Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION PETITION NOS. 7 & 8 OF 2009
M/s. Cauvery Coffee Traders, Mangalore …Petitioners
Versus
M/s. Hornor Resources (Intern.) Co. Ltd. …Respondents
J U D G M E N T
Dr. B.S. CHAUHAN, J.
1. The arbitration applications under Section 11(5) & (9) of the
Arbitration and Conciliation Act, 1996, hereinafter called the “Act
1996” have been filed for appointment of Arbitrator in an international
arbitration dispute to adjudicate the disputes/differences which have
arisen between the parties.
2. The applicants are a partnership concern incorporated under the
Indian Partnership Act, 1932 and have filed two applications as the
dispute raised herein relate to two consignments. However, for
convenience, facts and issues related to Petition No.7/2009 are being
considered.
3. On 24.6.2008, a Purchase Contract bearing No. CCT/SST/027/
240608 was entered and executed by and between the applicants and
the respondents wherein the applicants agreed to sell and the
respondents agreed to purchase Calibrated Lumpy Ore Fines of the
approximate quantity of 40,000/- Wet Metric Tones (hereinafter called
as `WMT’) (10% more or less at buyers’ option) at the price and on the
terms and conditions stipulated in the said agreement. The agreement
provided for the chemical specification/composition of the Ore and for
guaranteed level of Fe i.e. iron content in the contracted goods which
could not be less than 63%. In case the iron content was less than 63%,
the buyer would have a right to reject the cargo.
4. A large quantity of Ore had been supplied to the respondents
which had been accepted and payments had been made. Pursuant to
the purchase contract, the applicants on 6.8.2008 shipped a total
consignment of 24,500 Dry MT of Calibrated Lumpy Ore from New
Mangalore Port, India to the port of discharge viz. Rizhao Port, China
by vessel named “MV. FUJIN”. The applicants raised a provisional
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invoice for a sum of US$ 32,13,529.11 and sent a Certificate of Origin
and the Bill of Lading dated 6.8.2008 as issued by the carriers in
respect of the carriage of the goods from Mangalore Port, India to
Rizhao Port, China. The material so supplied had been sent after
proper analysis and it had been certified by the analyst in India that the
goods supplied contained more than 63% Fe contents. The said goods
reached at China Port. The delivery of the same was taken by the
respondents and on chemical analysis, according to them, the iron
contents Fe, were found to be 62.74%. The goods reached the Port of
Discharge, and were accepted by the respondents-buyers who
promised that payment would be made without any delay.
5. The respondents vide email dated 19.9.2008 informed the
applicants that a provisional payment would be released for the
shipment in question based on revised rates and, in case, the applicants
were willing to accept the revised rates stipulated therein, the
respondents would request their end buyers’ confirmation to release the
payment, and for that purpose, applicants were asked to send necessary
instructions through their banker. The respondents vide email dated
7.10.2008 informed the applicants that US$ 1.5 million could be the
amount for the final settlement in respect of the shipment in question,
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in spite of the fact that the agreed amount had been US$ 18,91,204.00.
By the said email, applicants were asked by the respondents to inform
through their banker in case of their acceptance to the said proposal.
Under these peculiar facts and circumstances, as the goods had already
reached China and applicants were in dire need of money, they
informed through their banker that they agreed to receive payment
under the Letter of Credit in a sum of total claim of US$ 18,91,204.00.
By email dated 7.10.2008 the respondents stated that the applicants
should accept US$ 1.5 million in full and final settlement. Accordingly,
an amount of US$ 1.5 million had been received by them. Subsequent
thereto, the applicants had repeatedly been sending reminders to the
respondents to make good the balance payment under the said purchase
contract, but no payment had been made. As the respondents failed to
make the payment of the balance amount, the applicants sent a legal
notice dated 14.11.2008 to call upon the respondents to pay the balance
amount under the purchase contract and further provided that, in view
of the arbitration clause 18 contained in the purchase agreement, they
should carry on friendly negotiations to settle the dispute accrued
between the parties. As per the terms of the purchase agreement,
arbitration can be held only in a third country. The applicants suggested
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to have the arbitration proceedings either in Singapore or in Australia.
In spite of receiving the said notice, neither the payment of the balance
amount was made, nor the respondents came forward for friendly
negotiations. Therefore, a further reminder was sent by the applicants
to the respondents calling upon them to indicate the place of
arbitration. As neither the payment had been made, nor the
respondents have agreed for arbitration proceedings, they have
approached this Court by filing these applications.
