Bombay High Court
Olive Healthcare A Partnership Firm vs Lannett Company Inc. A Listed Company on 7 March, 2012
Author: R M Savant
Bench: R M Savant
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lgc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 10475 OF 2011
Olive Healthcare a partnership firm ]
Registered under the Indian Partnership ]
Act, 1932, having its registered office at ]
B-203, Godrej Coliselum, off eastern express ]
Highway Somaiya hospital Rd, Sion, ]
Mumbai-400022, and having factory at ]
Dabel village through its partner Mr.Kamlesh ]
C Shah, Adult, occ-business and residing at ]
196, Savita Terrace III floor, Gujarat Society ]
Sion (W), Mumbai-400022. ig ]..... Petitioner
versus
1 Lannett Company Inc. a listed company ]
Registered and incorporated in the USA ]
Having address 9000, State Rd, ]
Philadelphia, PA 19136, U.S.A. ]
]
2 DHL Lemuir Logistics Pvt. Ltd. 101/102 ]
Prime Coporate Park, Opp. Blue Dart ]
Centre, Tower, Near Hotel Le Meridien, ]
Andheri (E), Mumbai 400 069 ]..... Respondents.
Dr.V.V. Tulzapurkar, Senior Advocate with Mr.Virag Tulzapurkar, Senior
Advocate and Mr.Sandeep Parikh i/by Mr.Santosh Raje for the Petitioner.
Mr. V R Dhond, Senior Advocate, with Mr.Shailesh Shukla & Mr.Pratik
Pawar i/by AZB & Partners for the Respondent No.1.
Mr. Rohan Cama i/by Kanga & Co. for the Respondent No.2.
CORAM :
R M SAVANT, J.
Date of Reserving the Judgment : 23rd January 2012
Date of Pronouncing the Judgment : 07th March 2012
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JUDGMENT :
1 Rule, with the consent of the parties made returnable forthwith and heard.
2 The above Petition filed under Article 227 of the Constitution of India takes exception to the Judgment and Order dated 13th October 2011 passed by the learned Civil Judge, Senior Division, Daman by which order Application (Exhibit-18) filed by the Respondent No.1 in Special Civil Suit No. 58 of 2010 herein invoking Section 45 of the Arbitration and Consolidation Act, 1996 ("the said Act" for brevity sake) came to be allowed, and resultantly the parties i.e. the Petitioner above-named and the Respondent No.1 have been referred to arbitration. The Petitioner is the Original Plaintiff, and the Respondent No. 1 and the Respondent No.2 are the Original Defendant Nos.1 and 2 in the said Suit.
3 The issue therefore which arises for consideration in the above Petition is as to whether in terms of Clause-16 of the Agreement in question, the parties are to be referred to arbitration.
::: Downloaded on - 09/06/2013 18:16:17 :::3 wp-10475.11.sxw FACTUAL MATRIX 4 The Petitioner herein is a Partnership Firm carrying on the business of manufacture of pharmaceutical and nutritional products formulated into the soft gelatin formulation at its manufacturing unit situated at Daman, Gujarat. The Respondent No.1 herein is a Delaware Corporation and is also involved in the business of manufacturing generic pharmaceutical products for sale. The Respondent No.2 herein is a company incorporated under the Companies Act, 1956 and carries on business as a Courier.
In so far as the present Petition is concerned, shorn of unnecessary details the facts material to be cited are that on 13th April 2006 the Petitioner and the Respondent entered into an Agreement under which Agreement, the Petitioner agreed to supply to the Respondent No.1 the pharmaceutical products more especially mentioned in Appendix "A" to the Agreement. The said supply was on the terms and conditions more particularly stated in the said Agreement. By an amendment carried out in November 2007, Appendix "A" of the said Agreement was amended, to inter alia, include a product known as "OB-NATALI", which was a multi-vitamin formulation in a soft gelatin form.
It is in respect of the supply of the said product that the dispute arose between the parties. The said Agreement, inter alia, contains various clauses. However, from the point of view of the present Petition, Clause-16 of the said Agreement which is, inter alia, the Arbitration Clause, and Clause 18.5 are relevant. The ::: Downloaded on - 09/06/2013 18:16:17 ::: 4 wp-10475.11.sxw same are reproduced herein under :-
"16 Arbitration. If the parties are unable to resolved, within a reasonable time, any controversy, dispute or claim arising out of or relating to this Agreement, or its interpretation, performance, breach or termination, the parties agree to first discuss the dispute informally. If such negotiation is not successful in achieving the resolution of the dispute, then such dispute shall be resolved by any party submitting such dispute to binding arbitration conducted in accordance with the rules of the American Association of Arbitration in Philadelphia, Pennsylvania, before a single arbitrator, if the parties are able to agree upon such a single arbitrator, or, in all other cases, a panel of three arbitrators (at least one of which must be knowledgeable in pharmaceutical field) in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. If three arbitrators are to be used, then each party to the dispute shall appoint one arbitrator and the third arbitrator shall be chosen by the two arbitrators so appointed within thirty (3) days after they are appointed. If such two arbitrators fail or are unable to select a third arbitrator within such time period, then the third arbitrator shall be selected in accordance with the Commercial Arbitrator Rules of the American Arbitration then in effect. The arbitrators shall have the right and authority to determine how their decision or award as to each issue and matter in dispute may be implemented or enforced. The arbitrators shall be required to produce a written opinion setting forth the reasons for the decision or award made . The decision of a majority of such arbitrators shall be binding and conclusive on the parties hereto. There shall be no appeal there from other than for bias, fraud or misconduct, judgment upon any decision or award may be entered in any court of competent jurisdiction. The parties agree that the existence of this arbitration provision shall not in any way limit the right or ability of the parties to obtain, interim relief, including without limitation a temporary restraining order, preliminary injunction or decree, as may be necessary, to protect either party against, or on account of any breach or violation of this Agreement, in any court of law having jurisdiction thereof.::: Downloaded on - 09/06/2013 18:16:17 :::
5 wp-10475.11.sxw 18.5 Governing law; Jurisdiction; Waiver of Jury Trail. This Agreement and the legal relations among the parties hereto shall be governed by an construed in accordance with the laws of the Commonwealth of Pennsylvania, notwithstanding any conflict of law provisions to the contrary. The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. Any action which in any way involves the rights, duties and obligations of either party hereto under this Agreement shall be brought in the state courts sitting in the Federal District Court int he Eastern District of Pennsylvania and the parties hereto hereby submit to the personal jurisdiction of such courts. The parties waive any and all rights to have any dispute, claim or controversy arising out of or relating to this Agreement tried before a jury."
5 In terms of the said Agreement, it was warranted that the products sold and/or supplied by the Petitioner to the Respondent No.1; and all components and ingredients thereof would be manufactured and delivered in strict compliance with all applicable U.S. State & Federal Laws, Rules and Regulations, including the provisions of the U.S. Food, Drugs & Cosmetics Act.
In pursuance of the said Agreement, the Petitioner delivered to the Respondent No.1 approximately 500,000 bottles of the product for which it is the claim of the Respondent No.1 that it has made full payment. On supply of the said product, the Respondent No.1, in turn delivered the majority of the product to its customers. The Respondent No.1 herein sent an Advocate's Notice dated 30th June 2009 stating that over 450, 000 bottles of unusable, unsaleable "OB Natal One" have been rejected and requested that the Petitioner accept the return of the product and reimburse the Respondent No.1. The said notice was founded on the fact that the Respondent No.1, it seems, had received a number ::: Downloaded on - 09/06/2013 18:16:17 ::: 6 wp-10475.11.sxw of complaints from its customers that the soft gelatin capsules that made up the product were leaking; that upon investigation of the said fact it was revealed that the product was manufactured in a defective manner such as the soft gelatin capsules were not properly sealed, on account of which, the Respondent No.1 was forced to virtually recall all of the product supplied to its customers; that the Respondent No.1 was unable to re-sell the same owing to its defective condition; that the Respondent No.1 requested the Petitioner, in the said circumstances, to take back the defective product, which request the Petitioner refused to accede to. In view there of, the Respondent No.1 discontinued further orders and terminated the Agreement.
6 The Respondent No.1 on 7th August 2009 had filed a complaint in the United States District Court for the Eastern District of Pennsylvania seeking damages and/or compensation as more particularly stated therein. It appears that on 25th January 2010, the Respondent No.1 had withdrawn the said complaint. The Respondent No.1 on the same day invoked the Arbitration clause before the American Arbitration Association ("AAA" for short) and filed its claim before it. The Notice of Arbitration was also issued on 25 th January 2010. On 19th February 2010, the Petitioner filed its answer to the claim of the Respondent No.1. The Petitioner also filed its Counter Claim. It was the case of the Petitioner that it had not breached any provisions of the Agreement, and that it had produced and supplied a product which fully satisfied the contractual requirements. It was further the case of the Petitioner that its ::: Downloaded on - 09/06/2013 18:16:17 ::: 7 wp-10475.11.sxw manufacturing facilities were also in compliance with USFDA norms, and in fact it was the case of the Petitioner that it undertook an upgrade and renovation of its facilities, at a cost of US $ 2.4 Million to comply with these requirements, and this upgrade and renovation was undertaken solely on the premise that the Respondent No.1 would provide the Petitioner with business and additional opportunities from which it could recoup and/or recover this expense. It was the case of the Petitioner that the Respondent No.1 nominated DHL for the purposes of transportation of the products and DHL was entrusted with and/or responsible for all product handling during transit. It was further the case of the Petitioner that if the product had suffered any damages, the same was entirely on account of high temperatures and humidity conditions to which it was exposed during transportation; that the Respondent No.2 DHL, who was responsible for transportation, was nominated by the Respondent No. 1 and therefore the consequences of any breach or dereliction on the part of Respondent No.2-DHL or any negligence on the part of DHL, could not and ought not to be foisted upon the Petitioner. It was the case of the Petitioner that the Respondent No.1 was responsible for the acts of DHL, and the damage to the product caused during transportation was on account of the Respondent No.1 and/or its nominee the Respondent No.2-DHL. The Petitioner contended that the termination by the Respondent No.1 of the Agreement was completely wrongful. It was the case of the Petitioner that apart from the fact that the Petitioner had loss substantially in modernizing and/or upgrading its facilities, it was the Petitioner who was entitled to recover from the Respondent No.1 the ::: Downloaded on - 09/06/2013 18:16:17 ::: 8 wp-10475.11.sxw loss and/or damage it incurred on account of the wrongful termination. The Petitioner had also filed its Counter Claim in the said Arbitration proceedings.
