Calcutta High Court
Trl Krosaki Refractories Ltd vs Lindsay International Private Limited on 22 January, 2019
Author: Soumen Sen
Bench: Soumen Sen
1
IN THE HIGH COURT AT CALCUTTA
Original Civil Jurisdiction
ORIGINAL SIDE
BEFORE:
The Hon'ble JUSTICE SOUMEN SEN
A.P. No.969 of 2017
TRL Krosaki Refractories Ltd.
Vs.
Lindsay International Private Limited
For the Petitioners : Mr. Jishnu Saha, Sr. Adv.,
Mr. Pratik Ghosh, Adv.,
Mr. Avishek Roychowdhury, Adv.
For the Respondents : Mr. S.K. Kapoor, Sr. Adv.,
Mr. Joy Saha, Sr. Adv., Mr. R. Bhattachariyay, Adv., Mr. Shaunak Mitra, Adv., Ms. Priyanka Prasad, Adv., Mr. S.R. Kakrania, Adv., Mr. Sanjeeb Seni, Adv., Mr. Aviroop Mitra, Adv., Mr. Tanuj Kakrania, Adv., Ms. Ritika Shroff, Adv.
Hearing concluded on :11.01.2019 Judgment on : 22.01.2019
Soumen Sen, J.:- This is an application filed by the petitioner TRL Krosaki Refractories Ltd. under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter "the Act") for appointment of an arbitrator in view of the disputes and differences arisen between the parties in relation to a purchase order dated 12th March, 2015.
This application is opposed by the respondent.
Before dealing with the merits of the application, it is necessary to indicate the facts in brief.
2
The petitioner is, inter alia, engaged in the business of manufacturing a wide range of refractories. The respondent from time to time placed order on the petitioner for supply of refractories/refractory materials.
In terms of a purchase order dated 12th March, 2015, the petitioner was required to supply one set of refractories for coke oven battery no. 6 consisting of silica bricks, fire clay bricks and mortars at a price of US$ 7,933,094/- only for the respondent and/or its nominated consignee. The petitioner was required to manufacture the said refractories and deliver them on FOB Mumbai basis as per Incoterms 2010.
The said purchase order dated 12th March, 2015, inter alia, contains an arbitration clause and/or arbitration clauses, and the same are set out hereinbelow for ease of reference:
"Clause 8.4 Applicable law and dispute settlement The Buyer and the Seller agree that any dispute or difference, which may arise out or in connection with this order, shall be amicably settled through mutual discussion.
In case Buyer and Contractor fail to reach an agreement on any dispute, controversy, interpretation of any terms, claim arising out of or in connection with this order or the breach, termination shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Arbitration & Conciliation Act, 1996.
Both Buyer and Contractor shall each select an arbitrator and the two arbitrators thus chosen shall select an Umpire. The award of the arbitrator or umpire, as the case may be, shall be final and binding upon the parties hereto.
The venue of arbitration shall be at Kolkata, India and the Courts in Kolkata shall have the exclusive jurisdiction. Except for the matter which is specifically under arbitration the parties shall continue to perform their respective obligations under this Order."
"Clause 8.11 Arbitration 8.11 a) The Buyer and the Seller agree that any dispute or difference, which may arise out of or in connection with this order, shall be amicably settled through mutual discussion. In case Buyer and Seller fail to reach an agreement of any dispute, controversy, interpretation of any terms, claim arising 3 out of or in connection with this Order or the breach, termination shall be settled by arbitration in accordance with the Rules of the Indian Arbitration and Conciliation Act, 1996. 8.11 b) Both Buyer and Seller shall each select an arbitrator and the two arbitrators thus chosen shall select an Umpire.
8.11 c) The award of the arbitrator or Umpire, as the case may be, shall be final and binding upon the parties hereto. 8.11 d) The venue of arbitration shall be at Kolkata, India and the Courts in Kolkata shall have the exclusive jurisdiction. 8.11 e) Except for the matter which is specifically under arbitration the parties shall continue to perform their respective obligations under this order."
In terms of the purchase order dated 12th March, 2015, the petitioner had duly supplied all the materials and products to the respondents and its nominated consignee and all such materials had been duly accepted by the respondent and/or its nominated consignee without any protest. Despite the acceptance of the said materials, the respondent has failed, refused and neglected to pay a sum of Rs. 2,96,09,916/- to the petitioner out of the total sum due and payable to the petitioner from the respondent in terms of the purchase order dated 12th March, 2015. In the meanwhile, the respondent and two others had filed a suit being C.S. No.2 of 2017, inter alia, against the petitioner claiming diverse reliefs. In the suit, the respondent had alleged that there was an exclusive agreement between the respondent and the petitioner to the extent that the petitioner could supply materials and/or products to Arcelor Mittal Companies worldwide only through the respondent and not otherwise. It is alleged that the petitioner had acted in derogation of such exclusive agreement. The petitioner, however, had denied existence of any such arrangement and/or agreement between the parties. The petitioner has referred to an order passed by this Court on 17th 4 February, 2017 in G.A. No.117 of 2017 filed by this respondent, along with two others as co-plaintiffs, in the suit claiming diverse reliefs. In the said order, it was observed, at the interlocutory stage, that there is no prohibition clause in the contract in respect of the supplies made by the petitioner to the plaintiffs and the plaintiffs were directed to release the past and the present dues to each of the vendors in accordance with the directions contained in such order. The petitioner initially filed an interlocutory application being G.A. No. 2210 of 2017 praying, inter alia, for an order directing the respondent to pay the aforesaid sum of Rs.2,96,09,916/- along with interest which, however, was not allowed since the petitioner did not raise any counter-claim in the suit. The said application was dismissed by giving liberty to the petitioner to pursue its remedy before the appropriate forum in view of an arbitration agreement between the parties. Thereafter, by a letter dated 23rd August, 2017, the petitioner invoked the aforesaid arbitration clause and appointed Mr. Justice (Retired) Alok Chakraborty as the petitioner's nominee. However, the respondent refused to appoint its nominee in accordance with the aforesaid agreement.
