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                                             REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION

ARBITRATION     PETITION     NO.6     OF     2009   

 Al Jazeera Steel Products Company SAOG  ...Petitioner

VERSUS

MID India Power & Steel Ltd.                 …Respondent

O     R     D     E     R   

SURINDER     SINGH     NIJJAR,     J.   

1. This petition under Sections 11(5) and (9) of the  

Arbitration and Conciliation Act, 1996 read with  

paragraphs 2 and 3 of the appointment of the Arbitrators  

by the Chief Justice of India Scheme, 1996 seeks  

appointment of an independent and impartial person as  

an Arbitrator.  

2. The applicant is a Company incorporated in Oman  

having Registration No.1550438 and having its registered

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office at Sohar Industrial Estate, PO Box 40, PC 327,  

Sohar, Sultanate of Oman. The respondent is an Indian  

Company incorporated under the provisions of the  

Companies Act, 1956 and having its registered office at  

Shanti Heights, 32/2, South Tukoganj, 2nd Floor, Above  

Cosmos Bank, Indore 452001 (Madhya Pradesh).  

3. The applicant entered into a Sale Purchase Contract  

dated 18th June, 2008 bearing  

No.MIPSL/BILLET/EXP/08-09/003 (hereinafter referred  

to as the ‘Contract’) with the respondent for supply of  

2000 metric ton Prime Alloy Steel Billets of specific  

chemical composition and physical specifications more  

particularly described in Article 3 of the Contract. In  

accordance with the terms and conditions of the  

Contract, the applicant had opened a Letter of Credit  

bearing No. DC BAF 080939 through HSBC Bank Middle  

East Limited Muscat. The Letter of Credit was encashed  

by the respondent on 21st August, 2008 through its  

bankers, State Bank of Travancore.  On 23rd August,

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2008, the applicant took delivery of first shipment of  

243.2 Metric Ton of Billets at Sohar Port. Upon  

unloading the containers, the applicant noticed that far  

from complying with the specifications mentioned in the  

Contract, the Billets supplied by the respondents were of  

a very poor quality. The Billets had cracks which were  

visible to naked eyes. Even then, to confirm the defects,  

the applicant chose some random Billets and sent the  

same to two independent laboratories for testing. Both  

the laboratories, after conducting the requisite tests,  

confirmed that the Billets supplied by the respondent did  

not comply with the specifications mentioned in the  

Contract. The applicant sent an e-mail dated 31st August,  

2008, informed the respondent about the non-conformity  

and made it clear that the same were not acceptable. On  

the same day, i.e., 31st August, 2008, another e-mail was  

sent setting out in detail the defects in the Billets. It was  

also mentioned that the applicant had done random  

cross verifications on chemical composition, and the  

respondents will be intimated after getting results. It is

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further stated that the applicant has stopped de-stuffing  

of containers, the respondent was requested to kindly  

arrange to take back the rejected goods urgently and  

arrange for the refund of the amount paid at the earliest.  

The applicant informed the respondent that all  

unloading, loading and demurrage at Port and with the  

shipping company will be to your account.  

4. The respondent by its letter dated 1st September, 2008  

stated that the complaint has been noted and they were  

equally and greatly concerned. The applicant was  

informed that the complaint was being accorded highest  

priority by the respondent that they were investigating at  

their end the reasons for the same. The letter states that  

it was never the intention of the respondent to send  

substandard material to any of their esteemed  

customers. It notes that “we understand your concern  

and deeply regret the inconvenience caused to you.  

However, we would like to assure you that we will sort  

out this problem to your entire satisfaction. We wish to

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assure that we believe in ethical business practices and  

strive hard for customer satisfaction.” The applicant was  

further informed that “in order to ascertain the intensity  

of the problem and discuss the various issues involved  

for an amicable resolution of the same, it is planned to  

send a high level delegation to your site within the next  

few days”. In the meanwhile, the applicant was requested  

to carry out de-stuffing of the containers and take  

delivery of lot 2, 3 and 4 as the same will unnecessarily  

incur charges on account of detention and demurrage.  

The applicant was once again        re-assured that the  

issue would be resolved to their entire satisfaction.  

Pursuant to the aforesaid assurances, the respondent  

cleared the remaining 1234.63 MT of the Billets which,  

according to the applicant, were defective. On 10th  

September, 2008, there was a meeting between the  

representatives of the applicant and the respondent. It  

was decided that the joint inspection would be  

undertaken to have the sample analyzed from  

independent recognized laboratories in Dubai on 13th

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September, 2008.  The joint inspection was not arranged.  

