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Indian Oil Corporation Ltd. Vs. Indian Carbon Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration;Contract
CourtMumbai High Court
Decided On
Case NumberNotice of Motion No. 940 of 1983 in Suit No. 2187 of 1982
Judge
Reported inAIR1984Bom138; 1984(1)BomCR280
ActsArbitration Act, 1940 - Sections 34
AppellantIndian Oil Corporation Ltd.
RespondentIndian Carbon Ltd.
Appellant AdvocateG.A. Thakkar and;N.G. Thakkar, Advs.
Respondent AdvocateA.M. Setalvad and;S.H. Doctor, Advs.
Excerpt:
a) the case questioned whether arbitration clause contained in original agreement continued to apply in subsequent agreement and whether the suit in respect of claims arising under subsequent agreement could be stayed- it was held that as a result of changes completely new agreements have come into existence between the parties and the arbitration clause contained in the original agreement could not apply to the subsequent agreements that have come into effect- the present suit was in respect of claims arising under the subsequent agreement- hence the suit could not be stayed.;b) it was adjudged that the appearance of a party at the time when the suit was placed on board for directions could not be considered as a step in the proceedings. - - it was enter alia agreed that the entire..........was increased to rs. 165/- per metric tonne and certain additional clauses were inserted in the original agreement of 23rd. june 1961. these clauses relate to (1) payment of penalty, (2)m carnage charges, (3) haulage changes, and (4) a force major clause. under these new clause it was provided that the purchaser was to uplift all available coke produced at gauhati refinery on a regular basis every week so as to avoid accumulation and congestion in the refinery's coke yard. it was inter alia provided that the accumulated quantify of coke in the refinery's coke yard should not fall below 2500 metric tones and should not exceed 4500 metric tonnnes. there were other provisions relating to lifting of coke in excess of 4500 metric tones in the manner provided in the said clauses. the.....
Judgment:
ORDER

1. This is a notice of motion taken out by the defendants for the stay of the suit under the provisions of Section 34 of the Arbitration Act. 1940 . The Predecessors in title of the plaintiffs entered into an agreement dated 23rd June 1961 under which the plaintiffs agreed to supply to the defendants salable raw petroleum coke produced at the Nunemati Refinery of the Indian Refineries Limited at a price of Rs. 124/- per metric tonne exclusive of excise duty, sales tax and other taxes. The agreement provided that the standard of moisture content of the petroleum coke was as specified in Schedule 'A' annexed to the agreement. The actual moisture contain was to be determined from theme to time by analysis in the laboratory of the said refinery and rebate at the rates specified in Schedule 'B' annexed to the agreement was to be allowed to the purchasers viz. The defendants. Under clause 2. The said agreement was to be initially for a period pof 7 years and was renewable, at the option of the purchaser. For further periods of 5 years on the same terms and the purchaser was required to remove the same at his own costs. Delivery was required to be taken within 7 days from the notice given by the company to the purchaser. Payment was to be made within 7 days of the receipt of the bills. There were other provisions in the said agreement relating to deposit etc. Under clause 10 of the said agreement it was provided as follows:-

'10 . If any dispute or difference arises between the parties to these presents regarding any of the matters arising out of or connected with the same or regarding the interpretation of those presents or otherwise, the matter in dispute or difference shall be referred to the arbitration of the Indian Chamber of Commerce, under the rules of the Tribunal of Arbitration at the said Chamber, provided that at the option of the Company. The arbitration proceedings shall be held at Bombay'.

