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Hindustan Zinc Limited Vs. Associated Metals and Minerals Corporation and ors. - Court Judgment

LegalCrystal Citation
SubjectContract;Arbitration
CourtMumbai High Court
Decided On
Case NumberAppeal No. 185 of 1978
Judge
Reported inAIR1983Bom131; (1983)85BOMLR77; 1983MhLJ579
ActsArbitration Act, 1940 - Sections 34 and 39
AppellantHindustan Zinc Limited
RespondentAssociated Metals and Minerals Corporation and ors.
Appellant AdvocateD.R. Zaiwala, Adv.
Respondent AdvocateV.V. Tulzapurkar,;Chougule and;J.M. Sethna, Advs.
Excerpt:
.....available in plaintiff's country and not in country where arbitration proceedings contemplated -- 'claim in suit small compared to expenditure required for prosecuting arbitration proceedings in foreign country -- whether discretion under section 34 should be exercised against slay of suit -- appellate court when should interfere with discretion of trial court under section 34.;the discretion under section 34 of the arbitration act staying the suit has to be judicially exercised according to well established principles. if certain relevant facts are ignored by the trial court while making an order under section 34 of the arbitration act and an erroneous approach has been adopted it will be permissible for the appeal court to interfere with the exercise of discretion by the trial..........plaintiffs if they were compelled to go to arbitration. all these contentions were rejected by the learned judge and the suit was ordered to be stayed, but permission was given to the plaintiff to continue its suit, if so advised against defendants nos. 2 and 3. this order is challenged by the plaintiff in this appeal.10. two grounds have been urged before us by mr. zaiwala who is appearing on behalf of the plaintiff. it was contended that discretion to stay the suit under s. 34 of the arbitration act should not have been exercised in favour of defendant no. 1 because all the relevant evidence was in india and the second contention was that the suit being a composite suit against all the three defendants, if the claim against defendant no. 1 was referred to arbitration and the claim.....
Judgment:

Chandurkar, J.

1. This is an appeal against the order of a learned single Judge staying the suit filed by the plaintiff -appellant as against defendant No. 1 and giving liberty to the plaintiff to continue its suit against defendants Nos. 2 and 3.

2.. There is no dispute that under a contract dated 15th Jan. 1970 entered into between the plaintiff and defendant No. 1, defendant No. 1 was to sell to the plaintiff 5000 to 6000 metric tons of zinc sulphide floatation concentrates (hereinafter referred to as the 'zinc sulphide concentrate'), and that the first such consignment was shipped from Algeria on 3rd July, 1970 and had arrived at Kandla on 19th Aug., 1970. It is also not in dispute that the third defendant was employed as Surveyor for supervising, discharging, weighment, sampling and moisture determination of the first consignment and for issuing the required report and half of the charges payable to the third defendant were to be debited to the plaintiff by the first defendant in the final invoice.

3. When the first consignment of about 3100 metric tons, which was dispatched from Algeria, was discharged from the ship directly into trucks provided by the Clearing Agents appointed by the third defendant. the said material was taken to the weigh bridge of Kandla Port Trust and the representatives of the Clearing Agents and the representatives of the third defendant's agents. Admittedly the weight recorded in the weigh bridge was 3001.65 metric tons and the Kandla Port Trust certified the said weight. However, in the report issued by the third defendant on 31st Aug., 1970. it was reported that the weight of the said material as ascertained by the draught survey was 3110.125 metric tons. There is also no dispute that the first defendant recovered from plaintiff the price of 3110.125 metric tons. The explanation given the third defendant for the difference in weight to the plaintiff was that rain water had accumulated in the weight bridge pit and, therefore, the weight recorded on the weigh bridge should not be considered to be accurate. That is why according to the third defendant, it has taken the draught survey as the final weight for the certificate.

4. Alleging that defendant No. 1 had recovered more than the price of 3001.65 metric tons, the plaintiff has filed a suit in this Court against all the three defendants for recovery of Rs. 1,14,484.50 overdrawn by the first defendant has been so done by it willfully and wrongfully. in conspiracy and in collusion with the second defendant and/or the third defendant and that the first defendant knew or ought to have known that the draught survey weight not only be an approximate weight and not the actual weight. An alternative sum of Rs. 1,14,484.50 was paid to and received by the first defendant by mistake and the first defendant is bound to return and repay the same to the plaintiff.