Hence, this application has been filed by the petitioner for appointment of an arbitrator.
Mr. Jishnu Saha, the learned Senior Counsel appearing on behalf of the petitioner has submitted that the existence of the arbitration agreement between the parties is not in dispute. It is also not in dispute that supplies have been made to the respondent and the respondent has received payments from the Arcelor Mittal Companies towards the price of the goods sold and delivered by the petitioner to the respondent. The said 5 respondent, however, did not make payment. It is submitted that in an application for appointment of an arbitrator as the law stands now, the court is only required to confine its examination to the existence of an arbitration agreement between the parties and since this criteria has been fulfilled, an arbitrator is required to be appointed to decide the dispute. It is submitted that the pendency of the suit cannot be a bar for not appointing an arbitrator as the petitioner had never submitted to the jurisdiction of this Court in respect of the dispute arising out of the purchase order. Mr. Saha submits that a bare reading of Paragraph 45 (k) to (w) of the Plaint would show clear that the claim of the plaintiffs against the defendant is towards an unliquidated damage and not a definite sum. Mr. Saha submits that it is now well-settled that a claim on account of unliquidated damage is not a sum presently due and payable unless it is adjudicated in a properly instituted proceeding. Thus, there is no existing obligation that the petitioner is required to discharge. Mr. Saha submits that as opposed to such claim made in the plaint, the claim of the petitioner against the respondent is for a quantified amount and towards the price of the goods sold and delivered by the petitioner to the respondent under the purchase order dated 12th March, 2015.
It is submitted that the frame of the suit cannot be a consideration for not appointing an arbitrator for the disputes arising out of the said purchase order. The law requires the Court to be satisfied only with the existence of the arbitration agreement. The respondent does not dispute the existence of the arbitration clause. Accordingly, an arbitrator ought to be appointed. 6
Per contra, Mr. S.K. Kapoor, the learned Senior Counsel appearing for the respondent submits that having regard to the frame of the suit, the dispute cannot be referred to arbitration. The dispute sought to be raised by the petitioner cannot be decided in isolation. The causes of action of the plaintiffs against the defendant in the suit are for breach of agreement and the claim of the petitioner cannot be severed and tried separately. The disputes are interconnected. The plaintiffs have categorically stated in the plaint that the present petitioner is not entitled to directly negotiate with the Arcelor Mittal Companies or to effect direct supply to such companies bypassing the plaintiffs in disregarding to the existing arrangement thereby procuring a breach of contract. The plaintiffs have alleged that the defendants, in breach and violation of their binding contractual obligations, have wrongfully and fraudulently made a contract directly with the Arcelor Mittal Companies by which the petitioner illegally agreed to supply the second set of refractories directly to PJSC Arcelor Mital Krives (the defendant No.5) by offering a discount of 17 per cent on the price which had been quoted originally to the respondent company. The arrangement in respect of future supplies has caused loss and damage to the plaintiffs. Mr. Kapoor submits that in deciding the disputes between the parties, the presence of the Arcelor Mittal Companies would be necessary which would not be possible if this dispute is referred to arbitration. Mr. Kapoor submits that before the arbitrator, the respondent cannot raise any counter-claim since the nature of the dispute raised in the plaint would not be covered by the arbitration agreement and by reason of amended Section 23(2A) of the Act, the arbitral tribunal would not be in a position to decide the counter- 7 claim of the respondent in the said reference. Mr. Kapoor has referred to a decision of the Hon'ble Supreme Court in State of Goa v. Praveen Enterprises reported at 2012 (12) SCC 581 and submits that before the amendment to the Act, the counter-claim of the respondent could not be adjudicated by the arbitrator because of insertion of sub-section (2A) in section 23 of the Act by the Arbitration and Conciliation (Amendment) Act, 2015 which reads -
"Section 23 (2A) - The respondent, in support of his case, may also submit a counter claim or plead a set off, which shall be adjudicated upon by the arbitral tribunal if such counterclaim or set off falls within the scope of the arbitration agreement." (emphasis supplied) Mr. Kapoor submits, that the disputes sought to be referred to arbitration is definitely not per se arbitrable. Mr. Kapoor has referred to the correspondence exchanged by and between the petitioner, respondent and the defendant no. 5 in the suit, which is one of the Arcelor Mittal Group Companies, and submits that the contents of the email exchanged between the parties would show that the petitioner has considered the defendant no.
