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1996(3) Supreme 591
SUPREME COURT OF INDIA
J.S. Verma and K. Venkataswami, JJ.
State of Orissa etc. etc. -Appellant
versus
Klockner & Co. & Ors. -Respondents
Civil Appeal Nos. 7386-88/1995
with
Civil Appeal Nos. 7574-76/1995
With
SLP (C) No. 19846/1995
All Decided on 16-4-1996
Counsel for the Parties :
For the Appellant : B.M. Patnaik.
For the Respondent : C.S. Vaidyanathan.
Held : In this case, the existence of agreement dated 20.4.82 cannot be disputed by OMC or by the appellant. The first respondent (Klockner & Co.) one of the parties to the agreement has commenced arbitration proceedings against the other party is also an undisputed fact. In the light of the wide scope of Clause 15 of the agreement between the first respondent and OMC dated 20.4.82 (already extracted) relating to arbitration and in view of our finding the State of Orissa is the successor to OMC, it is not open to the appellant to contend that the legal proceedings initiated was not in respect of any matter agreed to be referred to arbitration in the agreement. Except filing an application under Order 7 Rule 11 CPC for rejection of the plaint in the suit filed by OMC, the first respondent has not taken any step in the legal proceedings and that application for rejection of the plaint cannot be construed as any step in the legal proceedings to bar the invocation of Section 3 of the Foreign Awards Act by the first respondent. (Para 15)
In this absence of any serious challenge to the commercial contract or to the arbitration agreement, it has to be found that the agreement was valid, operative and can be of being performed and that there are disputes between the parties with regard to the matters agreed to be referred to. (Para 16)
Court and Bench: Supreme Court of India, J.S. Verma and K. Venkataswami, JJ. Decided on 16-4-1996. [1996 Supreme(SC) 791][1996 AIR(SC) 2140]
Parties: Appellants - State of Orissa and Orissa Mining Corporation (OMC). Respondents - Klockner & Co. (first respondent) and others. Civil Appeals Nos. 7386-88/1995, 7574-76/1995; SLP (C) No. 19846/1995. (!)
Facts: OMC, a Government of Orissa undertaking, entered into a "Marketing Agreement" dated 20.4.1982 with Klockner & Co. (a German company) for exclusive marketing of charge chrome produced at OMC's Bamnipal plant. The agreement required delivery of 250,000 MT over five years (extendable), with Klockner receiving 4% commission on FOB value. Clause 15 provided for arbitration under International Chamber of Commerce rules in London (or mutually agreed place) governed by substantive Swiss law for disputes arising out of or relating to the contract. (!) [1000004780019][1000004780002]
A subsequent agreement dated 16.2.1987 incorporated the marketing terms for OMC (Alloys) Ltd., a wholly-owned OMC subsidiary. 108.429 MT delivered; balance undelivered. OMC (Alloys) merged into OMC on 30.8.1991. Government of Orissa promulgated Ordinance 8 of 1991 (24.8.1991), taking over Charge Chrome Division, assuming its assets and liabilities (including bank dues), with provisions for continuation of proceedings and vesting in another entity. Division later vested in Tata Iron & Steel Co. (TISCO) via sale agreement, where State agreed to discharge pre-existing liabilities (including marketing agreement) and indemnify TISCO. [1000004780002][1000004780003][1000004780004] (!) (!) (!) (!) (!) (!) (!)
Klockner invoked arbitration (ICC Ref. 7878/HV) after failed negotiations. State filed Title Suit No. 152/93 seeking declarations: not successor to OMC Charge Chrome Division; no liability for Klockner's ~US$ 2.95 million claim; no obligations under 1982 agreement; claim not arbitrable; and permanent injunction against arbitration. [1000004780005][1000004780006] (!) (!) (!) (!) (!) (!)
Procedural History: Klockner filed Misc. Case No. 426/93 under Section 3, Foreign Awards (Recognition & Enforcement) Act, 1961, for stay of suit. Trial court (Civil Judge, Bhubaneswar) granted stay on 16.4.1994, holding conditions under Section 3 fulfilled and O7 R11 application for plaint rejection not a "step in proceedings." Orissa High Court upheld in Misc. Appeal/Revision (12.5.1995). State/OMC appealed. Separately, in related Title Suit No. 231/92 (filed by OMC), trial court rejected plaint under O7 R11 CPC; High Court reversed (First Appeal No. 14/95, 12.5.1995). (!) (!) [1000004780007] (!) [1000004780018] (!) (!) (!) (!)
Issues: 1. Whether State of Orissa is successor-in-interest to OMC's Charge Chrome Division, binding it to 1982 agreement and arbitration clause. [1000004780009][1000004780011] 2. Whether suit relates to matters agreed for arbitration and Section 3 conditions satisfied (valid/operative agreement; disputes exist; proceedings in respect of arbitrable matters; application before "step in proceedings"). [1000004780013][1000004780014] (!) 3. Validity of stay under Section 3 (mandatory if conditions met) vs. discretion under domestic arbitration law. (!) (!)