5. The allegation made against the second defendant is that the second defendant had been made aware in due time of the discrepancy in the two weights and that the second defendant was also aware that the report issued by the third defendant was on false basis and not in accordance with the provisions of and the usual practice at the Kandla Port as provided in the contract. It is alleged that the second defendant willfully failed and neglected to have the report dated 31st Aug., 1970 amended and that they further willfully allowed the first excess moneys to the extent of Rs. 1,14, 484.50. Conspiracy and collusion between the second and the third defendants have been alleged, which caused the plaintiff wrongful gain of the excess amount. Alternatively it is alleged against the second defendant that as the legal and special defendant is also liable to refund to the plaintiff the excess amount wrongfully withdrawn by its principals, namely, the first defendant.

6. As against the third defendant it is alleged that since a part of the charges of the third defendant was payable by the plaintiff. the third defendant also owed a duty to the plaintiff and is obliged to make a true and just report of the weight of the material delivered to the plaintiff at the Kandla Port. The report made by the third defendant has been alleged to be willfully wrong and false and the same has been alleged to have been issued by the third defendant knowing fully well that the draught survey weight was an approximate weighment and was much more than the actual weight recorded in the presence of their representatives and without any objection or protest from them at the material time. The explanation that the weigh bridge pit contained water has been stated to be false and fraudulent. Thus a liability is sought to be fixed on the third defendant to reimburse and compensate the plaintiff for the sum of Rs. 1,14, 484.50 as and by way of compensation for damage and loss caused to the plaintiff.

7. It may be stated at this stage that one of the terms of the contract between the parties provided for arbitration. This clause read as follows:--

'all differences which could arise in the interpretation or performance of the different clauses of this contract shall be settled definitely in accordance with the rules of conciliation and arbitration of the International Chamber of Commerce in Zurich, Switzerland, by one or several arbitrators nominated in accordance with these rules. Arbitration shall take place in Zurich in French language'.

8. By a Notice of Motion dated 15th Mar., 1976, taken out by the first defendant an order was sought that the suit should be stayed as per the provisions of Section 34 of the Indian Arbitration Act and that the dispute between the parties be referred to the arbitration of the International Chamber of Commerce in Zurich, Switzerland, as per the arbitration clause in the contract.

9. When the Motion was argued before the learned single Judge reliance was placed on a decision of this Court in Union of India v, Scindia Steam Navigation Co. Ltd., (1974) 76 Bom LR 8, in support of the contention that the suit was a composite one and that defendants Nos. 2 and 3 are not parties to the arbitration agreement and. therefore, the suit should not be stayed. It was also urged that the dispute was not covered by the arbitration clause and that it would be a great hardship to the plaintiffs if they were compelled to go to arbitration. All these contentions were rejected by the learned Judge and the suit was ordered to be stayed, but permission was given to the plaintiff to continue its suit, if so advised against defendants Nos. 2 and 3. This order is challenged by the plaintiff in this appeal.

10. Two grounds have been urged before us by Mr. Zaiwala who is appearing on behalf of the plaintiff. It was contended that discretion to stay the suit under S. 34 of the Arbitration Act should not have been exercised in favour of defendant No. 1 because all the relevant evidence was in India and the second contention was that the suit being a composite suit against all the three defendants, if the claim against defendant No. 1 was referred to arbitration and the claim against defendants Nos. 2 and 3 was allowed to be proceeded with in the suit, there was a possibility of conflicting judgments and, therefore, having regard to the decision of this Court in the Scindia Steam Navigation Co.'s case, the order of staying the suit was liable to be set aside.

11. Mr. Tulzapukar appearing on behalf or respondent No. 1-defendant No. 1 contended that the Appeal Court cannot interfere with an order staying the suit under S. 34 of the Arbitration Act unless either wrong principles are applied by the learned Judge or correct principles have not been applied and since the learned Judge has exercises the discretion to stay the suit on application of correct principles, the Appeal Court should not interfere with the order of the learned single Judge. It was also contended by Mr. Tulzapurkar that it would not be correct to say that the entire evidence was available in India because the evidence with regard to the actual quantity loaded at the Port of Algeria was not available in India at all, but it was fairly not disputed by him that except for the evidence with regard to the actual loading of the cargo. the entire other evidence was available only in India. The learned counsel further contended that the plaintiff, which is a public undertaking, had entered into a contract which provided for an arbitration clause and that unless the plaintiff was able to make out a case that it would not get a fair trial in the arbitration clause and that unless the plaintiff was able to make out a case that it would not get a fair trial in the arbitration proceedings. the forum chosen by the parties must alone be allowed to deal with the dispute. It was pointed out that originally the arbitration was intended to be in London, but it is only after deliberation that the clause was modified and the arbitration was to be in Zurich. It is not in dispute that according to the original agreement, any difference, dispute or controversy arising out of the agreement was to be settled by arbitration pursuant to the rules and regulations of the London Metal Stock Exchange, while under the present clause, the arbitration had to be in Zurich.

