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Orissa State Co-operative Marketing Federation Ltd. Vs. Associated Marketing Co. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies;Arbitration
CourtOrissa High Court
Decided On
Case NumberMisc. Appeal No. 296 of 1980
Judge
Reported inAIR1982Ori1; 53(1982)CLT150
ActsArbitration Act, 1940 - Sections 2 and 20; Orissa Co-operative Societies Act, 1963 - Sections 68(1), 121 and 127
AppellantOrissa State Co-operative Marketing Federation Ltd.
RespondentAssociated Marketing Co.
Appellant AdvocateL. Rath and ;B.S. Misra, Advs.
Respondent AdvocateG. Rath, ;R.K. Rath, ;N.C. Panigrahi, ;B.K. Nayak and ;R.C. Patnaik, Advs.
DispositionAppeal allowed
Cases ReferredThe Wolverhampton New Water Works Company v. Hawkesford
Excerpt:
.....on the face of it, therefore, the contract is clearly not one of agency for sale butit reads as an agreement of sale. 277 of air 1978 bom) :as already observed, the special provision incorporated in section 91 of the act is made by the legislature to shorten litigation, lessening its cost and to provide a summary procedure for the determination of the dispute relating to the internal management of the society as well as 'the dispute touching its business. the parties contemplated by sub-section (a) of section 91(1) of the act include society, committee and past committee, past or present officer, past or present agent, past or present servant or nominee as well as their legal representatives. these words are used in a generic sense and, therefore, the meaning of the word 'agent' will..........a flat rate of rs, 80/- per metric ton has been stipulated. that clause also refers to agency of sale. the federation under clause 8 undertook to deliver at its cost the stock of fertiliser f.o.r. destination nearest the rail head according to indent and despatch instructions issued from time to time by the respondent. in respect of sales to be effected outside the state, supplies were to be made on consignment basis to the marketeer and not to any other party under certain contingencies.clause 9 stipulated that in respect of all the sales effected, the respondent was to be allowed a period of 90 days credit facility against a letter of credit or irrevocable bank guarantee.under clause 11, the federation was to allow to the respondent a distribution margin at the rate of rs. 100/- per.....
Judgment:

R.N. Misra, C.J.

1. This appeal under Section 39(1)(iv) of the Arbitration Act, 1940, is against the order of the learned Subordinate Judge of Bhubaneswar directing the filing of the arbitration agreement.

2. The Orissa State Co-operative Marketing Federation Limited, appellant herein (hereafter referred to as the 'Federation'), is the manufacturer of the granulated mixed fertiliser by the trade name 'Shyamala'. The Federation entered into an agreement with the respondent as per Annexure 1 relating to the marketing of Shyamala. The terms regulating the relationship between the parties are contained in the agreement. The Federation annulled the agreement with effect from 3rd of March, 1980. On 7th April, 1980, the respondent made an application purporting to be under Section 20 of the Arbitration Act before the learned subordinate Judge of Bhubaneswar and stated therein that the cause of action arose upon cancellation of the contract and subsequent service of notice demanding appointment of arbitrator. The Federation filed an objection and pleaded inter alia that-

(i) the application under Section 20 of the Arbitration Act was not maintainable;

(ii) there was no valid contract between the parties inasmuch as the contract had not been entered into by the Secretary on behalf of the Federation as required by the Bye-laws;

(iii) the Civil Court had no jurisdiction to entertain the dispute as it was covered by Section 68 of the Orissa Co-operative Societies Act, 1962, and the Court's jurisdiction is excluded under Section 121 of the Act; and

(iv) notice under Section 127 of the Cooperative Societies Act is a condition precedent to initiation of the action and the proceeding has to fail for want of notice. The learned subordinate Judge registered the application as a suit as provided by the rules of procedure, framed four issues and by the impugned decision directed the defendant to file the agreement.

3. Clause 41 of the agreement ran thus:--

'Any dispute arising in the matter of execution, implementation or interpretation of this agreement or any provisions thereof shall be referred to arbitration under the provisions of the Arbitration Act of 1940.'

The arbitration clause is in wide terms and but for the other aspects which arise, in terms of this clause a proceeding under the Arbitration Act would indisputably be entertainable.

4. Mr. Rath for the Federation in support of the appeal has pointedly raised five contentions, namely :--

(i) The respondent was an agent of the Federation. Therefore, Section 68(1)(a) of the Orissa Co-operative Societies Act, 1962, is directly attracted and the Civil Court has no jurisdiction.

(ii) It follows from the submission raised above that the Civil Court bas no jurisdiction to appoint an arbitrator and accordingly the application under Section 20 of the Arbitration Act was not maintainable.

