CASE NO.:
Appeal (civil) 4829 of 2007
PETITIONER:
BHARAT PETROLEUM CORPORATION LTD
RESPONDENT:
THE GREAT EASTERN SHIPPING CO. LTD
DATE OF JUDGMENT: 12/10/2007
BENCH:
TARUN CHATTERJEE & D.K. JAIN
JUDGMENT:
J U D G M E N T
[Arising out of S.L.P. (C) No. 17687 of 2005)
D.K. JAIN, J.:
Leave granted.
2. This appeal by Special Leave arises out of a judgment
and order dated 1st March, 2005 rendered by the High Court
of Judicature at Bombay, whereby the learned Single Judge
has set aside the order passed by the Arbitral Tribunal,
holding that they did not have jurisdiction to entertain
and try the claim and counter claim made by the parties.
3. In order to appreciate the issue, requiring
determination, a few relevant facts may be stated.
The appellant M/s. Bharat Petroleum Corporation
Limited is a Government of India Undertaking, under the
administrative control of the Ministry of Petroleum &
Natural Gas and is engaged in refining, distributing and
selling of petroleum products all over the country. The
respondent M/s. Great Eastern Shipping Company Limited
is engaged in the business of shipping and allied
activities and owns a fleet of tanker vessels for charter,
including the vessel known as JAG PRAJA.
4. An agreement, called the Time Charter Party in
legal parlance, was entered into between the appellant and
the respondent on 6th May, 1997 for letting on hire vessels
for a period of two years from 22nd September, 1996 to 30th
June, 1997 and from 1st July, 1997 to 30th June, 1998, on
the terms and conditions set out in the said agreement.
However, before the Charter Party was to come to an end,
on 29th June, 1998, the Indian Oil Corporation Limited (for
short IOC), acting as agent of the appellant, issued a
fax to various ship owners, including the respondent
herein, requesting them to extend the validity of the
Charter Party Agreement dated 6th May, 1997 beyond 30th
June, 1998 for a period of one month from 1st July, 1998
with option for two further extensions of 15 days each.
The respondent agreed to the said proposal. Accordingly,
on 29th June, 1998 an addendum was signed between the
parties whereby the validity period of Charter Party was
extended for one month with an option for two further
extensions for a period of 15 days each. The terms and
conditions; exceptions and exemptions contained in the
Charter Party dated 6th May, 1997 remained unaltered. The
parties are ad idem that the Charter Party dated 6th May,
1997 was extended till 31st August, 1998.
5. It appears that since Charter Party dated 6th May,
1997 was coming to an end on 31st August, 1998, the Oil
Companies sought permission of the Oil Co-ordination
Committee, a wing of the Ministry of Petroleum and Natural
Gas for further extension of the Charter Party. However,
the Oil Coordination Committee, by their fax message dated
26th August, 1998, declined the request of the Oil
Companies, including the appellant, for further extension
of Charter Party beyond 31st August, 1998. The said fax
message was an internal communication between the Oil
Coordination Committee and the Oil Companies.
6. Thereafter, in September, 1998, the IOC for and on
behalf of the Oil Industry, floated a fresh tender for
carriage of petroleum products along the Indian coast on
time charter basis for a period of one year commencing
from 1st September, 1998 to 31st August, 1999, on the terms
and conditions set out in the tender document. In
response to the said tender, the respondent and other
vessel owners submitted their bids. It seems that being
aggrieved of the decision of the IOC to invite revised
price bids after opening of the sealed tenders, one of the
bidders filed a writ petition in the Bombay High Court,
questioning the said decision. The appellant intervened
in the said matter. The writ petition was disposed of
vide order dated 20th August, 1999. While disapproving in
principle, the action of the IOC in inviting fresh price
bids after opening the bids, but without recording final
opinion on the merits of the issues raised in writ
petition, the Court disposed of the petition, inter alia,
directing that (i) the charter hire rates should be fixed
by the Tender Evaluation Committee and (ii) as the tender
was for the period ending 31st August, 1999 and the writ
petition was being decided on 20th August, 1999, the IOC
will not be required to enter into a contract for the
period from 1st September, 1998 to 31st August, 1999. It is
not in dispute that the vessel JAG PRAJA, with which we
are concerned, continued to be chartered by the appellant
till 31st August, 1999.
