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Southern Gas Ltd. v. Visveswaraya Iron & Steel Ltd. .
Factual and Procedural Background
The appellant and the respondent executed an agreement for the delivery and use of oxygen. Clause 7 of the agreement is a “force majeure” provision relieving either party of its obligations to deliver or take oxygen when performance is prevented by events such as acts of God, war, floods, power cuts, etc.
The respondent contended that it could not take oxygen during a certain period because power cuts exceeding 70 per cent prevented operation of its LD Plant, which depended on a power-intensive Electric Pig Iron Furnace. A dispute arose, and the appellant invoked Section 20 of the Indian Arbitration Act, 1940. The trial court appointed an arbitrator. On appeal, the High Court of Karnataka partly reversed the trial court’s order concerning some items in dispute. The present appeal challenges that High Court decision.
Legal Issues Presented
- Whether the applicability of the force majeure clause is a preliminary question that must be decided by the arbitrator.
- Consequently, whether the entire dispute should first be referred to arbitration, allowing the arbitrator to decide the force majeure issue before addressing other matters.
Arguments of the Parties
Appellant's Arguments
- The question of whether the respondent’s non-performance is excused by the force majeure clause is a threshold issue for the arbitrator.
- Under the arbitration clause (Clause 22), all disputes, including the preliminary force majeure question, must be submitted to arbitration before any court intervention on the merits.
Respondent's Position
- Counsel “appreciated the logic” of the appellant’s submission and effectively conceded that the arbitrator should decide the force majeure question first.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court found merit in the appellant’s interpretation of the agreement. Reading Clause 7 (force majeure) together with Clause 22 (arbitration), the Court held that:
- The arbitrator must initially determine whether the dispute falls within the ambit of the arbitration clause, which depends on deciding if the alleged breach is covered by the force majeure provision.
- If the arbitrator decides that force majeure does not apply, the arbitrator should then proceed to decide all remaining issues raised by the parties.
The Court noted that even the respondent’s counsel accepted this construction, reinforcing its conclusion.
Holding and Implications
Appeal Allowed; High Court judgment and order set aside. The matter is remitted to the trial court to modify the reference to the arbitrator in accordance with the Supreme Court’s directions. No costs were awarded.
Implications: The arbitrator will first decide whether the force majeure clause excuses the respondent’s non-performance and, depending on that finding, will resolve the remaining disputes. The decision clarifies the procedural sequence under the agreement but does not announce a new legal precedent beyond the specific contract at issue.
1. Leave granted.
2. This is an appeal against the judgment and order of the High Court of Karnataka at Bangalore passed in Miscellaneous First Appeal No. 478 of 1992.
3. An agreement was entered into between the appellant and the respondent towards delivering, taking, using etc. of oxygen on certain terms and conditions. Clause 7 of the agreement is the “force majeure”. This clause provides that to the extent and during the period either of the parties is prevented from delivering or taking oxygen or using it in accordance with the agreement due to the operation of one or more of the force majeure events such as but not limited to the acts of God, war, revolution, floods, drought, earthquakes, strikes, lock-outs, conflagration, epidemics, riots, civil commotion, etc., they shall be relieved of their respective obligations of delivering or taking and paying for such oxygen. The claim of the respondent was that during a certain period, it was unable to take oxygen as per the agreement because there were more than 70 per cent power cuts due to which it could not run its LD Plant which in turn depended upon the Electric Pig Iron Furnace, which was highly power-oriented. On this premise, a dispute arose and an arbitrator was sought to be appointed. The appellant herein therefore moved the Court under Section 20 of the Indian Arbitration Act, 1940 successfully. An arbitrator was appointed. The respondent-Company took the matter in appeal before the High Court who reversed the judgment of the trial court to some extent pertaining to some items in dispute.
4. The orders of the High Court have been challenged herein on the ground that whether or not it was a case of “force majeure”, was a preliminary question determinable by the arbitrator. In other words, if the respondent could successfully plead and prove to the satisfaction of the arbitrator that “force majeure” clause was attracted, it would preclude other disputes being raised before and determined by the arbitrator. In any event, the matter initially had to go to the arbitrator to be stopped or continued after the decision on the question of “force majeure”. We think that the appellant is on sound ground in contending this way towards interpretation of the agreement contained in clause (7) above-referred to read with clause (22) providing for arbitration. Even learned counsel for the respondent appreciated the logic of the argument and has in the manner submitted to it before us. Let the arbitrator, therefore, first go into the question whether the dispute falls within the ambit of the arbitration agreement dependent on the determination whether the breach could invoke the “force majeure” clause or not, and if not then to proceed further within his domain to determine all questions as raised by the parties.
5. For the foregoing reasons, we allow this appeal, set aside the impugned judgment and order of the High Court putting the matter back on the file of the trial court to suitably modify the reference to the arbitrator in the light of the decision aforemade. Ordered accordingly. No costs.
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