(iii) In the agreement (Annexure 1), the Federation was to be represented by its Secretary as required by the Bye-laws. TheManaging Director having entered into the agreement on behalf of the Federation, the Federation is not bound by it;

(iv) Notice under Section 127 of the Orissa Co-operative Societies Act is a condition precedent to civil action and in the absence of such notice, the proceeding could not have been entertained by the learned subordinate Judge; and

(v) No dispute was in existence when the application under Section 20 of the Arbitration Act was made and, therefore, the Court had no jurisdiction to entertain the application.

5. The first two aspects which are connected raise the real point of dispute. I am inclined to think that the last three points may be dealt with first and the main question may be left for consideration at a later stage.

A copy of the Bye-laws of the Federation has been placed in course of argument. Clause 24 of the Bye-laws mokes provision for officers of the Federation. Sub-clause (c), deals with the powers of the Managing Director while Sub-clause (d) deals with powers of the Secretary. The general management of the Federation, subject to the control of the Managing Committee the Executive Committee and the Chairman, vests in the Managing Director. He is also to conduct, negotiate and make arrangements for the purchase and sale of goods. The Managing Director is also the officer to sue and be sued on behalf of the Federation.

Under Sub-clause (m) Secretary is to enter into agreement or contract for purchase or sale of goods, for lease of land or building subject to previous approval of the Managing Director.

The Managing Director is the controlling authority of the Secretary. Full powers seem to have been vested subject to the general control of the Managing Committee, the Executive Committee and the Chairman in the Managing Director and he is the named officer of the Federation to sue and be sued on its behalf. The agreement in question was ratified by the Federation and was operative for some time. With the clear provisions in the Bye-laws and the fact that the contract had been put to operation. I do not think, there is any force in the submission of the appellant-Federation that as its Secretary had not entered into the contract, the same was not binding on the Federation. The conduct of the Federation in not repudiating the contract on that ground bat in annulling it for alleged non-performance of the conditions thereof also clearly indicates that the contentionadvanced before me is without substance Mr. Rath's contention that the contract was not a binding one fails.

One of the contentions of Mr. Rath for the Federation is that no dispute existed at the time when application under Section 20 of the Arbitration Act was filed and, therefore, the proceeding was not maintainable Section 20 as far as relevant provides :--

'(1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court.'

Undoubtedly, differences must exist so as to give rise to an application under Section 20 of the Arbitration Act. The agreement was cancelled on 3rd of March, 1980. Thereafter, a notice purporting to be under Section 8 of the Act was given by the respondent and on 7th of April 1980, the petition under Section 20 of the Act was filed. In this setting, it is difficult to appreciate the submission of the Federation that by the time the subordinate Judge was moved, there were no differences in existence. It is the common case of parties that the contract was cancelled when, differences mounted up. There is, therefore, no force in the submission advanced on behalf of the Federation that differences were not in existence when the subordinate Judge was moved for a direction for filing of the arbitration agreement.

6. Want of notice as a condition precedent to the initiation of the proceeding was the next contention. Section 127(1) of the Co-operative Societies Act provides :--

'No suit shall be instituted against a society or any of its officers in respect of any act touching the constitution, management or the business of the society until the expiration of two months after notice in writing has been delivered to the Registrar, or left at his office, stating the cause of action, the name, description and place of residence of the plaintiff and the relief which he claims, and the plaint shall contain a statement that such notice has been so delivered or left.'

An application under Section 20 of the Arbitration Act is ready not a 'suit' though under the rules of procedure prescribed by this Court such applications are treated as suits. The word 'suit' has not been defined in the Code of Civil Procedure, but the word is a term of art and ordinarily means a proceeding instituted in a Civil Court by the presentation of a plaint. The observations of the Full Bench of the Bombay High Court in the case of Farkhundali Nannhay v. V.B. Potdar, AIR 1962 Bom 162 (FB), are instructive. The Supreme Court in the case of Bhagwat Singh Bahadur of Udaipur v. State of Rajasihan, AIR 1964 SC 444, also pointed out that the suit is a proceeding which commences with a petition in the nature of a plaint. In the light of what has been stated in these cases, an application under Section 20 of the Arbitration Act for a direction from the Court for filing of the agreement does not amount to a suit though required to be registered as such, and T am prepared to accept the respondent's stand that such an application is not a 'suit' within the meaning of the word in Section 127 of the Co-operative Societies Act. Therefore, the Federation is not entitled to contend that the proceeding before the subordinate Judge was not sustainable for want of notice under Section 127 of the Co-operative Societies Act.