7. It appears that pending finalization of a new charter
party for the period commencing 1st September, 1998,
certain meetings took place between the Oil Companies and
the Ship Owners, including the respondent herein. On 12th
October, 1998, the respondent informed the IOC that if all
its nine vessels, mentioned in the letter, are used at a
fair and reasonable rate for one year, from 1st September,
1998 to 31st August, 1999 for which the tender had been
floated, they were agreeable to apply the new agreed rates
for use of the said nine vessels from 1st July, 1998. On
31st October, 1998 the IOC faxed to the respondent relevant
portion of the message received by them from Oil Co-
ordination Committee, extending the period of usage of the
existing coastal tanker fleet for the month of October,
1998, at 80% charter hire rates, prevailing till 30th June,
1998, on provisional basis, subject to adjustment of
provisional charter hire with retrospective date from 1st
September, 1998 against the revised charter hire, to be
finalised by the Oil Industry in response to the tender
floated by IOC on 1st September, 1998. Respondents
consent was asked for. The respondent responded
immediately vide their letter dated 5th November, 1998,
agreeing in principle that revised charter hire rates, as
and when finalized in response to tender floated by the
IOC on 1st September, 1998, would be applicable to the
vessels which are selected under the tender,
retrospectively from 1st September, 1998. It was pointed
out that the vessels which are not chartered under the
tender floated would be at a disadvantage. It was clearly
stated that since the tender was not finalized, the owners
will be guided by the existing terms and conditions. Some
other objections, not relevant at this stage, were also
indicated. As such, all said and done, Oil Co-ordination
Committees proposal was not accepted. Nevertheless, some
suggestions to resolve the controversy were given.
8. Thus, the proposal by the Oil Co-ordination Committee
was not accepted by the respondent. In the alternative,
it was suggested by the respondent that the charter period
be extended by six months on the existing terms and
conditions at a mutually discussed time charter rate.
Admittedly, the vessels continued to be chartered by the
appellant beyond the date of this letter.
9. Thereafter, for almost two months, there was no
communication between the parties. It was only on 31st
December, 1998 when the IOC issued a fax to the
respondent, enclosing draft letter regarding charter party
agreement to be signed between the charterers and owners
(with minor modification, if necessary), requesting the
respondent to sign as per proposal by the 4th January,
1999, on which date the respondent expressed its
disinclination, stating in reply fax that as per usual
practice, pending finalization of new charter, the
existing terms and conditions of the charter party
continue to apply. Finally, it was suggested that:
We, therefore, suggest that we sign
an agreement with you for the period
from 1st September, 1998 until the
matter is finally decided by you under
the tender on the existing terms and
conditions with the charter hire being
provisionally paid on an ad hoc basis
at 90% of the rate which was
prevailing under the existing Charter
Party.
Kindly confirm in order to draw up a
suitable agreement accordingly.
[Emphasis supplied]
10. Vide letter of even date, i.e. 4th January, 1999, the
appellant suggested to the respondent that in the absence
of a formal charter party with effect from 1st September,
1998, a provisional arrangement for a period of four
months effective from 1st September, 1998 with an option
for extension of one month may be mutually agreed to by
payment at the rate of 80% on charter hire prevailing on
30th June, 1998, as ad hoc hire. The respondent was asked
to convey their acceptance to the said suggestion. It
appears that the respondent did not respond to the said
suggestion by the appellant but all the same its vessel
continued to be on charter with the appellant.
11. The writ petition was ultimately disposed of on 20th
August, 1999. It was only after a gap of about seven
months that on 15th March, 2000, the IOC informed the
respondent about the evaluation of the tenders in terms of
the order passed by the High Court. Charter hire rate
worked out by the Committee for vessel JAG PRAJA for the
period from 1st September, 1998 to 31st August, 1999 was
communicated to the respondent. In response, the
respondent, while expressing their disappointment with the
rate but purportedly, in view of their long business
relations with the appellant conveyed their acceptance of
the proposed rate in respect of each of the vessels named
in separate letters, all dated 1st May, 2000, with the
expectation that their outstanding balance of the hire
shall be paid to them at the earliest. However, the
respondent did not convey their acceptance of the charter
hire rates for two vessels, viz. JAG PRAJA and JAG
PRAYOG. It appears that the respondent wrote various
letters to the appellant for upward revision of the rate
in respect of these two vessels but seemingly their
request was ultimately turned down on 2nd November, 2000,
on receipt of which, the respondent slammed a legal notice
dated 6th November, 2000, on the appellant, inter alia,
requesting them to revise the rates on the basis of mutual
discussions and settle the accounts. Having failed to
receive any reply to the said notice, by another legal
notice dated 1st December, 2000, the respondent called upon
the appellant to pay balance amount of Rs.43,947,517/- to
them as charter hire in respect of vessel JAG PRAJA for
the period from 1st September, 1998 to 31st August, 1999
within 15 days from date of receipt of the said notice or
treat it as an arbitration notice. The name of the
arbitrator was also communicated to the appellant. It
seems that pursuant to the said notice and some subsequent
correspondence exchanged between the parties, an Arbitral
Tribunal was constituted.