In its Counter Claim the Petitioner had made a substantive claim against the Respondent No.1. The Counter Claim, as can be seen, is very clear and unambiguous and without any reservation. The only objection, as it were, is to be found in Paragraphs 5 and 6 of the answer to the claim where the Petitioner objected to the service of the Arbitration Demand and the location of the hearing. It is required to be noted that no objection was taken even in the answer about the arbitrability of the disputes either on the ground that there was no mandatory provision for arbitration or that the Respondent No.1 having instituted a Complaint before the United States District Court for the Eastern District of Pennsylvania had waived its right to arbitration. In the said arbitration proceedings, it appears that, the Respondent No.1 had designated its Arbitrator on 23rd April 2010. The Petitioner did not designate its Arbitrator but sought time to do so. The time was accordingly granted by the Case Manager appointed by the American Arbitration Association till 3rd May 2010 and clarified that if the Petitioner failed to appoint its Arbitrator within the said time, the American Arbitration Association would make the said appointment.
The Petitioner thereafter, it seems, had sought and obtained a total of seven extensions for appointing its Arbitrator.
7 The Petitioner thereafter on 20th November 2010, has filed Special Civil Suit No.58 of 2010 in the Court of Civil Judge, Senior Division, at Nani ::: Downloaded on - 09/06/2013 18:16:17 ::: 9 wp-10475.11.sxw Daman. The reliefs claimed in the said Suit are reproduced herein under:-
(a) for an order, decree and declaration against the Defendant for payment of Rs.30.5 crores for compensatory damages, consequential damages, the Plaintiff's advocate's fees, costs along with interest at the rate of 18% per annum from 25th January 2010 till payment and/or realization thereof as per the particulars of claim being Exhibit "L" hereto.
(b) for an order, decree and declaration against the Defendant for payment of Rs.30.5 crores for upgrading and renovation of the Plaintiff's facilities, loss of business while undertaking the upgrading and renovation of its facilities, additional lost business, unspecified but substantial losses from the Profit Sharing and loss of the 5 year exclusive manufacturing provisions in the agreement at issue and other damages suffered by the Plaintiff as set out above, along with interest at the rate of 18% per annum from 25th January 2010 till payment and/or realization thereof as per the particulars of claim being Exhibit M hereto.
(c) For a declaration that the Arbitration Demand filed by the Defendant with the American Arbitration Association being Case No.50-122 T-00065-10 is illegal, null and void.
(d) it be declared that the Plaintiff has duly and fully discharge its obligation under the said Agreement dated 13th April 2006 and that the goods delivered by the Plaintiff to defendant No.1 under the said Agreement were not defective and that Defendant No.1 cannot make any claim against the Plaintiff in respect of the said goods.
(e) it be declared that the Plaintiff has discharged all its obligations under the said Agreement an the claim made by Defendant No.1 against the Plaintiff in the Defendant No.1's Advocates notice dated 30.6.2009 is false and not tenable.
(f) In the alternative to prayers (a) and (b) and in the event of it being held that Defendant No.1 is entitled to make ::: Downloaded on - 09/06/2013 18:16:17 ::: 10 wp-10475.11.sxw any claim against the Plaintiff under the said Agreement as mentioned in Defendant No.1's Advocates notice dated 30.6.2009 the Defendants jointly and severally be ordered and decreed to pay to the Plaintiff a sum of Rs.30.5 crores as per the particulars of claim hereto annexed and marked as Exhibit M-1 with further interest on Rs.30.5 crores at the rate of 18% p.a. from the date of the filing of the suit till payment and/or realization.
(g) For an order of permanent injunction against the Defendant permanently restraining the Defendant from proceeding and/or taking any steps in furtherance of the claim filed by the Defendant against the Plaintiff with the American Arbitration Association being Case No.50 122 T 00065 10"
In the context of the challenge raised in the above Petition, Paragraphs 2, 3, 83 and 90 of the Plaint, which spell out the case of the Petitioner in so far as the Respondent No.2 is concerned, are relevant and are reproduced herein under :-
"2 The Defendant No.1 is a Delaware Corporation and Defendant No.1 claims to carry on the business of manufacturing generic pharmaceutical products for sale. Defendant No.2 is a company incorporated under the Companies Act, 1956 and carry on business as courier. Defendant No.2 is joined in this suit as a necessary party in as much as the Plaintiff has an alternative claim against Defendant No.2 in respect of part of the suit transaction which claim, is joint and several against both the Defendants, as mentioned hereinafter.
3 The present suit is filed for recover of damages from the Defendant No.1 for breach of contract and to restrain the Defendant No.1 from proceeding with the arbitration proceedings initiated before the American Arbitration Association and other reliefs as more particularly set out herein. As stated hereinafter, the Plaintiff entrusted goods to be delivered to Defendant No. ::: Downloaded on - 09/06/2013 18:16:17 ::: 11 wp-10475.11.sxw 1 at the Plaintiff's factory at Daman, to Defendant No.2 who acted as a transporter. While acting as a transporter, Defendant No.2 failed and neglected to take care of the goods entrusted to Defendant No.2 and as such resulted in the said goods becoming defective as claimed by Defendant No.1 It is the Plaintiff's contention that Defendant No.2 acted as the agent of Defendant No.1 in receiving the goods from the Plaintiff. However, in the event of it being held that Defendant No.2 acted in a contract between the Plaintiff and Defendant No.2 on principal to principal basis in which event the Plaintiff submits that in the event of it being further found that the goods were damaged during the transportation thereof by Defendant No.2 from the Plaintiff factory at Daman and in the event of it being found that Defendant No.1 is entitled to make a claim against the Plaintiff, the Plaintiff is entitled to recover such claim from Defendant No.2. As mentioned hereinafter, Defendant no.2 is jointly and severally liable to pay to the Plaintiff the amount as claimed herein in respect of the value of the goods so damaged during the transportation done by Defendant No.2.
83 The Plaintiff submits that the claim made by Defendant No.1 against the Plaintiff is in the sum of US $1.4MN, being the value of the goods supplied by the Plaintiff to Defendant No.1, for which, the Plaintiff has received payment under the said Agreement, but that the said goods were defective and that the said goods were returned by Defendant No.1's customers in their market. The Plaintiff repeats, reiterates and confirms what is stated hereinabove and states that the liability of the Plaintiff ceased in respect of the said goods as soon as the said goods were delivered by the Plaintiff to Defendant No.2 for the purpose of carriage and transport from the Plaintiff's factory at Daman. It is the Plaintiff's contention that Defendant No.2 acted as the agent, for and on behalf of Defendant No.1 in receiving the said goods from the Plaintiff at the Plaintiff's factory at Daman. Without in any manner admitting that the Plaintiff can be held liable or that the goods were defective at the time when the same were delivered to Defendant No.2 at the Plaintiff's factory in accordance with the said Agreement between the Plaintiff and Defendant No.1, in the event of it being held that the ::: Downloaded on - 09/06/2013 18:16:17 ::: 12 wp-10475.11.sxw Plaintiff is liable to pay to Defendant No.1, the claim made by Defendant No.1 in respect of the said goods, the Plaintiff, in the alternative submits as follows. The Plaintiff states that the said goods were entrusted to Defendant No.2 in good order and condition, Defendant No.2 as a transporter was obliged to take care of the said goods. Defendant No.2 was aware that during the transport, the said goods were required to be stored in controlled temperature between 15 degree Celsius and 30 degree Celsius. The Plaintiff states that during the month of April and May 2008 when the said goods were to be transported from Daman, the normal average temperature was always above 30 degree Celsius. Defendant No.2 transported the said goods from Daman by road to Mumbai without ensuring that the vehicles used for transport had the required temperatures between 15 degree Celsius and 30 degree Celsius. Further, the said goods were moved to Custom Warehouse by Defendant No.1, in which, the warehouse temperature was not controlled. The Plaintiff states that during the entire shipment, right from Daman to Mumbai en route U.S.A. Controlled temperature was not maintained. Further the shipments from Mumbai to U.S.A. Were not direct but the goods were transported via Lahore, Pakistan and other trans shipment locations. There was a time lag of 3 to 4 days on an average at the transshipment points. The said delay further resulted in deterioration of the said goods as claimed by Defendant No.1. The Plaintiff states that Defendant No.2 had a contractual and/or statutory obligation to take care of the said goods, particularly, in view of the fact that Defendant No.2 was aware that the said goods were required to be stored in controlled temperature during transport. The Plaintiff states that Defendant No.2 committed breach of its statutory and/or contractual obligations, by not taking proper care of the said goods and not arranging for vehicles and/or storage facilities, where, temperature could be controlled. By exposing the said goods to higher temperature as aforesaid and further delaying the delivery by transshipping the said goods at different transshipment points, the said goods got further damaged and thereby the goods became defective. The Plaintiff states that Defendant No.2 is guilty of nonfeasance misfeasance and negligence, the Plaintiff submits that Defendant No.1 has contended that the said goods rejected by Defendant No. ::: Downloaded on - 09/06/2013 18:16:17 ::: 13 wp-10475.11.sxw 1's customers without in any manner admitting the said contention but in the event of it being held that the goods were rejected and in the event of it being held that the Plaintiff is liable for the claim of Defendant No.1 in the sum of US$1.4MN plus costs and other damages, as made by Defendant No.1 as aforesaid, the Plaintiff submits that the Plaintiff is entitled to recover the same from Defendant No.2. The Plaintiff states that Defendant No.2 ought to have taken care of the said goods. The Plaintiff further submits that as stated above, Defendant No.2 were selected by Defendant No.1 and in selecting Defendant No.2, it was obligatory on the part of Defendant No.1 to take care in making proper selection of the transporter so as to ensure that the goods entrusted to Defendant No.2 would be taken care of by Defendant No.2. From what is stated above it is clear that Defendant No.1 were negligent in selecting Defendant No. 2 and therefore Defendant No.2 has contributed to the loss and as such Defendant No.2 and Defendant No.1 are jointly and severally liable to pay to the Plaintiff s um of Rs.30.5 cores as per the particulars of Claim hereto annexed and marked as Exhibit M-1 to the Plaint. The Plaintiff states that the aforesaid claim is made by the Plaintiff in the alternative to the Plaintiff's aforesaid submissions that they are not liable for any damage or loss caused to the said goods. The Plaintiff therefore submits that this Hon'ble Court issue an order, decree and declaration against the Defendant No.1 for payment of US Dollars 2.4 MN for upgrading and renovation of the Plaintiff's facilities, loss of business while undertaking the upgrading and renovation of its facilities, additional lost business, unspecified but substantial losses from the Profit Sharing and loss of the 5 year exclusive manufacturing provisions in the agreement at issue and other damages suffered by the Plaintiff as set out above, alongwith interest at the rate of 18% per annum from 25th January 2010 till payment and/or realization thereof as per the Particulars of Claim being Exhibit "Q" hereto.
