038-SLLR-SLLR-2004-V-1-RANIN-KUMAR-PROPRIETOR-MESSRS-PHARMA-CHEMIE-v.-STATE-PHARMACEUTICAL-COR.pdf
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RANIN KUMAR, PROPRIETOR, MESSRS PHARMA CHEMIEv
STATE PHARMACEUTICAL CORPORATIONSUPREME COURTBANDARANAYAKE, J.
EDUSSURIYA, J. ANDDE SILVA, J.
S.C. (APPEAL) NO. 80/2002H.C. COLOMBO NO. 111/98 (ARB)
15 AUGUST AND 8 OCTOBER 2003
Arbitration Act, No. 11 of 1995 – Enforcement of award-Section 31(1) of the Act- Appeal from the enforcement order – Plea of lack of jurisdiction of the arbitra-tor first raised in appeal – Untenable objection.
The appellant the proprietor of Messrs Pharma Chemie tendered throughPharma Associates to supply Amoxycillin capsules and supplied 25 million cap-sules to the respondent Corporation on a tender called by the Corporation. Thesecapsules were supplied by Messrs Pharma Chemie. As the capsules were foundto be sub-standard the dispute was decided by arbitration and the award wasmade in favour of the State Pharmaceutical Corporation after an inquiry was madeon the merits of the claim. The High Court made an order in favour of theCorporation for enforcement of the award under section 31 (1) of the Arbitration Act.
On appeal to the Supreme Court, the appellant raised the point that there wasan arbitration agreement hence the Arbitrator had no jurisdiction and the award
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was a nullity. But the dispute raised by the Corporation was heavily contestedbefore the Arbitrator and no question of jurisdiction was raised.
Held:
Clause 29 of the tender conditions provided for arbitration of disputes.
Perde Silva, J.
“Long participation and acquiescence in the proceedings precludes aparty from contending that the proceedings were without jurisdiction.Where a party to an arbitration agreement participates in the arbitra-tion proceedings with the clear knowledge that the matter is legallyincapable of being submitted to arbitration he cannot thereafter raisethe question of lack of jurisdiction”.
The arbitration award could be enforced against Mr. Ranin Kumar theproprietor of Pharma Chemie. The offer to supply the capsules wasmade through the agent Pharma Associates on behalf of PharmaChemie which was a sole proprietorship owned by Ranin Kumar.
Cases referred to:
Keliner v Baxter LR 8 Ch APP 407
Waharaka Investment Ltd v The Commissioner of Stamp – 34 NLR 266at 275
APPEAL from the judgment of the High Court, Colombo.'
Gemini Marapana, P.C. with Navin Marapana for appellant'
Saleem Marsoof, P.C. Additional Solicitor-General with Anil Goonaratne, DeputySolicitor-General for respondent.
Cur.adv.vult
January 30, 2004J.A.N. DE SILVA, J.
This is an appeal against the order of the learned High CourtJudge dated 15.06.2001 "wherein he allowed the application toenforce an arbitral award made in favour of State PharmaceuticalCorporation, the respondent in this appeal.
On 22.11.2002 this court granted Special Leave to Appeal on thefollowing questions of law.
(1). Did the learned High Court Judge fail to appreciate that theaward is a nullity and void and has been made without jurisdic-tion and is unenforceable?
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(2) Did the Learned High Court Judge err in Law in holding that theaward is enforceable against the appellant in the absence of anaward against him?
Section 31 (1) of the Arbitration Act, No. 11 of 1995 entitles a partyto an arbitration agreement pursuant to which an arbitral award ismade to apply to the High Court for the enforcement of the awardwithin the period specified in the section. The primary question raisedby the appellant in this case is whether there is “an arbitration agree-ment” between the parties. The appellant’s case is that the arbitratorhad no jurisdiction whatsoever to make the said award (patent lack ofjurisdiction).
The following are the key players in this transaction which led tothe dispute.
The State Pharmaceutical Corporation – the respondent
Mr. Ranin Kumar – The appellant – proprietor of the Pharma
Chemie Ltd
M/s. Pharma Associates
Pharma Chemie Ltd.
The State Pharmaceutical Corporation of Sri Lanka called for ten-ders by document dated 19/05/1993 for fifty (50) million AmoxycillinCapsules. It is the contention of the appellant that M/S PharmaAssociates responded to the tender but was awarded only half thequantity tendered for, that is 25 million capsules. The number of thetender was DAS /24/5/98. The balance 25 million capsules were pur-chased direct by respondent on a different transaction fromM/s Pharma Chemie under reference number DHS/PA/722/94 dated12/11/1993.
The contention of the appellant is that the goods supplied byPharma Chemie under the above numbered purchase order wereallegedly found to be sub-standard and the respondent thereuponmade a claim on Pharma Chemie. After this allegation was madePharma Chemie requested to inspect the goods in dispute but thisrequest was not acceded to by the respondent and over that therewas a dispute between the respondent and Pharma Chemie Ltd. Theappellants position is that Pharma Chemie Ltd took no part in the ten-der and that the document XI had nothing to do with. Pharma Chemie.
