Hi-Tech System vs Robinson

S. Ravindra Bhat, J.—The present petition has been filed under Sections 8 and 20 of the Arbitration Act, 1940 (hereinafter referred as "the Act") for filing of arbitration agreement and reference of the disputes between the parties to Arbitration. The brief facts discernible from the plaint are that the plaintiff was entered into an agreement dated 4.2.1988 with M/s. Henry Simon Ltd., for promotion of sales of their breakfast cereal plants. The plaintiff was entitled, for the work done by it, compensation by way of commission to be paid by the principal i.e. the said M/s. Henry Simon Ltd. Clause 13 of the Agreement defined the rate of commission in regard to various classes and categories of goods, to be marketed by the plaintiff. The agreement contained a stipulation that inter se disputes would be referred for arbitration. The said condition, i.e. clause 14 was in the following terms:-

ARBITRATION

In the event of any dispute arising out of or in relation to this Agreement it shall be decided by arbitration in accordance with the British Arbitration Act 1950 or any statutory modification or re-enactment thereof.

The plaintiff avers that it had been asked to resolve serious disputes by M/s. Henry Simon Ltd. with M/s. Asia Ahar Ltd., regarding supply of plant and equipments to the latter. M/s. Asia Ahar Ltd. had filed a Suit being No. 873/1988 on the file of this Court. M/s. Henry Simon Ltd. had been injuncted from re-exporting or re-selling their machinery in the proceedings. The plaintiff, it is claimed with considerable effort, resolved the dispute.

On 1.2.1989, the said two parties i.e. M/s. Henry Simon Ltd. and Ms. Asia Ahar Ltd. entered into a fresh agreement. The plaintiff signed the said agreement as agent of the Seller. However, the terms of the said document do not cast any obligation or create any rights in favour of the plaintiff. This agreement contained an arbitration clause in the following terms:-

ARBITRATION

In the case of any dispute of whatsoever nature between the parties in respect of any matter relating to or arising out of this Agreement and/or interpretation of any Clause of this Agreement it shall be referred to arbitration under the rules and regulations of the International Chamber of Commerce.

It is alleged that serious problems constantly arose in concerning execution of the agreement with M/s. Asia Ahar Ltd. and commissioning of the plant supplied by M/s. Henry Simon Ltd. The plaintiff claims to have expended its efforts as well as money for settling those disputes. Eventually M/s. Henry Simon Ltd. received the full payment for the plant and equipments supplied to M/s. Asia Ahar Ltd. The plaintiff alleges that repeated assurances were held out regarding payment of its commission, by M/s. Henry Simon Ltd.

After the aforesaid event, i.e., the agreement between M/s. Asia Ahar Ltd. and M/s. Henry Simon Ltd. the defendant No. 1, i.e. Robinson Milling System Ltd. succeeded to the assets and liabilities of the M/s. Henry Simon Ltd. The Defendant No. 1 later amalgamated with the B.M. Group, defendant No. 3. The defendant No. 3 is the successor of the said Robinson Milling System Ltd.

The plaintiff avers that asking its principal, i.e. M/s. Henry Simon Ltd. later succeeded to by Robinson Milling System Ltd. for payment of the commission. However, the commission and outstanding to the tune of U.K. Stg. Pounds 72,227/- for the period February, 1989 to February, 1992 was unpaid. It is further averred that on 2.10.1991, an agreement was arrived at between the defendant No. 1, i.e. Robinson Milling System Ltd. and the plaintiff that in the event of any dispute in relation to their agreement, the same would be referred to arbitration. That agreement is in the following terms:-

"ARBITRATION AGREEMENT"

We confirm and put our signature, that in case of any dispute, where matter involves any claim or payment in reference to the supply of food processing equipment for the said plant to Asia Ahar Limited at 7/35, Ansari Road, Daryaganj, New Delhi 110 002, India as per agreement of 01.02.1989. The matter will be referred for Arbitration as per the agreement clause arbitration No. 22 which will be subjected to the Jurisdiction of High Court, New Delhi, India, and accept the arbitrators Mr. L.K. Bajala & Mr. A. Sarin, Advocate of Supreme Court of India, New Delhi, India, and accept the arbitrators Mr. L.K. Bajala & Mr. A. Sarin, Advocate of Supreme Court of India, New Delhi. Such arbitration shall be governed by Indian Arbitration Act, 1940 or any modification or enactment, thereof for the time being in force.