90 The Plaintiff submits that interim and ad interim reliefs be granted by this Hon'ble Court failing which grave irreparable loss, harm and injury will be caused to the Plaintiff. The balance of convenience is in favour of the Plaintiff. The Plaintiff submits that the claim made by Defendant No.1 against the Plaintiff is in ::: Downloaded on - 09/06/2013 18:16:17 ::: 14 wp-10475.11.sxw the sum of US $1.4 MN plus costs and damages, being the value of the goods supplied by the Plaintiff to Defendant No.1 for which the Plaintiff has received payment under the said Agreement but that the said goods were defective and that the said goods were returned by Defendant No.1's customers. The Plaintiff repeats reiterates and confirms what is stated hereinabove and states that the liability of the Plaintiff ceased in respect of the said goods as soon as the said goods were delivered by the Plaintiff to Defendant No.2 for the purpose of carriage and transport from the Plaintiff's factory at Daman. It is the Plaintiff's contention that Defendant No.2 acted as the agent of and for and on behalf of Defendant No.1 in receiving the said goods from the Plaintiff at the Plaintiff's factory at Daman. Without in any manner admitting that the Plaintiff can be held liable or that the goods were defective at the time when the same were delivered to Defendant No.2 at the Plaintiff's factory in accordance with the said Agreement between the Plaintiff and Defendant No.1, in the event of it being held that the Plaintiff is liable to pay to Defendant No.1 the claim made by Defendant No.1 in respect of the said goods, the Plaintiff states that the said goods were entrusted to Defendant No.2 in good order and condition, Defendant No.2 as a transporter was obliged to take care of the said goods. Defendant No.2 was aware that during the transport, the said goods were required to be stored in controlled temperature between 15 degree Celsius and 30 degree Celsius. The Plaintiff states that during the month of April and May 2008 when were to be transported from Daman, the normal average temperature was always above 30 degree Celsius. Defendant No.2 transported the said goods from road to Mumbai without ensuring that the vehicles used for transport had the required temperatures between 15 degree Celsius and 30 degree Celsius. Further the said goods were moved to Custom Warehouse by Defendant No.2 in which Warehouse also the temperature was not controlled. The Plaintiff states that during the entire shipment right from Daman to Mumbai, en route, U.S.A. controlled temperature was not maintained. Further, the shipments from Mumbai to U.S.A. were not direct but the goods were transported via Lahore, Pakistan and other places. There was a time lag of 3 to 4 days on an average at the transshipment points.::: Downloaded on - 09/06/2013 18:16:17 :::
15 wp-10475.11.sxw The said delay further resulted in deterioration of the said goods as claimed by Defendant No.1. The Plaintiff states that Defendant No.2 had a contractual and/or statutory obligation to take care of the said goods particularly in view of the fact that Defendant No.2 were aware that the said goods were required to be stored in controlled temperature during transport. The Plaintiff states that Defendant No.2 committed breach of its statutory and/or contractual obligations in not taking care of the said goods and not arranging for vehicles and/or storage facilities where temperature could be controlled. By exposing the said goods to higher temperature as aforesaid and further delaying the delivery by transshipping the said goods at different transshipment points, the said goods got further damaged and thereby the goods became defective. The Plaintiff states that Defendant No.2 is guilty of nonfeasance misfeasance and negligence, the Plaintiff submits that Defendant No.1 has contended that the said goods rejected by Defendant No.'1 customers without in any manner admitting the said contention but in the vent of it being held that the goods were rejected and in the event of it being held that the Plaintiff is liable for the claim of Defendant No.1 a sum of US $ 1.4 MN as made by Defendant No.1 as aforesaid, the Plaintiff submits that the Plaintiff is entitled to recover the same from Defendant No.2. The Plaintiff states that Defendant No.2 ought to have taken care of the said goods. The Plaintiff further submits that, as stated above Defendant No.2 were selected by Defendant No.1 and in selecting Defendant No.2 it was obligatory on the part of Defendant No.1 to take care in making proper selection of the transporter so as to ensure that the goods entrusted to Defendant No.2 would be taken care of by Defendant No.2. From what is stated above it is clear that Defendant No.1 were negligent in selecting Defendant No. 2 and therefore Defendant No.2 has contributed to the loss and as such Defendant No.2 and Defendant No.1 are jointly and severally liable to pay to the Plaintiff a sum of Rs.30.5 crores as per the Particulars of Claim hereto annexed and marked as Exhibit M to the Plaint. The Plaintiff states that the aforesaid claim is made by the Plaintiff in the alternative to the Plaintiff's aforesaid submissions that they are not liable for any damage or loss caused to the said goods."::: Downloaded on - 09/06/2013 18:16:17 :::
16 wp-10475.11.sxw 8 The Petitioner moved an Application in the said Suit seeking the stay of the arbitration proceeding. The Respondent No.1 herein filed a Reply dated 20th December 2010 opposing the interim application. On the same day, the Respondent No.1 also filed an Application under Section 45 of the Arbitration & Conciliation Act, 1996 for a direction to refer the parties to arbitration. The Respondent No.1 relied upon Clause 16 of the Agreement dated 13th April 2006 and averred that, if any dispute exists between the Plaintiff and Defendant (i.e. the status of parties in the Suit), then as per the provisions of the Agreement all such disputes have to be resolved by arbitration. It was further averred by the Respondent No.1 that by filing its reply and Counter Claim to the notice of Arbitration Demand the Plaintiff i.e. the Petitioner had subjected itself to the jurisdiction of the Arbitral Tribunal. It was further averred that the Plaintiff has not claimed any reliefs as against Defendant No.2, and it is only to wriggle out from the arbitration proceedings that the Plaintiff had chosen to make the Defendant No.2 a party without claiming any reliefs against it in the Suit. The Respondent No.1, therefore prayed that the learned Civil Judge, Senior Division, Nani Daman be pleased to direct the Plaintiff to refer the dispute to be resolved by arbitration in accordance with the provisions of clause 16 of the Agreement.
9 The reply filed by the Petitioner to the said Application discloses that no defence of waiver i.e. the Respondent No.1 had waived its rights of ::: Downloaded on - 09/06/2013 18:16:17 ::: 17 wp-10475.11.sxw arbitration, by reason of having filed and withdrawn the complaint before the United States District Court for the Eastern District of Pennsylvania was taken.
The said Application was sought to be opposed on the ground that since the Respondent No.2 was not a party to the OS Agreement, and since the claim made in the Suit is inextricably linked with each other, the parties could not be referred to arbitration.
10 The said Application filed by Respondent No.1 invoking Section 45 of the Arbitration & Conciliation Act, 1996 was heard by the learned Civil Judge, Senior Division, Nani Daman. Judgments were cited on either side in support of their respective contentions. In so far as the Petitioner is concerned, reliance was placed by the counsel appearing on behalf of the Petitioner on the Judgment of the Apex Court in the case of Sukanya Holdings (P) Ltd. v/s.
Jayesh H Pandya and another, reported in (2003) 5 SCC 531, to buttress the submission that if a suit involves a party who is not a party to the arbitration clause, then parties cannot be referred to arbitration. On behalf of the Respondent No.1, the said Judgment was sought to be distinguished by pointing out that the Defendant No.2 has been joined as a party to the Suit to defeat the arbitration clause, as the claim against the Defendant No.2, as can be seen from the Plaint, is a contingent claim, and is virtually a claim for indemnity and contribution sought by the Petitioner against the alleged acts of the Defendant No.2 i.e. the Respondent No.2 herein. The trial Court i.e. the learned Civil Judge, Senior Division, Nani Daman has, by the impugned ::: Downloaded on - 09/06/2013 18:16:17 ::: 18 wp-10475.11.sxw Judgment and Order, allowed the said Application. The trial Court has in terms observed that the facts of the present case are clearly distinguishable from the facts in the case of Sukanya Holdings (P) Ltd. (supra). The trial Court was of the view that by virtue of Clause 16 of the Agreement, the parties would have to be referred to arbitration. As indicated above the said Judgment and Order dated 13th October 2011 impugned in the present Petition.
11SUBMISSIONS ON BEHALF OF THE PETITIONER BY THE LEARNED SENIOR COUNSEL Dr. VIRENDRA TULZAPURKAR.
A] That Clause 16 of the Agreement is not a mandatory provision for arbitration. The concluding part of the said clause, which permits a party to apply to a Court for relief, makes it clear that the said clause is not mandatory in nature;
B] That the meaning of the word "decree" in the said concluding part permits a party to seek a decree from a civil court. Hence a party can seek a final adjudication in civil court, and therefore the said concluding part cannot be interpreted to mean to say that a party can apply for interlocutory reliefs only.
::: Downloaded on - 09/06/2013 18:16:17 :::19 wp-10475.11.sxw C] That Clause 18.5 of the said Agreement also indicates that the said Clause 16 was not a mandatory clause as under Clause 18.5 an action involving the rights, duties and obligations of either party would be brought in the Federal District Court in the Eastern District of Pennsylvania. In support of his contention, as above, the learned Senior Counsel placed reliance on the Judgments of the Apex Court reported in (2000) 4 SCC 272 in the matter of Wellington Associates Ltd v/s. Kirit Mehta; (2007) 5 SCC 719 in the matter of Jagdish Chander v/s. Ramesh Chander and ors. and the Judgment of the Madras High Court reported in AIR 2004 Madras 127 in the matter of M/s.
Sankar Sealing Systems P. Ltd v/s. M/s. Jain Motor Trading Co. and anr..
and the unreported judgment of a learned Single Judge of this Court (R Y Ganoo, J) in the case of IND Synergy Ltd & ors v/s. Clearwater Capital Partners Singapore Fund III Pvt. Ltd & Anr. to contend that the said clause 16 of the Agreement was not a mandatory clause for arbitration.
D] That the parties could not be referred to arbitration inasmuch as the Respondent No.2 herein i.e. DHL is not a party to the said Agreement, and therefore, relying upon the Judgment of the Apex Court in the case Sukanya Holdings (P) Ltd, the learned Senior Counsel for the Petitioner would contend that the causes of action could not be split up, so as to refer the Petitioner and Respondent No.1 to arbitration.
::: Downloaded on - 09/06/2013 18:16:17 :::20 wp-10475.11.sxw E] The learned senior counsel would contend that the Suit as filed was a composite Suit against both the Respondents and the liability of both the Respondents was joint and several, and that the Petitioner's case against the Respondent No.1 could not be severed from the Petitioner's case against DHL.
F] That since the Respondent No.1 had itself invoked the jurisdiction of a Civil Court by filing a complaint before the United States District Court for the Eastern District of Pennsylvania, the Respondent No.1 had thereby waived its right to arbitration and therefore could not file an application for the parties being referred to arbitration.
