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Supreme Court of India
Balasore Alloys Limited vs Medima Llc on 16 September, 2020Author: Hon’Ble The Justice
Bench: Hon’Ble The Justice, A.S. Bopanna, V. Ramasubramanian
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL/APPELLATE JURISDICTION
ARBITRATION PETITION (CIVIL) NO. 15/2020
Balasore Alloys Limited .… Petitioner(s)
Versus
Medima LLC …. Respondent(s)
WITH
SPECIAL LEAVE PETITION (CIVIL) NO. 10264 OF 2020
JUDGMENT
1. The Applicant Balasore Alloys Limited is before this
Court in this petition filed under Section 11(6) read with
Seciton 11(12)(a) of the Arbitration and Conciliation Act,
1996 (‘Act, 1996’ for short) praying that a sole arbitrator be
appointed to adjudicate upon all disputes that have arisen
between the parties in connection with the 37 purchase
orders referred to in the application. Alternatively, it is
Signature Not Verified
prayed that the second arbitrator be appointed on account
Digitally signed by
Sanjay Kumar
Date: 2020.09.16
15:00:47 IST
Reason:
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of the failure of the respondent – Medima LLC to nominate
an arbitrator in terms of the contracts.
2. The applicant is a manufacturer of High Carbon Ferro
Chrome. The applicant and the respondent accordingly,
entered into transactions whereby the applicant agreed to
supply the High Carbon Ferro Chrome manufactured by
them to the respondent for sale of the same in the territory
of USA and Canada. Initially an Agreement dated
19.06.2017 limited to the sale of 2000 MT was entered into.
Pursuant to such transaction 37 purchase orders were
placed by the respondent in favour of the applicant
specifying details of the supply to be made under each of the
purchase orders. The parties had also entered into an
Agreement dated 31.03.2018 relating to the same
transaction whereunder certain terms as enumerated
therein were agreed upon. In respect of the said
transactions certain disputes have arisen between the
parties which is required to be resolved through arbitration.
3. The applicant, therefore, while seeking for appointment
of an arbitrator to resolve such disputes has sought to rely
on Clause7 in the said 37 purchase orders providing for
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resolution of disputes through arbitration by the Arbitral
Tribunal to be constituted as provided therein. Since
according to the applicant, the respondent had failed to
appoint their arbitrator, despite the petitioner having
nominated Mr. Justice Amitava Lala, Retired High Court
Judge, the applicant is before this Court seeking the
appointment of an arbitrator.
4. The respondent, on being notified in this petition has
entered appearance and filed its detailed counter affidavit.
The nature of transaction entered into between the parties
is not disputed. The fact that certain arbitrable disputes
have arisen between the parties is also not controverted.
However, it is the case of the respondent that the entire
transaction is governed under the Agreement dated
31.03.2018 which is referred to by the respondent as an
“Umbrella Agreement”. It is their further case that the said
agreement dated 31.03.2018 vide Clause23 thereof
provides for resolution of disputes through arbitration in the
manner as indicated therein and as such the respondent
had already invoked the same by issue of notice. Further,
as per the procedure contemplated in Clause23 the
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respondent had filed a petition before the International
Chamber of Commerce (‘ICC’ for short) and the Arbitral
Tribunal has been duly constituted. The respondent,
therefore, contends that the instant application filed by the
applicant seeking appointment of the Arbitral Tribunal in
terms of Clause7 of the purchase order is not bonafide; the
application is liable to be dismissed. The applicant has filed
the rejoinder to the counter affidavit filed on behalf of the
respondent whereby the contentions put forth by the
respondent is sought to be disputed and the averments in
the application are reiterated.
5. In the above background, we have heard Shri
Maninder Singh, learned senior counsel for the applicant,
Shri S.N. Mookherjee and Shri Ritin Rai, learned senior
counsel for the respondent and perused the application
papers.
6. Having taken note of the averments contained in the
pleading and the contentions urged by the learned senior
counsel for the respective parties, it is evident that the
parties having entered into a business transaction; certain
disputes have arisen between them which is to be resolved
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through arbitration. To that extent the parties are also in
agreement. The issue for consideration however, is with
regard to the appropriate clause that will operate providing
for arbitration and will be applicable in the factual matrix
herein. Since the applicant is before this Court invoking the
arbitration clause in the purchase order (37 separate
purchase orders), it is necessary to take note of the
arbitration clause relied upon, which reads as hereunder:
“7. ARBITRATION: Disputes and differences
arising out of or in connection with or relating to
the interpretation or implementation of this
contract/order shall be referred to the Arbitral
Tribunal consisting of 3 Arbitrators of which
each party shall appoint one Arbitrator, and the
two appointed Arbitrators shall appoint the third
Arbitrator who shall act as the Presiding
Arbitrator as per the provisions of the
Arbitration and Conciliation Act, 1996 and any
modification or reenactment thereto. The venue
of the arbitration proceedings shall be at Kolkata
and language of the arbitration shall be English.