7. I shall now proceed to examine the main contention, namely whether the jurisdiction of the Civil Court is ousted, as the matter in dispute is covered by Section 68 of the Co-operative Societies Act. Section 68(1) of that Act provides :--

'Notwithstanding anything contained in any law for the time being in force, any dispute touching the constitution, management or the business of a society, other than a dispute regarding disciplinary action taken by a society or its committee against a paid servant of the society, shall be referred to the Registrar if the parties thereto are among the following, namely :--

(a) the society, its committee, past committee, any past or present officer, any past or present agent, any past or present servant or the nominee, heir or legal representative of any deceased officer, deceased agent or deceased servant of the society or the liquidator of the society ... .. ...'

(Underlining is mine)

Section 121 of the Co-operative Societies Act provides :---

'(1) Save as provided in this Act no civil or Revenue Court shall have any jurisdiction in respect of-

(a) xx xx xx

(b) xx xx xx

(c) any dispute required under Section 68 to be referred to the Registrar; and

(d) xx xx xx.'

If, therefore, the Federation's stand that therespondent is an agent is prima facie accept-ed, then the matter would be really a dispute within the ambit of Section 68 of the Cooperative Societies Act and in view of the provisions therein, would be within the exclusive jurisdiction of the Registrar.

8. The terms of the agreement must first be looked into for finding out the nature of relationship established thereunder between the parties. In the preamble of the agreement it has been stated :--

'Whereas the first party (Federation) is at present the manufacturer of granulated mixed fertiliser 'Shyamala' at its Granular Fertiliser Plant at Bargarh in the district of Sambalpur and is the exclusive owner of the said fertiliser and is authorised to appoint a marketeer for the said fertiliser both inside and outside the State of Orissa and is desirous of appointing the said second party as its marketeer;'

Clause 32 of the agreement provides :--

'That the second party (respondent) shall in all his dealings and documents and on the name plate or letterhead describe himself as the marketeer of the first party for sale of the said granulated mixed fertiliser........'

Under the agreement, there is absolutely no provision for passing of the title from the Federation to the respondent.

Clause 6 of the agreement provides :--

'The first party agrees that after disposing of 2,000 tons as per separate agreement entered into, the subsequent production of the Said granular fertiliser to be manufactured by the first party, the second party agrees to arrange for sale of the following minimum quantities ... ... ...''

Under Clause 7. a. commission at a flat rate of Rs, 80/- per metric ton has been stipulated. That clause also refers to agency of sale. The Federation under Clause 8 undertook to deliver at its cost the stock of fertiliser F.O.R. destination nearest the rail head according to indent and despatch instructions issued from time to time by the respondent. In respect of sales to be effected outside the State, supplies were to be made on consignment basis to the marketeer and not to any other party under certain contingencies.

Clause 9 stipulated that in respect of all the sales effected, the respondent was to be allowed a period of 90 days credit facility against a letter of credit or irrevocable bank guarantee.

Under Clause 11, the Federation was to allow to the respondent a distribution margin at the rate of Rs. 100/- per metric ton. The respondent undertook to sell the fertiliser at a fixed price.

Clause 18 stipulated 'hat by the 10th day of every calendar month, each party was to furnish to the other a statement in writing showing despatch chalan numbers, bill numbers with dates and quantity of the fertiliser sold during the previous calendar months. This sale was not by the Federation to the respondent but sale made by the Federation at the instance of the respondent to others.

Under Clause 23, the respondent undertook promotional activities in, the modes indicated therein and Clause 24 entitled the Federation to supervise the activities of the respondent so as to ensure proper performance of the obligations of the respondent. Under Clause 25, the Federation undertook to replace by fresh supply of standard material at its cost when the supply made was not up to quality.

Clause 28 of the agreement made provision :--

'That the second party (respondent) shall not while selling the goods of the first party, make any representation or give any warranty other than those printed either on the packing of the said granulated mixed fertiliser or on the current price list of the first party.'

Under Clause 29, the respondent agreed to 'sell the said granulated mixed fertiliser in the same condition as they receive from the first party and shall not alter, remove, or in any way tamper with any trade mark or numbers of symbols marked on the packing containing the said fertiliser.'

9. Most of these terms indicate beyond dispute that the parties intended to establish the relationship of principal and agent and not seller and buyer. The terms of the agreement, unless there be any ambiguity, are the best material to be relied upon for ascertaining the intention of the parties, and if the terms are clear they must be accepted as offering the ultimate guideline for reaching the conclusion.

