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Das Consultants Pvt. Ltd. v. National Mineral Development Corporation Ltd. .
Factual and Procedural Background
This is an application under Section 33 of the Arbitration Act, 1940, brought by a firm formerly known as Atkins Das Private Limited (now Das Consultants Private Limited) for a declaration that an arbitration agreement existed between the parties and that it covered specified disputes (paragraph 2 of the petition).
The petitioner was engaged as consultant for detailed engineering civil and structural works connected with the Donimali Ore Dressing Plant of the respondent under communications beginning with a letter dated 20th April (or 28th April) 1972 and an amendment dated 24th May, 1972. Subsequent correspondence recorded modifications (including exemption from bank guarantee, 8th February 1973) and protracted negotiations on a draft formal agreement in 1976.
On 20th March, 1976 the respondent wrote that "six copies of the agreement were left with us", identified discrepancies in copies received from the petitioner, and stated that the respondent had prepared and sent back five final-shaped copies for signature. The draft agreement attached to the parties' correspondence contained an arbitration clause (Article XIV) and clauses deeming the agreement to have come into force on 1st June, 1972 and incorporating certain letters as integral parts of the agreement.
The parties exchanged further correspondence in 1978–1979. The respondent stated it could not accept the petitioner's definition of "Cost of Work" and that the question of signing had "lost its relevance" after the petitioner completed work. The petitioner, however, asserted the draft agreement had been returned signed and later sought appointment of an arbitrator (29th January, 1980). The respondent maintained there was no arbitration clause in the original letter of indent and denied any agreement to refer disputes to arbitration.
The petition included an affidavit (4th July, 1980) stating the subject matter exceeded Rs. 50,000 and a supplementary affidavit sought a declaration that the arbitration agreement covered disputes arising from the letter(s) of indent and from subsequent work. The court was called upon to determine (a) whether an arbitration agreement existed and (b) whether this Court had pecuniary and territorial jurisdiction to entertain the application.
Legal Issues Presented
- Whether there was an arbitration agreement between the parties (existence and scope of such agreement, and whether it was sufficiently in writing under the Arbitration Act notwithstanding absence of formal signatures).
- Whether this Court has pecuniary jurisdiction to entertain the application (i.e., whether the claim exceeded Rs. 50,000).
- Whether this Court has territorial jurisdiction to hear the application under Section 20 of the Arbitration Act and whether leave under Clause 12 of the Letters Patent was necessary.
Arguments of the Parties
Petitioner's Arguments
- The petitioner asserted it executed a formal agreement (the draft-agreement containing the arbitration clause) and sent it to the respondent for signature.
- The petitioner maintained the arbitration clause was in the written draft sent and that the agreement (or its terms) had been agreed and reduced to writing; the petitioner also appointed an arbitrator (29th January, 1980) in light of disputes over 'costs of work' and alleged design defects.
- An affidavit by the petitioner stated the amount in dispute exceeded Rs. 50,000.
Respondent's Arguments
- The respondent contended that no formal signed agreement existed and that attempts to reach mutually agreeable terms had failed; it stated it could not accept the petitioner's definition of "Cost of Work" and had not received a concrete proposal to settle outstanding issues.
- The respondent asserted the work had been completed on the basis of the letter of indent and that formalisation of the agreement had lost relevance; it denied that the letter of indent contained an arbitration clause or that there was any other agreement providing for arbitration.
- The respondent disputed that any meeting at Hyderabad in July 1979 had produced an agreement to consider arbitration, and therefore denied any basis for appointing an arbitrator.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Banarasidas v. Cane Commissioners, AIR 1963 SC 1417 | The principle that an arbitration agreement need not be signed by both parties; an agreement in writing to submit present or future disputes to arbitration suffices (in the context of Section 2(a) of the Arbitration Act). | The court relied on this authority to support the proposition that an arbitration agreement can exist without formal signatures, provided the agreement is reduced to writing. This justified treating the correspondence and draft agreement as constituting a written arbitration agreement. |
| S.P. Consolidated Engineering Co. Pvt. Ltd. v. Union of India, AIR 1966 Cal 259 | Support for the view that an application under Section 20 of the Arbitration Act may be filed in the Court where part of the cause of action arose, and that leave under Clause 12 of the Letters Patent is not necessary for such an application. | The court invoked this case to hold that where part of the cause of action arose within the court's jurisdiction, filing under Section 20 was proper and Clause 12 leave was not required; this informed the court's conclusion as to its territorial jurisdiction. |
Court's Reasoning and Analysis
The court proceeded in a structured manner addressing first the existence of an arbitration agreement, then jurisdictional issues (pecuniary and territorial).