12. now there can be no disputed that making an order staying the suit under S. 34 of the Arbitration Act is a matter of discretion of the Court. But that discretion has to be judicially exercised according to well established principles. However, if certain relevant facts are ignored by the Court while making an order u/s. 34 of the Arbitration Act and an erroneous approach has been adopted by the Court. it will be permissible for the Appeal Court to interfere with the exercise of discretion by the trial Court. As pointed out by the Supreme Court in Printers (Mysore) Pvt. Ltd. v. Pothan Joseph, : [1960]3SCR713 , the discretion vested in the Court under S. 34 of the Arbitration Act must be properly and judicially exercised and though ordinarily the Court would direct the parties to go before the Tribunal of their choice and stay the legal proceedings instituted before it by one of them it would be difficult and indeed inexpedient to lay down any inflexible rules which should govern the exercise of the said discretion. The Supreme Court pointed out that no test can be laid down, the automatic application of which will help the solution of the problem of the exercise of judicial discretion. Dealing with the power of the Appellant Court in such cases the Supreme Court observed as follows (Para 9):--

'If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellant court would have taken a different view may not justify interference with the trial court's exercise of discretion. As is often said, it is ordinarily not open to the appellate court to substitute its own exercise of discretion for that of the trial Judge but if it appears to the appellate court that in exercising its discretion the trial court has acted unreasonably or capriciously or has ignored relevant facts and has adopted an unjudicial approach then it would certainly be open to the appellate court -- and in many cases it may be its duty -- to interfere with the trial court's exercise of discretion by the trial court is in low wrongful and improper and that would certainly justify and call for interference from the appellate court'.

If it is found on the fact in the present case that the discretion has in law been wrongfully or improperly exercised by the trial court, then it would certainly be permissible for this Court to interfere with the order under appeal. We must, therefore, consider the contentions raised by Mr. Zaiwala in the light of the above principles.

13. A reference to the provisions of Section 34 of the Arbitration Act will indicate that one of the circumstances which the trial Court exercising discretion under Section 34 has to consider is whether 'there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement'. Now, according to Mr. Zaiwala, as already pointed out. the entire evidence in available in India and having regard to the quantum of the claim in suit, it would be wholly improper to require the plaintiff to take recourse to the arbitration proceeding as provided in the contract. It the averments in the plaint are properly considered, it will appear that the whole foundation for the claim to refund against defendant No. 1 or for reimbursement against defendants Nos. 2 and 3 issued by defendant No. 3 on 31st Aug., 1970, is a false certificate. that is the basic fact which the plaintiff will have to establish before the plaintiff is able to make out any claim either against defendant No. 1 or against any of the other two defendants. Coupled with the charge of falsity of the certificate issued by defendant No. 1, the plaintiff will also have to establish that the original certificate issued by the Kandla Port Trust Authorities saying that the weight of the material was 3001.65 metric tons was the correct weight. As already pointed out, the correctness of the certificate issued by the Kandla Trust Authorities is put in doubt by defendant No. 3 by saying that the weigh bridge had water under it. The whole claim, therefore, turns on whether the certificate given on the basis of the weight found on the weigh bridge was correct or not. The weigh bridge itself is in India. Its exact situation and location can be properly appreciated on oral evidence of the material witnesses and only by spot inspection, if necessary. The Authorities who handled the weigh bridge are also in India, Even if the defendant No. 3 wants to prove that there was water under the weigh bridge, the relevant material would be available only in India. Defendant No. 3 itself is working in India and is officers or employees will also be in India. So also is the case with defendant No. 2 who was acting as the principal agent of defendant No. 1. Even according to defendant No. 1, as will appear from the affidavit in support of the Notice of Motion, the consignment, when it was loaded at the Port in Algeria. weighed 3100 metric tons, as will be clear from the following averments in para 13 of the affidavit of the Director of the second defendant:--

'The first lot of 3100 M. T. of the said material was shipped on a chartered ship s.s. 'ACHICS DIOHISIONS' on the 3rd of July, 1970 from the Port of Casanoust in Algeria and arrived at the Port of Kandla in India on or about the 19th Aug., 1970'.

