1
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
AP No. 672 of 2009
PREMIUM AGRO EXPORTS LIMITED
-Versus-
THE JUTE CORPORATION OF INDIA LIMITED & ANOTHER
AP No. 673 of 2009
AGARPARA JUTE MILLS LIMITED
-Versus-
THE JUTE CORPORATION OF INDIA LIMITED & ANOTHER
AP No. 674 of 2009
EMPIRE JUTE COMPANY LIMITED
-Versus-
JUTE CORPORATION OF INDIA LIMITED & ANOTHER
AP No. 687 of 2009
SHRI GOURI SHANKAR JUTE MILLS LIMITED & ANOTHER
-Versus-
THE JUTE CORPORATION OF INDIA LIMITED
AP No. 688 of 2009
NELLIMARLA JUTE MILLS LIMITED
-Versus-
THE JUTE CORPORATION OF INDIA LIMITED & ANOTHER
AP No. 689 of 2009
SANATAN COMMERCIAL PRIVATE LIMITED & ANOTHER
-Versus-
2
THE JUTE CORPORATION OF INDIA LIMITED
AP No. 690 of 2009
MEGHNA JUTE MILL
-Versus-
THE JUTE CORPORATION OF INDIA LIMITED & ANOTHER
AP No. 691 of 2009
SUNBIO TECHNOLOGY LIMITED
-Versus-
THE JUTE CORPORATION OF INDIA LIMITED & ANOTHER
For the Petitioner: Mr Debasish Kundu, Adv., Mr R.N. Ghosh, Adv.,
Mr S. Chowdhury, Adv.
For Jute Corporation of India: Mr B.R. Bhattacharya, Sr. Adv., Ms Nandini Mitra, Adv.,
Mr Subimal Mukherjee, Adv.,
Mr P.K. Das, Adv.
Heard on: February 18, 2010.
BEFORE
The Hon'ble Justice
SANJIB BANERJEE
Date: February 19, 2010.
SANJIB BANERJEE, J. : -
The parties agree that an order on the principal matter, AP No. 674 of 2009, will govern all the other matters. Indeed, the reasons given by the common 3
arbitrator is recorded in the award which is the subject matter of AP No. 674 of 2009. The awards made in the seven other references rely on the reasoning given in the principal matter.
The award in the principal matter is challenged on the ground that the arbitrator acted de hors the agreement between the parties. The specific ground that has been urged in these proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 is that the arbitrator did not decide the reference in accordance with the terms of the contract. Section 28(3) of the Act has been cited in the context.
The petitioner in each case is the owner of a jute mill. The petitioners say that in exercise of the powers under Section 3 of the Essential Commodities Act, 1958 and the Jute and Jute Textile Control Order, 2000 the Jute Commissioner was conferred authority to fix the price, control production of jute textile and regulate stocks of raw jute. The Commissioner issued production control orders to various jute mills for supply of B Twill gunny bags and the mill owners were compulsorily required to purchase raw jute from the Jute Corporation of India in the ratio as prescribed by the Commissioner.
The standard contract gave seven working days' time to the mill owners to open letters of credit or make arrangements for payment of the purchase price calculated on the basis of the rate and quantity prescribed by the respondent Corporation. Three of the clauses of the contract are relevant for the present purpose:
"2.1 In the event of buyer's failure to take godown delivery, within the delivery period indicated above, an amount of Rs.25/- per quintal per month shall be levied over and above the price indicated at Annexure-II. The Corporation shall have the option to cancel the contract for the failure of the buyer to lift the goods by _________ and to exercise any and/or all the options as stipulated at (i), (ii), (iii) & (iv) of clause No. 16.0 of the contract."
"5.0 Payment terms : Through confirmed and irrevocable Letter of Credit and/or Bank Draft/Pay Order preferably through a nationalized 4
bank at Kolkata covering the full value of the entire quantity of jute covered by this contract and other incidental costs to be opened by the buyers and furnished to us by .......... at the latest. In case the Letter of Credit furnished by the buyer within the stipulated date as indicated above, was found to be not acceptable to JCI, the same would be returned to the buyer for amendment and for the period taken by the buyer for resubmission of the Letter of Credit after necessary amendment, the buyer shall be liable to pay carrying cost at the rate of Rs.25/- per quintal per month or part thereof."