5 as a stranger to the contract and not even recognized its existence in the transaction which however later on the petitioner reneged and entered into direct negotiation with the defendant no. 5 in the suit; and thereby acted in violation of the binding contractual obligation between the parties. This is an important factor which the court is required to take into consideration before deciding as to whether the dispute shall be referred to arbitration.8
Mr. Kapoor has relied on the aforementioned set of facts to contend that since the purchase order dated 12th March 2015 is relevant to the main dispute in the suit, the dispute regarding the purchase order cannot be separated from the suit and tried separately. If this is done, it may result in bifurcation of the subject matter as well as result in different and contrary decisions. In this regard, it is submitted that the principles enshrined in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr. reported in (2003) 5 SCC 531 would apply to the present situation. In this context, reliance is also placed on India Household and Healthcare Ltd. v. LG Household and Healthcare Ltd. reported in (2007) 5 SCC 510 (paragraphs 21-22) and Tulip Hotels Pvt. Ltd. v. Trade Wings Ltd.
reported in (2010) 2 ArbLR 286.
Mr. Kapoor submits that the disputes cannot be bifurcated. The entire dispute has to be considered holistically and not in a piecemeal manner.
Mr. Kapoor submits that even otherwise the petitioner is not entitled to the appointment of an arbitrator as the defendant has already filed a written statement on the substance of the dispute and if in law, the petitioner is not entitled to refer the dispute of the suit to arbitration under Section 8 of the Act, the petitioner cannot also avail the benefit of Section 11(6A) of the Act as the petitioner has clearly waived its right to seek an adjudication in arbitration by submitting to the jurisdiction of the Court. Mr. Kapoor has referred to the order passed by me on 10th July, 2017 and submits that the earlier claim of the petitioner was denied since the petitioner did not make any counter-claim in the suit. The petitioner did not 9 disclose that during the pendency of the said application, the petitioner had entered appearance in the suit and filed a written statement on 30th June, 2017. Mr. Kapoor submits that in the written statement, the respondent has not specifically stated that the written statement is filed without prejudice to the rights and contention of the respondent that there is an arbitration clause between the parties and the dispute is referable to arbitration. On the contrary, the petitioner has stated in the written statement that the plaintiffs have mischievously not disclosed in the plaint that a sum of Rs. 2,96,09,916/- is due and payable from the respondent to the petitioner. Mr. Kapoor submits that when a party has two remedies and he opted for one remedy, he closed the door to the other proceeding. In the present scenario, since the petitioner has elected to file a written statement in the suit, the petitioner must be deemed to have selected the suit process and as such the option of proceeding with its dispute to arbitration is closed off. In the present case, the petitioner's legal recourse and remedy is to file a counter- claim, if any, by way of amendment of the written statement filed by them in the suit. Mr. Kapoor submits that the petitioner having elected to have its dispute decided in the suit cannot now turn around and press this application for appointment of an arbitrator. Mr. Kapoor submits that on the facts of this case, the Court should apply the doctrine of estoppel by election and in this context, has relied on Transcore v. Union of India reported in (2008) 1 SCC 125 (paragraph 64) and Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. and Ors. reported in 2011 (5) SCC 532 (paragraph 29) for the proposition that "whether a party has waived his right to seek arbitration and subjected himself to the jurisdiction of the court, depends 10 upon the conduct of such party in the suit". In this context, reference has also been made to the principles of waiver and estoppel enshrined in section 4 of the Act. In addition, the learned Senior Counsel has relied upon the following decisions -
i) Mussammat Gulab Koer v. Badshah Bahadur reported in 10 CLJ 420: 13 CWN 1197;
ii) Mani Lal Guzrati v. Harendra Lal Roy reported in (1910) 12 CLJ 556;
iii) Scarf v. Jardine reported in 1882 (7) AC 345;
iv) Jai Singh v. Union of India and Ors. reported in 1977 (1) SCC 1;
The respondent has also contended that this petition ought to be dismissed right at the outset on the ground of fraud since the written statement filed in the suit has not been disclosed by the petitioner in the petition. Reliance is placed on Mumbai International Airport vs M/S Golden Chariot Airport & Anr. reported in 2010 (10) SCC 422 wherein it is stated that "an action at law is not a game of chess" and a litigant cannot change and choose its stand to suit its convenience. It is submitted the principles of approbate and reprobate squarely apply in the present matter. The respondent has also referred to Delhi Gate Auto Service Station and Anr. v. Bharat Petroleum Corportation Ltd., Agra and Ors. reported in 2009 (16) SCC 766 to further buttress their point that "two parallel remedies could not have been pursued" by the petitioners at one and the same time.
In reply, Mr. Saha submits that the written statement filed in the suit cannot be treated as the first statement on the substance of the dispute by 11 the petitioner since the petitioner has contended therein that the High Court has no jurisdiction to try and entertain the suit. Mr. Saha submits that the written statement filed was limited to the issue raised by the plaintiffs against the petitioner in the suit, namely, that there was a privity of contract between the plaintiffs, the defendant no. 5 and the present petitioner, and that the present petitioner has acted in derogation of the said arrangement. In the written statement, it is incumbent upon the petitioner to disclose its stand as the subject matter of the suit is different from the subject matter of the arbitration. In the arbitration proceeding, the petitioner has only prayed for enforcement of its claim arising out of the purchase order dated 12th March, 2015 whereas the claim of the respondent against the defendant is towards unliquidated damage which the petitioner is required to deny in the written statement, as otherwise the allegations of the respondent against the petitioner would remain uncontroverted. Moreover, the purpose and object of Sections 8 and 11 of the Act are entirely different. The considerations that may apply in Section 8 of the Act are not the considerations while deciding an application under Section 11 of the Act. The petitioner has not prayed for referring the dispute forming the subject matter of the suit to arbitration. On such considerations, the question of estoppel by election could not and does not arise.
