Calcutta High Court
Examination Pvt. Ltd vs M/S. R.N.B.Digitronix (Pvt) Ltd on 9 June, 2010
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
AP No. 34 of 2008
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
M/S. ROY'S INSTITUTE OF COMPETITIVE
EXAMINATION PVT. LTD.
Versus
M/S. R.N.B.DIGITRONIX (PVT) LTD.
Appearance
Mr. Haradhan Banerjee, Advocate
Mr. Amitava Pyne, Advocate
Mr. P.P. Mukherjee, Advocate
...Petitioner
Mr. Asit Kr. Bhattacharya, Advocate
Mr. S. Roy Chowdhury, Advocate
Mr. S. Gangopadhyay, Advocate
...Respondent
BEFORE:
The Hon'ble JUSTICE SANJIB BANERJEE Date : 9th June, 2010.
The Court : This is a request under Section 11 of the Arbitration and Conciliation Act, 1996 for a reference of the disputes to arbitration.2
By an agreement of October 1, 2004 made between the respondent and a firm by the name of Indian Institute of Competitive Studies, the parties thereto agreed to conduct and run the business of the respondent herein for a period of three years. The agreement envisaged that the staff of the organisation would be on the roster of the management representative. "Organisation" in the agreement referred to the respondent herein and "management representative" therein referred to the Indian Institute of Competitive Studies. Clause 3 under the terms relating to financial arrangement recorded that all expenses other than salaries, electricity and telephone charges and rent would be in the nature of capital investment which would be paid back by the respondent to the management representative firm upon the expiry or termination of the agreement by the respondent herein. The agreement contained the following clause :-
"D. TERMINATION
1. This agreement can be terminated by any of the party of this convenant by giving three months prior notice in writing.
2. Any dispute arising out of this agreement will be referred to the Arbitrator first, by mutual consent.3
3. Disputes not settled by arbitration, will be referred to the Arbitrator first, by mutual consent.
4. Disputes not settled by arbitration, will be referred to the Court having jurisdiction in Kolkata."
It is the petitioner's case that the entirety of the business of the management representative firm which was a party to the agreement of October 1, 2004 was assigned in favour of the petitioner under a document which has been loosely described as a scheme or agreement of amalgamation. According to the petitioner, following the business of the said firm merging into the petitioner's, the petitioner caused a letter to be issued to the respondent on May 18, 2005 informing the respondent of such fact whereupon the arrangement continued with the petitioner having stepped into the shoes of the firm which was a party to the agreement of October 1, 2004. The petitioner says that by a subsequent letter of September 6, 2005 the petitioner's status was again confirmed. It is the petitioner's assertion that along with the letter of May 18, 2005, the petitioner had forwarded a cheque which was subsequently encashed by the respondent. The petitioner also relies on a certificate issued by its bankers establishing that cheques issued by the petitioner in favour of the 4 respondent had been encashed by the respondent and that cheques made over by the respondent in favour of the petitioner herein had also been encashed by the petitioner.
The petitioner says that it is inconceivable that the petitioner ran the organisation for a considerable period of time without the respondent being aware of the change in the name and status of the body that ran the organisation. The petitioner submits that there was nothing clandestine about the change in the status of the body that ran the organisation.
It is the petitioner's grievance that the agreement was sought to be terminated by the respondent prior to the expiry of the period of three years as envisaged in the agreement of October 1, 2004. The notice of termination was, however, not addressed to the petitioner but to the firm which was a party to the agreement of October 1, 2004. The petitioner responded to the notice of termination and detailed the petitioner's claims therein. The petitioner's response to the notice of termination was issued on March 30, 2007 which, inter alia, asserted that the business of the firm which was a party to the agreement of October 1, 2004, had been taken over by the petitioner with effect from April 1, 2005. The petitioner's letter also demanded that in accordance with the arbitration agreement 5 contained in the agreement of October 1, 2004, the disputes between the parties hereto be referred to an arbitrator.
The response of the respondent to the petitioner's letter of March 30, 2007 is of great significance and should be seen in its entirety:
"We hereby acknowledge the receipt of your letter under the reference which has been delivered upon us on the 3rd instant.
At the outset, your attention being drawn to the last paragraph of our letter dated February 14, 2007 and possibly your letter has been prepared overlooking the contents of the same.
