Delhi High Court
Bpl Limited vs Morgan Securities And Credits Pvt. Ltd. ... on 11 March, 2008
Equivalent citations: 149(2008)DLT610
Author: Shiv Narayan Dhingra
Bench: Shiv Narayan Dhingra
ORDER Shiv Narayan Dhingra, J.
1. This suit has been filed by the Plaintiff seeking a declaration that the Agreements dated 27.12.2002 and 11.6.2003 entered into between the Plaintiff and Defendants No. 1and2 was nonest, void abinitio and not binding on the Plaintiff. A declaration is also sought restraining Defendant No. 3, the Arbitrator appointed by Defendant No. 1 under the Agreement, for proceeding further with the arbitration proceedings.
2. The undisputed facts are that the Plaintiff applied for Bill Discounting Facility to Defendant No. 1 to the tune of Rs. 6 crore and Rs. 6.5 crore respectively. Defendant No. 1 granted Bill Discounting Facility vide the two Agreements dated 27.12.2002 and 11.06.2003. The Arbitration Clauses to the following effect were there in both the Agreements:
In Agreement dated 27.12.2002 Any dispute or difference whatsoever between the parties arising out of or in connection with the present facility and for any other transaction/s between the parties shall be settled by Arbitration of a sole arbitrator appointed by Chairman of Morgan Securities and Credits Private Limited, who would also have right to appoint alternate Arbitrator in place of the aforesaid Arbitrator, in case of his, death or being incapable or refusal to act or in the event of termination of his mandate for any reason. The arbitration proceedings shall be held at New Delhi. The power of the Chairman to appoint a Sole Arbitrator shall not be challenged by any party. Further, the parties agree that the arbitrator so appointed may be an employee and/or professional retainer and/or a person who has a relation or interest in the company. The parties agree not to ask for any adjournment except under extra-ordinary reasons.
In Agreement dated 11.06.2003 Any dispute or difference whatsoever arising between the parties out of or in relation to the construction, meaning, scope, operation or effect of any transaction/s or the validity or the breach thereof arising out or in connection with the present agreement and for any other transaction/s between the parties shall be settled by Arbitration of a Sole Arbitrator appointed by Chairman of the Morgan Securities and Credits Pvt. Ltd. who would also have right to appeal alternate Arbitrator in place of the aforesaid Arbitrator, in case of his, death or being incapable of refusal to act or in the event of termination of his mandate for any reason. The arbitration proceedings shall be held at New Delhi. The power of the Chairman to appoint a Sole Arbitrator shall not be challenged by either party. Further, the parties agree that the Arbitrator so appointed may be an employee and/or professional retainer and/or a person who has a relation or interest in the Company. Both parties agree not to ask for any adjournment except under extra ordinary reasons. The award given by the arbitrator shall be final and biding upon the party.
3. A dispute arose between the parties and the matter was referred by Defendant No. 1 to the Arbitrator. Defendant No. 1 appointed a retired judge of this Court as Arbitrator, who is Defendant No. 3 in this case. The Arbitrator issued notice vide letter dated 3rd July, 2007 to the parties. Plaintiff wrote letter dated 6th July, 2007 to the Arbitrator seeking an adjournment to appoint a counsel and to appear before the Arbitrator, on 12th July, 2007, the date fixed before the Arbitrator. The Company Secretary of the Plaintiff appeared before the Arbitrator and the Arbitrator passed an interim order and also gave time to the parties to file statement of claim and reply and fixed the next date of hearing as 21st August, 2007. The Arbitrator was informed by the Company Secretary that the matter of Defendant No. 2 herein i.e. BPL Display Devices Ltd. was already before the BIFR. On 21st August, 2007 again the Company Secretary of the Plaintiff and Defendant No. 2 appeared before the Arbitrator, a copy of statement of claim was given to him and time was given for filing reply. Plaintiff also preferred an appeal under Section 37 of the Arbitration and Conciliation Act 1996 against the order of Arbitrator dated 12th July, 2007 before this Court (However, this fact has not been disclosed by the Plaintiff in the plaint). The Plaintiff filed the present suit alleging that the Arbitration Agreement (clause) reproduced above was null and void because the Arbitration Agreement gives authority or power to the Chairman to appoint a Sole Arbitrator, who may be an employee or professional retainer and/or a person who has a relation or interest in the company. It is submitted that such a covenant in the Arbitration Agreement was not tenable in law and was illegal, void abinitio being against the Public Policy and was hit by Section 23 of Indian Contract Act. The scheme of the Arbitration and Conciliation Act also does not permit appointment of an Arbitrator by one of the parties, who has interest in the matter and who was not neutral and was unbiased. It is further submitted by Plaintiff that passing of an interim order by Defendant No. 3, the learned Arbitrator in the matter without even an application by the claimant on an oral submission shows that Defendant No. 3 had an interest in the matter and the learned Arbitrator was not a neutral person. Plaintiff has therefore sought a declaration that the arbitration clause as contained in the two agreements was null and void and the Arbitrator appointed there under had no authority to act.
4. In application under Order 7 Rule 11 CPC (IA No. 11850/07) Defendant No. 1 has submitted that the Plaintiff had fully unconditionally and unequivocally submitted to the jurisdiction of the Learned Arbitrator and sought adjournments from the Arbitrator to appoint Counsel to appear before the Learned Arbitrator. The three hearings were there before the Arbitrator and no such objection was raised by the Plaintiff. Rather Plaintiff challenged the interim order passed by the Arbitrator by filing an appeal before this Court under Section 37(2) of the Arbitration and Conciliation Act thereby further reflecting the intentions of the Plaintiff of having submitted to the arbitration proceedings.
