Supreme Court of India
M/S. CAUVERY COFFEE TRADERS, MANGALOREversusM/S. HORNOR RESOURCES (INTERN.) CO. LTD.
- Citation
- 2011 INSC 683
- Decided
- 13 September 2011
- Disposal
- Dismissed
- Bench
- B S CHAUHAN
Holding
Part I of the Arbitration and Conciliation Act, 1996 applies to international commercial arbitrations held outside India, but the parties' full and final settlement extinguished the dispute, rendering the arbitration applications dismissible.
Summary
The Supreme Court examined an application under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator in a dispute arising from a purchase contract for iron ore. The contract required a minimum 63% Fe content and contained a price‑adjustment clause and an arbitration clause mandating arbitration in a third country. After the ore was delivered with 62.74% Fe, the buyer proposed a reduced payment of US$1.5 million as full and final settlement, which the seller accepted and received. The seller later claimed the acceptance was based on an erroneous bank message and sought arbitration. The Court held that Part I of the Act applies to international commercial arbitrations held outside India, making the Section 11 application maintainable, but found that the parties had already reached an accord and satisfaction; the settlement was accepted without any allegation of fraud, misrepresentation or coercion, and the doctrine of estoppel barred the seller from relitigating. Consequently, no dispute remained and the applications were dismissed.
Issues considered
- The applicability of Part I of the Arbitration and Conciliation Act, 1996 to international commercial arbitrations held outside India.
- Whether a full and final settlement, accepted by the parties, extinguishes the existence of a dispute for purposes of invoking the arbitration clause.
- Whether the claim of an erroneous bank instruction can revive the arbitration despite the settlement, invoking doctrines of estoppel, election and approbate‑reprobate.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11(5), s. 11(9), s. 2(2)
Subjects
ArbitrationSection 11International commercial arbitrationPart I applicabilityAccord and satisfactionEstoppelDoctrine of electionError in bank instructionFull and final settlementPurchase agreement
Judgment
[2011) 12 S.C.R. 473
MIS. CAUVERY COFFEE TRADERS, MANGALORE A
v.
MIS. HORNOR RESOURCES (INTERN.) CO. LTD.
Arbitration Petition Nos. 7 & 8 of 2009
SEPTEMBER 13, 2011
B
IDR. B.S. CHAUHAN, J.]
Arbitration and Conciliation Act, 1996:
s. 11 - Appointment of arbitrator - Purchase Agreement c
>etween applicant-seller and respondent-buyer providing that
-he quality of iron ore supplied must contain 63% Fe content
~lse the respondent would have right to reject the cargo -
'Jonsignment received by respondent contained 62. 74% -
=?.espondent informed the applicant that USO 1.5 million would D
Je released for the shipment in place of USO 1.8 million in
ul/ and final settlement and in case the applicant was willing
'o accept the same, it should ·send instructions through its
'Janker :..__.Applicant received USO' 1.5 million and demanded
'he balance amount on the ground that an erroneous E
nessage was forwarded by its bankers to the respondent that
'he applicant had agreed to receive the less payment towards
'ull and final payment - Respondent did not give response -
4.pplication for appointment of arbit(ator - Maintainability of
- Held: The applicant did not plead that there was any kind
'Jf misrepresentation or fraud or coercion on the part of the F
respondent - Nor it was its case that payment was sent by the
respondent without any settlement/agreement with the
1app/icant, and was a unilateral act on their part - The applicant
reached the final settlement with its eyes open and instructed
iits banker to accept the money as proposed by the respondent G
- Proposal itself was on the basis of terms of the Purchase
Agreement which provided for Price Adjustment - In such a
fact-situation, the plea that instructions were given by the
applicant to the banker erroneously was an afterthought - The
473 H
474 SUPREME COURT REPORTS (2011) 12 S.C.R.
A transaction stood concluded between the parties, not on
account of any unintentional error, but after extensive and
exhaustive bilateral deliberations with a clear intention to
bring about a quietus to the dispute - These negotiations were
self-explanatory steps of the intent and conduct of the parties
B to end the dispute and not to carry it further- Since no dispute
survived between the parties, application seeking appointment
of arbitrator liable to be dismissed.
Part I - Applicability of, to international commercial
arbitrations held outside India - Held: The provisions of Part
C I of the Act would be equally applicable to international
commercial arbitrations held outside India, unless any of the
said provisions are excluded by agreement between the
parties expressly or by implication.
D DOCTRINES/PRINCIPLES: Doctrine of estoppel -
Approbation and reprobation - Held: A party cannot be
permitted to "blow hot and cold''. "fast and loose" or "approbate
and reprobate" - Where one knowingly accepts the benefits
of a contract or conveyance or an order, is estopped to deny
E the validity or binding effect on him of such contract or
conveyance or order - This rule is applied to do equity,
however, it must not be applied in a manner as to violate the
principles of right and good conscience - The doctrine of
election is based on the rule of estoppel - the principle that
F one cannot approbate and reprobate inheres in it - The
doctrine of estoppel by election is one of the species of
estoppels in pais (or equitable estoppel), which is a rule in
equity- By that law, a person may be precluded by his actions
or conduct or silence when it is his duty to speak, from
G asserting a right which he otherwise would have had.
WORDS AND PHRASES: Word 'error' - Meaning of.
