Gujarat High Court
Abhinav Knowledge Services Private ... vs Babasaheb Ambedkar Open University on 7 July, 2017
Equivalent citations: AIR 2017 (NOC) 1012 (GUJ.)
Author: Akil Kureshi
Bench: Akil Kureshi
O/IAAP/89/2016 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN. UNDER ARBITRATION ACT NO. 89 of 2016
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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ABHINAV KNOWLEDGE SERVICES PRIVATE LIMITED....Petitioner(s)
Versus
BABASAHEB AMBEDKAR OPEN UNIVERSITY....Respondent(s)
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Appearance:
MR GAURAV S MATHUR, ADVOCATE for the Petitioner(s) No. 1
MS SN SHELAT, SENIOR COUNSEL WITH MR DISHA N NANAVATY,
ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
Date : 07/07/2017
ORAL JUDGMENT
1. The petitioner seeks appointment of an arbitrator to resolve Page 1 of 21 HC-NIC Page 1 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT the disputes between the petitioner and the respondent arising out of an agreement dated 24.10.2011. Relevant facts are as under :
2. The petitioner is a company registered under the Companies Act and is engaged in the business of offering knowledge services in the area of technology enabled learning. Respondent is an open university established under the law and is in engaged in imparting education in various fields with its headquarter at Ahmedabad. Respondent University was interested in offering educational courses in the field of Information and Technology. For such purpose, the University needed to collaborate with other agencies having knowhow in the field. The petitioner claims to have developed a software known as KRPXG. After deliberations, the petitioner, the respondent University, one L&T Infotech and others entered into a multiparte publicprivate partnership agreement on 24.10.2011. The main object was to offer various educational courses in the field of Information and Technology. The period of agreement envisaged was for five years, renewable with mutual consent. The agreement envisaged that large number of students would be enrolled for technology related courses in future years.
3. This agreement contained an arbitration clause in the following manner :
"10.5 Governing Law This PPP Agreement is governed by and construed in accordance with the law in force in India and subject to Ahmedabad jurisdiction.
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The Parties will consult together upon request of either Party regarding any matter relating to the terms of the Agreement, and will jointly resolve any issues which may arise in a spirit of cooperation and mutual trust. If the parties are unable to resolve the issues under this Agreement amicably, the matter shall be resolved in accordance with the Arbitration and Conciliation Act, 1996. The venue of Arbitration shall be Ahmedabad Jurisdiction."
4. According to the petitioner, University failed to develop the course contents and curriculum, though that was primarily the responsibility of the University and instead this task was performed by the petitioner. After initial troubles, certain courses were developed and offered to the students. According to the petitioner, some contents of these courses were adopted from various websites. Unknown to the petitioner, such material was protected by copyright. The petitioner had not obtained consent of the copyright holder before using such material. According to the petitioner, the dispute between the petitioner and the copyright holder was resolved over a period of time to the satisfaction of both the sides. However, respondent University was not entirely happy with this development and various disputes between the two sides followed. The University alleged that the petitioner had indulged in plagiarism which had resulted into monetary and other losses to the University. The Board of Management of the respondent University, therefore, decided to conduct a mid term review of the PPP project. The Board of Management, in its letter dated 13.6.2014 decided to discontinue the PPP agreement with immediate effect which was communicated Page 3 of 21 HC-NIC Page 3 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT to the petitioner under letter dated 18.6.2014. In this letter itself it was suggested that the issue of fee share of the petitioner be resolved through arbitrator. Relevant portion of this letter reads as under :
"The fourth meeting of the said committee was held on 13th June, 2014. Your representations by email on that date were also put before the committee. The minutes of the fourth meeting are enclosed herewith. According to the recommendations and the acceptance of the members of the Board of Management:
1. BAOU discontinues with immediate effect the PPP agreement between BAOU and AKS dated 24th October, 2011.
2. The Committee has recommended to take the decision regarding the payment or nonpayment of the fee share demanded by the AKS via arbitration according to the clause 10.5 of the PPP agreement dated 24th October, 2011.
