AL JAZEERA STEEL PRODUCTS COMPANY SAOGversusMID INDIA POWER & STEEL LTD.

                    [2q12] 4 S.C.R. 397


  AL JAZEERA STEEL PRODUCTS COMPANY SAOG                         A
                              v.
            MID INDIA POWER & STEEL LTD.
            (Arbitration Petition No. 6 of 2009)
                       MAY 08, 2012
                                                                 B
             [SURINDER SINGH NIJJAR, J.)

    Arbitration and Conciliation Act, 1996:

      ss. 11 (5) and (9) - Appointment of arbitrator - Sale-     c
purchase contract - Goods supplied found defecti11e and of
poor quality - Held: The applicant has raised bona fide
disputes arising out of or relative to the construction of the
contract which contains the arbitration clause - The petition
can not be said to be belated - Sole Arbitrator appointed and    D
all the disputes and differences that have arisen between the
parties referred to arbitration.

     The applicant company, having its registered office
in Sohar, Sultanate of Oman and the respondent, and
Indian Company, entered into a sale purchase contract            E
dated 18.6.2008 whereunder the respondent was to
supply to the applicant 2000 metric ton Prime Alloy Steel
Billets of specific chemical composition and physical
specifications as described in Article 3 of the contract.
The respondent encashed the Letter of Credit opened by           F
the applicant. The goods supplied by the respondent
were found defective. Since the disputes raised by the
purchaser-company were not resolved, it filed the instant
application for appointment of an arbitrator. The
respondent claimed that the application was not                  G
maintainable in view of the fact that the dispute sought
to be referred to arbitration was "not a dispute arising out
of contract" but rather a dispute which was deliberately
planted post the completion of the contract; that the
                             397                                 H
    398      SUPREME COURT REPORTS            [2012] 4 S.C.R.


A dispute about the defective goods was a belated attempt
  by the applicant to evade its liability under the contract;
  and that the applicant did not raise a proper claim which
  could be referred to arbitration.

          Allowing the petition, the Court
B
      HELD: 1.1. The applicant has clearly raised bona fide
  disputes arising out of or relative to the construction of
  the contract which contains the arbitration clause. Article
  10 of the contract contemplates resolution of disputes
C between the applicant and the respondent through
  arbitration, as per the procedure laid down under the
  Arbitration and Conciliation Act, 1996. [para 12] [405-F-G]

         1.2. The applicant through its e-mail dated 31.8.2008
0   had informed the respondent about defective material. In
    the second e-mail on the same date, the applicant had set
    out the defects in the Billets and informed the respondent
    that it had stopped de-stuffing of containers. The
    respondent was called upon to take back the rejected
E   goods urgently and arrange to refund the amount paid
    at the earliest. In response to the said e-mail, the
    respondent on 1.9.2008 indicated its concern and deeply
    regretted the inconvenience caused to the applicant. The
    applicant was also assured that the problem would be
    sorted out to the entire satisfaction of the applicant.
F   Thereafter, the respondents proposed a joint inspection,
    which according to the applicant was never arranged. On
    the other hand, the respondent claims that the applicant
    had rebuffed all the efforts made by the respondents to
    resolve the issue. The applicant was intent on claiming
G   the refund. These facts and circumstances are sufficient
    to show that the bona fide disputes have arisen between
    the parties, which are within the scope and ambit of the
    arbitration clause and need to be resolved through
    arbitration. [para 15-16] [406-G-H; 407-A-D]
H
 AL JAZEERA STEEL PRODUCTS COMPANY SAOG v. MID          399
             INDIA POWER & STEEL LTD.