Mr. Saha further submits that the causes of action disclosed by the respondent against the petitioner in the plaint are not arising out of any arbitration agreement. The claim is on account of damages. Even in considering an application under Section 8 of the Arbitration and Conciliation Act, the judicial authority is required to satisfy itself that the 12 action brought constitutes matters which are the subject of an arbitration agreement. In the instant case, the causes of action pleaded in the plaint against the petitioner are not the subject matter of any arbitration agreement. Accordingly, the reference to Section 8 of the Arbitration and Conciliation Act is misconceived. Moreover, the reference to Sukanya Holdings (supra) would be of no relevance as Sukanya Holdings (supra) deals with bifurcation of claims and subject matter of disputes whereas in the instant case the dispute with regard to the purchase order is an independent cause of action and has no bearing to the cause of action as pleaded in the suit. Mr. Saha submits that there is no arbitration agreement amongst all the parties to the suit aggregating 45 in number comprising of the three plaintiffs on the one hand and the 42 defendants including the petitioner herein on the other hand. The decision in Sukanya Holdings (supra) shows that in respect of few of the parties there is an arbitration agreement.
The essential question arising for consideration in this application is whether the petitioner is entitled to appointment of an arbitrator in relation to the disputes and differences that have arisen between the parties in relation to the purchase order dated 12th March, 2015.
There have been significant changes brought about to the Act by the Arbitration and Conciliation (Amendment) Act, 2015 with effect from 23rd October, 2015. The object of the amendment is to ensure minimum intervention of the court in arbitration proceedings. The experience in the past showed that considerable time was consumed in court before commencement of arbitration proceedings under the unamended Act, 13 although the said Act was enacted for speedy disposal of arbitration matters with least intervention of the court. In order to reassure and reaffirm that the party must respect, be bound by and adhere to the agreement by which they have agreed to resolve their dispute by arbitration with least intervention by court, significant changes have been introduced in the Act.
The Statement of Objects and Reasons enumerated under the Arbitration and Conciliation (Amendment) Bill, 2015 is reproduced herein below:-
"STATEMENT OF OBJECTS AND REASONS The general law relating to arbitration is contained in the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act). The Act, which is based on the UNCITRAL Model Law on International Commercial Arbitration, as adopted in 1985 by the United Nations Commission on International Trade Law (UNCITRAL), applies to both international as well to domestic arbitration.
2. The Act was enacted to provide for speedy disposal of cases relating to arbitration with least court intervention. With the passage of time, some difficulties in the applicability of the Act have been noticed. Interpretation of the provisions of the Act by courts in some cases have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act. With a view to overcome the difficulties, the matter was referred to the Law Commission of India, which examined the issue in detail and submitted its 176th Report. On the basis of the said report, the Arbitration and Conciliation (Amendment) Bill, 2003 was introduced in the Rajya Sabha on 22nd December, 2003. The said Bill was referred to the Department-related Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice for examination and Report. The said Committee, submitted its Report to the Parliament on 4th August, 2005, wherein the Committee 14 recommended that since many provisions of the said Bill were contentious, the Bill may be withdrawn and a fresh legislation may be brought after considering its recommendations. Accordingly, the said Bill was withdrawn from the Rajya Sabha.
3. On a reference made again in pursuance of the above, the Law Commission examined and submitted its 246th Report on "Amendments to the Arbitration and Conciliation Act, 1996" in August, 2014 and recommended various amendments in the Act. The proposed amendments to the Act would facilitate and encourage Alternative Dispute Mechanism, especially arbitration, for settlement of disputes in a more user-friendly, cost effective and expeditious disposal of cases since India is committed to improve its legal framework to obviate in disposal of cases.
4. As India has been ranked at 178 out of 189 nations in the world in contract enforcement, it is high time that urgent steps are taken to facilitate quick enforcement of contracts, easy recovery of monetary claims and award of just compensation for damages suffered and reduce the pendency of cases in courts and hasten the process of dispute resolution through arbitration, so as to encourage investment and economic activity.
5. As Parliament was not in session and immediate steps were required to be taken to make necessary amendments to the Arbitration and Conciliation Act, 1996 to attract foreign investment by projecting India as an investor friendly country having a sound legal framework, the President was pleased to promulgate the Arbitration and Conciliation (Amendment) Ordinance, 2015.
6. It is proposed to introduce the Arbitration and Conciliation (Amendment) Bill, 2015, to replace the Arbitration and Conciliation (Amendment) Ordinance, 2015, which inter alia, provides for the following, namely:--
xxx xxx xxx 15
(iv) to provide that while considering any application for appointment of arbitrator, the High Court or the Supreme Court shall examine the existence of a prima facie arbitration agreement and not other issues;
xxx xxx xxx
7. The amendments proposed in the Bill will ensure that arbitration process becomes more user-friendly, cost effective and lead to expeditious disposal of cases.......
