Full Judgment Text
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PETITIONER:
AGARWAL ENGINEERING CO.
Vs.
RESPONDENT:
TECHNOIMPEX HUNGARIAN MACHINE INDUSTRIES
DATE OF JUDGMENT18/07/1977
BENCH:
KRISHNAIYER, V.R.
BENCH:
KRISHNAIYER, V.R.
SARKARIA, RANJIT SINGH
SINGH, JASWANT
CITATION:
1977 AIR 2122 1978 SCR (1) 167
1977 SCC (4) 367
ACT:
Arbitration Act-Parties entered into two separate contracts
on different dates for sale of machinery and appointing the
appellant as sole selling agent of the machinery-Both
contracts contained arbitration clauses-Whether arbitration
clause in later contract supersedes the arbitration clause
in earlier contract.
HEADNOTE:
As a result of negotiations between the appellant, an Indian
engineering concern and the respondent, a Hungarian State
Undertaking carrying on export import trade, the parties had
drawn up on April 2, 1970 (Annexure A) a, broad arrangement
between them. The first four clauses of Annexure A related
to the appellant being chosen to represent the respondent in
the sale of their goods exclusively in certain specified
States in India and the second part deals with the purchase
of two specific items, namely, Counterblow Hammer Type EK 25
and EK 13A machines. On the same date two formal contracts
(Annexurea B1 and B2) were entered into between the parties.
Clause 8 of Annexures B1 and B2 states that all questions,
disputes, etc. relating to the contract, shall be referred
to the arbitration of Bharat Chamber of Commerce. By an
agreement dated April 6, 1970 (Annexure C) the appellant was
appointed as sales-representative of the respondent. Clause
14 of this agreement contained an arbitration clause. But
the two arbitration clauses differed on the composition of
the arbitrators as well as the substantive and processual
laws to be applied.
The appellant alleged that there was a breach of contract in
that the machines supplied by the respondent did not accord
with the bargain.
Disputes having arisen between the parties as to which of
the two arbitration clauses of the agreements was
applicable, the High Court held that the arbitration clause
in an Annexure C was the one binding on the parties.
Allowing the appeal,
HELD : (1) ’Me arbitration clause that governs the sales of
the two items of machinery in these proceedings is cl. 8 of
Annexure B1 and B2. Annexures B1 and B2 are self-contained
and constitute a separate contract-set and they exclusively
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relate to the terms of purchase of EK 25 and EK 13A.
Annexure C is futuristic and relates to sales ’agency’ and
later purchase. [174 D]
(2)The reference by the High Court to the principle that
the last deed must govern the relationship between the
parties superseding the earlier ones, when there is
inconsistency between the two has no room for play here.
[175 D-E]
(3)Clause 1 of Annexure A grants a right of exclusive
representation to the appellant "to act as its sole agent"
in certain specified territories. Clause 2 states that "the
detailed text of the agreement will be air-mailed until the
7th April, 1970". Clause 5 deals with the appellant
agreeing immediately to place an order for machines. Two
machines had been agreed to be sold and to give effect to
this agreement referred to in cl. 5 to 8 of Annexure A, two
orders, each independent, namely, Annexure B1 and B2, were
executed on April 2, 1970. The terms and conditions of
these two sales were printed on the back of the order, the
first of which stated "this order shall be the sole
repository of the transaction. . . . ". If the exclusive
repository of the terms of the transaction was Annexures B1
and B2, purchase of the machinery EK 25 and EK 13A was
covered by this complete deed and there was no justification
for travelling beyond it to ascertain the intention of the
parties. [172 A-B; H]
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(4)The totality of the terms concerning the sale of the two
machines had been documented in Annexure B1 and B2, such a
concluded contract could cease to be operative ordinarily
only by performance or novation or in any other manner known
to the law of contract. [173 C]
In the instant case, cl. 8 of Annexures B 1 and B2 is valid,
unless Annexure C extinguished Annexures B1 and B2. [173 D]
(5)The whole of cl. 1 of Annexure C devotes itself to the
appointment of the appellant as sole buyers from the
respondent. The terms "hereby" and "hereinafter" mentioned
in that clause postulated that while the minutes (Annexure
A) projected the proposal for appointing the appellant as
exclusive agents it was only under Annexure C, the actual
scheme was to come into force on acceptance, and not from
any anterior date. Moreover, absence of "special
introduction discount" in Annexure C in contrast to such a
provision in Annexures B1 and B2 only showed that Annexure C
did not deal with the two sales covered by Annexures B1 and
B2. [173 F]
Clause 12 of Annexure C stated that "this agreement is valid
from after the 7th April, 1970". The two machines in
dispute were agreed to be purchased on April 2, 1970 under
Annexures B1 and B2 but Annexure C became operative. only in
regard to transactions from after April 7, 1970. These
terms cannot be given retroactive effect since cl. 13
expressly states that "this agreement enters into force when
both parties have signed it." [174 A]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1413 of
1976.
