M/S.Cauvery Coffee Traders,Mangalore vs M/S.Hornor Resources (Intern.)Co.Ltd

M/s. Cauvery Coffee Traders, Mangalore ...Petitioners

Versus

M/s. Hornor Resources (Intern.) Co. Ltd. ...Respondents

J U D G M E N T

Dr. B.S. CHAUHAN, J.

1. The arbitration applications under Section 11(5) & (9) of the

Arbitration and Conciliation Act, 1996, hereinafter called the "Act

1996" have been filed for appointment of Arbitrator in an international

arbitration dispute to adjudicate the disputes/differences which have

arisen between the parties.

2. The applicants are a partnership concern incorporated under the

Indian Partnership Act, 1932 and have filed two applications as the

dispute raised herein relate to two consignments. However, for

convenience, facts and issues related to Petition No.7/2009 are being

considered.

3. On 24.6.2008, a Purchase Contract bearing No. CCT/SST/027/

240608 was entered and executed by and between the applicants and

the respondents wherein the applicants agreed to sell and the

respondents agreed to purchase Calibrated Lumpy Ore Fines of the

approximate quantity of 40,000/- Wet Metric Tones (hereinafter called

as `WMT') (10% more or less at buyers' option) at the price and on the

terms and conditions stipulated in the said agreement. The agreement

provided for the chemical specification/composition of the Ore and for

guaranteed level of Fe i.e. iron content in the contracted goods which

could not be less than 63%. In case the iron content was less than 63%,

the buyer would have a right to reject the cargo.

4. A large quantity of Ore had been supplied to the respondents

which had been accepted and payments had been made. Pursuant to

the purchase contract, the applicants on 6.8.2008 shipped a total

consignment of 24,500 Dry MT of Calibrated Lumpy Ore from New

Mangalore Port, India to the port of discharge viz. Rizhao Port, China

by vessel named "MV. FUJIN". The applicants raised a provisional

2

invoice for a sum of US$ 32,13,529.11 and sent a Certificate of Origin

and the Bill of Lading dated 6.8.2008 as issued by the carriers in

respect of the carriage of the goods from Mangalore Port, India to

Rizhao Port, China. The material so supplied had been sent after

proper analysis and it had been certified by the analyst in India that the

goods supplied contained more than 63% Fe contents. The said goods

reached at China Port. The delivery of the same was taken by the

respondents and on chemical analysis, according to them, the iron

contents Fe, were found to be 62.74%. The goods reached the Port of

Discharge, and were accepted by the respondents-buyers who

promised that payment would be made without any delay.

5. The respondents vide email dated 19.9.2008 informed the

applicants that a provisional payment would be released for the

shipment in question based on revised rates and, in case, the applicants

were willing to accept the revised rates stipulated therein, the

respondents would request their end buyers' confirmation to release the

payment, and for that purpose, applicants were asked to send necessary

instructions through their banker. The respondents vide email dated

7.10.2008 informed the applicants that US$ 1.5 million could be the

amount for the final settlement in respect of the shipment in question,

3

in spite of the fact that the agreed amount had been US$ 18,91,204.00.

By the said email, applicants were asked by the respondents to inform

through their banker in case of their acceptance to the said proposal.

Under these peculiar facts and circumstances, as the goods had already

reached China and applicants were in dire need of money, they

informed through their banker that they agreed to receive payment

under the Letter of Credit in a sum of total claim of US$ 18,91,204.00.

By email dated 7.10.2008 the respondents stated that the applicants

should accept US$ 1.5 million in full and final settlement. Accordingly,

an amount of US$ 1.5 million had been received by them. Subsequent

thereto, the applicants had repeatedly been sending reminders to the

respondents to make good the balance payment under the said purchase

contract, but no payment had been made. As the respondents failed to

make the payment of the balance amount, the applicants sent a legal

notice dated 14.11.2008 to call upon the respondents to pay the balance

amount under the purchase contract and further provided that, in view

of the arbitration clause 18 contained in the purchase agreement, they

should carry on friendly negotiations to settle the dispute accrued

between the parties. As per the terms of the purchase agreement,

arbitration can be held only in a third country. The applicants suggested

4

to have the arbitration proceedings either in Singapore or in Australia.

In spite of receiving the said notice, neither the payment of the balance

amount was made, nor the respondents came forward for friendly

negotiations. Therefore, a further reminder was sent by the applicants

to the respondents calling upon them to indicate the place of

arbitration. As neither the payment had been made, nor the

respondents have agreed for arbitration proceedings, they have

approached this Court by filing these applications.