Yours sincerely,

for ROBINSON MILLING

SYSTEMS LTD.

(S.M. COWLES)

Commercial Manager.

Yours sincerely,

for Hi-TECH

SYSTEM

(DR. A.S. BINDRA)

Chairman.

It is further averred that the plaintiff unavailingly sought for recovery of amounts on various dates and issued a legal notice on 22.1.1994 containing the details of the sums due. Consequently, it caused a demand on 1.2.1995 to be issued to Defendant No. 2 calling it to concur the appointment of the named Arbitrator. The plaintiff seeks adjudication of the following disputes:-

13.... (a) Whether M/s. Hi Tech System entitled for payment of Stg. Pound 137920.00 (One Lac thirty seven thousand nine hundred and twenty), from your company. Robinson Milling System Ltd. (of BM group, BM House, Avon Rech chippenham wilts SN15-IEE U.K. Tel. No. 0249-656263 as claimed by Hi-Tech System.

(b) Whether Hi-Tech system is entitled for interest 24% per annum, on the due amount since the day it fell due and till its realisation from Robinson Milling System Ltd. of BM Group U.K.

The Defendant No. 3, in its reply, has disputed the existence of the arbitration clause; it further disputes maintainability of these proceedings on the ground that M/s. Hi Tech System is neither a juristic person nor a legal entity entitled to file a petition under Sections 8 and 20 of the Arbitration Act. It is alleged that plaintiff was not a party to the agreement between M/s. Asia Ahar Ltd. and M/s. Henry Simon Ltd. dated 1.2.1989 in which the arbitration clause was contained in paragraph 22. It is further alleged that agreement dated 2.10.1991 was signed both by Robinson Milling System Ltd. and the plaintiff in order to re-assure M/s. Asia Ahar Ltd. that the agent of Robinson Milling System Ltd. would be bound by the arbitration clause No. 22 of the Agreement dated 1.2.1989.

It is further claimed by the defendant that the agreement dated 2.10.1991 is not an independent arbitration agreement between Robinson Milling System Ltd. and the plaintiff; it is merely an affirmation or confirmation that the plaintiff would be bound by the transactions of its principal.

The defendant states that assuming without admitting that the application of the plaintiff u/s 20 is legally maintainable, it cannot be filed since the concerned condition, i.e. clause 14 of the agreement contract dated 4.2.1988 adverts to arbitration between the parties in accordance with the British (English) Arbitration Act, 1950 or any statutory modification or re-enactment thereof. The defendants also object to the maintainability of the proceedings on the ground of the claims and the petition u/s 20 being time barred.

Learned counsel for the plaintiff relied upon the various stipulations relating to the primary obligations in support of M/s. Hi-Tech System the plaintiff. The plaintiff performed its part of the function in resolving disputes with M/s. Asia Ahar Ltd. Although the initial arbitration clause, i.e. clause 14 in the original agreement dated 4.2.1988 adverted to the resolution of disputes through the English Arbitration Act, that had to be seen in the light of the subsequent event under the Agreement dated 2.10.1991.

Learned counsel submitted that the petitioner''s agency was part of assets and liabilities of its principal, i.e. M/s. Henry Simon Ltd. succeeded to by M/s. Robinson Milling System Ltd. and subsequently by defendant No. 3. All these entities were duly bound to honour terms of the agency agreement dated 4.2.1988 under which the plaintiff was entitled to commission. Counsel explained that on 1.2.1989, the agreement entered into between M/s. Asia Ahar Ltd. and M/s. Henry Simon Ltd. was in the background of their previous inter se dispute. Clause 22 of that Agreement referred to resolution of disputes inter se between those contracting parties. They did not assign any role to the petitioner nor saddle it with responsibility. Counsel further submitted that the dispute raised by the petitioner does not seek filing of the arbitration agreement in view of clause 14. However, according to counsel, the subsequent agreement dated 2.10.1991 executed by Robinson Milling System Ltd. has altered the picture and changed the situation radically.