Therefore, so far as the first and the second defendants are concerned, it does not seem to be in dispute that the original consignment shipped from Algeria was of 3100 metric tons. Even according to the plaintiff, on the averment in paragraph 8 of the plaint. the plaintiff had arranged to ship a quantity of about 3100 metric tons. Therefore, the crucial evidence on which the plaintiff can succeed or the defendants can successfully meet the claim of the plaintiff is all available only in India.

14. Coupled with this is the fact that the claim in. the suit is hardly of a lac and fourteen thousand rupees. A question which must necessarily fall for consideration in such a case is whether a party could be forced to incur expenditure which is wholly disproportionate to the claim involved in the suit by requiring it to go to arbitration, in accordance with the arbitration clause. It can hardly be disputed that large expenses will have to be incurred for prosecuting the small claim of Rs. 1,14, 000 if the plaintiff is required to go in for arbitration at Zurich along with their witnesses to appear before the Arbitrator and give evidence before him. these considerations, in our view, have been completely overlooked by the learned single Judge. It may be that they have not been put before him because the order makes no reference to these circumstances. But that does not prevent the Appeal Court from considering these circumstances which appear to it to be very relevant, in determining the question whether defendant No. 1 could properly ask for exercise of discretion in its favour for making an order under Section 34 of the Arbitration Act,

15. Another circumstance which must necessarily tilt the balance in favour of the plaintiff is that the claim in suit is made against all the three defendants and defendant No. 3 against whom allegations of fraud and collusion have been made is not a party to the arbitration agreement. The averments made in the plaint will show that the plaintiff will have primarily to establish that the certificate issued by defendant No. 3 has been falsely issued. Unless that fact is established. it will not be possible for the plaintiffs to proceed further and make any claim against defendant No. 1. Primarily the plaintiff and defendant No. 1 are the parties at issue on the question of the false certificate issued by defendant No. 3.. On the finding on that basic issue will depend the maintainability of the claim not only against ants Nos. 1 and 2. Defendant No. 3 is not a party to the arbitration agreement and any finding with regard to the falsity of the certificate will have to be reached only on the evidence recorded in the suit itself. It is obvious that if the claim of the plaintiff is tried in two independent proceedings, that is. in the suit allowed to be proceeded with against defendants No. 2 and 4 and against defendant No. 1 before the Arbitrator, as is now contemplated by the order or the learned single Judge. a possibility of two contradictory judgments cannot be ruled out. This circumstance, in our view, must necessarily lead to the conclusion that the suit should not have been stayed under S. 34 of the Arbitration Act.

16. Mr. Zaiwala has referred us to the decision of the Supreme Court in Ramji Dayawala & Sons. (P.) Ltd. v. Invest Import, : [1981]1SCR899 . The plaintiff in that case was a labour contractor who had sued for a sum of Rs. 4 lacs and odd from a foreign engineering construction company which had undertaken to erect a thermal power station in Barauni in Bihar State under a contract with the Bihar State Electricity Board. When the plaintiff filed the suit for recovery of this money, the Yugoslav company came out with the plea that the agreement between the parties provided for an arbitration by the International Chamber of Commerce in Paris 'with Yugoslav materials and economical law'. The proceedings in the suit were stayed by a learned single Judge and the appeal filed by the plaintiff was also dismissed. The contention of the plaintiff that even if there was a subsisting arbitration agreement, in the facts and circumstances discretionary relief of granting stay of suit would cause irreparable hardship and deny justice to High appellant-plaintiff was negatived. The matter was then taken in appeal by the plaintiff to the Supreme Court. The order of stay was reversed by the Supreme Court with the following observations (at p. 2099):--

'To sum up, the entire evidence both of the appellant and the respondent is in this country; the contract as a whole country: the claim as a whole arose in this country: the appellant is a company incorporated in this country and the respondent is having its office in this country: and that the respondent is not motivated by any principle to have the decision of the foreign arbitral tribunal at Paris but the principal object of the respondent is merely to make it more difficult, if not impossible, for the appellant to assert the claim. Add to this two other vital considerations. viz., that the cost of arbitration at Paris will be so disproportionately high to the claim involved in adjudication that one would never think of incurring such a huge cost to realise such a small sum claimed. and the restriction on the availability of foreign exchange, another vital relevant consideration. The sum total of all these well established circumstances clearly indicate that this was a suit in which when discretion is exercised on well settled judicial considerations no court would grant stay and the stay has to be refused'.