1. Existence of Arbitration Agreement:
- The court observed that Section 2(a) of the Arbitration Act requires that an agreement to submit disputes to arbitration be in writing but does not require the agreement to be signed by both parties.
- Relying on Banarasidas v. Cane Commissioners, the court reiterated that a written arbitration agreement may be effective without formal signatures.
- The court examined the correspondence, especially the respondent's letter of 20th March, 1976 stating that "six copies of the agreement were left with us" and listing discrepancies noticed; the respondent said it had made amendments and sent copies in final form to the petitioner for signature. The draft attached to later correspondence contained Article XIV (the arbitration clause) and clauses deeming the agreement to have commenced on 1st June, 1972 and incorporating certain letters as part of the agreement.
- The court concluded that the arbitration clause had been "transformed into writing" by these exchanges and that the terms in the 20th March, 1976 letter reflected terms agreed upon by the parties. Consequently, the court found a concluded arbitration agreement existed even though formal signatures by both parties were absent.
- The court further applied Section 5 of the Contract Act as to acceptance and revocation, noting that there was no evidence of a formal revocation of the proposal prior to acceptance; accordingly no revocation was effectual to negate the agreement.
2. Pecuniary Jurisdiction:
- The issue of whether the Court had pecuniary jurisdiction (claim exceeding Rs. 50,000) was raised; however, this point was not pressed by the respondent after a supplementary affidavit. Taking into account the nature of the work and the supplementary affidavit, the court was prima facie satisfied the claim exceeded Rs. 50,000.
3. Territorial Jurisdiction:
- The court considered whether part of the cause of action had arisen within its territorial jurisdiction so as to permit filing under Section 20 of the Arbitration Act. The petitioner argued part of the cause of action arose in Calcutta because the corrected draft copies were sent to and received by the petitioner in Calcutta.
- The court relied on S.P. Consolidated Engineering Co. (AIR 1966 Cal 259) to the effect that an application under Section 20 can be filed where part of the cause of action arose within the court's jurisdiction and that leave under Clause 12 of the Letters Patent is not necessary in such circumstances.
- Although the precise location where the agreement was originally agreed was not clear, the court found that receipt in Calcutta of the six corrected copies (and the acceptance resulting from those copies) constituted part of the cause of action arising within its jurisdiction. Therefore the court concluded it had territorial jurisdiction to hear the application.
4. Scope of the Arbitration Agreement:
- Having found that the arbitration agreement existed as set out in paragraph 2 of the petition, and that the agreement included a clause deeming the agreement to have come into force on 1st June, 1972 and incorporating specified letters of indent, the court held that the arbitration clause covered disputes relating to work under the letter(s) of indent dated 20th April 1972 (as amended 24th May 1972) and disputes relating to work performed after the arbitration agreement came into existence.
Holding and Implications
Holding:
The Court held that an arbitration agreement, in writing, existed between the parties as set out in paragraph 2 of the petition, and that it covered disputes relating to the work done pursuant to the letter of indent dated 20th April 1972 as amended on 24th May 1972 and disputes relating to work after the arbitration agreement came into existence.
Direct consequences and orders made by the Court:
- An order was made in terms of prayer (a) of the petition with the additional declaration described above (i.e., that the arbitration agreement exists and covers the specified disputes).
- Costs of this application were ordered to be costs in the arbitration proceeding.
- A stay as sought for a fortnight was granted.
- Order accordingly (final phrase in the opinion).
Implications beyond the parties: The opinion does not purport to set a novel legal precedent; it applies established principles (including those in Banarasidas and S.P. Consolidated) to the facts to determine the existence and scope of the arbitration agreement and the Court's jurisdiction. No broader or new legal principle was announced beyond the application of the cited authorities to these facts.