The said Agreement virtually ratified the contract between the plaintiff and M/s. Henry Simon Ltd. In so far as mechanism of arbitration is concerned, learned counsel contended that clause 14 of the first agreement dated 4.2.1988 is within the framework of Indian law through nominated arbitrators. Counsel contended that the reference to M/s. Asia Ahar Ltd. was a specific recognition and that parties were conscious as to the nature of the pending dispute and no more.

Learned counsel for the plaintiff relied upon the legal notice dated 22.1.1994 and the demand for arbitration made on 1.2.1995 to submit that the present proceedings are within the period of limitation. According to the counsel, the period in respect of which the commission is pending and payable by the defendants, (now defendant No. 3), is February 1989 to February, 1992; a demand was made on 10.7.1992. The respondent denied the liability on 23.7.1992. He relied upon the copies of the said letter dated 23.7.1992 and stated that the cause of action in respect of the outstanding amounts accrued on the receipt of that letter. According to counsel, the demand for arbitration fixed the period of limitation in terms of Section 37(3) of the Act; this was made on 1.2.1995. So reckoned the present proceeding were within the period of limitation as the suit was filed in December, 1996.

Learned counsel for the respondent submitted that the present proceedings are not maintainable because the petitioner has not disclosed its locus standi as well as the authority of the person : aid to be competent to initiate the present proceedings. He relied upon the judgment of this Court reported as Nibro Ltd. Vs. National Insurance Co. Ltd., , for the proposition that under Order 29 Rule 1 of Civil P.C., a Corporation can be said to have properly filed a suit or instituted a proceeding in terms of Section 291 of the Companies Act which expressly provides that powers in respect of a particular matter are to be exercised by the company and though specifically conferred power on a Director. It was, therefore, submitted that the present proceeding supported by the affidavit of one of the Directors of M/s. Hi-Tech System, without further material particulars, is not maintainable.

Learned counsel for the respondent submitted that the disputes sought to be referred to arbitration are clearly time barred. The cause of action if at all arose sometime in 1989 and the period for which the amounts were payable concerned to 1989 to February, 1992. The present proceedings u/s 20 were filed in December, 1996. In these circumstances, the petition itself was time barred. He relied upon the decision of the Supreme Court in The The Kerala State Electricity Board, Trivandrum Vs. T.P. Kunhaliumma, . The Court held in that decision that Article 137 of the Limitation Act, 1963 applies in respect of all proceedings where period of limitation is not provided specifically for. Counsel contends that the said provision expressly adverts to "application", u/s 20, the present proceedings are also in reality in the nature of application and are, therefore, squarely covered by its provisions.

Learned counsel reiterated the submissions made by defendant No. 3 in its counter affidavit. He adverted to clause 14 of the Agreement between M/s. Henry Simon Ltd., i.e. the original principal of the plaintiff and the latter to submit that the mechanism provided for admittedly was arbitration in accordance with the provisions of British (English) Arbitration Act or any other law in its substitution.

Counsel submitted that without prejudice to the other submissions if at all there is an arbitration clause that is clause 14 of the first Agreement. Having regard to the nature of the condition, this Court cannot entertain the present petition.

Learned counsel next contended that the letter dated 2.10.1991 cannot be treated as an arbitration agreement, since it was more in the nature of the letter of comfort or confirmation, vis-a-vis., M/s. Asia Ahar Ltd. He relied upon the form of the said document and submitted that it uses the expression such as "yours sincerely". Counsel also stated that the document was executed because M/s. Robinson Milling System Ltd. had come into the picture after the agreement between M/s. Asia Ahar Ltd. and M/s. Henry Simon Ltd. had been executed earlier on 1.2.1989. The object and intention of the parties to the document was to assure that M/s. Robinson Milling System Ltd. would be also bound by clause 22 of the arbitration Agreement and would abide by the agreement to refer disputes between M/s. Asia Ahar Ltd. and itself in the event of their being raised in arbitration.

Accordingly, three questions arise for determination in these proceedings:-

Whether the present proceeding is not maintainable for the reason that it is not instituted properly?