6. Shri V.A. Mohta, learned senior counsel appearing for the
applicants, has submitted that in spite of the fact that the supply of iron
ore has been made strictly in terms of the purchase contract and the
outstanding payments have not been made even after several
reminders, the applicants served a notice on the respondents for
appointment of Arbitrator in the third country in terms of Clause 18 of
the Purchase Agreement but the respondents did not make any effort
either to come for friendly negotiations or to refer the matter for
arbitration, therefore, this Court must refer the matter to the Arbitrator
in a third country preferably Singapore or Australia.
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7. On the contrary, Shri Ashok K. Srivastava, learned senior
counsel appearing for the respondents, has vehemently opposed the
applications contending that the applications themselves are not
maintainable as the purchase agreement can be dealt with Part-II and
certainly not under Part-I of the Act 1996. Therefore, the applications
under Section 11(5) & (9) of Act 1996 are not maintainable, even
otherwise, there has been a complete settlement between the parties
and the applicants have accepted the full and final settlement as
suggested by the respondents in view of the fact that Fe contents were
not as per the specifications and certain terms had been offered to the
applicants for settlement, which had been agreed by them. The
question of making the reference to arbitration proceedings does not
arise.
8. I have considered the rival submissions made by learned counsel
for the parties and perused the record.
9.
So far as the issue relating to maintainability of the application
itself is concerned, is no more res integra. This court in Bhatia
International v. Bulk Trading S.A, (2002) 4 SCC 105, held as
under:
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“…..notwithstanding the provisions of Section 2(2)
of the Arbitration and Conciliation Act, 1996,
indicating that Part I of the said Act would apply
where the place of arbitration is in India, even in
respect of international commercial agreements,
which are to be governed by the laws of another
country, the parties would be entitled to invoke the
provisions of Part I of the aforesaid Act and
consequently the application made under Section 11
thereof would be maintainable. It clearly lays down
that the provisions of Part I of the Arbitration and
Conciliation Act, 1996, would be equally applicable
to international commercial arbitrations held
outside India, unless any of the said provisions are
excluded by agreement between the parties expressly
or by implication, which is not so in the instant
case.”
(See also: Indtel Technical Services Private Limited v. W.S. Atkins
Rail Limited, (2008) 10 SCC 308; and Citation Infowares Limited
v. Equinox Corporation, (2009) 7 SCC 220).
10. In Venture Global Engg. Case v. Satyam Computer Services
Ltd. (2008) 4 SCC 190, this Court considered the similar issue and
after considering various earlier judgments, came to the conclusion that
implied exclusion of provision of Part-I cannot be inferred and
therefore the principles regarding the arbitral reference laid down in
Bhatia International (supra) are applicable.
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11. Hon’ble Mr. R.C. Lahoti, J. (as His Lordship then was) however,
has taken a contrary view as in Shreejee Traco (I) Pvt. Ltd. v.
Paperline International Inc. , (2003) 9 SCC 79; it was held :
“8. So far as the language employed by Parliament
in drafting sub-section (2) of Section 2 of the Act is
concerned, suffice it to say that the language is clear
and unambiguous. Saying that this Part would apply
where the place of arbitration is in India
tantamounts to saying that it will not apply where
the place of arbitration is not in India .”
However, considering the fact that Bhatia International (supra)
is a three-Judge Bench judgment and has consistently been followed,
the judgment of the learned Single Judge in Shreejee Traco (I) Pvt.
Ltd. (supra) does not have binding effect. As a consequence, the
application is held to be maintainable.
12. The Relevant part of the Purchase Agreement dated 28.6.2008
reads as under:
“Clause 5: Price Adjustmen t
For Fe content:
In respect of iron ore which does not meet the Fe
specifications set forth in Clause 3 the base price
referred to in Clause 4 shall be adjusted in
accordance with Fe content as determined pursuant
to the provisions of Clause 8 as follows:
The base price shall be increased by single prorate
(USD2.2) per dry metric tonne for each 1% Fe
below 63.5% upto 63.0 fraction prorate.
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The Buyer has the right to reject the cargo if Fe
content is below 63.0% .
Clause 15: Title and Risk
The title with respect to each shipment shall pass
from Seller to the Buyers when Seller receives
reimbursement of the proceeds from the opening
bank through the negotiating bank against the
relative shipping documents as set forth in clause 6
after completion of loading on board the vessel at
loading port, with effect retrospective to the time of
delivery of ore.