8. The Bill seeks to replace the aforesaid Ordinance." NOTES ON CLAUSES xxx xxx xxx Clause 4 of the Bill seeks to amend section 8 of the principal Act to specify that the judicial authority shall refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exits. A proviso below sub-section (2) is inserted to provide that where the original arbitration agreement or certified copy thereof is not available with the party who apply under sub-section (1), and is retained by the other party, such party shall file a copy of the arbitration agreement along with application under sub-section (1) praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before the Court." (emphasis supplied) Prior to the amendment of Section 11 of the Act by which Section 11(6A) was inserted, two decisions of the Hon'ble Supreme Court were ruling the field. The first decision is SBP and Co. v. Patel Engg. Ltd. reported at (2005) 8 SCC 678 and the second decision is National Insurance Company Limited vs. Boghara Polyfab (P) Ltd. reported at (2009) 1 SCC
267. In SBP & Co. (supra) under the unamended provision, a seven-Judge Constitution Bench has laid down the considerations for appointment of an 16 arbitrator by the Chief Justice or designate in paragraphs 37, 39 and 47 which state:-
"37. ....... There have been cases where claims for appointment of an arbitrator based on an arbitration agreement are made ten or twenty years after the period of the contract has come to an end. There have been cases where the appointment of an arbitrator has been sought, after the parties had settled the accounts and the concerned party had certified that he had no further claims against the other contracting party. In other words, there have been occasions when dead claims are sought to be resurrected. There have been cases where assertions are made of the existence of arbitration agreements when, in fact, such existence is strongly disputed by the other side who appears on issuance of notice. Controversies are also raised as to whether the claim that is sought to be put forward comes within the purview of the concerned arbitration clause at all. The Chief Justice has necessarily to apply his mind to these aspects before coming to a conclusion one way or the other and before proceeding to appoint an arbitrator or declining to appoint an arbitrator.
39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that 17 question to be decided by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration.
47. (iv) The Chief Justice or the designated judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be, his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators."
The judgment in SBP & Co. (supra) was later on considered in Boghara Polyfab (supra) where the Supreme Court formulated the following three categories of adjudication:-
"The issues (first category) which Chief Justice/his designate will have to decide are:
(a) Whether the party making the application has approached the appropriate High Court.
(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.
The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the arbitral tribunal) are:
(a) Whether the claim is a dead (long barred) claim or a live claim.
(b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.
The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal are:
(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).18
(ii) Merits or any claim involved in the arbitration."
In a fairly recent decision of the Hon'ble Supreme Court in Duro Felguera, S.A. Vs. Gangavaram Port Limited reported at (2017) 9 SCC 729, it was observed that the position of law as laid down in SBP & Co. (supra) and Boghara Polyfab (supra) shall continue till the amendment was brought about in 2015 and "after the amendment, all that the courts need to see is whether an arbitration agreement exists - nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected".
The scope and extent of the power of the High Court and the Supreme Court under sub-section 6 and sub-section 6A of section 11 of the Act has been discussed in Duro Felgura (supra) upon taking into consideration the Statement of Objects and Reasons of the Amendment Bill of 2015. In paragraph 18 of the report, it is inter alia stated - "Now as far as sub-section (6-A) of section 11, the power of the court has now been restricted only to see whether there exists an arbitration agreement". In paragraph 19 of the report, the Hon'ble Supreme Court has agreed with the view of as expressed the textbook "Law Relating to Arbitration and Conciliation" by Dr. P.C. Markanda, which inter alia reads:
"The changes made by the Amending Act are as follows:
1. The words 'Chief Justice or any person or institution designated by him' shall be substituted by the words 'the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court'. Thus, now it is not only the Chief Justice who can hear 19 applications under Section 11, the power can be delegated to any judge as well.
2. As per sub-section (6-A), the power of the Court has now been restricted only to examination of the existence of an arbitration agreement. Earlier, the Chief Justice had been given the power to examine other aspects as well, i.e. limitation, whether the claims were referable for arbitration etc. in terms of the judgments of the Supreme Court in SBP and Co. v. Patel Engineering Ltd., (2005) 8 SCC 618; and National Insurance Co. Ltd. V. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC
267. Now all preliminary issues have been left for the arbitral tribunal to decide in terms of Section 16 of the Act.
In paragraph 20 of the report, it is reiterated that "since the dispute between the parties arose in 2016, the amended provision of sub-section (6-A) of Section 11 shall govern the issue, as per which the power of the Court is confined only to examine the existence of the arbitration agreement". (emphasis supplied) Section 4 of the Act refers to rights which are non-derogable. If it appears to the court that the petitioner with the knowledge of the arbitration clause had participated in a suit or other proceeding and invited an adjudication of the dispute on merits other than by way of arbitration, it would be unwise to refer the parties to arbitration merely on the basis that there is a valid arbitration agreement between the parties as it would disentitle such party to apply to the court for reference of the dispute to arbitration. The doctrine of election in this context would mean the choice of forum. The Civil Court ordinarily has plenary jurisdiction to decide all civil disputes. The parties by agreement cannot confer a jurisdiction on a civil court which it otherwise does not possess. However, the parties may in an 20 agreement decide the choice of forum. In the instant case, the parties have agreed to decide their dispute arising out of the purchase order to be resolved in arbitration. In a given situation where notwithstanding the existence of arbitration agreement, if a party approaches a civil court and the other party does not object to the jurisdiction of such civil court on the ground of lack of jurisdiction due to agreed choice of forum, the party forfeits or loses its right to question the jurisdiction of the civil court later on after the said party surrenders to the jurisdiction of that court. The submission of jurisdiction to that court would disqualify a party from seeking a remedy in a different forum as he has acted in derogation of agreed procedure. This is what Section 4 of the Act recognizes and if a party has acted in derogation of the agreement which contains an arbitration clause, the said party would be considered to have waived its right to claim adjudication in arbitration. One of the circumstances under which a party is precluded from referring the dispute of arbitration, and as a necessary corollary to it - to seek an appointment of an arbitrator, is whether the said party has submitted his first statement on the substance of the dispute before making an application for referring the dispute forming subject matter of the suit to arbitration. However, this consideration is not a matter to be gone into at the Section 11 stage and could be a relevant factor in deciding an application under Section 8 or before the arbitrator as in my view, it concerns the competence of the arbitral tribunal to decide the referred dispute. The plea of waiver is not a relevant consideration at this stage and hence not decided. Such question of waiver would depend upon 21 evidence to be adduced before the arbitrator or before the Court in an application under Section 8 of Act as the case may be.