6. Shri V.A. Mohta, learned senior counsel appearing for the

applicants, has submitted that in spite of the fact that the supply of iron

ore has been made strictly in terms of the purchase contract and the

outstanding payments have not been made even after several

reminders, the applicants served a notice on the respondents for

appointment of Arbitrator in the third country in terms of Clause 18 of

the Purchase Agreement but the respondents did not make any effort

either to come for friendly negotiations or to refer the matter for

arbitration, therefore, this Court must refer the matter to the Arbitrator

in a third country preferably Singapore or Australia.

5 7. On the contrary, Shri Ashok K. Srivastava, learned senior

counsel appearing for the respondents, has vehemently opposed the

applications contending that the applications themselves are not

maintainable as the purchase agreement can be dealt with Part-II and

certainly not under Part-I of the Act 1996. Therefore, the applications

under Section 11(5) & (9) of Act 1996 are not maintainable, even

otherwise, there has been a complete settlement between the parties

and the applicants have accepted the full and final settlement as

suggested by the respondents in view of the fact that Fe contents were

not as per the specifications and certain terms had been offered to the

applicants for settlement, which had been agreed by them. The

question of making the reference to arbitration proceedings does not

arise.

8. I have considered the rival submissions made by learned counsel

for the parties and perused the record.

9. So far as the issue relating to maintainability of the application

itself is concerned, is no more res integra. This court in Bhatia

International v. Bulk Trading S.A, (2002) 4 SCC 105, held as

under:

6 ".....notwithstanding the provisions of Section 2(2)

of the Arbitration and Conciliation Act, 1996,

indicating that Part I of the said Act would apply

where the place of arbitration is in India, even in

respect of international commercial agreements,

which are to be governed by the laws of another

country, the parties would be entitled to invoke the

provisions of Part I of the aforesaid Act and

consequently the application made under Section 11

thereof would be maintainable. It clearly lays down

that the provisions of Part I of the Arbitration and

Conciliation Act, 1996, would be equally applicable

to international commercial arbitrations held

outside India, unless any of the said provisions are

excluded by agreement between the parties expressly

or by implication, which is not so in the instant

case."

(See also: Indtel Technical Services Private Limited v. W.S. Atkins

Rail Limited, (2008) 10 SCC 308; and Citation Infowares Limited

v. Equinox Corporation, (2009) 7 SCC 220).

10. In Venture Global Engg. Case v. Satyam Computer Services

Ltd. (2008) 4 SCC 190, this Court considered the similar issue and

after considering various earlier judgments, came to the conclusion that

implied exclusion of provision of Part-I cannot be inferred and

therefore the principles regarding the arbitral reference laid down in

Bhatia International (supra) are applicable.

7 11. Hon'ble Mr. R.C. Lahoti, J. (as His Lordship then was) however,

has taken a contrary view as in Shreejee Traco (I) Pvt. Ltd. v.

Paperline International Inc., (2003) 9 SCC 79; it was held:

"8. So far as the language employed by Parliament

in drafting sub-section (2) of Section 2 of the Act is

concerned, suffice it to say that the language is clear

and unambiguous. Saying that this Part would apply

where the place of arbitration is in India

tantamounts to saying that it will not apply where

the place of arbitration is not in India."

However, considering the fact that Bhatia International (supra)

is a three-Judge Bench judgment and has consistently been followed,

the judgment of the learned Single Judge in Shreejee Traco (I) Pvt.

Ltd. (supra) does not have binding effect. As a consequence, the

application is held to be maintainable.

12. The Relevant part of the Purchase Agreement dated 28.6.2008

reads as under:

"Clause 5: Price Adjustment

For Fe content:

In respect of iron ore which does not meet the Fe

specifications set forth in Clause 3 the base price

referred to in Clause 4 shall be adjusted in

accordance with Fe content as determined pursuant

to the provisions of Clause 8 as follows:

The base price shall be increased by single prorate

(USD2.2) per dry metric tonne for each 1% Fe

below 63.5% upto 63.0 fraction prorate.

8

The Buyer has the right to reject the cargo if Fe

content is below 63.0% .

Clause 15: Title and Risk

The title with respect to each shipment shall pass

from Seller to the Buyers when Seller receives

reimbursement of the proceeds from the opening

bank through the negotiating bank against the

relative shipping documents as set forth in clause 6

after completion of loading on board the vessel at

loading port, with effect retrospective to the time of

delivery of ore.