Clause 18: Arbitration
All disputes in connection with this contract or the
execution thereof shall be settled amicably by
friendly negotiations between the two parties. If no
settlement can be reached, the case in dispute shall
then be submitted for arbitration to a third country,
which shall be agreed upon by both parties. The
arbitration award shall be final and binding on
both the parties and may be enforced in any court
having jurisdiction over the party against which
enforcement is sought. The cost of arbitration shall
be borne by the losing party.”
Thus, from the Purchase Agreement it is evident that the ore
supplied must contain Fe contents not less than 63%. In case the Fe
contents are less than the specified percentage, the buyers would have a
right to reject the cargo. The Purchase Agreement also contains a
clause providing for price adjustment in case the supplied ore does not
meet the requirement of specification provided for iron ore. In case of
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any dispute between the parties, the agreement provides for arbitration
in any third country.
13. The documents on record reveal that parties had been negotiating
for the goods supplied and also in respect of payment for the same
(vide emails dated 25.6.2008 and 8.9.2008). Relevant part of the email
dated 25.9.2008 reads as under:
“……Both cargos were rejected by end buyers due
to the quality failure.
In such case, we regret to say that the
maximum CFR price we can work here is $110 for
Zhongqiang II AND $120 FOR Fujin. Pls note
current market price for cargo below 63 is only
$100 and market is still on the down trend.
However in consideration of the long term good
cooperation between the two companies, we are
offering to bear at least a $10-20 loss on our side
and with the huge risks of further slide of market,
which actually is foreseeable.
th
……Our above offer is valid till this Friday (26
September, 2008) only…”
14. The email dated 7.10.2008 sent by the applicants to the
respondents reads as under:
“Further to telecom just now, pls note as per latest
mutual agreement between seller and buyer , the
said USD1.50 million shall be final settlemen t for
subj.shipment, so please request your bank to revise
the swift msg as follows:
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“beneficiary agrees to receive
USD1,500,000.00 for full and final payment
for this set of documents and under this
letter of credit, after release of this amount,
the letter of credit shall be considered
expired and cancelled.” (Emphasis added)
15. Subsequently, the applicants sent an email to the respondents
dated 14.11.2008 which provided inter-alia, as under:
“Clause 8 of the Purchase Contract provided for
the remedies available in the event of there being a
difference in percentage of the Fe content as
compared to the specifications mentioned in the
Contract. The said Contract also provided that all
disputes would be settled amicably and that if no
settlement could be reached, the disputes would be
submitted to arbitration to a third country to be
agreed upon by both the parties.
…….Since the Arbitration clause provides for the
dispute being submitted for arbitration to a third
country, our clients would suggest conduct of the
arbitration either in Singapore under the auspices
of the Singapore International Arbitration Centre
and/or Australia under the Rules of the Institute of
Arbitrators and Mediators, Australia.”
16. The applicants again asked the respondents for reference to
Arbitrator vide email dated 21.11.2008, but in vein.
17. Stand of the respondents throughout had been that under Clause
5 of the Purchase Contract dated 24.6.2008 in respect of the iron ore,
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the buyers had a right to reject the whole consignment in case the iron
contents were less than 63%, as has been in the instant case. However,
considering other factors that goods had already reached the port of
discharge in China, the buyers accepted the delivery thereof and
therefore, the buyers made a proposal for adjustment of price.
Negotiations started as is evident from the email messages dated
8.9.2008, 25.9.2008 and 7.10.2008 as referred to hereinabove, and it
was in pursuance of these negotiations that the applicants had
instructed their banker to accept the proposal made by the respondents
and it was in pursuance of their instructions, the banker vide email
dated 8.10.2009 accepted the proposal and agreed to receive a sum of
US$500,000.00 as full and final settlement for the consignment in
issue. The payment made was accepted by the applicants and it was
after 3 months thereafter that they served a legal notice dated
14.11.2008 for making a reference to the Arbitrator. The applicants in
the present application do not dispute the negotiations or giving
instructions to their banker or in respect of the email by their banker to
the respondents or receiving the money in lieu thereof. Therefore, the
question does arise as to whether the banker’s acceptance of
instructions given by the applicants can be treated as full and final
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settlement of the dispute. The main ground in this regard had been
taken in this application in Paragraph (P) as under:
“In spite of the fact that the Applicants had
specifically informed their Bankers that an amount
of US$ 1.5 million was to be received in lieu of
provisional payment, an erroneous message was
forwarded by the Applicants’ Bankers to the
Respondents that the beneficiary being the
Applicants herein had agreed to receive an
amount of US$ 1.5 million towards full and final
payment and that the Letters of Credit would be
considered expired and cancelled on receipt of the
said payment.” (Emphasis added)
18. Error means – a mistake in judgment/assessment in a process or
proceedings; some wrong decision taken inadvertently; unintentional
mistakes; something incorrectly done through ignorance or
inadvertence; mistake occurred from an accidental slip; deviation from
standard or course of right or accuracy – unintentionally; to be wrong
about; to think or understand wrongly; an omission made not by
design, but by mischance.
