Biswanath Ferro Alloys Limited Vs. Damodar Valley Corporation - Court Judgment

AP No. 676 of 2011

IN THE HIGH COURT AT CALCUTTA

Ordinary Original Civil Jurisdiction

ORIGINAL SIDE

BISWANATH FERRO ALLOYS LIMITED

-Versus-

DAMODAR VALLEY CORPORATION

Appearance:

Mr. Mohit Gupta, Adv.

Mr. S.K. Poddar, Adv.

...For the petitioner.

Mr. T. Roychowdhury, Adv.

Mr. Prasun Mukherjee, Adv.

...For the respondents.

BEFORE:

The Hon'ble JUSTICE SANJIB BANERJEE

Date :November 17, 2011.

The Court : This is a request under Section 11 of the Arbitration and Conciliation Act, 1996 following the respondent's failure to nominate an arbitrator in accordance with the arbitration agreement. The arbitration clause is contained in an agreement for bulk supply of electricity. The petitioner claims that the respondent Corporation over-billed the petitioner for which the petitioner was constrained to file an application under Article 226 of the Constitution of India before this Court. The petitioner refers to the reconciliation of the accounts between the parties in course of the writ proceedings. The 2

petitioner claims that a sum in excess of Rs.1.37 crore is due to the petitioner and the respondent is not entitled to raise any demand on the petitioner without giving due credit for such amount. In support of such claim, the petitioner instituted proceedings under Section 9 of the 1996 Act before the Alipore Court and though an ad interim order therein permitted the petitioner to pay somewhat less than the amount demanded by the Corporation, the final order in the Section 9 proceedings is a rather non- committal direction requiring the petitioner to pay in accordance with the agreement between the parties and restraining the respondent from disconnecting the supply of electricity to the petitioner's manufacturing facility except in accordance with law if the dues under the agreement between the parties are paid.

It was only upon obtaining the ad interim order in the Section 9 proceedings that a request for setting up an arbitral tribunal was made by the petitioner to the respondent. The arbitration agreement is of the widest import. The mechanism for the constitution of the arbitral tribunal recognized by the agreement provides for the two parties to nominate their nominees and for the two nominees to decide on the third arbitrator. Following the petitioner's request made on or about March 19, 2011 to constitute the arbitral tribunal to adjudicate upon the disputes detailed in the petitioner's letter, the respondent replied on April 28, 2011 suggesting that there was no live dispute to go to arbitration and that the 3

entire claim made by the petitioner was without basis. It is such defence which has been amplified in the affidavit filed on behalf of the respondent. The respondent says that three heads of claim are indicated in the petitioner's notice of demand of March 19, 2011. The first head of claim relates to an adjustment of Rs.50 lakh. The respondent refers to the abstract of accounts appearing at page 27 of its affidavit and seeks to demonstrate that by July, 2010 the amount had been adjusted. The respondent also relies on page 24 of its affidavit which appears to be a copy of the reconciled accounts bearing the signature of the representatives of both parties. The respondent says that since such reconciliation was made pursuant to an order made in the writ proceedings instituted by the petitioner and such matter was taken into account by the Court and the parties acted in accordance therewith, there is no further grievance that can be raised in respect of such adjustment. The second head of claim in the petitioner's letter relates to a sum of about Rs.25.62 lakh. The petitioner claims that such amount should have been credited to the petitioner after adjustment in the bills. The respondent maintains that in respect of bills raised on account of bulk supply of electricity adjustments take place in the usual course over a period of time. The respondent seeks to demonstrate from the accounts appearing at page 27 of its affidavit that the sum demanded under the second head is not due since the adjustments had already been taken care 4

of. In particular, the respondent relies on the statement of accounts appearing at page 28 of its affidavit and says that despite a detailed statement furnished by the respondent, there is no credible denial thereof in the affidavit-in-reply used by the petitioner. In such context, the respondent relies on a judgment reported at 1996 (1) SCC 206 (Prof. Ramachandra G. Kapse vs Haribansh Ramakbal Singh). That case dealt with a matter under the Representation of the People Act, 1951 and the relevant discussion at paragraph 14 was based on the principle recognized in Order VIII of the Code relating to the extent of denial of the allegations contained in a plaint. It is elementary that an analogy as to the degree of diligence required in preparing a written statement would not hold good in respect of an affidavit filed in proceedings under Section 9 of the 1996 Act which are interlocutory in nature. The judgment is of no assistance to the respondent in the present case.