     2. The disputes having arisen in September, 2008          A
and the application having been filed on 4.2. 2009, the
petition can not be said to be belated. [para 16] [407-D]

     3.1. A bare perusal of the arbitration clause (Clause
10 of the contract) is sufficient to indicate that it covers
                                                               8
all disputes and differences of any kind arising between
the parties. The applicant has clearly raised a number of
issues, which can be summarized as: (a) failure of the
respondent to remove the defective Billets supplied by
the respondent and lying at applicant's premises; (b)
failure to remit the amount drawn by respondent against        C
the Letter of Credit; (c) failure to pay interests and costs
incurred by the applicant; (d) failure to pay warehousing
charges @ USO 20 per Metric Ton per day on and from
1.10.2009 till the actual removal of defective Billets from
the premises of the applicant. In such circumstances, it       D
can not be said that the applicant has failed to raise bona
fide dispute which cannot be referred to arbitration. [para
13] [406-C-F]

     3.2. The Sole Arbitrator is appointed and all the         E
disputes that have arisen between the parties are referred
to arbitration for adjudication on such terms and
conditions as the Arbitrator deems fit and proper. [para
17] [407-F]

     SBP & Co. Vs. Patel Engineering Ltd. & Anr. 2005 (4)      F
Suppl. SCR 688 = 2005 (8) SCC 618; National Insurance
Company Limited Vs. Boghara Polyfab Private Limited 2008
(13) SCR 638 =2009 (1) SCC 267; Nandan Biomatrix
Limited Vs. D 1 Oils Limited 2009 (3) SCR 115 = 2009
(4) SCC 495; Visa International Limited Vs. Continental        G
Resources (USA) Limited 2008 (16) SCR 1043 = 2009 (2)
SCC 55; and Reva Electric Car Company Private Limited Vs.
Green Mobil 2011 (13) SCR 359 = 2012 (2) SCC 93 - cited.

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    400      SUPREME COURT REPORTS                  [2012] 4 S.C.R.


A                         Case Law Reference:

          2005 (4) Suppl. SCR 688 cited                   para 9

          2008 (13) SCR 638            cited              para 9
          2009 (3) SCR 115              cited             para 10
B
          2008 (16) SCR 1043            cited             para 10

          2011 (13) SCR 359             cited             para 10

       CIVIL ORIGINAL JURISDICTION : Arbitration Petition No.
C 6 of 2009.

        Under Section 11 (6) of the Arbitration and Conciliation Act,
    1996.

      K.V. Vishwanathan, Shabyashachi Patra, Sanjeev Kumar
D (Khaitan & Co.) for the Petitioner.

        G.L. Rawal, Sanjay Kapur, Ashmi Mohan for the
    Respondent.

          The Order of the Court was delivered by
E
                              ORDER

       SURINDER SINGH NIJJAR, J. 1. This petition under
  Sections 11 (5) and (9) of the Arbitration and Conciliation Act,
F 1996 read with paragraphs 2 and 3 of the appointment of the
  Arbitrators by the Chief Justice of India Scheme, 1996 seeks
  appointment of an independent and impartial person as an
  Arbitrator.

       2. The applicant is a Company incorporated in Oman
G having Registration No.1550438 and having its registered
  office at Sohar Industrial Estate, PO Box 40, PC 327, Sohar,
  Sultanate of Oman. The respondent is an Indian Company
  incorporated under the provisions of the Companies Act, 1956
  and having its registered office at Shanti Heights, 32/2, South
H
  AL JAZEERA STEEL PRODUCTS COMPANY SAOG v. MID 401
 INDIA POWER & STEEL LTD. [SURINDER SINGH NIJJAR, J.]
                                                                       A
Tukoganj, 2nd Floor, Above Cosmos Bank, Indore 452001
(Madhya Pradesh).