12. Claims and counter claims were filed before the
Arbitral Tribunal. On the basis of the pleadings of the
parties, the Arbitral Tribunal framed as many as eight
issues. However, arguments were heard only on the
following three issues:
Issue No.1:- Whether the Honble
Arbitral Tribunal has no jurisdiction
to adjudicate upon the dispute between
the Claimant and the Respondent for
the period September, 1998 to August,
1999 in respect of the vessel Jag
Praja for the reasons stated in para 1
of the written statement?
Issue No.2:- Whether there is any
common practice that if the vessel is
not re-delivered at the end of the
period mentioned in the time charter
the vessel would be governed by the
charter party under which originally
it was chartered?
Issue No.5:- Whether the time
charter party dated 6th May, 1997 came
to an end by efflux of time on 30th
August, 1998?
13. Vide order dated 12th May, 2003 the Arbitral Tribunal
came to the conclusion that the appellant having invoked
the arbitration clause contained in charter party
agreement dated 6th May, 1997, which was valid upto 31st
August, 1998 and as the dispute between the parties
related to the period subsequent to 31st August, 1998, they
had no jurisdiction to decide the Reference. The learned
Tribunal found issue No.2 in the negative and issue No.5
in the affirmative. According to the Tribunal on and
after 1st September, 1998, charter party agreement dated 6th
May, 1997 was superseded by a fresh agreement and a term
of the agreement was that the charter hire rate would be
determined by the Oil Co-ordination Committee of the IOC.
In nutshell, the Tribunal was of the view that with the
performance, original charter party dated 6th May, 1997 got
extinguished.
14. The respondent challenged the said Award before the
High Court. By the impugned order, the learned Single
Judge has set aside the said Award, inter alia, holding
that Arbitral Tribunal has the jurisdiction to adjudicate
the disputes between the parties as the vessel continued
to be hired by the appellant for the period subsequent to
31st August, 1998 on the same terms and conditions, as were
contained in the charter party dated 6th May, 1997, only
subject to the revision or modification of the rate of
hire to be determined by the Oil Co-ordination Committee.
The learned Judge also felt that the Tribunal had erred in
totally excluding from its consideration clauses 23 and
4.1 of the charter party dated 6th May, 1997, whereunder
the charter party was to come to an end on re-delivery of
the vessel. Admittedly, after 31st August, 1998, re-
delivery of vessel did not take place and, therefore, in
terms of clause 23, the vessel continued to be hired on
the same terms and conditions except the term as to the
hire charges, on which there was disagreement between the
parties. It was thus, held that the charter party dated
6th May, 1997 did not come to an end by efflux of time and
it was extended by the parties on the same terms and
conditions except the rate of hire. Correctness of this
order of the High Court is questioned in this appeal.
15. Mr. Sudhir Chandra, learned senior counsel appearing
on behalf of the appellant has assailed the impugned order
on the sole ground that the Charter Party dated 6th May,
1997 having come to an end by efflux of time on 31st
August, 1998, the arbitration clause contained in it also
perished and, therefore, in the absence of a fresh
arbitration agreement, claim of the respondent relating to
the period 1st September, 1998 to 31st August, 1999 could
not be referred to arbitration by invoking arbitration
clause in Charter Party dated 6th May, 1997. Laying
emphasis on the fax message dated 26th August, 1998
addressed by the Oil Co-ordination Committee to the oil
companies, including the appellant, inter alia, informing
them that no further extension of the Current Charter
Hire Rate will be allowed, learned counsel submitted that
the said message made it clear to all concerned that
Charter Party dated 6th May, 1997 would not be extended
under any circumstance.
16. Mr. Shyam Divan, learned senior counsel appearing on
behalf of the respondent, on the other hand, submitted
that notwithstanding the fact that the period fixed
originally under the Charter Party or under the Addendum
dated 29th June, 1998 had come to an end, the subsequent
conduct of the parties goes to show that charter of the
vessel by the appellant beyond 31st August, 1998 continued
to be governed by the terms and conditions stipulated in
charter party dated 6th May, 1997 and, therefore, an
arbitration agreement did exist between the parties.