Clause 18: Arbitration

All disputes in connection with this contract or the

execution thereof shall be settled amicably by

friendly negotiations between the two parties. If no

settlement can be reached, the case in dispute shall

then be submitted for arbitration to a third country,

which shall be agreed upon by both parties. The

arbitration award shall be final and binding on

both the parties and may be enforced in any court

having jurisdiction over the party against which

enforcement is sought. The cost of arbitration shall

be borne by the losing party."

Thus, from the Purchase Agreement it is evident that the ore

supplied must contain Fe contents not less than 63%. In case the Fe

contents are less than the specified percentage, the buyers would have a

right to reject the cargo. The Purchase Agreement also contains a

clause providing for price adjustment in case the supplied ore does not

meet the requirement of specification provided for iron ore. In case of

9

any dispute between the parties, the agreement provides for arbitration

in any third country.

13. The documents on record reveal that parties had been negotiating

for the goods supplied and also in respect of payment for the same

(vide emails dated 25.6.2008 and 8.9.2008). Relevant part of the email

dated 25.9.2008 reads as under:

"......Both cargos were rejected by end buyers due

to the quality failure.

In such case, we regret to say that the

maximum CFR price we can work here is $110 for

Zhongqiang II AND $120 FOR Fujin. Pls note

current market price for cargo below 63 is only

$100 and market is still on the down trend.

However in consideration of the long term good

cooperation between the two companies, we are

offering to bear at least a $10-20 loss on our side

and with the huge risks of further slide of market,

which actually is foreseeable.

......Our above offer is valid till this Friday (26th

September, 2008) only..."

14. The email dated 7.10.2008 sent by the applicants to the

respondents reads as under:

"Further to telecom just now, pls note as per latest

mutual agreement between seller and buyer, the

said USD1.50 million shall be final settlement for

subj.shipment, so please request your bank to revise

the swift msg as follows:

1

"beneficiary agrees to receive

USD1,500,000.00 for full and final payment

for this set of documents and under this

letter of credit, after release of this amount,

the letter of credit shall be considered

expired and cancelled." (Emphasis added)

15. Subsequently, the applicants sent an email to the respondents

dated 14.11.2008 which provided inter-alia, as under:

"Clause 8 of the Purchase Contract provided for

the remedies available in the event of there being a

difference in percentage of the Fe content as

compared to the specifications mentioned in the

Contract. The said Contract also provided that all

disputes would be settled amicably and that if no

settlement could be reached, the disputes would be

submitted to arbitration to a third country to be

agreed upon by both the parties.

.......Since the Arbitration clause provides for the

dispute being submitted for arbitration to a third

country, our clients would suggest conduct of the

arbitration either in Singapore under the auspices

of the Singapore International Arbitration Centre

and/or Australia under the Rules of the Institute of

Arbitrators and Mediators, Australia."

16. The applicants again asked the respondents for reference to

Arbitrator vide email dated 21.11.2008, but in vein.

17. Stand of the respondents throughout had been that under Clause

5 of the Purchase Contract dated 24.6.2008 in respect of the iron ore,

1

the buyers had a right to reject the whole consignment in case the iron

contents were less than 63%, as has been in the instant case. However,

considering other factors that goods had already reached the port of

discharge in China, the buyers accepted the delivery thereof and

therefore, the buyers made a proposal for adjustment of price.

Negotiations started as is evident from the email messages dated

8.9.2008, 25.9.2008 and 7.10.2008 as referred to hereinabove, and it

was in pursuance of these negotiations that the applicants had

instructed their banker to accept the proposal made by the respondents

and it was in pursuance of their instructions, the banker vide email

dated 8.10.2009 accepted the proposal and agreed to receive a sum of

US$500,000.00 as full and final settlement for the consignment in

issue. The payment made was accepted by the applicants and it was

after 3 months thereafter that they served a legal notice dated

14.11.2008 for making a reference to the Arbitrator. The applicants in

the present application do not dispute the negotiations or giving

instructions to their banker or in respect of the email by their banker to

the respondents or receiving the money in lieu thereof. Therefore, the

question does arise as to whether the banker's acceptance of

instructions given by the applicants can be treated as full and final

1

settlement of the dispute. The main ground in this regard had been

taken in this application in Paragraph (P) as under:

"In spite of the fact that the Applicants had

specifically informed their Bankers that an amount

of US$ 1.5 million was to be received in lieu of

provisional payment, an erroneous message was

forwarded by the Applicants' Bankers to the

Respondents that the beneficiary being the

Applicants herein had agreed to receive an

amount of US$ 1.5 million towards full and final

payment and that the Letters of Credit would be

considered expired and cancelled on receipt of the

said payment." (Emphasis added)

18. Error means - a mistake in judgment/assessment in a process or

proceedings; some wrong decision taken inadvertently; unintentional

mistakes; something incorrectly done through ignorance or

inadvertence; mistake occurred from an accidental slip; deviation from

standard or course of right or accuracy - unintentionally; to be wrong

about; to think or understand wrongly; an omission made not by

design, but by mischance.

