Separate cotton contracts do not unravel dispute decision

cotton contracts dispute decision

The Bombay High Court recently heard a petition under section 34 of the Arbitration and Conciliation Act, 1996. The question before the court was whether an arbitrator had the power to consolidate disputes arising from independent and distinct contracts or not.

The petitioners, BST Textile Mills, entered into nine contracts, each containing an identical arbitration clause, to purchase goods from the respondents, the Cotton Corporation of India. The petitioners agreed to purchase 26,449 cotton bales but, as alleged by the respondents, took possession of and paid for only 1,300 of them. The petitioners were therefore alleged to be in breach of the contracts. The respondents invoked arbitration clauses over the alleged breaches and the matter went to arbitration.

Before the arbitral tribunal, the respondents filed a single statement of claim in the dispute encompassing all nine contracts executed between the parties. The petitioners, in addition to disputing the claims on merit, objected to the consolidation of the claims. The arbitral tribunal, however, allowed the single statement of claim filed by the respondents to stand. After hearing evidence and submissions, the arbitral tribunal made an award in favour of the respondents and dismissed the counter claim of the petitioners. The petitioners appealed to the high court.

The petitioners contended before the high court that the arbitrator had no jurisdiction and therefore no power to consolidate disputes arising out of the independent and distinct nine contracts. They maintained that the arbitral award went against the fundamental policy of the law in India and was vitiated.

The petitioners further contended that the respondents were supposed to supply cotton bales from three different branches of its business. As the causes of action were separate and distinct, relating to each independent contract, the claims in each dispute or cause of action should have been considered individually.

The petitioners submitted that they had raised this specific objection in the statement of defence and written statement, and had also raised the specific issue of the delivery of the goods. Prejudice was caused to the petitioners since the arbitral tribunal did not consider individually the separate and distinct alleged breaches of contracts when finding in favour of the respondents.

The respondents argued that the terms of the contract, the format and the mutual obligations of all nine contracts were identical, apart from the amounts of goods and payment. Every head of claim detailed the particular amount set out in each separate contract.

The respondent further submitted that the way in which the arbitral tribunal evaluated the evidence showed that it considered each transaction separately. The arbitral tribunal determined the claims made by the respondents on the evidence and material submitted to it.

On the merits of the respondent’s case, the high court held that it was prohibited from re-examining the evidence and the findings of facts supporting the arbitral award. The scope for interference by the court in these matters was limited. Unless the specific grounds set out in section 34 of the Arbitration and Conciliation Act, as amended in 2015, were satisfied, the court in the usual course could not interfere with an arbitral award.

Rejecting the arguments of the petitioners, the court held that the nine contracts in question were executed between the same parties, contained identical arbitration clauses, and differed only with regard to the actual sale and purchase figures. The nature of the dispute in each of the nine contracts was identical. The invoking of arbitration was made in the context of the disputes in the nine contracts being essentially the same.

The witnesses for the respondents gave evidence in respect of each separate contract and the extent of the claim in the dispute involved in each separate contract. The respondents submitted graphical evidence to the arbitral tribunal setting out details of their claims as to the amounts due, interest claimed, and charges for each contract.

The court held that when specific claims relating to each of the nine contracts were set out individually in the respondents’ statement of claim, to which the petitioners had ample opportunity to respond, and when the petitioners also chose to file a consolidated counterclaim in respect of all nine contracts, it could not be said that the arbitral tribunal committed a jurisdictional error in proceeding with the arbitration.

The consolidated counterclaims of the petitioners showed that it was in the interests of justice for the arbitral tribunal to proceed as it did. The submission of the petitioners that they had been prejudiced was without substance and the court dismissed the petition.

The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at Readers should not act on the basis of this information without seeking professional legal advice.