Excluding the fact that hit is not contended that the plea of arbitration was intended to made it difficult for the plaintiff to recover the money. Mr. Zaiwala contends that other facts in the present case and the ratio of this decision must apply with all force to the present case.

17. According to Mr. Tulzapukar, the present case does not fall within the ratio of the above Supreme Court decision because it will not be correct on the facts of the present case to say that the entire evidence is in India.

18. Now, it is no doubt true that strictly speaking the entire evidence is not in India because a part of the evidence with regard to the quantity actually loaded will be available only in Algeria. But whether that evidence is made available in Zurich or in Bombay, it would make no difference because Zurich, the evidence will have to be got from Algeria. It is also true that the plaintiff is a public undertaking and may not have much difficulty so far as foreign exchange is concerned or there may not be any financial difficulty for it, with the resources available to it. so that whatever may be the expenses, the plaintiff will be able to meet them. That, however, is not the only consideration. When discretion is sought to be exercised, in our view, it would be clearly a relevant circumstance that the plaintiff, even though a public undertaking, is not required to incur expenditure which is wholly out of proportion to the claim involved in the suit. In our view, having regard to the principles laid down by the Supreme Court in Ramji Dayawala & Sons (P.) Ltd.'s case : [1981]1SCR899 , there is a clear infirmity in the order of the learned single Judge.

19. Now, so far as the splitting of the claim is concerned, we may merely refer to the Scindia Steam Navigation Co.'s case (1974-76 Bom LR 8) where the learned single Judge held that if there was was every likelihood of conflicting findings ins the award and the judgment of the Court, that discretion of the Court should be exercised against the stay of suit under Section 34. We are in agreement with the principle laid down by the learned single Judge in that case after following the decision of the Calcutta High Court in Asiatic Shipping Co. v. P. N. D. Lloyd, : AIR1969Cal374 . and the decision of the Nagpur High Court in C. High. Court. & C. S. Co. v. Brijnathsinghji -AIR 1956 Nag 61.

20. In the Scindia Steam Navigation Co.'s case, the learned Judge has referred to an unreported decision of this Court in Prakash Cotton Mills Pvt. Ltd., v. Punjab Cotton Co. (Exp. & Imp.), Appeal No. 112 of 1969 (in Suit No. 57 of 1969), decided by K. K. Desai and Vaidya JJ. on 13/14th Oct., 1969, in which Mr. Tulzapurkar has relied before us. A reference to this decision will show that the Division Bench has taken the view in that case that a stranger to the arbitration agreement was joined as a co-defendant and it was found as a fact that the said co-defendant was joined only for the purpose of escaping from the arbitration agreement and in such a case, the Court would hold that the suit as against the co-defendant was frivolous and vexatious and the Court would not reject the application for stay. The Division Bench in that case had observed that defendant No. 2 had been joined mala fide for the purpose of escaping from the arbitration agreement and further that there was no possibility of conflicting decisions in the arbitration proceedings and in the Court.

21. It is not the contention of Mr. Tulzapurkar that defendants Nos. 2 and 3 who are not parties to the arbitration agreement have been joined mala fide by the plaintiff. As a matter of fact the suit is based on something done by defendant No. 3 and the plaintiff is seeking a decree also against defendant No 3.

22. Having regard to all the circumstances of the case, it appears to us, therefore, that the learned Judge was in error in granting stay of the suit under Section 34 of the Arbitration Act. The order of the learned Single Judge dated 15th April, 1976, is, therefore. set aside. The appeal is, therefore, allowed with costs against respondent Nos. 1 and 2. We pass no order of costs against respondent No. 3 because the order appealed against did not affect respondent No. 3.

23. Appeal allowed.


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