Whether the petition is time barred?

Whether the document dated 2.10.1991 can be said to have been arbitration agreement and filed as such u/s 8 & 20 of the Act?

So far as the first objection is concerned, counsel relied upon the provisions of Order 29 of Code of Civil Procedure. A plain reading of that provision as indeed the judgment of this Court in M/s. Nibro Ltd. v. National Insurance Co. Ltd., AIR 1991 DELHI 25, would indicate that it applies to cases of artificial personalities or juristic persons such as Companies. Indeed the facts of M/s. Nibro Ltd. (supra) concerned a company incorporated under the Companies Act. However, that is not the case here. The plaintiff described itself as a unit of M/s. Hindustan Live Stock Sales. There is no averment by the either party that said corporation or indeed the plaintiff-M/s. Hi-Tech System is an incorporated Company or an artificial or juristic entity. The suit is supported by the affidavit of one Col. Bir Singh who described as a Director. It is stated in the suit itself that the said Director is duly authorized to present the proceeding u/s 20. In these circumstances, I am of the opinion that there is no merit in the first objection made by respondent No. 3.

As far as the second question is concerned, in view of the judgment of the Supreme Court, there cannot be any controversy that Article 137 of the Limitation Act applies to all applications and proceedings which are not necessarily suits, commonly we understood. Thus, the said provision which enacts the period of three years for presentation of applications would be equally applicable to proceedings u/s 20. The question, however, is whether the present Section 20 of the suit is being barred. The suit was filed on 21.12.1996. According to the averments, particularly, paragraph 10, the amounts are outstanding and payable to the plaintiff for the period February, 1989 to February, 1992. Other documents placed on record include a copy of the refusal by the defendant through its letter dated 23.7.1992. It adverts to a request for release of payment dated 10.7.1992. Thus, if one were to apply the parameters of Article 137 of the Limitation Act, the right to apply would accrue from the date of refusal, i.e. 23.7.1992. The plaintiff demanded the amounts through its legal notice dated 22.1.1994. Upon allegedly not receiving any response, it claimed arbitration on 1.2.1995.

Section 37 of the Arbitration Act, so far as it is relevant for the purpose of deciding these issues reads as follows:-

Limitations.-(1) All the provisions of the Indian Limitation Act, 1908 (9 of 1908), shall apply to arbitrations as they apply to proceedings in Court.

(2) Notwithstanding any term in an arbitration agreement to the effect that no cause of action shall accrue in respect of any matter required by the agreement to be referred until an award is made under the agreement, a cause of action shall, for the purpose of limitation, be deemed to have accrued in respect of any such matter at the time when it would have accrued but for that term in the agreement.

(3) For the purposes of this section and of the Indian Limitation Act, 1908 (9 of 1908), an arbitration shall be deemed to be commenced when one party to the arbitration agreement served on the other parties thereto a notice requiring the appointment of an arbitrator, or where the arbitration agreement provides that the reference shall be to a person named or designated in the agreement requiring that the difference be submitted to the person so named or designated.

From a textual reading of Section 37(3), it is evident that the arbitration is deemed to have commenced when one party serves on the other a notice requiring appointment of an arbitrator. In this case, such a demand/notice dated 1.2.1995 has been placed on record. In such circumstances, the failure of the defendants to agree to arbitration is really the occasion for the plaintiff approaching this Court, it did so in December, 1996. The period of limitation described under Article 137 is three years. The plaintiff, in the opinion of this Court, had approached this Court within that period. The objection of the defendants in this Court is, therefore, rejected as unmerited.

This brings me to the main dispute. The plaintiff asserts that the parties are bound by an arbitration agreement which should be filed in this Court. The defendant refutes this and states that if there is an arbitration agreement, it is embodied the clause 14 of original agreement, that cannot be filed.

