Ramji Dayawala & Sons (P) Ltd. v. Invest Import: Case Analysis

Citation: (1981) 1 SCC 80 

FACTS

The appellant is a private limited company which entered into a sub-contract with the respondent which is a Yugoslavia based company. It had earlier entered into a contract with the State Electricity Board. The contract was for setting up a power station. The appellant and the respondent incorporated an agreement under which all the disputes arising out of the sub 

contract should be referred to the arbitration of the International Chamber of Commerce in Paris.  During the work undertaken under the sub-contract, the appellant claimed that it had carried out some extra work for which it was entitled to recover extra amounts from the respondent. Later the claims were not satisfied by the respondent. So the appellant filed a civil suit in the High Court for recovery of the amount. 

ISSUES

(1) Whether there was no concluded arbitration agreement between the parties to refer the disputes arising out of the sub-contract to arbitration? 

(2) Is the appellant entitled to the extra money for the work from the respondent?

JUDGEMENT

DECISION OF HIGH COURT 

The High Court granted an interim ex-parte injunction restraining the respondent from withdrawing the money due to it from the State Electricity Board. Against which respondent moved an application under section. 151 of the Code of Civil Procedure, for a stay that the disputes and differences that arose were related to the sub-contract and in which it was clearly stated to refer disputes or differences arising under the sub-contract to arbitration, the suit filed by the appellant ought to have stayed.  

The appellant contended that there was no concluded agreement between the parties to refer all the disputes arising out of the subcontract to arbitration and alleged that on that very date, the  Managing Director of the appellant company had informed the respondent that he had objections to the arbitration clause mentioned in the agreement. He also wanted that the clause regarding arbitration should be deleted. 

The second contention was that even if it is held that there is a subsisting arbitration agreement,  considering the facts and circumstances of the case, the discretion should not be exercised in 

favour of the respondent. The Single Judge granted the decision in favour of the respondent and stayed further proceedings in the suit filed by the appellant. He further vacated the interim injunction granted in favour of the appellant. 

The appellant preferred to appeal on two grounds. First against the order of the Single Judge granting a stay of the suit of the appellant and other against the order vacating the interim injunction. A Division Bench of the High Court dismissed both the appeals and held that there was a valid subsisting arbitration agreement between the parties and it was binding on both of them. It further held that the claims made by the appellant in the suit arose out of the sub 

contract which included the arbitration agreement. Considering the facts and circumstances of the case relief of granted of stay of suit will cause irreparable hardship and denial justice. 

DECISION OF SUPREME COURT 

An appeal was filed by the appellant Supreme Court against the order of stay of the suit granted by the High Court. 

There existed a dispute between the appellant and respondent, during the course of which letters and cables were sent. It was urged by the respondent's side that even if the Court proceeds on the assumption that the letter and the cable were received, the Court should not look into the contents of the letter and cable. Because the contents were not proved, the  Managing Director of the appellant-Company who was supposed to have signed the letter and the cable neither entered the witness box nor he has filed his affidavit proving the contents of the agreement. 

The counsel of the respondent placed reliance on Judah v. Isolyne Shrojibasini Bose. In that case, a letter and two telegrams were tendered in evidence and it was observed by the Privy council that the contents of the letter and the telegram were not the evidence of the facts stated.  

The Privy Council held that the fact under the letter and two telegrams were sent itself will not prove the truth of the contents of the letter. So the contents of the letter bearing the question of lack of testamentary capacity will not be substantive evidence in the court. 

Merely the proof of the handwriting of a document will not be sufficient proof of all the contents stated in the particular document. The proof of the handwriting and execution of the document will not furnish evidence of the truth of the facts in the document. The truth or otherwise of the facts or contents would have to be proved by admissible evidence. 

The person who filed an affidavit on behalf of the appellant referred to the averments in the agreement. He was a principal officer of the appellant company. The Court established the truth of the averments made in the letter on the basis of the fact that even after the receipt of the letter and the cable were admitted or proved, and even after the dispute arose, but before the suit was filed, the respondent did not make any overt references to the arbitration agreement, existing between the parties. 

Even the respondents fail to reply to the letter and the cable strengthens the averments made. The Court held that the averments contained in the letter and the cable were satisfactorily  proved and gave a decision in favour of appellant 

LEGAL PRINCIPLE INVOLVED

SECTION 34 OF THE ARBITRATION AND CONCILIATION ACT  

Section 34 of the Arbitration and Conciliation Act, 1996 stipulates grounds to challenge the arbitral award made under Section 31. However, the challenge to the award can only be made within a limited period of three months from the date of receipt of the award. This period of limitation can be further extended by 30 days in cases where the applicant is able to show sufficient cause for delay in filing a petition under Section 34.  

It is pertinent to note that Section 34 provides for the calculation of the limitation period from the date of receipt of the award. In contrast, Section 31(5) of the 1996 Act provides only for the delivery of the award to the parties which is followed by termination of arbitration proceedings. The term receipt is not used under Section 31(5) of the Act.

The gap between  "delivery" and "receipt" is further highlighted by the reading Section 3 of the 1996 Act which stipulates that communication is "deemed receipt" on the date of delivery. Does this entail that delivery of the award amounts to receipt and the period of limitation is to be calculated from the date of delivery of award? This is a question that this article tries to answer. The aim of this article is to highlight this dichotomy. 

Limitation of Time under Section 34 

Section 34(3) provides that an application for setting aside an award shall not be entertained by the Court if it is made after three months have elapsed from the date on which the applicant had received the arbitral award.  

The proviso to this Section further provides that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the prescribed time; it may entertain the application within a further period of 30 days but not thereafter.

The importance of the period fixed under Section 34 is highlighted under the 1996 Act by Section 36 which stipulates that where the time for making an application to set aside the arbitral award under  Section 34 has expired, the award shall be enforced under the Code of Civil Procedure, 1908  in the same manner as it was a decree of the Court. In a catena of cases, the Supreme Court has held that the period mentioned under Section 34(3) cannot be extended. It is pertinent to note that Section 34(3) places emphasis on the "receipt" of the award. 

The contradiction between Delivery and Receipt 

Section 31(5) of the 1996 Act stipulates that a signed copy of the award shall be delivered to each party. The delivery of the copy of the award has the effect of conferring rights on one party and the said entitlement to exercise those rights ends with the expiry of the prescribed period of limitation which would be computed from that date.

Hence, the delivery of the award is imperative in the arbitral proceedings. Section 3 of the Act stipulates that communication is "deemed receipt" on the date of delivery. Therefore, it becomes important to analyze whether the date of delivery is to be taken as the date of receipt of the award under  Section 34(3) of the Act.