Bharat Petroleum Corporation Ltd vs The Great Eastern Shipping Co. Ltd

3. In order to appreciate the issue, requiring determination, a few relevant facts may be stated.

The appellant M/s. Bharat Petroleum Corporation Limited is a Government of India Undertaking, under the administrative control of the Ministry of Petroleum & Natural Gas and is engaged in refining, distributing and selling of petroleum products all over the country. The respondent M/s. Great Eastern Shipping Company Limited is engaged in the business of shipping and allied activities and owns a fleet of tanker vessels for charter, including the vessel known as JAG PRAJA.

4. An agreement, called the Time Charter Party in legal parlance, was entered into between the appellant and the respondent on 6th May, 1997 for letting on hire vessels for a period of two years from 22nd September, 1996 to 30th June, 1997 and from 1st July, 1997 to 30th June, 1998, on the terms and conditions set out in the said agreement. However, before the Charter Party was to come to an end, on 29th June, 1998, the Indian Oil Corporation Limited (for short IOC), acting as agent of the appellant, issued a fax to various ship owners, including the respondent herein, requesting them to extend the validity of the Charter Party Agreement dated 6th May, 1997 beyond 30th June, 1998 for a period of one month from 1st July, 1998 with option for two further extensions of 15 days each. The respondent agreed to the said proposal. Accordingly, on 29th June, 1998 an addendum was signed between the parties whereby the validity period of Charter Party was extended for one month with an option for two further extensions for a period of 15 days each. The terms and conditions; exceptions and exemptions contained in the Charter Party dated 6th May, 1997 remained unaltered. The parties are ad idem that the Charter Party dated 6th May, 1997 was extended till 31st August, 1998.

5. It appears that since Charter Party dated 6th May, 1997 was coming to an end on 31st August, 1998, the Oil Companies sought permission of the Oil Co-ordination Committee, a wing of the Ministry of Petroleum and Natural Gas for further extension of the Charter Party. However, the Oil Coordination Committee, by their fax message dated 26th August, 1998, declined the request of the Oil Companies, including the appellant, for further extension of Charter Party beyond 31st August, 1998. The said fax message was an internal communication between the Oil Coordination Committee and the Oil Companies.

6. Thereafter, in September, 1998, the IOC for and on behalf of the Oil Industry, floated a fresh tender for carriage of petroleum products along the Indian coast on time charter basis for a period of one year commencing from 1st September, 1998 to 31st August, 1999, on the terms and conditions set out in the tender document. In response to the said tender, the respondent and other vessel owners submitted their bids. It seems that being aggrieved of the decision of the IOC to invite revised price bids after opening of the sealed tenders, one of the bidders filed a writ petition in the Bombay High Court, questioning the said decision. The appellant intervened in the said matter. The writ petition was disposed of vide order dated 20th August, 1999. While disapproving in principle, the action of the IOC in inviting fresh price bids after opening the bids, but without recording final opinion on the merits of the issues raised in writ petition, the Court disposed of the petition, inter alia, directing that (i) the charter hire rates should be fixed by the Tender Evaluation Committee and (ii) as the tender was for the period ending 31st August, 1999 and the writ petition was being decided on 20th August, 1999, the IOC will not be required to enter into a contract for the period from 1st September, 1998 to 31st August, 1999. It is not in dispute that the vessel JAG PRAJA, with which we are concerned, continued to be chartered by the appellant till 31st August, 1999.

9. Thereafter, for almost two months, there was no communication between the parties. It was only on 31st December, 1998 when the IOC issued a fax to the respondent, enclosing draft letter regarding charter party agreement to be signed between the charterers and owners (with minor modification, if necessary), requesting the respondent to sign as per proposal by the 4th January, 1999, on which date the respondent expressed its disinclination, stating in reply fax that as per usual practice, pending finalization of new charter, the existing terms and conditions of the charter party continue to apply. Finally, it was suggested that:

10. Vide letter of even date, i.e. 4th January, 1999, the appellant suggested to the respondent that in the absence of a formal charter party with effect from 1st September, 1998, a provisional arrangement for a period of four months effective from 1st September, 1998 with an option for extension of one month may be mutually agreed to by payment at the rate of 80% on charter hire prevailing on 30th June, 1998, as ad hoc hire. The respondent was asked to convey their acceptance to the said suggestion. It appears that the respondent did not respond to the said suggestion by the appellant but all the same its vessel continued to be on charter with the appellant.