In this context, it is apposite to refer to the decision of the Hon'ble Supreme Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc. reported in (2013) 1 SCC 641, which although was rendered in relation with section 45 of the unamended Act, considered the jurisdiction of the Court in relation to a dispute in paragraphs 83-85, which read:-
83. Where the Court which, on its judicial side, is seized of an action in a matter in respect of which the parties have made an arbitration agreement, once the required ingredients are satisfied, it would refer the parties to arbitration but for the situation where it comes to the conclusion that the agreement is null and void, inoperative or incapable of being performed. These expressions have to be construed somewhat strictly so as to ensure that the Court returns a finding with certainty and on the correct premise of law and fact as it has the effect of depriving the party of its right of reference to arbitration. But once the Court finds that the agreement is valid then it must make the reference, without any further exercise of discretion {refer General Electric Co. v.
Renusagar Power Co. [(1987) 4 SCC 137]}. These are the issues which go to the root of the matter and their determination at the threshold would prevent multiplicity of litigation and would even prevent futile exercise of proceedings before the arbitral tribunal.
84. The issue of whether the courts are empowered to review the existence and validity of the arbitration agreement prior to reference is more controversial. A majority of the countries admit to the positive effect of kompetenz kompetenz principle, which requires that the arbitral tribunal must exercise jurisdiction over the dispute under the arbitration agreement. Thus, challenge to the existence or validity of the arbitration agreement will not prevent the arbitral tribunal from proceeding with 22 hearing and ruling upon its jurisdiction. If it retains jurisdiction, making of an award on the substance of the dispute would be permissible without waiting for the outcome of any court action aimed at deciding the issue of the jurisdiction. The negative effect of the kompetenz kompetenz principle is that arbitrators are entitled to be the first to determine their jurisdiction which is later reviewable by the court, when there is action to enforce or set aside the arbitral award. Where the dispute is not before an arbitral tribunal, the Court must also decline jurisdiction unless the arbitration agreement is patently void, inoperative or incapable of being performed.
85. This is the position of law in France and in some other countries, but as far as the Indian Law is concerned, Section 45 is a legislative mandate and does not admit of any ambiguity. We must take note of the aspect of Indian law that Chapter I of Part II of the 1996 Act does not contain any provision analogous to Section 8(3) under Part I of the Act. In other words, under the Indian Law, greater obligation is cast upon the Courts to determine whether the agreement is valid, operative and capable of being performed at the threshold itself. Such challenge has to be a serious challenge to the substantive contract or to the agreement, as in the absence of such challenge, it has to be found that the agreement was valid, operative and capable of being performed; the dispute would be referred to arbitration. [State of Orissa v. Klockner and Company & Ors. (AIR 1996 SC 2140)]."
In the instant case, there is no dispute with regard to the existence of an arbitration agreement.
Even if an arbitrator is appointed in this proceeding, it would still be open for the respondent to contend before the arbitrator that by filing the written statement in the suit, the petitioner has forfeited its right to refer the dispute to arbitration.
23
Mr. Saha has strenuously contended that the respondent's argument, that the filing of the written statement would constitute a waiver and hence the arbitrator should not be appointed in this proceeding, cannot be accepted on the ground that on a meaningful reading of the written statement, it is clear that the petitioner has filed the written statement 'without prejudice to its rights and contention that this court had no jurisdiction to decide the dispute between the parties' inasmuch as the respondent by its own showing in the plaint has not treated the purchase order as invalid or even remotely alleged that the purchase order is null and void.
The purchase order contains an arbitration clause. The existence of the purchase order is not in dispute. What could be the reason or plausible defence for not releasing the price of the goods sold and delivered under the purchase order is not a relevant consideration at this stage to decide an application for appointment of an arbitrator. The plaintiff in their wisdom may frame a suit with multiple parties and multiple causes of action but such of the parties in the suit whose agreements with the plaintiffs contain arbitration clauses and are desirous of seeking independent reference of their dispute to arbitration cannot be prevented from seeking such reference, particularly in view of the language of Section 11(6A) of the Act. The considerations for Section 8 and Section 11 of the Act are entirely different.
