IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH & THE HONOURABLE MRS. JUSTICE M.C.HARI RANI TUESDAY, THE 27TH SEPTEMBER 2011 / 5TH ASWINA 1933 Arb.A.No. 41 of 2010 ---------------------- (AGAINST THE ORDER IN OP (ARB).231/2008 DATED 30/8/2010 ON THE FILE OF THE DISTRICT COURT, KOLLAM). .................... APPELLANTS/RESPONDENTS: -------------------------------------------- 1. M/S.SHASTHA ENTERPRISES, BEACH ROAD, THAMARAKKULAM, KOLLAM 691 001 REPRESENTED BY ITS MANAGING PARTNER, N.NANDAKUMAR. 2. N.NANDAKUMAR, MANAGING PARTNER, M/S.SHASTHA ENTERPRISES, BEACH ROAD, THAMARAKKULAM, KOLLAM 691 001 RESIDING AT LEKSHMI BHAVAN, BEACH ROAD, THAMARAKKULAM, KOLLAM 691 001. BY ADV. SRI.V.CHITAMBARESH, SENIOR ADVOCATE SRI.B.SURESH KUMAR RESPONDENT(S): PETITIONER ------------------------------------------- M/S.OLAM INTERNATIONAL LTD 9 TEMASET BOULEVARD, # 11-02 SANTEE TOWER TWO SINGAPORE - 038 989 REPRESENTED BY ITS POWER OF ATTORNEY HOLDER SANAL KUMAR, NO.5, GOKULAM, MG NAGAR, KUREEPUZHA, KAVANAD, KOLLAM 691 003. ADV. SRI.T.R.ASWAS THIS ARBITRATION APPEAL HAVING BEEN FINALLY HEARD ON 26/09/2011 ALONG WITH ARB.APPEAL NO.40 OF 2010, THE COURT ON 27.09.2011 DELIVERED THE FOLLOWING:: K.M.JOSEPH & M.C.HARI RANI, JJ. ------------------------------------------------------ Arbitration Appeals 40 & 41 of 2010 ---------------------------------------------- Dated, this the September, 2011 J U D G M E N T K.M.Joseph, J. ARBA No.40/2010 is directed against the order in OP (Arb) No.21/2009 passed by the District Court, Kollam. The OP was filed under Sec.34 of the Arbitration and Conciliation Act, 1996 (herein after referred to as the Act) by the appellants to set aside the arbitral award dated 14.1.2009. ARBA No.41/2010 is filed against the order passed in OP (Arb) 231/2008 filed by the respondent under Sec.9 of the Act to secure the award amount that was likely to be passed in his favour. 2. The respondent company which is incorporated at Singapore is doing business in spices, edible oil, nut etc. The appellant is a cashew exporter. Purchase confirmation note dated 2.5.2007 containing admitted signature of the appellant was issued agreeing to export cashew kernel to the respondent. Likewise, confirmation note dated 25.5.2007 was admittedly issued by the appellant. So also, confirmation note dated 6.7.2007 also containing the admitted signature of the appellant was issued agreeing to export cashew to the respondent. ARBA 40,41/2010 -2- 3. On the one hand, the respondent would contend that contracts dated 3.5.2007, 25.5.2007 and 9.7.2007 containing the arbitration agreement were executed by the appellant relatable to the three purchase confirmation notes referred to above respectively, the appellant would dispute the case of the respondent and contend that the signatures of the Managing Partner of the appellant are forged. The following is the alleged arbitration clause. "Arbitration : As per A.F.I. CENTA Terms and Conditions." 4. Under the heading "other conditions" it is stated, inter alia, that arbitration jurisdiction is in India. It is not in dispute that on 27.8.2008 the counsel for the respondent issued notice calling upon the appellant and others to pay a sum of Rs.1,05,32,500/- within 7 days being the market difference of the value of the cashew kernel on 5.5.2008. According to the respondent, in breach of the contracts the appellant had failed to deliver the quantity of cashew as agreed and consequently it had suffered damages and was suing for the difference in market price. On the same day, on 27.8.2008, the respondent filed the OP under Section 9 of the Act before the District Court, Kollam which allowed conditional attachment of immovable properties owned by the appellant. On 30.9.2008 the appellant was ARBA 40,41/2010 -3- informed by the counsel for the respondent that Mr.Neil Hyde (hereinafter called the Arbitrator), a Member of the Arbitrators Panel maintained by Combined Edible Nut Trade Association (hereinafter referred to as CENTA) was appointed as the sole Arbitrator. The appellant was called upon to nominate his Arbitrator within 14 days as per the regulation of CENTA. According to the appellant, on detection of the forged signature of the Managing Partner of the appellant in the three contracts, on 10.10.2008 a notice was issued to the counsel for the respondent to withdraw the action before CENTA and also the OP under Section 9 of the Act and pay a sum of Rs.37,28,385/- being the amount due to them under several heads in respect of the transactions. On 17.10.2008, according to the appellant, the appellant had filed a petition before the Superintendent of Police, Kollam against the Managing Director, Vice President of the respondent and 3 officers of its subsidiary at Kollam. On 18.10.2008 Crime No.113/2008 under Sec.120B, 465, 467, 420 read with Sec.34 of the IPC was registered by the Kollam East police station against