Union of India vs M/s. Associated Producers Company

The facts giving rise to this judgment fall into a short compass. Let me recapitulate.

On a petition by the Union of India u/s 20 of the Arbitration Act, 1940 (hereinafter called the Act) against M/s. Associated Producers Company, Penang and Mr. Abdul Wahab of Madras, Avadh Behari, J., by his order dated May 26, 1972 appointed Mr. Hardyal Hardy, a retired Chief Justice of this Court, as the sole arbitrator who entered on the reference on Sept. 12, 1972 and made his award on February 21, 1973. Whereas the award has won whole hearted approval of the Union of India, the other side, namely M/s. Associated Producers Company, Penang as well as its sole proprietor Mr. M.A.A. Wahab have found it totally unacceptable. They have thus filed separate objections under Sections 30 and 33 of the Act.

On the basis of the objections raised, following issues were framed:

Whether the objection petition has been filed within the period of limitation? OPD

Whether the objector was not duly served in arbitration proceedings? If not, its effect? OPD

Whether the award is liable to be ''set aside on other grounds mentioned in the objection petition? OPD

Relief.

Let me first give a brief resume of what led to the framing of the issues.

As far as the first issue is concerned, it being self-speaking needs no feed-back excepting this much that as per the Union of 13 India, the objections filed by objector No. 2 are not within time.

The objectors have taken the plea that neither the objector firm nor its sole proprietor had ever been served with any notice issued by the Arbitrator on his entering on the reference and that, in any case, Mr. Hardy was hardly justified in law or even on facts, in resorting to service by publication in "The Hindu Madras" and as even that did not constitute proper service there was no justification for him to proceed ex parte against the objectors. It is this objection which has given birth to issue No. 2.

The third issue has within its fold, two objections. It is claimed that Mr. Hardyal Hardy having entered on the reference on Sept. 12, 1972 and having made the award on February 21, 1973, the award is beyond the statutory period of four months and no extension having been granted nor there being any application u/s 28 of the Act for any such extension, it is liable to be thrown out as barred by limitation. This is the first objection. The second is that as the Union of India had unilaterally declared the contract containing the arbitration clause as null and void, Therefore, the arbitration clause also fell along with it and for that reason too the arbitration clause could not be invoked or resorted to.

The last issue, of course, relates to relief. Time now to examine the nuts and bolts.

ISSUE NO. 1

I am sure that Union of India would not have raised this objection had the Deputy Register of this Court not been guilty of a faux pas by wrongly noting in his order dated September 2, 1976, that respondent No. 2 had been served by registered post on August 26, 1976. Actually August 26, 1976 was the date put by the postal authorities showing when the registered envelop had been received in the post office. The Deputy Registrar took it to be the date of service. Had he cared to look at the back of the registered envelop itself he would have found two endorsements by the postal authorities as follows:

"Left "Left Sd/- Sd/- 30/8 31/8 9. Any how, we have the acknowledgment due on record showing that respondent No. 2 was served on September 1, i976. The Objections having been filed on Sept. 28, 1976, were thus well within time. There is no dispute that as far as objector No. I is concerned, its objections were within limitation. This much for the issue.

ISSUE NO. 2

It is issue No. 2 which was witness to lot of firework and not without basis. However, first the prologue. A contract was entered into on August 23, 1987 between M/ s. Associated Producers Company 28, Beach Street P.O. Box 811, Penang and the Union of India. The contract was signed on behalf of the firm by its sole proprietor M.A.A. Wahab (See Ex. R-1). It was this contract which ultimately led to disputes, proceedings u/s 20 of the Arbitration and the appointment of Mr. Hardyal Hardy. It may be noticed that during the proceedings u/s 20 of the Act an application was moved under Order VI, Rule 17 of the CPC by the Union of India which led to the impleading of M.A.A. Wahab as respondent No. 2. It appears from the record that there was a continuous exchange of correspondence between the parties and significantly everywhere the name of respondent No. 2 was mentioned as M.A.A. Wahab and the address of respondent No. I firm was the same as mentioned above. In this -connection reference need be made to only a few such documents. They are exhibits R-10, R-11, R-16, R-20, R-22, R-30, P-2 and P-3. I am laying emphasis on the name of the proprietor and the address of the respondent as both have come to play a vital role.