The arbitration award shall be final and binding
upon the parties and the parties agree to be
bound thereby and to act accordingly. When
any dispute has been referred to arbitration,
except for the matters in dispute, the parties
shall continue to exercise their remaining
respective rights and fulfil their remaining
respective obligations.”
7. Since the transaction entered into between the parties
and the dispute having arisen not being in dispute; further
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the above extracted arbitration clause being explicit; in a
normal circumstance no other consideration would have
been necessary in the limited scope for consideration in an
application under Section 11 of the Act, 1996. However, in
the case on hand the fact remains that undisputedly an
Agreement dated 31.03.2018 is also entered into between
the parties relating to the very same transaction which is
referred to as the “Umbrella Agreement” by the respondent
and as “Pricing Agreement” by the applicant. The said
agreement also makes provision for resolution of disputes
through arbitration in the manner as indicated therein. It
would be appropriate to take note of the arbitration clause
which reads as hereunder:
“23. GOVERNING LAW; DISPUTES
This Agreement shall be governed by and
construed in accordance with the laws of the
United Kingdom. Any claim, controversy or
dispute arising out of or in connection with this
Agreement or the performance hereof, after a
thirty calendar day period to enable the parties
to resolve such dispute in good faith, shall be
submitted to arbitration conducted in the
English language in the United Kingdom in
accordance with the Rules of Arbitration of the
International Chamber of Commerce by 3 (Three)
arbitrators appointed in accordance with the
said Rules, to be conducted in the English
language in London in accordance with British
Law. Judgment on the award may be entered
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and enforced in any court having jurisdiction
over the party against whom enforcement is
sought.”
8. At this stage, it is necessary for us to refer to the
decision rendered in the case of Olympus Superstructures
Pvt. Ltd. vs. Meena Vijay Khetan & Ors. (1999) 5 SCC
651 wherein this Court was confronted with the issue of
there being two different arbitration clauses in two related
agreements between the same parties. This Court while
dealing with the same had harmonised both the clauses and
had on reconciliation held that the parties should get the
disputes resolved under the main agreement. In that context
it was held as hereunder:
“30. If there is a situation where there are
disputes and differences in connection with the
main agreement and also disputes in regard to
“other matters” “connected” with the subject
matter of the main agreement then in such a
situation, in our view, we are governed by the
general arbitration clause 39 of the main
agreement under which disputes under the main
agreement and disputes connected therewith can
be referred to the same arbitral tribunal. This
clause 39 no doubt does not refer to any named
arbitrators. So far as clause 5 of the Interior
Design Agreement is concerned, it refers to
disputes and differences arising from that
agreement which can be referred to named
arbitrators and the said clause 5, in our opinion,
comes into play only in a situation where there
are no disputes and differences in relation to the
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main agreement and the disputes and differences
are solely confined to the Interior Design
Agreement. That, in our view, is the true
intention of the parties and that is the only way
by which the general arbitration provision in
clause 39 of the main agreement and the
arbitration provision for a named arbitrator
contained in clause 5 of the Interior Design
Agreement can be harmonised or reconciled.
Therefore, in a case like the present where the
disputes and differences cover the main
agreement as well as the Interior Design
Agreement, (that there are disputes arising
under the main agreement and the Interior
Design Agreement is not in dispute) – it is the
general arbitration clause 39 in the main
agreement that governs because the questions
arise also in regard to disputes relating to the
overlapping items in the schedule to the main
agreement and the Interior Design Agreement, as
detailed earlier. There cannot be conflicting
awards in regard to items which overlap in the
two agreements. Such a situation was never
contemplated by the parties. The intention of the
parties when they incorporated clause 39 in the
main agreement and clause 5 in the Interior
Design Agreement was that the former clause was
to apply to situations when there were disputes
arising under both agreements and the latter was
to apply to a situation where there were no
disputes or differences arising under the main
contract but the disputes and differences were
confined only to the Interior Design Agreement. A
case containing two agreements with arbitration
clauses arose before this Court in Agarwal Engg.
Co. v. Technoimpex Hungarian Machine
Industries Foreign Trade Co. There were
arbitration clauses in two contracts, one for sale
of two machines to the appellant and the other
appointing the appellant as sales representative.
On the facts of the case, it was held that both the
clauses operated separately and this conclusion
was based on the specific clause in the sale
contract that it was the “sole repository” of the
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sale transaction of the two machines. Krishna
Iyer, J. held that if that were so, then there was
no jurisdiction for travelling beyond the sale
contract. The language of the other agreement
appointing the appellant as sales representative
was prospective and related to a sales agency and
“later purchases”, other than the purchases of
these two machines. There was therefore no
overlapping. The case before us and the above
case exemplify contrary situations. In one case
the disputes are connected and in the other they
are distinct and not connected. Thus, in the
present case, clause 39 of the main agreement
applies. Points 1 and 2 are decided accordingly in
favour of the respondents.”