You are hereby informed that on your acceptance of the discontinuation of the PPP agreement with immediate effect as per the recommendations of the Committee and as approved by the Board of Management of BAOU, the university proposes to solve the fee share issue by appointing an arbitrator.
Your quick response is anticipated for further actions to solve the matter at hand in a short time."
5. In response to this letter, the petitioner wrote to the University on 19.6.2014 giving consent for discontinuation of PPP agreement and for referring the matter for payment of fee to the arbitrator. It was stated as under :
"Dear Sir, Page 4 of 21 HC-NIC Page 4 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT This has reference to your letter no. BAOU/ REG/ 8027/ 1/2014 of 18th June 2014.
As per your letter, we hereby give our consent to Discontinuation of the PPP agreement dated 24th October 2011 between us Referring the matter of fee payment of Arbitration as per clause 10.5 of the agreement.
Kindly initiate necessary steps to resolve the matter at the earliest."
6. Pursuant to such understanding, the University referred the issue of fee share of the petitioner to the sole arbitrator Shri R.A. Patel, advocate, under letter dated 20.6.2014. Before the arbitrator, the University took the stand that the petitioner is not entitled to any further fees. The petitioner insisted on payment of proportionate fees for several batches, which figure, according to the petitioner, would come to Rs.1.38 crores (rounded off). The arbitrator rendered his award on 2.7.2014, in which he provided as under :
"Therefore, in view of the aforesaid discussion, it is held that withholding of 100% share of fees (35%) to be paid to AKS by BAOU is not justified and at the same time the payment of 100% share by BAOU to AKS would also not be justified in the facts and circumstances of the case and therefore let the BAOU to pay fees share (35%) to AKS by deducting Rs.200/ per student from the payment to be made immediately on being undertaking/Indemnity Bond is given by AKS. Let AKS to give an undertaking in the form of Indemnity Bond, in favour of BAOU accepting and undertaking any kind of financial or any other liability to arise if are claimed by any one in the world including any student or guardian having cause of action, right or authority against BAOU in the subject issue. Let the Page 5 of 21 HC-NIC Page 5 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT amount to be paid to AKS, be released only after giving of such undertakingIndemnity Bond, duly notarized by AKS. Award accordingly.
Signed today, on this 2nd day of July, 2014."
7. After this exercise was over, the petitioner raised certain claims against the respondent. According to the petitioner, the petitioner had raised loans from the banks and financial institutions for the purpose of PPP agreement and on account of abrupt discontinuation of the agreement, the petitioner was unable to repay such loans. The petitioner's account was therefore, declared as Non Performing Asset. The petitioner points out that the lending bank has also instituted steps for recoveries under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. 2002. A demand notice of Rs.3.84 crores have been issued under section 13(2) of the said Act. The petitioner also contends that the respondent University has used the petitioner's proprietary software for imparting education to nearly 20,000 students without making payment for the same, though it was agreed that the University would reimburse the petitioner at the rate of Rs.540 per student. The petitioner has therefore, raised claim of Rs.1,08 crores in this respect. The petitioner has raised several other claims which can be gathered from the following averments in the petition :
"20. The Petitioner states that in the meanwhile on account of the discontinuance of the PPP Agreement by the Respondent, the Petitioner was unable to manage and service the loans availed by it. The account of the Petitioner was accordingly declared a non performing asset with effect Page 6 of 21 HC-NIC Page 6 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT from 1.7.2015. The Thane Janta Sahakari Bank Ltd has taken steps under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, for short) and issued a Notice under Section 13(2) thereof demanding a sum of Rs. 3,84,59039/ from the Petitioner. This liability is entirely attributable to the acts of omission and commission of the Respondent. The Petitioner further states that the Respondent has also used the proprietary software of the Petitioner for about 20000 students without making any payment to the Petitioner though have in agreed to pay Rs. 540 per student. The Petitioner is therefore entitle to recover a sum of Rs. 1,08,00,000/ on this account. The Respondent has also failed to take steps to promote the project which has laid to a huge shortfall in enrolment of students. Accordingly to the Petitioner there has been under enrolment to the tune of 1,61,000 students. However, the Petitioner is restricted its claim to 63541 students which is the difference between the enrolment under the PPP Agreement and other similar programme floated by Central Government. Considering a loss of profit of Rs.700 per student the Petitioner is entitled to claim a sum of Rs. 4,44,78,700/ from the Respondent. On account of the failure the Respondent and illegal discontinuance of the PPP Agreement which laid to action under the SARFAICI Act, the total outstanding as at 30.06.2016 payable to the Thane Janta Sahakari Bank Ltd is Rs.4,24,67,774/. The Petitioner is therefore entitled to claim of total sum of Rs.9,77,46,474/ with interest from the Respondent."
