Back
2011 Supreme(Mad) 4140
2011 (2) CWC 593
High Court of Judicature at Madras
N. PAUL VASANTHAKUMAR
M/s. Sangeeth Textiles Ltd., rep.by its Authorized Signatory
Versus
M/s. The Cotton Corporation of India Limited & Others
W.P.Nos.19447, 19448, 19449, 19450, 19451, 19452, 19453, 19454, 19467, 19468, 19469, 19470, 19471, 18651, 18652, 18653, 18654, 18655, 18656, 18657, 18658, 18659, 18660, 18663, 18664, 18665, 18666, 18667, 18668, 18669, 18670, 18671, 18672, 18673, 18819, 18820, 18821, 18822, 21460, 21461, 21462 of 2011 & Connected Miscellaneous Petitions
Decided On : 30-09-2011
For the Petitioner:R.L. Ramani, Sr. Counsel for P.J. Rishikesh, B. Raveendran, N. Umapathi, R. Bharath Kumar, M/s. Aiyar and Dolia, Advocates.
For the Respondents:R1 to R3 - M.S. Krishnan, Sr. Counsel, Cotton Corp. of India Ltd. for M/s. Sarvabhauman Associate, Advocate, R4 - V. Parivallal, Ministry of Textiles, Senior Central Govt. Counsel Government of India.
The main legal point established in the judgment is that the existence of an arbitration clause in a contract restricts the court's jurisdiction to entertain writ petitions, especially when factual disputes are raised.
Headnote:
Frustration of Contract - Cotton Procurement Contract - Clause 12 of the terms of the contracts - Arbitration and Conciliation Act, 1996 - Supreme Court's interpretation of arbitration clauses - Doctrine of Frustration - Legal principles established in the given judgment
Fact of the Case:
The petitioners, engaged in cotton ginning and spinning, sought to declare contracts with the Cotton Corporation of India as null and void due to alleged frustration caused by power cuts, unit closures, and export bans. The Corporation opposed, citing the existence of an arbitration clause and disputing the alleged frustration.
Finding of the Court:
The court found that the writ petitions were not maintainable as the disputes raised were factual and should be resolved through arbitration as per the arbitration clause in the contracts. The court dismissed the writ petitions with liberty to move for arbitration.
Issues: The main issue was the maintainability of the writ petitions seeking to declare the contracts null and void, and the refund of Earnest Money Deposit (EMD).
Ratio Decidendi: The court held that the existence of an arbitration clause in the contracts meant that the disputes should be resolved through arbitration. The court also emphasized that factual disputes should be addressed through arbitration rather than writ jurisdiction.
Final Decision: The writ petitions were dismissed with liberty to move for arbitration. No costs were awarded.
1. The prayer in all these writ petitions is to declare the Contract No.112 dated 6.1.2011 (in W.P.No.19447/2011) and similar contracts, entered into between the petitioner and the third respondent – M/s.Cotton Corporation of India Limited, as null and void and direct the respondents to refund the EMD of the petitioners lying with the respondents 1 to 3.
2. The brief facts necessary for disposal of these writ petitions are as follows:
(a) The petitioners are doing the business of ginning of cotton and spinning of yarn from cotton, both for export to foreign countries and for the domestic market. Petitioners Company approached the third respondent Corporation for procurement of cotton, which is the basic raw material for spinning industry.
(b) Contracts of sale was entered into between the third respondent and each of the petitioner on 6.1.2011 (in W.P.No.19447/2011) and on various dates. The terms of the contract stipulates that the agreed quantity of purchase by the petitioners Company shall be 7500 bales of cotton, for which the price was fixed at Rs.43,800/- per candy. The payment condition entailed a minimum deposit of Rs.800/- per bale. The petitioners Company have paid a total deposit of Rs.800/- per bale, which ultimately works out to a total sum of Rs.60 lakhs.
(c) According to the petitioner in W.P.No.19447 of 2011, out of 7,500 bales, they had taken delivery of 7000 cotton bales and therefore a balance money of Rs.4,00,000/- is still with the third respondent Corporation.
(d) It is contended that the entire contract is now frustrated because of frequent power cuts that lasted for long hours, closure of Units in Tiruppur, and sudden ban on export of cotton yarn to foreign countries by the Central Government. Due to the said three reasons working hours in the factory has been drastically reduced to one shift instead of normal three shifts and four months production is held up and are lying idle. No payment is received from buyers for the past few months. The credit worthiness of the business is under threat. Since normal shift pattern was stopped, there is less production, leaving the bales already lifted from the respondent as surplus.
(e) It is the further contention of the petitioners that therefore it is impossible to take the balance bales and use it commercially. The petitioners are not responsible for the present situation and therefore the contracts entered into between the petitioner and the respondents have become frustrated and thus the entire contract entered into between the petitioners and the respondents have become null and void due to mutuality.
(f) The contract terms are one-sided, particularly Clause 13 – Force Majeure Clause only helps the third respondent in adverse situation and does not mutually available. The petitioners were forced to sign the contracts due to unequal bargaining power. The
Force Majeure Clause should be impliedly applied to the petitioners so as to give business efficacy to the contract.
(g) The petitioners have jointly made joint memorandum on 28.6.2011 to the second respondent Corporation and focussed the adverse situation. The third respondent Company being a Central Government Company, registered under the Companies Act, 1956, is bound to consider the adverse situation, which is a nodal agency of the Central Government to undertake price support operations.
(h) On 21.6.2011, the petitioner in W.P.No.19447 of 2011 had written a letter to the first respondent explaining the grave situation and requested cancellation/surrender of balance bales of unlifted cotton as the rates offered by the Corporation was higher than the amount contracted with the petitioners. On 30.6.2011 the respondents 1 to 3 threatened action that the deposited money and EMD deposited would be forfeited and unlifted cotton would be sold at the risk and cost of petitioners company and the loss, if any, would be recovered from the petitioners company. Therefore the petitioners have filed these wri