Learned counsel argued that even otherwise till the vessel
was not re-delivered in terms of Clauses 4 and 23 of
Charter Party dated 6th May, 1997, the said agreement could
not come to an end. It was pointed out that all the
obligations of the owners as well as of the charterers
during the period the vessel was in use continued to be
discharged under the Charter Party dated 6th May, 1997 even
after the expiry of the period of the Charter Party. In
support of the proposition that the concurrence of a party
can be gathered from his conduct, like continued user of
the vessel in the present case, without any objection to
respondents letter dated 4th January, 1999, reliance is
placed on a decision of this Court in The Godhra
Electricity Co. Ltd. & Anr. Vs. The State of Gujarat &
Anr. . It was also submitted that the view taken by the
High Court being a plausible view, interference in
exercise of extra-ordinary jurisdiction under Article 136
of the Constitution is unwarranted.
17. Thus, the short question for determination is whether
on the expiry of the extended period of charter hire on
31st August, 1998, Charter Party dated 6th May, 1997 came to
an end and the arbitration agreement between the parties
perished with it?
18. Before we proceed to examine the rival stands, we may
note, at the outset, that neither the Arbitral Tribunal
nor the High Court have gone into the question whether the
claim made by the respondent would otherwise fall within
the ambit of the arbitration clause in the Charter Party
or not. What is in dispute is whether the arbitration
agreement between the parties had got extinguished after
31st August, 1998, i.e. the date of expiry of the extended
period of the Charter Party. Therefore, we refrain from
expressing any opinion on the scope and ambit of the
arbitration clause though, prime facie, it appears to be
quite widely worded.
19. It is, no doubt, true that the general rule is that
an offer is not accepted by mere silence on the part of
the offerree, yet it does not mean that an acceptance
always has to be given in so many words. Under certain
circumstances, offerrees silence, coupled with his
conduct, which takes the form of a positive act, may
constitute an acceptance an agreement sub silentio.
Therefore, the terms of a contract between the parties can
be proved not only by their words but also by their
conduct.
20. In our view, the principle of sub silentio is clearly
attracted in the present case. As noted above, after the
extended period of Charter Party dated 6th May, 1997 had
come to an end on 31st August, 1998 and the bids received
pursuant to fresh invitation were pending finalization,
vide their letter dated 12th October, 1998, the respondent
had informed the appellant that they were agreeable to
apply new rates for use of the vessel from 1st July, 1998
provided all the nine vessels are used. However, on 31st
October, 1998, the appellant faxed IOCs message informing
them of the extension of the existing coastal tanker fleet
for the month of October, 1998 at reduced rates, viz. 80%
of the Charter Party rates prevailing till 30th August,
1998. On receipt of the said letter, the respondent vide
their letter dated 5th November, 1998, protested against
the revision of the rates for the vessel not being
considered under the new bid and stated in unequivocal
terms that it was not possible for them to accept the
proposal of the Oil Co-ordination Committee, communicated
to them vide letter dated 12th October, 1998. Yet again
while responding to appellants fax dated 31st December,
1998, whereby the respondent was required to sign a
provisional charter party by 4th January, 1999, vide their
letter dated 4th January, 1999, the respondent, pointed out
to the appellant that usual practice is that pending
finalization of the new Charter, the existing terms and
conditions of the Charter Party continue to apply and,
therefore, they were willing to sign the agreement as
contemplated by the appellant based on the existing terms
and conditions. It was suggested that an agreement may be
signed between them for the period from 1st September, 1998
until the matter was finally decided by the appellant
under the tender, on the existing terms and conditions
with the charter hire being provisionally paid on ad hoc
basis at 90% of the rate which was prevailing under the
existing Charter Party. As noted hereinabove, there was
no response by the appellant to respondents letter dated
4th January, 1999 though it appears that vide their letter
of even date, the appellant did suggest to the respondent
that as a token of formal agreement the said letter may be
jointly signed by the charterers and the vessel owners.
Admittedly, no such agreement was signed between the
parties. Indubitably, there was no further exchange of
correspondence between the parties during the year.
Nevertheless, the appellant continued to use the vessel on
hire with them under the time charter dated 6th May, 1997.
The conduct of the parties, as evidenced in the said
correspondence and, in particular appellants silence on
respondents letters dated 5th November, 1998 and 4th
January, 1999, coupled with the fact that they continued
to use the vessel, manifestly goes to show that except for
the charter rate, there was no other dispute between the
parties. They accepted the stand of the respondent sub
silentio and thus, continued to bind themselves by other
terms and conditions contained in the Charter Party dated
6th May, 1997, which obviously included the arbitration
clause.
