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Indian Dairy Corporation Vs. Lasco - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberSuit No. 67 of 1980
Judge
Reported inAIR1982Cal96
ActsArbitration Act, 1940 - Section 20
AppellantIndian Dairy Corporation
RespondentLasco
Appellant AdvocateSankar Ghosh, ;Tapas Banerjee and ;S.P. Majumder, Advs.
Respondent AdvocateS.B. Mukherjee and ;Shib Das Banerjee, Adv.
DispositionApplication dismissed
Cases ReferredGiridharilal v. Gobardhandas.
Excerpt:
- .....has already realised diverse sums of monies from the insurance co. directly which form part of the alleged claim against the defendant/respondent in this application and also took delivery of the goods alleged to be short landed at calcutta port which appears to have been landed at bombay and, therefore, the total claim made in the present application against the defendant/respondent by the plaintiff/petitioner has been reduced by about rs. 5,00,000/-. in that view of the matter i directed the parties to file supplementary affidavits on the 12th of june, 1981 and pursuant to that affidavits were filed from which it is admitted that the plaintiff/petitioner has collected diverse sums of money from the insurance company as the beneficiary under the insurance policy for which claim was.....
Judgment:
ORDER

Salil Kumar Roy Chowdhury, J.

1. This is an application under Section 20 of the Arbitration Act, 1940, for filing the arbitration agreement dated 18th/23rd of Oct., 1979 and for order of reference of the dispute to the Arbitrator in terms of the arbitration agreement and consequential reliefs.

2. By a letter dated 19th/23rd of Oct. 1979, the plaintiff/petitioner appointed the defendant/respondent purely on a temporary basis for a period of three months as the Clearing Agent at Calcutta for clearance of imported cargo improvement and local transportation jobs and other related items of works as set out in the said letter and also in paragraph 3 and sub-paragraphs thereof in the petition. Pursuant to the said agreement the defendant/respondent and the plaintiff/petitioner started acting as only Clearing Agent of the Calcutta Port on and from 1st of Nov. 1979, till 15th of Dec. 1980 as the terms were extended from time to time. During the period the defendant/respondent acted as the Clearing Agent of the plaintiff/petitioner and handled cargo, namely, skimmed milk powder and rubber oil consigned to the plaintiff/petitioner by different vessels as mentioned in paragraph 7. It is alleged that in course of clearing of the said consignment, the said cargo suffered and/or incurred demurrage and on that account the plaintiff/petitioner is alleged to have paid a sum of Rs. 1,87,000/-. Therefore, it is alleged that the plaintiff/petitioner has suffered the said loss and demurrage due to the lack of proper care and steps and proper clearance not being effected by the defendant/respondent. It is also alleged that the plaintiff/petitioner with the defendant/respondent did not submit quarterly statement of claims lodged, settled or pending and therefore, the plaintiff/petitioner is not in a position to know what steps the defendant/ respondent has taken in respect of claim, refund, compensation or the insurance value of the lost cargo with the Calcutta Port Trust, Steamer Agent and Under-Writers. The plaintiff/petitioner is claiming a sum of Rs. 5,46,520/- insured value of which is Rs. 8,46,520. The defendant/respondent is alleged to have not informed the plaintiff/petitioner what steps they have taken and whether any claim has been lodged with the Insurance Company. After various correspondence disputes and differences are alleged to have arisen between the parties and the same has been summarised in paragraph 22 and various sub-paragraphs thereof in the petition and having regard to the arbitration clause in the said agreement between the parties which is set out in paragraph 21 of the petition being the following terms :

'In the event of any question dispute or difference arising under these conditions or any special conditions of contract or in connection with this contract (except as to any matter the decision of which is especially provided for by these or the special conditions) the same shall be referred to sole arbitration of an officer to be appointed by the Managing Director of the Corporation.'

'There will be no objection to appointment of a person as arbitrator on the ground that he had to deal with the matter or had expressed views on all or any of the matters in dispute or difference, The award of the arbitrator shall be final and binding on the parties to this contract.'