8. On 9.3.2016, the petitioner issued a notice to the respondent to refer these issues for arbitration. Since such notice could not be served due to change in address of the respondent, the petitioner issued fresh notice on 1.8.2016 for such purpose and suggested the name of an arbitrator.
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Since the respondent did not respond to the said notice, the petitioner filed this petition for appointment of an arbitrator.
9. Learned counsel Shri Gaurav Mathur for the petitioner submitted that the agreement between the petitioner and the respondent contains an arbitration clause. Arbitrable disputes have arisen, same be therefore referred for arbitration. He contended that in the previous arbitration, sole issue was with respect to the fee share of the petitioner. The assertion of the respondent University and the claim of the petitioner before the arbitrator were confined to this issue. The issues now raised by the petitioner were not the subject matter of the arbitration proceedings. It is therefore, open for the petitioner to seek fresh arbitration. In any case, according to the counsel for the petitioner, principle of res judicata or issue estoppal would not apply to the arbitration proceedings. Alternatively, he contended that several issues cropped up between the parties after the first round of arbitration was completed and the claims presently raised could not have been raised before the arbitrator. In any case, reference made by the University to the arbitrator was confined to the petitioner's fee share. Considering all these aspects, the question of applicability of principle of res judicata becomes one of question of fact which can be decided only by the arbitrator and not by this Court. Counsel also referred to the newly inserted subsection 6A to section 11 by the Arbitration and Conciliation (Amendment) Act, 2015 to contend that at this stage when the Court is deciding the question of referring the disputes for arbitration, the Page 8 of 21 HC-NIC Page 8 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT scrutiny of the Court is extremely narrow. Counsel relied on the following decisions in support of his contentions :
1) In case of Indian Oil Corporation Limited v. SPS Engineering Limited reported in (2011) 3 Supreme Court Cases 507, in which it was observed that scope of section 11 of Arbitration and Conciliation Act does not permit examination of maintainability or tenability of a claim either on facts or on law. As decision on res judicata requires consideration of pleadings as also claims/ issues/points and award in first round of arbitration, in juxtaposition with pleadings and issues/points/claims in second arbitration, it should be left for the decision of the arbitrator.
2) In case of State of Goa v. Praveen Enterprises reported in (2012) 12 Supreme Court Cases 581, in which it was observed that if the disputes between the parties are referred to an arbitrator, the arbitrator has the jurisdiction to decide all of them. But where reference is made to decide specific disputes enumerated by the parties, the arbitrator's jurisdiction is circumscribed by the specific reference and the arbitrator can decide only those specific disputes. This was in context of the defence of the respondent that in the earlier round of arbitration proceedings, the petitioner should and could have raised all his claims.
3) In case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and others reported in (2011) 5 Supreme Court Cases 532, where the Court made a distinction Page 9 of 21 HC-NIC Page 9 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT between the jurisdiction of the Civil Court acting under section 8 of the Act and the High Court acting under section 11 for appointment of an arbitrator. It was observed that while considering the application under section 11 of the Act, Chief Justice or his designate would not embark upon the issue of arbitrability. Once he finds that there was an arbitration agreement between the parties, he would leave the issue of arbitrability before the Arbitral Tribunal.
4) Case of Mohammad Khalil Khan and others v. Mahbub Ali Mian and others reported in AIR (36) 1949 Privy Council 78, was referred on the question of res judicata to contend that the principle of res judicata would apply only in cases where causes of action in two suits are same. In such a case, new suit would be barred.