G] That the participation of the Petitioner in the arbitration proceeding could not come in its way and that the Petitioner was participating in the arbitration under protest and only to avoid a ex-parte Judgment and decision being rendered against it. The learned Senior Counsel sought to place reliance on the Judgment of a learned Single Judge reported in (2008) 6 BCR 418 in the matter of Onyx Musicabsolute.com Pvt. Ltd. & ors. v/s. Yash raj Films Pvt. Ltd & ors. and the Judgment of a learned Single Judge of the Delhi High Court reported in (2004) 3 RAJ 238 (Delhi) in the matter of Raj & Associates v/s. Videsh Sanchar Nigam Limited.
H] That it is well settled that a private forum must yield to a public forum. As the action before a court being an action before a public forum, the ::: Downloaded on - 09/06/2013 18:16:17 ::: 21 wp-10475.11.sxw arbitral proceedings (being before a private forum) ought to yield to the action before the civil Court. In support of the said contention the learned Senior Counsel placed reliance on the Judgment of a learned Single Judge of this Court reported in (2008) 6 BCR 418 in the matter of Onyx Musicabsolute.com Pvt. Ltd. & ors. v/s. Yash raj Films Pvt. Ltd & ors..
I] That the Judgment of the Apex Court in the case of Shin-etsu Chemical Co. Ltd. v/s. Aksh Optifibre Ltd. reported in (2005) 7 SCC 234 that a finding by a judicial authority on an application under Section 45 was only a prima facie finding and/or determination pending the determination by the Arbitral Tribunal was no longer good law in view of the Judgment of the Constitution Bench of the Apex Court reported in AIR 2006 SC 450 in the case of SBP & Co. v/s. Patel Engineering. That in the case of SBP & Co.
(supra) the Constitution Bench had held that a determination by a Court on an application under Sections or 11 of the Arbitration & Conciliation Act, 1996 was final and therefore by a parity of reasoning, the same principle ought to be applied to an application under Section 45 necessarily had to be final.
J] That a learned Single Judge of this court in the unreported Judgment dated 29th March 2011 in the case of IND Synergy Ltd and ors v/s Clearwater Capital Partners Singapore Fund III Pvt. Ltd and anr. wherein the learned Single has used expression "inter alia" whilst stating that "the Judgment of the Supreme Court holds that where a jurisdictional issue has ::: Downloaded on - 09/06/2013 18:16:17 ::: 22 wp-10475.11.sxw been decided, inter alia under Section 8 by the Court, Section 16 cannot empower the Arbitral Tribunal to ignore the decision of the judicial authority.
It was contended by the learned Senior Counsel that the expression "inter alia"
used by the learned Single Judge meant that the Court had in mind Sections 8, 9, 11 and 45 of the Arbitration and Conciliation Act, 1996. The said Judgment was relied upon by the learned Senior Counsel in support of his contention that for the Applications under Section 45, a determination by the judicial authority was final.
K] That the said unreported judgment dated 29th March 2011 in the case of IND Synergy Ltd (Supra), was binding on this Court as it is a judgment rendered by a co-ordinate bench of this Court.
L] That since the law of the United States and particularly the meaning of the word "decree" has not been proved as a matter of fact, this Court would assume that the word "decree" carries the same meaning as in the Indian Law and therefore under Clause 16 of the Agreement a party would apply for final substantive reliefs to a Civil Court. The learned Senior Counsel relied upon the Judgment of a learned Single Judge of this Court reported in (2006) 3 BCR 109 in the matter of Malaysian International Trading Corporation Sdn Bhd. & Anr v/s. Mega Safe Deposits Valut Pvt. Ltd, ::: Downloaded on - 09/06/2013 18:16:17 :::
23 wp-10475.11.sxw M] That the trial Court has by the impugned order virtually dismissed the Suit against the Respondent No.2 when the cause of action against the Respondents is not distinct and separate and the cause of action against both the Respondents is inextricably linked.
12 SUBMISSIONS ON BEHALF OF THE RESPONDENT NO.1 BY THE LEARNED SENIOR COUNSEL SHRI DHOND.
(i) That Clause 16 of the Agreement is mandatory since it uses the word "shall", and therefore there is no option to the parties but to go for arbitration. The reliance placed by the learned Senior Counsel for the Petitioner on Clause 18.5 of the Agreement is conceived.
(ii) That Clause 18.5 of the Agreement as can be seen merely prescribes the law which will be applicable and the Court which will have jurisdiction. The said clause therefore does not detract from the mandatory provision that Clause 16 is.
(iii) That the reliance placed on the concluding part of Clause 16 of the Agreement so as to contend that the said clause is not mandatory is misconceived as the concluding part of Clause 16 is in the nature of limited provision enabling the party to apply to a court for interlocutory reliefs. The same is borne out from the word "limit the right or ability of the parties to ::: Downloaded on - 09/06/2013 18:16:17 ::: 24 wp-10475.11.sxw obtain interim relief, including without limitation..." The concluding part of Clause 16 therefore is not a provision which detracts from the mandatory provision of the arbitration clause.
(iv) That the emphasis of the learned Senior Counsel for the Petitioner on the word "decree" is misplaced. The word "decree" , as can be seen, has been used in conjunction with the words "preliminary injunction or", and therefore, would mean "preliminary injunction or decree" which would inter alia include "preliminary decree" The said word "decree" has to be read ejusdem generis, and therefore would have take the same meaning as the immediately preceding words i.e. "temporary restraining order and/or preliminary injunction". That the word "decree" therefore would not mean a decree for the same thing which is the substantive claim in the arbitration.
(v) That since the Agreement is governed by the laws of the United States, the Courts in the United States have recognized such clauses as contemplating interlocutory relief and that such clauses are not in derogation of provisions for arbitration. The reliance is placed by the learned Senior Counsel on the judgment of the United States District Court for the Eastern District of Pennsylvania in the case of Speciality Bakeries, Inc v/s. Robhal, Inc. reported in 961 F. Supp.822.
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(vi) That the present Suit as framed by making the DHL as Defendant No.2 therein was to defeat the arbitration provision. As in the Counter Claim filed by the Petitioner in the arbitration proceedings, the said proceedings was on the basis that the DHL was an agent of the Respondent No.1 and/or had been nominated and/or chosen by the Respondent No.1 and have therefore, the consequences of any omissions and/or negligence of DHL could not be visited upon the Petitioner.
(vii) That in the Suit a plea is now sought to be raised that the cause of action against the Defendant No.1 and Defendant No.2 is joint and several and the case of the Plaintiff against both the Defendants is inextricably linked and that splitting up one single action into two parts is impermissible in view of the judgment of the Apex Court in the case of Sukanya Holdings (P) Ltd.
(supra). The judgment in the case of Sukanya Holdings (P) Ltd.(supra) is clearly distinguishable on the basis of the facts in the instant case. In the case of Sukanya Holdings (P) Ltd. (supra), the Plaintiff had joined the Defendants to the suit as parties who were properly and bonafide joined as Defendants and whose presence was necessary and/or proper. There was no issue as regards the propriety of their being joined as Defendants, nor was there any issue as to whether their joinder was bonafide. The action in that case was also composite and the case against all Defendants was inextricably linked and/or inter twined. Such is not the case in the instant matter inasmuch as the Defendant ::: Downloaded on - 09/06/2013 18:16:17 ::: 26 wp-10475.11.sxw No.2 DHL is not a necessary or a proper party, and is merely joined to defeat the Arbitration Agreement/provision.
(viii) That the joinder of DHL was nothing more than clever drafting with the intention of defeating the Arbitration Agreement, if one is to consider the case of the Plaintiff in the Counter Claim in the Agreement. The use of the word such as "inextricable; joint and several etc." would not take the Plaintiff's case further as it is a clear case of clever drafting and the court can see through the gloss of clever drafting. The reliance is placed by the learned Senior Counsel for the Respondent No.1 on the judgment of the Apex Court reported in (1998) 2 SCC 70 in the case of I.T.C Limited v/s Debts Recovery Appellate Tribunal & ors.
(ix) That from the averment made in the plaint it is made clear that in so far as case pleaded against DHL is concerned, it is one for indemnity and/or contribution. It is the case where the Plaintiff wants to seek compensation from DHL in the event it is held liable to the Respondent No.1. The learned Senior Counsel for the Respondent No.1 referred to Paragraphs 2, 3 and 90 of the Plaint.
(x) That the judgment in the case of Sukanya Holdings (P) Ltd.
(supra) is concerned, the same is an authority in so far as Section 8 of the Arbitration and Conciliation Act, 1996 is concerned. The language of Sections ::: Downloaded on - 09/06/2013 18:16:17 ::: 27 wp-10475.11.sxw 8 and 45 are completely different. Section 8 concerned the concept of "subject matter" wherein the Court has to be satisfied that the subject matter of the suit and the subject matter of the arbitration are the same. In Section 45, the words "subject matter" are absent and has been advisedly excluded. The said judgment of the Apex Court in the case of Sukanya Holdings (P) Ltd. (supra) therefore cannot be used as a proposition in so far as Section 45 is concerned, as the schemes of the said two provisions that is Sections 8 and 45 are different.
(xi) That the judgment in the case of Sukanya Holdings (P) Ltd.
(supra) is also not applicable on the ground that in the present case the Petitioner had gone to arbitration, made a Counter Claim before the Arbitral Tribunal and thereafter with a view to defeat the arbitration filed a Suit by adding one more party who was not concerned at all while formulating the case before the Arbitral Tribunal. The present case is therefore clearly one where a party is seeking to avoid arbitration by filing a dishonest action where an additional party who is not necessary or proper has been joined so as to fit within the ratio of the judgment in the case of Sukanya Holdings (P) Ltd.
(supra).
(xii) That the judgment in the case of Sukanya Holdings (P) Ltd.
(supra) cannot be relied upon to frustrate the Arbitration Agreement. In support of the said submission, the learned senior counsel relied upon a ::: Downloaded on - 09/06/2013 18:16:17 ::: 28 wp-10475.11.sxw judgment of a learned Single Judge of this Court reported in 2010(2) Bom.C R 712 in the matter of Severn Trent Water Purification v/s. Chloro Controls India Pvt. Ltd, and another judgment of a Division Bench of this Court reported in 2010(3) Mh. L.J. in the matter of JSW Steel Ltd v/s JFE Shoji Trade Corporation, wherein this Court has held that the judgment of the Apex Court in the case of Sukanya Holdings (P) Ltd (supra) cannot be relied upon to defeat the arbitration clause by merely filing an action and joining a party who was not necessary or proper for the adjudication of the matter in issue.