the officers of the respondent. On 28.10.2008 the Arbitrator informed the appellant about his nomination and the appellant was asked to make its comments about the disputes specifically by 4.11.2008. On 29.10.2008 the appellant by fax informed the Arbitrator about the apprehension of bias ARBA 40,41/2010 -4- entertained by the appellant. It is specifically stated that the contracts relied on were forged and that even under the forged contracts, CENTA is not having exclusive jurisdiction. On 30.10.2008, the Arbitrator addressed a fax communication to the appellant wherein he does admit his business relationship between him and the respondent, but assured his integrity. The appellant was also asked to nominate its Arbitrator by 14.11.2008. On 31.10.2008 there was again correspondence by the appellant by issuing 2 separate communications to the controlling body of CENTA and the Arbitrator raising objections and also suggesting that if CENTA is having any machinery to have the disputed signature to be examined, that should be done. It is also requested to advise the Arbitrator to stop the proceedings till a report from Police Lab or any Government Lab in UK is obtained. Appellant sought time to locate suitable defence expert. On 31.10.2008 CENTA addressed communication to the appellant stating that the matter is being attended to. On 4.11.2008 the Arbitrator rejected the request for one month and granted time till 18.11.2008. The Arbitrator would say that the jurisdiction issue will be taken up as the first issue and if it is found in favour of the appellant, the arbitration would end. On 5.11.2008 there was a further communication issued by the appellant to the Arbitrator reiterating the apprehension of bias. It is also stated ARBA 40,41/2010 -5- in the letter that if the police experts rule out forgery, he would submit to the Arbitrator without any demur. There are further communications dated 13.11.2008 and 17.11.2008 addressed to CENTA voicing its grievances and to the Arbitrator pointing out, inter alia, that arbitration jurisdiction was in India and requesting to conduct arbitration in Kerala respectively. There are certain further communications which need not detain us. Suffice it to say, the Arbitrator passed the Award on 14.1.2009 directing payment of 243068 Dollars by the appellant to the respondent besides fees. 5. Findings of Arbitrator (i) There is no requirement for an arbitration agreement to be signed and, therefore, even if Shastha's (appellant) signature was not present in the contract, it would not follow that there was no arbitration agreement. (ii) The Arbitral Tribunal is entitled to rule on its own jurisdiction, to hear the substantive dispute including determination whether or not there was any forgery. (iii) “I am of the opinion that the parties intended the disputes to be arbitrated in accordance with the CENTA Rules of Arbitration.” Reasons are given. (iv) It was further found that the contention of the appellant that ARBA 40,41/2010 -6- the Detailed Contract (DC) was invalid because it was not approved or properly signed by them that the detailed contract is indeed valid even without a signature from the seller, as the purchase confirmation note which is admitted by the appellant, agrees in all material ways to the detailed contract contains the clause that the detailed contract and shipping instructions will follow. The appellant was accordingly found to be fully aware that a detailed contract would follow and what it would say concerning the disputed arbitration clause from the previous contracts transacted between the parties. Reference is made to the communication dated 10.10.2008 by the Advocate for the appellant to the Advocate of the respondent wherein reference is made, inter alia, to the previous sale contracts containing the arbitration clause. It is also found that in answer to the respondent's communication on 26.10.2007 which contained the detailed contract numbers in full plus shipment grade, quantity and price, the appellant by communication dated 29.10.2007 advised “with reference to your letter dated 26.10.2007, we hereby enclose the shipping schedule for our pending contracts.” It is found that no mention was raised about the validity of the listed contracts which was forthcoming, nor any protest made by the seller at that time. The Arbitrator has also proceeded to hold that he could not assess any dramatic difference in the disputed signature between the ARBA 40,41/2010 -7- purchase confirmation note and the detailed contract. (v) It is further found that CENTA has jurisdiction even though it was stated “as per AFI/CENTA terms and conditions”. It is further found that the allegation of bias on the part of the Arbitrator based on trading from time to time with the buyer was taken up and answered by the CENTA Secretary who consulted with other independent CENTA General Committee