counsel for the respondent no.1 in the case of [PRECEDENT], is not applicable in the present case.
15. Consequently, the appeal filed by the appellant is hereby allowed. The impugned order dated 22.11.2002 is hereby quashed. The application filed by the appellant before the trial Court is hereby allowed. It is further held that the Civil Court has no jurisdiction to entertain the suit. No order as to the costs.
([ENTITY]) Judge Pb HIGH COURT OF MADHYA PRADESH PRINCIPAL SEAT AT JABALPUR MISCELLANEOUS APPEAL NO.2092 OF 2002 [ENTITY] Versus.
[ENTITY] and anr.
For appellant : Shri [ENTITY], Sr Advocate with Shri [ENTITY], Advocate.
For respondent No.1 : Shri [ENTITY], Advocate For Respondent No.2. : Shri [ENTITY], Advocate.
ORDER Post for : .03.2015 ([ENTITY]) JUDGE .03.2015