Isha Sawant | Government Law College | 26th September 2020
Balasore Alloys Limited v. Medima LLC
Facts:
The petitioner- Balasore Alloys Limited filed a petition before the Supreme Court under sec-11(6) read with 11(12)(a) of the Arbitration and Conciliation Act, 1996 (Act 1996 short), praying that a sole arbitrator be appointed to adjudicate upon all the disputes arising between the parties in connection with the 37 purchase orders referred in the application. An alternative prayer was made to appoint a second arbitrator on account on the failure of Medima LLC- the respondents, to nominate an arbitrator according to the terms of the contract. The petitioner- a manufacturer of High Carbon Ferro Chrome entered into a transaction with the respondent, where the petitioner would supply their product to the respondent for sale in US and Canada, an agreement dated 19-06-2017 was made for sale of 2000 MT, subsequently the respondent placed 37 purchase orders in the petitioner’s favour with details of the supply specified in each order, an agreement dated 31-03-2018 was entered into by the parties for the same, disputes arose between the parties regarding these transactions which are to be resolved through arbitration. The petitioner relied on Clause 7 of the purchase orders relating to arbitration, and nominated Mr. Justice Amitava Lala Retired High Court Judge for constituting an Arbitral Tribunal, however, the respondent did not appoint an arbitrator, thus the petitioner has approached the Court seeking appointment of an arbitrator. The nature of transaction entered between the parties is not disputed. The respondent filed a counter-affidavit where they stated that the entire transaction is governed by the agreement dated 31-03-2018 which they referred to as the ‘Umbrella Agreement’, clause 23 of the said agreement makes provision for resolution of disputes through arbitration and that they invoked the same by issuing a notice. As per clause 23 they even filed a petition before the International Chamber of Commerce (ICC) and the Arbitral Tribunal was duly constituted. They thus contended the present application filed by the petitioner seeking appointment of Arbitral Tribunal under clause 7 of the purchase order is not bonafide and so is liable to be dismissed. The applicant filed a rejoinder to dispute the respondent’s contentions.
Issues:
- Whether clause 23 of the agreement dated 31-03-2018 or clause 7 of the purchase orders will apply in the present case.
Legal Provisions:
- Arbitration and Conciliation Act, 1996, Section 11(6) – Dissimilar arbitration clause – Appointment of arbitrator.
- Arbitration and Conciliation Act, 1996, Section 11(6)
Observations of the Court:
The court went through the arbitration clauses given in the purchase order and the agreement dated 31-03-2018. It was observed that the clause given under the purchase orders is explicit and would apply in normal circumstances and no other consideration would be necessary in the limited scope for considering an application under sec-11 of the Act 1996. The agreement dated 31-03-2018 is referred to as the ‘pricing agreement’ by the petitioner, the fact that the parties entered into an agreement on 31-03-2018 is not disputed and the fact that a dispute arose between the parties is also not disputed. The court to decide as to which clause will apply in the present case thought necessary to refer to the manner in which the arbitration clause was invoked and the nature of dispute the parties seek to resolve. It was then found that the arbitration clause was not invoked by the petitioner rather the counsel for the respondent had issued a notice to the petitioner on 13-03-2020 referring to the breach of the agreement dated 31-03-2018 and invoked the arbitration clause-23 of the said agreement to give the petitioner an opportunity to amicably resolve the matter within 30 days, failing which they would approach the ICC.
The petitioner by a notice dated 13-04-2020 disputed the respondent’s claim and referring to the nature of the claim indicated that the Arbitration Tribunal be constituted and arbitration proceeding be initiated as per provisions of clause 7 of the purchase orders. The court observed that since both documents make provision for arbitration proceedings, they either have to be read in harmony or reconciled to determine the nature of dispute between the parties which is to be resolved through arbitration and then conclude if the present application filed under sec-11 of the Act 1996 will be sustained. The court went through the contents of the agreement between the parties which forms the crux of the dispute. It also noted some of the issues repeatedly raised by Balasore against Medima.
It was observed that the agreement dated 31-03-2018 makes provision for regarding purchase and sale, final price, payment of provisional price and adjustment of advance, determination of final sales price and monthly accounting and payment, whereas the purchase order only provides for the price of the quantity ordered for and special terms relating to provisional price, etc. The nature of the dispute raised by the appellant in its reply notice dated 13-04-2020 indicate that those aspects should be determined according to the terms of the agreement dated 31-03-2018, the disputes relate to contract terms, pricing, deductions etc. given in the said agreement and the Arbitral Tribunal constituted under clause 23 can also adjudicate on any other issues arising out of the terms of contract of individual purchase orders.
The counsel for the petitioner contended that though the respondent relied on the agreement dated 31-03-2018, the transaction commenced on 08-08-2017 and the purchase orders were placed upto 30-03-2018 i.e. before the agreement of 31-03-2018, and so it would not apply to the earlier purchase orders. The court did not accept this contention stating the clause 20(a) of the agreement dated 30-03-2018 provides that the agreement shall commence on 31-03-2017 and end on 31-03-2023, which shows that parties intention contained in the agreement will govern all transactions including those commenced from 08-08-2017. It was observed that agreement dated 31-03-2018 entered into by the parties, governs the parties in disputes regarding price and terms of payment including recovery, etc. like the dispute in the present case, whereas the purchase order is limited to the supply of produce with specific details that arise out of the agreement dated 31-03-2018. The court held that the petitioner invoking the arbitration clause in the individual purchase orders is not right, especially when the respondent had already invoked the arbitration clause given the agreement dated 31-03-2018 and appointed the Arbitral Tribunal.
The petitioner had filed a Special Leave Petition in the Calcutta High Court where they claimed to be aggrieved by the respondent’s appointment of Arbitral Tribunal and filed a suit seeking a decree declaring clause 23 of the agreement dated 31-03-2018 as null and void. The petitioner also moved a Notice of Motion seeking injunction against the Arbitral Tribunal constituted by the ICC. The single judge of the High Court by a judgement dated 02-08-2020, rejected the petitioner’s prayer of interim order and dismissed the motion for injunction. The petitioner then approached the Division Bench of the High Court which after consideration declined the appeal for interim order but allowed appeal for consideration.
Judgement:
The court after hearing both sides and going through the impugned order saw no reason to interfere with the same. The appeal was thus dismissed.
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