      3. The applicant entered into a Sale Purchase Contract
 dated 18th June, 2008 bearing No.MIPSL/BILLET/EXP/08-09/
 003 (hereinafter referred to as the 'Contract') with the              B
 respondent for supply of 2000 metric ton Prime Alloy Steel
 Billets of specific chemical composition and physical
 specifications more particularly described in Article 3 of the
 Contract. In accordance with the terms and conditions of the
 Contract, the applicant had opened a Letter of Credit bearing         c
 No. DC BAF 080939 through HSBC Bank Middle East Limited
 Muscat. The Letter of Credit was encashed by the respondent
on 21st August, 2008 through its bankers, State Bank of
Travancore. On 23rd August, 2008, the applicant took delivery
of first shipment of 243.2 Metric Ton of Billets at Sohar Port.        D
Upon unloading the containers, the applicant noticed that far
from complying with the specifications mentioned in the
Contract, the Billets supplied by the respondents were of a very
poor quality. The Billets had cracks which were visible to naked
eyes. Even then, to confirm the defects, the applicant chose           E
some random Billets and sent the same to two independent
laboratories for testing. Both the laboratories, after conducting
the requisite tests, confirmed that the Billets supplied by the
respondent did not comply with the specificafions mentioned
in the Contract. The applicant sent an e-mail dated 31st August,
2008, informed the respondent about the non-conformity and
                                                                       F
made it clear that the same were not acceptable. On the same
day, i.e., 31st August, 2008, another e-mail was sent setting
out in detail the defects in the Billets. It was also mentioned that
the applicant had done random cross verifications on chemical
composition, and the respondents will be intimated after getting       G
results. It is further stated that the applicant has stopped de-
stuffing of containers, the respondent was requested to kindly
arrange to take back the rejected goods urgently and arrange
for the refund of the amount paid at the earliest. The applicant
informed the respondent that all unloading, loading and                H
    402     SUPREME COURT REPORTS                  [2012] 4 S.C.R.


A   demurrage at Port and with the shipping company will be to
    your account.

        4. The respondent by its letter dated 1st September, 2008
  stated that the complaint has been noted and they were equally
  and greatly concerned. The applicant was informed that the
8
  complaint was being accorded highest priority by the
  respondent that they were investigating at their end the reasons
  for the same. The letter states that it was never the intention of
  the respondent to send substandard material to any of their
C esteemed customers. It notes that "we understand your concern
  and deeply regret the inconvenience caused to you. However,
  we would like to assure you that we will sort out this problem
  to your entire satisfaction. We wish to assure that we believe
  in ethical business practices and strive hard for customer
  satisfaction." The applicant was further informed that "in order
D to ascertain the intensity of the problem and discuss the various
  issues involved for an amicable resolution of the same, it is
  planned to send a high level delegation to your site within the
  next few days". In the meanwhile, the applicant was requested
  to carry out de-stuffing of the containers and take delivery of
E lot 2, 3 and 4 as the same will unnecessarily incur charges on
  account of detention and demurrage. The applicant was once
  again re-assured that the issue would be resolved to their entire
  satisfaction. Pursuant to the aforesaid assurances, the
  respondent cleared the remaining 1234.63 MT of the Billets
F which, according to the applicant, were defective. On 10th
   September, 2008, there was a meeting between the
   representatives of the applicant and the respondent. It was
  decided that the joint inspection would be undertaken to have
   the sample analyzed from independent recognized laboratories
G in Dubai on 13th September, 2008. The joint inspection was
   not arranged. The applicant issued several reminders informing
   the respondent that the defective Billets stood rejected, and they
   were requested to remove the same. Since the joint inspection
   was not carried out, the applicant got an inspection conducted
H through one of the reputed firms in Dubai on 9th October, 2008.
 AL JAZEERA STEEL PRODUCTS COMPANY SAOG v. MID 403
INDIA POWER & STEEL LTD. [SURINDER SINGH NIJJAR, J.)
The Expert, known as SGS Dubai, in its report dated 16th A
October, 2008 concluding that "the lot is having lot of serious
visual defects" and that "all the analyzed samples were not
complying with provided contractual specification". All efforts
and settlements having failed, the applicant invoked the
arbitration clause in terms of Article 10 of the Contract, through s
its notice dated 17th December, 2008.

      5. No reply was received from the respondent. The
applicant, therefore, nominated the Sole Arbitrator
(Hon.Mr.Justice S.N.Variava, a former Judge of this Court).
Since the respondent did not reply to the aforesaid letter, the C
applicant was left with no alternative but to move the present
petition.