5) In case of Vaish Aggarwal Panchayat v. Inder Kumar and others reported in AIR 2015 Supreme Court 3357, in which it was observed that issue of res judicata involves mixed question of law and fact and would require examination of plaint and other evidence and, therefore, the plaint cannot be rejected under Order 7 Rule 11 of the Code of Civil Procedure on such grounds.
10. On the other hand, learned advocate Shri Shelat for the respondent University opposed the arbitration petition contending that the petitioner agreed to termination of the contract and to resort to arbitration limiting the issue to petitioner's fee share. In view of termination of the agreement, no further right to seek arbitration would Page 10 of 21 HC-NIC Page 10 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT survive. In any case, before the arbitrator, the petitioner could and ought to have raised other claims if there were any. Having submitted to the arbitrator on the limited issue and having invited the arbitrator's award, the petitioner now after a long gap of time, cannot open the new issues seeking fresh arbitration. Counsel submitted that any such attempt should be viewed as continuation of the original arbitration proceedings and in view of section 26 of the Arbitration and Conciliation (Amendment) Act, 2015, to such proceedings, the amended section 11 and the newly introduced section (6A) would not apply. Counsel submitted that to the arbitration proceedings also, principle of res judicata would squarely apply. In this context, reliance was placed on the decision of Supreme Court in case of K.V. George v. Secretary to Government, Water and Power Department, Trivandrum and another reported in (1989) 4 Supreme Court Cases
595.
11. As noticed, the agreement between the petitioner and the respondent University ran into multiple disputes. Such agreement was terminated and limited issue of petitioner's fee share was jointly referred for arbitration. Before the arbitrator, the University and the petitioner put their versions on the issue of the petitioner's fee share. The arbitrator adjudicated such issues and rendered his award. The petitioner now seeks fresh arbitral proceedings to resolve various other claims of the petitioner. These claims, as noted, included the petitioner's claim for compensation on account of abrupt termination of the contract, of unpaid fee for use of the petitioner's software and other such Page 11 of 21 HC-NIC Page 11 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT similar claims. The respondent opposes this fresh arbitration petition on two grounds. One, that the agreement having come to an end by mutual consent, the arbitration clause also would not survive and two, that fresh arbitration would be barred by res judicata.
12. In case of National Insurance Company Limited v. Boghara Polyfab Private Limited reported in (2009) 1 Supreme Court Cases 267, it was observed as under :
"13. In Union of India v. Kishorilal Gupta & Bros. [1960 (1) SCR 493], this Court considered the question whether the arbitration clause in the contract will cease to have effect, when the contract stood discharged as a result of settlement. While answering the question in the affirmative, a three Judge Bench of this Court culled out the following general principles as to when arbitration agreements operate and when they do not operate:
(i) An arbitration clause is a collateral term of a contract distinguished from its substantive terms; but none the less it is an integral part of it.
(ii) Howsoever comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation; and the arbitration clause perishes with the contract.
(iii) A contract may be non est in the sense that it never came legally into existence or it was void ab initio. In that event, as the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void.
(iv) Though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it, solely governing their rights and liabilities. In such an event, as the original contract is extinguished by the substituted one, the Page 12 of 21 HC-NIC Page 12 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT arbitration clause of the original contract perishes with it.
(v) Between the two extremes referred to in paras (c) and
(d), are the cases where the contract may come to an end, on account of repudiation, frustration, breach etc. In these cases, it is the performance of the contract that has come to an end, but the contract is still in existence for certain limited purposes, in respect of disputes arising under it or in connection with it. When the contracts subsist for certain purposes, the arbitration clauses in those contracts operate in respect of those purposes.
The principle stated in para (i) is now given statutory recognition in section 16(1)(a) of the Act. The principle in para (iii) has to be now read subject to section 16(1)(b) of the Act. The principles in paras (iv) and (v) are clear and continue to be applicable. The principle stated in para (ii) requires further elucidation with reference to contracts discharged by performance or accord and satisfaction."
