SMITA CONDUCTORS LIMITED Vs. EURO ALLOYS LIMITED

JUDGEMENT

(1.) A contract [bearing No. S. 142] for supply of aluminium rods of 2400 metric tonnes @ 200 MT per shipment every month from January to Dec. 1991 was proposed by the respondent to the appellant on 31-8-1990 containing an arbitration clause. In the letter accompanying the contract, it was stated to sign and return copy for sake of good order. The appellant did not sign nor return the said contract. Reminders were sent in this regard from time to time. On 4-2-1991, letter from the respondent enclosing the amendment to the contract was sent to the appellant but without any result. On 25-2-1991, another contract (bearing No. S. 336) was proposed by the respondent to the appellant for supply of 2,000 MT of aluminium rods @ 500 MT per shipment. In the first contract, initially there was no arbitration clause. However, on 18-3-1991, the contract bearing the same number, i. e. S. 142, was sent containing the arbitration clause with certain amendment for signature and return of the second copy. But the contract was not signed and sent by the appellant. On the basis of certain irrevocable letters of credit for US $ 243, 250 opened by the appellant, shipments were made in January, February and March, 1991. In the meanwhile, a circular was issued on 19-3-1991 by the Reserve Bank of India (for the sake of brevity referred to as 'RBI') to all scheduled commercial banks placing restrictions on import of goods. It was followed up by another letter of the same date addressed by the Executive Director, RBI to the Chairman of all commercial banks explaining the circular dated 19-3-1991 in relation to the foreign exchange reserve. On 22-4-1991, one more circular was issued by the RBI modifying the margins for opening letters of credit as prescribed by circular dated 19-3-1991. The appellant sent a telex on 30-4-1991 to the respondent to the effect that severe restrictions had been imposed by the RBI due to unprecedented foreign exchange crisis and the RBI had not cleared the application for letter of credit. Therefore, the appellant wanted to invoke the force majeure clause cancelling April shipment for both the contracts. The respondent wrote to the appellant on 30-5-1991 to the effect that they had closed their position and initiated arbitration proceedings with reference to both the contracts. When the appellant did not respond to the same, letter was received by the appellant from London Metal Exchange appointing the second arbitrator in terms of the arbitration clause.

(2.) On 30-8-1991, a suit [bearing No. 2963/91] was filed by the appellant seeking a declaration that there is no valid agreement between the parties and that arbitration before the London Metal Exchange was void. The learned single Judge of the Bombay High Court did not grant any interim order and recorded a statement that the appellant would participate in the arbitration proceedings under protest. The appeal filed against it stood dismissed by an order on 18-12-1991. In the meanwhile, suit was treated as a petition under Section 33 of the Arbitration Act, 1940 which stood dismissed on the ground that the arbitration clause bound the parties. The arbitrators published an award on 29-7-1992 awarding damages amounting to US $ 676,000 including pre-award interest but did not award post award interest. The appellant filed an appeal to the Appeal Board of the London Metal Exchange seeking to set aside the award as also dispensation of deposit. Since the London Metal Exchange rejected the request for waiver of deposit, the appeal could not be pursued. Thereafter, a petition was filed in the Bombay High Court by the respondent under the Foreign Awards (Recognition and Enforcement) Act, 1961 [hereinafter referred to as 'the Act'] for enforcement of the award. The High Court allowed the petition and granted the certificate under Art. 134-A of the Constitution. The High Court, while disposing the petition, awarded interest @ 15 per cent for the post award period until payment. This order is in challenge before us.

