Bombay High Court
M/S. Siddhi Real Estate Developers vs Metro Cash And Carry India Pvt. Ltd. & Anr on 12 June, 2014
Author: S.C. Gupte
Bench: S.C. Gupte
sg 1/15 arp10-12.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION PETITION NO.10 OF 2012
M/s. Siddhi Real Estate Developers ... Petitioner
Vs.
Metro Cash And Carry India Pvt. Ltd. & Anr. ...Respondents
....
Mr, K.S. Dewal, i/b. J.M. Joshi, for the Petitioner.
Mr. Prateek Seksaria along with Ms. Suruchi Rungta, along with Mr.
Ayush Agarwala i/b. AZB & Partners for Respondent No.1.
....
CORAM : S.C. GUPTE, J.
Reserved on : APRIL 4, 2014 Pronounced on : JUNE 12, 2014 (JUDGEMENT) :
. This is an application for appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 ("Act").
2 The Petitioners are owners of a large piece and parcel of land admeasuring about 24,199 sq. mtrs. at Village Dhokali, Taluka and District Thane, Maharashtra. By an agreement titled as Memorandum of Understanding dated 26 November 2007 ("MOU"), Respondent No. 1 agreed to acquire development rights and purchase from the Petitioners ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 2/15 arp10-12.doc a part of the said land admeasuring about 19,000 sq. mtrs. at or for a consideration of Rs. 101.50 crores. The MOU has an arbitration clause requiring inter alia each of the parties to appoint one arbitrator and the two appointed arbitrators to appoint the third arbitrator. Pursuant to the MOU, an escrow agreement dated 27 November 2007 ("Escrow Agreement") came to be executed between the parties inter alia appointing Respondent No. 2 as the escrow agent to hold the sum of Rs.
25.37 crores payable by Respondent No. 1 to the Petitioners as part of the consideration under the MOU and deposited by Respondent No. 1 with the escrow agent in an escrow account. The escrow amount was to be disbursed by Respondent No. 2 in terms of the Escrow Agreement.
The Escrow Agreement contained an arbitration clause requiring inter alia each of the three parties to the Escrow Agreement (i.e. the Petitioners, Respondent No. 1 and Respondent No. 2) to appoint one arbitrator and the three appointed arbitrators to appoint two additional arbitrators, thus constituting an arbitral tribunal of five arbitrators.
Disputes and differences arose between the parties concerning the performance of the MOU as well as payment of the escrow amount. The Petitioners invoked the arbitration agreements contained in the MOU and the Escrow Agreement. Both the Petitioners and Respondent No. 1 ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 3/15 arp10-12.doc appointed their respective arbitrators, but Respondent No. 2 failed to appoint any arbitrator. The Petitioners explored the possibility of continuing with the arbitration proceedings between themselves and Respondent No. 1 alone under the arbitration agreement contained in the MOU (which required two arbitrators to be nominated by the parties and the two nominated arbitrators to appoint a third arbitrator). The two nominated arbitrators were, however, of the view that it was not possible to proceed with the arbitration without the presence of Respondent No. 2 and appointment of the third arbitrator by the latter. (The three nominated arbitrators would have to appoint two additional arbitrators, thereby constituting a tribunal of five arbitrators, as per the terms of the Escrow Agreement.) The Petitioners have, accordingly, approached this court for appointment of a third arbitrator. Though there are separate prayers in the application for constituting separate tribunals of three arbitrators for deciding disputes under the MOU and of five arbitrators (the three nominated arbitrators appointing two others on the tribunal) for deciding disputes under the Escrow Agreement, the Petitioners have introduced by way of an amendment a prayer for appointment of a tribunal of five arbitrators for deciding disputes under both the MOU and ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 4/15 arp10-12.doc the Escrow Agreement. It is this prayer which is pressed at the hearing by the Petitioners.