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The position of the State Pharmaceutical Corporation is totally dif-ferent. According to the respondent corporation, the Corporationaccepted the tender of the appellant for the supply of Amoxycillin byletter dated 1st November 1993 (X3) and placed the order for 25 mil-lion capsules. The appellant by his letter dated 5th November 1993(X4) confirmed the acceptance for the supply of the said quantity ofAmoxycillin capsules. The respondent Corporation sent a purchaseorder dated 17th November 1993 (X5) and in that indicated that 15million capsules were to be delivered in January 1994 and the bal-ance 10 million in March 1994. These drugs were delivered by theappellant and payments were made by Corporation to the appellantaccordingly. About one year after purchase of these capsules andtheir distribution to various government institutions a post marked sur-veillance was conducted by the National Drug Control AssuranceLaboratory at various institutions. These test of samples from 8 batch-es from the amount of capsules delivered by the appellant were foundto be of sub-standard quality which cannot be used for medication. Asa result the respondent Corporation had to withdraw these drugs fromthe Medical Supplies Division of the Ministry of Health. The value ofthe drugs so withdrawn amounted to Rs. 3,825,000/-. Thereafter therespondent Corporation had to claim the said sum from the petitionerand this resulted in arbitration proceedings.
From the evidence of Sirisena, Commercial Manager of thePharmaceutical Corporation, it appears that the tender documentmarked X1 was perfected and submitted by Pharma Associates onbehalf of Pharma Chemie along with a covering letter dated 5thAugust 1993 marked P.2. The fact that the tender document contain-ing clause 29 was submitted along with the letter dated 5th August1993 quoting certain prices for Cloxycillin and Amoxycillin 250 mgcapsules shows that the offer made by Pharma Chemie was subjectto the said arbitration clause. The said offer was accepted by the let-ter dated 1st November 1993 marked P3 addressed to PharmaAssociates by the appellant.
It is to be noted that the appellant in X19 takes full responsibility forthe supply of capsules indicated in several documents marked X2,X3, X4 and X5 in the High Court proceedings. X2 is the letter dated20th August 1993 addressed to the Chairman of the respondent cor-poration by the agent of the appellant who had participated in the ten-
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der on behalf of the appellant. X3 is a letter by the respondent to theappellant’s agent giving details of the order required by the respon-dent. By X4 (5th November 1993) the appellant acknowledges docu-ment marked X3. X5 is the purchase order and details of same hasbeen regularly referred to by the appellant in his subsequent corre-spondence (vide X19, X21 and X24). X19 gives details of the order asorder No. 1P/DAS/PA/722/94 of 12/11/94.
The appellant’s counsel in his written submissions and at the hear-ing of this appeal submitted that Pharma Associates offer was anindependent offer and Pharma Chemie had nothing to do with it.
However he has forgotten the fact that in the petition of appeal pre-sented to this court the appellant had admitted that PharmaAssociates acted as agents of Pharma Chemie. The averment inparagraph 2(b) of the petition of appeal is as follows:
“Messers Pharma Associates submitted a tender on behalf ofPharma Chemie for the supply of 25 million Amoxycillin capsules,which tender was accepted by the State Pharmaceutical Corporationof Sri Lanka. ”
In these circumstance we hold that the appellant’s claim thatPharma Associates acted independently is baseless and calculatedlypresented to confuse the issue and therefore is deplorable.
Additional Solicitor General Mr.Marsoof P.C. who appeared for therespondent amongst other things also submitted that the appellant isestopped in law from taking up the position that there was no arbitra-tion agreement between the parties. The learned counsel pointed outthat the appellant failed to take up this position before the ArbitrationTribunal. In fact when this matter was taken up by the Arbitral Tribunalon the continuation of the proceedings on the basis that the applica-tion is time barred. Thereafter written submissions had been filed bythe appellant before the arbitrator on the 16th December 1996 wherespecific reference had been made to clause 29 of the tender condi-tions marked P1 and X1. It is relevant to note that in paragraph 10 ofthe written submission (in the arbitration proceedings) counsel for theappellant has taken up the position that the State PharmaceuticalCorporation has acted in contravention of clause 29 of the invitation totender wherein is stated that “shall within 30 days give the other partynotice in writing of such dispute or difference.”
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Mr. Marsoof also submitted that a party cannot be inconsistentin his approach in legal proceedings. The learned counsel pointedout that a party to a transaction cannot affirm and disaffirm thesame transaction simultaneously. Attention of court was drawn toArbitration Law, Third Edition by S.K.Roy Chowdhury, H.K.Sahorayat page 339 where it is stated that “The principle is that a party shallnot be allowed to blow hot and cold simultaneously. Long partici-pation and acquiescence in the proceedings precludes a party fromcontending that the proceedings were without jurisdiction. Where aparty to an arbitration agreement participates in the arbitration pro- 130ceedings with clear knowledge that the matter is legally incapableof being submitted to arbitration he cannot thereafter raise thequestion of lack of jurisdiction”. – Prasum Roy 1988 S.C.205.
