Indian Shaving Products Ltd. vs Shriram Enterprises

S. Ravindra Bhat, J.—In these proceedings, a direction to the Arbitrators to file the award, published on 15.3.1995, has been claimed. After notice was issued the award was filed; the petitioner (hereafter referred to as the claimant) filed its objection being i.e. No. IA 1320/1997. The respondents Nos. 1 and 2 also preferred objections to the award being IA No. 5221/1997. The 4 respondent has also preferred objections, being IA 6884/2000. At the time of hearing, counsel for respondents was not present; later, after the conclusion of hearing on 3-1-2008, leave to file written submissions was sought. However, despite the opportunity, no written note of submissions was filed.

The brief facts necessary for deciding this case are that the petitioner company claims to be a pioneer in manufacture of blades, razors, shaving cream etc. The respondent No. 1, is a partnership firm; the other respondents are its partners. The petitioner appointed the respondents as its clearing agent by a contract/agreement dated 1.3.1988. In terms of the agreement (hereafter referred to as "the contract") the respondents were to receive stocks at Hyderabad, to arrange its storage and forward the goods according to directions issued by the petitioner, at the concerned destination. The respondents were responsible for safety of the goods that were dispatched to them by the petitioner and also responsible for their storage in godowns; they were not entitled to claim any charge or lien over the goods in such godowns. Besides stipulations relating to accounts, a declaration that the title in the goods shall always be that of the petitioner, whether in transit or during transit after discharge by the latter etc. was agreed upon. Clause 9 prescribed that the C and F agent i.e. the respondent would be responsible for safety of the goods that dispatched to it, from the time of receipt at Hyderabad until time of delivery to the Railway authorities or any other mode of transportation. The respondents were liable to make good any loss caused to the company. The said clause is reproduced below:

C and F AGENT shall be responsible for the safety of the goods despatched to it from the time of receipt thereof by it at Hyderabad, until the time of delivery to the Railway Authorities or to the road transport or any other carriers for onward dispatch as per instructions from the company and shall be liable to make good any loss caused to the company as a result of pilferage, theft, robbery or damage or destruction of the goods excluding Act of God, during such period. When goods are received by the C and F AGENT, it shall take open delivery thereof from the Railway or road transport carriers if there is external damage in transit upto delivery point and the C and F AGENT shall forthwith proceed to make the necessary remarks in the Railway/carrier''s delivery book and also obtain shortage'' certificates and/or ''damage'' certificates covering defective consignments and a record in this regard shall be communicated promptly to the company to enable the company to take up follow up action. The C and F agent for prompt preference of claim with Railway/carrier. The C and F agent shall be responsible and liable to keep the company indemnified against any loss suffered by the company by reason of the C and F agent''s failure to comply with the above provisions.

3 The contract also contains other conditions spelling out mutual obligations and inter alia provides that in the event of a dispute or difference between the parties concerning the construction of the contract or any clause relating to rights and obligations, such disputes were to be referred for arbitration to the PHD Chamber of Commerce and Industry, New Delhi for resolution in accordance with its rules.

In the time intervening between 11.9.1993 and 12.9.1993 a theft occurred in the godown of the respondents in Hyderabad, as a result of which 2,28,000 super-platinum blades, were pilfered. This loss was confirmed on a later physical verification. A complaint was lodged being FIR No. 192/1993 with the local police. The petitioner claimed that by a letter dated 16.2.1994 the contract was terminated since the respondent failed to make good the monetary equivalent of the loss suffered on account of pilferage. A legal notice was issued on 6.7.1994 to the respondents demanding settlement of accounts and claiming a sum of Rs. 5,77,962.57. This claim included a demand for Rs. 42,750/ - towards their computer advance made by the petitioner to the respondents other claims were also made. On these allegations the arbitration clause was invoked. The petitioner filed its statement of claim on 23.9.1994.

The respondent resisted the proceedings and disclaimed any liability and alleged that liability under Clause 9 for pilferage, theft, robbery etc. being penal in nature and content would arise only if they were found to have flouted their obligations. It was claimed that the goods were kept in safe custody and as theft occurred for reasons beyond their control; without their complicity, they could not be held liable. It was also alleged that the police were able to recover the some goods i.e. super platinum which were in the custody of the Uppal police station. A letter dated 19.8.1994 by the police authorities was relied upon. It has was alleged that the said goods could be released and as far as the value for balance goods was concerned, the respondents were under no obligation either in contract or under law to satisfy a claim. Other claims preferred towards repayment of amounts allegedly due on account of the computer advance etc. were denied.

The arbitrators, after considering the pleadings and the documents placed on record during the proceedings made a non-speaking award. The said award after re-citing the background of the goods such as the contract, the occasion for reference to arbitration and so on, held as follows:

We refuse to take upon ourselves the dispute on a sum of Rs. 43,750/ - (Rupees Forty three thousand seven hundred and fifty only) on account of Computer Advance, as the claim arises under a separate contract which does not have any arbitration clause, and therefore the same cannot constitute a part of the present reference. The parties are at liberty to agitate their rights before a proper forum.

