Case: State of Orissa Vs.  Klockner and Company and Ors.

The above civil appeals arise out of an order passed in Miscellaneous Case No. 426 of 1993 in TS No. 152 of 1993 on the file of Civil Judge, Bhubaneswar dated4 which was later upheld by the Orissa High Court by order dated. Against a single order of the learned Civil Judge, Bhubaneswar in MC No. 426 of 1993, the State of Orissa filed one Miscellaneous Appeal No. 553 of 1994 and Civil Revision Petition No. 262 of 1994 before the Orissa High Court on the plea that there was a doubt whether an appeal or revision petition would lie against the order of the Civil Judge in the said miscellaneous case. The High Court rendered its decision in Civil Revision Petition No. 262 of 1994. However, while moving this Court, in State of Orissa not only filed two special leave petitions against the common order of the Orissa High Court in civil revision and civil miscellaneous appeal but also preferred independent special leave petition against the order of Civil Judge, Bhubaneswar in Miscellaneous Case No. 426 of 1993. Likewise, the Orissa Mining Corporation (appellant in CAs Nos.6 of 1995 and third respondent before the High Court), has also filed three special leave petitions against the common order of the High Court and of Civil Judge. After leave was granted, all these special leave petitions were numbered as civil appeals as mentioned above2. Brief facts, shorn of details, necessary for the disposal of these appeals are as under3. The first respondent herein, namely, Klockner and Company, entered into an agreement on2 described as Marketing Agreement with Orissa Mining Corporation (hereinafter referred to as OMC for short), a Government of Orissa undertaking. We are not giving all the clauses in the agreement under consideration. The said agreement inter alia stipulated that OMC will establish a plant at Bamnipal in the district of Keonjhar, Orissa, for production of charge chrome (hereinafter called as the product). It (OMC) agreed to market the said product exclusively through Klockner and Company upon the terms and conditions contained in the said agreement to which Klockner and Company gave acceptance. The agreement stipulated that during the currency of the agreement, OMC shall not be entitled to market its product by direct contracts with purchasers nor shall it be entitled to market its product through any agent or distributor other than Klockner and Company. That during the currency of the agreement, Klockner and Company shall not be entitled to purchase the product from any source in India other than OMC. One important clause in the agreement is that the delivery of the product shall commence by April 1985 and shall continue over a period of five years but it will not come to an end until a total quantum of 250, 000 MT of the product was delivered. There is also a clause in the agreement enabling the parties to extend the period by mutual consent. According to another clause in the agreement, if the agreement is terminated by mutual consent or cancelled, then notwithstanding the termination/cancellation of the agreement, the parties shall remain responsible for the fulfilment of any obligations which are outstanding at the time of termination/cancellation of the agreement. It was agreed that OMC will pay to Klockner and Company a commission on the sale of the product effected in the territory in consideration of the services rendered by it in terms of the agreement and the commission shall be 4% of the final FOB value of the product sold. The said commission shall be payable to Klockner and Company by way of reduction from each invoice. Another important clause of the purpose of disposal of these appeals is clause 15 in the agreement which relates to arbitration. It reads as follows15.1 In the remote and unlikely event of there being any dispute or difference whatsoever arising between the parties out of/or relating to the construction, meaning and operation or effect of this contract or the breach thereof shall be settled in the first place by amicable agreement, failing an agreement all disputes arising between OMC and Klockner within the framework of this contract are to be referred to the International Chamber of Commerce. The place of arbitration shall be London or such other place as is mutually agreed upon. The law applicable shall be substantial Swiss law or any other law mutually agreed upon. *4. Subsequent to the original agreement as mentioned above, another agreement was entered into on7 between OMC and Orissa Mining Corporation (Alloys) Ltd. which is ad subsidiary company of OMC to implement and establish 100%d unit at Bamnipal for manufacturing inter alia charge chrome in which it was stipulated that OMC has already entered into a marketing arrangement with Klockner and Company of the Federal Republic of Germany under which OMC is to market the products of Alloys exclusively through Klockner and Company and that Alloys products would be handled through the agency and instrumentality of the OMC on the basis of OMCs agreement with Klockner and Company and the terms and conditions of the marketing agreement between OMC and Klockner and Company dated2 will be treated as if OMC (Alloys) replaced OMC. It is not in dispute that the agreement was acted upon by the parties and pursuant to that 108, 429 MT of charge chrome were delivered leaving a balance of 141, 571 MT of charge chrome undelivered as per the agreement6. Shortly after the merger as mentioned above, the Government of Orissa (Law Department) promulgated Ordinance 8 of 1991 dated1 and the Charge Chrome Division was taken over under the said Ordinance. The relevant clause in the Ordinance will be referred to at the relevant place hereinafter. After the taking over as mentioned above, the Charge Chrome Division was transferred by way of sale of Tata Iron and Steel Company7. At this stage, the first respondent (Klockner and Company) after unsuccessful attempts to negotiate with OMC for fulfilment of the terms of the agreement, took steps to refer the dispute for arbitration to the International Chamber of Commerce, invoking clause 15 in the agreement8. The appellant, State of Orissa, received notice of the arbitration proceedings on. Thereafter the appellant filed TS No. 152 of 1993 on the filed of Civil Judge, Bhubaneswar, seeking the following reliefsa) Declaration declaring that the plaintiff is not the successor of Defendant 3 and more particularly is not the successor of Defendant 3 in the context of the claim of Defendant 1 against Defendant 3 before Defendant 2 and;(b) Declaration declaring that plaintiff is not liable to pay jointly with Defendant 3 or otherwise to Defendant 1 US $ 2, 949, 938.42 with ten per cent. interest or any part thereof as claimed by Defendant 1 in its request dated3 for arbitration to Defendant 2 and in its statement of claim appended thereto