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Judgment
Lakshmanan, J.—This suit was filed by the plaintiff to pass an order of reference of the disputes between the plaintiff and the defendants to
an Arbitrator to be appointed by this Court to adjudicate and decide the disputes arising out of the agreements, dated 1.5.1987,14.1.1988 and
24.4.1989 and for costs of the suit. The short facts are as follows:
The plaintiff company entered into an agreement with the first defendant on 1.5.1987 for the transfer of technical know-how for the manufacture
of Amino Acid Powder, L-Cystine and L-Tyrocine from and out of human hair. The first defendant also entered into an agreement dated 1.5.1987
to buy back of Amino Acid Powder, L-Cystine and L-Tyrocine manufactured by the plaintiff through the technical know-how transferred by the
defendants. The agreement also included the provision for the supply of appropriate machinery by the defendants. The machineries were supplied
in two consignments, but they were not found suitable. Hence, the plaintiff invoked the Bank guarantee and got back the 4 1/2% of the value of the
machineries. In regard to the second consignment of machineries supplied in January, 1989, the defendants have cleared the L.C. for J.Y.
249,954,410 without providing a Bank guarantee for JY11,247,948 although the letter of credit clearly refer to the agreement. The plaintiff has
therefore filed a suit, C.S. No. 707 of 1990 on the file of this Court and this Court passed a pro order in Application No. 3960 of 1990 against
the Sanwa Bank, Japan as well as the defendants to pay the value of the guarantee, the defendants should have furnished before appropriating the
proceeds under the letter of credit. Thus, according to the plaintiff, the defendants have committed breach of the agreement even at the time of
sending the machineries. The machineries supplied by the defendants from Japan were installed under the supervision of the experts sent from
Japan by the defendants. When the machin aeries were erected and efforts have been made to operate the machineries it was found that the plant
was not yielding the product expected to it. Thus both the technical know-how transferred by the defendants and the machineries supplied are
defective. According to the plaintiff, the desalting plant supplied by the'' defendants is also defective. In one of the large glasses lined vessel
supplied under the agreement there was a pin hole and as a result., the plant could not be operated. According to the plaintiff, they have the
following claims against the defendants:
(i) On account of technical know-how fees two instalments
as per our Lawyers'' notice dated 28.5.1990 94,50,344. 00
(ii) On account of the unreasonable demand towards cost of
the supervisory staff sent by defendants, the plaintiff had
to incur as per our Lawyers letter dated 24.5.1990 29,22,452.00
(iii) On account of defects in machinery supplied, plaintiffs
had to send their staff for learning the process of repairing
the machinery sent 2,00,000.00
(iv) Cost of defective machinery: 33,38,310.00
(a) Hydrolysis Reactor
(b) Evaporator'' 1,23,04,074.00
(c) Cost of Spray Drier Equipment and their erection
cost with interest 3,04,49,631.00
(v) Damages to be paid on account of failure to purchase
products as per buy back agreement 26,52,40,000.00
(vi) Tyrosine Plant defective 83,19,335.00
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Total 33,22,14,146.00
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The first defendant has also filed a suit for the appointment of Arbitrator in C.S. No. 775 of 1990 in respect of the disputes between the plaintiff
and the first defendant. Later on the said suit was withdrawn by the first defendant.
The above suit was resisted by the defendants 1 and 2. A counter affidavit was filed by the Power of Attorney Agent of the defendants, Mr. S.
Narasimhan, who is well acquainted with the facts of the above suit. According to the defendants, there is no clear or specific agreement to refer
any dispute to Arbitration and that there is no clause whatsoever to refer any dispute between the parties to arbitration and that the suit filed u/s 20
of the Arbitration Act is not maintainable. According to the defendants, even assuming but without admitting that there is some reference to the
Indian Arbitration Act, the terms are vague and uncertain and there is absolute silence about the dispute that will have to be referred to arbitration
and* the procedure to be followed for arbitration of such disputes. There is no ground whatsoever to refer any dispute to arbitration. Further, the
plaintiff (M/s. Protchem Industries India Limited) itself had filed a suit, i.e. C.S. No. 707 of 1990 on the file of this Court for recovery of a sum of
Rs. 12 lakhs and the plaintiff having filed one suit on the basis of the same agreement, is estopped from filing this suit for reference of certain other
disputes arising under the very same agreement, which is the subject matter of the suit, C.S. No. 707 of 1990. It is true that a suit was filed by
these defendants invoking the arbitration clause in the agreement, but when the matter was gone into the legal advisers subsequently they were
advised that there is no proper agreement by which any matter could be referred to arbitration and that such a suit was not sustainable. In the said
circumstances, the said suit, C.S. No. 775 of 1990 was withdrawn. The plaintiffs are estopped from filing this suit for reference of the alleged
disputes to arbitration after filing the suit, C.S. No. 707 of 1990, arising under the very same agreement. Since the plaintiffs have alleged fraud
against the defendants, they would like to face them in court and on this ground also reference to arbitration is not permissible in law. Thus,
according to the defendants the plaintiff is not entitled to any of the claims made by them in the plaint and that there is no question of appointing any
Arbitrator under the agreement in question. Exs.P-1 to P-17 and Exs.D-1 to D-8-A have been marked by consent of both parties.