(xiii) That the plea of waiver sought to be raised by the Petitioner against the Respondent No.1 cannot be countenanced in the teeth of the fact that a complaint filed before the United States District Court for the Eastern District of Pennsylvania was withdrawn at the instance of the Petitioner in view of the Arbitration Agreement. The said fact has been averred in the affidavit in reply to the above Petition which has not been controverted by the Petitioner.
(xiv) That no such defence of waiver was raised by the Petitioner in the reply to Section 45 Application and therefore there was no need for the Respondent No.1 to meet a case which has not been pleaded in the affidavit in reply.
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(xv) That in any event a defence of waiver and/or non arbitrability is a defence on merits and the issue of non arbitrability is an issue of jurisdiction which the Arbitral Tribunal will decide with regard to the laws of the United States.
(xvi) That the judgment in the case of Malaysian International Trading Corporation v/s. Megasafe Deposits Valut, reported in (2006) 6 Bom. C R 109 has no application as the issue regarding the existence and/or validity of the Arbitration Agreement will be finally decided by the Arbitral Tribunal.
13 SUBMISSIONS OF THE LEARNED COUNSEL SHRI R J CAMA APPEARING ON BEHALF OF THE RESPONDENT NO.2 (DHL)
a) That the above Writ Petition challenging the order passed on an Application under Section 45 is not maintainable. Reliance was placed on the judgment of the Apex court reported in (2011) 8 SCC 333 in the matter of Fuerst Dey Lawson Ltd v/s Jindal Exports Ltd, wherein the Apex Court held that against an order under Section 45 no Letters Patent Appeal would lie.
b) That the Defendant No.2 has been purposely arrayed as a Defendant in the said Suit to defeat the arbitration clause. That the Plaintiff's case all along has been that the Defendant No.1 is responsible for the acts of ::: Downloaded on - 09/06/2013 18:16:17 ::: 30 wp-10475.11.sxw the agent which is Defendant No.2. That the said case is borne out by the averments made in Paras 45 and 83 of the Plaint.
c) That by a process of clever drafting a case is sought to be made out that the cause of action against the Defendants is joint and that the cause of action against both the Defendants is inextricably linked and therefore the matter could not be referred to arbitration as the Defendant No.2 is not a party to the Arbitration Agreement.
(d) That the judgment in the case of Svenska Handelsbanken (supra) settles it beyond the pale of doubt that Clause 16 is mandatory in nature.
(e) That having filed the Counter Claim in the arbitration proceedings it is not open for the Petitioner to filed the instant Suit. Reliance is placed on the judgment of a learned Single Judge of the Andhra Pradesh High Court reported in 1991 (Vol. 70) 303 in the matter of Nalam Satya Prasad Rao and ors. v/s. Vinupamula Lakshmi Narasimha Sastry and ors..
CONSIDERATION :-
14 Heard the learned counsel for the parties and perused the Written Submissions filed on behalf of the Respondent No.1.::: Downloaded on - 09/06/2013 18:16:17 :::
31 wp-10475.11.sxw 15 Since the issue of maintainability of the Petition has been raised by Shri R J Cama, the learned counsel appearing for the Respondent No.2, it would be apposite to deal with the said issue at the out set. The learned counsel has relied upon the judgment of the Apex Court reported in (2011) 8 SCC 333 in the matter of Fuerst Dey Lawson Ltd v/s Jindal Exports Ltd, The issue in the said case was as regards the maintainability of a Letters Patent Appeal against an order passed by the learned Single Judge making a reference under Section 45 of the said Act. The facts were that the learned Single Judge of the Delhi High Court had dismissed the suit filed by the Petitioner and allowed the Application filed by the Defendant Nos. 3 to 5 therein referring the parties to arbitration under Section 45 of the said Act. The Letters Patent Appeal filed by the Petitioner was dismissed as not maintainable . In Appeal, the Apex Court upheld the order dismissing the Appeal on the touch stone of Section 50 of the said Act. Under Section 50, as can be seen, an Appeal lies only from an order refusing to refer the parties to arbitration under Section 45 to the Courts authorized by law to hear the Appeals from such order.
16 However, the facts of the present case are that the impugned order has been passed by the trial Court i.e. the learned Civil Judge Senior Division, Daman referring the parties to arbitration under Section 45 of the said Act.
Therefore, this is not a case where a party has filed an intra court appeal but is a case where the extra ordinary jurisdiction of this Court is invoked on the ::: Downloaded on - 09/06/2013 18:16:17 ::: 32 wp-10475.11.sxw grounds mentioned in the above Writ Petition. The Petitioner would therefore be entitled to invoke the extra ordinary remedy provided by Article 227 of the Constitution of India to challenge the said order and therefore, the submission of Shri R J Cama, the learned counsel appearing of the Respondent No.2 that the above Writ Petition is not maintainable is without merit and is accordingly rejected.
17 The first issue that needs to be addressed is as to whether the finding of the judicial authority i.e. the learned Civil Judge Senior Division, Daman, on the issue of existence of the Arbitration Agreement and the arbitrability of the dispute is prima facie or conclusive. As mentioned herein above on behalf of the Petitioner strong reliance is placed on the judgment of the Constitution Bench of the Apex Court in the case of SBP & Co.(supra) in support of the submission that the judgment in the case of Shin-etsu (supra) has been over ruled by the Constitution Bench in so far as it holds that in an order passed on an Application filed under Section 45 of the Act, the view expressed by the judicial authority is prima facie.
In the said context it would be necessary to see the scheme of Part-
I and Part-II of the said Act. Part-I as can be seen deals with arbitrations in India whilst Part-II deals with a special type of arbitrations out side India. The situs where the arbitration is to take place attracts certain consequences. An arbitration in a foreign country such as this where the substantive and ::: Downloaded on - 09/06/2013 18:16:17 ::: 33 wp-10475.11.sxw remedial law is that of the foreign country cannot be per-se equated with and/or treated as Indian arbitration. It would therefore be inappropriate to superimpose provisions of Part-I so as to override specific provisions contained in Part-II. That reading of subsection (2) of Section 2 of the Act is also a clear pointer to the fact that the provisions of Part I can have no application in so far as section 45 is concerned. The provisions of Sections 8, 9 or 11 and the judicial decisions interpreting these three sections therefore cannot be of any aid in the construction of Section 45 considering the clear difference in the scheme of the two parts in the said Act.
18 In the case of Shin-etsu (supra), the scope and ambit of section 45 was directly in contention. The majority decision of the Apex Court held that a judicial authority before whom an application under Section 45 was made was only required to arrive at a prima facie determination about the requirements of the section viz. existence and validity of the Arbitration Agreement.
Paragraphs 72, 105 and 106 of the said judgment are material and are reproduced herein under :-
"72 True, that there is nothing in Section 45 which suggests that the finding as to the nature of the arbitral agreement has to be ex facie or prima facie. In my view, however, this is an inescapable inference from an ex visceribus interpretation of the statute. Sub-section (3) of Section 8 in Part I of the Act envisages that even in a situation where an application to the court has been made under sub-section (1), the arbitration may commence, continue and even an arbitral award be made. This was obviously meant to cut down delay in the ::: Downloaded on - 09/06/2013 18:16:17 ::: 34 wp-10475.11.sxw conclusion of the arbitral proceedings. There is conspicuous absence of a corresponding provision either in Section 45 or in the rest of the provisions in Part II.
This legitimately gives rise to an inference that once the arbitral agreement has been subjected to scrutiny before the court under Section 45 of the Act, conceivably, the arbitral proceedings could be stayed till the decision of the court on the nature of the arbitral agreement. If it were to be held that the finding of the court under Section 45 should be a final, determinative conclusion, then it is obvious that, until such a pronouncement is made, the arbitral proceedings would have to be in limbo. This evidently defeats the credo and ethos of the Act, which is to enable expeditious arbitration without avoidable intervention by judicial authorities.
105 I fully agree with my Learned Brother's view that the object of dispute resolution through arbitration, including international commercial arbitration, is expedition and that the object of the Act would be defeated if proceedings remain pending in court even after commencing of the arbitration. It is precisely for this reason that I am inclined to the view that at the pre- reference stage contemplated by Section 45, the court is required to take only a prima facie view for making the reference, leaving the parties to a full trial either before the arbitral tribunal or before the court at the post- award stage.
106 Undoubtedly, an international commercial arbitration involves huge expenses, particularly where the parties have subjected the contract to a foreign law. But, that cannot be a deterrent to this Court from pronouncing on the correct approach to be adopted under Section 45 of the Act. In fact, as I have pointed out, adopting a final and determinative approach under Section 45 may not only prolong proceedings at the initial stage but also correspondingly increase costs and uncertainty for all the parties concerned. Finally, having regard to the structure of the Act, consequences arising from particular interpretations, judgments in other jurisdictions, as well as the opinion of learned authors on the subject, I am of the view that, the correct approach to be adopted under section 45 at the pre-reference stage, ::: Downloaded on - 09/06/2013 18:16:17 ::: 35 wp-10475.11.sxw is one of a prima facie finding by the trial court as to the validity or otherwise of the arbitration agreement."
19 The judgment in the case of Shin-etsu (supra) therefore leaves no scope for doubt, as regards the nature of the determination under Section 45 of the said Act. In the said judgment it is held that the determination under Section 45 of the said Act is only prima facie determination in contrasted with a determination by a judicial authority under Part-I. The judgment in the case of Shin-etsu (supra) therefore is a clear precedent for the proposition which squarely fell for consideration therein that whilst exercising jurisdiction under Section 45, a judicial authority is only required to prima facie satisfy itself on the existence and/or validity of the Arbitration Agreement. The final decision, in this respect is to be taken by the Arbitral Tribunal, which will consider evidence and proof of applicable law. Therefore at the stage of Section 45 there is no room for the judicial authority determining the issue of existence and/or validity and/or arbitrability of disputes.
Since the judicial authority whilst considering an application under Section 45 is only required to arrive at a prima facie determination pending the fuller and final determination by the Arbitral Tribunal, there is no question of the application of the doctrine of a private forum yielding to a public forum to the present case.
::: Downloaded on - 09/06/2013 18:16:17 :::36 wp-10475.11.sxw Now coming to the Constitution Bench Judgment of the Apex Court in the case of SBP & Co. (Supra). The issue in the said case was the nature of the function of the Chief Justice and/or his designates under Section 11 of the said Act. This was necessitated in view of the fact that a three Judge Bench of the Apex Court had taken a view that it is an administrative function and that it is neither judicial or quasi judicial and the Chief Justice or his nominees performing the function under Section 11 of the Act cannot decide any contentious issue between the parties. It is pertinent to note that Section 45 did not even fall for consideration in the said case and all the sections which were considered therein i.e. Section 8, 9, 11 and 16 fall under Part I of the Act. The Apex Court therefore answered the said issue which answer can be found in the conclusions in Para 46 of the said Judgment which is reproduced herein under :-
"46. We, therefore, sum up our conclusions as follows:
i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power.
ii) The power under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief Justice of the High Court only to another judge of that court and by the Chief Justice of India to another judge of the Supreme Court.