We reject the claim of the Claimants for Rs. 19103.96, on account of one case SS (9.50) SRN.

We award Rs. 9900/ - (Rupees nine thousand nine hundred only) on account of Imprest, to be paid by the respondents to the Claimants, amount admitted as correct by both the parties.

We award Rs. 3,21,497.96 to be paid by the Respondents to the Claimants against their claim of Rs. 5,71,497.96 towards cost of 2,28,000 super platinum blades stolen from the godown and remaining untraceable and unaccounted, after adjusting the cost of cases recovered and lying in police custody. The claimants are free to claim and recover the goods from the police or take any other action as they deem fit as real, owners and title holders to the property.

We award Rs. 66,289.35 (Rupees sixty six thousand two hundred eighty nine and paise thirty five only) to be paid by the claimants to the respondents, amount admitted as correct by both parties.

We award Rs. 21,000/ - (Rupees twenty one thousand) being cost of the arbitration proceedings and other costs of the Chamber to be shared by the Claimants and Respondents equally.

We award that both parties shall bear their own respective expenses of arbitration including the counsels'' fees etc.

In Witness Whereof, we, the said Arbitrators, appointed as th aforesaid, hereunto set out respective hands at new Delhi this 14 day of March, 1995.

The petitioner''s objections pertain to the rejection of the claim to the extent that only Rs. 3,21,497.96 was directed to be paid by the Respondents to them as against their claim of Rs. 5,71,497.96. It also objects to the denial of the sum of Rs. 43,750/ - (Rupees Forty three thousand seven hundred and fifty only) on account of Computer Advance, and contends that the reasoning that the claim arises under a separate contract which does not have any arbitration clause, is erroneous. The rejection for the claim for Rs. 19103.96 is also questioned.

Mr. Banerjee, learned Counsel, besides reiterating the objections raised in I.A. 1320/1997, also submitted that the arbitrators committed an error apparent on the face of the award, amounting to misconduct, in accepting only the version of the respondents without rendering independent findings on the quantum of total claims payable. It was submitted that restricting the compensation to Rs. 3,21,497.96 as against the claim of Rs. 5,71,497.96 is wholly unsupported on the facts. It was further submitted that the reasoning of the arbitrators, that the claim for Rs. 43,750/ - could not be adjudicated, is perverse. Counsel submitted that the agreement concerning advance enabling the respondent to purchase computers, was a supplemental one and had to be read along with the original agreement dated 1-3-1988. He relied upon the terms of the said supplemental agreement, dated 27-2-1992 and submitted that the object of executing it was to facilitate efficient functioning of the respondent''s activities in relation to the contract between the parties, dated 1-3-1988. In wholly ignoring these important considerations and taking a narrow view that the disputes in the second agreement were not subject to arbitration clause, the award discloses patent error, requiring interference.

Learned Counsel for the petitioner relies upon the Full Bench decision of the Calcutta High Court in Dwarkadas and Co. Vs. Daluram Goganmull, and The Abu Road Electricity and Industries Co. Ltd. Vs. Industrial Gases Ltd., in support of the submission that reference of an earlier agreement between the same parties, in a later contract would mean incorporation of the terms of the prior agreement. Therefore, the arbitrators mis-conducted themselves in failing to examine the claim in respect of the computer advance, and ruling upon it.

The respondents, in their objections (I.A. 5221/1997 and I.A. 6884/2000) have disputed the correctness of the award. According to them, no obligation was cast upon them to provide for a contingency of the kind which led to burglary and pilferage. As bailees, in charge of the goods entrusted to them, they exercised the degree of care and prudence they had to under law. As C and F agents, the goods sent to the respondents continued to be property of the claimant- petitioner. Therefore, the responsibility of insuring them squarely was that of the owner, i.e. the petitioner. It is alleged that the petitioner should have seen that the insurance policies were taken out, to secure their goods; their failure cannot, in the absence of any finding of negligence or complicity of the respondents, result in the latter''s liability for loss occurring due to theft of the goods.

A reading of the award would show that it is a non-speaking one. It has now been settled by the larger, five judge decision of the Supreme Court in Raipur Development Authority Vs. M/s. Chokhamal Contractors etc. etc., that an arbitrator, unless agreed to otherwise by parties, or so directed by court, is under no legal obligation to furnish reasons for his award. If the matter were to be viewed from this perspective, the court''s jurisdiction is extremely circumscribed.