1. This is an application under Section 33 of the Arbitration Act, 1940 for determination of the existence of the arbitration agreement mentioned in paragraph 2 of the petition. This petition is made by a firm, formerly known as Atkins Das Private Limited now known as Das Consultants Private Limited. Subsequent to the filing of this petition, originally there was an affidavit affirmed on behalf of the petitioner on 4th July, 1980, by one Ram Krishna Majumdar wherein it was stated that the subject matter of the claim was over Rupees 50,000/-. There was a further supplementary affidavit on behalf of the petitioner affirmed by the same deponent Ram Krishna Majumdar, wherein it was stated that the Court should also determine the effect of the arbitration agreement and declare that the instant arbitration agreement covered the disputes relating to work done in pursuance of the letter of indent dated 28th April, 1972 as amended on the 24th May, 1972 as also the disputes relating to work after the arbitration agreement came into existence. It appears that the petitioner, which was formerly known as Atkins Das Private Ltd., was appointed as a Consultant for detailed engineering civil and structural works connected with the ore dressing plants of Donimali I.O Project of the respondent and also to advise the respondent from time to time as also to provide overall supervision during actual construction for proper and efficient execution of the work, inter alia, on the terms and conditions as contained therein. This is contained in the letter dated 20th April (28th April?) 1972, which is annexed to the petition. On 24th May, 1972, the respondent addressed a letter to the petitioner and agreed to the amendments as incorporated therein in the letter of indent dated 20th April (28th April?) 1972. On 8th February, 1973, the respondent agreed that the contract under reference might be exempted from submission of bank guarantee against advance payment, as a special case, and as such, the provision regarding the bank guarantee as contained in that letter of indent dated 21st April (28th April?) 1972 should stand modified. On 13th/19th February, 1976, the draft agreement which was forwarded to the petitioner, after a protracted negotiation, was sent back to it by the petitioner along with the amendments incorporated in the original draft, as sent by the respondent. On 20th March, 1976 in their letter, the respondent, inter alia, stated that six copies of the agreement were left with it. It is material in view of the contentions raised in this case to set out some relevant portions of the said communications which were addressed by the respondent to the petitioner on 20th March, 1976 on the subject “Consultancy agreement for detailed engineering of civil and structural works for Donimali Project”. The letter stated as follows:—
“Dear Sirs,
Vide your letter No. 785/01.SDG-AKD/G dated February 13/18, 1976, six copies of the agreement were left with us. The following, discrepancies were noticed in these copies compared to earlier draft already agreed upon by you:
1. Liquidated damages:
In Article 6.1 “as per this agreement” has been added.
2. Regarding payments and terms of payments Article 7.8 has been added:
This addition is not acceptable to us.
3. Regarding cost of works we had intimated to you in our telex dated December 12, 1975, that the definition of cost of works, as mentioned in the letter of indent has to be followed. Since there is no definition of cost of Civil Works, in the letter of indent, no definition can be given in this agreement. As such, Article Vin of cost of works has to be deleted.
4. In Article 10.1 under Indemnity Charges payable the words “of work and rectification and” have been replaced by ‘or’ in the 6th line. This change has been restored.
We have got the above amendments done to the draft agreement and prepared copies of the same. Five copies of the agreement in the final shape are sent herewith which may please be returned to us after affixing your signature so that the same could be submitted to our Managing Director for signatures on behalf of NMDC LIMITED.
The allegation in the petition is that the petitioner executed a formal agreement and sent the same to the respondent for its signature, which contained the terms and conditions, in writing including the arbitration clause which was alleged to have been agreed upon between the parties. The said draft-agreement is annexed with the letter dated 28th March, 1976, which contained, inter alia, the following terms:
“ARBITRATION.
ARTICLE-XIV:
14.1 Any difference or dispute arising out of, or in connection with this Agreement including an dispute or difference regarding the in pretation of this Agreement or any clause thereof, or, any question whether a dispute has arisen or not shall be referred to the arbitration of two arbitrators, one to be appointed by the client and the other by the Consultant and in the event of the said arbitrators disagreeing, the decision of an umpire to be appointed by the arbitrators in writing before proceeding with the reference, and in the case of the arbitrators failing to agree to the appointment of an umpire, the arbitrators shall refer the matter to the Attorney General of India, who will nominate an Umpire and the decision of the arbitrators or the said umpire as the case may be shall be final and binding on the parties including the decision regarding liabilities for expenditure on account of the arbitration proceedings. The arbitration shall be carried out in accordance with the provisions of the Indian Arbitration Act, 1940 and the Rules framed thereunder and any statutory modification or re-enactment thereof. The venue of the arbitration shall be at Hyderabad, or such other place as may be agreed upon mutually. The work under the Agreement shall be continued by the Consultant even during the arbitration proceedings and payment of consultant's fees shall be continued by the client during this period.
15.6 The agreement shall be deemed to have come into force on 1st day of June, 1972 and all obligations and responsibilities of the parties to this Agreement shall be deemed to have commenced from the above date.
15.8 The following letters shall be deemed to form an integral part of this Agreement:
(i) Annexure-I, letter of Indent Number SOE/MISC/12/71/DS dated 20-1-1972.