5. It is also contended that the suit was liable to be dismissed because of deliberate suppression of the material fact from the Court as it was not disclosed by the Plaintiff in the suit that Plaintiff had filed an appeal against the interim order. The other ground taken is that the suit for declaration challenging the validity of the agreement dated 27.12.2002 and 11.6.2003 was not maintainable being barred by limitation since they were filed beyond the period of three years.
6. Another application has been made by the Defendant No. 1 (IA No. 11856/07) under Section 8 of the Arbitration and Conciliation Act, 1996 wherein it was stated that since admittedly there was arbitration clause in the Agreements/Sanction Letters dated 27.12.2002 and 11.6.2003 and all disputes in respect of the subject matter were to be referred to the arbitration. The grievance, if any of the parties is to be governed by Arbitration Agreement and, therefore, in view of Section 8 of the Arbitration and Conciliation Act, this Court has to refer the parties to the arbitration. The Defendant No. 1 had followed the procedure as laid down under the Arbitration and Conciliation Act, 1996 for appointing an independent Arbitrator. There was no infirmity in the procedure adopted, the person who was appointed was a retired judge of this Court and the present suit was not maintainable in view of Section 8 of the Arbitration and Conciliation Act.
7. Another application (IA No. 1178/08) under Order 7 Rule 11 CPC has been made by the Defendant No. 1 stating that the liability under the Bill Discounting Contract against the Plaintiff was more than Rs. 25 crore as the Plaintiff has become liable to pay a sum of Rs. 25,79,91,096/-, while the Plaintiff has valued the suit at Rs. 21 lac. The suit was liable to be dismissed for want of proper valuation and Court fees.
8. In reply to the application under Order 7 Rule 11 CPC, it is stated by the Plaintiff that the Plaintiff had not submitted to the jurisdiction of the Arbitrator. The present suit filed by the Plaintiff challenging the arbitration clause itself shows that Plaintiff had not submitted to the jurisdiction of the Arbitrator. Filing of appeal against the interim order of the learned Arbitrator also reflects that Plaintiff had not submitted to the jurisdiction of the Arbitrator. In the memo of appeal the Appellant/Plaintiff had raised concern with regard to independence and impartiality of the Arbitrator. The Plaintiff could not wait for the decision in the suit and therefore was bound to challenge the interim order. Regarding the suit being barred by limitation, it is stated that the agreement was void abinitio and was void all along and therefore be challenged at any point of time. In any case, according to the Plaintiff, the limitation period has to be counted from 28.06.2007, when the said agreement was invoked. It is stated that suit was not barred under any law since the Plaintiff had not submitted to the jurisdiction of the Arbitrator. In reply to application under Section 8 of Arbitration and Conciliation Act more or less the same averments are repeated.
9. It is undisputed fact that the Plaintiff availed Bill Discounting Facility vide agreements dated 27.12.2002 and 11.6.2003 and these agreements contained arbitration clause as re-produced above. It is also undisputed that on arising of dispute Defendant No. 1 invoked the arbitration clause and appointed an Arbitrator. Section 16 of the Arbitration and Conciliation Act, 1996 provides that the Arbitral Tribunal may rule on its own jurisdiction including ruling on any objection in respect of existence or validity of the arbitration agreement. It also provides that a plea that the Arbitrator does not have jurisdiction has to be raised before the Arbitral Tribunal and the Arbitral Tribunal has to decide the plea raised by the party either in respect of validity of the arbitration agreement or in respect of its jurisdiction. It is, thus, clear that even if a plea of invalidity of the arbitration agreement is raised on any ground whatsoever this plea is to be raised before the Arbitrator and it is the Arbitrator who had to decide the plea.
10. In 2004(3) SCC 442 Secur Industries Ltd. v. Godrej and Boyce Mfg. Co. Ltd and Anr. Supreme Court observed that under 1996 Act, the Arbitral Tribunal has been given a very wide and deep area of operation and it is the court's powers which have been statutorily curtailed. The Arbitral Tribunal's authority under Section 16 of the 1996 Act is not confined to the width of its jurisdiction but goes to the very root of its jurisdiction. Having regard to the scope of the authority of Arbitral Tribunal under Section 16, this is not a matter which the Court can adjudicate upon and it is incumbent on the Court to refer the parties to the Arbitration under Section 8(1) of 1996 Act, if a suit is filed in a matter which is subject matter of an Arbitration Agreement.
11. It is settled law that the Arbitral Tribunal, if constituted, in accordance with the agreement between the parties without having recourse to Section 11(6) of the Act, the Arbitral Tribunal will have jurisdiction to decide all matters as contemplated by Section 16 of the Act (Mohan Traders and Ors. v. Amar Singh 134(2006) DLT 551). In SBP and Company v. Patel Engineering Ltd. and Anr. 2005(8) SCC 618, Supreme Court held that in case where an Arbitral Tribunal has been constituted by the parties without having recourse to Section 11(6) of the act, the Arbitral Tribunal will have jurisdiction to decide all matters as contemplated by Section 16.
12. I consider that the suit of the Plaintiff is therefore not maintainable before this Court. The Plaintiff is at liberty to raise the issue regarding validity of Arbitration Agreement as well as the jurisdiction of the Arbitrator before the Arbitrator and not before this Court. This Court cannot change or alter the statutory scheme of the Act which provides that there should be minimum interference of the Court during arbitration proceedings and the Court should consider the matter only after the award is given or if the Arbitrator holds that he has no jurisdiction.
13. I, therefore, allow the applications of Defendant No. 1 under Order 7 Rule 11 and hold that the present suit is not maintainable. Parties are already before Arbitrator and therefore no further reference of dispute to the Arbitrator is required. The Arbitrator shall proceed to decide the matter in accordance with law.