In the case of Gordon Woodroffe and Co. (Madras) Ltd. v. Shaik M.A. Majid and Co., AIR 1967 SC 181, the question that arose was whether the defendants were acting as del credere agent of the plaintiff or they were outright purchasers of the goods. The Court pointed out (at p. 182):--

'.. ... .. In the approach to this questionit is necessary to notice the distinction between a contract of sale and a contract of agency. The essence of sale is the transfer of the title to the goods for price paid or to be paid. The transferee in such case becomes liable to the transferor of the goods as a debtor for the price to be paid and not as agent for the proceeds of the sale. On theother hand, the essence of agency to self is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and who is therefore liable to account for the proceeds. The true legal relationship between the parties in the present case has, therefore, to be inferred from the nature of the contract, its terms and conditions and the nature of respective obligations undertaken by the parties.'

In paragraph 5 of the judgment the Court further pointed out: --

'In the first place, it is important to noticethat the contract in the opening portion specifically makes a mention of the fact that the defendants were buying the goods for resale,and in the paragraph containing the terms ofthe contract it is reiterated that the goodswere intended for resale in the United Kingdom. On the face of it, therefore, the contract is clearly not one of agency for sale butit reads as an agreement of sale. If the defendants were intended to be constituted asthe agents for sale, the terms of the contractwould have been entirely different. Anotherimportant feature in this case is that there isa definite price fixed in the contract for theplaintiff's goods. According to the plaintiff,the rates fixed in the contract were the onesat which the goods were sold to London purchaser and not different rate and the defendants were agents who were obtaining forhim only the price at which the goods weresold at London. xx xx xxIt was contended for the plaintiff that according to the contracts the prices fixed are e.i.f.less 21/2 per cent and discount of 24 per centwas the commission for the defendants asagents. There is no use of the word 'commission' in the contracts and we see no reason to hold that 21 per cent should be takenas commission and not as a margin of profit. The important point is that if the contract was one of agency there was no needto mention the price at all as between theplaintiff and the defendants.'

The guideline available from this decision ofthe Supreme Court when applied to the factsof the present case does indicate beyonddoubt that the terms of the agreement Mquestion which have been extracted aboveclearly point in favour of an agency beingcreated under it. I may now refer to aBench decision of the Bombay High Courtin the case of Lakhani Sahakuri ShetkiKharedi Vikri Sanstha Ltd. at Lakhani v.Moreshwar Bapu, AIR 1978 Bom 273. Thefacts of that case were almost similar tothose here. The Court was called upon to find out with reference to the agreement whether it created an agency or created the relationship of seller and buyer. Section 91 of the Maharashtra Co-operative Societies Act corresponds to Section 68 of the Orissa Act. The court look note of the fact thai the term 'agent' had not been defined. After referring to the dictum in the case of Shaikh Gulfan v. Sanat Kumar, AIR 1965 SC 1839, the learned Judges of the Bombay High Court pointed out (at p. 277 of AIR 1978 Bom) :--

'As already observed, the special provision incorporated in Section 91 of the Act is made by the Legislature to shorten litigation, lessening its cost and to provide a summary procedure for the determination of the dispute relating to the internal management of the society as well as 'the dispute touching its business. Any of the parties to the dispute can refer the dispute under this provision, if it is covered by Section 91(1) of the Act. The parties contemplated by Sub-section (a) of Section 91(1) of the Act include society, committee and past committee, past or present officer, past or present agent, past or present servant or nominee as well as their legal representatives. Practically, an effort is made by the Legislature to bring in the import of this section all the parties which stand in fiduciary relationship qua the Co-operative Society. An officer agent, servant or nominee of the society have obviously a fiduciary (relationship with the society. To cover all possible disputes between such parties, the Legislature has used different words to make it all comprehensive. These words are used in a generic sense and, therefore, the meaning of the word 'agent' will have to be understood in the context of the object of the provision as well as its scope. As observed by the Privy Council in Laurence Arthur Adamson v. Melbourne and Metropolitan Board of Works (AIR 1929 PC 181) it as always unsatisfactory and generally unsafe to seek the meaning of words used in an Act in the definition clauses of another statute dealing with matters more or less cognate even when enacted by the same legislature and much more so when resort is had to the enactments of other legislatures'. The word 'agent' is used in the present section 'in a comprehensive sense. Agency in itself is a comprehensive word which is used to describe the relationship that arises where one man is appointed to act as the representative of another. In our opinion, the word 'agent' is used in Section 91(1)(a) in this comprehensive sense.'

The ratio of the Bombay decision directly supports.