Appeal by Special Leave from the Judgment and Order dated 3-
2-1976 of the Calcutta High Court in Award Matter No. 109 of
1975.
V. M. Tarkunde, B. M. Bagaria and D. P. Mukherjee for the
Appellant.
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Sachin Choudhary and D. N. Gupta for the Respondent.
The Judgment of the Court was delivered by
KRISHNA IYER, J. Commercial causes, we may observe prolego-
menary fashion, should, as far as possible, be adjusted by
non-litigative mechanism of dispute-resolution, since
forensic processes, dilatory and contentious, hamper the
flow of trade and harm both sides, whoever Wins or loses the
lis. That. is why arbitration is often prudently resorted
to when controversies erupt in the course of business
dealings But when basic differences spring up as to which is
the arbitration clause that governs, in a plurality of
contracts or several steps in evolving a final contract but
containing divergent arbitral provisions, the Court comes
into the picture, willy nilly. Even so, having regard to
the larger interests of justice, an exercise in pretrial
settlement, consistent with judicial non-alignment, is
desiderable, and so we had suggested to counsel, at an
earlier hearing, to bring the parties together on the
limited question of the arbitral locus and law, but,
notwithstanding genuine efforts by counsel, and perhaps due
to substantial factors weighing with the parties, the effort
proved fruitless. A legal adjudication may be flawless but
heartless but a negotiated settlement will be satisfying,
even if it departs from strict law. The respondent’s
counsel stated that his client a foreign State Trading
Organization-was rather keen-and this may well be true-on
getting the law declared by this Court for future guidance
and so we proceed to narrate the litigative story and
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cut the legal knot for the benefit of both sides. Since the
subject matter relates to the sensitive area of foreign
trade we still hope the dispute, even after our
pronouncement, will be dissolved and goodwill and business
dealings revived between the parties to their mutual
benefit.
The dramatis personae or legal actors in this action are an
engineering firm in India (the appellant) and a Hungarian
State undertaking doing export-import trade with other
countries in machinery (the respondent) and the contest
relates to the competency of the appellant to refer a
dispute regarding purchase of two Hungarian Counterblows
(machinery). The Indian went to Budapest to try and buy
Hungarian machinery and the negotiations fructified as the
minutes of April 2, 1970, drawn up of the broad arrangement
between the parties, disclose. Having been followed up by
format deeds, these minutes mark the beginning of and serve
as setting to but not in themselves constitutive of complete
contracts. A significant dichotomy which characterises
these minutes cannot be missed, though resisted by counsel
for the respondent. The first part relates to the
appellant, being exclusively chosen to represent the
respondent in the sales of their manufactures in certain
specified States in India. The second part is devoted to
purchase of two specific items of machinery plus provision
for a third to be concretised. later. This duality analysis
may be driven home by reading the text of the minutes here
MINUTES
Drawn in Budapest on the 2nd April, 1970, Present....
1. Technoimpex grants the right of exclusive
representation to the Agarwal Engineering Company to act as
its sole agent in the territories of West Bengal, Bihar and
Orissa. It will be decided at a later date whether the
representation agreement will be extended to the State of
Assam.
2. The detailed text of the agreement will be air-mailed
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until the 7th April, 1970.
3. A letter in duplicate addressed to STC with the request
to issue a stock and tale licence in a value of 2 Million
Rupees will be sent to the Hungarian Trade Commissioner in
Calcutta who hands over it to M/s. Agarwal Engineering Co.,
after signing the Agency agreement.
