DG of Defence Purchase Vs. Karnal Milk Foods Ltd, (Md. Rezaul Hasan, J.)

Case No: Arbitration Case No. 10 of 2014

Judge: Md. Rezaul Hasan, J

Court: High Court Division,

Advocate: Mr. Mintu Kumar Mondal with Mr. M. A. Hannan Sawpon, Advocates ,

Citation: 2018(2) LNJ

Case Year: 2017

Appellant: Directorate General of Defence Purchase

Respondent: Karnal Milk foods Limited.

Subject: Arbitration Act

Delivery Date: 2019-11-30

HIGH COURT DIVISION

(SPECIAL ORIGINAL JURISDICTION)

Md. Rezaul Hasan, J

 

Judgment on

23.08.2017

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Directorate General of Defence Purchase

. . .Petitioner

-Versus-

Karnal Milk foods Limited.

. . .Respondent

Arbitration Act (I of 2001)

Sections 42 and 43

Code of Civil Procedure (V of 1908)

Order 2, Rule 3(1)

Tribunal has utterly failed to take into notice that the contract was signed between two foreign parties and the law applicable as well as the forum to decide the disputes have already been decided by and between the contracting parties. Therefore, according to the settled principle of the private internal law, the disputes should be decided as per provisions of the Arbitration Act, 2001 (of Bangladesh), i.e. the law of Bangladesh is the applicable law in this case and the place of arbitration shall be in Bangladesh. Court of India has no jurisdiction to entertain this dispute when the dispute has arisen between the same parties out of a series of transaction so interlined that one party may have counter claim and a right to set off (if proved) against the other, then joinder of several causes of action in the same arbitration proceedings is permissible on the same principle as laid down in Rule 3(1) of Order 2 of the Code of Civil Procedure. Rather is necessary to avoid multiplicity of proceedings, to ensure proper and complete adjudication of the dispute as well as to save time and cost. It shall be held as well, to make the legal position clear, that, misinterpretation of law or non application of mind or misappreciation of any fact or evidence by the arbitrators, if results in any error in their decision occasioning failure of justice and causes prejudice to any party, then that will tantamount to misconduct on their part and the award, if impugned on any of these grounds, is liable to be set aside or modified, as the case may be. As noted earlier, the arbitral tribunal has committed patent illegally in refusing to consider the documents filed before them, on no cogent ground, and in refusing to exercise their jurisdiction on the ground that a civil suit was pending in India and then in refusing to entertain counter claim of the petitioner (the Opposite Party in arbitration). All these jointly and severally constitute misconduct on the part of this arbitral body. Hence, the award, passed in a majority of 2:1, is liable to be interfered with.    . . .(15 to 18)

Mr. Mintu Kumar Mondal with

Mr. M. A. Hannan Sawpon, Advocates

. . .For the Petitioner

Mr. Mehran Morshed, Advocate

. . . For the Respondent

JUDGMENT

Md. Rezaul Hasan, J: Let the Supple-mentary Affidavits filed today do form part in the substantive application.

2.                   This application has been filed under section 42 (2) read with section 43 of the Arbitration Act 2001 (herein after referred to as the Act).