In respect of the third head of claim, one for a sum in excess of Rs.18 lakh, the respondent says that the claim has been made on account of a charge levied by the respondent's bankers in connection with the petitioner's failure to adhere to the terms set by the bankers for furnishing a revolving guarantee in connection with the bulk supply of electricity. The respondent says that if such claim were to be entertained it would necessarily require the presence of both the respondent's bankers and the petitioner's bankers and the claim, strictly speaking, would not be a claim 5

against the respondent. The respondent reminds of the considerations that should come into play before allowing a request under Section 11 of the 1996 Act. The respondent says that the Chief Justice or his designate has first to be satisfied that there are live disputes to go to arbitration and that the disputes are covered by the arbitration agreement. In short, it is the contention of the respondent that since the adjustment in respect of the first head of claim has been accepted by the petitioner, inter alia, by the document appearing at page 24 of the respondent's affidavit, there is no live claim in respect of such head of claim; that since the second head of claim on account of adjustments has been explained in the respondent's statement appearing at page 28 of its affidavit and there is no credible denial thereof in the petitioner's reply, the respondent's statement is deemed to be admitted; and, since the third head of claim is against the respondent's bankers it cannot be covered by the arbitration clause contained in the agreement between these parties. The respondent has referred to the correct principles in assessing a request under Section 11 of the Act. But as to whether a claim is a good claim or not is in the exclusive domain of the arbitrator and may not be pre-judged by the Chief Justice or his designate on a request under Section 11 unless it is ex facie evident as such. It is true that the petitioner accepted the reconciliation of the accounts in respect of the first head of claim and it is true that there is no detailed statement which has 6

been furnished by the petitioner in response to the meticulous statement of accounts which has been relied upon by the respondent. However, even if a detailed reply had been furnished by the petitioner, the scope of Section 11 would not have permitted any investigation to be carried out in such regard. Even though it is possible that a payment is tendered against a receipt which is granted and even if the receipt acknowledges full and final payment, if circumstances are such that the recipient of the payment disowns the receipt or if the recipient of the payment alleges wrong-doing in the obtaining of the receipt, such dispute would be amenable to arbitration if there is such an agreement between the parties. Reference in such context may be made to a decision reported at 2009 (1) SCC 267 (National Insurance Co. Ltd. vs. Boghara Polyfabs (P) Ltd). Prima facie, the respondent's submission appears to be substantial both in respect of the first head of claim and in respect of the third head of claim. However, since the mere fact that the petitioner has not dealt with the detailed accounts relating to the second head of claim would not result in the arbitration being denied, it would be in the fitness of things if the petitioner is permitted to raise whatever disputes the petitioner may and the respondent is given liberty to take whatever defence that may be open to the respondent, including the defence that any head of claim may not be arbitrable or may already have been settled in course of the transaction between the parties. Tempting as it is to hold that none of 7

the claims made by the petitioner is of any substance, the extent of the authority available under Section 11 of the Act would not permit such a finding.

The agreement between the parties envisages the constitution of an arbitral tribunal with the two nominees of the parties deciding upon the third arbitrator. Since it is evident that upon receipt of the petitioner's demand of March 19, 2011, the respondent denied the claim and insisted that there was no question of going to arbitration, there has been a breach in the compliance of the arbitration agreement on the part of the respondent. Accordingly, the respondent is afforded an opportunity to nominate the respondent's nominee on the arbitral tribunal within a period of thirty days from the date and for the two nominees to decide upon the third arbitrator within a period of thirty days from the respondent's nominee being identified.

It is made clear that the observations herein should not bind any future proceedings that the parties may pursue in respect of any claim or counter-claim.

A.P.No.676 of 2011 is disposed of accordingly without any order as to costs.

Urgent certified photocopies of this order, if applied for, be given to the parties subject to compliance with all requisite formalities. (Sanjib Banerjee, J.)

A/s.