I have heard the arguments of Mr. R. Krishnamurthy, learned senior counsel appearing on behalf of the plaintiffs and Mr. V.S. Subramaniam,
learned senior counsel appearing on behalf of the defendants. Mr. R. Krishnamurthy, learned senior counsel has argued that the arbitration clause
is, clear and unambiguous, that both parties to the agreement have rightly understood the arbitration clause and its scope and that at no stage prior
to the institution of these proceedings it was the case of the defendant that the arbitration clause is vague and uncertain. According to the learned
Counsel, the defendants filed C.S. No. 775 of 1990 u/s 20 of the Indian Arbitration Act, seeking a direction against the plaintiff to file a
collaboration agreement, dated 1.5.1987 and make a reference of the disputes between the parties to an Arbitrator to be appointed by this Court
for adjudication of the disputes. It is further contended by him that the subsequent withdrawal of the said suit, C.S. No. 775 of 1990 will not in any
way alter the situation and hence according to the learned Counsel, the matter should be referred to arbitration as prayed for by the plaintiff in the
present suit.
Mr. V.S.Subramaniam, learned senior counsel appearing for the defendants has raised the following points:
(a) There is no arbitration agreement. Clause 16 of Ex.P-1 will not amount to an arbitration agreement;
(b) Assuming there is the word ''Arbitration Act,'' the clause will have to be strictly construed and if there is vagueness or uncertainty, arbitration
clause cannot be enforced;
(c) The plaintiffs themselves having filed the suit, C.S. No. 707 of 1990, they cannot be allowed to proceed under the arbitration-agreement;
(d) Fraud is alleged as against all the defendants and that the defendants want the fraud to be exposed in open Court;
(e) C.S. No. 775 of 1990 though filed on a mistaken legal advice, was withdrawn later;
(f) There is no specific agreement to refer the disputes to arbitration and what is merely stated is that arbitration, if any, shall be governed by the
Indian Arbitration Act. There is absolutely no clause to refer any dispute between the parties to arbitration.
Alternatively, it is contended that the terms of the agreement are vague and uncertain and that the clause is silent about the disputes that will have to
be referred to arbitration and the procedure to be followed for arbitration of such disputes.
Ex. P-1 is the collaboration agreement made on 1.5.1987 between the plaintiff and the first defendant. Clause 16 of the Agreement deals with
jurisdiction and arbitration and the said clause is reproduced hereunder:
This agreement shall be interpreted according to Laws of India. In the event of any dispute or difference arising between the parties hereto as to
respective rights and obligations in terms thereof or connected with this agreement, it will be subject to the Indian Courts Jurisdiction and Indian
Arbitration Act.
In order to appreciate this contention, it is necessary to find out whether there is an arbitration agreement or not. It is well settled position of law
that it is not necessary that the arbitration clause should be contained in a formal agreement or that the terms should be contained in one document.
But, it is not necessary that it should be a formal agreement or that the terms should also be contained in one document. All that is necessary is that
the parties should agree in writing to submit present or future difference to arbitration and such an agreement may be found in the correspondence,
containing a number of letters.
Having regard to the above legal position, the correspondence exchanged between the parties have to be examined to find out whether there is
an agreement between the parties or not to submit the disputes or differences to arbitration.
It is no doubt true that Clause 16 of the agreement, dated 1.5.1987 does not specifically mention the reference of disputes between parties to
arbitration, though the heading of the clause is jurisdiction and arbitration.