11. The writ petition was ultimately disposed of on 20th August, 1999. It was only after a gap of about seven months that on 15th March, 2000, the IOC informed the respondent about the evaluation of the tenders in terms of the order passed by the High Court. Charter hire rate worked out by the Committee for vessel JAG PRAJA for the period from 1st September, 1998 to 31st August, 1999 was communicated to the respondent. In response, the respondent, while expressing their disappointment with the rate but purportedly, in view of their long business relations with the appellant conveyed their acceptance of the proposed rate in respect of each of the vessels named in separate letters, all dated 1st May, 2000, with the expectation that their outstanding balance of the hire shall be paid to them at the earliest. However, the respondent did not convey their acceptance of the charter hire rates for two vessels, viz. JAG PRAJA and JAG PRAYOG. It appears that the respondent wrote various letters to the appellant for upward revision of the rate in respect of these two vessels but seemingly their request was ultimately turned down on 2nd November, 2000, on receipt of which, the respondent slammed a legal notice dated 6th November, 2000, on the appellant, inter alia, requesting them to revise the rates on the basis of mutual discussions and settle the accounts. Having failed to receive any reply to the said notice, by another legal notice dated 1st December, 2000, the respondent called upon the appellant to pay balance amount of Rs.43,947,517/- to them as charter hire in respect of vessel JAG PRAJA for the period from 1st September, 1998 to 31st August, 1999 within 15 days from date of receipt of the said notice or treat it as an arbitration notice. The name of the arbitrator was also communicated to the appellant. It seems that pursuant to the said notice and some subsequent correspondence exchanged between the parties, an Arbitral Tribunal was constituted.

12. Claims and counter claims were filed before the Arbitral Tribunal. On the basis of the pleadings of the parties, the Arbitral Tribunal framed as many as eight issues. However, arguments were heard only on the following three issues:

17. Thus, the short question for determination is whether on the expiry of the extended period of charter hire on 31st August, 1998, Charter Party dated 6th May, 1997 came to an end and the arbitration agreement between the parties perished with it?

The vessel shall be re-delivered by charterers to owners on dropping last outward pilot at any port on west coast of India at charterers option. Charterers to give owners 15 days notice to probable port of re-delivery.

4.2 Charterers to load last three cargoes clean and re-deliver the vessel in clean condition.

23. Final Voyage Should the vessel be on her voyage towards the port of redelivery at the time of payment of hire is due, payment of hire shall be made for such length of time as Owners and Charterers may agree upon as being estimated time necessary to complete the voyage, less any disbursements made or expected to be made or expenses incurred or expected to be incurred by Charterers for owners account and less the estimated amount of bunker fuel remaining at the termination of the voyage and when the vessel is redelivered any overpayment shall be refunded by the owners or underpayment paid by Charterers.

Notwithstanding the provisions of clause 4 hereof should the vessel be upon voyage at the expiry of the period of this charter, Charterers shall have the use of vessel at the same rate and conditions for such extended time as may be necessary for the completion of the round voyage on which she is engaged and her return to a port of redelivery as provided by the Charter.

23. We are, therefore, of the opinion that though performance of the Charter Party agreement dated 6th May, 1997 may have come to an end on 31st August, 1998 but it was still in existence for some purposes, viz. the effect of vessels non re-delivery as per the prescribed mechanism and its continued use beyond the stipulated time and, thus, the arbitration clause in the said Charter Party operated in respect of these and other allied purposes. Therefore, the factual scenario in the instant case leads to an inescapable conclusion that notwithstanding the expiry of the period fixed in the time charter party dated 6th May, 1997, the said charter party did not get extinguished, inter alia, for the purpose of determination of the disputes arising thereunder and the arbitration clause contained therein could be invoked by the respondent.

24. In view of the foregoing discussion, we do not find any infirmity in the view taken by the High Court that Charter Party dated 6th May, 1997 had not come to an end by efflux of time and it got extended by the conduct of the parties, warranting interference.

25. Having come to the conclusion that an arbitration agreement existed between the parties, the question which remains to be considered is whether the disputes between the parties should be referred to the same Arbitral Tribunal which had come to the conclusion that in the absence of any arbitration agreement it did not have jurisdiction to entertain and try the claims and counter claims. We feel that it would be proper and expedient to constitute a fresh Arbitral Tribunal. Accordingly, we constitute an Arbitral Tribunal consisting of Justice M. Jagannadha Rao (Presiding Arbitrator), Justice D.P. Wadhwa and Justice S.N. Variava, former Judges of this Court to adjudicate upon the claim/counter claim by the parties, subject to their consent and such terms and conditions as they may deem fit and proper. It goes without saying that the learned Tribunal shall deal with the matter uninfluenced by any observations in this order on the respective stands of the parties.

26. Resultantly, the appeal being devoid of any merit is liable to be dismissed, which we do, leaving the parties to bear their own costs.

27. The Registry is directed to communicate this order to the learned Members of the Arbitral Tribunal to enable them to enter upon the Reference and decide the matter as expeditiously as practicable.