3.                   It has been stated in the petition that the petitioner is the Director General of  Defence Purchase under Ministry of Defence. The Directorate General of Defence Purchase i.e. DGDP (hereinafter called “Petitioner”) is authorized to purchase various equipments and the defence stores for Bangladesh Armed Forces and other Government Security Forces as and when required by the respective Headquarters and Offices. The purchase procedure of DGDP is regulated by Form D.P.-35, Government Letter No.1557/40/DGDP /COORD, dated 25 January 1961, and other related rules; that the claimant-respondent Karnal Milk Foods Limited (hereinafter referred to as “the respondent”), is a company incorporated under the laws of India, carrying on business of selling and supplying dairy and milk products including Skimmed Milk Powder and Full Cream Milk Powder, locally and internationally, from its office located at 5 Time House Waipur, Comm. Complex, Delhi-110052, India. That the petitioner, Directorate General, Defence Purchase (hereinafter referred as DGDP), invited four tenders (Tender known as Form D.P.-1) along-with instructions to tenderers being Nos. 215/778/ SMP/DGDP/ASC/P-8 dated 10.08.2005, 215 /798/ Milk/DGDP/ASC/P-8 dated 10.08.2005, 215/824/MFS/SMP/DGDP/ASC/P-8 dated 18.10.2005 and 215/823/ MFS/FCMP/DGDP/ ASC/P-8 dated 30.08.2005 to purchase skimmed milk powder (hereinafter referred as SMP) and full creamed milk powder (hereinafter referred as FCMP) for the daily use of Bangladesh Armed Forces, that in the year 2006, four contracts were executed between the petitioner and respondent, in carrying out the aforesaid tenders being (1) DGDP Contract No. 215/778/SMP/DGDP /ASC/P-8 dated 10.08.2005 for supply of 50 M/Tons of SMP, (2) DGDP Contract No.  215/798/Milk-2/DGDP/ASC/P-8 dated 13.02.2006 for supply of 150 M/Tons of SMP, (3) DGDP Contract No. 215/823/MFS /SMP/ DGDP/ASC/P-8 dated 05.03.2006 for supply of 225 M/Tons of FCMP and (4) DGDP Contract No. 215/824/MFS/FCMP/DGDP/ ASC/P-8 dated 09.04.2006 for supply of 25 M/Tons of SMP respectively. That the contract No. 215/823/MFS/FCMP/DGDP/ASC/P-8 dated 05.03.2006, hereinafter referred as the FCMP Contract or the fourth contract, was the largest in terms of quantity of goods and value, that all purchase by the petitioner are done under the set of rules known as Form D.P.-35 (Revised 1960) under the title “Government of Bangladesh, Ministry of Defence (Directorate General, Defence Purcahse), Dhaka, General Conditions governing Contracts”, that the said rules have been made applicable by the Hon’ble President of the People’s Republic of Bangladesh, vide memo No. 405/R/A & L(P) dated 03.04.1990.  That as per the aforesaid contracts, four letters of credit (hereinafter referred as L/c) being L/c No. 009306010459 dated 23.02.2006 amount US$117,212.50 for the contract mentioned in the aforesaid item No.1, L/c No. 009306010516 dated 27.02.2006 amount US$351,637.50 for the contract mentioned in the aforesaid item No.2, L/c No. 009306010708 dated 16.03.2006 amount US$ 556,610.625 for the contract mentioned in the aforesaid item No.3, L/c No. 009306011815 dated 29.06.2006 amount US$ 57,982.125 for the contract mentioned in the aforesaid item No.4 respectively, were opened in favour of the respondent and the respondent submitted four Performance Guarantees/Letter of Guarantees (hereinafter referred to as P.G.) against aforesaid four Tenders which were equivalent to 10% of the each tendered amount. That upon Pre-Shipment Inspection, the goods of SMP and FCMP were shipped out to Bangladesh and after receiving the documents of those consignments, the petitioner paid 80% of the invoice value for all four consignments, as per terms and conditions of the aforesaid L/c’s.  That in respect of the consignment of FCMP, the petitioner paid US$443,448.50 out of US$556,610.625 and after receipt of the fourth contracted store/goods (FCMP) at Chittagong sea port, Post Shipment Inspection of the supplied goods/store was carried out by the concerned department of the petitioner. The sample was collected by the petitioner in presence of the local agent of the respondent (exporter) and after inspection, the whole consignment was found “unacceptable for human consumption” as per contract specification and, since then, the petitioner withheld payment of the balance 20% price along-with Performance Guarantees of the all contracts as per provision of clause 8 of the Form D.P.-35 (Revised 1960) and thereafter claimed refund the payment against the fourth contract (FCMP consignment). Meantime, 25 M/Tons of FCMP was sent at Benapole Port by the claimant-respondent as part re-placement of the aforesaid rejected consignment, but said consignment was also rejected due to “the consignment as unacceptable for human consumption”.  That on 02.04.2009 the respondent sent letter to the petitioner to appoint Arbitrator to determine and decide their claims in respect of balance 20% payment of three contracts and three Performance Guarantees against shipments of SMP under those three contracts being Nos. 215/798/Milk-2/DGDP/ASC/P-8 dated 13.02.2006, 215/823 /MFS/SMP/DGDP/ASC/P-8 dated 05.03.2006, 215/824/MFS/FCMP/DGDP/ASC/P-8 dated 09.04.2006, respectively, which are withheld by the petitioner. That thereafter the claimant-respondent appointed Mr. Zafarullah Chowdhury as their arbitrator and the petitioner being respondent in the arbitration appointed Mr. M. Naser Alam as their arbitrator and both of them appointed Mr. Justice Mahmudul Amin Chowdhury (Retired) as a chairman of the arbitration proceedings. That before the Arbitral Tribunal, the respondent as claimant submitted their statement of claim with bundle of annexures stating as follows: their case and the petitioner, being respondent in arbitration, has also placed a counter claim with bunches of annexures. That the claimant and respondent of the arbitration proceedings examined one witness each in support of their respective case. That during pendency of the arbitration proceedings, the respondent-petitioner filed some documents with affidavit in support of their case and also showing the acceptance of the same by the claimant-respondent as in Form D.P.-3 and also further showing that the claimant-respondent supplied low quality of FCMP against the fourth contract dated 05.03.2006 and those were unacceptable for human consumption. However, the Arbitral Tribunal, by its order dated 11.11.2012, did not accept those documents and proceeded for arguments and on 15.11.2012 the Arbitral Tribunal heard the arguments and thereby concluded the proceedings of the Arbitration. That on 04.06.2014 a the Arbitral Tribunal pronounced its award, Mr. Justice Mahmudul Amin Choudhury, the Chrairman of the Arbitral Tribunal and Mr. Md. Zafarullah Chowdhury, one of the Arbitrators of the Arbitral Tribunal, pronounced the majority Award in favour of the claimant as prayed for holding that the claimant has performed his part in those three contracts and also held that the counter claim of the DGDP is not the subject matter of this Tribunal, since there is a suit pending before a Civil Court in India for the fourth contract, thus this Arbitral Tribunal has no jurisdiction to entertain the same as the matter is subjudice before the civil court in India. On the other hand, Mr. M. Naser Alam, one of the Arbitrators, of the Arbitral Tribunal, pronounced the Award in favour of the DGDP, as prayed for, holding that the four contracts are interlinked with each others as per provision of clause 8 of D.P.-35 and this arbitration dispute has arisen due to the fourth contract and as such the fourth contract is a subject matter of this arbitration and as per provision of Form d.P.-35 and considering the correspondences made between the parties, the counter claim of the DGDP is maintainable in this arbitration proceedings and the Indian Court proceedings is in no manner is a bar to arbitrate or to adjudicate about the claim under the FCMP contract as per substantive and procedural law in Bangladesh.

