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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 \026 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 \026 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 \023JAG PRAJA\024.

4. An agreement, called the \023Time Charter Party\024 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 \021IOC\022), 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,

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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 \023JAG PRAJA\024, 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. Respondent\022s

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,

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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

Committee\022s 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:

\023We, 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.\024

[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 \021JAG PRAJA\022 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

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relations with the appellant conveyed their acceptance of

the proposed rate in respect of each of the vessels\022 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. \023JAG PRAJA\024 and \023JAG

PRAYOG\024. 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 \023JAG PRAJA\024 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:

\023Issue No.1:- Whether the Hon\022ble

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?\024

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

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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 \021Current Charter

Hire Rate\022 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

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can be gathered from his conduct, like continued user of

the vessel in the present case, without any objection to

respondent\022s 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, offerree\022s silence, coupled with his

conduct, which takes the form of a positive act, may

constitute an acceptance \026 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 IOC\022s 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 appellant\022s 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

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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 respondent\022s 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 \026 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 appellant\022s silence on

respondent\022s 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

respondent\022s 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:

\0234. 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

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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.\024

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 respondent\022s 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

\021Charter Party\022. 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 vessel\022s 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

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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.