9. Having taken note of the arbitration clause existing in
two different set of documents between the same parties
relating to the same transaction; in order to harmonise or
reconcile and arrive at a conclusion as to which of the
clauses would be relevant in the instant facts; it would be
necessary for us to refer to the manner in which the
arbitration clause was invoked and the nature of the dispute
that was sought by the parties to be resolved through
arbitration. In that regard a perusal of the documents will
reveal that in the case on hand the applicant had not
initiated the process of invoking the arbitration clause. On
the other hand a notice dated 13.03.2020 (Annexure A41)
was issued on behalf of the respondent by its attorney to the
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applicant referring to the breach of the agreement dated
31.03.2018 (Umbrella agreement/Pricing agreement) and as
per the procedure provided under Clause23 of the said
agreement an opportunity was provided to amicably resolve
the matter; failing which it was indicated that the
respondent would approach the International Chamber of
Commerce (ICC) in 30 days. It is in reply to the said notice
dated 13.03.2020 issued by the Respondent on 13.04.2020,
the applicant herein disputed the claim put forth by the
respondent under the Agreement dated 31.03.2018 referring
to it as the Pricing Agreement. Further, the applicant
thereafter referred to the nature of their claim and thereon
proceeded to indicate that the constitution of the Arbitral
Tribunal and conduct of arbitration proceeding shall be in
accordance with Clause7 of the contract terms forming part
of and governing all individual contracts.
10. In the above backdrop, when both, the purchase order
as also the Pricing Agreement subsists and both the said
documents contain the arbitration clauses which are not
similar to one another, in order to determine the nature of
the arbitral proceedings the said two documents will have to
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be read in harmony or reconciled so as to take note of the
nature of the dispute that had arisen between the parties
which would require resolution through arbitration and
thereafter arrive at the conclusion as to whether the instant
application filed under Section 11 of the Act, 1996 would be
sustainable so as to appoint an arbitrator by invoking
Clause7 of the purchase order; more particularly in a
situation where the Arbitral Tribunal has already been
constituted in terms of Clause23 of the agreement dated
31.03.2018.
11. To determine this aspect, apart from the fact that the
respondent was the first to invoke the arbitration clause
with reference to the Agreement dated 31.03.2018, it is
noticed that in the reply dated 13.04.2020 issued by the
applicant it is in the nature of invocation of the arbitration
clause by the applicant. It would be appropriate to take note
of the contents in paras 6, 7, 8 and 9 thereof which is the
crux of the dispute that would require resolution through
arbitration and reads as hereunder:
“6. Under the Pricing Agreement, which
contains the price and terms of payment
governing individual contracts, the Products are
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purchased by Medima at the Provisional Sales
Price arrived at by applying a discount on
CRU/Ryan’s notes. Where the Final Sales Price
to the customer after deduction of expenses and
fees as specified in the Pricing Agreement is
higher than the Provisional Price, Medima is
liable to remit the difference between the two.
However, the Pricing Agreement unequivocally
stipulates that all risks for sale to customers
shall be borne by Medima and as such, confers
no right upon Medima to recover losses from
Balasore.
7. Balasore is, on the other hand, entitled to
recovery of 100% of the Provisional Price and
any amount recovered by Medima in addition
thereto.
8. In this context, Balasore has repeatedly
pointed out to Medima that the statements
issued by Medima are incomplete and do not
contain necessary details customerwise for the
purposes of reconciliation.
9. Even on the basis of the incomplete and
inaccurate statements provided by Medima from
time to time, it is clear that Medima has been
making much high deductions than permissible
under the Pricing Agreement and thereby
depriving Balasore of amounts lawfully owing to
it under the individual contracts. Some of the
issues repeatedly raised by Balasore are:
1. The allegedly actual secondary costs are
nearly twice as high as the budgets and
estimates projected by Medima at the time of
booking the contracts;
2. The quantity and quality of Products
invoiced by Medima to the customers are
different from the contracts signed by Medima
and Balasore;
3. Interest for availing credit for delay in
recovery beyond 60 days cannot be deducted as
an expense;
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4. Commission has to be charged on the net
sales price and not the Final Sales Price.”
12. A close perusal of the extracted portion would indicate
that the reference made by the applicant with regard to the
price and the terms of the payment governing individual
contracts is with reference to the Pricing Agreement which
in fact is the Agreement dated 31.03.2018. In that context,
the terms 5, 8, 9 and 10 of the Pricing Agreement would
indicate that it provides for the mechanism relating
purchases and sales; final price, payment of provisional
price and adjustment of advance, determination of the final
sale price and monthly accounting and payment. On taking
note of the same, a perusal of the contract terms in the
purchase order relied upon by the applicant does not
provide for such determination of pricing except the
purchase order referring to the price of the quantity ordered
for and the special terms relating to provisional price etc.