Through the said last paragraph we had categorically requested you to give reply of our letter within seven days from the receipt of the same, if not, then it would be presumed that you have conceded the termination of Agreement which you have failed and/or neglected to do nor you have intimated us that you will require some time to give your reply as a result it has been emphatically established that the Agreement between yourselves and us has come to an end permanently on the 22nd February 2007 that is after the expiry of the said period of seven days from the date of receipt (15th February 2007) of our letter and 6 therefore your letter does not deserve any compliance.
However, you are free to assess in the manner provided in the Agreement your dues, if any, from us up to 22nd February 2007 and upon examination of the same further action on our part will be taken and the same will be communicated forthwith.
This letter is without prejudice to our rights and contentions against several complaints of derogatory and defamatory nature as levelled against us through your letter under reference."
Before going into the various aspects of the matter which have been referred to by the parties, it is evident from such reply of April 6, 2007 that the respondent accepted that the respondent had been doing business with the petitioner. The respondent also acknowledged that the petitioner was free to assess the petitioner's dues upto the period ended February 22, 2007. The respondent signed off the letter by asserting that it had been issued without prejudice to the respondent's rights and contentions relating to complaints of derogatory and defamatory nature.
The reply did not deal with or deny the petitioner's assertion in the letter of March 30, 2007 to the effect that the business of the firm 7 which was a party to the agreement of October 1, 2004 had been taken over by the petitioner with effect from April 1, 2005. The respondent's reply also overlooked the petitioner's invocation of the arbitration agreement and the demand for an arbitrator to be nominated. Even though the reply was careful to reserve the respondent's rights relating to some alleged defamatory or derogatory remarks that may been made by the petitioner, it did not assert that the petitioner was not a party to any arbitration agreement or that the petitioner was not entitled to invoke the arbitration agreement. The factum of the arbitration agreement was not denied.
It can be reasonably concluded from the respondent's contemporaneous stand against the petitioner's letter of March 30, 2007 that the parties herein had inter se transactions; that the petitioner was entitled to the rights of the firm under the agreement of October 1, 2004; that such agreement contained an arbitration clause; and, that the relationship between the petitioner and the respondent was governed by the agreement of October 1, 2004. The respondent's subsequent stand in Court has to be tested against its understanding of the relationship between the parties as appears from its said response.
In the affidavit filed to the petition of request, the respondent has primarily canvassed three grounds. The respondent says that the 8 petitioner is not a party to the arbitration agreement. The respondent suggests that the relevant clause in the agreement of October 1, 2004 cannot be viewed as an arbitration agreement at all. It is the further contention of the respondent that the document of assignment or amalgamation of business which the petitioner has relied upon cannot be looked into since adequate stamp duty has not been paid thereon, and, in accordance with Section 35 of the Indian Stamp Act, such document has to be completely disregarded.
The petitioner has relied on a judgment reported at 1946 (1) All ER 320 for the proposition that there is nothing in law which, in principle, bars an arbitration agreement to be assigned. In that case the Court found that the entirety of the agreement was capable of being assigned since it did not involve any personal service of the nature which was peculiar to the original parties thereto. The Court observed that as to whether the parties intended that the rights and obligations under an agreement to be assigned or as to whether the parties intended the agreement to be confined to the eo nomine parties was a question of intention which had to be discerned from the agreement itself.
The petitioner has relied on a judgment reported at AIR 1962 SC 1810 where the English case has been referred to with approval. The petitioner has also relied on the judgments reported at 2008 (1) SCC 481 9 and 2009 (2) SCC 155 on the aspect of intention of the parties and for the proposition that clauses which are relied upon as arbitration clauses should be read for the purpose of giving efficacy rather than invalidating the contents thereof. The petitioner contends that the assignment of an agreement together with the arbitration clause contained therein is per se not impermissible.
In dealing with the objection under Section 35 of the Stamp Act, the petitioner says that assignment of an arbitration agreement does not require any stamp duty to be paid thereon. The petitioner says that it is well-known that an arbitration agreement is severable from the main agreement and notwithstanding the main agreement being incapable of performance, the arbitration agreement will stand out and may well be enforced. It is the petitioner's submission that as to whether the document relating to assignment of the firm's business to the petitioner company would be admissible or not is a question that has to be left for the consideration of the arbitrator.