3. The present application was filed on the 24th of July 1980, and in the application under Section 20, the plaintiff/petitioner also made an application under Section 41 of the Arbitration Act, 1940 in which an ad interim order was made appointing a Receiver to realise the amount sum or sums on account of refund from the Calcutta Port Authority or other Authorities as mentioned in prayer (a) of the said petition under Section 41.

4. In course of hearing it transpires that during the pendency of the present application the plaintiff/petitioner has already realised diverse sums of monies from the Insurance Co. directly which form part of the alleged claim against the defendant/respondent in this application and also took delivery of the goods alleged to be short landed at Calcutta Port which appears to have been landed at Bombay and, therefore, the total claim made in the present application against the defendant/respondent by the plaintiff/petitioner has been reduced by about Rs. 5,00,000/-. In that view of the matter I directed the parties to file supplementary affidavits on the 12th of June, 1981 and pursuant to that affidavits were filed from which it is admitted that the plaintiff/petitioner has collected diverse sums of money from the Insurance Company as the beneficiary under the insurance policy for which claim was lodged against the defendant/respondent in this application as one of the disputes to be referred to arbitration and also taken delivery of goods from Bombay Port which were alleged to be short landed at Calcutta Port and it was landed in Bombay which was taken delivery by the plaintiff/petitioner. It is admitted by the plaintiff/petitioner in the affidavit of one Mekhat Parameshwar Gopalkrishna Kurup affirmed on the 18th of June, 1981, and also further affidavit of the said deponent affirmed on the 19th of June, 1981, that the plaintiff/ petitioner admitted that various amounts has been received from the Under-Writers by cheques as set out in the said affidavit and also it is admitted that the major portion of the short landed goods which appear to have been landed by the Steamer Agent at Bombay has been received by the plaintiff/petitioner and taken delivery from the Steamer Agent at Bombay and in this process a major portion of the claim appears to have been realised during the pendency of the present application in spite of the fact that the Receiver has been appointed in the application under Section 41 of the Arbitration Act. 1940 pending the Section 20 application, to collect the said amount and it further appears that the plaintiff/ petitioner's attitude is such as they have that they are entitled to receive the said payments without informing the Court or the Receiver or the defendant/ respondent in any way whatsoever during the pendency of this application with a view to intimate this Court about the fact which the defendant/respondent alleged that the plaintiff/petitioner has realised the claims from the Insurance Company and also taken delivery of the goods which are alleged to have been short landed at Calcutta Port in respect of which alleged claims are raised against the plaintiff/petitioner.