      6. In the reply, the respondent claimed that it was issued
inspection certificates dated 28th July, 2008 and 31st July, D
2008 of quality and quantity by Inspectorate Griffith India Pvt.
Ltd., an independent third party inspection agency of
international repute, with respect to the goods that were to be
dispatched to the applicant as per the said Contract. The goods
were duly accepted by the applicant. The Letter of Credit had E
been opened by the applicant in accordance with Article 5 of
the Contract. The applicant took delivery of the first shipment
on 27th August, 2008. It accepts that applicant had sent e-mail
dated 31st August, 2008 to the representative of the respondent
alleging that the Billets were defective and making the F
demands, as noticed earlier. The respondent gave another
version as to why the joint inspection was not carried out.
According to the respondents, all efforts to persuade the
applicant had failed. They had a cursory meeting with the CEO
of the applicant which lasted two minutes. The applicant G
insisted that the respondent lift the material and refund the
money. The applicant, according to the respondent, is arbitrarily
calling upon the respondent to pay warehousing charges @ US
$ 20 per metric ton per day after 30th September, 2008. The
respondent claimed that the application is not maintainable in H
    404      SUPREME COURT REPORTS                   [2012] 4 S.C.R.


A   view of the fact that the dispute sought to be referred to
    arbitration is "not a dispute arising out of contract" but rather a
    dispute which has been deliberately planted post the
    completion of the Contract to escape a liability that the applicant
    has already incurred, i.e., payment of price for the goods
B   supplied. According to the respondents, it is not a dispute in
    real sense but a "moon shine dispute". Further it is a dispute
    that has been raised after the Contract has been validly
    completed. The dispute about the defective goods is a belated
    attempt by the applicant to evade its liability under the Contract.
C   The real reason for trying to avoid the Contract is the downfall
    of the price in the international market of steel Billets.

          7. The applicant in its rejoinder has reiterated the
    averments made in the application. It is stated that the
    inspection notes mentioned by the respondent had come to the
D   knowledge of the applicant only from the reply filed by the
    respondent to the application. The applicant denies that the
    material supplied by the respondent was in accordance with
    the specifications given in the Contract. It is stated that the
    applicant has not tried to evade the liability under the Contract.
E   It is also denied that the Contract has become commercially
    unviable. The applicant also denied that the respondent has
    made attempts to resolve the issues raised by the applicant.
    The further details given by the applicant need not be noticed
    at this stage.
F
          8. I have heard the learned counsel for the parties.
         9. Mr. Viswanathan, learned senior counsel appearing for
    the applicant submits that the matter herein is specifically
    covered by the judgment of this Court in SBP & Co. Vs. Patel
G   Engineering Ltd. & Anr. 1 and National Insurance Company
    Limited Vs. Boghara Polyfab Private LimitecP In reference to
    the arbitration clause, Mr. Viswanathan submits that the
    disputes have arisen between the parties. The disputes relate
    1 (2005) a sec 618
H   2 (2009) 1 sec 267
 AL JAZEERA STEEL PRODUCTS COMPANY SAOG v. MID 405
INDIA POWER & STEEL LTD. [SURINDER SINGH NIJJAR, J.]

to live claims which are not belated. The disputes fall within the     A
scope and ambit of the arbitration clause which are worded very
widely. The arbitration clause clearly states that "all disputes and
differences whatsoever arising between the buyer and seller out
of or relative to the construction meaning and operation of
effect of this Contract or any breach thereof shall be settled by      B
the arbitration."
     10. Learned counsel also relied on Nandan Biomatrix
Limited Vs. D 1 Oils Limited3 and Visa International Limited
Vs. Continental Resources (USA) Limited4 and Reva Electric
Car Company Private Limited Vs. Green Mobi/5.                          C
      11. On the other hand, counsel for the respondent submits
that the petition is not maintainable as the condition precedent
for invoking arbitration, as agreed in the agreement, has not
been satisfied. Since there has been no joint inspection of the
material, no reliance can be placed on the expert reports              D
submitted by the applicant. In this case, it was agreed that the
parties Shall try to settle the dispute amicably, which was a
condition precedent for invoking the arbitration. According to
the learned counsel, in the present case, the applicant has not
even raised a proper claim, which can be referred to arbitration.      E
      12. I have considered the submission made by the learned
counsel for the parties. I am of the considered opinion that the
applicant has clearly raised bonafide disputes arising out of or
relative to the construction of the contract which contains the
arbitration clause. Article 10 of the contract contemplates            F
resolution of disputes between the applicant and respondent
through arbitration, as per the procedure l~id down under the
Arbitration and Conciliation Act, 1996. The clause reads as
under:-
                                                                       G
      "All disputes and differences whatsoever arising between
 ,.   buyer and seller out of or relative to the construction
3 (2009) 4 sec 495
4 (2009) 2 sec 55
5 c2012) 2 sec 93                                                      H
    406      SUPREME COURT REPORTS                  (2012] 4 S.C.R.