"16.0 In the event of any delay or failure on the part of the buyer in making payment arrangement acceptable to JCI within the stipulated period under the contract and/or his/their failure/ refusal to take delivery of the contracted quantity as per Clause 4.1 of the contract as also to perform any of the terms of the contract, the Corporation shall have the right to exercise any and/or all of the following options:-
i) Cancelling the contract;
ii) Cancelling the contract and charging the buyers for difference, if any, between the contract prices and the market price on the date of cancelling the contract;
iii) Cancelling the contract and selling the goods in any manner deemed fit by the Corporation and charging the buyer for the difference between the contract price and the net value realised from such sale after adjustment of all expenses incurred by the Corporation in this regard;
iv) To realise any other amount which the Corporation might have to pay for retaining the goods inclusive of carrying charges wherever applicable;"
The petitioners instituted proceedings under Article 226 of the Constitution of India in this Court complaining that the quality of raw jute supplied by the respondent Corporation was of inferior grade. The principal reliefs claimed were for a declaration that the Jute Commissioner did not have any authority to direct the petitioners to compulsorily purchase raw jute from the Corporation for supplying B Twill gunny bags; and, for orders restraining the Commissioner and the Corporation from forcing the petitioners to purchase raw jute from the Corporation for manufacturing such gunny bags. In course of the proceedings under Article 226 of the Constitution an offer was made before the writ court that 5
the backlog would be cleared within six months in six equal instalments after opening a letter of credit.
By similarly worded letters (issued in or about July, 2004) the marketing manager of the respondent Corporation called upon the petitioner jute mill owners to make payment of a part of the amount relating to the pending contracts along with carrying costs. The letters referred to clause 5.0 of the sale contracts and claimed that several notices had been issued in such regard from November, 2003.
The writ petitions were allowed by holding that the respondent Corporation was not entitled to demand any carrying costs from the petitioners either on the basis of clause 2.1 or on the basis of clause 5.0 of the sales contract. The order was set aside in appeal on February 15, 2006. The Division Bench held, inter alia, as follows:
"... It is preposterous to suggest that the purchasers who are under obligation in terms of agreement to lift the goods within a specified period and for not taking delivery they are required to pay carrying cost and delayed surcharges, will not be required to pay such penalty unless defect is found in the Letters of Credit even though they lifted the goods beyond the stipulated time. If we accept the aforesaid proposition, the purchasers can avoid that clause by not taking delivery of goods or without opening any Letters of Credit in favour of the appellant by contending that there was no defect in the Letters of Credit."
The Division Bench, however, directed the parties to arrive at the amount required to be paid by the petitioners to the Corporation in arbitration in view of the arbitration clause contained in the sales contracts.
Such order was challenged by way of a petition for special leave to appeal before the Supreme Court. The Supreme Court granted leave and allowed the resultant appeal by observing that the vexed question as to entitlement was also covered by the arbitration agreement. In exercise of powers under Article 142 of the Constitution, the Supreme Court directed all disputes and differences 6
between the parties to be referred to arbitration. The reference in each case was to be deemed to be one under the 1996 Act. It is in such circumstances that the matters came before the arbitrator.
The petitioners say that the claim on account of carrying costs was made only on the strength of clause 5.0 of the contract. They urge that the respondent Corporation did not invoke either clause 2.1 or clause 16 of the sales contracts for such purpose. It is submitted that since the claim was made only under clause 5.0, the arbitrator misdirected himself in alluding to clauses 2.1 and 16.0.
The substance of the challenge is that the award is in derogation of Section 28(3) of the 1996 Act and, consequently, assailable under Section 34 thereof. The petitioners claim that clause 2.1 is specific to a particular situation: that such clause only covers cases of godown delivery. The petitioners explain that the Corporation's practice was to supply to the factory steps of certain mills which is described in the sales contracts as mill delivery; and, that the Corporation would otherwise give delivery from its warehouses which is described in the contracts as godown delivery. According to the petitioners, clause 2.1 was restricted to cases of godown deliveries only and could not be applied uniformly to all cases, even if it is ignored for the moment that the Corporation had only claimed under clause 5.0 of the contracts.
In similar vein, the petitioners argue that clause 5.0 envisages a situation where a letter of credit is opened but there is some defect therein. According to the petitioners, the time taken by a jute mill owner to rectify the defect would entail carrying costs to be levied for such duration on the rationale that the mill owner was at fault for the letter of credit being such that would not entitle the Corporation to immediate payment thereunder.
The petitioners refer to clause 16.0 to suggest that such clause could have been pressed into service for the alleged failure/refusal on the petitioners' part to take delivery or for the alleged delay/failure on the petitioners' part to make payment arrangements acceptable to the Corporation. However, the petitioners 7
contend that if clause 16 had been invoked the Corporation would have been required to cancel the contracts under the first three limbs of that clause or claim other amounts on account of carrying charges, wherever such charges were applicable. The petitioners submit that clause 16(iv) would bring the dispute back to clause 2.1 and clause 5.0 and if the respondent Corporation was not otherwise entitled to claim under either clause, no independent claim under clause 16(iv) could be made or maintained.