4.                   Being aggrieved by the said award, in the premises, the arbitral-respondent has filed this petition.

5.                   Learned Advocates Mr. Mintu Kumar Mondal and Mr. M. A. Hannan Swapon, appeared for the petitioner. Having placed the petition and Supplementary Affidavits alongwith the documents annexed therewith, they submit that the dispute is about supply of Full Creamed Milk Powder (FCMP) supplied by the Karnal Milk Foods Limited (respondent in this matter). They contend that the respondent had supplied four consignments of FCMP to the petitioner, under four different letters of credit, as mentioned in the petition. The supplier-respondent has furnished four performance guarantees covering 10% for each LC proceeds. The consignments were shipped from India and were received in Bangladesh. Out of these four consignments, the one, shipped under the agreement dated 05.03.2006 for supply of 225 Metric Tons Full Creamed Milk Power, was received by the petitioner on payment of the duties etc and, thereafter, as par sub-clause 10(d) of the agreement, the goods received at the consignee’s end would be inspected by DADST(BIS)AHQ, ST Dte, Dhaka Cantonment or his authorized representative and the goods that might be found (by the inspectors) as not in accordance with the contracted quality shall be processed as per clause 10(b) of the agreement and that the Inspector’s verdict, regarding rejection and/or acceptance of the stores (goods) supplied, is final and will not be subject to arbitration.  The petitioner-importer has arranged inspection of the imported milk powder and the inspectors, after inspection of the said quantity of goods, found the same (fourth consignments) unfit for human consumption, vide their report dated 05.07.2006 and another report dated 17.07.2006 (Annexure-C 1 series). Therefore, the petitioner-importer has refused to pay 20% of the balance payment, against this fourth consignment and have also refused to release the PGs. At this stage, the respondent-supplier has referred the matter to the Arbitration and the Arbitrator Council has passed the impugned Awarded. The learned Advocates have further contented that, the petitioner has supplied four consignments with clear stipulation that the agreement will be governors by D.P. 35, revised in 1960. The supplier has accepted the said terms and conditions in writing, vide their letter dated 30.08.2005, but the learned Arbitration Tribunal passed the awarded by a majority of 2:1, without taking into consideration the provisions contained in D.P. 35, that was part of the contract. Besides, the learned Arbitrator Mr. Zafurullah Chowdhury, although in his opinion recorded to have received inspection report, but he has recorded in another place that such inspection reports dated 05.07.2006 and 17.07.2006 were not submitted before the Tribunal. This shows, the learned Advocates submit, a clear non application mind by the learned Arbitrator Mr. Zafurullah  Chowdhury and, therefore, he has arrived at a wrong finding. Besides, the majority of the Tribunal held that the arbitration-respondent has not initiated any arbitration proceedings over the matter, but has pressed their case only by way of counter claim, hence the Tribunal cannot give any relief to the respondent by way of counter claim. Besides, the majority view that the claim of the arbitration respondent/importer should not be entertained, since a civil suit over the dispute was pending India, is not proper, learned advocates further submit. Thus, they asserts that, the majority of the learned arbitrators have refused to exercise the jurisdiction vested in them upon misinterpretation of law and that the  majority view was improper and the award passed in this circumstances is liable to be set aside.