In this context, it is useful to refer some of the letters written by the defendants to the plaintiff : Ex. P-4 is the notice dated 29th August, 1990 sent
by the counsel for the plaintiff, M/s. Devadason and Sagar, Madras addressed to the defendants 1 and 2. In the last paragraph of the said letter, it
is stated as under:
If you do not pay the aforesaid amounts within two weeks of receipt of this letter, we hereby call upon you to agree to the appointment of an
Arbitrator, preferably a retired High Court Judge, as may be nominated by the South Indian Chamber of Commerce, Madras. In case you do not
concur in the appointment of the arbitrator as suggested above, our clients will move the Court for necessary relief to settle the dispute.
Ex. P-5 is the letter dated 23.6.1990, sent by Union Brothers Industries, INC (Defendant-1) to the counsel for the plaintiffs. In the concluding
paragraph of the said letter, Mr. O. Yatabe, Managing Director of Union Bros. Industries INC has stated as under:
Please also advise your clients that the event of not complying to the above, our clients would refer the matter for arbitration as provided for in the
agreement holding your clients liable for all the expenses that would be incurred thereof.
Ex. P-6 is the notice dated 22.8.1990 sent by the learned Counsel for the defendants to Yokohama Chamber of Commerce, Tokyo, Japan.
Paragraph 5 of the said letter is reproduced hereunder:
The Protchem Industries have committed flagrant breach and violated the terms of contract with my clients and have perpetrated many fraudulent
and illegal acts and to cover up all their laches, have sent this letter to you to pressurise my clients to come to their terms. My clients have already
called upon them to comply with certain demands by their notice dated 23.6.1990, failing which the matter will be referred to Arbitration.
Exs. P-7 and D-7 are one and the same notice dated 23.8.1990 sent through Mr. K.R. Ramabhadran, Advocate on behalf of the first defendant.
Paragraphs 4 and 5 are extracted as under:
My clients have already called upon your client in the said notice dated 23.6.1990 to perform their part of the obligations, which are listed therein,
failing which the matter will be referred to arbitration. In view of the said reply, your clients should have either complied with the demands, therein
or signed their consent for arbitration. Instead, they are continuing the correspondence repeating and a sum the very same false and untenable
allegations which are not going to serve any useful purpose. The disputes between the parties have to be resolved or adjudicated in some effective
manner. However, my clients have been advised to send this reply more out of caution and expediency than any necessity warranting a reply.
It is also useful to refer the last three lines in the said notice, which reads as follows:
There has not been any breach on the part of my clients and my clients once again reiterate that matters are to be referred to Arbitration.
Ex. D-3 is the affidavit filed by the Power of Attorney Agent of the plaintiff in the suit CS. No. 77 of 1990 by M/s. Union Brothers Industries
Ltd. (defendant in the present suit) to issue notice to the defendant in the said suit? viz., M/s. Protchem Industries India Ltd. (the plaintiff in the
present suit) and direct them to file the Collaboration Agreement, dated 1.5.1987 and the Supplementary Agreements dated 14.1.1988,
24,4.1989 into Court and make an order of reference of the disputes between the plaintiff and the defendant to an Arbitrator to be appointed by
this Court to adjudicate and decide the disputes arising out of these agreements and give such other directions as may be deemed fit and proper on
the facts and circumstances of the case. Some of the averments made in the said affidavit would go to show that how the defendants in the present
suit, viz., C.S. No. 1135 of 1990 have understood the agreement, dated 1.5.1987 and particularly, the arbitration clause contained in the
agreement in question. The following are the relevant passages to be noticed:
Paragraph: - 7 ""I respectfully submit that the clause No. 16 of the collaboration agreement, dated 1.5.1987 states that in the event of any dispute
or difference arising between the parties hereto as to the respective rights and obligations in terms hereof or connected with this agreement, it will
be subject to the Indian Courts Jurisdiction and Indian Arbitration Act., It also provides that in the event of any questionable or disputes arising
between the parties, they should discuss and solve them mutually. The attempt on the part of the plaintiff to settle the disputes have not been fruitful.
The defendant is bound to act as per the contract and terms of the Agreement. The defendants have been avoiding their obligations under the
contract. The plaintiff is put to heavy loss, irreparable hardship and complications. Till date the defendants have not complied with their part of the
obligation under the contract. The plaintiff tried their best for an amicable settlement and were always ready and willing for an arbitration of the
disputes between them and reiterated their willingness for an Arbitration on number of occasions. The defendants have not expressed their
willingness for an Arbitration and it is not possible to get their consent for appointment of any particular Arbitrator. The plaintiff was always willing
to fulfil and perform their part of the contract. The plaintiff has been ready for Arbitration and continues to be ready.
