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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.