Members on the subject. Reference is made to the communication sent to the appellant wherein it is, inter alia, stated that it is a relatively small trade association and it is quite likely that a Member or a non-Member Company claiming arbitration, may well appoint an Arbitrator from the Panel of Arbitrators with which that claimant or defendant party had had a business relationship either now or in the past. It is further found that “all our Panel are required to enter into arbitration proceedings in a totally unbiased capacity and issue an Award after obtaining and considering any submissions from the parties involved and as much other information as they feel is necessary.” It is further found that the appellant had, despite opportunities being provided, not nominated any Arbitrator and accordingly, the Arbitrator was obliged to proceed with the arbitration as a sole Arbitrator. It was also found that no submission either had been received concerning the base contracts where quantity, grade, possession and price are not in ARBA 40,41/2010 -8- dispute. Yet, no shipment had been made against them by the seller and finally the appellant is liable to pay the difference between the contract price and the market price. 6. Findings of the Court : Execution of the purchase confirmation notes produced by the respondent is admitted. The Purchase Confirmation Notes contained a Note "Detailed Contract and Instructions will follow". That shows that the parties had agreed to have one contract and shipping instructions. The contracts contained a column "Arbitration" and the Arbitration Clause was extracted. Though the Purchase Notes contained an entry that "detailed contract and instructions will follow", the appellant had no case of having made a contract. It is profitable to bear in mind that the case of the appellant is that in all Purchase Notes prior to and after these, there were contracts which contained clauses stipulating for settlement by arbitration. It has to be borne in mind that the appellant has a specific case that these Purchase Notes were on the specific understanding that there will be no arbitration clause in the contract. If so, they will have to explain and produce those documents where there is no arbitration clause, which is not done. As of now, prima facie, there are materials to conclude that there is an agreement and that agreement provided for arbitration. The question is whether the agreement ARBA 40,41/2010 -9- produced is a forged one or not. Documents produced show that the police complaint alleging forgery stands closed. Certified copy of the UN Report filed by the Sub Inspector of Police, Kollam East on 28.9.2009 shows that police is of the view that the allegation of the appellant that the contracts were forged and the offences allegedly committed under various offences could not be established. Reference is made to the power of the Arbitral Tribunal under Section 16 of the Act to rule on the jurisdiction including whether there was a valid arbitration agreement. Thereafter, the court proceeded to consider whether the application under Section 34 was maintainable. Reference is made to the Rules of Arbitration and the Appeal of the CENTA and that it provides for an Appeal and the Forum to decide the Appeal is the Executive Committee. Reliance was placed on the decision of this Court in Abbas Cashew v. M/s. Bond Commodities (ARBA 7/2010). On the basis of the said decision, the court finds that the petition under Section 34 is premature and it is to be dismissed as premature. It is found that the Award shows that the Arbitrator had deliberated on the aspect of the arbitration agreement and has arrived at a conclusion. The court further finds that in view of the court's findings, it is not making any enquiry or entering any finding as regards the allegation of bias and impropriety alleged to have been committed by the Arbitrator. Thereafter, as far as OP ARBA 40,41/2010 -10- No.231/08 is concerned, it is noted that it is only filed to secure the amount in dispute in arbitration and the court found that it is only just and proper to confirm the attachment made by allowing the same subject to the final decision in the Appeal, if any, by the appellant. Thereafter, the court, no doubt, refers to E.P. No.209/09 to enforce the Award. The court finds that it is kept in the dark as regards the power of the Appeal Board to condone delay. The court directed the E.P. to be kept pending for two months and if during the said period any valid Appeal is filed and entertained, it was directed that the E.P. will not be proceeded with by the respondent. Accordingly, OP.No.231/08 was allowed and OP No.21/09 was dismissed. 7. Heard the learned senior counsel Sri.V.Chithambaresh for the appellant instructed by Shri B. Suresh Kumar and Sri.T.R.Aswas, learned counsel appearing on behalf of respondent. 