Paragraph 8 : - 1 submit that the plaintiffs have* waited enough and in view of the non-cooperative attitude adopted by the ''defendant, the
plaintiffs are left without any other option than to approach this Hon''ble Court for directing the defendant to file the Agreements into court and to
appoint an Arbitrator and make a reference of the disputes and adjudicate upon them. There is no other effective alternative remedy excepting to
file this Application u/s 20 of the Arbitration Act. The Original Agreement is with the defendant.
Ex. P-17 is the notice dated 30.8.1990 sent by Mr. K.R. Ramabhadran, Advocate for the plaintiff in C.S. No. 775 of 1990 (Union Brothers
Industries Inc.), defendant in the present suit to the present plaintiff, Protchem Industries India Limited. In the said notice the present plaintiff was
directed to file the Collaboration Agreement dated 1.5.1987, etc., and make an order of reference of the disputes between the plaintiff and the
present defendants to an Arbitrator to be appointed by the Court for adjudication. The said Ex.P-17 also refers to the application for injunction
filed by the plaintiff in the said suit and the order of notice by the Court on 6.9.1990 to the defendant in the said suit. It is seen from all the above
referred exhibits -that the parties and their Lawyers themselves have stated that if the plaintiffs fail to comply with the terms contained in the notice,
the matter will be referred to arbitration. The defendants once again in their reply dated 23.8.1990 addressed to the plaintiffs counsel have stated
that they have not committed any breach of the agreement and reiterated their stand that the matters were to be referred to arbitration. As a matter
of fact, the defendants filed as mentioned above, C.S. No. 775 of 1990 u/s 20 of the Indian Arbitration Act, seeking direction against the plaintiffs
to file a Collaboration Agreement dated 1.5.1987 and the supplementary agreement dated 14.1.1988 and 24.4.1989 and make a reference of the
disputes between the parties to an Arbitrator to be appointed by the Court for adjudication of the disputes. However, the said suit was
subsequently withdrawn by the defendants on legal advice, as stated by the learned Counsel for the defendants at the time of hearing.
In my opinion, Clause 16 of Ex. P-1 would be rendered negatory if it was to be construed as an agreement not providing for reference of
disputes to arbitration. What is utmost important is to find out the intention of the parties from the arbitration clause in the agreement and also the
subsequent correspondence between the parties. It is beyond dispute that the defendants themselves in their various replies to the plaintiffs have
understood clause 16 of Ex.P-1 as one providing for reference of disputes to the Arbitrator in accordance with the Indian Arbitration Act. Hence,
I am satisfied that clause 16 of Ex.P-1 coupled with the correspondence exchanged between parties as mentioned above proves beyond doubt
that there is specific agreement to refer all disputes and differences arising between the parties under the agreement to the Arbitrator.
It is useful to refer the following decisions cited by Mr. R. Krishnamurthy, learned Counsel for the plaintiff in the context of the above findings:
Smt. Rukmanibai Gupta Vs. Collector Jabalpur and Others, . Taj Builders v. Indore Development Authority AIR 1985 M.P. 146; 3. Sukhamal
Bansidhar v. Babu Lai Kedia and Co. ILR 42 All. 525 and Union of India (UOI) Vs. A.L. Rallia Ram, .
In Rukmanibai''s case, AIR 198 S.C. 479, a Division Bench of the Supreme Court held as reproduced here below:
Arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if
disputes arise between them in respect of the subject matter of contract such dispute shall be referred to arbitration, then such an arrangement
would spell out an arbitration agreement.
In Taj Builders case AIR 1985 M.P. 146, one of the questions raised for consideration was whether there was an arbitration agreement between
the parties. The material available on record in the said case was a letter dated 14.6.1983, with a copy endorsed to the applicant and the reply
dated 2.7.1983 in which the applicant made a categorical statement accepting the arbitration of the Arbitrators. The learned single Judge of
Madhya Pradesh High Court held that a mere perusal of the letter referred to above and the reply thereto by the applicant was sufficient to
establish the existence of an arbitration agreement. Therefore, the learned single Judge held that the letter dated 14.6.1983 and its categorical
acceptance by the applicant by its reply dated 2.7.1983 results in an arbitration agreement, even if the term ''arbitration agreement'' is strictly
construed.