Here, the arbitrators considered the materials on record, as well as the agreement between the parties, and concluded that the petitioner was entitled to be paid Rs. 3,21,497.96 towards the loss suffered by it. In doing so, the arbitrators consciously took note of the nature of the contractual relationship and the mutual obligations cast by the parties on each other. No apparent perversity in the award of the amounts, can be discerned from this. The relevant stipulation in the agreement spells out the C and F Agent''s responsibility of ensuring the safety of the goods entrusted to it; it makes explicit mention of the damages being to its account, by reason of theft, burglary, pilferage, etc. Therefore, this Court does not see any infirmity in the finding about the liability of the respondents. Likewise, the arbitrators found for the petitioner partially and declined the claim in respect of the other amounts. They apparently took into account the value of the blades as well as the value of the goods received. This court is unable to find any illegality or unreasonableness in this approach, amounting to misconduct. For these reasons, the challenge to the award, by the petitioner so far as this aspect, as well as denial of the amount of Rs. 19103.96 is rejected. Similarly, the objections of the respondents to the award as far as it directs payments on account of burglary, cannot be found fault with. The findings about the respondent''s liability are in consonance with law, since a bailee and even an agent, entrusted with custody of the goods is under a duty to take all reasonable steps to protect them Pannalal Jankidas Vs. Mohanlal and Another,

The next question centers round correctness of the arbitrators conclusion that the claim for Rs. 43,750/- so far as it related to return of computer advance, was not covered by the arbitration clause. The arbitration clause to which parties sought recourse is contained in the agreement dated 1-3-1988. The claim as far as computer advance is concerned is connected with the subsequent agreement, dated 27-2-1992. A reading of the latter no doubt discloses that there is a reference to the previous contract between the parties. The question therefore, is whether this reference amounts to incorporation of the arbitration clause in the latter agreement.

The decision of the Calcutta High Court in Dwarkadas''s case (supra) considered the question if the advertence to conditions in a charter party, with the express condition that they would constitute conditions in the bill of lading, can lead to inference that the disputes relating to a bill of lading too were the subject of arbitration. The latter contract made a reference to the former, in the following terms:

Subject to all terms and conditions of the Contract No. 73 of 13.12.1947 issued to us by M/s. Bubna More and Co.

In several judgments the ratio of Dwarkadas was considered. The latest ruling on the point is the judgment of the Supreme Court, in The Owners and the Parties Interested in the Vessel M.V. "Baltic Confidence v. State Trading Corporation 2001 (4) Arb. L R 574. It was held that:

From the conspectus of the views expressed by Courts in England and also in India, it is dear that in considering the question, whether the arbitration clause in a Charter Party Agreement was incorporated by reference in the Bill of Lading; the principal question is, what was the intention of the parties to the Bill of Lading? For this purpose the primary document is the Bill of Lading into which the arbitration clause in the Charter Party Agreement is to be read in the manner provided in the incorporation clause of the Bill of Lading. While ascertaining the intention of the parties attempt should be made to give meaning to the incorporation clause and to give effect to the same and not to invalidate or frustrate it giving a literal, pedantic and technical reading of the clause. If on a construction of the arbitration clause of the Charter Party Agreement as incorporated in the Bill of Lading it does not lead to inconsistency or insensibility or absurdity then effect should be given to the intention of the parties and the arbitration clause as agreed should be made binding on parties to the Bill of Lading. If the parties to the Bill of Lading being aware of the arbitration clause in the Charter Party Agreement have specifically incorporated the same in the conditions of the Bill of Lading then the intention of the parties to abide by the arbitration clause is clear. Whether a particular dispute arising between the parties comes within the purview of the arbitration clause as incorporated in the Bill of Lading is a matter to be decided by the Arbitrator or the court. But that does not mean that despite incorporation of the arbitration clause in the Bill of Lading by specific reference the parties had not intended that the disputes arising on the Bill of Lading should be resolved by Arbitrator.

(emphasis supplied)

It is necessary, in all cases where a contention is raised that subsequent contracts between the same parties would also be governed by the arbitration clause, contained in a former agreement, to look at the express terms, to gather the intention of parties. Here, apart from the recital clause which mentioned about the agreement dated 1-3-1988, the later agreement nowhere discloses that the conditions contained in the former were to be read into the latter contract. No doubt, the petitioner might have wanted efficient functioning of the respondent and even financed the purchase of the computer. Yet, the title to the computer remained with the respondents; apart from mentioning conditions for the loan and other stipulations relating the amounts given, the latter agreement does not contain any mention of the former. In the circumstances, there cannot be an inference that the parties wished that disputes arising in relation to the latter agreement too were covered by the arbitration clause in the previous contract.

In view of the above conclusions, the petitioner''s complaint that the arbitrators erred on the issue of jurisdiction, in declining to rule on the claim relating to computer advance, cannot be upheld. There was no illegality or error of jurisdiction in that regard.

The arbitrators chose not to award pendent lite interest. Though this discloses hardship to a certain extent, to the petitioner, hardship alone cannot be a ground for interfering with an otherwise valid award, even on this limited score. In view of the conclusions, all objections to the award are liable to be rejected, and are accordingly dismissed. The petitioner shall in awarded interest @9% from the date of filing of award in this Court, till date, and also future interest, till realization. The award is directed to be made rule of court, in the above terms. A decree shall be accordingly drawn.