(iii) In case of designation of a judge of the High Court or of the Supreme Court, the power that is exercised by the ::: Downloaded on - 09/06/2013 18:16:17 ::: 37 wp-10475.11.sxw designated, judge would be that of the Chief Justice as conferred by the statute.
(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 Chief Justice or the judge designated would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the judge designate.
(v) Designation of a district judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act.
(vi) Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would not interfere with orders passed by the arbitrator or the arbitral tribunal during the course of the arbitration proceedings and the parties could approach the court only in terms of Section 37 of the Act or in terms of Section 34 of the Act.
(vii) Since an order passed by the Chief Justice of the High Court or by the designated judge of that court is a judicial order, an appeal will lie against that order only under Article 136 of the Constitution of India to the Supreme Court.
(viii) There can be no appeal against an order of the Chief Justice of India or a judge of the Supreme Court designated by him while entertaining an application under Section 11(6) of the Act.
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(ix) In a 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 the jurisdiction to decide all matters as contemplated by Section 16 of the Act.
(x) Since all were guided by the decision of this Court in Konkan Railway Corpn. Ltd. & anr. Vs. Rani Construction Pvt. Ltd. [(2000) 8 SCC 159] and orders under Section 11(6) of the Act have been made based on the position adopted in that decision, we clarify that appointments of arbitrators or arbitral tribunals thus far made, are to be treated as valid, all objections being left to be decided under Section 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act.
(xi) Where District Judges had been designated by the Chief Justice of the High Court under Section 11(6) of the Act, the appointment orders thus far made by them will be treated as valid; but applications if any pending before them as on this date will stand transferred, to be dealt with by the Chief Justice of the concerned High Court or a Judge of that court designated by the Chief Justice.
(xii) The decision in Konkan Railway Corpn. Ltd. & anr.
Vs. Rani Construction Pvt. Ltd. [(2000) 8 SCC 159] is overruled."
In so far as Judgment in the case of SBP & Co (supra) is concerned, it is pertinent to note that there is no reference or mention of over-ruling of Shin-
etsu. The submission of the learned Senior Counsel appearing for the Petitioner that the said Constitution Bench Judgment over rules the judgment in the case of Shin-etsu cannot be accepted for more than one reason, if Shin-
etsu was to be over-ruled, the Constitution Bench would have surely made a ::: Downloaded on - 09/06/2013 18:16:17 ::: 39 wp-10475.11.sxw reference to the ratio of Shin-etsu being reconsidered or reviewed. Nowhere in the case of SBP & Co (supra) is there any observation which can even be remotely considered as disagreeing with the ratio in Shin-etsu. Save and except for one paragraph where Shine-etsu has been merely referred to that too for another proposition. The Constitution Bench as can be seen had no occasion to and did not consider the different scheme of Part I and Part II nor the non obstante provision of Section 45 of the said Act. In any event it is well settled that a judgment is only an authority for what it lays down and not for what logically flows from it. The fact that judgment in Shin-etsu has not been over ruled or diluted is also clear from the subsequent judicial pronouncements which have been referred to by the learned Senior Counsel for the Respondent No.1. The judgment in the case of Usha Drager Pvt. Ltd and anr v/s Dragerwerk AG and ors, reported in 170(2010) DLT 628 can be gainfully referred to. In the said Judgment the Division Bench of the Delhi High Court has rejected the self same argument as made by the learned Senior Counsel appearing on behalf of the Petitioner herein by holding that Section 45 and Section 8 operated in different fields and the judgment in the case of SBP & Co (supra) has not in any way affected or diluted the earlier decision in the case of Shin-etsu (supra). Para 27 of the judgment in the case of Usha Drager Pvt.
Ltd and anr v/s Dragerwerk AG and ors,is material and is reproduced herein under :-
"As regards the reliance placed by the appellant on the various decisions referred, we are not agreeable to the submissions of the appellant in view of settled law on the subject. We agree with the learned Counsel for the ::: Downloaded on - 09/06/2013 18:16:17 :::
40 wp-10475.11.sxw respondents that in the case of Patel Engineering the Apex court was dealing with the nature of the function of the Chief Justice of the India under Section 11 of the Arbitration Act i.e. powers with regard to appointment of arbitrators, whereas in Shin Etsu case the Hon'ble court was dealing with the powers of judicial authorities to refer parties to arbitration in case an agreement to that effect exists in cases governed by Part II of the Act. We are in agreement with Counsel for respondents that in both the decisions the Apex court was dealing with different subject matters and, therefore, the question of one case over-rulling the other does not arise."
20 In so far as the un-reported judgment of a learned Single Judge of this Court dated 29th March 2011 of this Court in the case of IND Synergy Ltd & ors v/s. Clearwater Capital Partners Singapore Fund III Pvt. Ltd & Anr. is concerned, in the said Judgment the learned Single of this court has used the expression "inter alia" whilst stating that "the judgment of the Supreme Court holds that where a jurisdictional issue has been decided, inter alia, under Section 8 by the Court, Section 16 cannot empower the Arbitral Tribunal to ignore the decision of the judicial authority." It was submitted by the learned Senior Counsel appearing for the Petitioner that the expression "inter alia"
meant that the Court had in mind Sections 9, 11 and 45. It was therefore the submission of the learned Senior Counsel appearing for the Petitioner that the said judgment was an authority for the proposition that even for applications under section 45, a determination by the judicial authority was final. The learned Senior Counsel for the Petitioner would contend that the said judgment being a judgment of a co-ordinate bench of this Court, was binding on the another Single Judge by relying upon the judgment of the Division ::: Downloaded on - 09/06/2013 18:16:17 ::: 41 wp-10475.11.sxw Bench of this Court reported in AIR 1975 Bom 120 in the matter of Panjumal Hassomal Advani v/s. Harpal Singh Abnashi Singh Sawhney and ors.. It is required to be noted that the question in the said case no way concerned Part II of the said Act. Therefore to interpret the word "inter alia" so as to include Sections 9, 11 and 45 of the Act would in my view not be proper as one cannot merely on a presumption that the learned Judge whilst using the phrase "inter alia" had in mind the other provisions of the said Act viz. Sections 9, 11 and 45. This especially in the context of the fact that Section 45 is a part of Part-II and the scheme of Section 45 as enumerated above is different than the scheme as contained in Section 8 of the said Act. In my view, though there can be no dispute about the proposition that a judgment of a learned Single Judge of this Court is binding on another learned Single Judge, however, in my view, the interpretation put forth by the learned Senior Counsel for the Petitioner that the word "inter alia" would include even Section 45 is not acceptable, the said judgment of the learned Single of this Court in the case of IND Synergy (supra) therefore cannot aid the Petitioner to contend that the proposition laid down in SBP's case is also applicable to a decision rendered under Section 45 of the said Act.
21 The contention of the learned Senior Counsel for the Petitioner that the parties could not have been referred to arbitration by relying upon Clause 16 of the Agreement has broadly three limbs which have been mentioned herein above. Firstly that Clause 16 of the Agreement is not ::: Downloaded on - 09/06/2013 18:16:17 ::: 42 wp-10475.11.sxw mandatory; secondly that on the application of the law laid down in Sukanya Holdings (P) Ltd. (supra), the parties could not have been referred to arbitration; and thirdly that by filing a Complaint before the United States District Court for the Eastern District of Pennsylvania the Respondent No.1 had waived its right to arbitration. To consider the aforesaid three limbs, it would be gainful to reproduce the concluding part of clause 16.
"The parties agree that the existence of this arbitration provision shall not in any way limit the right or ability of the parties to obtain, interim relief, including without limitation a temporary restraining order, preliminary injunction or decree, as may be necessary, to protect either party against, or on account of any breach or violation of this Agreement, in any court of law having jurisdiction thereof.
In so far as first limb i.e. non-mandatory nature of Clause 16 of the Agreement is concerned, the learned Senior Counsel appearing for the Petitioner has placed reliance on the aforesaid concluding part of the said Clause 16.
However, a reading of the said Clause 16 shows that the said clause obliges the parties to resolve their disputes by arbitration. The said Clause 16 in the opening uses the word "shall" and therefore no option is vested in the parties.
The use of the word "shall" demonstrates that it is clearly mandatory in nature.
Hence Clause 16 of the Agreement far from supporting the case of the Petitioner that it is not mandatory in nature, in fact dents the argument put forth by it. The plain reading of the concluding part of the said Clause 16 makes it clear that it is in the nature of a limited provision enabling the parties ::: Downloaded on - 09/06/2013 18:16:17 :::
43 wp-10475.11.sxw to apply to a Court for interlocutory relief. The concluding part of the said Clause 16 therefore can be said to reserve the right of a party to apply to a Court of law having jurisdiction for the purposes of interim relief. The part of Clause 16 which follows the words "interim relief" namely the words "including without limitation" merely enumerate the different types of applications for interim relief that can be made to a Court. The said words enumerate what type of applications for interim relief which could be made viz. temporary restraining order, preliminary injunction or decree. The concluding part of Clause 16 therefore cannot be said to be a provision which detracts from the mandatory provision as contained in the arbitration clause.
22 On behalf of the Petitioner, the learned Senior Counsel sought to lay emphasis on the word "decree" appearing in the concluding part so as to contend that a party can even apply for final reliefs. The word "decree" as can be seen appears in conjunction with the words "preliminary injunction" or "preliminary decree". The word "preliminary" qualifies both injunction and decree. The word "decree" appearing in the said clause would therefore have to be read ejusdem generis i.e. it must have the same meaning as the immediately preceding words with which it keeps company i.e. "temporary restraining order and/or preliminary injunction" If that be so, it clearly means an interlocutory or preliminary decree. The concluding part would therefore have to be interpreted to mean that it entitles a party to apply to a Court of law having jurisdiction for the purposes of interim relief.
::: Downloaded on - 09/06/2013 18:16:17 :::44 wp-10475.11.sxw 23 How such clauses have been interpreted in the United States is borne out by the judgment of the United States District Court for the Eastern District of Pennsylvania in the case of Speciality Bakeries, Inc. v/s Robhal, reported in 961 F. Supp 822, wherein such clauses as contemplating interlocutory relief are held to be not in derogation of the provisions for arbitration.