13. In case of Ashapura MineChem Limited v. Gujarat Mineral Development Corporation reported in (2015) 8 Supreme Court Cases 193, it was held that even though Memorandum of Understanding was not fructifying into fullfledged agreement, the arbitration clause contained in such MOU being an independent agreement, parties are entitled to invoke the said clause for referring the disputes arising out of such MOU for resolution. It was observed as under :
"20. In this context, we find, the reliance placed upon by Mr. Dushyant Dave, learned senior counsel for the appellant on the decisions in Reva Electrical Car Company Private Ltd. (supra), Today Homes and Infrastructure Pvt. Ltd. (supra) and Enercon (India) Limited (supra) fully support the stand of the appellant. The decision in Reva Electrical Car Company Private Ltd. (supra) was a case Page 13 of 21 HC-NIC Page 13 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT which arose under Section 11 of the Act. A question was raised on behalf of the respondent in the said case to the effect that with the termination of the MoU itself, the Arbitration Clause would cease to exist. Dealing with the said question, the learned Judge has held as under in paragraphs 54 and 55:
"54. Under Section 16(1), the legislature makes it clear that while considering any objection with respect to the existence or validity of the arbitration agreement, the arbitration clause which formed part of the contract, has to be treated as an agreement independent of the other terms of the contract. To ensure that there is no misunderstanding, Section 16(1)(b) further provides that even if the Arbitral Tribunal concludes that the contract is null and void, it should not result, as a matter of law, in an automatic invalidation of the arbitration clause. Section 16(1)(a) presumes the existence of a valid arbitration clause and mandates the same to be treated as an agreement independent of the other terms of the contract. By virtue of Section 16(1)(b), it continues to be enforceable notwithstanding a declaration of the contract being null and void. In view of the provisions contained in Section 16(1) of the Arbitration and Conciliation Act, 1996, it would not be possible to accept the submission of Ms Ahmadi that with the termination of the MoU on 31122007, the arbitration clause would also cease to exist.
55. As noticed earlier, the disputes that have arisen between the parties clearly relate to the subjectmatter of the relationship between the parties which came into existence through the MoU. Clearly, therefore, the disputes raised by the petitioner need to be referred to arbitration. Under the arbitration clause, a reference was to be made that the disputes were to be referred to a single arbitrator. Since the parties have failed to appoint an arbitrator under the agreed procedure, it is necessary for this Court to appoint the arbitrator."Page 14 of 21
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14. Insofar as termination of the agreement is concerned, there is nothing to suggest that by bringing an end to the agreement, the parties desired that even the arbitration clause would stand extinguished. It is not unknown to law that even after termination of the agreement between the parties, the arbitration clause providing for a mechanism for dispute resolution, would survive. In fact, while terminating the agreement both the sides consciously submitted certain claims for arbitration. The first objection of the respondent therefore, cannot be accepted.
15. Regarding the issue of res judicata, one may refer to the decision of the Supreme Court in case of K.V. George (supra), in which the Supreme Court observed that the principle of res judicata would apply to arbitral proceedings also and held as under :
"16. With regard to the submission as to the applicability of the principles of resjudicata as provided in Section 11 of the Code of Civil Procedure to arbitration case, it is to be noted that Section 41 of the Arbitration Act provides that the provisions of the Code of Civil Procedure will apply to the Arbitration proceedings. The provisions of resjudicata are based on the principles that there shall be no multiplicity of proceedings and there shall be finality of proceedings. This is applicable to the arbitration proceedings as well. It is convenient to refer to the decision in Daryao and Ors. v. The State of U.P. & Ors. , [1962] 1 SCR 574 at 58283 wherein it has been held that the principles of res judicata will apply even to proceedings under Article 32 and 226 of the Constitution of India. It has been observed that:
"Now, the rule of resjudicata as indicated in s. 11 of the Code of Civil Procedure has no doubt some technical Page 15 of 21 HC-NIC Page 15 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT aspects, for instance the rule of constructive resjudicata may be said to be technical; but the basis on which the said rule rests is rounded on considerations of public policy. It is in the interest of the public at large that a finality should attach to the binding decisions pronounced by Courts of competent jurisdiction, and it is also in the public interest that individuals should not be vexed twice over with the same kind of litigation. If these two principles form the foundation of the general rule of resjudicata they cannot be treated as irrelevant or inadmissible even in dealing with fundamental rights in petitions filed under Art. 32."