8. Sri.V.Chithambaresh would contend as follows: This is a case where the existence of the very arbitration agreement is disputed as the case of the appellant is that the signature of the appellant has been forged. He would contend that the court below has clearly erred in holding that the police authorities have found that the documents produced show that the police complaint alleging forgery stands closed. He would point out that in fact the police authorities have ARBA 40,41/2010 -11- reported that the accused have committed the offences and sought time to file final report. He would submit that the contrary finding that certified copy of the UN Report filed by the Sub Inspector of Police on 28.9.2009 shows that the police is of the view that the allegations of forgery cannot be established, is not correct. He relied on the contents of the UN Report. He would also take us through the Award and point out that though the appellant contended before the Arbitrator that the alleged arbitration agreement was forged, the findings entered on the same are clearly unsustainable. Next he would contend that the court has clearly erred in relying on the judgment of this Court in Abbas Cashew v. M/s. Bond Commodities (ARBA 7/2010). He would contend that that was a case where there was no dispute about the execution of the arbitration agreement. It was in the said circumstances this Court took the view that since in terms of the agreement between the parties the appeal lay to the Appellate Board, the parties were to be relegated to the appellate forum. In this case, on the other hand, he would submit that the very arbitration agreement itself is disputed. Therefore, he would point out that the court has erred in holding that the appellant can approach it only after exhausting the remedy of appeal. He would further point out that a comparison of the admitted signatures of the appellant in the purchase confirmation notes with the disputed signatures ARBA 40,41/2010 -12- in the alleged contract notes would bear out his contention that the signatures have been forged. He would further submit that the conduct of the respondent in not producing the original of the document containing the alleged arbitration agreement which is mandatory, may be noted and also an adverse inference drawn. He would submit that the provisions of Part I of the Act would be applicable even in an international arbitration unless the parties by express or implied contract excluded the same. In this case there is no such exclusion. He would submit that Section 34 which falls in Part I of the Arbitration Act is applicable and it is certainly open to the appellant to maintain application under Section 34 of the Act and the court below was not justified in relegating the appellant to prefer appeal. In this regard, he would point out that even under the English Arbitration Act, under Section 30 thereof, the decision of the Arbitral Tribunal on substantive jurisdiction is challengeable either by available arbitral provisions or by an application for setting aside the Award. He would point out that Section 72 is the saving clause with regard to a party who is not taking part in the proceedings and the prohibition in Section 70 of the Act that an application or Appeal cannot be brought, inter alia, unless the applicant or appellant has not first exhausted any available arbitral process of appeal will not apply. It is contended that there is no deemed ARBA 40,41/2010 -13- participation and right from the beginning the appellant was contending that CENTA has no jurisdiction and none of the correspondence should be treated as a submission to arbitration. Emphasis is placed on the words “without prejudice” “sans prejudice” etc. in the correspondence. It is pointed out that the Indian Court's jurisdiction is not excluded as one of the contracting parties is an Indian Company. Further, the obligations are to be performed in India. The arbitration jurisdiction is specifically stated in the contracts relied on by the respondent to be in India. Objection is taken to the Arbitrator basing his finding on a legal opinion. It is also contended that the legal opinion is palpably unreliable. It is, in fact, the case of the appellant that the purchase confirmation notes which are admitted by it, are concluded contracts by themselves in itself and there was no other contract. It is further pointed out that the appellant filed I.A.No.2324/09 in O.P.