The scheme of the Arbitration Act, 1940 and the 1996 Act before the recent amendment has been considered in Kalpana Kothary v. Sudha Yadav reported at (2002) 1 SCC 203, where it is observed - 24
" 8........ In striking contrast to the said scheme underlying the provisions of the 1940 Act, in the new 1996 Act, there is no provision corresponding to Section 34 of the old Act and Section 8 of the Act mandates that the Judicial Authority before which an action has been brought in respect of a matter, which is the subject-matter of an arbitration agreement, shall refer the parties to arbitration if a party to such an agreement applies not later than when submitting his first statement. The provisions of the Act do not envisage the specific obtaining of any stay as under the 1940 Act, for the reason that not only the direction to make reference is mandatory but not withstanding the pendency of the proceedings before the Judicial Authority or the making of an application under Section 8 (1) of the Act, the arbitration proceedings are enabled, under Section 8 (3) of the Act to be commenced or continued and an arbitral award also made unhampered by such pendency. We have to test the order under appeal on this basis."
(emphasis supplied) The unamended sections 8 and 11 of the Act came up for consideration in Praveen Enterprises (supra). In paragraphs 13 and 39 of the report, the distinction has been explained in the following words:
"13. `Reference to arbitration' can be in respect of reference of disputes between the parties to arbitration, or may simply mean referring the parties to arbitration. Section 8 of the Act is an example of referring the parties to arbitration. While section 11 contemplates appointment of arbitrator [vide sub-sections (4), (5) and (9)] or taking necessary measure as per the appointment procedure under the arbitration agreement [vide sub-section (6)], section 8 of the Act does not provide for appointment of an arbitrator, nor referring of any disputes to arbitration, but merely requires the judicial authority before whom an action is brought in a matter in regard to which there is an arbitration agreement, to refer the parties to arbitration. When the judicial authority finds that the subject matter of the suit is covered by a valid arbitration agreement 25 between the parties to the suit, it will refer the parties to arbitration, by refusing to decide the action brought before it and leaving it to the parties to have recourse to their remedies by arbitration. When such an order is made, parties may either agree upon an arbitrator and refer their disputes to him, or failing agreement, file an application under section 11 of the Act for appointment of an arbitrator. The judicial authority `referring the parties to arbitration' under section 8 of the Act, has no power to appoint an arbitrator. It may however record the consent of parties to appoint an agreed arbitrator.
39. Reliance was placed upon certain observations in the decision of the House of Lords in Heyman v. Darwins Ltd.-- 1942 AC 356. We extract below the paragraph containing the relied upon observations:
"The law permits the parties to a contract to include in it as one of its terms an agreement to refer to arbitration disputes which may arise in connection with it, and the court of England enforce such a reference by staying legal proceedings in respect of any matter agreed to be referred "if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission." Arbitration Act, 1889, sec. 4. Where proceedings at law are instituted by one of the parties to a contract containing an arbitration clause and the other party, founding on the clause, applies for a stay, the first thing to be ascertained is the precise nature of the dispute which has arisen The next question is whether the dispute is one which falls within the terms of the arbitration clause. Then sometimes the question is raised whether the arbitration clause is still effective or whether something has happened to render it no longer operative. Finally, the nature of the dispute being ascertained, it having been held to fall within the terms of the arbitration clause, and the clause having been found to be still effective, there remains for the court the question whether there is any sufficient reason why the matter in dispute should not be referred to arbitration."(emphasis supplied) 26
40. The said observations were made while examining whether a suit should be stayed at the instance of the defendant on the ground that there was an arbitration agreement between the parties. If a party to an arbitration agreement files a civil suit and the defendant contends that the suit should be stayed and the parties should be referred to arbitration, necessarily, the court will have to find out what exactly is the subject matter of the suit, whether it would fall within the scope of the arbitration clause, whether the arbitration clause was valid and effective and lastly whether there was sufficient reason as to why the subject matter of the suit should not be referred to arbitration. The observations made in Heymen, in the context of an application seeking stay of further proceedings in a suit, are not relevant in respect of an application under section 11 of the Act. This Court has repeatedly held that the questions for consideration in an application under section 8 by a civil court in a suit are different from the questions for consideration under section 11 of the Act. The said decision is therefore of no assistance."
Section 8(3) of the Act permits commencement or continuation of an arbitral proceeding notwithstanding pendency of any application under Section 8 of the Act. Section 8(3) of the Act came up for consideration in Vijay Kumar Sharma vs. Raghunandan Sharma reported at (2010) 2 SCC 486, where it is observed -
"It is evident from sub-section (3) of section 8 that the pendency of an application under section 8before any court will not come in the way of an arbitration being commenced or continued and an arbitral award being made. The obvious intention of this provision is that neither the filing of any suit by any party to the arbitration agreement nor any application being made by the other party under section 8 to the court, should obstruct or preclude a party from initiating any proceedings for appointment of an arbitrator or proceeding with the arbitration before 27 the Arbitral Tribunal. Having regard to the specific provision in section 8(3) providing that the pendency of an application under section 8(1) will not come in the way of an arbitration being commenced or continued, we are of the view that an application under section 11 or section 15(2) of the Act, for appointment of an arbitrator, will not be barred by pendency of an application under Section 8 of the Act in any suit, nor will the Designate of the Chief Justice be precluded from considering and disposing of an application under Section 11 or 15(2) of the Act." (emphasis supplied) The expression "first statement on the substance of the dispute" came up for consideration before the Hon'ble Supreme Court in Rashtriya Ispat Nigam Ltd. v. Verma Transport Co. reported in (2006) 7 SCC 275. It is stated therein:
"The expression 'first statement on the substance of the dispute' contained in Section 8(1) of the Act must be contra-distinguished with the expression 'written statement'. It employs submission of the party to the jurisdiction of the judicial authority. What is, therefore, needed is a finding on the part of the judicial authority that the party has waived his right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, in our opinion, the party cannot be said to have waived his right or acquiesced himself to the jurisdiction of the court. What is, therefore, material is as to whether the petitioner has filed his first statement on the substance of the dispute or not, if not, his application under Section 8 of the Act, may not be held wholly unmaintainable." (emphasis supplied) In Booz Allen & Hamilton (supra), the Supreme Court has held as under:28
"25. Not only filing of the written statement in a suit, but filing of any statement, application, affidavit by a defendant prior to the filing of the written statement will be construed as "submission of a statement on the substance of the dispute", if by filing such statement/application/affidavit, the defendant shows his intention to submit himself to the jurisdiction of the court and waives his right to seek reference to arbitration. But filing of a reply by a defendant, to an application for temporary injunction/attachment before judgment/appointment of receiver, cannot be considered as submission of a statement on the substance of the dispute, as that is done to avoid an interim order being made against him" (emphasis supplied) Recently Section 8 of the Act has undergone an amendment. Section 8(1) of the Act, after amendment reads:-
"A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists."