(3.) Shri K. K. Venugopal, learned Senior Advocate appearing for the appellant, raised three contentions. The first contention is to the effect that the foreign award could be enforced if it is in pursuance of an agreement in writing for arbitration to which the Convention set forth in the Schedule to the Act applies as per Section 2(a) of the Act and in as much as the Schedule pertains to the Convention on the recognition and enforcement of foreign arbitral awards, otherwise known as the New York Convention. It is submitted that the arbitration in the present case is not pursuant to an agreement in terms of Art. 11 of the Schedule to the Act. Shri Venugopal submitted that an agreement has to be in writing under which the parties undertake to submit to arbitration any differences which have arisen in respect of any legal relationship arising out of a contract or otherwise and capable of settlement by arbitration and the expression 'agreement in writing' would include an arbitral clause in a contract or an arbitration clause signed by the parties or contained in the exchange of letters or telegrams. He submitted that in the present case there being no written contract either in contract bearing No. S. 142 or contract bearing No. S. 336 because the contracts were signed by the respondent but not signed by the appellant and thus resulting only an oral agreement between the parties for supply of goods; such an agreement cannot be termed to be one made in writing to attract paras 1 and 2 of Art. 11 of the Schedule to the Act and that there has been no exchange of letters or telegrams between the parties so as to include the arbitral clause. In this context, he referred to the decisions of different Courts reported in the Yearbook Commercial Arbitration. Vol. II, 1977. Referring to the decision in the Court of Oberlandesgericht Dusseldorf on 8-11-1971 between a Dutch seller and a German buyer [Yearbook Commercial Arbitration, Vol. II, 1977, p. 237] wherein it was held that Art. 11 of the Convention requires the arbitration agreement to be in writing and signed by the parties, including an exchange of letters or telegrams. In any case, therefore, a declaration in writing of both sides is required. A one sided confirmation does not suffice and that the lack of a declaration in writing by the other party cannot be cured by his appearance before the arbitrator. Enforcement can, therefore, be granted under the New York Convention. In a case decided by the United States District Court between Sen Mar. Inc (US) vs. Tiger Petroleum Corporation N.V., [Yearbook Commercial Arbitration, Vol. XVIII, 1993, p. 493] in which the respondent had contended that the purported arbitration clause does not satisfy the Convention's righting requirement, which defines in Art. II (2), a writing as 'an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters'. It was held that the respondent's responsive telexes are not only devoid of arbitration language they also disavow the entire contents of the petitioner's 17 July telexes. Shri Venugopal next referred to the decision of the Italian Court of appeal in Finagrain Compagnie Commerciale Agricole et Financiere S. A. vs. Patano Snc (Italy) (Yearbook Commercial Arbitration, Vol. XXI, 1996, p. 571). In that case, the three contracts were concluded for sale of colzaseed oil. One of the contracts was concluded in writing, was signed by the parties and contained a specific reference to FOSFA Contract No. 54 and the arbitration clause therein contained. The other two contracts were concluded through telexes sent to the parties by a broker and not signed by them. The telexes also referred to FOSFA Contract No. 54 which had the arbitration clause. In those circumstances, the Court granted enforcement to award No. 2912 which was based on the contract signed by the parties, but found that no valid arbitration agreement under the Convention had been concluded as to the further two contracts and, therefore, denied enforcement to the other two awards pertaining to the rest of the two contracts. Shri Venugopal next relied upon the decision of the Swiss Court in Gaetano Butera (Italy) vs. Pietro e Romano Pagnan (Italy) (Yearbook Commercial Arbitration, Vol. IV 1979, p. 296). The Court of Appeal considered that the validity of the arbitration clause had to be determined by the Italian law under which the clause would have had to be in writing. But on appeal against the decision of the Court of Appeal, the Supreme Court stated that no valid agreement existed because the terms of the New York Convention had not been applied. It was noticed therein that the arbitral clause was inserted in writing in the contract of sale and was completed by the reference to the Arbitration Rules of the LCTA. This reference was not a reference, which is invalid according to Italian case law. In the case under consideration, however, the arbitration agreement was contained and explicitly mentioned in the sales contract itself. The reference had as sold object the procedural regulation of the arbitration and, therefore, validly completed the arbitral clause mentioned above as it ascertained the existence and the specific contents of that regulation. But the Supreme Court, however, held that the arbitral clause was null and void because it was signed only by the seller who invoked the clause. Shri Venugopal referred to another decision of the Italian Court in Corte Di Cassazione in Begro B. V. vs. Ditta Voccia and Ditta Antonio Lamberti (Yearbook Commercial Arbitration, Vol. III, 1978, 278). The Court interpreted Art. II, paras 1 and 2 of the Convention, as requiring a specific agreement to submit to arbitration signed by the parties or contained in an exchange of letters or telegrams. According to the Court, such a specific agreement could not be found in an arbitration clause printed on the contract form and signed by the parties and, therefore, held that the arbitration clause to be without effect. Shri Venugopal next referred to the decision of Corte Di Cassazione in Societa Atlas General Timbers vs. Agenzia Concordia Line, (Yearbook Commercial Arbitration, Vol. III, 1978, 267). It was held therein that the validity of the arbitral clause in question had to be judged under the New York Convention. According to Art. 2, para 2 of the Convention, the arbitration clause in writing means 'an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.' This provision, therefore, requires clearly the signature as a minimum element for the effectiveness of the contract containing the arbitral clause. The Court concluded that not the arbitration clause itself, but the contract in which it is contained must be signed by both parties under Art. 2, para 2 of the Convention. The Court examined whether the requirement was met in the present case and found that the signature of the agent of the carrier was not sufficient since his power of attorney was not in writing and that the signature of the other party was also lacking and his endorsement does not replace the signature, since the former concerns only a transfer of title, whilst the latter is necessary for the formation of the contract.