IMPORTANT POINT
When arbitration clause of the charter party agreement (Clause 62) has been incorporated in the Bill of Lading by specific reference by its Clause (1) then it shows that parties had intended that the disputes arising on the Bill of Lading should be resolved by arbitrator. High Court was wrong in taking a contrary view. The petition filed by the appellants for stay of admiralty suit in High Court is allowed and Trial Court is directed to proceed in the matter according to law.

Headnote:Arbitration and Conciliation Act, 1996-Section 45-Stay of suit-Charter party agreement between parties-Clause 62 relating to arbitration agreement-Incorporated by Clause 1 of the conditions of carriage of the Bill of Lading-Whether parties agreed that Clause 62, the arbitration clause in the Charter Party Agreement shall be applicable to disputes arising under the Bills of Lading? (Yes)-High Court taking contrary view is not correct-Stay granted and case remanded to trial Court to proceed in matter according to law-Case law discussed-Appeal allowed accordingly.
       Held : The question that arises for determination is, whether the High Court, on construction of the terms and conditions of the Charter Party Agreement and the condition in the Bills of Lading incorporating the terms and conditions of the Charter Party Agreement into it was right, in holding that the parties in the suit are not bound by the agreement contained in Clause 62 of the Charter Party Agreement for purpose of arbitration of the disputes raised in the suit. Before proceeding to consider the question further it will be convenient to quote Clause 62 of the Charter Party Agreement and the relevant clause in the Bills of Lading. Clause 62 of the Charter Party Agreement is as follows :
       "This Charter Party shall be governed by and construed in accordance with English Law and any dispute arising out of this Charter Party shall be referred to arbitration in London in accordance with the Arbitration Acts 1950 and 1979 or any statutory modification or re-enactment thereof for the time being in force. Unless the parties agree upon a sole arbitrator, one arbitrator shall be appointed by each party and the arbitrators so appointed shall appoint a third arbitrator, the decision of the three-man tribunal thus constituted or any two of them, shall be final. On the receipt by one party of the nomination in writing of the other party s arbitrator, that party shall appoint their arbitrator within fourteen days, failing which the decision of the single arbitrator appointed shall be final. For disputes where the total amount claimed by either party does not exceed USD 50000 the arbitration shall be conducted in accordance with the Small Claims Procedure of the London Maritime Arbitrators Association."
       Clause 1 of the Conditions of Carriage of the Bills of Lading reads as follows :
       "All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated."
       The question for consideration is whether the parties agreed that Clause 62, the arbitration clause in the Charter Party Agreement shall be applicable to disputes arising under the Bills of Lading. For determination of this question it is necessary to ascertain the intention of the parties to the Bills of Lading. This question has engaged the attention of courts in India and in England from time to time. (Paras 4, 5 and 6)
       After reviewing English & Indian case law,
       Held : From the conspectus of the views expressed by courts in England and also in India, it is clear that in considering the question, whether the arbitration clause in a Charter Party Agreement was incorporated by reference in the Bill of Lading; the principal question is, what was the intention of the parties to the Bill of Lading? For this purpose the primary document is the Bill of Lading into which the arbitration clause in the Charter Party Agreement is to be read in the manner provided in the incorporation clause of the Bill of Lading. While ascertaining the intention of the parties attempt should be made to give meaning to the incorporation clause and to give effect to the same and not to invalidate or frustrate it giving a literal, pedantic and technical reading of the clause. If on a construction of the arbitration clause of the Charter Party Agreement as incorporated in the Bill of Lading it does not lead to inconsistency or insensibility or absurdity then effect should be given to the intention of the parties and the arbitration clause as agreed should be made binding on parties to the Bill of Lading. If the parties to the Bill of Lading being aware of the arbitration clause in the Charter Party Agreement have specifically incorporated the same in the conditions of the Bill of Lading then the intention of the parties to abide by the arbitration clause is clear. Whether a particular dispute arising between the parties comes within the purview of the arbitration clause as incorporated in the Bill of Lading is a matter to be decided by the arbitrator or the court. But that does not mean that despite incorporation of the arbitration clause in the Bill of Lading by specific reference the parties had not intended that the disputes arising on the Bill of Lading should be resolved by arbitrator. Coming to the case on hand it is to be kept in mind that while incorporating the conditions of the Charter Party Agreement in the Bill of Lading specific reference has been made to the arbitration clause by use of the expression including the law and arbitration clause . Therefore, the parties have taken care not to couch the interpretation clause in the Bill of Lading in general terms but have made their intention clear that the disputes arising thereunder should be resolved by arbitration according to the clause in the Charter Party Agreement. On a fair reading of the clause 62 of the Charter Party Agreement (Arbitration clause) and Condition -1 of the Bill of Lading (incorporation clause) there is no manifest inconsistency or insensibility. Such was not the case of the parties in the suit nor any such finding recorded in the judgment of the High Court (Single Judge or by the Division Bench). It was also not contended before us that if the arbitration clause in the Charter Party Agreement is implemented in relation to disputes arising on the Bill of Lading it would give rise to an absurd/unworkable situation. It was also not urged before us that the condition in the Bill of Lading incorporating the arbitration clause of the Charter Party was null and void being incapable of being performed. The main ground on which it was contended that the clause is inoperative is that the expression "Charter Party" in clause 62 of the Charter Party Agreement was not changed to "Bill of Lading" while incorporating the same in the latter. This contention, we are constrained to observe cannot be accepted since it goes against the clear intention of the parties as evident from the incorporation clause. On a careful consideration of the entire matter we are of the view that there is no good ground or acceptable reason why the intention of the parties to incorporate the arbitration clause in the Charter Party Agreement in the Bill of Lading should not be given effect to. The High Court was not right in rejecting the prayer of the appellants for stay of the suit. In the result, the appeal is allowed with costs. The Judgment of the Division Bench of the High Court confirming the judgment of the Single Judge is set aside. The petition filed by the appellants for stay of the suit is allowed. The trial court is directed to proceed in the matter according to law. Hearing fee assessed at Rs. 50.000/-. (Paras 19, 20, 21 and 22)