In Sukhamal Bansidhar''s case, ILR 42 All. 525, a Division Bench of Allahabad Court observed as follows:
A submission, or written agreement to submit differences to arbitration, provided it is an agreement, may be collected from a series of documents,
even though connected by parole evidence.and signature of any document forming part of the agreement is sufficient to bind the person so signing
to the submission contained in the agreement.
In Union of India (UOI) Vs. A.L. Rallia Ram, , the Supreme Court held that the execution of formal document not absolutely essential in all cases
and that the valid contract may result from contract by correspondence. The Supreme Court further held as follows:
A tender notice was issued by the Government of India, Department of Food (Division III) in the name of the Chief Director of Purchases who
had authority to contract for sale of ""war disposal'' goods and sign the contract. In his letter submitting a tender the respondent offered to purchase
the goods on certain rates and conditions. The acceptance note was executed on behalf of the Governor General. Held, that the correspondence
between the parties ultimately resulting in the acceptance note, amounted to a contract expressed to be made by the Government and therefore by
the Governor General, because it was the Governor General who had invited the tender through the Director of Purchases, and it was the
Governor-General who through the Chief Director of Purchases accepted the tender of the respondent subject to the conditions prescribed
therein. No rules made by the Governor-General had been placed before the Court showing that in executing a contract for the sale of ''War
disposal'' goods, the officer authorised in that behalf rilust describe himself as signing on behalf of the Governor General of India.
Per contra, Mr. V.S. Subramaniam, learned senior counsel appearing for the defendants has contended that there is no arbitration agreement
and that if there is arbitration agreement, the said arbitration is very vague and uncertain. In support of the said contention, learned senior counsel
has relied on the following decisions reported in:
Teamco Private Ltd. Vs. T.M.S. Mani, ; 2. State of U.P. Vs. Tipper Chand, , 3. Keshavlal Lallubhai Patel and Others Vs. Lalbhai Trikumlal
Mills Ltd., , 4. Tara Chand v. Parsram A.I.R 1930 Sind 202 , 5. Burjor F.R. Joshi Vs. Ellerman City Lines Limited, and 6. Hormusji v. Local
Board, Karachi AIR 1934 Sind. 200.
Learned Counsel contended that if the arbitration clause is vague and not clear this Court should not in exercise of its power u/s 20 of the
Arbitration Act refer the matter for arbitration. There cannot be any quarrel with the legal proposition laid down in the aforesaid judgments. But,
these legal propositions have been applied to the arbitration clause which were the subject matter of the respective cases. Therefore* I am not
referring in detail to the legal propositions laid down in those cases cited supra. Ultimately, it is for this Court to consider the arbitration clause in
question and to find out whether the terms of the arbitration clause are vague. Therefore, I am obliged to consider the question as to whether the
arbitration clause which is the subject matter of the present proceeding is vague so as to attract the legal proposition laid down in the aforesaid
judgments.
If the Clause 16of Ex.P-1 is read along with the correspondence exchanged between the parties, there is no scope for the argument that the
arbitration clause is vague and uncertain. In my opinion the arbitration clause is clear and unambiguous. The defendants having themselves invoked
the arbitration clause had filed the suit, C.S. No. 775 of 1990 in this Court u/s 20 of the Arbitration Act. lam relying on these factors only to show
that the defendants themselves have rightly understood the arbitration clause and its scope and at no stage prior to the institution of this proceeding
it, was the case of the defendant that the arbitration clause is vague and uncertain. The subsequent withdrawal of the suit, C.S. No. 775 of 1990
will not in any way alter the situation. It is next contended by Mr. V.S. Subramaniam that the plaintiffs have made the allegations of fraud against
the defendants, that the defendants would like to face them in court and that therefore, reference to arbitration should not be made. In this
connection, learned Counsel placed strong reliance on the judgment of the Supreme Court in Abdul Kadir Shamsuddin Bubere Vs. Madhav
Prabhakar Oak, . In paragraph 17 of the judgment, the Supreme Court has held as follows:
There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter
should be tried in open Court, that would be a sufficient cause for the court not to order an arbitration agreement to be filed and not to make the
reference. But it is not every allegation imputing some kind of dishonesty, particularly in matters of accounts, which would be enough to dispose a
Court to take the matter out of the forum which the parties themselves have chosen....
We are clearly of opinion that merely because some allegations have been made that accounts are not correct or that certain items are exaggerated
and so on that is not enough to induce the Court to refuse to make a reference to arbitration. It is only in cases of allegations of fraud of a serious
nature that the Court will refuse as decided in Russell''s case (1880) 14 Ch. D. 471, to order an arbitration agreement to be filed and will not make
a reference.
