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Maruti Udyog Limited v. Mahalaxmi Motors Ltd.
Factual and Procedural Background
The suit for recovery concerns an admitted liability of Rs. 7.63 crores owed by the defendant to the plaintiff. The plaintiff relied on several documents evidencing this liability, including a letter dated 5th April 1997 from defendant No. 1 admitting the shortfall in vehicle purchase accounts, minutes of a meeting on the same date acknowledging the shortfall, and an affidavit by the Managing Director of the defendant company filed before the Andhra Pradesh High Court confirming the liability and a repayment schedule. The defendants invoked the arbitration clause contained in their dealership agreement to challenge the claim. The court is addressing an application under Section 8(1) of the Arbitration and Conciliation Act, 1996, concerning the applicability of the arbitration clause to the admitted liability.
Legal Issues Presented
- Whether the arbitration clause in the dealership agreement can be invoked in respect of an admitted liability.
- Whether the admitted liability falls within the scope of “difference or disputes” under Section 8 of the Arbitration and Conciliation Act, 1996.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court noted that the arbitration clause applies only where there are differences or disputes regarding payments or obligations under the agreement. It emphasized that an admitted liability, by definition, does not constitute a dispute. The court analyzed the evidence—the letter dated 5th April 1997, the meeting minutes, and the affidavit by the Managing Director—which clearly demonstrated that the defendant acknowledged the liability of Rs. 7.63 crores and committed to a repayment schedule. Consequently, the court held that the arbitration clause cannot be invoked for an admitted liability, as there is no dispute to resolve. The court further referenced Section 8 of the Arbitration Act, explaining that the existence of a dispute is a prerequisite for arbitration. Since the liability was admitted, arbitration was not applicable in this case.
Holding and Implications
The court dismissed the application under Section 8(1) of the Arbitration and Conciliation Act, 1996, holding that the arbitration clause is not invokable in respect of an admitted liability. The direct effect of this decision is that the plaintiff may proceed with recovery of the admitted amount without referral to arbitration. The opinion does not establish any new precedent beyond reaffirming the principle that arbitration applies only to disputed matters, not admitted liabilities.
J.D Kapoor, J.— Admittedly the suit for recovery has been confined to the admitted liability of Rs. 7.63 crores. The documents referred to and relied upon by the plaintiff in this regard are as follows:—
(i) Letter dated 5th April, 1997 by defendant No. 1. The relevant para of the same is as under:—
“As per the details given above, the shortfall in my vehicle purchase accounts with Maruti Udyog Limited totals to Rs. 763.22 lacs as of close of 31.03.1997 As per my earlier communication, I propose to make good the above shortfall with the following schedule:
By 10.04.97 : Rs. 50.00 lacs By 25.04.97 : Rs. 100.00 lacs By 25.05.97 : Rs. 200.00 lacs By 25.05.97 : Rs. 213.22 lacs Rs. 763.22
(ii) Minutes of the meeting dated 5th April, 1997 between plaintiff and defendant. Relevant portion of the same is reproduced as below:—
“MML also provided a letter No. 021.MML/97 dated 5.4:1997 wherein they admitted that there was a shortfal! of Rs. 7.63 Cr.”
(iii) Affidavit filed by Shri M.C; Mehta as Managing Director of the defendant company before Andhra Pradesh High Court in CW No. 947/98. The relevant part of the affidavit is as under:—
“In this instance also the petitioner company had on its own given the particulars of the amounts due from it to the complainant company by its letter dated 5th April, 1997 wherein it accepted a liability of Rs. 763.22 lakhs and also gave the repayment schedule. Prior to that it gave a list of all the pending customers at Hyderabad and Vijaywada. In fact vehicles have been delivered to meet of these in the said list, and deliveries are still on to the remaining persons. The complaint company had been delivering these vehicles through other dealers as with the advent of this dispute with the petitioner company it terminated its dealership,”
“It is respectfully submitted that after the petitioner company gave the said undertaking to pay off the due about Rs. 763.22 lakhs, there has been a change in thinking in the concerned officials of the complainant company had they started making exaggerated claims over and above the amounts actually due to it from customer bookings. As far as the petitioner company is concerned it also made funds available to honour its commitment to the complainant company and took a draft for the said amount in May 1997 itself which is to the knowledge of the complainant company.”
2. The defendants have resorted to the arbitration clause of the dealership agreement between the parties Admittedly there is no dispute that dealership agreement contains an arbitration clause in the form of clause 57 which is to the following effect:—
“If any difference or dispute except a dispute pertaining to Termination, shall arise between the parties hereto as to the construction or true intent and meaning of any of the terms and conditions herein contained or as to any payment to be made in pursuance hereof or as to any other matter arising out of or connected with or incidental to these presents or as to the rights, duties and obligation of either party, such difference or dispute whenever and so often as the same shall arise, shall be referred to the Indian Council of Arbitration, New Delhi under their rules for the time being in force and the award in pursuance thereof shall be binding on the parties.”
3. It is settled law that the arbitration clause can be invoked only when there are differences and disputes with regard to certain payments on breach of obligations of the respective parties to the terms of the agreement. However wherever there is an admitted liability, the arbitration clause cannot be invoked. The very connotation “admitted liability” suggests that there ars no disputes or differences with regard to the said admitted liability.
4. The extracts of the letter dated 5th April, 1997, the minutes of the meeting and the affidavit filed by Mr. M.C Mehta in his capacity as Managing Director of the defendant No. 1 company ieave no manner of doubt that not only the defendant No. 1 had accepted the liability of 7.63 crores towards the plaintiff but also undertook to discharge the liability by making the payment through instalments.
5. What is material for the purpose of Section 8 of the Arbitration Act is that there should oe existence of difference or disputes with regard to a particular liability arising out of the terms of the agreement. If the liability is acknowledged and admitted it does not come within the meaning and ambit of disputes and differences.
6. in view of the foregoing reasons the application under Section 8(1) of the Arbitration and Conciliation Act, 1996 cannot be allowed as arbitration clause is not invokable in respect of admitted liability
7. The application is hereby dismissed.
S. 2477/1998
List on 14th March, 2002.
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