On 24.6.2008, a Purchase Contract was entered into
between the applicant and the respondent wherein the
H. applicant agreed to sell to the respondent Calibrated
CAWERY COFFEE TRADERS, MANGALORE v. HORNOR 4 75
RESOURCES (INTERN.) CO. LTD.
Lumpy Ore Fines of the approximate quantity of 40,000/- A
Wet Metric (10% more or less at buyers' option) at the
price and on the terms and conditions stipulated in the
said agreement. The agreement provided for the chemical
specification/composition of the Ore and for guaranteed
level of Fe i.e. iron content in the contracted goods which B
could not be less than 63% and in case the iron content
was less than 63%, the buyer would have a right to reject
the cargo.
Pursuant to the purchase contract, the applicant on C
6.8.2008 shipped the total consignment. The applicant
raised a provisional invoice for a sum of US$ 32,13,529.11
and sent a Certificate of Origin and the Bill of Lading
dated 6.8.2008 as issued by the carriers in respect of the
carriage of the goods from· Mangalore Port, India to
Rizhao Port, China. The said goods reached at China D
Port. The delivery of the same was taken by the
respondent and on chemical analysis, according to the
respondent, the iron contents Fe, were found to be
62.74%. The respondent by email dated 19.9.2008
informed the applicant that a provisional payment would E
be released for the shipment in question based on
revised rates and, in case, the applicant was willing to
accept the revised rates stipulated therein, the
respondent would request their end buyers' confirmation
to release the payment, and for that purpose, applicant F
was asked to send necessary instructions through their
banker. The respondent by email dated 7 .10.2008
informed the applicant that US$ 1.5 million could be the
amount for the final settlement in respect of the shipment
in question, in spite of the fact that the agreed amount G
was US$ 18,91,204.00. An amount of US$ 1.5 million was
received by the applicant. Subsequent thereto, the
applicant repeatedly sent reminders to the respondent to
make good the balance payment under the said purchase
contract, but no payment was made. The applicant sent H
476 SUPREME COURT REPORTS [2011] 12 S.C.R.
A a legal notice calling upon the respondent to pay the
balance amount under the purchase contract or else in
view of the arbitration clause 18 contained in the
purchase agreement, friendly negotiations should be
carried out to settle the dispute accrued between them.
B As per the terms of the purchase agreement, arbitration
could be held only in a third country. The applicant
suggested to have the arbitration proceedings either in
Singapore or in Australia. In spite of receiving the said
notice and a reminder thereafter, neither the payment of
c the balance amount was made, nor the respondent came
forward for friendly negotiations. The applicant filed the
instant arbitration applications. The main ground raised
in the applications was that inspite of the fact that the
applicant specifically informed their bankers that an ·
amount of USO 1.5 million was to be received in lieu of
0
the provisional payment, an erroneous message was
forwarded by the applicant's bankers to the respondent
that the applicant had agreed to receive an amount of
USO 1.s· million towards full and final payment.
E Dismissing the applications, the Court
HELD: 1.1. Notwithstanding the provisions of
Section 2(2) of the Arbitration and Conciliation Act, 1996,
indicating that Part I of the said Act would apply where
F the place of arbitration is in India, even in respect of
international commercial agreements, which are to be
governed by the laws of another country, the parties
would be entitled to invoke the provisions of Part I of the
said Act and consequently the application made under
G Section 11 thereof would be maintainable. It clearly lays
down that the provisions of Part I of the Arbitration and
Conciliation Act, 1996, would be equally applicable to
international commercial arbitrations held outside India,
unless any of the said provisions are excluded by
H agreement between the parties expressly or by
CAUVERY COFFEE TRADERS, MANGALORE v. HORNOR 477
RESOURCES (INTERN.) CO. LTD.
implication, which is not so in the instant case. [Para 9) A
[485-C-F]
Bhatia International v. Bulk Trading S.A (2002) 4 SCC
105: 2002 ( 2 ) SCR 411 - followed.
lndtel Technical Services Private Limited v. W S. Atkins B
Rail Limited (2008) 10 SCC 308: 2008 (12) SCR 673;
Citation lnfowares Limited v. Equinox Corporation (2009) 7
SCC 220: 2009 (6) SCR 737; Venture Global Engg. Case v.
Satyam Computer Services Ltd. (2008) 4 SCC 190: 2008 (1)
SCR 501- relied on. C
Shreejee Traco (I) Plit. Ltd. v. Paperline International Inc.
(2003) 9 sec 79 - referred to.
1.2. From the agreement, it is evident that the ore
supplied must contain Fe contents not less than 63%. In D
cas~ the Fe contents are less than the specified
percentage, the buyer would have a right to reject the
cargo. The Purchase Agr.eement also contained a clause
providing for price adjustment in case the supplied ore
did not meet the requirement of specification provided for E
iron ore. In case of any dispute between the parties, the
agreement provided for arbitration in any third country.