It is clear from the above judgment of the Supreme Court that every allegation imputing some kind of dishonesty, particularly in matters of accounts
would not be enough to take the matter out of the forum which the parties themselves have chosen. In the very same judgment, the Supreme Court
has also laid down that the Courts will have to decide on facts of each case whether sufficient cause has been made out for not making an order of
reference. The Court has got wide discretion in the matter.
The plaintiff in paragraph 6 of the affidavit filed in the present suit has alleged as follows:
The machineries from Japan were installed under the supervision of the experts sent from Japan by the respondents. When the machineries were
erected and efforts have been made to operate the machineries it was found that the plant was not yielding the produce expected of it. Although
the petitioner has taken considerable effort both with the Indian experts and foreign experts to rectify the plant the plant does not yield powder.
Instead of amino acid powder the plant yields now only a liquid form of amino acid. Thus both the technical know-how transferred by the
respondents and the machineries supplied are defective. The respondents have thus played a fraud on the petitioner and have collected large sums
of money from the petitioner both as cost of technical know-how and also towards the sale consideration of the machineries supplied by them.
Though the word ''fraud'' has been used it merely imputes some kind of dishonesty on the part of the defendants. In any event the allegations of
fraud in my opinion are not of a serious nature so as to refuse a reference to arbitration in exercise of the wide discretion vested in the court in
these matters.
Mr. V.S. Subramaniam, learned senior counsel for the defendants has also cited the following decisions in support of his contention that once
allegation of fraud has been raised the appropriate forum is only a trial in an open Court and the parties should not be driven to arbitration. The
decisions are as follows:
Yeswant Hiralal Veecumsee Vs. Usha Kumar Betala and Others, ; 2. Muthavarpu Venkateswara Rao Vs. N. Subbarao, ; 3. The Printers
(Mysore) Private Ltd. Vs. Pothan Joseph, ; 4. General Enterprises and Others Vs. Jardine Handerson Ltd., . Nitya Kumar Chatterjee Vs.
Sukhendu Chandra, . Babulal Singhania Vs. Pirudan Ojha, ; 7. Bengal Jute Mill Co. Ltd. Vs. Lalchand Dugar, .
It may not be out of place to point out that all the judgments, except the judgment in Abdul Kadir Shamsuddin Bubere Vs. Madhav Prabhakar
Oak, , has arisen u/s 34 of the Arbitration Act. Abdul Kadir Shamsuddin Bubere Vs. Madhav Prabhakar Oak, , has arisen u/s 20 of the Act,
which is directly on the point. Hence, there is no need for me to consider all the above decisions, in view of the categorical pronouncement made
by the Supreme Court in Abdul Kadir Shamsuddin Bubere Vs. Madhav Prabhakar Oak, .
Mr. V.S. Subramaniam, learned senior counsel, next contended that the plaintiffs themselves having filed the suit, C.S. No. 707 of 1990
cannot now be allowed to proceed under the arbitration agreement. I am unable to agree with the said contention. The plaintiffs have clearly stated
why they were compelled to file C.S. No. 707 of 1990 in this Court. According to the plaintiffs, the agreement contained a provision for a Bank
guarantee for 4 1/2% of the value of the machinery supplied in case the machineries were not found suitable and appropriate and failed to yield the
results envisaged under the agreement. The machineries were supplied in two consignments and the value of the machinery was JY 552,772,450.
The first consignment was supplied in November, 1988 and in respect of the first consignment, the respondent furnished a bank guarantee
for41/2%. of the value of the machineries supplied and a -letter of credit was opened in their favour. When the machineries were not found
suitable, the petitioner invoked the bank guarantee and got back the 41/2% of the value of the machineries. In regard to the second consignment of
machineries supplied in January, 1989, the defendants have cleared the L.C. for JY 249,954,410 without providing a bank guarantee for JY
11,247,948 although the letter of credit clearly refers to the agreement. It is in the said circumstance, the plaintiff filed the suit, C.S. No. 707 of
1990 on the file of this Court and also filed an Application No. 3960 of 1990 against the Sanwa Bank, Japan as well as the defendants in the
present suit to pay the value of the guarantee, the defendants should have furnished before appropriating the proceeds under the letter of credit.
The copy of the plaint in C.S. No. 707 of 1990 has also been filed in this proceeding as Ex.D-2. Even though the suit is filed against Union Bros.