5. Mr. Sankar Ghosh, appearing with Dr. Tapas Banerjee and Mr. S.P. Majumder, submitted that the amounts and the goods which has been realised and recovered by the plaintiff/petitioner during the pendency of this application would be given credit in respect of the claim of the plaintiff/petitioner against the defendant/respondent and as such, the claim will be reduced in the reference accordingly and for the balance the disputes should be referred to arbitration in terms of the arbitration agreement to the sole arbitration of Managing Director or any Officer to be appointed by him in terms of the arbitration clause in the agreement. Mr. Ghosh submitted that there cannot be any objection regarding the appointment of the Managing Director or any other Officer to be appointed by him as Arbitrator in terms of the arbitration agreement as the parties have agreed to it and, therefore, all the conditions under Section 20 of the Arbitration Act, 1940 being satisfied, that is, no suit is pending, no steps have been taken by the plaintiff/petitioner under Chapter II of the Arbitration Act, 1940, and the disputes are covered by the arbitration clause and no sufficient cause has been shown by the defendant/respondent and, therefore, the order should be made as prayed for. He further submitted that there is no allegation against the Managing Director but against some other Officers being the said Kurup the deponent, who has affirmed the petition and reply and also the supplementary affidavit. Mr. Ghosh cited a Division Bench decision of the Madras High Court in Ama Corporation, Madras v. Food Corporation of India, : AIR1981Mad121 where it was held that in an application under Section 20 the machinery prescribed in the arbitration agrement for appointment of an Arbitrator must be adhered to and appointment of an Arbitrator by Court otherwise than what is prescribed in the arbitration agreement is not according to the terms of the arbitration agreement and, therefore, such an order is not sustainable. The said decision is a well-settled principle. Nobody can dispute the same. But here the question is not appointment of some other Arbitrators than the Arbitrator appointed under the arbitration agreement. The question is whether sufficient cause has been shown by the defendant/ respondent in the facts and circumstances of this case having regard to the conduct of the plaintiff/petitioner earlier and also during the pendency of this application in this Court by realising insurance due and receiving goods from the Shipping Agent in respect of the alleged claim against the plaintiff/petitioner in spite of the fact that they got a Receiver appointed for that purpose in the application under Section 41 pending the Section 20 application. Further, there is a question whether having regard to the strained relationship between the parties, it is proper to force the defendant/respondent to arbitration in terms of the arbitration agreement who will be no one else than the Managing Director or an Officer to be appointed by him under the employment of the plaintiff/petitioner who has acted in most high-handed manner in this proceeding by realising the amounts directly from the Insurance Company and taking delivery of the goods alleged to be short landed during the pendency of this application in spite of the appointment of a Receiver obtained by them for the same purpose without intimating the Receiver or the Court at all at any time. It is only when the defendant/respondent brought to the notice of the Court and the supplementary affidavits were directed to be filed, those facts came to light and were admitted by the plaintiff-petitioner that they have collected nearly Rs. 5,00,000/- which form very substantial portion of the alleged claim against the plaintiff/petitioner which are the disputes to be referred to arbitration. It is true that an arbitration agreement which is admitted by the parties set out before ordinarily should be held to be binding between the parties and the court also at the first instance would be inclined to give effect to the said arbitration agreement provided there is a congenial atmosphere prevailing evidencing good relation between the parties. As a whole the idea of arbitration is cheapness, speed and to maintain the cordial relation between the two parties on the transaction, but if the Court finds from the facts of a particular case as, in my view, which is apparent from the conduct of the plaintiff/petitioner that enforcement of arbitration clause will lead to injustice and the arbitrator cannot be impartial and expected to exercise the fundamental principles of justice, fairplay and good-conscience, the Court will hesitate to give effect to the said arbitration, clause.

6. In this case Mr. S.B. Mukharjee, appearing with Mr. Shibdas Banerjee, for the defendant/respondent, has rightly submitted that the defendant/ respondent in violation of the Court's order made in the application of the plaintiff-petitioner under Section 41 of the Arbitration Act 1940 appointed a Receiver to collect all the amounts from the Insurance Company, Shipping Agent and the Customs Authority as the case may he. But now admittedly the plaintiff/ petitioner has collected nearly Rs. 5,00,000/- without the leave of the Court or intimating the Receiver in anyway whatsoever, in these circumstances, the conduct and attitude of the defendant/respondent is such that having regard to the relationship as evidenced from the correspondence placed before me and annexed to the pleadings it is quite apparent that apprehension of bias of the Arbitrator who is no one else than the Managing Director of the plaintiff-petitioner or any Officer to be appointed by him under the Arbitration Clause. Those are sufficient causes as Mr. Mukherjee rightly submitted shown by the defendant/respondent why the matter should not be referred to the Arbitrator under the arbitration clause.