6.                   Learned Advocate Mr. Mehran Morshed appeared for the respondent (exporter), who was the supplier and had resorted to the arbitration proceeding. The learned Advocate first of all submits that, the Court may not sit in appeal over the impugned award, nor should modify the award simply because a different conclusion is possible. The learned Advocate next submits that this Court has ample jurisdiction to adjudicate upon their claim and the entire dispute, including the issue regarding D.P. 35. He also strenuously argues that the D.P.35 is not applicable to these contracts and that the learned Arbitration Tribunal has correctly passed the impugned award by a majority of 2:1, since the petitioner was not entitled to get any relief  on the basis of the counter claim made by them or on any other ground. He, therefore, concludes that the award impugned before this Court does not call for any interference and that the petition may be rejected and the order of stay passed at the time of admission may be vacated.

7.                   I have heard the learned Advocates, perused the petition and the Affidavit-in-Opposition, the documents submitted before this Court vis-à-vis the impugned award.

8.                   This is admitted that the petitioner and the respondent before this court had entered into four contracts, as described the paragraph 4 of the substantive petition. This is also not disputed that out of the four consignments the petitioner (importer) accepted three consignments imported under several letters of credits and that the importer-petitioner had withheld 20% payment against fourth consignment and has refused to release the P.Gs, because of the dispute arisen in respect of the fourth consignment. It is also not disputed that the goods imported under the contracts were subject to post shipment inspections to be carried out as per sub-clause (d) of the clause 10 of agreement dated 05.03.2006. It is also not disputed that the inspection, in respect of the goods received under the fourth consignments, was held on 05.07.2006 and 17.07.2006. The said two reports have been annexed to the supplementary affidavit filed by the petitioner, marked as Annexures- C series and C1.

9.                   I find that the learned Arbitrator Mr. Zafarullah Chowdhury has recorded, in paragraph number 9 of his opinion that, “ in paragraph J of the statement of defense (of DGDP) it was stated that, an inspection was carried out on 05.07.2006 (Inspection report No.6007/05/AFFDL/24) and another inspection was carried out on 17.07.2006 (6007/5/ AFFDL/25). On the basis of these two inspection report request for replacement of consignment was made to the claimant on 19.07.2006 (Annexure 08) of statement of (their) defence on the allegation that the milk powder supplied under the contract is not fit for their purpose and as such they have rejected the goods with a request for replacement. It may me mentioned here that, though the basis of rejection of goods was inspection reports dated 05.07.2006 and 17.07.2006, but no such inspection reports were submitted before the Tribunal. Nor such reports were ever supplied to the claimant.” With reference to what has been quoted here, I find that the learned Arbitrator Mr. Zafarullah Chowdhury simply noted that, no inspection report, referred in the statement of defense (find by on behalf of DGDP), was not submitted before the Arbitrational Tribunal. This situation is quite different from the argument advanced, on this issue, by the learned advocates on the petitioner. Hence, this ground is relied out.   

10.               I have also taken notice of order dated  11.11.2012 (Annexure-13) to the Affidavit-in-Opposition, that, “the Respondent today filed a host of documents supported by the affidavit but, strange enough, without any formal prayer for acceptance of these documents into evidence. In such situation, when these documents were filed without any prayer for acceptance and when the evidence is already closed, we are not inclined to accept the documents filed today by the respondent and, as such, these documents are rejected.” (emphasis added).

