East West Marine Engineering Works vs Shree Ram Streel Co on 9 January, 2015

[Cites 17, Cited by 0]

Gujarat High Court

East West Marine Engineering Works vs Shree Ram Streel Co on 9 January, 2015

1. The petitioner seeks appointment of an arbitrator under section 11(6) of the Arbitration and Conciliation Act, 1996 ("the Act" for short) to resolve the disputes between the petitioner and the respondent arising out of an agreement titled as MOU dated 15.7.2009.

2. Brief facts are as under :

2.1. Under the said MOU the respondent had to lift approximately 6000 metric tonnes of scrap from the petitioner at its site at Kakinada office, Andhra Pradesh on payment of an agreed sum. The agreed price was Rs.11/ per kg or Rs.11000/ per metric tonnes. An advance of Rs.50 lakhs was to be paid. First installment of such advance of Rs. 25 lakhs was paid by the respondent to the petitioner. It was further agreed that :

"The PARTY OF THE SECOND PART is making advance payment of Rs.25.00 lakhs in the first phase as mentioned in the foregoing paragraphs. THE PARTY OF THE SECOND PART has also agreed to pay the remaining advance amount of Rs.25.00 lakhs after getting all necessary clearances and documents satisfying the conscious of THE PARTY OF THE SECOND PART that the material which the PARTY OF THE FIRST PART is selling to THE PARTY OF THE SECOND PART is free from all encumbrances, without any lien, without any charge, without any attachment either from any court of law or from any Government or SemiGovernment Authorities or any financial institutions or from the Port Authorities.

Page 2 of 13

O/IAAP/85/2014 JUDGMENT AS THE PARTY OF THE SECOND PART is making advance payment towards the purchase price of the material, all necessary documents and clearances are to be obtained by THE PARTY OF THE FIRST PART and all formalities are to be observed by the PARTY OF THE FIRST PART for getting clearances of the material. THE PARTY OF THE FIRST PART will secure interest of the PARTY OF THE SECOND PART by giving Postdated Cheques from the account of the PARTY OF THE FIRST PART bearing No.369010200009980 with AXIS Bank, Dwarka Nagar branch, Visakhapatnam. In addition thereto, THE PARTY OF THE FIRST PART will also execute a Promissory Note that if the PARTY OF THE FIRST PART is not able to adhere to the terms and conditions of this Contract within 30 days of its execution, the PARTY OF THE FIRST PART will pay back the advance amount of Rs.25.00 lakhs plus Rs.3.00 lakhs towards damages to THE PARTY OF THE SECOND PART forthwith."

2.2. MOU also contained an arbitration clause in the following terms :

"IT IS AGREED BY AND BETWEEN PARTY OF THE FIRST PART AND PARTY OF THE SECOND PART that in case of any disputes, the resolution of disputes will be done out of Court under the provisions of The Arbitration and Conciliation Act, 1996 and only Courts at Ahmedabad in the State of Gujarat will have jurisdiction. It is expressly agreed by and between PARTY OF THE FIRST PART AND PARTY O THE SECOND PART that only the Courts in the city of Ahmedabad in the State of Gujarat will have jurisdiction to entertain any dispute. It is further expressly agreed by and between PARTY OF THE FIRST PART AND PARTY OF THE SECOND PART that Arbitral proceedings Page 3 of 13 O/IAAP/85/2014 JUDGMENT will also be conducted in the City of Ahmedabad in the State of Gujarat only."

2.3. On the allegation that the respondent though had paid a sum of Rs.25 lakhs to the petitioner, the petitioner failed to supply the necessary material, the respondent filed a Summary Suit No.559/2010 before the City Civil Court, Ahmedabad. In such pending proceedings, the petitioner filed an application dated 6.9.2010 raising an issue that in view of the arbitration clause contained in the said MOU, the proceedings are required to be referred for arbitration in terms of section 8 of the Act. The City Civil Court passed an order dated 27.4.2011 disposing such an application on the following reasons :

"Advocate for the defendant has not remained present for the hearing of the chamber summons.

Advocate for the plaintiff referring to his reply at Exh.23 submitted that there is no scope for arbitration in view of the clause on page no.4 sheet no.4 of Memorandum of Understanding the defendant has to pay forthwith the amount Rs. Referred; any other disputes other than this can be the matter for arbitration.

The summary suit without any leave for defence from the defendant will take longer time merely by this Chamber summons which the defendant can adhere to, even at the time of leave to defence.

Hence as there is no cause for the present application, the chamber summons is dismissed for No order as to cost."

Page 4 of 13

O/IAAP/85/2014 JUDGMENT 2.4. The petitioner challenged such an order of the City Civil Court before the High Court by filing Special Civil Application No.9685/2011. Learned Single Judge dismissed the petition observing as under :

"8. Having heard learned advocates for the parties and on perusal of the record of the case, it transpires that, before the summary suit was filed, as per the settlement arrived between the parties, petitionersdefendants had decided to return the amount of Rs.25 lakhs by issuing a cheque which was deposited by the plaintiff. However, it was dishonoured on the ground of `stop payment'. Thus, having received the draft of Rs.25 lakhs, as per the terms of Memorandum of Understanding, admittedly the petitioners did not deliver the scrap material, and therefore, by way of settlement, a cheque of Rs.25 lakhs was given to the purchaserrespondentoriginal plaintiff, which was dishonoured on the ground of `stop payment'. This shows that the plaintiff was justified in filing summary suit for quick recovery of its money and any attempt on the part of the defendants on the ground of existence of arbitration clause would result into delay. Not only that, but while passing the impugned order, the Trial Court has observed that, "the summary suit without any leave for defence from the defendant will take long time and merely by this Chamber summons which the defendant can adhere to, even at the time of leave to defence, hence no cause of action had arisen at the said stage and dismissed the chamber summons".

