Calcutta High Court
South City Projects (Kolkata) Limited vs Jugal Kishore Sadani & Others on 15 September, 2010
Author: I.P. Mukerji
Bench: I.P. Mukerji
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A.P. NO. 230 OF 2010
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
Original Side
PRESENT:
Hon'ble Justice I.P. Mukerji
SOUTH CITY PROJECTS (KOLKATA) LIMITED
Versus
JUGAL KISHORE SADANI & OTHERS
For the petitioner : Mr. Abhrajit Mitra, Adv.
Mr. Sarvapriya Mukherjee, Adv.
For the respondents : Mr. Surojit Nath Mitra, Sr. Adv.
Mr. Jishnu Choudhuri, Adv.
Heard on: 17.08.2010, 27.08.2010, 30.08.2010, 02.09.2010
Judgment on: 15.09.2010
I.P. MUKERJI, J.
This is an application under section 11 of the Arbitration and Conciliation Act, 1996. It arises out of an agreement between the petitioner and the respondents dated 13th July 2007. It contains an arbitration clause being 13.1 which is as follows:
"13.1 All disputes and differences between the parties hereto regarding the interpretation scope or effect of any of the terms and conditions herein contained or in any way touching or concerning the said Unit or as regards the rights and liabilities of the parties hereto shall be referred to the arbitration of a sole arbitrator if both the parties mutually agree upon or two arbitrators, one to be appointed by the Lessee and the other to be appointed by 2 the Lessor and both the said arbitrators shall appoint the Third Arbitrator and/or Umpire and the same shall be deemed to be a reference within the meaning of the Arbitration and Conciliation Act 1996 or any other statutory modification or enactment thereto for the time being in force."
The petitioner owns premises No. 375 Prince Anwar Shah Road, Kolkata - 700068. At the time of execution of the said agreement, they were building the South City Mall there. This mall is spectacular. It is unique in the city of Kolkata. It is huge and gorgeous and has many shops and showrooms, cafés and a state of the art structure, layout and facilities, which includes multi level parking. By the above agreement the petitioner agreed to let out a space in it to the respondents to be used as a shop or showroom subject to observance of the conditions in the agreement. The terms and conditions of the agreement will be evident as I discuss the disputes which the petitioner is trying to refer to arbitration.
CASE FOR ARBITRATION So, what is the case of the petitioner that according to them is to go to arbitration?
1. The said agreement was to lease to the respondents one unit in the South City Mall being No. S-004, measuring 820 sq.ft. (Super built up) area on the ground floor. The lease would be for 99 years commencing from January 2007.
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2. Out of the total consideration of Rs.37.60 lacs fixed 80% was payable upon execution of the agreement, 10% on completion of the third floor casting and 10% on signing of the deed of lease.
3. The rent would be Rs.100/- per annum payable within 7th of April every year. The respondents would have to pay electricity charges, common area maintenance charges at rates determined by the petitioner.
4. Maintenance would be with the petitioner
5. The unit would have to be used as a showroom for selling or servicing various items like watches, jewelleries, crystal, showpieces and so on.
6. The respondents failed to make payment of 10% of the consideration to have the deed of lease executed.
7. Common area maintenance charges due on 31st March 2010 was Rs.
3,76,855.29 to be paid by the respondents.
8. The respondents failed to open the showroom, as provided in the agreement.
9. They are selling items there, sale of which is not permitted by the agreement. It was the obligation of the respondents to open the showroom simultaneously with the mall. The said mall was opened on 16th January 2008. However, the respondents' showroom opened much later in the second week of August 2009.
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10. Such alleged breach on the part of the respondents was pointed out by the letter of the Advocate-on-record for the petitioner dated 7th September 2009. Finally on 24th September 2009 the agreement was terminated by the petitioner stating that the respondents had no right over the showroom.
11. By his letter dated 25th November 2009, invoking the arbitration clause contained in that agreement, the petitioner appointed an arbitrator.
Now, much prior to that the respondents instituted a suit in the court of the learned 5th Civil Judge (Senior Division) Alipore being Title Suit NO. 10 of 2009 against the petitioner and two others, one being a firm and other an individual, described as defendant No. 2 and 3 in that suit. The plaint shows verification in January 2009.
CAUSE OF ACTION IN THE SUIT Now, I will discuss the cause of action in that suit.
1. The respondents paid Rs.3384000/- in terms of the said agreement. The petitioner did not complete the mall within the time stipulated by the agreement. The petitioners did not take any steps to furnish necessary drawings to enable the respondents to make the necessary fittings and fixtures, which are described as "fit out work".
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2. There was no electricity for a long period of time. As a result of the objection made by the petitioner the said fittings and fixtures work had to be redone. The petitioner practised fraud upon the respondents by obtaining a substantial consideration under the agreement but not delivering possession of the showroom area within time and interfered with the above work of installing fittings and fixtures, which caused loss to the business of the respondents.