4. Detailed proforma invoices in six copies will be sent
with the agreement and catalogues at least six copies.
5. It has been agreed that Technoimpex supplies and the
Agarwal Engineering Company immediately places the order for
the following machies :
One counterblow Hammer Type EK-Gross
C & F Price Rs. 1,000.000
One counterblow Hammer Type EK-13A Rs. 522.596
Other machines in a value of Rs. 300.000
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6. Technoimpex grants a special introduction discount of
10% in the free Hungarian border prices i.e. on
EK-25 Rs. 915.550
EK-13A Rs. 466.200
and of 5% in the free Hungarian border prices of the
other machine, as per price list handed over to the
Agarwal Engineering Company.
7. Payment conditions of counterblow hammer type EK-25
would be : 25" through irrevocable L/C to be opened 30 days
before the date of despatch.
75% in 3 years in 6 equal instalments for which 6% interest
will be charged extra
EK 13A counterblow hammer will be paid 25% through irrevo-
cable L/C to be opened 30 days before the date of despatch.
75 % 12 months credit to be paid in two equal instalment&
for which 6% interest will be charged extra.
Other machine types will be supplied at 6 months credit and
6% interest will be charged p.a.
The guarantee of a first class bank should be sent with the
order to cover the credits granted. The credit is reckoned
from the date of B/L.
In case of cash payment no interest will be charged.
8. The machines mentioned in these minutes can be sold
only in the territories enumerated under S.I. by M/s.
Agarwal.
Delivery terms :
Counterblow Hammer Type EK-25 16th October 1970.
Counterblow Hammer Type EK-13A 15th October 1970.
Budapest, 2ND April 1970.
On Behalf Agarwal Co. On behalf of Technoimpex."
The first four clauses focus on the ’exclusive
representation’ rights while the last four specificate the
agreed terms for purchase of two items of machinery, such as
the price, ’introduction discount, conditions of payment and
the like. The former speak of what is proposed to be done,
to be set down in an agreement to be despatched on or before
April 6, 1970. The latter, now and here, spell out the
essential contents of two contracts of purchase of two
Counterblows Hammer Type one EK-25 and the other EK-13A. In
keeping with this legal ’dialysis we find on the same date,
i.e., April 2, 1970, two formal contracts relating to the
sale of the ’Counterblows. These run virtually on the same
lines and set out the terms of the two sales, one of the
common terms whereof engrafts an arbitration clause (clause
8) which reads
"8. All matters, questions, disputes,
differences and/or claims arising out of
and/or concerning and/or in connection with
and/or in consequence of or relating to the
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contract whether or not the obligations of
either or both parties under this contract be
subsisting at the time of such dispute and
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whether or not this contract has been
terminated or purported to be terminated or
completed shall be subject to the jurisdiction
of Calcutta High Court only and shall be
referred to the jurisdiction of Calcutta High
Court only and shall be referred to the
arbitration of the Bharat Chamber of Commerce
under the rules of its Tribunal of Arbitration
for the time being in force and according to
such rules the arbitration shall be conducted.
"
We have stated at the outset that the Minutes (Annexure A)
envisioned the appointment of the appellant firm as sales
representatives of the respondent exporters and this project
is given concrete form in the shape of an agreement dated
April 6, 1970 (Annexure C, p. 86). It is not in dispute
that this, by acceptance, ripened into a contract with
detailed terms and conditions one of which is an arbitration
clause (cl. 14). It is substantially different from the
earlier one. We may set it out without comment since it is
patent and uncontested that the two arbitral provisions
diverge on the fori of decision, the composition of the
arbitrators as well as the substantive and processual laws
to be applied. Briefly, the bone of contention between the
parties is the bare question. of which of the two
incompatible arbitration projects governs the dispute about
the sale of the two machines mentioned in Annexures B1 and
B2. For, these were forwarded by sea, one to Calcutta and
the other to Bombay, but according to the appellants the
goods delivered did not accord with the bargain and the
contract had been breached by the sellers.
This controversy erupted in two proceedings, one at the
instance of the appellant under s. 41 of the Arbitration Act
and the other, instituted by the respondent, under s. 33 of
that Act. The former failed and the latter-succeeded and
from this adverse order the appellant has arrived, under
special leave, to challenge its correctness.