17. In Satish Kumar and Ors. v. Surinder Kumar and Ors., AIR 1970 (SC) 833 it has been observed that:
"The true legal position in regard to the effect of an award is not in dispute. It is well settled that as a general rule, all claims which are the subjectmatter of a reference to arbitration merge in the award which is pronounced in the proceedings before the arbitrator and that after an award has been pronounced, the rights and liabilities of the parties in respect of the said claims can be determined only on the basis of the said award. After an award is pronounced, no action can be started on the original claim which had been the subjectmatter of the reference ........... This conclusion, according to the learned Judge, is based upon the elementary principle that, as between the parties and their privies, an award is entitled to that respect which is due to judgment of a court of last resort. There fore, if the award which has been pronounced between the parties has in fact, or can, in law, be deemed to have dealt with the present dispute, the second reference would be incom petent. This position also has not been and cannot be seriously disputed."
16. However, the question is at which stage and by which forum issue of res judicata should be examined? In this Page 16 of 21 HC-NIC Page 16 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT context, we may refer to the decision of Supreme Court in case of Indian Oil Corporation Limited (supra), in which it was observed as under :
"14. To find out whether a claim is barred by res judicata, or whether a claim is "mala fide", it will be necessary to examine the facts and relevant documents. What is to be decided in an application under section 11 of the Act is whether there is an arbitration agreement between parties. The Chief Justice or his designate is not expected to go into the merits of the claim or examine the tenability of the claim, in an application under section 11 of the Act. The Chief Justice or his Designate may however choose to decide whether the claim is a dead (longbarred) claim or whether the parties have, by recording satisfaction, exhausted all rights, obligations and remedies under the contract, so that neither the contract nor the arbitration agreement survived. When it is said that the Chief Justice or his Designate may choose to decide whether the claim is a dead claim, it is implied that he will do so only when the claim is evidently and patently a long time barred claim and there is no need for any detailed consideration of evidence. We may elucidate by an illustration : If the contractor makes a claim a decade or so after completion of the work without referring to any acknowledgement of a liability or other factors that kept the claim alive in law, and the claim is patently long time barred, the Chief Justice or his Designate will examine whether the claim is a dead claim (that is, a long time barred claim). On the other hand, if the contractor makes a claim for payment, beyond three years of completing of the work but say within five years of completion of work, and alleges that the final bill was drawn up and payments were made within three years before the claim, the court will not enter into a disputed question whether the claim was barred by limitation or not. The court will leave the matter to the decision of the Tribunal. If the distinction between Page 17 of 21 HC-NIC Page 17 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT apparent and obvious dead claims, and claims involving disputed issues of limitation is not kept in view, the Chief Justice or his designate will end up deciding the question of limitation in all applications under section 11 of the Act.
xxx
16. The question whether a claim is barred by res judicata, does not arise for consideration in a proceedings under section 11 of the Act. Such an issue will have to be examined by the arbitral tribunal. A decision on res judicata requires consideration of the pleadings as also the claims/issues/points and the award in the first round of arbitration, in juxtaposition with the pleadings and the issues/points/claims in the second arbitration. The limited scope of section 11 of the Act does not permit such examination of the maintainability or tenability of a claim either on facts or in law. It is for the arbitral tribunal to examine and decide whether the claim was barred by res judicata. There can be no threshold consideration and rejection of a claim on the ground of res judicata, while considering an application under section 11 of the Act."