2. Under a writing dated 22nd April , 1970, an agreement finalized at the meeting of both the parties held on 25th May 1969 was recorded. Under this agreement it was agreed that the agreement of 23rd June 1961 was renewed for a period of 5 years as provided under clause 2 of the agreement of 23rd June 1961. The price however, was increased to Rs. 165/- per metric tonne and certain additional clauses were inserted in the original agreement of 23rd. June 1961. These clauses relate to (1) payment of penalty, (2)m carnage charges, (3) Haulage changes, and (4) a force major clause. Under these new clause it was provided that the purchaser was to uplift all available coke produced at Gauhati Refinery on a regular basis every week so as to avoid accumulation and congestion in the Refinery's coke yard. It was inter alia provided that the accumulated quantify of coke in the Refinery's coke yard should not fall below 2500 metric tones and should not exceed 4500 metric tonnnes. There were other provisions relating to lifting of coke in excess of 4500 metric tones in the manner provided in the said clauses. The defendants were also given the facility of using the plaintiffs' crane for removing the raw petroleum coke from the plaintiffs' coke yard on payment of certain charges. Under the terms relating to Haulage charges, the defendants were required to arrange their own sunder for loading the coke wagons. There was also a force major clause as set out in the said agreement. The original agreement as altered at the meeting of 25th May 1969 remained in force till 1974. Thereafter, the parties recorded a memorandum of understanding arrived at between them at meetings held on 11th , 12th and 13th of March 1974. This memorandum relates to the supply of raw petroleum coke at Barauni refinery under an agreement dated 9-5-1973 as also the supply of raw petroleum coke at the Gauhati Refinery which is the subject-matter of the present suit. Under this memorandum of understanding the defendants agreed to pay a price of Rs. 845/- per metric tonne for the supply of raw petroleum, coke at the Gauhati Refinery which is the subject-matter of the present suit. Under this memorandum of understanding the defendants agreed to pay a price of Rs. 845/- per metric tonne for the supply of petroleum coke from Gauhati Refinery . The plaintiffs agreed that the defendants could use their refinery crane if available, without any charges. At the same time the defendants agreed that they would not claim any rebate on account of moisture content of raw petroleum coke. The defendants however, were required to pay for the refinery shutter as and when used. The said memorandum also recorded certain arrangements arrived at relating to supplies of raw petroleum coke already made prior to 31st December , 1973 in respect of which there was a dispute as to payment. The said memorandum also contained a price escalation clause, under which it was provided that the price of Rs. 845/- per tonne was based on a crude oil price of $ 8.48 per barrel equivalent OT the landed cost of Rs. 560/- per tonne at Gauhati and Barauni Refineries. In case of any variations , upward or downward, in the landed cost of crude oil by Rs. 1 per tonne, an increase or decrease in price of Rs. 1.50 per tonne of raw petroleum crude would be applicable.

3.The next modification is dated 7th June 1976. In view of the difficulties faced by the defendants, the plaintiffs agreed to extend certain facilities to the defendants. It was enter alia agreed that the entire quantity of coke at the scrap yard would be moved by the defendants within June 1976 and this product could be moved by the defendants directly to Budge . It seems that there was substantial accumulation of coke in the coke yard as the defendants had failed to lift the entire Gauhati production. The plaintiffs as a special case, allowed the defendants to move coke from the coke yard up to a maximum of 10,000 metric tones for their Budge plant, but this was allowed only up to 31st July 1976. It was also agreed that from the month of June 1976 onwards the defendants would lift the regular production of Gauhati Refinery as per the terms of the existing contract. It was however, provided that any delay in payment over the stipulated period would attract the payment of interest at 4% over and above the Bank borrowing rate. It was also provided that if the full production of Gauhati refinery was not uplifted by the defendants, they would pay interest at the rate of 4% above the plaintiff's borrowing rate , on any stock held by the plaintiffs at 4Gauhati refinery exceeding 2500 metric tones. The said agreement also provided that supplies to the defendants' Budge plant from Barauni would be as per the plaintiffs' normal practice. There were other agreed terms with which we are not concerned.

4. The present suit is filed by the plaintiffs for recovery of Rs. 5,47,97,054.78 as also for interest on delayed payments. For interest on excess raw petroleum coke stocks in their coke yard and for expenses of movement of stock from Gauhati to Barauni. A substantial portion of this claim relates to interest on delayed payment, interest on excess stock and expenses of movement. As against this claim of the plaintiffs, the defendants have submitted that they should be given an adjustment in respect of rebate for moisture content as from 1974 and they should also be given credit for interest already paid by the,/ In their submission, interest should not be charged to them. According to the defendants if these adjustments are made, 'only' a sum of Rs. 21 Lakhs would be payable by them to the plaintiffs.

5. In view of these agreements, it has to be considered whether the arbitration clause contained in the original agreement of 23rd June 1961 continues to apply to the subsequent agreements arrived at between the parties and to the present disputes which have arisen between the parties. According to the defendants the subsequent agreements are modification of the original agreement of 23rd June 1961. Therefore, according to them the arbitration clause contained in the original agreement continues to apply to all subsequent modifications of the terms of the original agreement and therefore, the present disputes are covered by arbitration clause in the original agreement. The plaintiffs, however, contend that new rights and new liabilities are created under the subsequent agreements. These amount therefore to fresh agreements between the parties and the arbitration contained in he original agreement of 23rd June 1961 does not apply to these subsequent agreements.