The High Court has set out the details of the two
proceedings but the crux of the matter turns on one material
issue. Did the second contract (Annexure C) supersede the
earlier contract (Annexures B1 and B2) so that by novation
the first contract, and together with it the arbitration
clause, perished and could not be availed of by the appel-
lant ? If annexures B1 and B2 as well as annexure C, related
to independent subject matters and could co-exist without
the latter superseding the earlier, the appellant would
succeed in the appeal. On the contrary, if Annexure C took
in its wings the contract relating to the sale of the two
items of machinery, the minutes (Annexure A) being the
basis, the documents annexures B1 and B2 being steps towards
the culmination of the contract which found expression in
Annexure Cas argued by Shri Sachin Choudhry on behalf of the
respondent then, maybe the terms for the purpose of
reference to arbitration would have to be sought in Annexure
C and not in the earlier ’contracts’. Shri Sachin
Choudhary’s position also is that no case of novation arises
because there has been no contract arrived at under Annexure
B1 and B2, the real and the only contract being Annexure C.
A study of the relevant clauses, taking a conspectus of the
triple stages, may take us to a sound solution of the legal
problem. The minutes, Annexure A have been scanned by us
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earlier. Even so, an 12-722 SCI/77
172
insightful scrutiny may be helpful in unlocking the problem
confronting us. Annexure was drawn up in Budapest where both
the parties were present. Clause (1) grants a right of
exclusive representation to the appellant by the respondent
’to act as its sole agent in the territories of West Bengal,
Bihar and Orissa’. The very next- clause states that ’the
detailed text of the agreement will be air-mailed until the
7th April 1970.’ Clauses 3 & 4 are mainly in furtherance of
the ’agency agreement’. What is important to notice is that
the agreement to be concluded as per clause 2 relates to
’the right of exclusive representation’.
Then we start off with clause 5 onwards. This fasciculus of
clauses is devoted to the immediate purchase of Counterblow
Hammer Type (EK 25 and EK-13A) machines. Contextually and
discerningly read, clause 5 deals with the appellant
agreeing immediately to place an order for three machines
two of which we have just referred and the third was not to
be bought right away but only later, although its price was
indicated in clause 5. Since the parties were beginning a
business relationship which was expected to be enduring, the
respondent granted a ,special introduction discount’ of 10%
on EK-25 and EK-13A and 5% on the other machine which was
the third item in clause 5.
Clause 7 speaks of the payment conditions and gives details.
Clause 8 puts a condition on the area in which the machines
purchased as per clause 5 are to be sold. The terms of
delivery, especially the time of delivery, are also, set out
in cause 8 of the minutes. It follows that the contention
of Shri Sachin Choudhry that Annexure C is one integral
document and to dichotomise it as Shri Tarkunde, counsel for
the respondent did, is to do injury to the consensus of the
parties is unacceptable. Actually there was to be a
principal to principal relationship established between the
parties and, to start with, there was to be an immediate
purchase of two or three items, forthwith, the terms whereof
were generally set down. It is apparent that two machines
had been agreed to be sold and to give effect to this
agreement referred to in clauses 5 to 8 of Annexure A, two
orders, each independent, viz., Annexures B1 and B2, were
executed between the parties on the same date, viz., April
2, 1970. The seller and the buyer had already settled the
terms of the sale and so it was thought they could and did
execute specific contracts in regard to the two machines.
The terms and conditions of these two sales were identical
and were printed on the back of the ’order/indent’.
Moreover, almost every detail of the manner of despatch, the
manner packing, the prepayment of freight, the time for
despatch and the manner of drawing up the invoice and many
other particulars, including ’full literature, drawings,
instructions covering the supply and insurance policy
covering comprehensive risks was written into Annexures B1
and B2. It was also indicated that part delivery would not
be accepted and that the destination was ’Calcutta/ Indian
port.
