Supreme Court of India Aurohill Global Commodities Ltd vs M.S.T.C. Ltd on 31 July, 2007 Equivalent citations: AIR 2007 SUPREME COURT 2706, 2007 AIR SCW 4891, 2007 (5) AIR BOM R 414, 2007 CLC 1426, (2007) 6 MAH LJ 690, (2008) 1 MPLJ 10, 2007 (7) SCC 120, (2007) 3 ARBILR 188, (2007) 3 RECCIVR 706, (2007) 9 SCALE 467, (2008) 1 WLC(SC)CVL 189 CASE NO.: Arbitration Petition 8 of 2007 PETITIONER: Aurohill Global Commodities Ltd. RESPONDENT: M.S.T.C. Ltd. DATE OF JUDGMENT: 31/07/2007 S.H. Kapadia J JUDGMENT: JUDGMENT KAPADIA, J. 1. M/s Aurohill Global Commodities Ltd. has filed an arbitration application herein under Section 11(9) read with Section 11(5) of the Arbitration and Conciliation Act, 1996 (the "said Act") for the appointment of arbitrators to settle the dispute between the said company and M/s M.S.T.C. Ltd. (PSU). The facts giving rise to this petition briefly are as follows. 2. Petitioner company is based in Cyprus having its offices in Russia and India. Petitioner has been exporting steel products for more than a decade. 3. Vide letter dated 2.3.2005, M/s Sunvijay Rolling and Engineering Ltd., Nagpur placed an order on the petitioner for supply of 5000 MT of Billets. Accordingly, on 10.3.2005 petitioner forwarded proforma invoice to the said Sunvijay Rolling and Engineering Ltd. for the required quantity of Billets for a total consideration of US $ 22,25,000. Payment was to be made through irrevocable confirmed letter of credit ("LC") payable 100% at sight. Petitioner's banker was M/s BNP. Subsequently, M/s Sunvijay Rolling and Engineering Ltd. informed the petitioner that they prefer to buy the Billets through M/s M.S.T.C. Ltd. (respondent herein). 4. On 24.3.2005 a Draft Purchase Order dated 24.3.2005 was issued by M/s M.S.T.C. Ltd. which was accepted by the petitioner. It is the case of the petitioner that the said purchase order was issued as a result of negotiations between the petitioner and M/s M.S.T.C. Ltd.. According to the petitioner, this constituted a contract between the parties at Kolkata. The date of shipment was 15.5.2005 and payment was to be made through irrevocable LC to be opened by First Class Indian Bank. The LC was to be made operative only after receipt of credential report from Dan & Bradstreet. Clauses 19 and 20 of the Purchase Order read as under: "19. ARBITRATION: Any disputes, controversies and/or claims arising out of or relating to this agreement or any modification thereto, or any alleged breach or cancellation thereof, which cannot be settled amicably between Seller and buyer, shall be settled by arbitration in London, and in accordance with rules of arbitration of the Great Britain arbitration and the award in pursuance thereof shall be binding on the parties. (emphasis supplied) 20. JURISDICTION: The competent court under the laws applicable in Great Britain alone shall have exclusive jurisdiction to decide all matters, disputes and controversies relating to this contract, including arbitration proceedings instituted or to be instituted. The jurisdiction of court will be London." 5. On 29.3.2005 M/s M.S.T.C. Ltd. requested M/s Indian Overseas Bank, Kolkata for opening of an irrevocable LC. Accordingly, M/s Indian Overseas Bank informed the petitioner's bankers that LC has been opened on the request of M/s M.S.T.C. Ltd. and that the petitioner was the beneficiary under the LC. The date of expiry of the LC was 5.6.2005. The last date of shipment was 15.5.2005. The LC was to operate only after receiving confirmation from the Opening Bank. 6. On 20.4.2005 the petitioner's banker confirmed the LC. The LC was payable against presentation of FCR (a receipt of confirmation) of goods at the port of loading. 7. On 10.5.2005 it is alleged that the petitioner received the requisite confirmation on which basis the petitioner prepared the goods for shipment. The goods arrived at the port in Ukraine and a FCR was issued to this effect. The said receipt was presented to the bank along with the documents. However on 13.5.2005 M/s Sunvijay Rolling and Engineering Ltd. addressed a letter to the petitioner to suspend all the dispatches on the LC opened by M/s M.S.T.C. Ltd. On the same day, the petitioner informed M/s Sunvijay Rolling and Engineering Ltd. that it was not possible to suspend the dispatches as the goods were already placed at the port. M/s Sunvijay Rolling and Engineering Ltd. requested the petitioner vide letter dated 23.5.2005 to decrease the price by US $ 50 PMT. The petitioner was further informed that the LC would remain suspended till the petitioner agrees to decrease in the price. The petitioner refused to reduce the price. On 26.5.2005 the bankers of M/s M.S.T.C. Ltd. stated that the LC was inoperative as certain conditions were not satisfied, namely, non execution of the performance guarantee. According to the petitioner herein, there was no such requirement in t