(ii) Annexure-II letter of indent (addends) No. SCE/MISC/12/71/DS dated 24-5-1972.
(iii) Annexure-III, letter of indent (addends) No. PEC/16.46-1 dated 8-9-1973:
(iv) Annexure-IV, letter of indent (addends) No. PEC.16-AC.1 dated 20-3-1976”.
On 22nd March, 1978, it is the case of the respondent that the respondent stated in a letter that the agreement could not be sighed as it was not possible to come to any mutually agreeable terms and conditions on various issues in respect of the contract, and claims made by the petitioner. In September, 1978, it was stated that the work covered by the aforesaid contract was completed and the project was formally made over by the Executing Agency, Hindusthan Steel Works Construction Ltd., to the respondent. On the 7th October, 1978 a letter was written by the petitioner to the Hon'ble Minister for Steel & Mines. It is necessary to set out the relevant portions of the said letter. The said letter is annexed to the affidavit-in-opposition of Gaddapalli Ramchandra Reddy affirmed on 5th June, 1980 and it reads as follows:
“Dear Biju Babu:
Client: National Mineral Development Corporation Donemalai Ore Dressing Plant Atkins Das Private Limited Consultants for Civil Works.
We were appointed by National Mineral Development Corporation Limited, Hyderabad as consultants for designing and engineering total civil works in respect of the above project.
Our work has been completed on the basis of a letter of indent issued by NMDC but the contract yet remains to be formalised. We, an our part have already ratified the draft agreement prepared and agreed jointly but this has not been finalised by NMDC.
Since our work in regard to the civil works have been completed and finalisation of our bills for the consultancy work is still pending, we have been requesting clients to give us a chance to sit across the table and finalise matters including formal signing of the contract.
So far, we have failed to persuade NMDC to finalise all outstanding matters in spite of our best efforts for the last few years, though they have at time written to us of their intention but no meeting could be held causing us waste of time and money.
I shall be most grateful if this matter could be finalised at early date.”
The letter was addressed to Sri Biju Patnaik, the then Minister for Steel & Mines, Government of India. On 19th October, 1978, the respondent wrote that it could not accept the petitioner's definition, of ‘Cost of Work’ and pay any extra amount and it had not received any concrete proposal for settling the outstanding issues. On 30th August, 1979 the draft agreement was again signed by the petitioner and the same was sent to the respondent for its signature and formalization, according to the respondent. On 22nd October, 1979, the petitioner wrote a letter whereby the petitioner suggested that he should select 4 or 5 names from which the petitioner could select a sole arbitrator. On 9th November, 1979, the petitioner issued a reminder to the said letter dated 22nd October, 1979. On 21st December 1979, the respondent addressed a letter to the petitioner informing them that as the petitioner had already completed the consultancy work on the basis of the letter of indent, the question of agreement being signed by the petitioner had lost its relevance and, furthermore, as there was no agreement to refer the dispute to the arbitration, the question of appointing any arbitrator also did not arise. It was specifically denied that the respondent had agreed in a meeting at Hyderabad in July, 1979 to consider arbitration if petitioner would write to them. On 29th January, 1980 the petitioner appointed one Ram Rao Macharla of Hyderabad, in view of the fact that disputes had arisen on the question of definition of ‘costs of work’ and also the respondent's claim of design defect. On 7th February, 1980, the respondent, inter alia, stated that the letter of indent, based on which the work was executed and payments received by the petitioners did not provide any arbitration clause and there was no other agreement between the parties providing for an arbitration. It is in these circumstances that the present application has been made.
2. It is necessary to decide the controversy to determine the question, firstly, whether there was any arbitration agreement. Now, it is clear that there is no arbitration agreement which is signed by both the parties. It is not necessary that the arbitration agreement should be signed. All that is necessary is that there should be an agreement for arbitration reduced to writing. This will be clear from a reference to Section 2(a) of the Arbitration Act. Therefore, it is necessary to have a written agreement to submit present or future difference to arbitration whether the arbitrator is named or not. Sec. 2(a) does not enjoin that the arbitration agreement should be signed by both the parties. This position has already been made, clear by the decision of the Supreme Court in the case of Banarasidas v. Cane Commissioners, AIR 1963 SC 1417. Therefore, it is necessary to find out whether there was a concluded arbitration agreement. In the first letter dated 20th March, 1976 the respondent had stated: “six copies of the agreement were left with us”. They went on to say, “the following, discrepancies were noticed in the copies compared to earlier draft already agreed upon by you.” Therefore, certain agreement was agreed upon between the parties and certain draft was there. They pointed out that in the draft sent by the petitioner, they had noticed that there were some discrepancies and they had pointed that out. They said that they had sent back the agreement after making the correction and that agreement contained an arbitration clause. The arbitration clause was therefore transformed into writing. That is not disputed. If one goes into the letter dated 20th March, 1976 one will find that those were the terms agreed upon by the petitioner and the respondent. The said agreed terms again contained a clause that the agreement would be deemed to have come into force with effect from 1st of June, 1972, and all obligations and responsibilities of the parties to the agreement would be deemed to have commenced, from the above date. The agreement also stipulated that certain letters including the letter of indent should be deemed to form an integral part of the agreement.