(Arbitration) No.231/08 for directing the respondent to produce the original contracts. The Court by order dated 11.11.2009 directed production of the originals within one month. The respondent, it is contended, filed objection on 21.12.2009 stating that originals in its true meaning are not in the possession of the respondent. It is contended that having regard to Section 2(1)(d) and Sections 7 and 8(2) of the Act and Rule 4(d) of the Kerala Rules, the petition is not maintainable. It is further complained that the case was decided on ARBA 40,41/2010 -14- preliminary objection alone and none of the documents produced by either parties were marked by the court. It is their case that the CENTA Rules cannot apply in the facts. It is contended that the signatures of the Managing Partner of Shastha Enterprises in all the three contract notes are forged. It is pointed out that of the contracts produced as original contracts, one does not contain even the signature of the respondent. The signatures of the respondent in two other contracts are different. It is also contended that the contracts do not contain the seal of either the appellant or the respondent. It is contended that under the Rules of CENTA and also the English Arbitration Act, and the Act, the contracting parties were free to opt for the particular legal system and the particular country as venue. It is contended that there are several agreements between the parties with and without arbitration clause and even in cases where there is arbitration clause, it is not CENTA alone. It is contended that the alleged arbitration clause in fact says AFI/CENTA. It is contended further that there is no provision in the Act, which makes it mandatory that arbitral remedies have to be exhausted before approaching the court. The complaint of bias of the Arbitrator is reiterated. 9. He would further submit that when the arbitration agreement is disputed it becomes the bounden duty of the court to consider the ARBA 40,41/2010 -15- question and decide as to whether there exists an arbitration agreement or not. He would point out that this is a case where the appellant has taken such a contention in the application under Section 9 filed by the respondent and therefore it was the duty of the court to decide the issue which has not been done by the court. He would submit that this is a clear case where the Arbitrator was biased as he has dealings with the respondent and the court below should have dealt with it. He would rely on the following case law: In Bhatia International v. Bulk Trading S.A. (AIR 2002 SC 1432), the Apex Court held that the provisions of Part I of the Act are applicable to international commercial arbitrations held outside India unless any or all such provisions have been excluded by agreement between the parties expressly or by implication. In SBP and Co. v. Patel Engineering Ltd. And Another (2005 KHC 1909) (hereinafter referred to as the SBP's case) the Apex Court held that while functioning under Section 11(6) of the Act, a Chief Justice or a person or institution designated by him is bound to decide whether he has jurisdiction to entertain the request and whether there is a valid arbitration agreement and whether the party making the request is a party to the arbitration agreement and there is a dispute subsisting which is capable of being arbitrated upon. It was held further that the Chief Justice can either proceed on the basis of Affidavits ARBA 40,41/2010 -16- and documents produced or take such evidence or get such evidence recorded as may be necessary. It was held further that normally the decision cannot be said to be purely administrative. In Venture Global Engineering v. Satyam Computer Services Ltd. And Another (AIR 2008 SC 1061), the Apex Court reiterated that provisions of Part I of the Act are applicable to international commercial arbitration. More importantly, it was held that a foreign award can be challenged under Section 34 on the ground of violation of public policy. In Prakash K. v. M/s. Sriram Transport Finance Co. Ltd. And Another (2008 (3) KHC 604), a learned Single Judge of this Court took the view that the court has to decide whether the agreement executed was valid and not vitiated by fraud, before referring the parties to arbitration. It was held that when the existence of a valid arbitration agreement is disputed by any one of the parties, the court is bound to consider whether it was executed by the parties including the validity of the agreement and if the validity is questioned on the ground of fraud, the same must be considered. In Parallel Citation(s) Infowares limited v. Equinox Corporation (2009 (7) SCC 220), Justice V. S. Sirpurkar was dealing with an application under Section 11(5) of the Act. It was an international arbitration. The Court proceeded to allow the application overruling the contention of the respondent that, as the governing law, it was agreed between the ARBA 40,41/2010 -17- parties, say foreign law, then essentially, the question of appointment of Arbitrator also falls in the realm of the said foreign law and not under the Act. The decision in Indtel Technical Services Private Limited v. W.S. Atkins Rail Limited (2008) 10 SCC 308) also reiterates the principle that the provisions of Part I of the Act, unless excluded by agreement between the parties, would apply.