In such context the petitioner has, in particular, referred to paragraph 17 of a judgment reported at AIR 2009 SC 117. The petitioner says that it is only a part of the matters made in issue on a petition under Section 11 of the 1996 Act that must necessarily be decided by the Chief Justice or his designate. There are other aspects which the Chief Justice 10 or his designate may choose not to adjudicate upon and may leave the arbitrator free to do so. There is a third category of matters which the Chief Justice or his designate should not or cannot adjudicate upon and must leave the same entirely to the arbitrator if the arbitration agreement is upheld; or leave the parties to have the same adjudicated upon in more protracted regular proceedings.
The petitioner has relied on a few other judgments which do not appear to be relevant in the context.
The petitioner says that in any event, the defence that has been sought to be set up now is barred by estoppel since the respondent did business with the petitioner for a considerable period of time and notwithstanding the petitioner informing the respondent that the business of the firm had been taken over by the petitioner, the respondent did not object to the same. The petitioner reiterates that in response to the petitioner's letter of March 30, 2007 no objection of the kind that is sought to be taken in the present proceedings was sought to be raised by the respondent.
The respondent contends that the letters of May 18, 2005 and September 6, 2005 that the petitioner has now relied upon had not been disclosed in earlier proceedings brought by the petitioner to this Court under Section 9 of the 1996 Act. The respondent says that it would be 11 evident from the cause title to the present petition that it is an arbitration agreement of October 1, 2004 that is sought to be implemented and once it is evident from the face of the agreement that the person seeking to invoke the same was not a party thereto, the matter ought to end without much ado. The respondent refers to Section 7 of the 1996 Act and says that an arbitration agreement is personal to the parties and as to whether an arbitration agreement would survive the assignment of the original contract is also a matter which has to be assessed from the agreement between the parties.
The respondent refers to a judgment reported at AIR 1990 SC
70. In that case what fell for consideration before the Supreme Court was as to whether an arbitration agreement between the employer and the contractor would cover a dispute between the contractor and the contractor's employees. It was in such context that it was held that an arbitration agreement between the employer and the contractor could not be invoked for the resolution of a dispute between the contractor and the contractor's employer as the arbitration agreement would not govern the forum for resolution of the disputes between the contractor and the contractor's employees.
In the next case brought by the respondent, reported in AIR 1983 Patna 190, the matter pertained to a motor insurance contract. A 12 third party claimed injury and sought to take advantage of the arbitration agreement contained in the contract of insurance. The Court held that the third party was not a party to the contract of insurance and could not invoke the arbitration agreement contained therein. The Court found that the right of the third party was to proceed against the insured and upon the third party succeeding against the insured, the insured could thereafter call upon the insurer to indemnify the insured harmless in terms of the contract of insurance. Clearly, such proposition is of no relevance in the present context.
Finally, the respondent places a judgment reported at AIR 1970 Del 19. The proposition that the respondent relies on is that the fact that a person claiming under a party to a contract is empowered to move a judicial authority in respect of matters pertaining thereto would not give such person a right to invoke the arbitration agreement contained in the original contract. The facts in that case clearly make the proposition laid down therein inapplicable in the present case. In fact, at paragraph 9 of the report, the Division Bench of the Delhi High Court held that an arbitration clause may in certain cases be assignable. In that case, a person who held a power of attorney of the party which had invoked the arbitration agreement filed an application under Section 20 of the 1940 Act in the name of the party to the arbitration agreement, but a part of the 13 award in the arbitration proceedings conferred a benefit on the attorney directly. It was held that such part of the award was without jurisdiction since the attorney was not a party to the arbitration agreement. Apart from the fact that the circumstances in which the case came to be decided do not have any bearing on the matters which are in issue in the present case, the judgment is not an authority for the proposition that an arbitration agreement is incapable of assignment. On the contrary, as noticed above, the judgment supports the view that an arbitration agreement can, in certain cases, be assigned along with the rights and obligations of the contract governed by the arbitration agreement.
In the present case, the further objection on facts raised by the respondent is that the letters of May 18, 2005 and September 6, 2005 were not issued to the respondent at all and it would be evident from the face of the letters that the petitioner had issued the letters unto itself. The respondent says that the petition in the present case has been affirmed by one Debasis Khan and it would be evident from the copies of the letters dated May 18, 2005 and September 6, 2005 that both letters have been received by the same D. Khan. The respondent says that if the respondent was not aware of the petitioner having taken over the business of the firm which was a party to the agreement of October 1, 2004 there is no question 14 of the respondent being estopped by conduct from urging the grounds in defence that have been taken in its affidavit.