7. In reply, Dr. Tapas Banerjee submitted that all the conditions under Section 20 are fulfilled and an order should be made. He also submitted that all the conducts of the plaintiff/ petitioner are justified as they are to collect the amount as beneficiary under the Insurance Policy and they have done so and the claim against the defendant/ respondent will be reduced to that extent. So, also the explanation about the collection of short landed materials from the Bombay Port about which a claim was raised as a dispute in the said Section 20 application, The value of the said goods would be deducted from the claim in the reference against the defendant/ respondent, and as such, there is no difficulty in continuing the balance claim of the plaintiff-petitioner against the defendant/respondent in the reference. Whatever the Receiver appointed under Section 41 has already collected Rs. 44,000/-from the Shipping Company as a claim should be refunded to the Insurance Company who has been substituted in place of the plaintiff/petitioner for whom defendants/respondents were acting as Clearing Agents to raise a claim has already received from the Insurance Company in respect of the, said claim. In these circumstances, the plaintiff/petitioner submitted that an order should be made as prayed for in this application and the claim of the plaintiff/petitioner would be reduced by the amount already received which is admitted to be about Rs. 4,82,980/-. Therefore, it is admitted that a substantial portion of the claim has already been realised during the pendency of the present application by the plaintiff/petitioner without any notice to the Court or with its leave or informing the Receiver about the same. It is only at the instance of the defendant/respondent the facts were disclosed to this Court and thereafter, direction for filing supplementary affidavits were given and after taking several adjournments the plaintiff/petitioner admitted realisation of the amount by themselves directly and they justified the same as their right to do so under the Insurance Policy and under the Contract of Shipment. But that does not relieve the defendant/respondent from their liability to the plaintiff/petitioner as claimed in the petition under Section 20 save and except the claim would be reduced by the amount collected by the plaintiff/petitioner during the pendency of the application or earlier.

8. Considering the matter very carefully and also the correspondence between the parties it is quite apparent that the plaintiff/petitioners' conduct is most high-handed and not conducive to a reference to arbitration as in the prevailing circumstances and strained relationship where mutual faith and confidence has been lost and acrimonious allegations against each other are hurled in the correspondence between the parties and particularly against Mr. Kurup. It will not be just and proper to refer the disputes between the parties to arbitration as prayed for by the plaintiff/petitioner in the Section 20 application. As I am satisfied that in the peculiar and particular facts of this case there is sufficient cause shown by the defendant/respondent as to why relief should not be granted under Section 20 and the matter should not be referred to arbitration.

9. In this case the Arbitrator also, in my view, cannot be expected to be a impartial one and there is reasonable apprehension in the mind of the plaintiff/ petitioner in the facts and circumstances of this case after acrimonious correspondence between the parties and after proceedings are started in this Court and the utter callousness on the part of the plaintiff/petitioner to appraise the realisations made by them directly over-reaching the Court's order and superseding the Receiver's function whose appointment was obtained by the plaintiff/ petitioner themselves in the Section 41 application and in fact, the Receiver has already collected a sum of Rs. 44,000/-from the Shipping Agent as damages in respect of a particular shipment, whereas in respect of that claim the plaintiff/ petitioner has collected the amount from the Insurance Company. In these circumstances, I hold that there are sufficient causes why the matter should not be referred to arbitration.

10. Now, as to what is sufficient cause under Section 20(4) a guideline has been laid down by the Supreme Court in the decision of Abdul Kadir Samsuddin Bubera v. Madhav Prabhakar Oak, : [1962]3SCR702 where Wanchoo, J. observed at page 410, paragraph 12, as follows ;

'Sub-section (4) of Section 20 lays down that where no sufficient cause is shown, the Court shall order the agreement to be filed and make an order of reference to the Arbitrator, It is therefore open to a Court under this sub-section, where sufficient cause is shown not to order the agreement to be filed and not to make a reference to the Arbitrator. The words of this sub-section leave a wide discretion in the Court to consider whether an order for filing the agreement should be made and a reference made accordingly. It is neither necessary nor desirable to lay down general terms what would be sufficient cause which would entitle a Court to refuse to order the agreement to be filed and thus refuse to make an order of reference. The Court will have to decide on the facts of each case where sufficient cause has been made out for not ordering the agreement to be filed and not making the order of reference.'