3 Respondent No. 1 has opposed this prayer for constituting a common arbitral tribunal (of five arbitrators) for deciding disputes under the MOU and the Escrow Agreement together. It is submitted by Respondent No. 1 that they have no objection to constituting two separate tribunals - one of three arbitrators for deciding disputes between the Petitioners and Respondent No. 1 under the MOU and the other of five arbitrators for adjudicating disputes between the Petitioners, Respondent No. 1 and Respondent No. 2 under the Escrow Agreement. This constitutes the main controversy in this petition. Both parties accept that there are disputes between them and these are covered by the two arbitration agreements, one contained in the MOU and the other in the Escrow Agreement. But the Petitioners want these disputes to be adjudicated by a common arbitral tribunal, whereas Respondent No. 1 is prepared to go before two separate tribunals. It is the case of Respondent No. 1 that after all the two agreements - the MOU and Escrow Agreement - have separate provisions for the ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 5/15 arp10-12.doc constitution of arbitral tribunals and in any event, the disputes thereunder cannot be clubbed for a common trial.
4 The question of validity of joint arbitration concerning the same claim covered by two separate arbitration agreements to which the Claimant is a common party and which are separately entered into by the claimant with the Respondents, was considered by the Supreme Court in the case of P.R. Shah, Shares and Stock Broker (P) Ltd. Vs. B. H. H. Securities (P) Ltd.1 In that case the appellant and the first respondent were members of the Bombay Stock Exchange. The second respondent was a non-member with whom the first respondent claimed to have entered into a transaction on the instructions of the appellant.
The first respondent thus had claims jointly against the second respondent and the appellant. These claims, however, were to be arbitrated upon under separate arbitration agreements - one between the first respondent (a member) and the second respondent (a non-
member) under Bye-law 248 and the other between the first respondent and the appellant (both members) under Bye-law 282. The Supreme Court held the joint arbitration to be valid. This is how the Supreme Court explained the position (para 19) :
1 (2012) 1 SCC 594 ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 6/15 arp10-12.doc If A had a claim against B and C, and there was an arbitration agreement between A and B but there was no arbitration agreement between A and C, it might not be possible to have a joint arbitration against B and C. A cannot make a claim against C in an arbitration against B, on the ground that the claim was being made jointly against B and C, as C was not a party to the arbitration agreement. But if A had a claim against B and C and if A had an arbitration agreement with B and A also had a separate arbitration agreement with C, there is no reason why A cannot have a joint arbitration against B and C. Obviously, having an arbitration between A and B and another arbitration between A and C in regard to the same claim would lead to conflicting decisions. In such a case, to deny the benefit of a single arbitration against B and C on the ground that the arbitration agreements against B and C are different, would lead to multiplicity of proceedings, conflicting decisions and cause injustice.
It would be proper and just to say that when A has a claim jointly against B and C, and when there are provisions for arbitration in respect of both B and C, there can be a single arbitration.
5 In the case on hand, we are concerned with two arbitration agreements - one between two parties, i.e. the Petitioners and Respondent No. 1, namely, arbitration clause in the MOU and the other between three parties, i.e. the Petitioners, Respondent No. 1 and Respondent No. 2, namely, the arbitration clause contained in the Escrow Agreement. The MOU provided for conferment of development rights by the Petitioners on Respondent No. 1 at a consideration. The Escrow Agreement provided for payment of part of the consideration by deposit with the Escrow Agent (Respondent No. 2) and disbursal by the ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 7/15 arp10-12.doc Escrow Agent to the Petitioners in accordance with the terms of Escrow.
The Escrow Agreement was incidental to the MOU and entered into in pursuance of the MOU. The dispute raised by the Petitioners is this:
Respondent No. 1 failed to pay the amount of consideration due under the MOU to the Petitioners and Respondent No. 2, with whom the consideration was deposited, wrongfully returned the deposit kept in escrow with it to Respondent No. 1. This claim for disbursal of the consideration is jointly against both the Respondents (and with both of whom the Petitioners have separate arbitration agreements) and arises out of a single transaction or part of a single transaction. There is no reason why the Petitioners cannot have a joint arbitration against both the Respondents. In fact, two separate arbitrations, in the facts of the case, would lead to multiplicity of proceedings and possibility of conflicting decisions, leading to serious injustice. This is precisely the vice that was sought to avoided when the Supreme Court laid down the law in P. R. Shah (supra). I am fortified in this view by a judgment of another Single Judge of this Court in Flimwares Combine Private Ltd.