3. The respondents asked the court for execution and registration of appropriate lease deeds.
DISCUSSION Let us assume a situation where there is an agreement between the parties with an arbitration clause. Disputes have arisen out of that agreement. One of the parties institutes a suit. The other party thinks that he cannot. As there is an arbitration clause, the arbitrator should resolve the dispute and not the court. Section 8 of the Arbitration and Conciliation Act, 1996 enacts that if with regard to the subject matter of the arbitration agreement a suit is filed, a party is entitled to apply before the court before the first statement is filed by him. On such application, if the above fact is found to be true, the court will refer the parties to arbitration. A non obstante clause adds that even if the above application is pending arbitration may be continued. Even the award may be passed.
6The right to file a suit is a common law right in our country. The Civil Procedure Code recognizes this in s.9 when it says that the courts will entertain any suit unless its institution is barred by law. The Civil Procedure Code and the Letters Patents of the High Courts or any other state law only regulates the procedure. There are certain statutes which forbid filing of suits and confer powers upon statutory authorities to exclusively adjudicate some matters. The Civil Procedure Code also says that issues which have been decided in a former suit are not to be redecided in a subsequent suit. These limitations I suppose are considered in s.9. In the above situation there are three possibilities. The first is that the subject matter of the suit and disputes arising out the arbitration agreement are the same. In view of my analysis above, once a suit has been filed, the court assumes jurisdiction over the matter. Then comes the question of exercise of option by one of the parties who wants arbitration. He has the right to obtain reference of the disputes to arbitration on the ground that the subject matter is covered by the arbitration clause. But there is a time limit within which he has to exercise the option. He has to exercise it at or before filing the first statement i.e. the written statement. If the written statement is filed and no such objection is taken, that right is deemed to have been waived.[see Rashtriya Ispat Nigam Ltd. & Anr. vs. M/s. Verma Transport Company, reported in AIR 2006 SC 2800] If such objection is made within such time the court has the duty to examine the issue and if it finds that the issues are the 7 same, it will refer the parties to arbitration. This simply means it will abstain from exercising its jurisdiction any further. Now suppose the court keeps the Section 8 application pending or think of a situation where a party repeatedly takes adjournment in that application, which the court grants .In these cases the arbitration may proceed but can only proceed subject to the court deciding the question of its jurisdiction.[see Kalpana Kothari (smt) vs. Sudha Yadav (Smt.) and others, reported in (2002) 1 SCC 203 and Vijay Kumar Sharma Alias Manju vs. Raghunandan Sharma Alias Baburam and others, reported in (2010)2 SCC 486 (para 11 and 12) and Modi Korea Telecommunication Ltd. vs. Appcon Consultants Pvt. Ltd. reported in 1999 (II) CHN 107 (para 31)]. The second possibility is that the subject matters are not the same and the court decides accordingly. Then the suit proceeds.
There is yet a third possibility. The subject matters of the arbitration agreement and the suit are common to some extent. Yet different. Different in the sense that the arbitration can proceed only if the suit fails. Such appears to be the case here.
A decision which is of much importance and gave rise to considerable indecision in my mind before deciding this case is Sukanya Holdings Pvt. Ltd. vs. Jayesh H. Pandya and anr., reported in AIR 2003 SC 2252.In that case the subject matter was a partnership agreement which had an arbitration clause. In 2000 a 8 suit was filed in the Bombay High Court for dissolution of the partnership firm, accounts and for cancellation of the conveyance deed in favour of a third party. Reliefs were claimed against 23 parties who were purchasers. Quite similar to this case where two third parties are impleaded as defendants in the Alipore suit.
A section 8 application was filed before the Bombay High Court by one of the parties to the partnership agreement. It was dismissed by the Court on the ground that the suit included third parties and that the subject matter of the suit should not be "bifurcated" so that part was tried by the court and the other part by the arbitrator. The court said as recorded by the Supreme Court that the object and purpose of the Act was to avoid multiplicity of proceedings and not to allow two forums to proceed simultaneously with the matter. The Supreme Court upheld the Judgment of the Bombay High Court and said this in paragraphs 16 to 20 of its judgment :
".................16. The next question which requires consideration is - even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act ? In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject matter of a suit was contemplated, the legislature would 9 have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed.
17. Secondly, such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums.
18. Reliance was placed on Section 89, CPC in support of the argument that the matter should have been referred to arbitration. In our view, Section 89, CPC cannot be resorted to for interpreting Section 8 of the Act as it stands on a different footing and it would be applicable even in cases where there is no arbitration agreement for referring the dispute for arbitration. Further, for that purpose, the Court has to apply its mind to the condition contemplated under Section 89, CPC and even if application under Section 8 of the Act is rejected, the Court is required to follow the procedure prescribed under the said Section.
19. Lastly, considering the language used in Section 8, in our view, it is not necessary to refer to the decisions rendered by various High Courts interpreting Section 34 of Indian Arbitration Act, 1940 which gave a discretion to the Court to stay the proceedings in a case where the dispute is required to be referred for arbitration.