Stand of the respondent throughout was that under
Clause 5 of the Purchase Contract, the buyer had a right
to reject the whole consignment in case the iron contents F
were less than 63%. However, goods had already
reach~d the port of discharge in China, the buyer
accepted the delivery thereof and made a proposal for
adjustment of price. Negotiations started as is evident
from the email messages dated 8.9.2008, 25.9.2008 and G
7.10.2008 and it was in pursuance of these negotiations
that the applicant had instructed its banker to accept the
proposal made by the respondent and it was in
pursuance of their instructions, the banker by email dated
8.10.2009 accepted the proposal and agreed to receive a H
478 SUPREME COURT REPORTS [2011] 12 S.C.R.
A sum of US$ 1.5 million as full and final settlement for the
consignment in issue. The payment made was accepted
by the applicant and it was after 3 months thereafter that
it served a legal notice for making a reference to the
Arbitrator. The applicant did not dispute the negotiations
B or giving instructions to its banker or in respect of the
email by their banker to the respondent or receiving the
money in lieu thereof. Error means - a mistake in
judgment/assessment in a process or proceedings;
some wrong decision taken inadvertently; unintentional
c mistakes; something incorrectly done through ignorance
or inadvertence; mistake occurred from an accidental
slip; deviation from standard or course of right or
accuracy - unintentionally; to be wrong about; to think
or understand wrongly; an omission made not by design,
but by mischance. In case, final settlement has been
0
reached amicably between the parties even by making
certain adjustments and without <:ny misrepresentation
or fraud or coercion, then, acceptance of money as full
. and final settlement/issuance of receipt or vouchers etc.
would conclude the controversy and it is not open to
E either of the parties to lay any claim/demand against the
other party. [Paras 12, 13, 17, 18, 23) [487-F-G; 489-D-H;
490-A, E-F; 493-F-H]
Nathani Steels Ltd. v. Associated Constructions 1995
F Supp (3) SCC 324; State of Maharashtra v. Nav harat
Builders 1994 Supp (3) SCC 83; Mis. P.K. Ramaiah &
Company v. Chairman & Managing Director, NTPC (1.994)
Supp. 3 SCC 126; National Insurance Company Limited v.
Mis. Boghara Po/yfab Private Limited AIR 2009 SC 170: 2008
G (13) SCR 638; R.L. Kalathia v. State of Gujarat (2011) 2 SCC
400: 2011 (1) SCR 391 - relied on.
1.3. The applicant had not pleaded that there was any
kind of misrepresentation or fraud or coercion on the part
of the respondent. Nor it was its case that payment was
H
CAUVERY COFFEE TRADERS, MANGALORE v. HORNOR 4 79
RESOURCES (INTERN.) CO. LTD.
sent by the respondent without any settlement/ A
agreement with the applicant, and was a unilateral act on
its part. The applicant reached the final settlement with
eyes open and instructed its banker to accept the money
as proposed by the respondent. Proposal itself was on
the basis of clause 5 of the Purchase Contract which B
provided for Price Adjustment. For a period of three
months after acceptance of the money under the full and
final settlement, applicant did not raise any dispute in
respect of the agreement of price adjustment. In sue~ a
fact-situation, the plea that instructions were given by t~e c
applicant to the banker erroneously, being, afterthought is
not worth acceptance. The transaction stood concluded
between the parties, not on account of any unintentional
error, but after extensive and exhaustive bilateral
deliberations with a clear intention to bring about a 0
quietus to the dispute. These negotiations, therefore,
were self-explanatory steps of the intent and conduct of
the parties to end the dispute and not to carry it further.
[Para 24) [494-A-E]
R.N. Gosain v. Yashpa/ Dhir AIR 1993 SC 352: 1992 (2) E
Suppl. SCR 257- relied on.
2. A party cannot be permitted to "blow hot and
cold", "fast and loose" or "approbate and reprobate".
Where one knowingly accepts the benefits of a contract F
or conveyance or an order, is estopped to deny the
validity or binding effect on him of such contract or
conveyance or order. This rule is applied to do equity,
however, it must not be applied in a manner as to violate
the principles of right and good conscience. Thus, it is G
evident that the doctrine of election is based on the rule
of estoppel- the principle that one cannot approbate and
reprobate inheres in it. The doctrine of estoppel by
election is one of the species of estoppels in pais (or
equitable estoppel), which is a rule in equity. By that law,
H
480 SUPREME COURT REPORTS (2011] 12 S.C.R.
A a person may be precluded by his actions or conduct or
silence when it is his duty to speak, from asserting a
right which he otherwise would have had. In the facts and
circumstances of the case, as the respondent resorted
to clause 5 of the Purchase Agreement dated 28/6/2008,
B regarding price adjustment and the offer so made by the
respondent has been accepted by the applicant and
agreed to receive a particular sum offered by the
respondent as a full and final settlement, the dispute
comes to an end. The applicant cannot take a complete
c somersault and agitate the issue that the offer made by
the respondent had erroneously been accepted. In view
of that as no dispute survives, the applications are
dismissed. [Paras 26-28) [494-G-H; 495-A-H]
Nagubai Ammal & Ors. v. B. Shama Rao & Ors. AIR
D 1956 SC 593: 1956 SCR 451; C./. T. v. MR. P. Firm Maur
AIR 1965 SC 1216: 1965 SCR 815; Maharashtra State Road
Transport Corporation v. Ba/want Regular Motor Service,
Amravati & Ors., AIR 1969 SC 329: 1969, SCR 808; P.R.