which request for arbitration and claim Defendant 1 has got served on the plaintiff through Defendant 2(c) Declaration declaring that plaintiff has got no obligation whatsoever under document dated, nomenclatured as Marketing Agreement and no obligation whatsoever towards Defendant 1 under the said document(d) Declaration declaring that the aforementioned claim of Defendant 1 against the plaintiff and Defendant 3 jointly is not a matter agreed either between Defendant 1 and Defendant 3 or between the plaintiff and Defendant 1 or amongst plaintiff, Defendant 1 and Defendant 3 to be referred to arbitration under the said document dated2 nomenclatured as Marketing Agreement or otherwise(e) Permanent injunction injuncting Defendant 1 from prosecuting the arbitration proceeding, (bearing Reference No. 7878/HV of Defendant 2) initiated before Defendant 2 by Defendant 1 in its said request for arbitration dated3 and the said statement of claim dated(f) Such other relief/reliefs as that Honble Court may deem fit and proper in the facts and circumstances of the case9. The respondent herein on coming to know of the suit filed by the appellant moved the Miscellaneous Case No. 426 of 1993 invoking Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 for stay of the suit10. The appellant stoutly resisted the application for stay of the suit. However, the learned Civil Judge on the basis of the materials placed before him and also on the basis of the arguments advanced came to the conclusion that the suit should be stayed under Section 3 of the Foreign Awards Act11. Aggrieved by the order of the learned Civil Judge, the appellant, State of Orissa, preferred miscellaneous appeal as well as revision petition before the Orissa High Court. The learned Single Judge for the reason stated in the order under appeal observed as follows9. Testing the case at hand on the touchstone of the principles enunciated in the decided cases discussed above, the position is manifest that the parties to the arbitration agreement have decided that the place of arbitration shall be London and the law applicable shall be substantive Swiss law. My attention has not been drawn to any stipulation in the agreement not any other material which directly or impliedly shows that the intention of the parties was that Indian law will be applicable to the Arbitration Agreement. As noted earlier, Klockner and Company is a company registered in the Federal Republic of Germany and the agreement of2 was entered in Germany. It is not the case of the petitioner that the award which may be passed in this case is not a foreign award as defined in Section 2 of the Foreign Awards Act, but it is a domestic award. In that view of the matter there is little scope for doubt that the provisions of the Foreign Awards Act, particularly Section 3 are applicable to the case. As held by the Apex Court in the case of Ranusagar Power Co. (supra) stay of the suit is mandatory if the conditions specified in Section 3 are fulfilled. The averments in the plaint and the objections filed to Section 3 do not make out the case that the agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred. The trial court has specifically held that the circumstances to prove exception under the statutory provisions have not been established. At the cost of repetition, I may state that it is clear from the materials on record that the agreement was acted upon by the parties, in pursuance of it, contracts were entered between OMC Ltd. and OMC Alloys Ltd. with foreign buyers and Klockner and Company was paid it dues relating to the transactions. In the circumstances, the learned trial Judge was right in holding that a case for stay of the suit under Section 3 of the Foreign Awards Act has been made out by the opposite Party No.. The order is therefore unassailable. Thus the cases being devoid of merit are dismissed. *12. Still aggrieved, the appellant, State of Orissa as well as the Orissa Mining Corporation preferred these appeals challenging the order of stay of suit under Section 3 of the Foreign Awards Act

Reasoning:
17. A conjoint reading of the clauses extracted from ther Ordinance and the agreement between the State of Orissa and Tata Iron Steel Company will clearly show that the State of Orissa is thet of OMC Charge Chrome Division, taken over by the Government under Ordinance 8 of 1991. In view of this clear position, it is not possible to accept the contention of the learned Senior Counsel for the appellant that the State of Orissa has noting to do with the contract entered into between Klockner and Company and OMC in respect of which the former has initiated arbitration proceedings invoking Section 3 of the Foreign Awards Act11. From the lower court record in the case and also the records in a similar suit filed by the State of Orissa, Title Suit No. 152 of 1993 in which OMC Ltd. is a defendant, it appears that in both the cases Defendant 1 Klockner and Company filed applications under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961. Such application presupposes that the applicant accepts the position that the said Act applies to the case and the Arbitration Act, 1940 has no application to the case. Under the Foreign Awards Act, there is no specific provision for bar of suit. Further, from the averments in the application filed under Order 7 Rule 11 of CPC, it is clear that the main case pleaded by the applicant was that the parties had agreed that the Swiss law will be applicable to the contract as well as the Arbitration Agreement and the venue of arbitration will be at London and, therefore, the Indian law in general and the Arbitration Act in particular, have no application to the case. Alternatively the applicant has pleaded that even assuming that the Indian law of Arbitration applies to the case then the suit is barred under Section 32 of the Act. The learned trial Judge does not appear to have considered the main case pleaded by the applicant but disposed of the petition on consideration of the alternative case pleaded by it. Therefore this finding against bar of the suit under Order 7 Rule 11(d) is also vitiated12. On the analysis and discussions in the foregoing paragraphs, it is my considered view that the order passed by the learned trial Judge rejecting the plaint under Order 7 Rule 11(a) of CPC is unsustainable and has to be set aside. Accordingly the appeal is allowed and the order dated4 of the Civil Judge (Senior Division) Bhubaneswar in Miscellaneous Case No. 75 of 1993 is set aside. There will be no order for costs of this Court26. After hearing the learned counsel on both sides and after carefully perusing the relevant pleadings, we do not think that the High Court has committed any error in rejecting the application of the appellant under Order 7 Rule 11. We accept the view taken by the High Court and consequently find no case for interference