19. In Nathani Steels Ltd. v. Associated Constructions, 1995

Supp (3) SCC 324, while dealing with a similar issue, this Court held:

"......once the parties have arrived at a settlement

in respect of any dispute or difference arising under

a contract and that dispute or the difference is

amicably settled by way of a final settlement by and

1

between the parties, unless that settlement is set

aside in proper proceedings, it cannot lie in the

mouth of one of the parties to the settlement to

spurn it on the ground that it was a mistake and

proceed to invoke the Arbitration clause. If this is

permitted the sanctity of contract, the settlement

also being a contract, would be wholly lost and it

would be open to one party to take the benefit under

the settlement and then to question the same on the

ground of mistake without having the settlement set

aside. In the circumstances, we think that in the

instant case since the dispute or difference was

finally settled and payments were made as per the

settlement, it was not open to the respondent

unilaterally to treat the settlement as non est and

proceed to invoke the Arbitration clause...."

A similar view has been re-iterated in State of Maharashtra v.

Nav Bharat Builders, 1994 Supp (3) SCC 83.

20. This Court in M/s. P.K. Ramaiah & Company v. Chairman &

Managing Director, NTPC, (1994) Supp. 3 SCC 126 considered the

ambit of accord and satisfaction by the parties voluntarily entered into

and dispute raised thereunder. This Court after considering the entire

controversy held that:

"Admittedly the full and final satisfaction was

acknowledged by a receipt in writing and the

amount was received unconditionally. Thus there

is accord and satisfaction by final settlement of the

claims. The subsequent allegation of coercion is

an afterthought and a devise to get over the

settlement of the dispute, acceptance of the

payment and receipt voluntarily given.... Having

1

acknowledged the settlement and also accepted

measurements and having received the amount in

full and final settlement of the claim, there is

accord and satisfaction. There is no existing

arbitrable dispute for reference to the

arbitration." (Emphasis added)

21. In National Insurance Company Limited v. M/s. Boghara

Polyfab Private Limited, AIR 2009 SC 170, this Court held:

"26. When we refer to a discharge of contract by

an agreement signed by both the parties or by

execution of a full and final discharge

voucher/receipt by one of the parties, we refer to an

agreement or discharge voucher which is validly

and voluntarily executed. If the party which has

executed the discharge agreement or discharge

voucher, alleges that the execution of such

discharge agreement or voucher was on account of

fraud/coercion/undue influence practised by the

other party and is able to establish the same, then

obviously the discharge of the contract by such

agreement/voucher is rendered void and cannot be

acted upon. Consequently, any dispute raised by

such party would be arbitrable." (Emphasis

added).

xx xx xx

29. It is thus clear that the arbitration agreement

contained in a contract cannot be invoked to seek

reference of any dispute to arbitration, in the

following circumstances, when the contract is

discharged on account of performance, or accord

and satisfaction, or mutual agreement, and the

same is reduced to writing (and signed by both the

parties or by the party seeking arbitration):

1

(a) where the obligations under a contract are

fully performed and discharge of the contract by

performance is acknowledged by a full and final

discharge voucher/receipt, nothing survives in

regard to such discharged contract;

(b) where the parties to the contract, by mutual

agreement, accept performance of altered,

modified and substituted obligations and confirm

in writing the discharge of contract by

performance of the altered, modified or substituted

obligations;

(c) where the parties to a contract, by mutual

agreement, absolve each other from performance

of their respective obligations (either on account

of frustration or otherwise) and consequently

cancel the agreement and confirm that there are

no outstanding claims or disputes."

(Emphasis added)

22. In R.L. Kalathia v. State of Gujarat, (2011) 2 SCC 400, this

court considered a similar issue and held:

"(i) Merely because the contractor has issued "no-

dues certificate", if there is an acceptable claim, the

court cannot reject the same on the ground of

issuance of "no-dues certificate".