6. The subsequent agreements, therefore, must be examined to see whether they amount to only a modification of the original agreement of 1961 or whether they amount to new agreements between the parties. In the present case since the parties have had contractual relationship for supply of raw petroleum coke over a long period of time starting with the original agreement of 23rd June 1961, the subsequent agreements at times, contain a reference to the first agreement of 23rd June 1961. Thus, in the first modification which was recorded in the memorandum dated 22nd April 1970, three is ,in terms, a reference to the renewal of the agreement of 23rd June 1961. This first modification, therefore, appears to suggest that although substantial variations have been made in the original agreement of 23rd June 1961. It is also provide that certain new clauses would be inserted in the agreement of 23rd June 1961, If the matters had stopped with this agreement of 22nd April 1970 the defendants would have had a good case to submit that the clause in the agreement of 23rd June 1961 relating to the reference of disputes to arbitration would have continued to apple to the variation wh8ich were effected by the memorandum of 22nd Apr8il 1970 the defendants would have had a good case to submit that the clause in the agreement of 23rd June 1961 relating to the reference of disputes to arbitration would have continued to apply to the variations which were effected by the memorandum of 22nd April 1970. However. In the subsequent agreements which have been arrived at between the patties as recorded in the memorandum of understating recording the meetings held on 11th 12th and 13th March 1974 as also of 7th June 1976, there is nothing to indicate that the old terms of the agreement of 23rd June 1961, in so far as they were consistent with the subsequent variations, continued OT apply to the parties; On the contrary, when one examines the terms of the subsequently agreements it is clear that few of the old contractual obligations survive. Thus in the memoranda, recording the meetings of 11th 12th and 13th March 1974 , for the first time share is a price escalation clause. There is also a fresh agreement between the parties that the defendants will not be entitled to bay rebate for moisture content; and they will be entitled to use the plaintiffs' crane without payment of any charges. In fact, it was in consideration of being allowed to use the crane without pay met of charges that the defendants agreed not to claim any rebate for moisture content. These are substantial changes and they cannot be looked upon merely as minor variations in the original agreement of 23rd June 1961. Similarly in the later variations which are recorded in the letter of 7th June 1976. There is a special arrangement recorded relating to uplifting of accumulated stock at the Gauhati Refinery what is more important, for the first time it is agreed between the parties that the defendants would pay interest as provided in the said letter in respect of late payment and also in respect of the stock in excess of 2500 metric tones which was not lifted by the defendants .. these provisions also cannot be looked upon as minor variations in the agreement of 23rd June 1961. As a result of these changes completely new agreements have came into existence between the parties and the arbitration clause contained in the agreement of 23rd June 1961 cannot apply to these new agreements that have come into effect. The present suit in respect of claims arising under the agreement of 7th June 1976.

7. In the notice of motion dated 22nd November, 1958 in Suit NO. 381 of 1958 in the case of Prakash cotton Mill private Ltd. v. Chandrakant Ujjamshibhai , Modi, J. by his judgment and order dated 19th December 1958 considered in case where an agreement in writing arrived at between the parties was terminated but thereafter, a fresh agreement in continuation f the previous appointment was arrived at between the parties. The first agreement contained an arbitration clause while the second did not. In considering whether the arbitration clause applied OT the new agreement and the suit should be stayed under the provisions of Section 34 of the Arbitration Act, Modi. J. observed as follows.

'When a fresh agreement is arrived at in relation to an earlier agreement, normally it can be expected had the terms of the original; agreement would not be completely replaced by the new agreement. By way of the fresh agreement the parties would normally make provision in the fresh agreement with the background of the original agreement . In the fresh agreement here may be references to the old agreement and some of the terms in the old agreement may not be repeated in so many words in the new agreement. In the original agreement for example, if the same happened to be in respect of sale of goods. There would be mentioned in detail the quantity of the goods agreed to be sole. In such a case the fresh agreement may not set out against all the particular of the goods but. May merely refer OT the same generally. In such an even such general description of the goods would have to be read in the light of the agreement. Similarly some of the old provisions may be given a go-by to, and new provisions may be introduced. Therefore , it appears that envoy case the court wall have to consider, on the material relating to the two agreements whether by reason. Of the fresh agreement what results is substantially and materially the original agreement in which only a few changes have been made but the original arbitration clause continues to apply to the agreement as resulting after the fresh agreement was arrived at between the parties.'