Deshpande v. Maruti Ba/aram Haibatti AIR 1998 SC 2979:
E 1998 (3) SCR 1079; Babu Ram v. lndrapal Singh AIR 1998
SC 3021: 1998 (3) SCR 1145; Chairman and MD, NTPC Ltd.
v. Reshmi Constructions, Builders & Contractors AIR 2004
SC 1330: 2004 (1) SCR 62; Ramesh Chandra Sank/a & Ors.
v. Vikram Cement & Ors. AIR 2009 SC 713: 2008 (10) SCR
F 243; Pradeep Oil Corporation v. Municipal Corporation of
Delhi & Anr. 2011 5 sec 270 - relied on.
Case Law Reference:
2002 (2) SCR 411 followed Para 9, 11
G
2008 (12) SCR 673 relied on Para 9
2009 (6) sc·R 737 relied on Para 9
2008 (1) SCR 501 relied on Para 9
H
CAUVERY COFFEE TRADERS, MANGALORE v. HORNOR 481
RESOURCES (INTERN.) CO. LTD.
(2003) 9 sec 79 referred to Para 10 A
1995 supp (3) sec 324 relied on Para 11
1994 supp (3) sec 83 relied on Para 19
(1994) Supp. 3 sec 126 relied on Para 20
B
2008 (13) SCR 638 relied on Para 21
2011 (1) SCR 391 relied on Para 22
1992 (2) Suppl. SCR 257 relied on Para 25
c
1956 SCR 451 relied on Para 26
1965 SCR 815 relied on Para 26
1969 SCR 808 relied on Para 26
1998 (3) SCR 1079 relied on Para 26 D
1998 (3) SCR 1145 relied on
Para 26
-· -·
2004 (1) SCR 62 relied on Para 26
E
2008 (10) SCR 243 relied on. Para 26
2011 5 sec 210 relied on Para 26
CIVIL ORIGINAL JURISDICTION : Arbitration Petition No.
7 & 8 of 2009. F
Under Section 11 (5) & 11 (9) of the Arbitration and
Conciliation Act, 1996.
V.A. Mohta, P. Vijay Kumar, C.S.N. Mohan Rao for the
Petitioner. G
S.K. Kulkarni, Ankur S. Kulkarni, M. Gireesh Kumar,
Anirudha Anand for the Respondent.
The Judgment of the Court was delivered by
H
482 SUPREME COURT REPORTS [2011] 12 S.C.R.
A DR. B.S. CHAUHAN, J. 1. The arbitration applications
under Section 11 (5) & (9) of the Arbitration and Conciliation
Act, 1996, hereinafter called the "Act 1996" have been filed for
appointment of Arbitrator in an international arbitration dispute
to adjudicate the disputes/differences which have arisen
B between the parties.
2. The applicants are a partnership concern incorporated
under the Indian Partnership Act, 1932 and have filed two
applications as the dispute raised herein relate to two
consignments. However, for convenience, facts and issues
C related to Petition No.7/2009 are being considered.
3. On 24.6.2008, a Purchase Contract bearing No. CCT/
SST/027/ 240608 was entered and executed by and between
the applicants and the respondents wherein the applicants
D agreed to sell and the respondents agreed to purchase
Calibrated Lumpy Ore Fines of the approximate quantity of
40,000/- Wet Metric Tones (hereinafter called as 'WMT') (10%
more or less at buy~rs' option) at the price and on the terms
and conditions stipulated in the said agreement. The-·
E agreement provided for the chemical specification/composition
of the Ore and for. guaranteed level of Fe i.e. iron content in
the contracted goods which could not be less than 63%. In case
the iron content was less than 63%, the buyer would have a right
to reject the cargo.
F 4. A large quantity of Ore had been supplied to the
respondents which had been accepted and payments had
been made. Pursuant to the purchase contract, the applicants
on 6.8.2008 shipped a total consignment of 24,500 D!Y MT of
Calibrated Lumpy Ore from New Mangalore Port, India to the
G port of discharge viz. Rizhao Port, China by vessel named "MV.
FUJIN". The applicants raised a provisional invoice for a sum
of US$ 32, 13,529.11 and sent a Certificate of Origin and the
Bill of Lading dated 6.8.2008 as issued by the carriers in
respect of the carriage of the goods from Mangalore Port, India
H
CAUVERY COFFEE TRADERS, MANGALORE v. HORNOR 483
RESOURCES (INTERN.) CO. LTD. [DR. S.S. CHAUHAN, J.]
to Rizhao Port, China. The material so supplied had been sent A
after proper analysis and it had been certified by the analyst in
India that the goods supplied contained more than 63% Fe
contents. The said goods reached at China Port. The delivery
of the same was taken by the respondents and on chemical
analysis, according to them, the iron contents Fe, were found B
to be 62.74%. The goods reached the Port of Discharge, and
were accepted by the respondents-buyers who promised that
payment would be made without any delay.
5. The respondents vide email dated 19.,9.?008 informed
the applicants that a provisional payment would be released C
for the shipment in question based on revised rates and, in
case, the applicants were willing to accept the revised rates
stipulated therein, the respondents would request their end
buyers' confirmation to release the payment, and for that
purpose, applicants were asked to send necessary instructions D
through their banker. The respondents vide email dated
7.10.2008 informed the applicants that US$ 1.5 million could
be the amount for the final settlement in (espect of the shipment
in question, in spite of the fact that the agreed amount had been
US$ 18,91,204.00. By the said email, applicants were asked E
by the respondents to inform through their banker in case of
their acceptance to the said proposal. Under these peculiar
facts and circumstances, as the goods had already reached
China and applicants were in dire need of money, they informed
through their banker that they agreed to receive payment under F
the Letter of Credit in a sum of total claim of US$ 18,91,204.00.