Decision: Appeals dismissed; stay upheld. State/OMC liable as successors. SLP (re plaint rejection) dismissed. Costs on appellants in appeals. (!) (!)
Key Holdings and Reasoning: - State is successor-in-interest: Ordinance vested Charge Chrome Division's assets/liabilities/rights in State (Cl. 4(5), 5, 7); later vested in TISCO with State retaining pre-takeover liabilities (Cl. 9 sale agreement). State steps into OMC's shoes; cannot deny connection. [1000004780011][1000004780012] (!) (!) (!) (!) (!) - Section 3 invoked validly: Undisputed 1982 agreement (acted upon); arbitration commenced; Clause 15's broad scope covers suit claims (disputes re construction/meaning/breach); no serious challenge to contract/arbitration validity (valid, operative, capable of performance); disputes exist. [1000004780014][1000004780015] (!) (!) - No disqualifying "step": Only O7 R11 application filed (seeks rejection, not defends merits); not a bar to Section 3. [1000004780014] (!) - Section 3 mandatory ("shall stay") if conditions met; overrides CPC/Arbitration Act, 1940; applies to foreign awards (London seat, Swiss law). Suit must proceed to arbitration. Merits (e.g., liability quantum) for arbitral forum. (!) (!) (!) (!) (!) (!) (!) (!) (!) [1000004780016][1000004780017] - Related suit (TS 231/92): Plaint discloses cause of action; O7 R11(a)/(d) inapplicable (challenges entire contract, not just arbitration clause; Foreign Awards Act governs, no suit bar like Arbitration Act S.32). (!) (!) (!) (!)
JUDGMENT
K. Venkataswami, J.-The above Civil Appeals arise out of an Order passed in Misc. Case No. 426/93 in T.S. 152/93 on the file of Civil Judge, Bhubaneswar dated 16.4.94 which was later upheld by the Orissa High Court by Order dated 12.5.95. Against a single Order of the learned Civil Judge, Bhubaneswar in M.C. No. 426/93, the State of Orissa filed one Miscellaneous Appeal No. 553/94 and Civil Revision Petition No. 262/94 before the Orissa High Court on the plea that there was a doubt whether an appeal or revision petition would lie against the Order of the Civil Judge in the said Miscellaneous Case. The High Court rendered its decision in Civil Revision Petition No. 262/94. However, while moving this Court, the State of Orissa not only filed two Special Leave Petitions against the common Order of the Orissa High Court in Civil Revision and Civil Miscellaneous Appeal but also preferred independent Special Leave Petition against the Order of Civil Judge, Bhubaneswar in Miscellaneous Case No. 426/93. Likewise, the Orissa Mining Corporation (appellant in C.A. Nos. 7574-76/95 and third respondent before the High Court), has also filed three Special Leave Petitions against the common order of the High Court and of Civil Judge. After leave was granted, all these Special Leave Petitions were numbered as Civil Appeals as mentioned above.
2. Brief facts, shorn of details, necessary for the disposal of these Appeals are as under:-
The first respondent herein, namely, Klockner & Company, entered into an agreement on 20.4.82 described as "Marketing Agreement" with Orissa Mining Corporation (hereinafter referred to as "O.M.C." for short), a Government of Orissa Undertaking. We are not giving all the clauses in the agreement under consideration. The said agreement inter alia stipulated that O.M.C. will establish a plant at Bamnipal in the district of Keonjhar, Orissa, for production of "charge chrome" (hereinafter called as the "product"). It (OMC) agreed to market the said product exclusively through Klockner and Co. upon the terms and conditions contained in the said agreement to which Klockner & Co. gave acceptance. The agreement stipulated that during the currency of the agreement, O.M.C. shall not be entitled to market its product by direct contracts with purchasers nor shall it be entitled to market its product through any agent or distributor other than the Klockner and Co. That during the currency of the agreement, the Klockner and Co. shall not be entitled to purchase the product from any source in India other than O.M.C. One important clause in the agreement is that the delivery of the product shall commence by April 1985 and shall continue over a period of five years but it will not come to an end until a total quantum of 250,000 MT of the product was delivered. There is also a clause in the agreement enabling the parties to extend the period by mutual consent. According to another clause in the agreement, if the agreement is terminated by mutual consent or cancelled, then notwithstanding the termination/cancellation of the agreement, the parties shall remain responsible for the fulfilment of any obligations which are outstanding at the time of termination/cancellation of the agreement. It was agreed that OMC will pay to Klockner & Co. a commission on the sale of the product effected in the territory in consideration of the services rendered by it in terms of the agreement and the commission shall be 4 of the final FOB value of the product sold. The said commission shall be payable to Klockner & Co. by way of reduction from each invoice. Another important clause for the purpose of disposal of these Appeals is clause 15 in the agreement which relates to arbitration. It reads as follows:
"15.1. In the remote and unlikely event of there being any dispute or difference whatsoever arising between the parties out of/or relating to the construction, meaning and operation or effect of this contract or the brea
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