Vs. Kochi Cricket Private Ltd..2
6 The question now is, whether any difference is made to this 2 ARBAP68 of 2012 dtd. 22 February 2013 ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 8/15 arp10-12.doc principle due to separate provisions in the two arbitration agreements for constitution of the arbitral tribunal - one requiring a tribunal of three arbitrators and the other five. Learned Counsel for Respondent No. 1 would argue that after all the agreement between the parties essentially contemplates a three member arbitral tribunal for disputes arising out of the MOU and a five member arbitral tribunal for disputes arising out of the Escrow Agreement and one would be doing violance to this agreement if all the disputes including the disputes under the MOU were to be referred to an arbitral tribunal of five members.
7 Let this aspect be examined in the light of the powers of the Chief Justice or his designate under Section 11 of the Act. The question is whether the principle of party autonomy prohibits the court to appoint different number of arbitrators from what was agreed to between the parties. Obviously, in the present case though an appointment procedure is agreed upon by the parties, they have failed to act under that procedure. That is the basis of the present application. Section 11 requires the Court (i.e. the Chief Justice or his designate) in such a case to "take the necessary measure", unless the agreement on the appointment procedure provides other means for securing the ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 9/15 arp10-12.doc appointment. The question as to what constitutes the "necessary measures" has engaged the attention of the Courts in a number of cases.
Do "necessary measures" imply only those measures that have to be taken under the appointment procedure as laid down in the arbitration agreement or are these measures independent of the agreement between the parties concerning the appointment procedure. Though there have been conflicting positions earlier by different High Courts on this issue, the trend now seems to be in favour of a half-way house solution, suggested by the Supreme Court in the case of Ace Pipeline Contracts Pvt. Ltd. Vs. Bharat Petroleum Corporation Ltd. 3 In that case, the arbitration agreement required that the Government Department concerned had to appoint an arbitrator, which the Department failed to do. The Supreme Court held as follows:
13. It may also not be out of place to mention that we are aware of the Departmental lethargy in making appointment of arbitrators in terms of the arbitration clause. Therefore, mandamus can be issued by the Courts in exercise of powers under Section 11(6) of the Act but the demand should be in the event of failure by the authorities to appoint arbitrators within the reasonable time. Courts are not powerless to issue mandamus to the authorities to appoint arbitrators as far as possible as per the arbitration clause. But in larger number of cases if it is found that it would not be conducive in the interest of parties or for any other reasons to be 3 AIR 2007 Supreme Court 1764 ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 10/15 arp10-12.doc recorded in writing. Choice can go beyond the designated persons or institutions in appropriate cases. But it should normally be adhered to the terms of arbitration clause & appoint the arbitrator/arbitrators named therein except in exceptional cases for reasons to be recorded or where both parties agree for common name.
In Union of India Vs. V. S. Engineering Pvt. Ltd. 4, the Supreme Court observed as follows:
We cannot allow administrative authorities to sleep over the matter and leave the citizens without any remedy. Authorities shall be vigilant and their failure shall certainly give rise to cause to the affected party. In case, the General Manager, Railway does not appoint the arbitral tribunal after expiry of the notice of 30 days or before the party approaches the High Court, in that case, the High Court will be fully justified in appointing arbitrator under section 11 of the Act. It is the discretion of the High Court that they can appoint any railway officer or they can appoint any High Court Judge according to the given situation.
A Three Judge Bench of the Supreme Court in the case of Northern Railway Administration Vs. Patel Engineering Co. Ltd., 5 laid down the following proposition:
12. A bare reading of the scheme of Section 11 shows that the emphasis is on the terms of the agreement being adhered to and/or given effect as closely as possible. In other words, the Court may ask to do what has not been done. The Court must first 4 AIR 2007 Supreme Court 285 5 (2008) 10 Supreme Court Cases 240 ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 11/15 arp10-12.doc ensure that the remedies provided for are exhausted. It is true as contended by Mr. Desai, that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named arbitrator or arbitrators. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations.
13. The expression "due regard" means that proper attention to several circumstances have been focused.
The expression "necessary" as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. Necessary measures can be stated to be the reasonable steps required to be taken.
8 These authorities suggest a balanced approach in the matter.
The courts should as far as possible preserve the sanctity of party autonomy and defer to the appointment procedure agreed to between the parties, whilst at the same time retaining a discretion to appoint such arbitrator/s as may be deemed fit to meet the ends of justice. It may be that in a given case, a party requiring to nominate an arbitrator may be taking benefit of its own wrong by not naming an arbitrator or frequently changing the arbitrator. It may also be that an order to follow the appointment procedure is likely to result in a stalemate or otherwise interests of justice may require that the appointment procedure ought not to be followed. In all such cases, the courts are not powerless to ignore the appointment procedure and appoint an independent tribunal ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 12/15 arp10-12.doc outside the appointment procedure. After all, the principle of party autonomy is not so sacrosanct as to require adherence even in the face of a clear injustice.
