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High Court Of Delhi
STATE TRADE CORPORATION OF INDIA LIMITED - Appellant
Versus
CHITTOOR CO-OPERATIVE SUGAR LIMITED - Respondent
Interim Application 520 of 1987
Decided On : 03/09/1989
ARBITRATION ACT, 1940 - SECTION 34 - ORDER 1 RULE 10 CPC - AGREEMENT - MODIFICATION - ARBITRATION CLAUSE - APPLICABILITY - NEW AGREEMENT - INDEPENDENT CONTRACT - NO ARBITRATION CLAUSE - STAY OF SUIT - NOT JUSTIFIED.
Fact of the Case:
Plaintiff, a trading organization, entered into an agreement with Defendant No. 1 for the purchase of sugar for export. Due to a government embargo on sugar export, the plaintiff could not fulfill the contract. A new agreement was reached between the plaintiff and Defendants 2 and 3, representing sugar manufacturers, allowing the manufacturers to sell the unlifted sugar in the open market and the plaintiff would pay the difference in price. Defendant No. 1 submitted a claim for the difference in price, and the plaintiff paid 90% of the claimed amount. Upon examination of documents, the plaintiff found that Defendant No. 1 had sold a different grade of sugar and was not entitled to payment. The plaintiff filed a suit for the refund of the amount paid and interest. Defendant No. 1 applied for a stay of the suit under Section 34 of the Arbitration Act, relying on the arbitration clause in the original agreement. Defendant No. 3 applied to be struck off as a defendant under Order 1 Rule 10 CPC, as no relief was claimed against it.
Finding of the Court:
The court held that the new agreement between the plaintiff and Defendants 2 and 3 was independent of the original agreement and did not contain an arbitration clause. Therefore, the arbitration clause in the original agreement did not apply to the dispute arising from the new agreement. The court also held that Defendant No. 3 was a necessary party to the suit as the plaintiff's claim was based on the new agreement entered into with Defendants 2 and 3.
Issues: 1. Whether the new agreement between the plaintiff and Defendants 2 and 3 was a modification of the original agreement or an independent contract. 2. Whether the arbitration clause in the original agreement applied to the dispute arising from the new agreement. 3. Whether Defendant No. 3 was a necessary party to the suit.
Ratio Decidendi: 1. The court found that the new agreement was an independent contract as it dealt with a situation not contemplated or provided for by the original agreement. The arrangement arrived at by the parties in 1983 was wholly independent of the original agreement dated 26th February, 1982. 2. The court held that the arbitration clause in the original agreement did not apply to the dispute arising from the new agreement as the new agreement was not part and parcel of the original agreement. 3. The court held that Defendant No. 3 was a necessary party to the suit as the plaintiff's claim was based on the new agreement entered into with Defendants 2 and 3.
Final Decision: The court dismissed the application for a stay of the suit under Section 34 of the Arbitration Act and the application to strike off Defendant No. 3 as a defendant under Order 1 Rule 10 CPC.
( 1 ) (ORAL ).-THIS order will dispose of two applications being IA 520/87 filed by defendant No. 3 under Order 1, Rule 10 Civil Procedure Code and IA 453187 filed by defendant No. 1 under Section 34 of the Arbitration Act.
( 2 ) THE plaintiff has filed a suit for the recovery of money against the defendants and it is alleged in the plaint that it floated a tender for supply of sugar to the plaintiff. The plaintiff is a trading organisation and acts as a canalising agency for import and export of various goods. The sugar, for which the tender was floated, was required to be purchased and exported out of India.
( 3 ) DEFENDANT No. 1 is a company which owns a sugar mill and on 26th February, 1982 an agreement was reached between the plaintiff and defendant No. 1 whereby the plaintiff agreed to purchase from the first defendant 1850 M. T. of D-30 grade white crystal sugar of 1981-82 crushing season. According to the plaintiff the first defendent supplied 1406 M. T. of said sugar. Before the contract could be completed the Government of India imposed an embargo on the export of sugar from India. According to the plaintiff it was not under any obligation to lift the balance quantity of sugar in view of Clause 10 (d) of the agreement between the parties, which clause reads as under :-
" (D) This contract is at all times subject to Government of India s permission to STC to export sugar out of India. If at any time, the Government of India disallow STC to export sugar and/or ask STC to defer, postpone or cancel any export commitment and/or reduce the quantity of sugar to be exported by STC. STC shall have the right, at its discretion, to cancel this contract and/or defer, postpone or reduce the quantity of sugar to be exported under this contract without incurring any liability to the factory, on any account whatsoever. Similarly, if for any reason whatsoever including any default on the part of the foreign buyer (s) of STC, STC is not able to export sugar, STC without incurring any liability to the factory shall be entitled to cancel the quantities yet to be despatched by the Factory. "
( 4 ) IT is further alleged that defendant Nos. 2 and 3, as representatives of defendant No. 1 and other sugar manufacturers, approached the plaintiff and asked it to lift the balance quantity of sugar. It was represented by defendant No. 1 and other sugar manufacturer that if the balance quantity of sugar was not lifted, then the manufacturers will the sugar at the risk and cost of the plaintiff. According to the plaintiff, in order to avoid hardship to the sugar manufacturers, it entered into an agreement with defendant Nos. 2 and 3 wherein it was agreed that sugar manufacturers may dispose of the balance unlifted quantity of free sale sugar of D-30 grade in the open market and the plaintiff would pay to the sugar manufacturers the. difference between the actual sale price and the contract price. This decision was conveyed by the plaintiff to defendants 2 and 3 vide the plaintiff s letters dated 10th February, 1983 and 22nd April, 1983. It was further agreed that the manufacturers, including the first defendant, after disposal of the said sugar would prefer a claim on the plaintiff for the payment of difference in price. The plaintiff had agreed to pay provisionally 90 per cent of the difference in the price upon the submission of the claim and the balance 10 per cent was to be paid after due verification of the invoices and the other documents in respect of the sale of the said sugar.
( 5 ) IT is further the case of the plaintiff that defendant No. 1 submitted a claim of Rs. 3,57,338 alleged to be the difference in the price of the unlifted quantity of 444 MT of sugar. . On 14th November, 1983 the phintiff paid to defendant No. 1 Rs. 2,88,357. 48 representing 90 per cent of the amount claimed by defendant No. 1. The plaintiff thereafter asked the defendant No. 1 to submit relevant certificates from the auditors and other documents b
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