24In support of the contention that the said Clause 16 of the Agreement is not mandatory, reliance was also placed on Clause 18.5 of the Agreement. In my view, the said reliance is misplaced. Clause 18.5 merely prescribes the law which will be applicable and the Court which will have jurisdiction. Neither of these provisions can be said to detract from the mandatory provisions for arbitration. The said clause can be said to have been incorporated as even in cases of arbitration, parties are often required to seek judicial redressal either as an aid to the arbitral process or to challenge an arbitral award. The provision can only to be said to stipulate the choice of Court to which such an application has to be made, and therefore, cannot be said to be said to be detract from the mandatory nature of the arbitral clause.
25 The learned Senior Counsel for the Petitioner, in so far the word "decree" which is appearing in the concluding part is concerned, advanced another submission that it is for the Respondent No.1 to establish as a matter ::: Downloaded on - 09/06/2013 18:16:17 ::: 45 wp-10475.11.sxw of fact as to how the law of the United States is different from the law of India.
In the absence of the said burden being discharged by the Respondent No.1 this Court will presume that the foreign law which is applicable is the same as the law in India and the onus of establishing that foreign law is different from Indian law is on the person who asserts that it is different. In support of the said contention, reliance is placed on the judgment of a learned Single Judge of this Court in the case of Malaysian International Trading Corporation v/s. Megasafe Deposits Valut, reported in (2006) 6 Bom. C R 109 . In my view, it is not necessary to go into the said aspect as the existence and/or validity of the Arbitration Agreement will be finally decided by Arbitral Tribunal. Since the view expressed by the civil court can be said to be a prima facie view, therefore, it is the Arbitral Tribunal who will decide the issue of existence and/or validity of the Agreement, necessarily with regard to the substantive law applicable to the contract.
26 Now coming to the judgments cited on behalf of the Petitioner in support of the contention that Clause 16 of the Agreement is not mandatory, in my view, the same do not aid the Petitioner. In so far as the first judgment reported in AIR 2004 Madras 127 in the matter of M/s. Sankar Sealing Systems Pvt. Ltd. v/s. M/s. Jain Motor Trading Co. and anr. is concerned, the arbitration clause was in two parts which were clauses 23A and 23B.
Clause 23A read thus :-
"Any dispute arising in relation to this Agreement will be settled by the arbitration of a neutral ::: Downloaded on - 09/06/2013 18:16:17 ::: 46 wp-10475.11.sxw person agreed to by both"
The learned Single Judge of the Madras High Court therefore held that the words "agreed to by both" meant that the parties had to agree to the neutral person and in the absence of an agreement, they could not be compelled to arbitrate. Hence consensus upon a neutral person was, therefore, necessary.
For the said reason the clause was held not to be mandatory. In so far as judgment reported in (2000) 4 SCC 272 in the matter of Wellington Associates Ltd. v/s. Kirit Mehta is concerned, the clause in the said case was also different. The clause in the said case read thus :-
"It is also agreed by and between the parties that any dispute or difference arising in connection with these present may be referred to arbitration"
The Apex Court noted that the clause used the word "may" and not "shall" and therefore, came to a conclusion that a clause which contemplates that disputes may be referred to arbitration gives the parties the option to go to arbitration and is not mandatory. The next judgment is the judgment of the Apex Court reported in (2007) 5 SCC 719 in the matter of Jagdish Chander v/s. Ramesh Chander and ors. Clause 16 in the said case read thus :-
"If during the continuance of the partnership or at any time afterwards any dispute touching the partnership arises between the partners, the same shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine."::: Downloaded on - 09/06/2013 18:16:17 :::
47 wp-10475.11.sxw The Apex Court therefore in the said case held that the word "determine"
indicates that the parties are required to reach a decision by application of mind. The Apex Court held that the clause requires the consent of parties before the disputes can be referred to arbitration. It is in the said context that the Apex Court held the said clause is not mandatory.
27 In so far as the judgment in IND Synergy Ltd of a learned Single Judge of this Court (Coram : R Y Ganoo, J) is concerned, the clause in contention was clause 16.11 which was termed as the litigation clause and which read as follows :-
"Without prejudice to the provisions of this Agreement, the parties agree that each party shall be entitled to an injunction, restraining order, right for recovery, suit for specific performance or such other equitable relief as a Court of competent jurisdiction may deem necessary or appropriate to restrain the other party from committing any violation or enforce the performance of the covenants, obligations and representations contained in this Agreement. These injuctive remedies are cumulative and are in addition to any other rights and remedies the parties may have at law or in equity, including without limitation a right for recovery of the amounts due under this Agreement and related costs and a right for damages"
As can be seen from the above, the said Clause 16.11 expressly contemplated that a party could file a suit for specific performance or other equitable relief including to enforce performance of covenants, obligations and representations contained in the Agreement. It is in the said context where the parties had ::: Downloaded on - 09/06/2013 18:16:17 ::: 48 wp-10475.11.sxw expressly contemplated applications to a Court in various situations including by filing a suit for specific performance or enforcing performance of contractual covenants, obligations and representations, that the learned Single Judge concluded that there was no binding agreement to arbitrate. The facts of the present case are that apart from the word "shall" used in the opening of the said Clause 16, the said arbitration clause is clear, unambiguous and mandatory and can only be said to provide for applications being made to a civil Court for interlocutory reliefs.
28 On the aspect as to whether the said Clause 16 is mandatory in nature, a useful reference could be made to the authoritative pronouncement of the Apex Court in the case of Svenska Handelsbanken v/s Indian Charge Chrome Ltd. reported in (1994) 2 SCC 155. The facts in the said case were that Clause 18 was the jurisdiction clause, and, Clause 18.02 of the said clause 18 provided that all disputes arising from the provisions of the Agreement or its performance shall be finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators appointed by and in accordance with these Rules. However by sub clause 18.03 a provision reserving the right of a party to go against the other party in the Courts of India or Sweden or the United Kingdom or the State of New York was provided for. On the basis of the said clause 18.03, which was the concerned clause, an argument was sought to be raised that the agreement in question was not an Arbitration Agreement, since it expressly ::: Downloaded on - 09/06/2013 18:16:17 ::: 49 wp-10475.11.sxw contemplates approaching a civil court. This argument was negated by the Apex Court by the findings recorded in Paras 49 to 54 by holding that the a clause which gives an additional right to a party to approach a civil court does not detract from the mandatory nature of the Arbitration Agreement. What is significant to note is that the Apex Court further held that even where there is an Arbitration Agreement contemplating a right to civil court, a civil action instituted by a party in breach of an Arbitration Agreement was liable to be restrained. Paragraphs 53 and 54 of the said Judgment are material and are reproduced herein under :-
"53 It may be that even after entering into an arbitration clause any party may institute legal proceedings. It is for the other party to seek stay of the suit by showing the arbitration clause and satisfying the terms of the provisions of law empowering the court to stay the suit. Clause 18.03, therefore, merely states what is otherwise the legal position. The object of clause 18.03 is to reserve to defendant 4 the right to suit for money advanced. It is intended to be exercised in cases where there is no dispute whatsoever but still payments have not been made. These are standard clauses in all credit agreements. Clause 18.03 gives an additional right. To the extent this clause is exercised in cases where there are disputes, it would be the exercise of a legal right and both parties have agreed that the borrower will submit to the jurisdiction of the court. In such an eventuality defendant 4 would have elected to exercise the right under clause 18.03, which is in addition to and not in derogation of the arbitration clause in clause 18.02. As the arbitration clause remains untouched by clause 18.03, if defendant 4 was to sue the plaintiff under clause 18.03 for recovery of its loan, it may be open to the plaintiff (borrower) to apply under Section 3 and seek stay of the suit. The stay of the suit could be granted notwithstanding clause 18.03 for the simple reason that the agreement to submit to the jurisdiction to the court under clause 18.03 relates to the maintainability of the suit in a ::: Downloaded on - 09/06/2013 18:16:18 :::
50 wp-10475.11.sxw court agreed to by both parties, but does not affect the question whether the proceedings should be stayed in view of the arbitration clause. The Plaintiff may well elect to have the dispute decided in court or it may apply under Section 3 of the Foreign Awards Act or a similar provision in Sweden, England or United States, depending on where defendant 4 files the suit. Such clauses like clause 18.03 do not affect the factum or binding nature of the arbitration agreement in clause 18.02.
54 There is no question of parallel proceedings by reason of the non-obstante clause in clause 18.03. The plaintiff can have the dispute settled by arbitration as agreed in clause 18.02 or it may have the dispute settled in a court in proceedings instituted by defendant
4. However, the plaintiff cannot institute proceedings in any court against defendant 4. It is clear from a reading of clause 18.02 and clause 18.03 that there will be no parallel proceedings."
In my view, the judgment in the case of Svenska Handelsbanken would apply on all fours to the facts of the present case, and therefor,e would set at rest any dispute or question whether the arbitration clause in question is mandatory or not.
29 Since much store was laid on the judgment of the Apex Court in the case of Sukanya Holdings (P) Ltd. (supra) to contend that the parties could not be referred to arbitration in view of the fact that the cause of action against the Respondent No.1 and the Respondent No.2 was joint and several;
that the case of the Plaintiff against both the Respondents who are the Defendants in the Suit is inextricably linked and granting an order under Section 45 of the said Act would tantamount to splitting one single action into ::: Downloaded on - 09/06/2013 18:16:18 ::: 51 wp-10475.11.sxw two parts. The issue as to whether the parties could be referred to arbitration would therefore also have to be considered in the context of the judgment of the Apex Court in the case of Sukanya Holdings (P) Ltd. (supra) .
30 The facts in Sukanya Holdings (P) Ltd. (supra) were that one of the partners had filed a suit for dissolution of the partnership, settlement of accounts and inter alia challenging the conveyance deed executed by the partnership firm in favour of one West End Gymkhana. It appears that prior to filing of the said suit, five flats were sold to the creditors of the partnership firm in order to repay the loans, and the excess amount from the said sale was paid to the firm from it. It appears that the creditors had sold Flat Nos. 401 to 701 to different purchasers. On the same day, when the suit was filed, an arbitration petition was also filed by another partner of the firm who was the Appellant before the Apex Court for referring the subject matter of the suit to arbitration under Section 8 of the said Act. This Court rejected the said arbitration petition on the ground that apart from the relief of dissolution and accounts, the plaintiff in the said suit has also prayed for other reliefs and that all the Defendants to the suit were not the parties to the Arbitration Agreement, and therefore, the said arbitration clause was not binding upon them. The prayer of the plaintiff for splitting up cause of action between the parties to the Arbitration Agreement, and the parties who are not, was also rejected by this Court as such a course of action was not contemplated under Section 8 of the said Act. On the matter being carried in Appeal, the Apex ::: Downloaded on - 09/06/2013 18:16:18 ::: 52 wp-10475.11.sxw Court confirmed the view taken by this Court. The relevant paragraphs of the judgment in the case of Sukanya Holdings (P) Ltd. (supra) are Paragraphs 15, 16 and 17 which are reproduced herein under :-
"15 The relevant language used in Section 8 is "in a matter which is the subject matter of an arbitration agreement", Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of 'a matter' which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced -"as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section
8. The words 'a matter' indicates entire subject matter of the suit should be subject to arbitration agreement.
16 The next question which requires consideration is even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act? In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed.