9 This discussion applies even to the number of arbitrators that the agreed appointment procedure provides for. Even where the appointment procedure requires a certain number of arbitrators, the courts have made exceptions on the grounds of doing justice between parties. In Group Chimique Tunisien SA Vs. Southern Petrochemicals Industries Corporation Ltd.,6 the arbitration clause provided for appointment of two arbitrators and in the event of disagreement an umpire was to be appointed by the two arbitrators. The Supreme Court, noting the provisions of Section 10 of the Act, appointed a three member tribunal, with the third arbitrator to be selected at the outset by the two nominated arbitrators. In KJMC Global Market (India) Ltd. Vs. Jammu & Kashmir State Power Development Corporation 7, the agreement provided for appointment of three arbitrators, but the Delhi High Court, accepting a plea of one of the parties, appointed a sole arbitrator instead.
In a more recent case, in Union of India Vs. Singh Builders Syndicate8, 6 2006(6) Mh.L.J.1 7 2005(1)ARDLR 178 (Delhi) 8 2010(3) ALT2(SC) ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 13/15 arp10-12.doc Raveendran J appointed a retired judge of Delhi High Court as sole arbitrator, even though the arbitration agreement required two serving Gazetted Railway Officers as arbitrators. Number of arbitrators is part of appointment procedure agreed to between the parties, and this part of the procedure, though ordinarily required to be adhered to, can in a given case be disregarded on the same grounds as are indicated in the foregoing paragraph generally in connection with the appointment procedure.
10 In the case on hand, a strict and inflexible adherence to the appointment procedure, and particularly the number of arbitrators, would lead to a complete stalemate. Though the disputes under the MOU and the Escrow Agreement have a common genesis and can - nay, ought to - be decided in a single arbitration reference, a rigid adherence to the number of arbitrators for the respective arbitral tribunals would lead to truncating of the trial as well as multiplicity of proceedings and possibility of conflicting decisions. There is a clear case for hearing a joint arbitration between the Petitioners on the one hand and Respondent Nos.1 and 2 on the other, and an equally clear case for deviating from the number of arbitrators agreed upon between the ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 14/15 arp10-12.doc parties. Five arbitrators to be appointed under the arbitration clause of the Escrow Agreement could very well decide the disputes under both MOU and Escrow Agreement.
11 Even in the case of P.R. Shah (supra), the fact that there are distinct and different appointment procedures as well as consequences under two arbitration agreements did not deter the court from countenancing a joint arbitration by one arbitral tribunal. In that case, as pointed out above, in regard to the arbitration between a member and a non-member, the applicable bye-law was Bye-law No. 248, which required reference to three arbitrators, each party appointing one arbitrator and the Executive Director of the Exchange appointing the third arbitrator. On the other hand, in case of a dispute between a member and another member, the applicable bye-law was Bye-law No.
282. This Bye-law required the reference to be made to a three member tribunal appointed by the arbitration committee of the exchange. This tribunal was termed as Lower Bench and appeal from its award could be taken before the Arbitration Committee constituted by the Governing Board of the Exchange. In spite of these important differences between the procedures under two separate Bye-laws including the consequences ::: Downloaded on - 22/06/2014 23:28:58 ::: sg 15/15 arp10-12.doc of an award (eg. the provision of an appeal in case of arbitration under one Bye-law unlike the other), the Supreme Court did not find fault with the joint arbitration before a common arbitral tribunal of three arbitrators.
12 Accordingly, the arbitration application is allowed by appointing Mr. Justice Rebello (Retd.) as the third arbitrator. The three arbitrators, i.e. Mr. Justice Bharucha (Retd.), Mr. Justice Palshikar (Retd.) and Mr. Justice Rebello (Retd.), shall appoint two arbitrators.
The reference between the parties for adjudication of disputes under both the MOU and the Escrow Agreement shall be conducted before the arbitral tribunal of five arbitrators so constituted.
` ( S.C. GUPTE, J. )
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