Delhi High Court Haldiram Manufacturing Co. Ltd. vs Srf International on 20 March, 2007 Equivalent citations: 2007(2)ARBLR434(DELHI), 139(2007)DLT142 JUDGMENT Sanjay Kishan Kaul, J. 1. The petitioner filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the said Act) against the present respondent as respondent No. 1 and M/s Prime International, a partnership firm, as respondent No. 2. The petition states that the petitioner is manufacturer/ exporter of high quality of Indian sweets, salty and spicy mixture and pure Asian vegetarian food snacks commanding good reputation. The petitioner is a unit of the Haldiram Group of Companies enaged in the business of financing and exports. The original second respondent is stated to be the sole distributor appointed for distribution of goods manufactured by the petitioner in Saudi Arabia. 2. The petition states that an agreement dated 19.6.1997 was entered into between the petitioner, the respondent and the original respondent No. 2 for exclusive marketing and distribution of 'Haldiram' brand of snacks and food in Saudi Arabia. The said agreement contains an arbitration Clause 20 providing for arbitration as a mode of settlement of disputes. Clause 20 is as under: ARBITRATION: As applicable for international business. 3. The respondent herein is stated to have placed two purchase orders, both dated 14.1.1998, for supply of Haldiram brand of sweets and namkeens on the petitioner and M/s Haldiram Marketing Limited. The goods were to be dispatched latest by 5.2.1998 and the payment had to be made by the respondent to the manufacturer within four weeks of handing over of the consignment in Delhi. The goods are stated to be consigned vide invoice dated 9.2.1998 for Rs. 2,89,761.46 and invoice dated 7.2.1998 for Rs. 1,88,815/. The first invoice is in the name of the petitioner while the second is in the name of M/s Haldiram Marketing Limited. 4. In terms of the agreement dated 19.6.1997, it was specified that the products had to be supplied by the manufacturer to the exporter on local sale basis for onward dispatch in Saudi Arabia, which has to be paid thereafter. Use of 'Khas Khas' (poppy seeds) as an ingredient is stated to be strictly forbidden in any preparation in Saudi Arabia and is treated as a narcotic drug. Thus, an specific assurance was taken from the manufacturer that there would be no use of 'Khas Khas'. However, the manufacturers are stated to have received a letter from the exporter stating that the Saudi Arabian buyer is not agreeable to take delivery of the consignment in February, 1998 as per the purchase order as in three cases of 100 gram pouches of 'Cornflakes mixture' Khas Khas was printed as one of the ingredients. This is stated to be so with the consignment of September, 1997 while there was no such problem in respect of the consignment sent in February, 1998. Be that as it may, the manufacturer advised for diversion of the containers to its nominated distributor M/s Giant Super Market, Sharjah for removal of any such alleged pouches and send the balance containers back to Saudi Arabia. 5. The payments received towards the material cost against invoices dated 9.2.1998 and 7.2.1998 were returned to the exporter vide letter dated 14.4.1998 to facilitate the transaction. However, after certain communications, the distributors expressed their inability to take delivery of the consignment. Goods were stated to be lying during this period of time at the sea port in the shipping container for over three months and this is stated to be contrary to the agreed terms. 6. In view thereof, disputes are stated to have arisen between the parties as to whether there is any breach of contract and the entitlement of damages, if any, for the petitioner. 7. A reply was filed by the respondent herein contesting this application. One of the objections taken was that M/s SRF International does not have any entity in law and it is only a division of M/s SRF Limited. It may be noticed that the description of the respondent is "M/s SRF International (a division of M/s SRF Limited)". The second objection was about the maintainability of the petition since the provisions of Section 8 of the said Act would apply only in respect of the matter pending before the Court. It is further stated that the agreement dated 19.6.1997 contained an arbitration clause in terms of which arbitration was to be conducted as applicable for international business. This procedure agreed to between the parties to conduct the resolution of disputes was stated not to have been followed. The disputes were also stated to be beyond the terms of the agreement dated 19.6.1997. The reply also pointed out that the purchase orders also contained an arbitration clause. This clause is in the following terms: Arbitration In case of any dispute between the parti