Therefore, in that circumstance the nature of dispute raised
by the applicant themselves in the reply notice dated
13.04.2020 will indicate that those aspects are to be
determined in terms of the provisions contained in the
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Agreement dated 31.03.2018 which resultantly will be
relevant for payment to be made under each of the purchase
order. Therefore, even if disputes are raised relating to the
contract terms, the pricing, deductions etc. will relate to the
main agreement and the Arbitral Tribunal constituted
thereunder can go into other issues if any arises under the
contract terms of the individual purchase order as well.
13. However, in an attempt to dispel such understanding,
Mr. Maninder Singh, learned senior counsel sought to
contend that while the respondent relies on the Pricing
Agreement dated 31.03.2018, the transaction in fact had
commenced as far back as on 08.08.2017 and 21 purchase
orders were placed up to 30.03.2018 i.e. prior to
31.03.2018, the date on which the Pricing Agreement was
executed and as such the same cannot be deemed to have
applied to the earlier purchase orders. Though such
contention is put forth we are unable to accept the same
since Clause20(a) of the Agreement dated 31.03.2018
provides that the Agreement shall commence on 31.03.2017
and end on 31.03.2021 which clearly indicates that it was
the intention of the parties that the terms contained in the
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Agreement would govern all transactions, including those
which had commenced from 08.08.2017. Further it is
noticed that the parties were earlier governed by an
Agreement dated 19.06.2017 which was for a fixed quantity
of 2000 MT of the produce while the present agreement,
according to the parties was on a long term basis fixing the
time period for which it was valid and the individual
purchase orders will have to be taken note for the specific
quantity ordered for under each of the transactions, the
price of which was to be ultimately determined as provided
under the Pricing Agreement.
14. In that view of the matter, when admittedly the parties
had entered into the agreement dated 31.03.2018 and there
was consensus adidem to the terms and conditions
contained therein which is comprehensive and
encompassing all terms of the transaction and such
agreement also contains an arbitration clause which is
different from the arbitration clause provided in the
purchase order which is for the limited purpose of supply of
the produce with more specific details which arises out of
Agreement dated 31.03.2018; the arbitration clause
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contained in Clause23 in the main agreement dated
31.03.2018 would govern the parties insofar as the present
nature of dispute that has been raised by them with regard
to the price and the terms of payment including recovery
etc. In that view, it would not be appropriate for the
applicant to invoke Clause7 of the purchase orders more
particularly when the arbitration clause contained in the
Agreement dated 31.03.2018 has been invoked and the
Arbitral Tribunal comprising of Mr. Jonathan Jacob Gass,
Mr. Gourab Banerji and Ms. Lucy Greenwood has already
been appointed on 22.06.2020.
SLP(C) No.10264/2020
15. The instant Special Leave Petition is filed by the
petitioner who is the plaintiff in the Commercial Suit
No.59/2020 pending before the High Court of Calcutta. The
petitioner herein is the petitioner in Arbitration Application
No.15/2020 which is dealt with hereinabove. The facts
noticed above while dealing with Arbitration application also
discloses that the Arbitral Tribunal comprising of three
arbitrators has been appointed by the ICC through the
communication dated 22.06.2020. The Tribunal has been
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constituted based on the clause providing for arbitration
under the Agreement dated 13.03.2018. The petitioner
claiming to be aggrieved by the constitution of the Arbitral
Tribunal has filed the suit seeking a decree of declaration
that the arbitration clause23 of the Pricing Agreement
dated 31.03.2018 is null and void and in that context has
sought for the ancillary relief in the suit. In the said suit
the petitioner has moved the ‘Notice of Motion’ seeking for
an interlocutory order of injunction against the Arbitral
Tribunal constituted by the ICC. The learned Single Judge
through a detailed judgment dated 12.08.2020 has rejected
the prayer for interim order and the ‘Notice of Motion’ has
been dismissed. The petitioner claiming to be aggrieved by
the said order had preferred an appeal to the Division
Bench, which on consideration has declined grant of interim
order though the appeal has been admitted for
consideration.
16. Having heard the learned senior counsel and having
perused the orders impugned we see no reason to interfere
with the same, more particularly keeping in view our
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conclusion on the same subject matter while addressing the
rival contentions in the Arbitration Application No.15/2020.
17. In the result, the Arbitration Application No.15/2020
and SLP No.10264/2020 stand dismissed with no order as
to costs.
..…………………………..CJI.
(S. A. Bobde)
…..…………………………..J.
(A. S. Bopanna)
..…..………………………….J.
(V. Ramasubramanian)
September 16, 2020
New Delhi
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