19. In Nathani Steels Ltd. v. Associated Constructions, 1995
Supp (3) SCC 324, while dealing with a similar issue, this Court held :
“ ……once the parties have arrived at a settlement
in respect of any dispute or difference arising under
a contract and that dispute or the difference is
amicably settled by way of a final settlement by and
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between the parties, unless that settlement is set
aside in proper proceedings, it cannot lie in the
mouth of one of the parties to the settlement to
spurn it on the ground that it was a mistake and
proceed to invoke the Arbitration clause. If this is
permitted the sanctity of contract, the settlement
also being a contract, would be wholly lost and it
would be open to one party to take the benefit under
the settlement and then to question the same on the
ground of mistake without having the settlement set
aside. In the circumstances, we think that in the
instant case since the dispute or difference was
finally settled and payments were made as per the
settlement, it was not open to the respondent
unilaterally to treat the settlement as non est and
proceed to invoke the Arbitration clause….”
A similar view has been re-iterated in State of Maharashtra v.
Nav Bharat Builders, 1994 Supp (3) SCC 83.
20. This Court in M/s. P.K. Ramaiah & Company v. Chairman &
Managing Director, NTPC, (1994) Supp. 3 SCC 126 considered the
ambit of accord and satisfaction by the parties voluntarily entered into
and dispute raised thereunder. This Court after considering the entire
controversy held that:
“Admittedly the full and final satisfaction was
acknowledged by a receipt in writing and the
amount was received unconditionally. Thus there
is accord and satisfaction by final settlement of the
claims. The subsequent allegation of coercion is
an afterthought and a devise to get over the
settlement of the dispute, acceptance of the
payment and receipt voluntarily given.... Having
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acknowledged the settlement and also accepted
measurements and having received the amount in
full and final settlement of the claim, there is
accord and satisfaction. There is no existing
arbitrable dispute for reference to the
arbitration.” (Emphasis added)
21. In National Insurance Company Limited v. M/s. Boghara
Polyfab Private Limited, AIR 2009 SC 170, this Court held:
“26. When we refer to a discharge of contract by
an agreement signed by both the parties or by
execution of a full and final discharge
voucher/receipt by one of the parties, we refer to an
agreement or discharge voucher which is validly
and voluntarily executed. If the party which has
executed the discharge agreement or discharge
voucher, alleges that the execution of such
discharge agreement or voucher was on account of
fraud/coercion/undue influence practised by the
other party and is able to establish the same, then
obviously the discharge of the contract by such
agreement/voucher is rendered void and cannot be
acted upon . Consequently, any dispute raised by
such party would be arbitrable.” (Emphasis
added).
xx xx xx
29. It is thus clear that the arbitration agreement
contained in a contract cannot be invoked to seek
reference of any dispute to arbitration, in the
following circumstances, when the contract is
discharged on account of performance, or accord
and satisfaction , or mutual agreement , and the
same is reduced to writing (and signed by both the
parties or by the party seeking arbitration):
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(a) where the obligations under a contract are
fully performed and discharge of the contract by
performance is acknowledged by a full and final
discharge voucher/receipt, nothing survives in
regard to such discharged contract;
(b) where the parties to the contract, by mutual
agreement, accept performance of altered,
modified and substituted obligations and confirm
in writing the discharge of contract by
performance of the altered, modified or substituted
obligations;
(c) where the parties to a contract, by mutual
agreement, absolve each other from performance
of their respective obligations (either on account
of frustration or otherwise) and consequently
cancel the agreement and confirm that there are
no outstanding claims or disputes.”
(Emphasis added)
22. In R.L. Kalathia v. State of Gujarat, (2011) 2 SCC 400, this
court considered a similar issue and held:
“(i) Merely because the contractor has issued “no-
dues certificate”, if there is an acceptable claim, the
court cannot reject the same on the ground of
issuance of “no-dues certificate”.