It so happened that during the proceedings before Mr. Hardy, for a reason which it is difficult for me to comprehend, the name of the proprietor ceased to be M.A.A. Wahab. It became ''Abdul Wahab''. This quirkiness dug the grave. What finally led to the burial is as follows. As already noticed above, the address of the firm was 28 Beach Street P.O. Box No. 811 Penang. Strangely enough, it too changed. It became 88 Beach Street and the P.O. Box number too had a transformation of sorts. I say so on the basis of the notice sent by the arbitrator. Happily the envelop bearing that convoluted address still remains intact in the otherwise badly mauled and mutilated record of the proceedings. Mr. Hardy was thus, with respect, pounding at a wrong person at a wrong address and when he found, for, under the circumstances, what else could he find?, that there was no response from both the respondents, he directed the claimant Union of India to provide to him with their "fresh addresses" (See proceeding of October 5, 1972). This led, if I, may be permitted to say so, to a Pickwickian situation. The Union of India informed Mr. Hardy that it had come to know that Mr. Wahab was in Madras. A great job done indeed. And, pray, how did it come to known of it? A letter (Ex. R-32) had done the trick. It was from the High Commissioner of India, Kuala Lumpur to the Minister of Food and Agriculture. It said: "We understand Mr. Wahab is at present in India at following address: 280, Linghi Chetty Street, MadrasI ". No body tried to verify the correctness of this information. The words "We understand" were blindly and mutely accepted as Gospel truth. Notices were sent by registered cover at the said address and received back with the endorsement "not known". Instead of taking the persons concerned out of their slumber and making them sit, it caused not even a flutter. The next order was to effect service by publication in the Hindu Madras with "Abdul Wahab" shown as a resident of "280 Linghi Chetty Street, Madras-1". With publication affected, the respondents were proceeded against ex parte leading to this ex parte award. And all this, although the claimant Union of India knew about yet another address of the respondent in Singapore. An address at which he had earlier been served with a communication by the department (see Ex. P-4).

What do we find then? M.A.A. Wahab was never sent a notice. On Abdul Wahab was. No notice was sent to respondent No. I at its correct Kuala Lumpur address. Notices were sent at a Madras address to ''Abdul Wahab''without verifying whether he really resided or had an office there. Without any legal justification orders were passed for substituted service and later for proceeding ex parte.

Even if it be assumed that there was some justification on facts, though I discern not even a tiny speck of it, to order for substituted service, could the arbitrator pass an order for substituted service? No, according to a Division Bench-judgment of this court in Union of India Vs. Bhatia Tanning Industries, . This adds yet another dimension to the already condemned proceedings. But, then, I am still not finished. The objectors have led evidence, cogent and convincing, with nothing in rebuttal, to prove that they had nothing to do with "280 Linghi Chetty Street Madras-1". This buries the award fathoms deep. Irretrievably. The issue thus goes in favor of the objectors.

ISSUE NO. 3

The issue takes within its embrace two objections. I am mentioning them only for no other objection was canvassed or pressed. The first is that the award having not been made within the statutory period and no extension having been granted u/s 28 of the Act, it falls. The second relates to the contract itself. It is contended that the contract itself having been declared as null and void by the claimants by their telegram dated Sept. 15, 1967, clause 12 of the Contract containing the arbitration agreement also becomes null and void and with that falls the reference and the award.

Coming to the first objection, the award itself goes to show that Mr. Hardy had entered on the reference on Sept. 12, 1972 and had made the award on February 21, 1973. As no time limit for making the award was fixed by Avadh Behari J. the award was required to be made within the statutory period of four months. It was not so made. Admittedly no application was made u/s 28 of the Act and as such there was no extension of time. Interestingly even during arguments no request was made even orally. Can I extend the time suo motu? If so, should I? There is no doubt in my mind that no formal application need be moved and that the court may act sou motu. The discretion lies with the Court. But then discretion being a much maligned, much mis-used term, the wise-men of law have, with a view to tame this wild horse, and to control its swift hoofs, held that discretion must be exercised judicially and only if cogent reasons are forthcoming. If this be the prescription or specification for the grant of extension and I have no doubt that this is, is it a fit case for exercising the discretion in favor of extension? No, is my firm answer, Right from head to toe, it is a case of fatal misadventures. I have already ventured to pen them in the preceding paragraphs. Neither the Arbitrator nor the Union of India can claim innocence. And then, the proceedings before the Arbitrator would go to show that the Union of India had been taking adjournments which could easily be avoided. The objectors were hardly responsible, (and how could they be when they were being proceeded against ex parte?) for the delay. Why should then I exercise discretion in favor of extension? Here, at least, Barkes is not willing.