The applicant issued several reminders informing the  

respondent that the defective Billets stood rejected, and  

they were requested to remove the same. Since the joint  

inspection was not carried out, the applicant got an  

inspection conducted through one of the reputed firms in  

Dubai on 9th October, 2008. The Expert, known as SGS  

Dubai, in its report dated 16th October, 2008 concluding  

that “the lot is having lot of serious visual defects”  and  

that “all the analyzed samples were not complying with  

provided contractual specification”.  All efforts and  

settlements having failed, the applicant invoked the  

arbitration clause in terms of Article 10 of the Contract,  

through its notice dated 17th December, 2008.  

5. No reply was received from the respondent. The  

applicant, therefore, nominated the Sole Arbitrator  

(Hon.Mr.Justice S.N.Variava, a former Judge of this  

Court). Since the respondent did not reply to the

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aforesaid letter, the applicant was left with no alternative  

but to move the present petition.  

6. In the reply, the respondent claimed that it was issued  

inspection certificates dated 28th July, 2008 and 31st  

July, 2008 of quality and quantity by Inspectorate  

Griffith India Pvt. Ltd., an independent third party  

inspection agency of international repute, with respect to  

the goods that were to be dispatched to the applicant as  

per the said Contract. The goods were duly accepted by  

the applicant. The Letter of Credit had been opened by  

the applicant in accordance with Article 5 of the  

Contract. The applicant took delivery of the first  

shipment on 27th August, 2008. It accepts that applicant  

had sent e-mail dated 31st August, 2008 to the  

representative of the respondent alleging that the Billets  

were defective and making the demands, as noticed  

earlier. The respondent gave another version as to why  

the joint inspection was not carried out. According to the  

respondents, all efforts to persuade the applicant had

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failed. They had a cursory meeting with the CEO of the  

applicant which lasted two minutes. The applicant  

insisted that the respondent lift the material and refund  

the money. The applicant, according to the respondent,  

is arbitrarily calling upon the respondent to pay  

warehousing charges @ US $ 20 per metric ton per day  

after 30th September, 2008. The respondent claimed that  

the application is not maintainable in view of the fact  

that the dispute sought to be referred to arbitration is  

“not a dispute arising out of contract”  but rather a  

dispute which has been deliberately planted post the  

completion of the Contract to escape a liability that the  

applicant has already incurred, i.e., payment of price for  

the goods supplied.  According to the respondents, it is  

not a dispute in real sense but a “moon shine dispute”.  

Further it is a dispute that has been raised after the  

Contract has been validly completed. The dispute about  

the defective goods is a belated attempt by the applicant  

to evade its liability under the Contract. The real reason

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for trying to avoid the Contract is the downfall of the  

price in the international market of steel Billets.  

7. The applicant in its rejoinder has reiterated the  

averments made in the application. It is stated that the  

inspection notes mentioned by the respondent had come  

to the knowledge of the applicant only from the reply filed  

by the respondent to the application. The applicant  

denies that the material supplied by the respondent was  

in accordance with the specifications given in the  

Contract. It is stated that the applicant has not tried to  

evade the liability under the Contract. It is also denied  

that the Contract has become commercially unviable.  

The applicant also denied that the respondent has made  

attempts to resolve the issues raised by the applicant.  

The further details given by the applicant need not be  

noticed at this stage.  

8. I have heard the learned counsel for the parties.

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9. Mr. Viswanathan, learned senior counsel appearing for  

the applicant submits that the matter herein is  

specifically covered by the judgment of this Court in SBP  

&     Co.   Vs. Patel     Engineering     Ltd.     &     Anr.  1 and National  

Insurance     Company     Limited   Vs. Boghara     Polyfab    

Private     Limited  2     In reference to the arbitration clause,  

Mr. Viswanathan submits that the disputes have arisen  

between the parties. The disputes relate to live claims  

which are not belated. The disputes fall within the scope  

and ambit of the arbitration clause which are worded  

very widely. The arbitration clause clearly states that “all  

disputes and differences whatsoever arising between the  

buyer and seller out of or relative to the construction  

meaning and operation of effect of this Contract or any  

breach thereof shall be settled by the arbitration.”

10. Learned counsel also relied on Nandan     Biomatrix    

Limited Vs. D     1     Oils     Limited  3    and Visa     International    

1 (2005) 8 SCC 618 2 (2009) 1 SCC 267 3 (2009) 4 SCC 495

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Limited Vs. Continental     Resources     (USA)     Limited  4 and  

Reva     Electric     Car     Company     Private     Limited   Vs. Green  

Mobil  5  .                    