11.               As regards this order dated 11.11.2012 of the arbitral body, I am of the view that the series of decisions and the arbitration jurisprudence, so far as developed in this territory, has always articulated that the Arbitration Tribunal shall not be bound by the rigid formalities of a court of law, rather it should be flexible enough, so that the parties can put their cases as well as can adduce evidences in support of their respective cases in a less formal manner.

12.               But, the learned Arbitrators, in this case, by their order dated 17.11.2012 (Annexure-13) has refused to take into cognizance and to look into the documents filed on 11.11.2012 before them, apparently on a technical ground. This is, in my opinion, a clear case of refusal of the tribunal to exercise a jurisdiction vested in them by law, while clause 14 of the agreement between the parties stipulates, amongst other, that, the court of arbitration “shall grant both the parties full opportunity to present their case and their proofs in writing and by word of mouth in the course of the proceedings.” Even in the absence of such a stipulation, the Arbitral Tribunal was and is always competent, rather is duty bound by the very nature of its jurisdiction, to allow adequate opportunities to the parties in dispute to place their respective cases and evidences in a fashion less formal than is required to be followed in the law courts. The arbitrators should resort to the inquisitorial system of adjudication, alongside the adversial system.

13.               The finding of the learned Chairman to the effect that, since a Civil Court in India is in seisen of the same dispute, therefore, the Tribunal cannot give any relief to the respondent (petitioner before this court) and that the respondent was not entitled to any relief claimed by way of counter claim is another reason that has shaped the majority view in passing the impugned award.

14.               On this issue, Tribunal has utterly failed to take into notice that the contract was signed between two foreign parties and the law applicable as well as the forum to decide the disputes have already been decided by and between the contracting parties. Therefore, according to the settled principle of the private internal law, the disputes should be decided as per provisions of the Arbitration Act, 2001 (of Bangladesh), i.e. the law of Bangladesh is the applicable law in this case and the place of arbitration shall be in Bangladesh. Court of India has no jurisdiction to entertain this dispute.

15.               When the dispute has arisen between the same parties out of a series of transactions so interlined that one party may have counter claim and a right to set off (if proved) against the other, then  joinder of several causes of action in the same arbitration proceeding is permissible on the same principle as laid down in Rule 3(1) of Order 2 of the Code of Civil Procedure. Rather is necessary to avoid multiplicity of proceedings, to ensure  proper and complete adjudication of the dispute as well as to save time and cost.

16.               It shall be held as well, to make the legal position clear, that, misinterpretation of law or non application of mind or misappreciation of any fact or evidence by the arbitrators, if results in any error in their decision occasioning failure of justice and causes prejudice to any party, then that will tantamount to misconduct on their part and the award, if impugned on any of these grounds, is liable to be set aside or modified, as the case may be.

17.               As noted earlier, the arbitral tribunal has committed patent illegally in refusing to consider the documents filed before them, on no cogent ground, and in refusing to exercise their jurisdiction on the ground that a civil suit was pending in India and then in refusing to entertain counter claim of the petitioner (the Opposite Party in arbitration). All these jointly and severally constitute misconduct on the part of this arbitral body. Hence, the award, passed in a majority of 2:1, is liable to be interfered with.

18.               The Tribunal should consider the report dated 05.07.2006 and 17.07.2006 submitted as per sub-clause 10(d) of the agreement as well as the scientific report dated 07.09.2006.  The Tribunal should allow the petitioner (opposite party in arbitration) to submit the inspection report and shall consider the same, alongwith the evidence, oral and documentary, already adduced by the parties and on the basis of the pleadings already submitted by them. No other evidence or pleadings, except in relation to the inspection reports mentioned above and the rejoinder against that, if any, shall be admitted.

19.               The petition should be allowed in part with appropriate directions.

ORDER

20.         Accordingly the petition is allowed in part.

21.         As prayed for, the petitioner and the respondent, each shall appoint one arbitrator within 15(fifteen) days of drawing up of this judgment and order, and the said two arbitrators shall appoint an umpire, from amongst the Hon’ble retired Judges of the Supreme Court of Bangladesh, within the next 3(three) weeks of the latter appointment between the two.

22.         The parties shall equally bear the honorarium of the umpire and the remuneration of the Secretary, if any, appointed by the tribunal and such other incidental and ancillary cost, as may be ordered by the tribunal. 

23.         The stay order shall continue subject to the order that may be passed by the Arbitrators and the importer (respondent) shall keep the bank guarantee alive till disposal of the arbitration proceedings, unless the arbitrators should decide otherwise.

24.         No order as to cost.

         Ed.