During arguments my attention was drawn to the contract Ex. R-1 and, more particularly, to its clauses 8 and 12. Clause 8 provides that on the failure of the sellers to deposit with the buyers a transferable nonperformance bond in the amount of U.S. Dollars 63,000/- within 10 days of the establishment of the Letter of Credit under clause 10 of the contract, the contract "shall become null and void forthwith". It was contended that as the required transferable non performance bond was not deposited, Therefore, the Union of India had actually declared the contract as null and void and, in support, my attention was drawn to telegram Ex. R-44 dated Sept. 15, 1967 sent by the Union of India to the objectors which runs as follows:

3-6/67 FIMPIV STOP REFERENCE CONTRACT OF 23rd AUGUST, 1967 FOR PURCHASE OF FORTYFIVE THOUSAND TONNES SOUTH AMERICAN ORIGIN RICE AS AMENDED VIDE TELEGRAM EXCHANGED BETWEEN US ON SEPTEMBER, 11th 1967 STOP CLAUSE EIGHT OF THE SAID CONTRACT STIPULATES THAT IF SELLERS FAIL TO DEPOSIT WITH BUYERS WITHIN TEN DAYS OF ESTABLISHMENT OF L/C THE NONPERFORMANCE BOND REFERRED TO UNDER THE SAID CLAUSE THEN THE CONTRACT SHALL BECOME NULL AND VOID FORTHWITH STOP AS INTIMATED BY YOU L/ C DULY RECEIVED BY YOUR BANK ON SEPTEMBER FIFTH 1967 STOP NONPERFORMANCE BOND SHOULD THUS BE DEPOSITED WITH BUYERS BY FIFTEENTH SEPTEMBER 1967 STOP WISH TO BRING TO YOUR NOTICE THAT IF THE SAID NON PERFORMANCE BOND IS NOT RECEIVED HEREBY SEPTEMBER FIFTEENTH 1967 THE CONTRACT OF 23rd AUGUST, 1967 BECOMES NULL AND VOID.

It was contended that the Union of India having itself declared the contract as null and void, the arbitration agreement as contained in Clause 12 of the contract Ex. R-1 also fell along with it and that for that reason, the entire proceedings would fall to the ground. In support, reliance was placed on- I.T.C. Limited Vs. George Joseph Fernandes and Another, , Chiranji Lal Multani R.B. (Private) Ltd. Vs. Union of India (UOI), , Alliance Mills (Lessees) Pvt. Ltd. Vs. Madan Gopal and Sons, , M/s. Dodsal Pvt. Ltd. v. Delhi Electric Supply Understanding AIR 1984 NOC (Delhi) and Suwalal Jain Vs. Clive Mills Co. Ltd., .

In I.T.C. Limited Vs. George Joseph Fernandes and Another, there was an application u/s 34 of the Arbitration Act and an issue was raised as to the validity or existence of the contract containing the arbitration clause. It was held the court has to decide first of all whether there is a binding arbitration agreement, even though it involves incidentally a decision as to the. validity or existence of the parent contract. The court dealt with the question as to. whether in an application u/s 34 of the Act, the Court can decide the question of validity of the agreement containing the arbitration clause. This, obviously, has nothing to do with the case before me. Coming to M/ s. Chiranji Lal Multani v. Union of India, AIR 1963 Punj 372 which is from Punjab, it was held that if the contract itself is forbidden by law and, Therefore, illegal, the arbitration clause forming part of the contract would also be illegal as the taint of illegality attaches to every part of the contract, including the arbitration clause. Obviously ,the facts before before me do not attract even this authority inasmuch as it is no body''s case that the contract entered into was forbidden by law and for that reason the arbitration clause forming part of the contract would, also be illegal. Similarly in the case of Alliance Mills (Lessees) Pvt. Ltd. Vs. Madan Gopal and Sons, , the contract entered into was illegal in view of the statutory prohibition. It was held that in such a case the plea that the arbitration clause, was void could be raised even after the party had acquiesced and taken part in the arbitration proceedings. this judgment too is not attracted to the facts of the present case. The judgment of the Delhi High Court in M/s. Dodsal Pvt. Ltd. AIR 1984 NOC 11, is equally inapplicable. In that case the contract had been entered into in contravention of some statutory requirements and as the defect was not curable, it was observed that the arbitration agreement would also be unenforceable. Similarly in Suwalal Jain Vs. Clive Mills Co. Ltd., before the Calcutta High Court, the contract itself was forbidden in law and as such illegal and it was under these circumstances that the arbitration clause which formed part of the contract was also held to be illegal and void.