By email dated 7 .10.2008 the respondents stated that the
applicants should accept US$ 1.5 million in full and final
settlement. Accordingly, an amount of US$ 1.5 million had been
received by them. Subsequent thereto, the applicants had G
repeatedly been sending reminders to the respondents to make
good the balance payment under the said purchase contract,
but no payment had been made. As the respondents failed to
make the payment of the balance amount, the applicants sent
a legal notice dated 14.11.2008 to call upon the respondents H
484 SUPREME COURT REPORTS [2011) 12 S.C.R.
A to pay the balance amount under the purchase contract and
further provided that, in view of the arbitration clause 18
contained in the purchase agreement, they should carry on
friendly negotiations to settle the dispute accrued between the
parties. As per the terms of the purchase agreement, arbitration
B can be held only in a third country. The applicants suggested
to have the arbitration proceedings either in Singapore or in
Australia. In spite of receiving the said notice, neither the
payment of the balance amount was made, nor the respondents
came forward for friendly negotiations. Therefore, a further
c reminder was sent by the applicants to the respondents calling
upon them to indicate the place of arbitration. As neither the
payment had been made, nor the respondents have agreed for
arbitration proceedings, they have approached this Court by
filing these applications.
D 6. Shri V.A. Mohta, learned senior counsel appearing for
the applicants, has submitted that in spite of the fact that the
supply of iron ore has been made strictly in terms of the
purchase contract and the outstanding_ payments have not been
made even after several reminders, the applicants served a
E notice on the respondents for appointment of Arbitrator in the
third country in terms of Clause 18 of the Purchase Agreement
but the respondents did not make any effort either to come for
friendly negotiations or to refer the matter for arbitration,
therefore, this Court must refer the matter to the Arbitrator in a
F third country preferably Singapore or Australia.
7. On the contrary, Shri Ashok K. Srivastava, learned
senior counsel appearing for the respondents, has vehemently
opposed the applications contending that the applications
G themselves are not maintainable as the purchase agreement
can be dealt with Part-II and certainly not under Part-I of the Act
1996. Therefore, the applications under Section 11 (5) & (9) of
Act 1996 are not maintainable, even otherwise, there has been
a complete settlement between the parties and the applicants
H have accepted the full and final settlement as suggested by the
CAUVERY COFFEE TRADERS, MANGALORE v. HORNOR 485
RESOURCES (INTERN.) CO. LTD. [DR B.S. CHAUHAN, J.]
respondents in view of the fact that Fe contents were not as A·
per the specifications ~nd certain terms had been offered to
the applicants for settlement, which had been agreed by them.
The question of making the reference to arbitration proceedings
does not arise.
B
8. I have considered the rival submissions made. by
learned counsel for the parties and perused the record.
9. So far as the issue relating to maintainability of the
application itself is concerned, is no more res integra. This court
in Bhatia_lntemational v. Bulk Trading S.A, (2002) 4 SCC 105, C
held as under:
"..... notwithstanding the provisions of Section 2(2) of the
Arbitration and Conciliation Act, 1996, indicating that Part
I of the said Act would apply where the place of arbitration 0
is in India, even in respect of international commercial •
agreements, which are to be governed by the. laws of
another country, the parties would be entitled to invoke the
provisions of Part I of the aforesaid Act and consequently
the application made under Section 11 thereof would be E
maintainable. It clearly lays down that the provisions of Part
I of the Arbitration and Conciliation Act; 1996 1 would be
equally applicable to international commercial arbitrations
held outside India, unless any of the said provisions are
excluded by agreement between the parties expressly or
by implication, which is not so in the instant case." F
(See also: lndtel Technical Services Private Limited v. W S.
Atkins Rail Limited, (2008) 10 SCC 308; and Citation
lnfowares Limited v. Equinox Corporation, (2009) 7 SCC 220).
G
10. In Venture Global Engg. Case v. Satyam Computer
Services Ltd. (2008) 4 SCC 190, this Court considered the
similar issue and after considering various earlier judgments,
came to the conclusion that implied exclusion of provision of
Part-I cannot be inferred and therefore the principles regarding
\ H
486 SUPREME COURT REPORTS [2011) 12 S.C.R.
A the arbitral reference laid down in Bhatia International (supra)
are applicable.
11. Hon'ble Mr. R.C. Lahoti, J. (as His Lordship then was)
however, has taken a contrary view as in Shreejee Traco (I)
B Pvt. Ltd. v. Paperline International Inc., (2003) 9 SCC 79; it
was held:
"8. So far as the language employed by Parliament in
drafting sub-section (2) of Section 2 of the Act is
concerned, suffice it to say that the language is clear and
c unambiguous. Saying that this Part would apply where
the place of arbitration is in India tantamounts to saying
that it will not apply where the place of arbitration is not
in India."
D However, considering the fact that Bhatia International
(supra) is a three-Judge Bench judgment and has consistently
been followed, the judgment of the learned Single Judge in
Shreejee Traco (I) Pvt. Ltd. (supra) does not have binding effect.