11. Therefore, if is for the Court to decide in the peculiar facts of a particular case whether it should exercise its discretion in favour of making an order of reference or not as I have already indicated that this is not a matter which should be referred to arbitration and there is sufficient cause which appears to the Court as pointed out by the defendant/respondent. Firstly, the conduct of the plaintiff/petitioner is such which is not conducive to a fair and impartial arbitration by one of its Officers and secondly, the Arbitrator appointed or to be appointed under the arbitration clause is an employee of the plaintiff/petitioner who in the facts and circumstances of this case cannot be expected to be fair and impartial although the plaintiff/petitioner has framed the arbitration clause in the agreement in such a manner to which the defendant/respondent had to agree that no objection on the ground that the Arbitrator is an employee of the plaintiff/petitioner can be raised because, in my view, in the facts and circumstances of this case taking present day attitude of ordinary persons and human conduct it cannot be expected that an employee of the plaintiff/petitioner, if he acts as an Arbitrator, can have an impartial mind and exercise fundamental principles of justice and equity so far as the defendants/respondents are concerned. The words 'sufficient cause' under Section 20(4) of the Arbitration Act, 1940, also occurred in paragraph 17 (4) of the Second Schedule of the Code of Civil Procedure, 1908, which has been repealed by the Arbitration Act, 1940, and is pari materia came up for consideration before a Division Bench of the Oudh High Court in the case of Giridharilal v. Gobardhandas. AIR 1937 Oudh 436 at p. 437 which is an observation as follows:--

'Sub-paragraphs 3 and 4 clearly show that the Court had discretion to order the agreement to be filed or not as the circumstances may require. The learned Counsel for the appellant contended that 'sufficient cause' within the meaning of sub-paragraph 4 means grounds such as are mentioned in paragraph 14, namely the award having left undermined any of the matters referred to arbitration, or determining any matter not so referred, the award being indefinite and incapable of execution, and there being an objection to the legality of the award apparent on the face of it. We see no reason whatever to put such a restricted meaning on the words 'sufficient cause' occurring in sub-para, 4 and we are of opinion that these words cover all the grounds of justice, enquity and good conscience on which a Court thinks an agreement should not be ordered to be filed. In 1935 All LJ 998 : (AIR 1935 All 886) it was held that the Court can order an agreement to refer to arbitration to be filed under Para 17 (4), Schedule 2 Civil P. C., only where no sufficient cause is shown to the contrary, and in 143 I. C. 635, the Court of the Judicial Commissioner of Sind held that the words 'sufficient cause' are not to be confined within the narrow compass of fraud, coercion and undue influence, and that there are other causes besides these which may be sufficient for the reversal of an order under Schedule 2, Para 17. Civil P. C. .....'

12. In my view, the Supreme Court decision and the Oudh decision make it quite clear that the Court has wide discretion which should be exercised judicially in the facts and circumstances of a particular case and not capriciously or arbitrarily and the facts may vary from case to case and it is for the Court to decide whether it should be just and proper or according to the principles of equity and good conscience to order reference to arbitration or not under Section 20(4) of the Arbitration Act, 1940.

13. Under the English Arbitration Act, 1950, the revocation of authority of an Arbitrator in a case similar to the present one it is provided in Section 24(1) as follows:--

'Power of Court to give relief where arbitrator is not impartial or the dispute involves question of fraud:

24. (1) Where an agreement between any parties provides that disputes which may arise in the future between them shall be referred to an arbitrator named or designated in the agreement, and after a dispute has arisen any party applies, on the ground that the Arbitrator so named or designated is not or may not be impartial, for leave to revoke the authority of the Arbitrator or for an injunction to restrain any other party or the Arbitrator from proceeding with the arbitration, it shall not be a ground for refusing the application that the said party at the time when he made the agreement knew, or ought to have known, that the arbitrator, by reason of his relation towards any other party to the agreement or of his connection with the subject referred, might not be capable of impartiality

(2)-(3).............'

14. Although there is no analogous provision in our Arbitration Act, but, in my view, the principles can be applied if there is an apprehension of bias having regard to the strained relationship between the parties, the Arbitrator will be no one else than an employee of the plaintiff/petitioner, It will not be just, proper or fair to appoint such an Arbitrator and that constitutes a sufficient cause under Section 20(4) of the Arbitration Act, 1940, for exercise of the Court's discretion in dismissing the application and the parties to be relegated to a suit and not to arbitration.

15. In the result, I dismiss the application under Section 20 of the Arbitration Act, 1940.


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