10. The fact that the respondent is not a dealer under the Sales Tax Act is a material feature for discovering the true intention of parties.

In the case of Tata Oil Mills Ltd., Hyderabad v. State of Andhra Pradesh, (1971) 28 STC 619, the Andhra Pradesh High Court had examined on the facts indicated there as to whether construing the terms of an agreement the assessee was a mere commission agent and the transactions did not constitute sale by the manufacturer. The terms of the agreement are available at page 626 of the report. The Court held that the sale in that case was effected in favour of the customers by the manufacturers themselves through the agency of the assessee and, therefore, it was not a case of the assessee becoming owner of the properly. The ratio of this decision supports the stand taken by the Federation.

In Satyanarayana v. State of Madras (now Andhra), AIR 1957 Andh Pra 474, the Court had to examine as to if the manufacturer of goods was selling the same through a commission agent or the manufacturer's goods had been purchased and were sold by the dealer in his turn. While analysing the facts available on record, the learned single judge pointed out (at p. 476):--

'It is difficult to construe the sale of goods by V.S. Narayana and Sons as that effected by the plaintiff, unless the handing over of the goods to the agents for sale constitutes a sale within the meaning of Section 2(h). It looks to me that such a transaction is not susceptible of the meaning of a sale. It is no doubt true that the commission agent makes the sale on behalf of the principal, but he is authorised to transfer the property in goods so as to vest title thereto in me purchaser. This does not create the relationship of a vendor and vendee between the principal and the agent. Up to the point of sale the commission agent acts as the agent of the principal and subsequently the relationship between them is one of debtor and creditor.'

In the instant case, the position also seems to be the same. When bills are raised by the Federation against the respondent, the relationship is of creditor and debtor and not a case where against the buyer the demand is for the safe price. 1 am inclined to agree that the stand taken by the federation that the respondent was only an agent and not a buyer is correct. Once this conclusion is reached and the respondent comes within the mischief of Section 68(1)(a) of the Cooperative Societies Act, the jurisdiction of the Civil Court is certainly ousted in view of the clear provision in Section 121 of that Act. It is unnecessary to refer to certain authorities cited at the bar on this aspect of the matter.

Once exclusive jurisdiction is created, it is not open to the parties by their consent to agree upon arbitration. The contract in question containing the arbitration clause is after all the outcome of an agreement between the parties. An agreement of this type cannot modify the statutory mandate, and parties could not, in derogation of the provision contained in Section 68, confer 'jurisdiction on the arbitrator.

The opening words of Section 68 of the Co-operative Societies Act run thus :--

'Notwithstanding anything contained in any law for the time being in force ... ... ...... ... ... ... ...

This non obstante clause makes it clear that the provision of Section 68 has overriding application. The Supreme Court in the case of Aswini Kumar Ghose v. Arabinda Base, AIR 1952. SC 369, said (at p. 376):

'It should first be ascertained what the enacting part of the section provides on a fair construction of the words used according to their natural and ordinary meaning, and the non obstante cliuse is to be understood as operating, to set aside as no longer valid anything contained in relevant existing laws which is inconsistent with the new enactment.'

The learned Chief Justice, speaking for a unanimous Court, further said (at p. 3771 :--

'The enacting part of a statute must, where it is clear, be taken to control the non obstante clause where both cannot be read harmoniously.'

The Orissa Co-operative Societies Act 2 of 1963, has received Presidential assent and, therefore, can supersede the Arbitration Act of 1940. That being the position, even if there could be provision, for arbitration under the Arbitration Act of 1940, if the dispute came within the ambit of Section 68 of the Co-operative Societies Act, the Arbitration Act had no application and Section 68 would peremptorily apply. The position, therefore, is, once it is held that the respondent was an agent, the Registrar and not the Arbitrator, or for the matter of that no other authority including the Civil Court, would have jurisdiction to deal with the dispute.

11. In the premises indicated, it is unnecessary to examine the submission' of counsel for the Federation that the teats indicated by Willes, J. in the case, of The Wolverhampton New Water Works Company v. Hawkesford, (18-59) 141 ER 486, applied to oust the jurisdiction of the Civil Court.

12. My conclusion, therefore,, is. that the respondent was an agent of the Federation under the agreement and Section 68 of the Co-operative Societies Act makes it- clear that such a dispute as raised here is covered by Section 68 and the application under Section 20 of the Arbitration Act was therefore, not maintainable.

13. The appeal is allowed, the impugned order of the subordinate Judge as also the arbitration proceeding are set aside, and the application under Section 20 of the Arbitration Act is dismissed.

Since the point raised was contentious, parties are directed to bear their own costs.


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