17. This decision was rendered in the background of judgment of Constitution Bench in case of SBP & Co v. Patel Engg. Ltd reported in (2005) 8 Supreme Court Cases 618 in which the Supreme Court laid down that the Chief Justice or his designate while deciding a petition for appointment of an arbitrator, must ascertain the jurisdictional facts. It was also provided that it would be optional at that stage to examine certain additional facts such as the claim being stale or long time barred. One may however, notice that major changes were brought about in the Arbitration and Conciliation Act, 1996 by the Arbitration and Conciliation (Amendment) Act, 2015 with effect from 23.10.2015. One of them was insertion of Page 18 of 21 HC-NIC Page 18 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT section (6A) to section 11 of the Act which reads as under :
"(6A) The Supreme Court or, as the case may be, the High Court while considering any application under sub section(4) or subsection (5) or subsection (6), shall notwithstanding any judgment, decree or order of any Court confine to the examination of the existence of an arbitration agreement."
18. It is true that section 26 of the Amending Act provides that such amendment shall not apply to the proceedings commenced before the commencement of the Amending Act. In terms of section 21 of the Act, the proceedings shall commence on the date on which a request for reference of dispute for arbitration is received by the respondent. In the present case, notice for appointment of arbitrator was issued on 1.8.2016 and would be received by the noticee i.e. the respondent herein shortly after that, and, therefore, the amended provisions would apply. I am unable to accept the contention of Shri Shelat that present attempt to resort to arbitration must be seen as a continuation of earlier proceedings and that unamended provision of the Act would hold the field. Earlier arbitration proceedings commenced and culminated with the arbitrator submitting his award. There could thereafter be no further continuation of the said arbitration proceedings, merely because the parties to the fresh arbitration and agreement out of which the arbitration is proposed is the same. In terms of section (6A) of section 11, therefore, the scrutiny of the High Court or the Supreme Court while considering the appointment of arbitration in terms of subsections(4), (5) and (6) of section Page 19 of 21 HC-NIC Page 19 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT 11 is limited and is confined to examination of existence of an arbitration agreement. What exactly is the scope of this provision and jurisdiction of the High Court while considering application under subsections (4), (5) and (6) of section 11 in view of this statutory change is not necessary for me to thresh out in the present proceedings, except for noticing that the legislature now envisages a much narrower examination confined to the existence of arbitration agreement.
19. What can be culled out safely from the above statutory and legal position is that though the principle of res judiata would apply also to the arbitral proceedings, essentially, it would remain a question of fact ordinarily requiring examination of materials and evidence on record. This would mean two things, enabling the parties to lead evidence and decision on merits whether a particular claim or the entire proceedings before the arbitrator are hit by res judcata, a task which certainly not envisaged at the stage when High Court in terms of section 11 of the Act decides the application for appointment of an arbitrator. This is not to suggest that even if the issue is virtually a forgone conclusion and if it is almost an admitted position that the claim is barred by res judicata, the Court would still not consider whether it would be appropriate to appoint the arbitrator.
20. In the present case, the petitioner raised multiple disputes. In view of the earlier agreement between the parties to refer the question of fee share of the petitioner to the arbitrator, a fundamental question would arise whether Page 20 of 21 HC-NIC Page 20 of 21 Created On Sun Jul 23 18:13:23 IST 2017 O/IAAP/89/2016 JUDGMENT the petitioner could and therefore, ought to have raised all these claims before the same arbitrator? The case of the petitioner is that certain materials and information were not available with the petitioner to give full idea of the extent to which the petitioner's software was utilised by the University without reimbursing the petitioner at the agreed rates. This is not to suggest that I am accepting prima facie any of the assertions of the petitioner in this respect. This is only to record that these assertions would require leading of evidence and decision on merits before they can be accepted or rejected. This is therefore, only to suggest that arbitral disputes have arisen between the parties which needs to be referred for arbitration. The question whether such disputes can be held to be barred by principle of res judicata or constructive resjudicata, must be kept open for the arbitrator to decide.
21. Under the circumstances, the parties shall present declaration of Ms. R.M. Doshit, former Chief Justice of Patna High Court, as per section 12 of the Arbitration and Conciliation (Amendment) Act, 2015, to act as a sole arbitrator on the next date of hearing.
22. SO to 21.7.2017.
(AKIL KURESHI, J.) raghu Page 21 of 21 HC-NIC Page 21 of 21 Created On Sun Jul 23 18:13:23 IST 2017