3. It is true that there are certain divergence of views. According to the petitioner, they sent back the said agreement signed by it on receipt of the letter dated 20th March, 1976 but according to the respondent that was not so and it was sent only on 30th August, 1979. According to the petitioner, the agreement was sent for signature and formalisation but the respondent's case is that prior thereto, on the 19th October, 1978 by their letter, the respondent had made it clear that it could not accept the petitioner's definition of ‘Cost of Work’ and therefore, there was difference of opinion and as such there was no point in signing the agreement and that is also clear from the letter dated 22nd March, 1976. Even in the letter dated 20th March, 1978, which is annexed to the affidavit in opposition, it was not, however, stated that the terms agreed were revoked. Under Section 5 of the Contract Act, so far as the acceptance of any proposal is concerned, it is complete unless the revocation of the proposal is received by the acceptor before the acceptance.
4. That admittedly was not done. As matter of fact, there never was any formal, revocation. What was asserted was that certain claims could not be agreed. Therefore, in my opinion, even if one accepts the position that there was no formal signing of the agreement until 1979, it cannot be accepted that there was no agreement before the acceptance of the terms of the letter dated 20th March, 1976, as I have set out hereinbefore. If that is the position, then I must hold that there was an arbitration agreement and the agreement contained all the clauses as in writing.
5. If that is the position, then the next position is whether there is pecuniary jurisdiction of this Court to entertain this application. That point was not pressed on behalf of the respondent after a supplementary affidavit had been filed. Taking into consideration the nature of the work done and the supplementary affidavit, I am prima facie satisfied that the claim in this case is over Rs. 50,000/-.
6. The other point taken by the petitioner was that this Court has no territorial jurisdiction. It is now well settled if part of the cause of action has arisen within the jurisdiction of this Court, then an application under Sec. 20 if the Arbitration Act could be filed in this Court and in such an application under Section 20 of the Arbitration Act, though being treated as a suit, leave under Clause 12 of the Letters Patent is not necessary for such filing for an arbitration agreement. This view is well established by the observation of this Court in the case of S.P Consolidated Engineering Co. Pvt. Ltd. v. Union of India, AIR 1966 Cal 259. There is also another aspect of the matter, viz., that Clause 12 is only applicable to Chartered High Courts. Arbitration agreement can be filed under the Act, if part of the cause of action arises in Courts, other than Chartered High Court where Letters Patent as such are not applicable.
7. If that is the position, if part of the cause of action had arisen within the jurisdiction of this Court, then proceeding can be instituted in this Court and in that event leave under Clause 12 of the Letters Patent was not necessary.
8. It was, however, sought to be urged that in this case no part of the cause of action had arisen in Calcutta, because the letter dated 20th March 1976 stated that “six copies of the agreement were left with us. The following discrepancies were noticed in these copies compared to earlier draft already agreed upon by you”. Now, it is not clear where it was agreed. Furthermore, in any event, six copies of draft agreement as corrected were sent to the petitioner at Calcutta and received by the petitioner in Calcutta that is not disputed. If that is the position, then the acceptance of this draft as modified to bring into consonance with the draft already agreed would be part of the cause of action. If that is the position, this Court has jurisdiction to entertain this application.
9. In that view of the matter, I will direct that the arbitration agreement as set out in paragraph 2 of the petition is there and I further hold that it covers the disputes relating to the work done by reason of the letter of indent dated 20th Apr. 1972 as amended on 24th April 1972 as also the disputes relating to the work done after the arbitration agreement came into existence, because that is the agreed term as I have set out hereinbefore.
10. Therefore, there will be an order in terms of prayer (a) of the petition with additional declaration as mentioned hereinbefore.
11. Costs of this application will be costs in the arbitration proceeding.
12. Stay for a fortnight as asked for is granted.
Order accordingly.
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