The earlier Section 8(1) of the Act read:-
"A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration."
The amended provision came up for consideration in Ameet Lalchand Shah and others vs. Rishabh Enterpirses and another 29 reported in 2018 SCC Online SC 487. The decision in Sukanya Holding (supra) was considered in the light of the aforesaid amendment. On consideration of the amended Section 8 of the Act, it was held:
"29. Principally four amendments to Section 8(1) have been introduced by the 2015 Amendments - (i) the relevant "party" that is entitled to apply seeking reference to arbitration has been clarified/amplified to include persons claiming "through or under" such a party to the arbitration agreement; (ii) scope of examination by the judicial authority is restricted to a finding whether "no valid arbitration agreement exists"
and the nature of examination by the judicial authority is clarified to be on a "prima facie" basis; (iii) the cut-off date by which an application under Section 8 is to be presented has been defined to mean "the date of" submitting the first statement on the substance of the dispute; and
(iv) the amendments are expressed to apply notwithstanding any prior judicial precedent. The proviso to Section 8(2) has been added to allow a party that does not possess the original or certified copy of the arbitration agreement on account of it being retained by the other party, to nevertheless apply under Section 8 seeking reference, and call upon the other party to produce the same." (Ref: Justice R.S. Bachawat's Law of Arbitration and Conciliation, Sixth Edition, Vol. I (Sections 1 to 34) at page 695 published by LexisNexis).
30. Amendment to Section 8 by the Act, 2015 are to be seen in the background of the recommendations set out in the 246 th Law Commission Report. In its 246th Report, Law Commission, while recommending the amendment to Section 8, made the following observation/comment:-
"LC Comment: The words "such of the parties.... to the arbitration agreement" and proviso (i) of the amendment have been proposed in the context of the decision of the Supreme Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr. (2003) 5 SCC 531,- in cases where all the parties to the dispute are not parties 30 to the arbitration agreement, the reference is to be rejected only where such parties are necessary parties to the action - and not if they are only proper parties, or are otherwise legal strangers to the action and have been added only to circumvent the arbitration agreement. Proviso (ii) of the amendment contemplates a two-step process to be adopted by a judicial authority when considering an application seeking the reference of a pending action to arbitration. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void.
31. The language of amendment to Section 8 of the Act is clear that the amendment to Section 8(1) of the Act would apply notwithstanding any prayer, judgment, decree or order of the Supreme Court or any other Court." (emphasis supplied) The reference to Section 8 of the Act and the decisions on the said Section have been referred to only for the limited purpose of understanding whether the considerations for referring the dispute of the parties to arbitration is the same as that of a proceeding under section 11 of the Act. The considerations are completely different.
The objection to the appointment of an arbitrator in the present case, amongst others, appears to be the filing of written statement by the 31 respondent in the suit. This is, in view of the aforesaid discussion, not a relevant consideration for appointment of an arbitrator under Section 11 of the Act.
In view of the amendment and Duro Felguera (supra), all the questions which could have been decided by the Court previously in an application under Section 11 of the Arbitration and Conciliation Act, 1996 have been taken away and the Court is now denuded of its jurisdiction to decide such questions which otherwise were available to the Court under the unamended Act as indicated in SBP & Co. (supra) and Boghara Polyfab (supra). Even under the unamended provisions, the consistent view of the Court is to have minimum supervisory jurisdiction over the arbitral tribunal. This has now received a statutory recognition in various amended provisions carried out in 1996 Act, one of which is Section 11(6A).
Under such circumstances, the application is allowed. Hon'ble Justice Jayanta Kumar Biswas (Retired), a former Judge of this Court, is appointed as the sole arbitrator. The Hon'ble Justice Biswas is requested to fix commensurate remuneration, at the fist sitting of the parties, to be shared by the parties in equal measure at the first instance, subject to the directions as to the costs as may be contained in the final Award. The learned arbitrator is requested to conclude the reference within a period of twelve months of the statement of claim being lodged before him.
Urgent Photostat certified copy of this judgment, if applied for, be given to the parties on an usual undertaking.
(Soumen Sen, J.) 32 Later:
Mr. Rudraman Bhattacharya, learned Counsel for the respondent, has prayed for stay of operation of the order.
The order shall remain stayed for a period of two weeks from date.
(Soumen Sen, J.)