JUDGMENT

D.P. Mohapatra, J.-Leave granted.

2. The appellants herein are the owners and parties interested in the Vessel M.V. "Baltic Confidence" (for short the ship ). The 2nd respondent herein is the charterer of the said ship under the Time Charter Party Agreement entered between it and the appellants with effect from 8th of May, 1997. Five Bills of Lading all dated 26th May, 1997 were issued by the appellants wherein the respondent No. 2 agreed and undertook to carry on board the said ship 11,433.510 metric tonnes of Canadian Yellow Peas ("the peas" for short) from the Port of Vancouver in Canada to the Port of Calcutta in good order and condition. The respondent No. 1 herein is the holder and endorsee of each of the said Bills of Lading and the owner of the said stock of peas. The said respondent No. 1 filed Admiralty Suit No. 17, of 1997 in the High Court at Calcutta in its admiralty jurisdiction against the appellants and respondent No. 2 alleging inter alia that the defendants had negligently and in breach of the contract of carriage and/or breach of their duties as bailees, failed to deliver goods to the plaintiff in good order and condition; the defendants have delivered part of the goods weighing 4,910 metric tonnes damaged by sea water and in consequence the plaintiff had suffered loss and damage at least in the sum of US $ 1,384,620 being the value of the said damaged quality. The plaintiff further alleged that it has suffered further loss and damages. It was in these circumstances that the plaintiff filed the suit.

3. The appellants and respondent No. 2 herein as the 1st and 2nd defendants in the suit filed an application under Section 45 of the Arbitration and Conciliation Act, 1996 (for short the Act ) praying inter alia for staying of the proceedings in the suit and for referring the disputes to arbitration in terms of Clause 62 of the Charter Party Agreement which was specifically incorporated as a condition of the Bills of Lading. The said application was rejected by a single Judge of the Court by the order passed on 10th November, 1998 holding, inter alia, that the arbitration clause in the Charter Party Agreement was not applicable to the alleged disputes arising from the Bills of Lading and, therefore, the application filed by the defendants was not maintainable. On appeal by the defendants, the Division Bench of High Court confirmed the order passed by the single Judge vide the judgment dated 2nd August, 1999. The said judgment is under challenge in this appeal filed by the defendants.

4. The question that arises for determination is, whether the High Court, on construction of the terms and conditions of the Charter Party Agreement and the condition in the Bills of Lading incorporating the terms and conditions of the Charter Party Agreement into it was right, in holding that the parties in the suit are not bound by the agreement contained in Clause 62 of the Charter Party Agreement for purpose of arbitration of the disputes raised in the suit. Before proceeding to consider the question further it will be convenient to quote Clause 62 of the Charter Party Agreement and the relevant clause in the Bills of Lading. Clause 62 of the Charter Party Agreement is as follows :

"This Charter Party shall be governed by and construed in accordance with English Law and any dispute arising out of this Charter Party shall be referred to arbitration in London in accordance with the Arbitration Acts 1950 and 1979 or any statutory modification or re-enactment thereof for the time being in force. Unless the parties agree upon a sole arbitrator, one arbitrator shall be appointed by each party and the arbitrators so appointed shall appoint a third arbitrator, the decision of the three-man tribunal thus constituted or any two of them, shall be final. On the receipt by one party of the nomination in writing of the other party s arbitrator, that party shall appoint their arbitrator within fourteen days, failing which the de

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2001 Supreme(SC) 1130

Cases Referred (3)