Decided on November 21,2003



- (1.) Grasim Industries Ltd., Kozhikode, filed this application for the appointment of arbitrator and to make a reference for adjudicating all the claims raised by the applicant as against the respondent, the State of Kerala to the two arbitrators.
(2.) The applicant, a company registered under the Companies Act was engaged in the manufacture of rayon grade wood pulp in the Kozhikode District. By Annexure-I agreement dt. 3.5.1958, the company obtained a grant from the Government of Kerala for the exclusive right and licence to fell, cut and remove bamboo from certain areas in the Nilambur valley for the purpose of converting the same into rayon grade wood pulp and connected activities. The above right and licence was for a term of 20 years from the date of actual commencement of the regular working of the company. The regular working of the company started in 1963. There was an arbitration clause in Annexure-I agreement for adjudicating the disputes between the parties. The arbitration Clause.16 of Annexure-I would read: If at any time hereafter either during the continuance or after the termination of the Agreement, any doubt, difference or dispute shall arise between the parties hereto touching or concerning their respective rights or privileges hereunder or otherwise arising out of these presents then the same shall be referred to the arbitration of three independent persons as arbitrators, one to be appointed by each party to the reference and the third, by both the parties thereto, and the unanimous decision of the said arbitrators or, in the event of any difference of opinion amongst them the decision of the majority of them, shall be binding and conclusive on the parties to the reference and every such reference shall be deemed to be a reference to arbitration under the Indian Arbitration Act, 1940 and shall be regulated and conducted accordingly. Later Annexure-II supplementary agreement was executed between the parties on 6.8.1962 including certain additional contract areas. By Annexure-III second supplementary agreement executed on 10.7.1974, there was revision of rates. The arbitration clause was also modified. The above arbitration clause XV of Annexure-III would read: "In the event of there arising any future disputes or differences under or by virtue of the terms and conditions herein contained read with those which are contained in the Principal Agreement and the First Supplemental Agreement, the same shall be referred for Arbitration and award by two arbitrators, one to be nominated and appointed by each of the contracting parties thereto. Upon the appointment of the two arbitrators by the parties hereto, the arbitrators so appointed shall nominate and appoint an Umpire as contemplated in the Arbitration Act, 1940, and the jurisdiction of the Umpire over the reference arising only on expression of difference of opinion between the two arbitrators in their respective awards. Subject to the provisions of this clause, the provisions in the Arbitration Act, 1940 shall apply in respect of arbitration between the parties thereto. Again Annexure-IV, the third supplementary agreement, was executed on 16th November 1976 mainly on the rules and regulations relating to the collection and removal of the ensured quantity of the raw materials. Lastly on 27.10.1988 Annexure-V (fourth supplementary agreement) was executed wherein the arbitration provision in the earlier agreements had been reviewed and a new arbitration clause was incorporated. Clause.9 of the above agreement (Annexure-V) would read: Subject to Clause.6, where the supply of raw materials by the Government, is less than the agreed quantity of two lakhs tonnes in any year, the company shall be entitled to claim compensation from the Government. Subject to Clause.6, where the company does not extract the agreed quantity of two lakhs tonnes of raw materials supplied in any year fully, the Government shall be entitled to claim compensation from the company. The compensation mentioned above shall be determined by the Tribunal, consisting of a representative each of the Government and the company and a independent Chairman agreed upon by the parties. The Tribunal shall determine the compensation, if any, within a period of 30 days from the end of each contract year, and shall be payable immediately thereafter by the parties concerned. The company shall have the option to adjust the amount of compensation against the price of raw materials supplied in subsequent years. (emphasis supplied by me) Annexure-V agreement would reveal that the company was lying closed from 1985 onwards. The Government wanted to open the factory at the interest of public at large and hence agreed the supply of raw materials viz., bamboo and eucalyptus trees in specified quantities. For regularising the constant supply the arbitration clause also has been modified. Clause.11 of Annexure-V agreement would make it clear that the arbitration clause in the earlier agreements would stand modified in accordance with the clauses of the Annexure-V agreement. Clause.11 of the above agreement reads: Subject to the modifications mentioned above, the Principal Agreement and the First, Second and Third Supplemental Agreements shall remain in force and effect. The period of the above agreement (Annexure-V) expired in 1993 as the above concession was granted for a period of five years (clause 4). After 1993 the materials were supplied by the State on the basis of undertakings given by the company. Ext.R(3) pages 1 to 3 would relate to the period 1996-97, pages 4 to 6 to the year 1997-98 and pages 7 to 12 to the period 1998-99.
(3.) The main case put forward by the company was that the State had not supplied the required quantity of raw materials in pursuance to the agreement and the company was entitled to compensation and disputes arose between the parties and all these disputes are to be referred for adjudication in accordance with the arbitration clause in the agreement. The learned Advocate General Sri. Ratna Singh submitted that the original arbitration clause in the agreements viz., Annexure-I to IV were modified by Annexure-V supplementary agreement wherein a new arbitration clause had been introduced and in view of the above arbitration clause, the disputes should be decided by an Arbitral Tribunal to be constituted as provided therein and the dispute be decided within a period of 30 days from the end of each contract year. It was further submitted that when there was a specific provision for arbitration in the agreement and time also had been fixed for deciding the disputes, such disputes should have been raised and decided within the stipulated time and such disputes cannot be referred for arbitration after a long lapse of time. It was further submitted that the cause for arbitration and the entire time had been barred by limitation and as such the application for appointment of arbitrator has only to be dismissed.;

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