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1997 Supreme(Bom) 352
BOMBAY HIGH COURT
M.B. Shah, J.
LLOYDS STEEL INDUSTRIES LIMITED - APPLICANT
v.
OIL & NATURAL GAS CORPORATION LTD. - OPPOSITE PARTY
Arb. Appln. No. 10 of 1996,
Decided on: July 11, 1997
Ranbir Krishnan with Tushar Bhavsar i/b A.B. Ankhad, Advocates, for the Applicant.
D.R. Zaiwala with K.H. Mody & Amjad Sayed i/b M/s. Desai & Diwanji, Advocates, for the Opposite Party.
A fresh contract can substitute an existing contract, causing the arbitration clause in the original contract to perish, and a full and final settlement bars any further claims, including claims for interest on delayed payments.
Headnote:
ARBITRATION - APPOINTMENT OF SOLE ARBITRATOR - MoU - VALIDITY - ECONOMIC DURESS - UNJUST ENRICHMENT - JURISDICTION OF COURT - ARBITRATION AGREEMENT - EXISTENCE - SUBSTITUTION OF CONTRACT - PERISHING OF ARBITRATION CLAUSE.
Fact of the Case:
The Applicant (Lloyds Steel Industries Ltd.) filed an Application under Section 11 of the Arbitration and Conciliation Act, 1996 (the Arbitration Act) for the appointment of a Sole Arbitrator to decide the outstanding dispute relating to interest amount and to set a time-limit for the arbitral Award. The Applicant contended that the Respondent (Oil & Natural Gas Corporation Ltd.) withheld final bills and made payments under economic duress, leading to the execution of a Memorandum of Understanding (MoU) in September 1993, which was claimed to be void due to economic duress and coercion. The Respondent argued that the MoU constituted a full and final settlement, barring any further claims, and that the arbitration clause in the original contract perished with the substitution of the MoU.
Finding of the Court:
The Court held that the MoU, which was executed after the original contract, constituted a fresh contract that governed the rights and obligations of the parties. The arbitration clause in the original contract perished with the substitution of the MoU, and there was no existing arbitration agreement. The Court further held that the Applicant's subsequent claim for interest on the delayed payment was not an arbitrable dispute since the MoU specifically stated that there were no further claims on any account. The Court also rejected the Applicant's contention that the MoU was void due to economic duress, stating that this issue could not be decided in the present proceeding.
Issues: 1. Whether the MoU executed in September 1993 constituted a valid and binding contract, superseding the original contract and its arbitration clause. 2. Whether the Applicant's claim for interest on the delayed payment was an arbitrable dispute under the MoU. 3. Whether the MoU was void due to economic duress and coercion.
Ratio Decidendi: 1. The Court applied the principles established in Damodar Valley Corporation v. K. K. Kar and other precedents to hold that a fresh contract can substitute an existing contract, causing the arbitration clause in the original contract to perish. 2. The Court held that the MoU constituted a full and final settlement, barring any further claims, including the Applicant's claim for interest on the delayed payment. 3. The Court declined to consider the validity of the MoU on the ground of economic duress in the present proceeding.
Final Decision: The Court rejected the Applicant's Application for the appointment of a Sole Arbitrator, holding that there was no existing arbitration agreement and that the Applicant's claim was not an arbitrable dispute.
M.B. Shah, J. - The Applicant (Lloyds Steel Industries Ltd.) has filed this Application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Arbitration Act") for appointment of Sole Arbitrator to decide the outstanding dispute relating to interest amount and to set a time-limit for arbitral Award.
2. In the Application, it has been stated that the Respondent, Oil & Natural Gas Corporation Ltd., is carrying on business, inter alia, of processing of oil and natural gas, including liquified petroleum gas (LPG) and natural gas liquid (NGL), and loading the same to various destinations through its loading arms. On 26th May, 1987, the Respondent placed an order with the Applicant for Rail/Road LPG Loading System. Further contracts were given on 25th July, 1988, one for supply of NGL Rail Loading System for LPG Project at ONGC, Hazira, and one for Erection, Testing and Commissioning of NGL Rail Loading System for LPG Project of ONGC, Hazira.
3. The Applicant has also stated various terms and conditions of the contract. It is its contention that final bills were not paid by the respondent and were withheld in an arbitrary and illegal manner, even though the Applicant made numerous requests to the Respondent for payment of aggregate amount of Rs. 1.77 crores. Final bills were submitted on 31st March, 1989 and 5th June, 1989, respectively. It is contended that these bills were withheld for over 4 1/2 years. As the Respondent withheld large amounts, the Applicant was suffering huge losses and was under grave economic duress. Under such economic duress, the entire business existence of the Applicant was at stake. The Respondent agreed to pay the pending final bills in September, 1993, subject to price reduction for delays. The Respondent did not compensate for the period of delay and misused its economic might to coerce the Applicant under economic duress and coercion to enter into a Memorandum of Understanding (MoU) dated 9th September, 1993, whereby the Respondent agreed to make payment of Rs. 1,47,67,347/- against two final bills as full and final settlement. That MoU dated 9th September, 1993 is produced on record at Exh. 6. By the said MoU, it was agreed that the net payment towards full and final settlement was Rs. 1,43,74,777/-. For working out of the said amount, figures are mentioned in the said MoU. It has been further agreed as under:
"Both ONGC and Contractor hereby agree that once the amounts payable and receivable as detailed above including the Income-tax Deduction at Source has been paid and received, there shall lie no claim on any account whatsoever either by ONGC on the Contractor or by the contractor on ONGC and the aforesaid contracts shall be deemed to have been closed and both the Parties shall have discharged their respective obligations in respect of the said contracts."
That MoU is duly signed by the parties and witnesses.
4. On the basis of the aforesaid MoU, admittedly, on 14th September, 1993, the Respondent paid to the Applicant the agreed sum, which was unconditionally accepted by the Applicant. This is admitted by the Applicant.
5. After receiving the said amount, on 6th April, 1994, the Applicant wrote letter to the ONGC (Exhibit 7) stating that the Applicant was entitled to recover the said amount in May/June, 1989, but the amount was released only on 13th September, 1993, and therefore, it should be given interests on the said amount at the rate of 20% per annum for delayed payment. For the said period, it demanded compounded interest amounting to Rs. 1,72,08,660/-. That letter was immediately replied on 25th April, 1994 by the Chief Engineer, stating that, in view of the MoU dated 9th September, 1993, there lies no claim on any account whatsoever. The Applicant has produced on record a subsequent letter dated 30th November, 1994, in which also demand for the said amount was again made. Again the Dy. General Manager of the Respondent, by his letter dated