Having regard to its tenor, this Court does not possess jurisdiction in terms of original Clause 14 of the agreement as English Law would apply. It is well settled that while interpreting documents, the Court not only has to read the specific condition but also the context in which obligations are cast by either of the contracting party upon the other, and gather their overall intentions. Now, a plain reading of the clause 14 undoubtedly supports the defendant''s contentions that disputes arising in relation to the agency of the plaintiff were to be referred for arbitration under the English Law. Had the matter remained thus, this petition would not have been maintainable. However, the plaintiffs case is that its efforts in resolving certain previous disputes led to M/s. Henry Simon Ltd. entering into an agreement with M/s. Asia Ahar Ltd. on 1.2.1989. That document is part of the record. It cannot be anybody''s case that the plaintiff was a party to it, in the sense that no obligations or rights or liabilities were cast upon it. Undoubtedly, someone on its behalf affirmed the document and signed it. But that is the extent of its involvement. The content of that Agreement is the contractual relationship between M/s. Henry Simon Ltd. and M/s. Asia Ahar Ltd. Now, apparently after the execution of that document, the plaintiffs payment allegedly remained over due on account of the transaction with M/s. Asia Ahar Ltd.

Sometime, after 1.2.1989, M/s. Robinson Milling System Ltd. came into the picture and stepped into the shoes of the original principal, i.e. M/ s. Henry Simon Ltd. It was on that stage, the agreement/letter dated 2.10.1991 was executed. In order to understand the dispute, it would be better to set out contention of the defendants. The defendant''s position here is the said document dated 2.10.1991 did not, in any manner, alter the arbitration agreement between the agent and its principal, i.e. M/s. Henry Simon Ltd. (succeeded to by M/s. Robinson Milling System Ltd. and now by defendant No. 3); it continues to be the same. Its explanation about the document i.e. 2.10.1991 that the parties meant to re-assure M/s. Asia Ahar Ltd. that the arbitration clause contained in the agreement with M/s. Asia Ahar Ltd. would continue to be binding upon the parties to the letter dated 2.10.1991. As observed earlier, the plaintiff was not required to perform any act or obligation under the agreement between M/s. Asia Ahar Ltd. and M/s. Henry Simon Ltd. In other words, there was no privity of contract between the two. The agreement was entered into between the principal and its customers, i.e. M/s. Asia Ahar Ltd. If these essentials are kept in mind, the defendant''s submission would immediately stand exposed.

Now, if the intention of the parties was to retain the original arbitration clause, vis-a-vis the plaintiff, i.e. clause 14, there was no need for the parties for executing the letter dated 2.10.1991. Nor is there any merit in the submission that the letter of 2.10.1991 was to re-assure M/s. Asia Ahar Ltd., i.e. consumer or the customer of the plaintiffs principal about the plaintiffs involvement in it. In fact, the arbitration agreement or arrangement contemplated in this letter/document dated 2.10.1991 is at variance in all significant particulars. Clause 22 of the agreement dated 1.2.1989, i.e. between M/s. Asia Ahar Ltd. and M/s. Henry Simon Ltd. adverts to arbitration through the International Chamber of Commerce. However, the arbitration adverted to in the subsequent document of 2.10.1991 does not even mention arbitration through the International Chamber of Commerce. It nominated two arbitrators. It is inconceivable that the party who was bound by the arbitration agreement, i.e. M/s. Asia Ahar Ltd. is "deemed" to be bound by a condition to which it is not even a signatory as is the position with the document dated 2.10.1991.

In view of the above reasoning, this Court is of the opinion that the letter/agreement dated 2.10.1991, though inelegantly expressed was made to convey the intention of M/s. Robinson Milling System Ltd. which had stepped into the shoes of M/s. Henry Simon Ltd. that it was willing to refer disputes between it and the plaintiff through arbitration (concerning amounts or disputes in regard to the contract with M/s. Asia Ahar Ltd.) apparently so far as the rival claims and counter claims on that account were concerned. If this is not the true purport and meaning, the reason for execution of the agreement would itself cease.

In view of the above conclusion, this Court is of the opinion that the arbitration agreement dated 2.10.1991 has to be filed. In view of the above conclusions, the disputes raised by the plaintiff are hereby referred to the decision nominated Arbitrator, Shri A. Sharan, Sr. Advocate, Supreme Court of India, C-425, SFS, Sheikh Sarai, New Delhi, Tel. No. 6422337. The learned nominated Arbitrator shall give further directions for the conduct of the proceedings. The petition is decreed in the above terms.