The terms and conditions printed over leaf again ran into
further details. But what is most significant in the very
first condition which states : ’This order shall be the sole
repository of the transaction and the terms and conditions
mentioned herein shall not apply, (emphasis added). Thus
the nidus of the terms and conditions governing the contract
regarding the purchase of the two mechines was Annexures
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B1 and B2. If the exclusive repository of the terms of the
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transaction was Annexure B1 (and B2), we could sensibly
infer that the purchase of the machinery EK-25 and EK-13A
was covered by this complete deed and there was no
justification for travelling beyond in to ascertain the
intention of the parties connected with the bargain relating
to the sale of the two machines. Prima facie, therefore,
the parties were bound to abide by the arbitration clauses,
contained in condition 8 of Annexure B-1 and B-2. Indeed,
clause 9 made the supplier responsible for ’all consequences
by virtue of fines etc.’ arising from wrong shipment of
goods and it was also clearly stated that the prices
mentioned in, this order were firm and that they would not
be altered even after any gold price variation unless
otherwise specifically mentioned therein. In one sense,
therefore, the totality of the terms concerning the sale of
the two machines had been documented in Annxeures B-1 and B-
2. Such a concluded contract could cease to be operative
ordinarily only by performance or novation or in any other
manner known to the law of contract. In the present case
the ,dispute was regarding whether there had been proper
performance, and, this dispute was sought to be referred to
the Bharat Chamber of Commerce as envisaged in clause 8 of
Annexures B1 and B2. Such ,a proceeding would be valid,
unless, as was contended by Shri Sachin Chaudhri, Annexure C
extinguished Annexures B1 and’ B2 so that a ’substitution or
novation took place, of course, it is fair to state that
Shri Sachin Chaudhry drew our attention to certain details
and minor differences between Annexure B series and Annexure
C, which, in our view, are but frills and do not affect the
core contention.
We may, in this, view, have to examine the provisions in
Annexure C and their effect upon Annexures B1 and B2. The
competing clauses-rather, the rival versions-from their
relevance to the question posed above, may be looked into at
this stage. Clause (i) is significantly self-evident :
"Sellers hereby appoint buyers as sole buyers of their
machine tools of all kinds,... on the terms and conditions
hereinafter mentioned and the buyers hereby accept such
appointment on such terms and conditions". The whole clause
clearly devotes itself to the appointment of the appellant
as ’sole buyers’ from the respondent. The emphasis on
’hereby’ and ’hereinafter mentioned’ postulated that while
the minutes Annexure A projected the proposal for appointing
the appellants as exclusive agents it was only under
Annexure C, dated April 6, 1970, the actual scheme was to
,come into force. on acceptance, and not from any anterior
date. ,Clauses (2) and (3) do not relate to the ’sales
representatives’ part of the contract. Clause (4) continues
the same idea and spells (-,tit the terms of the sale. It
is noteworthy that there is no ’special introduction
discount’ provided for in Annexure C in contrast to such a
provision in Annexures B1 and B2. The likely inference is
not that the said discount is withdrawn but that Annexure C
does not deal with those two sales (covered by Annexures B1
and B2).
Likewise, the terms of payment mentioned in clause 5 are
such as are ’to be arranged from time to time’ while
Annexures B1 and B2 specify the terms of payment so far as
the two machines covered by them were concerned. The
subsequent clauses (6) to (11) deal with
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kindred matters of sales agency. Clause 12, captioned
’duration of agreement’ states that ’this agreement is valid
from after the 7th of April 1970 till 31st December, 1970.
The two machines with which we are concerned in this appeal
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were agreed to be purchased, as it were, on April 2, 1970,
under Annexures B1 and B2 but Annexure C became operative
only in regard to transactions from after April 7, 1970.
Indeed, these terms cannot be given retroactive effect since
clause 13 expressly states that ’this agreement enters into
force when both parties have signed it’.
Clauses 15, 16 and 17 are also not germane to the purchase
of the two machines but in the background we have traced,
clause 14 has to be decoded. That clause, as already
mentioned, is a new arbitration clause. substantially
different from the one contained in Annexures B1 and B2.
The question is : Can the arbitration provision in clause 14
have retroactive effect to bind sales effected on April 2,
1970 especially when such a contention runs in the teeth of
clause 13 which directs that Annexure C shall enter into
force only when both parties have signed it, which event
obviously took place only on or after April 6, 1970.