As a consequence, the application is held to be maintainable.
E 12. The Relevant part of the Purchase Agreement dated
28.6.2008 reads as under:
"Clause 5: Price Adjustment
For Fe content:
F
In respect of iron ore which does not meet the Fe
specifications set forth in Clause 3 the base price referred
to in Clause 4 shall be adjusted in accordance with Fe
content as determined pursuant to the provisions of Clause
G 8 as follows:
The base price shall be increased by single prorate
(USD2.2) per dry metric tonne for each 1% Fe below
63.5% upto 63.0 fraction prorate.
H
CAUVERY COFFEE TRADERS, MANGALORE v. HORNOR 487
RESOURCES (INTERN.) CO. LTD. [DR. B.S. CHAUHAN, J.]
The Buyer has the right to reject the cargo if Fe content is A
below 63.0% .
Clause 15: Title and Risk
The title with respect to each shipment shall pass from
Seller to the Buyers when Seller receives reimbursement B
of the proceeds from the opening bank through the
negotiating bank against the relative shipping documents
as set forth in clause 6 after completion of loading on
board the vessel at loading port, with effect retrospective
to the time of delivery of ore. C
Clause 18: Arbitration
All disputes in connection with this contract or the execution
thereof shall be settled amicably by friendly negotiations
0
between the two parties. If no settlement can be reached,
the case in dispute shall then be submitted for arbitration
to a third country, which shall be agreed upon by both
parties. The arbitration award shall be final and binding on
both the parties and may be enforced in any court having
jurisdiction over the party against which enforcement is E
sought. The cost of arbitration shall be borne by the losing
party."
Thus, from the Purchase Agreement it is evident that the
ore supplied must contain Fe contents not less than 63%. In F
case the Fe contents are less than the specified percentage,
the buyers would have a right to reject the cargo. The Purchase
Agreement also contains a clause providing for price
adjustment in case the supplied ore does not meet the
requirement of specification provided for iron ore. In case of G
any dispute between the parties, the agreement provides for
arbitration in any third country.
13. The documents on record reveal that parties had been
negotiating for the goods supplied and also in respect of H.
payment for the same (vide emails dated 25.6.2008 and
488 SUPREME COURT REPORTS [2011] 12 S.C.R.
A 8.9.2008). Relevant part of the email dated 25.9.2008 reads
as under:
" ...... Both cargos were rejected by end buyers due
to the quality failure.
B In such case, we regret to say that the maximum
CFR price we can work here is $110 for Zhongqiang II
AND $120 FOR Fujin. Pis note current market price for
cargo below 63 is only $100 and market is still on the
down trend. However in consideration of the long term
c good cooperation between the two companies, we are
offering to bear at least a $10-20 loss on our side and with
the huge risks of further slide of market, which actually is
foreseeable .
D ... ... Our above offer is valid till this Friday (26th
September, 2008) only ... "
14. The email dated 7.10.2008 sent by the applicants to
the respondents reads as under:
E "Further to telecom just now, pis note as per latest mutual
agreement between seller and buyer, the said
USD1 .50 million shall be final settlement for
subj.shipment, so please request your bank to revise the
swift msg as follows:
F
"beneficiary agrees to receive USD1,500,000.00
for full and final payment for this set of documents
and under this letter of credit, after release of this
amount, the letter of credit shall be considered
expired and cancelled." (Emphasis added)
G
15. Subsequently, the applicants sent an email to the
respondents dated 14.11.2008 which provided inter-alia, as
under.
H "Clause 8 of the Purchase Contract provided for the
CAUVERY COFFEE TRADERS, MANGALORE v. HORNOR 489
RESOURCES (INTERN.) CO. LTD. [DR. 8.S. CHAUHAN, J.]
remedies available in the event of tbere being a A
difference in percentage of the Fe content as compared
to the specifications mentioned in the Contract. The said
Contract also provided that all disputes would be settled
amicably and that if no settlement could be reached, the
disputes would be submitted to arbitration to a third B
country to be agreed upon by both the parties.
. . . . . . .Since the Arbitration clause provides for the dispute
being submitted for arbitration to a third country, our clients
would suggest conduct of the arbitration either in C
Singapore under the auspices of the Singapore
International Arbitration Centre and/or Australia under the
Rules of the Institute of Arbitrators and Mediators,
Australia."
16. The applicants again asked the respondents for D
reference to Arbitrator vide email dated 21.11.2008, but in vein.
17. Stand of the respondents throughout had been that
under Clause 5 of the Purchase Contract dated 24.6.2008 in
respect of the iron ore, the buyers had a right to reject the whole E
consignment in case the iron contents were less than 63%, as
has been in the instant case. However, considering other factors
that goods had already reached the port of discharge in China,
the buyers accepted the delivery thereof and therefore, the
buyers made a proposal for adjustment of price. Negotiations
started as is evident from the email messages dated 8.9.2008, F
25.9.2008 and 7.10.2008 as referred to hereinabove, and it was
in pursuance of these negotiations that the applicants had
instructed their banker to accept the proposal made by the
respondents and it was in pursuance of their instructions, the
banker vide email dated 8.10.2009 accepted the proposal and G
agreed to receive a sum of US$500,000.00 as full and final
settlement for the consignment in issue. The payment made
was accepted by the applicants and it was after 3 months
thereafter that they served a legal notice dated 14.11.2008 for
making a reference to the Arbitrator. The applicants in the H
490 SUPREME COURT REPORTS [2011) 12 S.C.R.
A present application do not dispute the negotiations or giving
instructions to their banker or in respect of the email by their
banker to the respondents or receiving the money in lieu thereof.