It is of significance that the petitioners question the Corporation's entitlement to carrying costs; they do not so much question the quantum awarded. The other limb of the petitioners' argument is that both clause 2.1 and clause 5.0 specify the rates at which damages by way of carrying costs could be levied. The petitioners assert that the rates would be in the nature of liquidated damages which may not be required to be proved if the precondition for levying the same was met. On the contrary, the petitioners suggest, that if a claim were to be made under Section 16 and if sub-clause (iv) thereof were to be kept apart from the moment, the extent of the loss and damage suffered would be required to be proved since neither any amount nor any rate is specified in clause 16.
There is considerable merit in the challenge, if considered in isolation. The arbitrator has relied on all the three clauses and has come to the conclusion (at paragraph 10 of the award) that if such clauses were read together it would appear that "in the event of failure of the respondents (the petitioners herein) to furnish letter of credit by way of payment or eventually failure to lift the goods in time, the claimant JCI is entitled to charge carrying costs and the respondents are liable to pay such carrying cost ..."
What is of importance is that an arbitral tribunal should decide in accordance with the terms of the contract. If there is a bar in respect of any head of claim indicated in a contract, the arbitral tribunal would not have the jurisdiction to bypass the prohibition and award the claim nonetheless. The principle is rooted to the proposition that an arbitrator being a creature of an 8
agreement, he cannot act in derogation of the agreement under which he derives his authority. The challenge that the petitioners have launched has to be assessed not on the basis of how the Court would have adjudicated upon the matter but on a reading of the award and ascertaining whether the arbitrator transgressed his jurisdiction or acted de hors the specific terms of the contract. In proceedings under Section 34 of the 1996 Act the Court cannot substitute its view for the arbitrator's unless the view is so implausible that it is deemed to be legal misconduct.
An arbitrator who acts in manifest disregard of the contract acts without jurisdiction. His authority is obtained from the contract and is governed by the statute which embodies principles derived from a specialised branch of the law of agency. He commits misconduct if by his award he decides matters excluded by the agreement. A deliberate departure from the contract amounts to not only manifest disregard of his authority or misconduct on his part, but it may tantamount to a mala fide act. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award. However, if the arbitrator commits an error in the construction of the contract that is an error within his jurisdiction. If he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it.
While it is true that clauses 2.1 and 5.0 are restricted to specific matters and the Corporation's claim against the petitioners do not relate thereto, the appropriate question in these proceedings is as to whether the view taken by the arbitrator was so outlandish that no reasonable person could have come to such conclusion. A mere error in interpretation or the choice of one of the probable outcomes that the Court may not readily agree with will not make the arbitral award susceptible in proceedings of the present nature. It is also settled law that if the arbitrator commits a mere error either on fact or in law in reaching his conclusion on the disputed question submitted before him, the court would have 9
no jurisdiction to interfere with the award on a petition to set aside the same. (See, for instance, Oil & Natural Gas Corpn Ltd v Saw Pipes Ltd, [2003] 5 SCC 705 at paragraph 54.)
The arbitrator here has interpreted the contract. As he read it, the arbitrator deemed it appropriate that if a delay on account of a mistake or the like in the letter of credit could visit a mill owner with a claim for damages under clause 5.0, the failure on the part of the mill owner to arrange for payment or take delivery of the goods could not be said to be outside the purview of clause 5.0. It is not an interpretation that is the most appealing in the context. Yet it is a plausible view on a totality of the contract. Indeed, it is a view that was taken by a Division Bench of this Court in the appeal from the orders made in the petitions under Article 226 of the Constitutions that had been brought by these petitioners. That is not to suggest that the Division Bench order survived the Supreme Court verdict. What is of importance is that the view taken by the arbitrator on a construction of clause 5.0 in the context of clauses 2.1 and 16 mirrors the interpretation put to clause 5.0 by the Division Bench. That would imply, at the very least, that it was possible to read clause 5.0 or the contract in the manner that the arbitrator has read it. As a consequence, it cannot be said that the arbitrator did not take into account the terms of the agreement within the meaning of Section 28(3) of the 1996 Act.
The awards are sustained and the challenges fail. AP No. 672 of 2009, AP No. 673 of 2009, AP No. 674 of 2009, AP No. 687 of 2009, AP No. 688 of 2009, AP No. 689 of 2009, AP No. 690 of 2009 and AP No. 691 of 2009 are dismissed. There will, however, be no order as to costs.
Urgent certified photocopies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities. 10
(Sanjib Banerjee, J.)