Coming back to the contract, and, particularly, to clause 8 of course, it does state that in case of failure of the sellers to deposit with the buyers the requisite non performance bond within 10 days of the establishment of the Letter of Credit, the contract shall become null and void forthwith. However, the objectors are not justified in taking the plea that the Union of India had actually declared the contract to be null I and void unilaterally by its telegram Ex. R-44. By the said telegram the Union of India had only drawn the attention of the objectors to the clause in the contract and had only asked for the performance of the said clause. The telegram by itself did not declare the contract to be null and void. In any case non compliance of clause 8 would not render, to my mind, the arbitration agreement also null and void. The arbitration clause would be attracted even on non compliance of clause 8 as it would amount to breach of the terms of the contract, inasmuch as, it would effect the "rights and obligation" of the parties. In any case, it is significant to note that even after the telegram dated 15-9-1967 the parties did not take the contract as having come to, an end. In this connection, I may make reference to only a few of the documents placed on the record. The first is Ex. R-2. It is a telegram dated October 13th 1967 and is by the Union of India. It was admittedly received by the objectors. By it the Union of India noticed the inability of the objectors to supply the goods according to the specifications laid down in the contract. It also noticed that the objectors had failed to ship any rice by 5th October 1967 which was the last date of shipment according to the contract. It was on account of this failure on the part of the objectors that they were stated to be guilty of the breach of the contract. Thus on October 13, 1967 the Union of India itself had not taken the stand that the contract had already become null and void. Rather it appears that the contract was amended by telegrams exchanged between the parties on 14th Sept. 1967 and the failure to supply goods according to the specifications including their shipment was the actual cause which was taken to be the reason for the breach of the contract. The next document is of October 7, 1968 (Ex. R-9). It is also from the Union of India and is addressed to the objectors. Here also the objectors were stated to have committed the breach. of the contract on account of their failure "to supply the contracted stores in terms of the contract". Thus non compliance of clause 8 was no where taken as one of the grounds. The third document is of October 7,1968. It is Ex. R-10. It is from the objectors and is addressed to the Union of India. Therein the objectors no where plead or allege or mention even obliquely that the Union of India had unilaterally declared the contract null and void. Rather it talks ''of unfulfilment of the contract on the part of the Government and holds the Government of India solely responsible for the breach of the contract on account of its having "obstructed" the shipment of the goods. The next document is Ex. R-I 1. It is dated 7th January, 1969 and is also from the objectors. It again talks of the Union of India having obstructed the shipment of the goods and holds it solely responsible for the same. In short, what these documents show is that the parties ha d not taken the contract having become null and void. Rather they proceeded with the contract and it was only much later that the Government of India claimed dam ages on account of the breach of the contract not on the basis of the violation of Clause 8 but on account of the failure of the objectors to supply the goods in question and significantly the objectors also did not, at any stage, place reliance on Clause 8 and rather treated the contract as subsisting and, on their part, claimed the Government of India to be responsible for non shipment of the goods.

For the reasons recorded above, I am inclined to hold that neither the Union of India had unilaterally declared the contract to be null and void nor it was at any stage rated to alive become null and void for non compliance of Clause 8 of the contract and that in any case the arbitration agreement as contained in Clause 12 stood firm and thus remained applicable.

The award being not within time and no case having been made out for extension of time, the issue goes in favor of the objectors.

RELIEF

The award is set aside. However, no order, is made as to costs.

Order accordingly.