Industries, INC, Japan viz., the defendants 1 and 2, the main relief has been asked for only against the Sanwa Bank, who is the third defendant in
the said suit (C.S. No. 707 of 1990). Hence, I am of the view that the filing of the said suit under Ex.D-2 in this Court will not in any way affect the
right Of the plaintiffs in the present suit from invoking the arbitration clause under Ex. P-1. Mr. V.S. Subramaniam, learned senior counsel next
contended that C.S. No. 775 of 1990 was filed by the defendants on the then advice for ''reference of the disputes to arbitration, but when the
matter was gone into the legal advisers subsequently, they were advised that there is no proper agreement by which any matter could be referred
to arbitration and that such a petition was not sustainable. In the said circumstances, according to the learned senior counsel, the said suit was
withdrawn with the permission of his Court. Whatever be the case, the defendants filed C.S. No. 775 of 1990 u/s 20 of the Act seeking a
direction against the plaintiff to file a collaboration agreement dated 1.5.1987 and the two supplementary agreements, dated 14.1.1988 and
24.4.1989 and making an order of reference of the disputes between the parties to an Arbitrator to be appointed by this Court for adjudication of
the disputes. It is beyond dispute that the defendants themselves in their various replies to the plaintiff have understood Clause 16 as one providing
for reference of disputes to the Arbitrator in accordance with the Indian Arbitration Act. The defendants themselves have invoked the arbitration
clause and have filed the suit, C.S. No. 775 of 1990, which would only go to show that the defendants themselves have rightly understood the
arbitration clause and its scope and at no stage prior to the institution of these proceedings, the defendants have contended that the arbitration
clause is vague or uncertain. It is not essential that the intention of the person should have been fraudulent or that he should have been acting with
the full knowledge of circumstances and not under a mistake or misapprehension. It is not necessary that there should be a design to mislead. A
representation, even when made innocently or mistakenly; may operate as an estoppel. If must therefore be held that the defendants having
understood the agreement in such a manner are now disentitled to resile from the said stand. The subsequent withdrawal of the suit by the
defendants, in my view will not in any way alter the situation.
It is also contended by Mr. V.S. Subramaniam, learned senior counsel that defendant-2 is not a necessary party to the present suit and also to
the arbitration agreement, Ex.P-1. It is true that defendant-2 was not a party to Ex.P-1, but the documents filed in this proceeding will go to show
that defendants 1 and 2 are one and the same person. Exs.P-1, P-3 and P-5 were signed by one O.YATABE, Managing Director of Union Bros.
Industries, INC. Ex.P-9, dated 23rd April, 1987 is the Power of Attorney given by Union Brothers, Industries, INC to Mr. O. Yatabe for
Collaboration agreement (Ex. P-1). Ex. P-9 was signed by I. Ashizawa, President of Union Bros. Industries INC, authorising Mr. O. Yatabe,
Managing Director of Union Bros. Industries INC, irrevocably and unconditionally to sign all necessary procedure on their behalf viz., Union Bros.
Industries INC. No. 5-18-2, Ueno, Taito-Ku, Tokyo, Japan is the address given in the affidavit filed in support of the present suit. Ex.P.10 will
make things very clear that defendants 1 and 2 are one and the same entity. Ex.P-10is a letter dated 14th January, 1988 written by I wao
Ashizawa, (the signatory to Ex.P-9 also) the President of Union Bros. Industries, INC No. 5.18-2- Ueno, Taito-Ku, Tokyo, Japan. Some
clarification was made to the Embassy of India, Tokyo in the said exhibit. The President of Union Bros. Industries, INC says in that letter that
clarification was given to remove misunderstanding in respect of collaboration agreement with Indian Company (the plaintiff in the present suit); It
was further suggested in that letter that in future any details for food additives and bio-chemicals products reference can be made to their Managing
Director, Mr. O. Yatabe (the signatory to Exs. P-2,P-3,P-5 and P-9). The position was made very clear. The letter was signed by the President
of Union Bros. Industries, INC, Iwao Ashizwa. This letter is also addressed to the Embassy of India at Tokyo on 14.1.1988. Under Ex.P-11 the
address given is No. 5-18-2 Ueno, Taito-Ku-Tokyo, Japan, which is the same address given in the affidavit filed in support of the present suit for
the second defendant. It is useful to extract the said letter, which furnishes all the information about Union Bros. Industries, INC to the Embassy of
India, Tokyo by the President of Union Brothers Industries INC.