Therefore, the question does arise as to whether the banker's
acceptance of instructions given by the applicants can be
B treated as full and final settlement of the dispute. The main
ground in this regard had been taken in this application in
Paragraph (P) as under:
"In spite of the fact that the Applicants had specifically
informed their Bankers that an amount of US$ 1.5 million
c was to be received in lieu of provisional payment, an
erroneous message was forwarded by the Applicants'
Bankers to the Respondents that the beneficiary being the
Applicants herein had agreed to receive an amount of
US$ 1.5 million towards full and final payment and that the
D Letters of Credit would be considered expired and
cancelled on receipt of the said payment." (Emphasis
added)
1S. Error means - a mistake in judgment/a;sessment in
E a process or proceedings; some wrong decision taken
inadvertently; unintentional mistakes; something incorrectly done
through ignorance or inadvertence; mistake occurred from an
accidental slip; deviation from standard or course of right or
accuracy - unintentionally; to be wrong about; to think or
F understand wrongly; an omission made not by design, but by
mischance.
19. In Nathani Steels Ltd. v. Associated Constructions,
1995 Supp (3) SCC 324, while dealing with a similar issue,
this Court held:
G
" ...... once the parties have arrived at a settlement in
respect of any dispute or difference arising under a
contract and that dispute or the difference is amicably
settled by way of a final settlement by and between the
H parties, unless that settlement is set aside in proper
CAUVERY COFFEE TRADERS, MANGALORE v. HORNOR 491
RESOURCES (INTERN.) CO. LTD. [DR. B.S. CHAUHAN, J.]
proceedings, it cannot lie in the mouth of one of the parties A
· to the settlement to spurn it on the ground that it was a
mistake and proceed to invoke the Arbitration clause. If this
is permitted the sanctity of contract, the settlement also
being a contract, would be wholly lost and it would be open
to one party to take the benefit under the settlement and B
then to question the same on the ground of mistake without
having the settlement set aside. In the circumstances, we
think that in the instant case since the dispute or difference
was finally settled and payments were made as per the
settlement, it was not open to the respondent unilaterally c
to treat the settlement as non est and proceed to invoke
the Arbitration clause .... "
A similar view has been re-iterated in State of Maharashtra
v. Nav Bharat Builders, 1994 Supp (3) SCC 83.
D
20. This Court in Mis. P.K. Ramaiah & Company v.
Chairman & Managing Director, NTPC, (1994) Supp. 3 SCC
126 considered the ambit of accord and satisfaction by the
parties voluntarily entered into and dispute raised thereunder.
This Court after considering the entire controversy held that: E
"Admittedly the full and final satisfaction was
acknowledged by a receipt in writing and the amount was
received unconditionally. Thus there is accord and
satisfaction by final settlement of the claims. The F
subsequent allegation of coercion is an afterthought and
a devise to get over the settlement of the dispute,
acceptance of the payment and receipt voluntarily
given .... Having acknowledged the settlement and also
accepted measurements and having received the amount
in full and final settlement of the claim, there is accord and G
satisfaction. There is no existing arbitrable dispute for
reference to the arbitration." (Emphasis added)
21. In National Insurance Company Limited v. Mis.
H
492 SUPREME COURT REPORTS [2011) 12 S.C.R.
A Boghara Polyfab Private Limited, AIR 2009 SC 170, this Court
held:
"26. When we refer to a discharge of contract by an
agreement signed by both the parties or by execution of
a full and final discharge voucher/receipt by one of the
B
parties, we refer to an agreement or discharge voucher
which is validly and voluntarily executed. If the party which
has executed the discharge agreement or discharge
voucher, alleges that the execution of such discharge
agreement or voucher was on account of fraud/coercion!
c undue influence practised by the other party and is able
to establish the same, then obviously the discharge of the
contract by such agreement/voucher is rendered void and
cannot be acted upon. Consequently, any dispute raised
by such party would be arbitrable." (Emphasis added).
D
xx xx xx
29. It is thus clear that the arbitration agreement contained
in a contract cannot be invoked to seek reference of any
dispute to arbitration, in the following circumstances, when
E
the contract is discharged on account of performance, or
accord and satisfaction, or mutual agreement, and the
same is reduced to writing (and signed by both the parties
or by the party seeking arbitration):
F (a) where the obligations und.er a contract are fully
performed and discharge of the contract by performance
is acknowledged by a full and final discharge voucher/
receipt, nothing survives in regard to such discharged
contract;
G
(b) where the parties to the contract, by mutual agreement,
accept performance of altered, modified and substituted
obligations and confirm in writing the discharge of contract
by performance of the altered, modified or substituted
obligations;
H
CAUVERY COFFEE TRADERS, MANGALORE v. HORNOR 493
RESOURCES (INTERN.) CO. LTD. [DR. B.S. CHAUHAN, J.]
(c) where the parties to a contract. by mutual agreement, A
absolve each other from performance of their respective
obligations (either on account of frustration or otherwise)
and consequently cancel the agreement and confirm that
there are no outstanding claims or disputes."