21. We may examine the issue from another angle, based on
respondents stand that charter party dated 6th May, 1997
continues to be in vogue till the chartered vessel is re-
delivered. In this context, it would be appropriate to
refer to Clauses 4 and 23 of the Charter Party dated 6th
May, 1997. These are in the following terms:
4. Delivery & Redelivery
4.1 The vessel shall continue to be
on charter to charterers in
direct continuation from 2348
hrs. 22.09.1996 to 30.06.1998.
The vessel shall be re-delivered
by charterers to owners on
dropping last outward pilot at
any port on west coast of India
at charterers option. Charterers
to give owners 15 days notice to
probable port of re-delivery.
4.2 Charterers to load last three
cargoes clean and re-deliver the
vessel in clean condition.
23. Final Voyage
Should the vessel be on her
voyage towards the port of
redelivery at the time of payment
of hire is due, payment of hire
shall be made for such length of
time as Owners and Charterers may
agree upon as being estimated
time necessary to complete the
voyage, less any disbursements
made or expected to be made or
expenses incurred or expected to
be incurred by Charterers for
owners account and less the
estimated amount of bunker fuel
remaining at the termination of
the voyage and when the vessel is
redelivered any overpayment shall
be refunded by the owners or
underpayment paid by Charterers.
Notwithstanding the provisions of
clause 4 hereof should the vessel
be upon voyage at the expiry of
the period of this charter,
Charterers shall have the use of
vessel at the same rate and
conditions for such extended time
as may be necessary for the
completion of the round voyage on
which she is engaged and her
return to a port of redelivery as
provided by the Charter.
22. On a conjoint reading of the said clauses, it is
plain that the appellant was under an obligation to re-
deliver the vessel as per the procedure contemplated in
the afore-noted clauses. Indisputably, the vessel in
question had not been re-delivered at least during the
relevant period and the appellant continued to use the
vessel beyond 31st August, 1998. Having failed to re-
deliver the vessel in terms of Clause 4.1 of the Charter
Party, the appellant cannot plead that the Charter Party
had been fully worked out. It is clear from the pleadings
and issue No.2, framed by the Arbitral Tribunal, that it
was respondents consistent stand that since the hired
vessel had not been re-delivered at the end of the time
charter party, the vessel would be governed by the terms
and conditions in the Charter Party dated 6th May, 1997.
However, the Arbitral Tribunal answered the said issue
against the respondent. It appears to us that even the
question in regard to the effect and consequences of non-
delivery of the vessel in terms of the Clause 4.1 and 23
would by itself be a dispute arising under the said
Charter Party. With respect, the learned Arbitral
Tribunal overlooked this aspect of the matter.
23. We are, therefore, of the opinion that though
performance of the Charter Party agreement dated 6th May,
1997 may have come to an end on 31st August, 1998 but it
was still in existence for some purposes, viz. the effect
of vessels non re-delivery as per the prescribed
mechanism and its continued use beyond the stipulated time
and, thus, the arbitration clause in the said Charter
Party operated in respect of these and other allied
purposes. Therefore, the factual scenario in the instant
case leads to an inescapable conclusion that
notwithstanding the expiry of the period fixed in the time
charter party dated 6th May, 1997, the said charter party
did not get extinguished, inter alia, for the purpose of
determination of the disputes arising thereunder and the
arbitration clause contained therein could be invoked by
the respondent.
24. In view of the foregoing discussion, we do not find
any infirmity in the view taken by the High Court that
Charter Party dated 6th May, 1997 had not come to an end by
efflux of time and it got extended by the conduct of the
parties, warranting interference.
25. Having come to the conclusion that an arbitration
agreement existed between the parties, the question which
remains to be considered is whether the disputes between
the parties should be referred to the same Arbitral
Tribunal which had come to the conclusion that in the
absence of any arbitration agreement it did not have
jurisdiction to entertain and try the claims and counter
claims. We feel that it would be proper and expedient to
constitute a fresh Arbitral Tribunal. Accordingly, we
constitute an Arbitral Tribunal consisting of Justice
M. Jagannadha Rao (Presiding Arbitrator), Justice D.P.
Wadhwa and Justice S.N. Variava, former Judges of this
Court to adjudicate upon the claim/counter claim by the
parties, subject to their consent and such terms and
conditions as they may deem fit and proper. It goes
without saying that the learned Tribunal shall deal with
the matter uninfluenced by any observations in this order
on the respective stands of the parties.
26. Resultantly, the appeal being devoid of any merit is
liable to be dismissed, which we do, leaving the parties
to bear their own costs.
27. The Registry is directed to communicate this order to
the learned Members of the Arbitral Tribunal to enable
them to enter upon the Reference and decide the matter as
expeditiously as practicable.
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