A         meaning and operation of effect of this contract or any
          breach thereof, shall be settled amicably, failing which it
          shall be settled as per the Indian Arbitration and
          Conciliation Act, 1996.
          The place of arbitration would be Mumbai, India the
B   decision made by the arbitration organization shall be taken as
    final and binding upon both parties. The arbitration expenses
    shall be borne by the loosing pa1iy unless otherwise awarded
    by the arbitration organizations."
          13. A bare perusal of the aforesaid clause is sufficient to
C   indicate that it covers all disputes and differences of any kind
    arising between the parties. The applicant has clearly raised a
    number of issues, which can be summarized as follows:-
           (a)   Failure of the respondent to remove the defective
                 Billets supplied by the respondent and lying at
D                applicant's premises
           (b)   Failure to remit the amount drawn by respondent
                 against the Letter of Credit
           (c)   Failure to pay interests and costs incurred by the
                 applicant
E
           (d)   Failure to pay warehousing charges@ USO 20 per
                 Metric Ton per day on and from 1st October, 2009
                 till the actual removal of defective Billets from the
                 premises of the applicant.
F        14. In such circumstances, it can not be said that the
    applicant has failed to raise bonafide dispute which cannot be
    referred to arbitration.
         15. As noticed earlier, the applicant through its e-mail
    dated 31st August, 2008 had informed the respondent about
G   defective material. In the second e-mail on the same date, the
    applicant had set out the details in the Billets and informed the
    respondent that it has stopped de-stuffing of containers. The
    respondent was called upon to take back the rejected goods
    urgently and arrange to refund the amount paid at the earliest.
H   In response to the aforesaid e-mail, the respondent on 1st
 AL JAZEERA STEEL PRODUCTS COMPANY SAOG v. MID 407
INDIA POWER & STEEL LTD. [SURINDER SINGH NIJJAR, J.]

September, 2008 had indicated its concern and the                     A
inconvenience caused to the applicant was deeply regretted.
The applicant was also assured that the problem would be
sorted out to the entire satisfaction of the applicant. Thereafter,
the respondents have proposed a joint inspection, which
according to the applicant was never arranged. On the other           B
hand, the respondent claims that the applicant had rebuffed all
the efforts made by the respondents to resolve the issue. The
applicant was intent on claiming the refund.
      16. In my opinion, the aforesaid facts and circumstances
are sufficient to show that the bonafide disputes have arisen         C
between the parties, which are within the scope and ambit of
the arbitration clause and need to be resolved through
arbitration. I do not find any substance in the submission of the
learned counsel for the respondent that the disputes are either
belated or raised only to avoid liability under the contract. The     o
disputes having arisen in September, 2008 and the present
application having been filed on 4th February, 2009, the petition
can not be said to be belated.
     17. Keeping in view the facts and circumstances narrated
above, the application is allowed. All the disputes that have         E
arisen between the parties are hereby referred to arbitration. I
hereby appoint Hon. Mr. Justice S.N. Variava, Former Judge
of this Court, as the Sole Arbitrator to adjudicate upon all the
disputes and differences that have arisen between the parties,
on such terms and conditions as the learned Sole Arbitrator           F
deems fit and proper. Undoubtedly, the learned Sole Arbitrator
shall decide all the disputes arising between the parties without
being influenced by any prima facie opinion expressed in this
order, with regard to the respective claims of the parties.
     18. The registry is directed to communicate this order to        G
the Sole Arbitrator to enable him to enter upon the reference
and decide the matter as expeditiously as possible.
     19. The Arbitration Petition is accordingly disposed of.
R.P.                                Arbitration petition allowed.
                                                                      H