8. On the facts of the case before him, he held that new rights and obligations were introduced by the new agreement and they were such as can be said to be substantially and materially a new agreement and the arbitration clause would not apply to such an agreement.

9. My attention was drawn to a decision of the Calcutta High Court reported in the case of Soorajmull Nagarmull v. Asiatic Trading Co. : AIR1978Cal239 . In that case the court held that where the original contract for sale of goods contained provision for arbitration in wide terms in respect of all disputes arising out of or in relation to such contract and there was no substitution of the original contract by a new contract, but there was only modification of the original contract in respect of delivery clause bu mutual consent, the arbitration agreement and all other clauses except delivery were enforceable in law. On the fact of the case the court came to the conclusion that an alteration in the delivery clause could be considered as only a minor modification of the original agreement and therefore the arbitration clause continued to govern the disputes of the parties. Similarly in the case of Rungta Sons Private Ltd. v. Jugometal Trg. Republic : AIR1959Cal423 it was held that where the terms of the subsequent arrangements were merely modifications of the original contract and the two together formed one agreement comprising the original terms including the arbitration clause and its subsequent modifications, in such a case arbitration clause applied to the disputed arising out of the contract and its subsequent modifications, in such a case arbitration clause applied to the disputed arising out of the contract and its subsequent modifications. It did not matter that the modification conferred some new rights and imposed some new liabilities which did not find any place in the terms of the original contract. As against this, in a decision of this High Court in the case of Ramdas Dwarkadas v. Orient Pictures reported in AIR 1942 Rom 332 Blackwell J. held that when the agreement materially affects and alters the rights and liabilities under the original agreement and imposes liabilities and confers rights upon the parties which are not to be found in the original agreement at all, the arbitration clause indoor the said agreement can have no application to the mew right and liabilities. In the light of these authorities the following proposition emerges. If the subsequent agreement creates new rights and liabilities which can be considered as a new agreement between the parties then the arbitration clause under the old agreement will not apple to such new rights and anew liabilities. If, on the other hand the subsequent carnations are a minor modification of the original agreement, the other clauses of the old agreement continue to govern the parties including the arbitration clause. In other words, if the alterations substantial affect the essential terms and conditions of the original contract, the alternation cannot be looked upon merely as an amendment of the old contract. A new contract comes into being. Hence an arbitration clause in the old contract will not apply to the new contract. In a broad sense, every modification brings about certain changes in the rights and obligations of the parties. If this were not so, there would be no need for anu modification of the previous agreement. It was in this context that the Calcutta High Court observed in the case of Rungta Sons Pvy. Ltd. v. Jugometal Trg. Republic that it did not matter that the modifications conferred some new rights and imposed some new liabilities and the arbitration clause in the previous agreement would continued to govern the modified agreement. What requires to be considered is whether the changes that have been brought about are substantially of such a nature as would amount to a new contract between the parties. As mentioned earlier, in the present case there have been very substantial changes in the rights and obligations of the parties over a period of time that has elapsed since 1961.

10. It was submitted by Mr. Setalvad, learned counsel for the defendants that the correspondence exchanged between the parties showed that the parties considered all subsequent alterations in the terms of the contract as only modifications of the original contract. Thus, in the writing or 22nd April 1970, there is an express reference to the agreement of 23rd June 1961. In fact it is recorded that some new clauses set out therein ar to be included in the agreement of 23rd June 1961. The defendants are right in so far as they contend that the writing of 22nd April 1970 merely modifies the agreement of 23rd June 1961. But even afar 1970, substantial changes have taken place in the rights and obligations of the parities. It is true that in the letter of 5th June 1974 (exhibit 'E' to the plaint) the plaintiffs have expressed their consent to the renewal of the 'principal agreement' dated 23rd June 1961 as modified. But thereafter, by virtue of the letter of 7th June 1976 (Exhibit 'F' to the plaint) substantially new rights and obligations are created between the parties. The present suit is for enforcement of claims under the agreement of 7th June 1976. The arbitration clause in the agreement of 23 rd June 1961 cannot govern these new contractual obligations.