17 Secondly, such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on ::: Downloaded on - 09/06/2013 18:16:18 :::
53 wp-10475.11.sxw occasions there is possibility of conflicting judgments and orders by two different forums."
Therefore in the case of Sukanya Holdings (P) Ltd (supra), as can be seen, the Defendants were parties who had purchased the flats from the creditors of the partnership firm and therefore could be said to be parties who were necessary parties to the said suit. It is also required to be noted that in the said case, there was no issue as regards propriety of they being joined as Defendants, nor was there any issue that their joinder was not bonafide. Since the purchasers were not the parties to the arbitration agreement that the Apex Court held that the cause of action could not be split up.
31 In so far as present case is concerned, it is pertinent to note that the present Suit has been filed by the Petitioner after a period of eight months after the Respondent No.1 filing its claim before the American Association of Arbitration and after the Petitioner has filed its Counter Claim and participated in the pre-trial formalities of the said arbitration. Though a stand has been taken by the Petitioner that it has participated in the said Arbitration proceedings to avoid an ex-parte judgment, it is pertinent to note that the only objection taken by the Petitioner in the answer filed to the claim by the Respondent No.1 is to the situs of the Arbitration proceedings and the service of the Arbitration Demand. It is further pertinent to note that the Counter Claim was premised on the basis that Respondent No.2-DHL was an agent of Respondent No.1 and/or had been nominated and/or chosen by Respondent ::: Downloaded on - 09/06/2013 18:16:18 ::: 54 wp-10475.11.sxw No.1, and therefore the consequences of any omission and/or neglect of Respondent NO.2-DHL could not be visited on the Petitioner. However, in so far as Respondent No.1 is concerned, in the said Suit the claim against Respondent No.1 is made as made in the Counter Claim. In so far as Respondent No.2 is concerned, a reading of the averments in the plaint especially Paras 2, 3, 83 and 90 are concerned they make it clear that the case pleaded in the plaint against Respondent No.2 boils down to one for indemnity or contribution i.e. in the event the Petitioner is held liable to Respondent No.1, the Petitioner was entitled to seek compensation from Respondent No.2-DHL. Therefore, the Petitioner would have recourse against Respondent No.2 only in the event of the Petitioner failing in the arbitration and suffering a monetary liability therein. The Petitioner therefore could have resorted to a contingent action against Respondent No.2 alone, if it was bonafide pursuing a claim against Respondent No.2. The present Suit therefore is not an action where Respondent No.2 is either a necessary or a proper party and has been joined bonafide. The Suit is therefore a case of clever drafting so as to extricate the Petitioner from the arbitration clause by showing that the cause of action against the Respondents is joint and inextricably linked. There is therefore merit in the contention of the learned Senior Counsel for the Respondent No.1 and the learned counsel for the Respondent No.2 that the cause of action therefore in the Suit is really a forced and artificial ad-mixture of totally distinct and different claims against different parties and that Respondent No.2 is joined merely to defeat the arbitration proceedings and the Suit as filed ::: Downloaded on - 09/06/2013 18:16:18 ::: 55 wp-10475.11.sxw therefore is not bonafide.
32 The application of the law laid down in the case of Sukanya Holdings (P) Ltd (Supra) can also be looked at from another angle. In the case of Sukanya Holdings (P) Ltd (Supra), the Court was concerned with Section 8 whereas in the present case the Section in contention is Section 45 which is in Part II of the said Act. Whereas in so far as Section 8 is concerned, the defining aspect as it were is "subject matter". The said words are absent in Section 45. The words used in Section 45 are "in respect of which the parties have made an agreement referred to in Section 44" Hence for the applicability of Section 45, the subject matter concept is completely alien. This probably is view of the origins and genesis of the two provisions, and the scheme being completely different of the said two provisions. Another distinguishing factor is that a decision rendered under Section 45 as held in the case of Shine-etsu is only prima face decision. In my view, therefore the judgment in Sukanya Holdings (P) Ltd (Supra) therefore cannot be used as a proposition for Section 45.
33 It is also not unknown that attempts have been made by parties to frustrate the arbitration clause or provisions by filing a suit where in third parties are joined with an intention to defeat the arbitration clause. In such cases, the Courts have to be circumspect whilst considering an argument based on Sukanya Holdings (P) Ltd (Supra) as parties cannot be allowed to ::: Downloaded on - 09/06/2013 18:16:18 ::: 56 wp-10475.11.sxw frustrate the argument by relying upon Sukanya Holdings (P) Ltd (Supra). A useful reference could be made to the judgment of a Division Bench of this Court reported in 2010(2) Bom.C R 712 in the matter of Severn Trent Water Prification v/s. Chloro Controls India Pvt. Ltd, and another judgment of a Division Bench of this Court reported in 2010(3) Mh. L.J. in the matter of JSW Steel Ltd v/s JFE Shoji Trade Corporation, wherein the Division Benches of this Court have expressed concern at the possible misuse of the ratio laid down in Sukanya Holdings (P) Ltd (Supra) and have held that the judgment of the Apex Court in the case of Sukanya Holdings cannot be relied upon to defeat the arbitration clause by merely filing an action and joining a party who was not necessary or proper for the adjudication of the matter in issue.
34 Now coming to the defence of waiver which is raised by the learned Senior Counsel appearing on behalf of the Petitioner, which defence is founded on the fact that the Respondent No.1 having filed a civil suit (complaint) before the the United States District Court for the Eastern District of Pennsylvania is now estopped from seeking arbitration and/or has waived the arbitration remedy. It was the contention of the learned Senior Counsel for the Petitioner that the stand now taken in the affidavit in reply filed in the present Petition viz. that it was on the demand of the Petitioner's counsel that the matter proceeds in arbitration that the Respondent No.1 voluntarily dismissed its complaint was not taken in the Application under Section 45 of ::: Downloaded on - 09/06/2013 18:16:18 ::: 57 wp-10475.11.sxw the said Act, where it ought to have been taken by the Respondent No.1 at the first instance, and therefore, the stand taken by the Respondent No.1 in the Affidavit that the Suit was withdrawn upon demand of the counsel for the Petitioner so as to proceed to arbitration is merely to get over the said fact of the Suit being filed. In so far as the said submission is concerned, it was the contention of the learned Senior Counsel for the Respondent No.1 that there was no need for the Respondent No.1 to make such an averment in the Application under Section 45 of the said Act because there was no need for the Respondent No.1 to so aver. The learned Senior Counsel further contended that in the reply affidavit to the Application under Section 45 no such defence was raised by the Petitioner that the Respondent No.1 could not demand arbitration on account of it having first approached the United States District Court for the Eastern District of Pennsylvania by filing a Suit. Since the defence based on the said fact was not raised, there was no need for the Respondent No.1 to meet a case which had not been pleaded, and since the case was specifically pleaded in the present Writ Petition, the Respondent No.1 dealt with the same in its counter affidavit which pleading has not been traversed by the Petitioner. In my view, there is substance in the said contention of the learned Senior Counsel for the Respondent No.1. If such a plea was to be raised by the Petitioner of waiver undoubtedly the same would have been met by the Respondent No.1 by filing a rejoinder in the Application under Section 45 of the said Act. Having not done so and also having not controverted the averment in the affidavit in reply to the present Petition, in ::: Downloaded on - 09/06/2013 18:16:18 ::: 58 wp-10475.11.sxw my view, the said case of the Respondent No.1 that the Suit filed by it in the the United States District Court for the Eastern District of Pennsylvania was withdrawn at the request of the counsel for the Petitioner so that the matter proceeds in arbitration has to be accepted. This Court therefore, prima facie, does not find any merit in the said plea of waiver as urged by the learned Senior Counsel for the Petitioner. Continuing with the aspect of the plea of waiver, it is required to be noted that it is not as if the Respondent No.1 is pursuing any Suit before a civil court. The Respondent No.1 in fact has withdrawn the litigation before the civil court and has elected to go to arbitration. The Petitioner having appeared in the said arbitration and having filed a Counter Claim and is still persisting with it, the doctrine of election if it has to apply to anybody it has to be to the Petitioner as rightly contended by the learned Senior Counsel for the Respondent No.1, the Petitioner on the one hand whilst continuing with the Counter Claim on the other hand it seeks to file a Suit. In my view, therefore it is the Petitioner in fact who is pursuing two remedies.
35 However, though this Court on the issue of waiver has observed as above, it is required to be noted that the Agreement in question is governed by the laws of the United States. The defence of wiaver and/or arbitrability and/or non-arbitrability being a defence on merits. The issue of non-
arbitrability is an issue of jurisdiction which the Arbitral Tribunal will decide with regard to the law in the United States. Since the view expressed by the ::: Downloaded on - 09/06/2013 18:16:18 ::: 59 wp-10475.11.sxw trial Court can only be said to be prima facie view in the light of the judgment in Shin-etsu (supra). The said issue if urged before the Arbitral Tribunal will undoubtedly be examined by the Arbitral Tribunal with regard to the laws applicable to the Agreement.
36 CONCLUSIONS 1 That the view expressed by the learned Civil Judge, Senior Division, Daman in the impugned order can only be said to be a prima facie view on the question of the existence of the Arbitration Agreement and the arbitrability of the dispute.
2 That it would be for the Arbitral Tribunal to finally adjudicate upon the question of the existence of the Arbitration Agreement and arbitrability of the dispute.
3 That the parties would be free to urge their respective contentions on the said question before the Arbitral Tribunal 4 The Arbitral Tribunal would be obligated to decide the same in terms of the law applicable to the Agreement.
::: Downloaded on - 09/06/2013 18:16:18 :::60 wp-10475.11.sxw 5 That the Suit filed by the Petitioner joining the Defendant No.2 (DHL) is not bonafide and has been filed only with a view to frustrate the Arbitration Clause, the judgment of the Apex Court in Sukanya Holdings (P) Ltd (Supra) would therefore have no application.
37 Having heard the learned Senior Counsel for the parties at length and having perused the impugned judgment and order dated 13th October 2011 allowing the Application under Section 45 of the said Act, in my view, there is no error of jurisdiction or any illegality or infirmity committed by the Court below for this Court to interfere under Article 227 of the Constitution of India. The Writ Petition is accordingly dismissed. Rule discharged with no order as to costs.
[R.M.SAVANT, J] ::: Downloaded on - 09/06/2013 18:16:18 :::