A similar approach was adopted by Mukkarje and Oza JJ. in acase reported in A.I.R.1988 Supreme Court 205 (from 1987(1) CalLJ 207) where the court held that where a party is aware from thebeginning that by reason of some disability the matter is legallyincapable of being submitted to arbitration, participates in arbitra-tion proceedings and when he sees that the award has goneagainst him come forward to challenge the whole of the jurisdiction 140on the ground of known disability, the same cannot be allowed. Thisprinciple applies both before and after making the award. (1987 1Cal LJ 207 – Reversed AIR 1956 Cal 470 -approved (1876) 3 IndApp. 209 and AIR 1925 – 230)’’.
We are in full agreement with this submission of Mr.Marsoof P.C.and hold that the appellant is estopped from contesting the fact thatthere was no arbitration agreement between the parties.
The next question that arises for consideration is whether thearbitration award could be enforced against the appellant Mr.RaninKumar, the proprietor of Pharma Chemie/Pharma Chemie Ltd. 150
As stated earlier, it was the contention of the counsel for theappellant that the offer contained in the letter dated 5th August1993 marked P2 was made by Pharma Associates and that the let-ter of acceptance of 1st November 1993 marked P3 and X3 hasalso been addressed to Pharma Associates and the said transac-tion was never authorized by Pharma Chemie Ltd. However it isclear from page 92 of the brief that Pharma Chemie (Pvt)Ltd. was
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incorporated only on 29th September 1993 and that therefore thiscompany did not have any legal existence on the closing date of ten-der namely 6th August 1993 which appears on schedule 1 of theTender Documents marked P1 and X1. (vide page 51 of the brief). Itwas for this reason that the offer was made through the agentPharma Associates on behalf of Pharma Chemie which was a soleproprietorship owned by A.Ranin Kumar. The letters dated 30th May1993 (X15) and 7th July 1995 (X16) have been addressed to M/SPharma Chemie with no reference to “Ltd” or “Co.Ltd etc.” signifyingan incorporated company. However, it is clear from the letter dated17th November 1995 (X17) that there has been some confusion inthe minds of the authorities as to whether they were dealing withPharma Chemie or Pharma Chemie Ltd. It is however trite law that acompany is neither bound by or entitled to the benefit of any contractentered into prior to its incorporation (vide Kelinerv BaxteiW a deci-sion which was described by Macdonald CJ. In WaharakaInvestment Co.Ltd, v Commissioner of Stamp w as “a case whereauthority has never been doubted”.
Notice of Arbitration issued on behalf of the respondent by its let-ter dated 15th December 1995 marked X18 has been addressed toPharma Chemie Ltd. obviously as a result of this confusion. Howeverthe appellant himself has replied X18 by his letter dated 20thDecember 1995 marked X19 (page 89 of the brief) sent in his per-sonal capacity as A.Ranin Kumar, Managing Proprietor of PharmaChemie. In X21 it was his position that the notice under section 29 ofthe invitation to tender is out of time and that the same has not beencomplied with within 30 days of the arising of the dispute. Mr.RaninKumar also stresses in “X21” and has admitted that the dispute aroseon 30.05.1995 and that the notice of Arbitration as required by clause29 of the invitation to tender was sent on 15.12.1995. Therefore let-ter marked X24 fortifies the position in favour of the respondent. Eachparagraph in ‘X24’ must be considered carefully as the appellant hasknowingly admitted very relevant facts which are contrary to the mat-ters set out in the written submissions and submission made in opencourt. In these circumstances it is clear from all the documentsmarked and produced in the arbitration proceedings and in the HighCourt that the appellant was awarded the tender and that he is boundby the arbitration award.
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The Learned High Court Judge in his Judgement allowingenforcement has considered the appellant’s position i.e. award isagainst Pharma Chemie and not against A. Ranin Kumar hasobserved thus “ From the documents filed in these pro-
ceedings and from the evidence led at the arbitration reveals 200that from the day on which the dispute arose the respondentA.Ranin Kumar as the Managing Proprietor of the MessersPharma Chemie had correspondence with the petitioner i.e.endorsement in X18 requesting “please return the pack for fur-ther action” and by his letter ‘X19’ Ranin Kumar has stated “allthese problems came only after mv objection to the tenderawarded to a foreign supplier. Therefore it appears that youare trying to find some fault after consuming all the capsulesto eliminate me from the tender competition. Anyway, we bothare local manufacturers and therefore please try to maintain 210our good will. “This statement shows that Mr. Ranin Kumar isthe sole proprietor of Pharma Chemie …” The notice of awardwas given to Mr.Ranin Kumar the respondent. The respondent aftertaking all steps to resist the petitioner’s claims before arbitrationand at the beginning of the arbitration proceedings cannot now atthe time of enforcement disclaim the responsibility of fulfilling hisobligations. Therefore I overrule this objection.”
We fully endorse the above observations of the Learned HighCourt Judge and dismiss this appeal with cost fixed at Rs. 50,000/-.
SHIRANI BANDARANAYAKE, J.EDUSSURIYA, J.
I agreeI agree
Appeal dismissed.