11. It was also argued that the plaint itself refers to the agreement of 23rd June 1961 as the principal agreement and the subsequent alternations and modification and the subsequent alternations as modification of it. But as Modi J. has observed in there case of Prakash Cotton Mills v. Chandrakant Ujjamashibhai, when a fresh agreement is arrive at with reference to an earlier agreement all terms of three old agreement may be replaced. Provision may be mad in the new agreement with reference to the previous agreement. But, if the basic terms of the contract ar changed, it becomes a new contract. Hence a description of the agreement of 23rd June 1961 in the plaint as the principal agreement, and of subsequent alternations as modifications, does not carry the matter any firthe. And the same applies to the letter of 5th June 1974 also. The present rights and obligations of the parties are governed by the terms ad recorded in governing the rights and obligations of the parties are governed by the terms as recorded in the letter of 7th June 1976. A new agreement governing the rights and obligations of the parties has come into existence as per the letter of 7th June 1976. The arbitration clause in the agreement of 1961 does not govern these new rights and obligations.

12. It was submitted that the arbitration clause under the agreement of 23rd June 1961 is very widely worded addict would cover any dispute or differences between the parties regarding any matter arising out of or connected with the contract of 23rd June 1961. The elapse, however can apply only to any disputes or differences or any matter arising out of the agreement of 23rd June 1961, and at the highest, to the agreement of 23rd June 1961 as modified by the writing of 22nd April 1970. It cant apply to the disputes and differences arising out of the new rights and obligations which are subsequently created. Secondly the arbitration clause forms a part of a contract entered into by the plaintiffs predecessors in title as gar back as 1961. Unless there is clear intention of the parties to apply this clause to the years later. It is not possible to read this clause into the new rights and obligations.

13. The plaintiffs have also submitted that the defendants are not entitled to maintain the present motion because they have already taken a step in the present suit. It seems that after the present suit was filed by the plaintiffs on filed 2nd December 1982 an appearance was filed on behalf of the defendants under protest. Thereafter the suit came up on board for directions on 14th June 1983. The defendants appeared before the court on that days. Directions were also given for filing a written statement or points of defense, affidavits of documents and the suit was directed to be placed before the learned Judge taking commercial causes in the 2nd week of January 1984. The plaintiffs have submitted that by appearing at the time when the above directions were given the defendants have participated in the present suit and therefore they cannot now ask for a stay of the suit under Section 34 of the Arbitration Act. In the case of food Corporation of India v. Yadav Engineer and Contractor reported in AIR 1982 SC 1002 the Supreme Court has held that the expression 'taking any other steps in the proceedings' should be given a narrow meaning .the step must be taken in the main preceding of the suit and it must be such a step as would clearly and unambiguously manifest the intention to waive the benefit of the arbitration agreement and to acquiesce in the proceedings . In my view, appealing at the stage of directions would not amount in the case of step in the proceedings. In the case of Nuruddin Abdulhusein v. 1950 Ahmed Abdul Jalji : AIR1950Bom127 , Tendolkar J. held that the filing of an unconditional appearance in court is not step in the proceedings because such an act is incumbent upon the defendant by virtue of Rule 117 of the High court Rules for preventing the suit from being set down as being undefended. It is equally possible that if the defendant does not appear at the time when the defections are given, the plaintiff would the get the suit placed on board for being heard expert. Under form 9prescribedd under rule 69 of the High court Rules on the Original side, the writ of summons which is seven on the defendant requires the defendant to file in court an appearance in person or a vakalatnama and a written statement in his defense and requires him to serve a copy of the written statement on the plaintiff within 12 weeks from the service of the summons upon him . the write of summons states that the suit will be placed for directions on the board of the Judge in chambers on the day which is mention in the writ of summons and it says that if the defendant fails to appear in person or file a vakalatnama and written statement as directed above or if he fails to appear before the Judge on the day mentioned, the suit may be ordered to be set down on board on the same day or any subsequent day as undefined . thus if the defendant fails to appear in court on the day when the suit is placed on board for directions, an expert decree is liable to be passed against the defendant. In view of his provision , the appearance of the defendants at the time when the suit was placed on board for directions cannot be considered as a step in the main suit. It does not unequivocally express an intention to proceed with the suit. Therefore there is no substance in this contention of the pontiffs.

14 . The arbitration clause under the agreement of 23rd June 1961 however, does not apply to the disputes between the plaintiffs and the defendants in the present suit. The notice of motion is therefore, dismissed with costs.

15. Notice of motion dismissed.


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