M/S Panchami Enterprises vs. Mysore Sales International LTD (Msil)

Facts

M/s Panchami Enterprises (Petitioner) was issued a Work Order by Mysore Sales International Ltd (MSIL - Respondent) to supply and install detachable fit-outs for retail liquor outlets. The agreed price for a dispensing counter was Rs. 1,02,167.20 and for a storage rack was Rs. 38,094.40, inclusive of all applicable taxes. The Respondent, relying on an opinion from the Finance Department regarding a reduction in GST rate from 28% to 18%, unilaterally reduced the per-unit cost to Rs. 94,185 for a dispensing unit and Rs. 35,118 for a storage rack. The Petitioner contended that the contract prices were inclusive of all taxes and did not permit unilateral cost alteration due to tax variations. The Respondent refused to revert to the agreed cost. The Petitioner issued a legal notice on 16.12.2020 invoking the arbitration clause and nominating a Retired District Judge as Sole Arbitrator. The Respondent replied on 15.01.2021, asserting no dispute existed for arbitration.

Held

The Court held that a dispute, as contemplated for resolution by arbitration, exists between the Petitioner and the Respondent. The controversy includes the question of whether the Respondent was justified in insisting on a reduction in the agreed cost per unit following the reduction in the GST rate. The Court found that the Petitioner had invoked the arbitration clause by issuing a legal notice, but the Respondent failed to signify acceptance of the nominated arbitrator. Therefore, the Court allowed the petition. Smt. H.S. Kamala, retired District Judge, was appointed as the Sole Arbitrator to enter reference and conduct the arbitration proceedings at the Arbitration and Conciliation Centre, Bengaluru, according to its rules. All contentions of both parties were left open to be decided in the arbitration. The Court directed its office to communicate the order to the Arbitration and Conciliation Centre and the appointed Arbitrator.

Key Issues

1. Whether a dispute, as contemplated for resolution by arbitration under Clause 12 of the Agreement dated 31.08.2017, exists between the Petitioner and the Respondent, concerning the unilateral reduction of per-unit costs by the Respondent consequent to a reduction in the GST rate? (Question of law and mixed fact and law, turning on Clause 12 of the Agreement dated 31.08.2017). Petitioner's Contentions: The agreed cost per unit was inclusive of all taxes, and the agreement did not provide for altering the cost per unit in case of tax variations. Therefore, the Respondent's unilateral reduction of cost was impermissible and contrary to the contract terms, constituting a dispute for arbitration. The arbitration clause in the undisputed agreement is valid and cannot be disputed. Respondent's Contentions: The Respondent's decision to reduce the per-unit cost was based on the reduction in GST rate and a conclusive opinion from the Finance Department. Consequently, no dispute for arbitration exists.