Union Bros. Industries Inc. Cable address:
No. 5-18-2-Ueno, Taito-Ku, Bagrella Tokyo
Tokyo, Japan. Head Office
Phone (03) 834-2461
Factory (0487) 52-7131.
Messrs. Embassy of India, January 14,1988.
Tokyo.
Dear Sirs,
About Union Bros. Industries, INC.
Our company was formed as early as 1959. Our Company has been manufacturing and dealing in below mentioned items:
(A) Umbrella
(B) Food additives including Amino Acids Products,
(C) Foodstuffs including fish meat.
(D) Import & Export of general merchandise.
(E) Import & Export of precious metals & jewels.
(F) Management of hotel and restaurants.
Item (B) is concerned we have technologies and we transfer same also. Even so many companies in India have approached for technologies and
we did not give technologies till last year as a matter of our Company Policy. Last year from India Mr. TX. Mohan and T. Manoharan representing
Protchem Industries India Limited (previously called as Protein and Chemicals Limited) approached our company and our company decided to
transfer technologies, supply equipments, buy back products for 8 years and invest equity of twenty-five million Yen in Indian Company. The
collaboration agreement was signed on behalf of our company by our Managing Director Mr. O. Yatabe to whom power of attorney was given by
our company. We are enclosing copy of power of attorney. We also have given to Indian company products specification. Testing procedures,
factory building details. Our company has decided to keep amino acids and amino acid power and bio-chemicals department in Yokohama to co-
ordinate supply of equipments to Indian company. For this our company has also formed their office in the same name in Yokohama and registered
with Ministry of Law and Justice in Yokohama. The copy of certificate is enclosed.
Amino acid technology is very close one and not known to many companies in the world. Therefore, we insist that you do not give products details
to any person without our company''s consent. For your information we have two account for our company as follows:
The Sanwa Bank Ltd., Kanda Branch For Food additives including amino acids & amino acid power & bio-chemicals.
The Sumitomo Bank Ltd,
For all products except food additives & bio-chemicals.
Thanking you,
For Union Bros. Industries Inc
sd/- Iwaoashizawa President.
Defendant-2 company says that they have decided to transfer technologies, supply of equipments, buy back products for eight years from M/s
Protchem Industries (India) Limited, the plaintiff in the present suit. It also refers to a collaboration agreement (Ex.P-1) signed on behalf of their
company (Defendant-2) by their Managing Director, Mr. O. Yatabe to whom the power of attorney was given by their company (Defendant-2)
under Ex.P-9. It is further stated that the second defendant company has decided to keep amino acids and amino acid powder and bio-chemicals
department in Yokohama to co-ordinate supply of equipments to Indian Company (the plaintiff in the present suit) and for this defendant-2
company has also formed their office in the same name in Yokohama and registered with Ministry of Law and Justice in Yokohama. The copy of
the said certificate was also enclosed. The above statement made by the president of the second defendant company will only go to show that the
first defendant company is only a private office in the same name in Yokohama, which is the address of the first defendant given in Ex. P-1.
Therefore, I have no doubt whatever to say that both the first and the second defendant companies are one and the same Parties and are
necessary and proper parties to the present proceedings as averred in the plaint filed in support of the present suit.
For all these reasons, I hold as under:
(a) That there is an arbitration agreement in Clause 16 of Ex.P-1 between the plaintiff and the first defendant;
(b) That the arbitration clause is not vague and uncertain, but in my opinion, the arbitration is clear and unambiguous and that the plaintiffs shall be
entitled to invoke the arbitration clause for redressal of its grievance.
Under these circumstances, I appoint the Hon''ble Mr. Justice G. Ramanujam (Retired Judge of this Court and Vice Chairman of the Central
Administrative Tribunal, Madras) as the sole Arbitrator to decide the disputes and differences between the parties under the agreement, Ex.P-1.
Both parties shall file their claim statements and counter statements etc., and all other relevant documents before the sole Arbitrator, who will
dispose of the reference within four months from the date of entering upon the reference. The cost of the arbitration including the fees for the
Arbitrator and expenses will be borne by the parties equally. The Arbitrator is at liberty to fix his fees and collect the expenses from the parties,
which shall be borne by them in equal shares as mentioned above.
In the result, the suit CS.-No. 1135 of 1990 is decreed as prayed for. However, there will be no order as to costs. In view of the Judgment
passed in this suit, the interim orders passed by this Court on 23.11.1990 will continue.