As would appear from the agreement of October 1, 2004, it was the firm (or the assignee thereof) which was to run the organization for the period envisaged under the agreement. As further noticed above, all employees of the respondent were to be on the roster of the firm which ran the organization. In effect, it was the firm or, subsequently, the petitioner which was running the business of the respondent for the respondent.
Assuming for the moment that there was no service of either letter on the respondent, it still does not detract from the case run by the petitioner. If the letters were not served at all, it is surprising as to how cheques in favour of the petitioner could have been issued by the respondent for the period subsequent to the dates of the two letters. It remains uncontroverted on affidavits that the respondent issued cheques of value of Rs.6,46,225/- and Rs.6,00,000/- in September, 2006 and in October, 2006 which the petitioner banked. It is not the respondent's case that the cheques were issued in the name of the firm which was a party to the agreement of October 1, 2004. If the respondent had issued cheques in the name of the petitioner and there is no explanation as to how this was done, notwithstanding the alleged non-receipt of the letters of May 18, 2005 and September 6, 2005, it would be evident that the working of the 15 agreement of October 1, 2004 had been taken over on behalf of the firm by the petitioner and that the respondent had apparently acquiesced therein.
As far as the objection under Section 35 of the Stamp Act is concerned, the same has to be left for adjudication in more protracted proceedings as it touches upon the merits of the disputes between the parties which should not be addressed in the present proceedings where the scope of inquiry is rather limited. Even if there be merit in the objection, the arbitration agreement can still be carved out and placed on a separate pedestal. There can be no argument that the arbitration agreement could have been assigned without any stamp duty.
The final aspect of the mater is as to whether clause (D) of the agreement is an arbitration agreement at all. The first limb of clause (D) is irrelevant for the purpose of arbitration; it pertains to the termination of the agreement. According to the respondent, the second and third limbs of the clause are repetitive and give a sense of arbitration. However, the respondent contends that the fourth limb of the clause is completely destructive of any intention to go to arbitration that the parties may have recorded in the agreement. It is the respondent's case that if disputes which were not resolved by arbitration could still be carried to Court, it robbed the arbitration agreement of any meaning or efficacy. 16
This final issue has to be exclusively considered in proceedings under Section 11 of the 1996 Act and cannot be left for the arbitrator to adjudicate upon. That there is an arbitration agreement would appear from second and third limbs of clause (D) of the agreement. The problem arises in the last limb which speaks of disputes not being resolved by arbitration being capable of being carried to Court.
There are two ways of looking at this last limb. One could be that the fourth part of the clause referred to a petition for setting aside the arbitral award and indicated that such setting aside petition could only be filed in the appropriate Court in Calcutta. The other way of looking at it would be that if the parties did not invoke the arbitration agreement which is contained earlier in the same clause or gave a go-by to the same, a civil suit in respect of matters pertaining to the agreement had only to be filed in the appropriate Court in Calcutta. If either interpretation is accepted, the intention of the parties to the agreement to go to arbitration would remain intact.
An agreement to go to arbitration is consensual. Two parties may enter into an agreement to go to arbitration and neither party may invoke the same and be none the worse off therefor. A party to an arbitration agreement may have to succumb to arbitration if the other party seeks to enforce the arbitration agreement. But it is always open to 17 both parties to an arbitration agreement to waive the relevant clause and to carry the disputes covered by the arbitration agreement to the Civil Court notwithstanding the arbitration clause.
The objections raised by the respondent, however attractive and wholesome as they appear at first glance, do not appear to be of much import. Subsequent to the taking over of the business of the firm by the petitioner, the petitioner and the respondent did business in terms of the agreement of October 1, 2004. Payments have been made and received by the petitioner and the respondent subsequent to 2005. Though the respondent addressed the letter of termination to the firm, the respondent did not object to the petitioner replying to the notice of termination wherein the petitioner asserted that the petitioner had taken over the business of the firm and wherein the petitioner also invoked the arbitration agreement.
Since it appears that the petitioner is entitled to the benefit of the arbitration clause contained in the arbitration agreement of October 1, 2004 and since the parties have failed to agree upon the constitution of the arbitral tribunal, the matter has now to be placed before the Hon'ble Designate of the Hon'ble The Chief Justice for constituting an arbitral tribunal to adjudicate upon the disputes between the parties covered by the arbitration agreement.
There will be no order as to costs.18
Urgent certified photocopies of this order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(SANJIB BANERJEE, J.) sg./as/bp.