(ii) Inasmuch as it is common that unless a

discharge certificate is given in advance by the

contractor, payment of bills are generally delayed,

hence such a clause in the contract would not be an

absolute bar to a contractor raising claims which

are genuine at a later date even after submission of

such "no-claim certificate".

(iii) Even after execution of full and final discharge

voucher/receipt by one of the parties, if the said

1

party is able to establish that he is entitled to further

amount for which he is having adequate materials,

he is not barred from claiming such amount merely

because of acceptance of the final bill by mentioning

"without prejudice" or by issuing "no-dues

certificate".

23. In view of the above, law on the issue stands crystallised to the

effect that, in case, final settlement has been reached amicably between

the parties even by making certain adjustments and without any

misrepresentation or fraud or coercion, then, acceptance of money as

full and final settlement/issuance of receipt or vouchers etc. would

conclude the controversy and it is not open to either of the parties to

lay any claim/demand against the other party.

24. The applicants have not pleaded that there has been any kind of

misrepresentation or fraud or coercion on the part of the respondents.

Nor it is their case that payment was sent by the respondents without

any settlement/agreement with the applicants, and was a unilateral act

on their part. The applicants reached the final settlement with their

eyes open and instructed their banker to accept the money as proposed

by the respondents. Proposal itself was on the basis of clause 5 of the

Purchase Contract which provided for Price Adjustment. For a period

1

of three months after acceptance of the money under the full and final

settlement, applicants did not raise any dispute in respect of the

agreement of price adjustment. In such a fact-situation, the plea that

instructions were given by the applicants to the banker erroneously,

being, afterthought is not worth acceptance.

The transaction stood concluded between the parties, not

on account of any unintentional error, but after extensive and

exhaustive bilateral deliberations with a clear intention to bring about a

quietus to the dispute. These negotiations, therefore, are self-

explanatory steps of the intent and conduct of the parties to end the

dispute and not to carry it further.

25. In R.N. Gosain v. Yashpal Dhir, AIR 1993 SC 352, this Court

has observed as under:-

"Law does not permit a person to both approbate

and reprobate. This principle is based on the

doctrine of election which postulates that no party

can accept and reject the same instrument and that

"a person cannot say at one time that a

transaction is valid and thereby obtain some

advantage, to which he could only be entitled on

the footing that it is valid, and then turn round and

say it is void for the purpose of securing some

other advantage."

1

26. A party cannot be permitted to "blow hot and cold", "fast and

loose" or "approbate and reprobate". Where one knowingly accepts

the benefits of a contract or conveyance or an order, is estopped to

deny the validity or binding effect on him of such contract or

conveyance or order. This rule is applied to do equity, however, it must

not be applied in a manner as to violate the principles of right and good

conscience. (Vide: Nagubai Ammal & Ors. v. B. Shama Rao & Ors.,

AIR 1956 SC 593; C.I.T. Vs. MR. P. Firm Maur, AIR 1965 SC

1216; Maharashtra State Road Transport Corporation v. Balwant

Regular Motor Service, Amravati & Ors., AIR 1969 SC 329; P.R.

Deshpande v. Maruti Balaram Haibatti, AIR 1998 SC 2979; Babu

Ram v. Indrapal Singh, AIR 1998 SC 3021; Chairman and MD,

NTPC Ltd. v. Reshmi Constructions, Builders & Contractors, AIR

2004 SC 1330; Ramesh Chandra Sankla & Ors. v. Vikram Cement

& Ors., AIR 2009 SC 713; and Pradeep Oil Corporation v.

Municipal Corporation of Delhi & Anr., (2011) 5 SCC 270).

27. Thus, it is evident that the doctrine of election is based on the rule

of estoppel- the principle that one cannot approbate and reprobate

inheres in it. The doctrine of estoppel by election is one of the species

of estoppels in pais (or equitable estoppel), which is a rule in equity.

1 By that law, a person may be precluded by his actions or conduct or

silence when it is his duty to speak, from asserting a right which he

otherwise would have had.

28. In the facts and circumstances of the case, as the respondents

resorted to clause 5 of the Purchase Agreement dated 28/6/2008,

regarding price adjustment and the offer so made by the respondents

has been accepted by the applicants and agreed to receive a particular

sum offered by the respondents as a full and final settlement, the

dispute comes to an end.

The applicants cannot take a complete somersault and agitate the

issue that the offer made by the respondents had erroneously been

accepted.

In view of the above, as no dispute survives, the applications are

dismissed.

........................

...J.

(Dr. B.S.

CHAUHAN)

New Delhi,

2

September 13, 2011

2