The analysis of Annexures A to C which we have made, leads
only to, one conclusion, viz., that Annexures B1 and B2 are
self-contained and constitute a separate contract-set, and
that they exclusively relate to, the terms of purchase of EK
25 and EK 13A. Annexure C is futuristic and relates to
sales ’agency’ and later purchases. The arbitration clause
that governs the sales of the two items of machinery in
these proceedings is clause B. in Annexures B1 and B2. This
necessarily means that the dispute between the parties may
be completely arbitrated by the Arbitration Tribunal of
Bharat Chamber of Commerce.
The High Court has taken a contrary view, ignoring the
effect of Annexures B1 and B2 and over-emphasising, indeed
misreading, the minutes of April 2, 1970 and the deed of
April 6, 1970. These two formal contracts (B1 and B2) have
been dismissed not by argument but by assertion :
"In my view, the placing of the order by the Standard Pri
nted indent/order form of the
Respondent with the petitioner for the supply
of the said two machines can only be in
pursuance of the said Parent agency agreement
which was arrived at between the Parties in
the meeting dated,’ the 2nd of April, 1970 and
the details were of which was formally
recorded in the document dated the 6th of
April, 1976. The party never intended that
the said order/indent placed by the respondent
with the petitioner would be an independent
and separate agreement as now sought to be
contended by Mr. Bhabre on behalf of the
Respondent."
How the learned Judge reaches the conclusion that the
arbitration clause in B1 and B-2 is inoperative beats our
comprehension.
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"Further, from the minutes of the meeting
dated the 2nd of April, 1970, and the document
dated the 6th of April, 1970, it is made quite
clear that the parties intended to have
transaction only on the basis of the forms
which were fully set out in the document dated
the 6th of April, 1970. Therefore, the
arbitration clause in the said document dated.
the 6th April, 1970, is the one which is
operative and binding between the parties and
the arbitration clause in the Standard Printed
Indent/Order form of the Respondent has no
effect as the said order was formally placed
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in pursuance to the agency agreement arrived
at between the Parties as recorded in the
minutes of the meeting dated the 2nd of April,
1970."
Once we grasp the scenario of events and execution of
documents and give full effect and intelligible coordination
to the various documents it becomes clear that there is no
sequitur in the High Court’s reasoning. Nor are we able to
persuade ourselves, as the High Court has done, that there
may be ambiguity as to the interpretation of the series of
documents and the terms of the contract concerned.
We agree that all the machinery purchased by the appellant
or to be purchased by him from the respondent, except the
two items covered by Annexures B1 and B2 are governed by
Annexure C. The reference by the High Court to the principle
that the last deed must govern the relationship between the
parties superseding the earlier ones, when there is
inconsistency between the two, assuming it to be right, has
no, room for play here. Subsequent documents, such as the
Protocol of November 14, 1970, February 26, 1971 and the
like, do not vary the jural relationship, vis a vis the sale
of the two items of machinery we are concerned with. We are
unable to agree with Shri Sachin Choudhry that the said
protocol shows that Ex.C was taken to be the sole matrix of
the contractual terms regarding the purchase of EK. 25 and
EK. 13A. Neither the conduct of the parties nor the chain
of correspondence deflects us from the conclusion already
reached,
In this view, the inference is inevitable that arbitral
clause in B1 and B2 bind the parties, so far as the disputed
machines are concerned.
Shri Sachin Chaudhri stated at the bar that in regard to one
of the items, ’some sort of settlement has been reached,
although Shri Tarkunde does not agree. We merely. mention
this and leave it at that.
We must further state that Shri Tarkunde did assure the-
Court that irrespective of the result of the appeal, the
appellant was agreeable to the arbitral reference going
before any Tribunal of Arbitration of any Chamber of
Commerce in India. We hold the party to that assurance.
In conclusion we allow the appeal, but, in the
circumstances, direct the parties to bear their
respective costs. We further direct that if the respondent
intimates the appellant in writing on or before
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176
August 15, 1977 that he chooses any particular tribunal of
Arbitration, set up by any Chamber of Commerce in Bombay or
Calcutta, the reference of the dispute will go to that body.
If, however, no such intimation is made, the Tribunal, of
Arbitration of the Bharat Chamber of Commerce will have
jurisdiction and will continue the proceedings. The
arbitrators will decide, according to clause 8 in Annexures
B1 and B2, the rights and liabilities of the parties. The
parties will bear their respective costs throughout.
P.B.R. Appeal allowed
177