11. On the other hand, counsel for the respondent submits  

that the petition is not maintainable as the condition  

precedent for invoking arbitration, as agreed in the  

agreement, has not been satisfied.  Since there has been  

no joint inspection of the material, no reliance can be  

placed on the expert reports submitted by the applicant.  

In this case, it was agreed that the parties shall try to  

settle the dispute amicably, which was a condition  

precedent for invoking the arbitration.  According to the  

learned counsel, in the present case, the applicant has  

not even raised a proper claim, which can be referred to  

arbitration.   

12. I have considered the submission made by the learned  

counsel for the parties.  I am of the considered opinion  

4 (2009) 2 SCC 55 5 (2012) 2 SCC 93

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that the applicant has clearly raised bonafide disputes  

arising out of or relative to the construction of the  

contract which contains the arbitration clause.  Article  

10 of the contract contemplates resolution of disputes  

between the applicant and respondent through  

arbitration, as per the procedure laid down under the  

Arbitration and Conciliation Act, 1996.  The clause reads  

as under:-

“All disputes and differences whatsoever arising  between buyer and seller out of or relative to the  construction meaning and operation of effect of this  contract or any breach thereof, shall be settled  amicably, failing which it shall be settled as per the  Indian Arbitration and Conciliation Act, 1996.   The place of arbitration would be Mumbai, India the  decision made by the arbitration organization shall  be taken as final and binding upon both parties.  The arbitration expenses shall be borne by the  loosing party unless otherwise awarded by the  arbitration organizations.”  

13. A bare perusal of the aforesaid clause is sufficient to  

indicate that it covers all disputes and differences of any  

kind arising between the parties.  The applicant has

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clearly raised a number of issues, which can be  

summarized as follows:-

(a) Failure of the respondent to remove the defective  

Billets supplied by the respondent and lying at  

applicant’s premises

(b) Failure to remit the amount drawn by respondent  

against the Letter of Credit

(c) Failure to pay interests and costs incurred by the  

applicant

(d) Failure to pay warehousing charges @ USD 20 per  

Metric Ton per day on and from 1st October, 2009  

till the actual removal of defective Billets from the  

premises of the applicant.  

14. In such circumstances, it can not be said that the  

applicant has failed to raise bonafide dispute which  

cannot be referred to arbitration.  

15. As noticed earlier, the applicant through its e-mail dated  

31st August, 2008 had informed the respondent about

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defective material.  In the second e-mail on the same  

date, the applicant had set out the details in the Billets  

and informed the respondent that it has stopped de-

stuffing of containers.  The respondent was called upon  

to take back the rejected goods urgently and arrange to  

refund the amount paid at the earliest.  In response to  

the aforesaid e-mail, the respondent on 1st September,  

2008 had indicated its concern and the inconvenience  

caused to the applicant was deeply regretted.  The  

applicant was also assured that the problem would be  

sorted out to the entire satisfaction of the applicant.  

Thereafter, the respondents have proposed a joint  

inspection, which according to the applicant was never  

arranged.  On the other hand, the respondent claims  

that the applicant had rebuffed all the efforts made by  

the respondents to resolve the issue.  The applicant was  

intent on claiming the refund.

16. In my opinion, the aforesaid facts and circumstances are  

sufficient to show that the bonafide disputes have arisen

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between the parties, which are within the scope and  

ambit of the arbitration clause and need to be resolved  

through arbitration.  I do not find any substance in the  

submission of the learned counsel for the respondent  

that the disputes are either belated or raised only to  

avoid liability under the contract.  The disputes having  

arisen in September, 2008 and the present application  

having been filed on 4th February, 2009, the petition can  

not be said to be belated.  

17. Keeping in view the facts and circumstances narrated  

above, the application is allowed.  All the disputes that  

have arisen between the parties are hereby referred to  

arbitration.    I hereby appoint Hon. Mr. Justice S.N.  

Variava, Former Judge of this Court, as the Sole  

Arbitrator to adjudicate upon all the disputes and  

differences that have arisen between the parties, on such  

terms and conditions as the learned Sole Arbitrator  

deems fit and proper. Undoubtedly, the learned Sole  

Arbitrator shall decide all the disputes arising between

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the parties without being influenced by any prima facie  

opinion expressed in this order, with regard to the  

respective claims of the parties.

18. The registry is directed to communicate this order to the  

Sole Arbitrator to enable him to enter upon the reference  

and decide the matter as expeditiously as possible.

19. The Arbitration Petition is accordingly disposed of.  

……..…………………..J.                           [Surinder Singh Nijjar]  New Delhi; May 08, 2012.