(Emphasis added) B
22. In R.L. Katathia v. State of Gujarat, (2011) 2 SCC 400,
this court considered a similar issue and held:
"(i) Merely because the contractor has issued "no-dues
certificate", if there is an acceptable claim, the court cannot C
reject the same on the ground of issuance of "no-dues
certificate".
(ii) Inasmuch as it is common that unless a discharge
certificate is given in advance by the contractor, payment
0
of bills are generally delayed, hence such a clause in the
contract would not be an absolute bar to a contractor
raising claims which are genuine at a later date even after
·· submission of such "no-claim certificat~·.
(iii) Even after execution of full and final discharge voucher/ E
receipt by one of the parties, if the said party is able to
establish that he is entitled to further amount for which he
is having adequate materials, he is not barred from
claiming such amount merely because of acceptance of
the final bill by mentioning ''without prejudice" or by issuing F
"no-dues certificate".
·23. In view of the above, law on the issue stands
crystallised to the effect that, in case, final settlement has been
reached amicably between the parties even by making certain
adjustments and without any misrepresentation or fraud or G
coercion, then, acceptance of money as full and final settlement/
issuance of receipt or vouchers etc. would conclude the
controversy and it is not open to either of the parties to lay any
claim/demand against the other party.
H
494 SUPREME COURT REPORTS [~011] 12 S.C.R.
A 24. The applicants have not pleaded that there has been
any kind of misrepresentation or fraud or coercion on the part
of the respondents. Nor it is their case that payment was sent
by the respondents without any settlement/agreement with the
applicants, and was a unilateral act on their part. The applicants
B reached the final settlement with their eyes open and instructed
their banker to accept the money as proposed by the
respondents. Proposal itself was on the basis of clause 5 of
the Purchase Contract which provided for Price Adjustment.
For a period of three· months after acceptance of the money
c under the full and final settlement, applicants did not raise any
dispute in respect of the agreement of price adjustment In such
a fact-situation, the plea that instructions were given by the
applicants to the banker en"Oneous/y, being, afterthought is not
worth acceptance.
D The transaction stood concluded between the parties, not
on account of any unintentional error, but after extensive and
exhaustive bilateral deliberations with a clear intention to bring
""about a quietus to the dispute. These negotiations, therefore,
are self-explanatory steps of the intent and conduct of the
E parties to end the dispute and not to carry it further.
25. In R.N. Gosain v. Yashpa/ Dhir, AIR 1993 SC 352,
this Court has observed as under:-
"Law does not permit a person to both approbate and
F reprobate. This principle is based on the doctrine of
election which postulates that no party can accept and
reject the same instrument and that "a person cannot say
at one time that a transaction is valid and thereby obtain
some advantage, to which he could only be entitled on the
footing that it is valid, and then turn round and say it is void
G
for the purpose of securing some other advantage."
26. A party cannot be permitted to "blow hot and cold", "fast
and loose" or "approbate and reprobate". Where one knowingly
accepts the benefits of a contract or conveyance or an order,
H is estopped to deny the validity or binding effect on him of such
CAUYERY COFFEE TRADERS, MANGALORE v. HORNOR 495
RESOURCES (INTERN.) CO. LTD. [DR. B.S. CHAUHAN, J.]
contract or conveyance or order. This rule is applied to do A
equity, however, it must not be applied in a manner as to violate
the principles of right and good conscience. (Vide: Nagubai
Amma/ & Ors. v. B. Shama Rao & Ors., AIR 1956 SC 593;
C.I. T. Vs. MR. P. Firm Maur, AIR 1965 SC 1216; Maharashtra
State Road Transport Corporation v. Ba/want Regular Motor B
Service, Amravati & Ors., AIR 1969 SC 329; P.R. Deshpande
v. Maruti Ba/aram Haibatti, AIR 1998 SC 2979; Babu Ram v.
lndrapa/ Singh, AIR 1998 SC 3021; Chairman and MD, NTPC
Ltd. v. Reshmi Constructions, Builders & Contractors, AIR
2004 SC 1330; Ramesh Chandra Sank/a & Ors. v. Vikram c
Cement & Ors.,· AIR 2009 SC 713; and Pradeep Oil
Corporation v. Municipal Corporation of Delhi & Anr., (2011)
5 sec 210).
27. Thus, it is evident that the doctrine of election is based
on the rule of estoppel- the principle that one cannot approbate D
and reprobate inheres in it. The doctrine of estoppel by election
is one of the species of estoppels in pais (or equitable :
estoppel), which.!§ a rule in equity. By that law, a person mi;iy
be precluded by his actions or conduct or silence when it is his
duty to speak, from asserting a right which he otherwise would E
have had.
28. In the facts and circumstances of the case, as the
respondents resorted to clause 5 of the Purchase Agreement
dated 28/6/2008, regarding price adjustment and the offer so
made by the respondents has been accepted by the applicants F
and agreed to receive a particular sum offered by the
respondents as a full and final settlement, the dispute com :s
to an end.
The applicants cannot take a complete somersault and
agitate the issue that the offer made by the respondents had G
erroneously been accepted.
In view of the above, as no dispute survives, the
applications are dismissed.
D.G. Applications dismissed. H
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