(ii) Inasmuch as it is common that unless a
discharge certificate is given in advance by the
contractor, payment of bills are generally delayed,
hence such a clause in the contract would not be an
absolute bar to a contractor raising claims which
are genuine at a later date even after submission of
such “no-claim certificate”.
(iii) Even after execution of full and final discharge
voucher/receipt by one of the parties, if the said
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party is able to establish that he is entitled to further
amount for which he is having adequate materials,
he is not barred from claiming such amount merely
because of acceptance of the final bill by mentioning
“without prejudice” or by issuing “no-dues
certificate”.
23. In view of the above, law on the issue stands crystallised to the
effect that, in case, final settlement has been reached amicably between
the parties even by making certain adjustments and without any
misrepresentation or fraud or coercion, then, acceptance of money as
full and final settlement/issuance of receipt or vouchers etc. would
conclude the controversy and it is not open to either of the parties to
lay any claim/demand against the other party.
24. The applicants have not pleaded that there has been any kind of
misrepresentation or fraud or coercion on the part of the respondents.
Nor it is their case that payment was sent by the respondents without
any settlement/agreement with the applicants, and was a unilateral act
on their part. The applicants reached the final settlement with their
eyes open and instructed their banker to accept the money as proposed
by the respondents. Proposal itself was on the basis of clause 5 of the
Purchase Contract which provided for Price Adjustment . For a period
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of three months after acceptance of the money under the full and final
settlement, applicants did not raise any dispute in respect of the
agreement of price adjustment. In such a fact-situation, the plea that
instructions were given by the applicants to the banker erroneously ,
being, afterthought is not worth acceptance.
The transaction stood concluded between the parties, not
on account of any unintentional error, but after extensive and
exhaustive bilateral deliberations with a clear intention to bring about a
quietus to the dispute. These negotiations, therefore, are self-
explanatory steps of the intent and conduct of the parties to end the
dispute and not to carry it further.
25. In R.N. Gosain v. Yashpal Dhir, AIR 1993 SC 352, this Court
has observed as under:–
“Law does not permit a person to both approbate
and reprobate. This principle is based on the
doctrine of election which postulates that no party
can accept and reject the same instrument and that
“a person cannot say at one time that a
transaction is valid and thereby obtain some
advantage, to which he could only be entitled on
the footing that it is valid, and then turn round and
say it is void for the purpose of securing some
other advantage.”
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26. A party cannot be permitted to “blow hot and cold”, “fast and
loose” or “approbate and reprobate”. Where one knowingly accepts
the benefits of a contract or conveyance or an order, is estopped to
deny the validity or binding effect on him of such contract or
conveyance or order. This rule is applied to do equity, however, it must
not be applied in a manner as to violate the principles of right and good
conscience. (Vide: Nagubai Ammal & Ors. v. B. Shama Rao & Ors.,
AIR 1956 SC 593; C.I.T. Vs. MR. P. Firm Maur , AIR 1965 SC
1216; Maharashtra State Road Transport Corporation v. Balwant
Regular Motor Service, Amravati & Ors., AIR 1969 SC 329; P.R.
Deshpande v. Maruti Balaram Haibatti, AIR 1998 SC 2979; Babu
Ram v. Indrapal Singh, AIR 1998 SC 3021; Chairman and MD,
NTPC Ltd. v. Reshmi Constructions, Builders & Contractors, AIR
2004 SC 1330; Ramesh Chandra Sankla & Ors. v. Vikram Cement
& Ors. , AIR 2009 SC 713; and Pradeep Oil Corporation v.
Municipal Corporation of Delhi & Anr., (2011) 5 SCC 270).
27. Thus, it is evident that the doctrine of election is based on the rule
of estoppel- the principle that one cannot approbate and reprobate
inheres in it. The doctrine of estoppel by election is one of the species
of estoppels in pais (or equitable estoppel), which is a rule in equity.
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By that law, a person may be precluded by his actions or conduct or
silence when it is his duty to speak, from asserting a right which he
otherwise would have had.
28. In the facts and circumstances of the case, as the respondents
resorted to clause 5 of the Purchase Agreement dated 28/6/2008,
regarding price adjustment and the offer so made by the respondents
has been accepted by the applicants and agreed to receive a particular
sum offered by the respondents as a full and final settlement, the
dispute comes to an end.
The applicants cannot take a complete somersault and agitate the
issue that the offer made by the respondents had erroneously been
accepted.
In view of the above, as no dispute survives, the applications are
dismissed.
……………………
…J.
(Dr. B.S.
CHAUHAN)
New Delhi,
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September 13, 2011
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