20. For the reasons stated above, there is no substance in this appeal and is, therefore, dismissed. There shall be no order as to costs."
But let me examine the case at hand. Here it is common ground that the petitioner has filed its written statement in the Alipore suit. The written statement was filed before rescission of the contract. The case of rescission of the contract for alleged breach on the part of the Respondents is not before that court. It is also submitted by the petitioner that because of the above decision it 10 did not file a section 8 application in the Alipore suit. Now in my opinion ,if defendant Nos. 2 and 3 are to be taken as agents or nominees of the defendant no 1,then the issues in the Alipore suit are overlapping with the subject matter of the proposed arbitration reference but not wholly, inasmuch as the case for rescission of the contract is not there before the Alipore court. The scope of the proposed Arbitration is much wider than the scope of the suit. Moreover, the Alipore suit could be taken as between the same parties and privies as in the Arbitral reference. Further, in my opinion the scope of the arbitral reference includes the subject matter of the suit together with the question of rescission. Therefore, the petitioner ought to have taken appropriate steps and thereafter obtained stay of the Alipore suit.
Nevertheless, a substantial part of the cause of action in this proposed arbitral reference is not part of the suit. Now, if this application is dismissed, the petitioner will be deprived of its alleged rights arising out of alleged rescission of the contract. That would in my opinion cause injustice to them. For the above reasons, this case is different from Sukanya Holdings (supra) where the suit covered the entire disputes between the parties to the Arbitration Agreement.
The Supreme Court said the following in SBP & Co. vs. Patel Engineering Ltd. and another, reported in (2005) 8 SCC 618.
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"........................................
31. With great respect, it is seen that the Court did not really consider the nature of the rights of the parties involved when the Chief Justice exercised the power of constituting the Arbitral Tribunal. The Court also did not consider whether it was not necessary for the Chief Justice to satisfy himself of the existence of the facts which alone would entitle him or enable him to accede to the request for appointment of an arbitrator and what was the nature of that process by which he came to the conclusion that an Arbitral Tribunal was liable to be constituted. When, for example, a dispute which no more survives as a dispute, was referred to an Arbitral Tribunal or when an Arbitral Tribunal was constituted even in the absence of an arbitration agreement as understood by the Act, how could the rights of the objecting party be said to be not affected, was not considered in that perspective. In other words, the Constitution Bench proceeded on the basis that while exercising power under Section 11(6) of the Act there was nothing for the Chief Justice to decide. With respect, the very question that fell for decision was whether there had to be an adjudication on the preliminary matters involved and when the result had to depend on that adjudication, what was the nature of that adjudication. It is in that context that a reconsideration of the said decision is sought for in this case. The ground of ensuring minimum judicial intervention by itself is not a ground to hold that the power exercised by the Chief Justice is only an administrative function. As pointed out in the order of reference to that Bench, the conclusion that it is only an administrative act is the opening of the gates for an approach to the High Court under Article 226 of the Constitution, for an appeal under the Letters Patent or the High Court Act concerned to a Division Bench and a further appeal to this Court under Article 136 of the Constitution."
Now in this case, if as a result of the petitioner not filing a s.8 application the entire subject matter of the proposed arbitration reference could be tried by the 12 court, then, under the above principle there was no dispute to refer to arbitration, in a section 11 application.
But in this case there is a subsisting dispute, not covered by the subject matter of the suit as I have already held.
Further, the Supreme Court in Sukanya Holdings supra has specifically approved the observation of the Bombay High court that two forums are not to be allowed to proceed simultaneously with the same or substantially the same matter.
CONCLUSION I think that in this kind of a situation the court should apply the principles of section 10 of the Code of Civil Procedure. The Alipore suit is first in point of time. The arbitral proceedings were commenced later. Success of the petitioner in the Alipore suit would be conditional for its being successful in this arbitration. Only if the case for specific performance of the agreement to lease fails can the suit for rescission possibly succeed, in my opinion. Section 10 says that the trial of the suit is to be stayed. It does not say that the suit cannot be got ready for hearing. The arbitrator may be appointed, pleadings may be exchanged, discovery of documents may be made in the arbitration reference but further hearing should be deferred till outcome of the Alipore suit. If two suits had been filed, instead of one suit and one arbitral proceeding, the court could have directed their 13 analogous hearing. But since one is before the Civil Court and one is an arbitral proceeding, the arbitral proceeding has to be stayed till disposal of the suit. Therefore, in my opinion, the arbitration should only start upon conclusion of the Alipore suit. This High Court has power of superintendence over subordinate courts. Therefore, in exercise of that power I direct the court below to complete the adjudication of the suit within six months from date. Therefore, the disputes mentioned in paragraph 16 of the petition are referred to arbitration. Let this application be placed before the Hon'ble designate of the Hon'ble the Chief Justice for naming of an arbitration. Urgent certified photocopy of this judgment and order, if applied for, to be provided upon complying with all formalities.
(I.P. MUKERJI, J.)