9. Considering the nature of dispute and contents of the clause of arbitration in Sheet 5 of the agreement, the jurisdiction of City Civil Court to decide the dispute is not ousted, and therefore, the decision of this Court in Rupal Textile and Partners of Partnership Firm Madhubhai G. [supra] relied by the learned advocate for the petitioners - defendants, which was based on facts and circumstances of that case arising out of suit for Page 5 of 13 O/IAAP/85/2014 JUDGMENT permanent injunction, is not applicable to the facts of the present case. The dishonest plea on the part of the defendants, who have pocketed Rs.25 lakhs by accepting demand draft from the plaintiff, but failed to deliver the goods, would otherwise preclude this court from exercising discretionary powers in favour of the petitioners.

In view of the above, the impugned order passed by the learned Judge cannot be said to be in any manner illegal or arbitrary, which calls for any interference of this Court in exercise of powers under Articles 226 and 227 of the Constitution of India.

In absence of any merit, this petition is dismissed with costs of Rs.10,000/.

Notice is discharged."

3. It is not in dispute that the petitioner has not carried the matter further and thus the order of the High Court has become final. The petition thereafter, filed this arbitration petition urging the designatee of the Chief Justice to appoint an arbitrator to resolve the disputes pertaining the breach of the agreement and recovery of outstanding amount, compensation along with interest.

4. First question with which I confronted the advocate of the petitioner was, in view of the order passed by City Civil Court, Ahmedabad and upheld by the High Court, would it now be possible to appoint arbitrator under section 11 to resolve the very same dispute. The counsel strenuously urged that the order passed by the City Civil Court was summary in nature and the question of jurisdiction of the arbitrator should be allowed to be decided by the arbitrator himself in terms of section 16 of the Act. He submitted that Page 6 of 13 O/IAAP/85/2014 JUDGMENT the very fact that the order passed by the Court under section 8 is not made appealable would demonstrate that any consideration under such application is only tentative. He alternatively submitted that in view of arbitration clause contained in the agreement and the mandatory provision of section 8(1) of the Act, the Courts committed an error in not referring the dispute to the arbitrator. This being an order which suffers jurisdictional error, can be challenged in any collateral proceedings. In support of his contentions, counsel relied on certain decisions which I would refer to at a later stage.

5. As noted earlier, facts are not in dispute. An MOU between the petitioner and the respondent contained an arbitration clause. When therefore, the respondent filed a Summary Suit against the petitioner for having failed to repay a sum of Rs.25 lakhs upon the petitioner's inability to supply the scrap material, the petitioner pressed in service such arbitration clause and urged the Court that entire dispute be referred to arbitration. Such application came to be dismissed by the Civil Court. Such order was also upheld by the High Court. In view of such developments, the entire dispute is now being examined by the Court of competent jurisdiction. At that stage, there would be no scope for appointment of an arbitrator to look into the very same disputes. This would be so for multiple reasons. Firstly, law does not recognise the concept of the same dispute being dealt with and decided by parallel fora. In absence of such policy, there would be a possible conflict of judicial opinions. In this very case, if the request of the petitioner for appointment of an arbitrator is accepted, the arbitrator Page 7 of 13 O/IAAP/85/2014 JUDGMENT would pass his award. The Civil Court also would proceed with summary suit and pass its judgement and decree. In case of divergent view, which one would prevail is the fundamental question.

6. Secondly, the judgement of the learned Single Judge of this Court cannot be questioned before me. The view expressed by the learned Single Judge having achieved finality, for want of further appeal, would bind the petitioner with all its force. In essence, such judgement confirmed the view of the Civil Court that the disputes are not required to be referred for arbitration. Whatever be the logic and the reasoning of such view expressed by the Civil Court and this Court, I simply cannot go behind such orders, Accepting the request of the petitioner for appointment of an arbitrator would disregard such binding decision which binds not only me but more importantly the petitioner who was party to such litigation.

7. There is a fundamental difference between the reference of a dispute for arbitration under section 8(1) of the Act and appointment of an arbitrator under section 11(6) of the Act. Various parameters for examining power of Chief Justice and his designatee under section 11(6) of the Act have been discussed and decided by the Constitutional Bench Judgement of the Supreme Court in case of SBP & Co. v. Patel Engineering Ltd and another reported in (2005) 8 Supreme Court Cases 618.

8. On the other hand in case of Booz Allen and Hamilton Inc v. SBI Home Finance Ltd & ors. reported in AIR 2011 Page 8 of 13 O/IAAP/85/2014 JUDGMENT Supreme Court 2507, in context of provisions contained in section 8 of the Act, Supreme Court observed as under :

"20. The nature and scope of issues arising for consideration in an application under section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of `arbitrability' or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under section 34 of the Act, relying upon subsection 2(b)(i) of that section. But where the issue of `arbitrability' arises in the context of an application under section 8 of the Act in a pending suit, all aspects of arbitrability have to be decided by the court seized of the suit, and cannot be left to the decision of the Arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.

21. The term `arbitrability' has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the arbitral tribunal, are as under :

(i) whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a Page 9 of 13 O/IAAP/85/2014 JUDGMENT private forum chosen by the parties (the arbitral tribunal) or whether they would exclusively fall within the domain of public fora (courts). (ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the `excepted matters' excluded from the purview of the arbitration agreement.

(iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the arbitral tribunal, or whether they do not arise out of the statement of claim and the counter claim filed before the arbitral tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement, will not be `arbitrable' if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list of disputes, does not form part of the disputes raised in the pleadings before the arbitral tribunal.

22. Arbitral tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or noncontractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of arbitral tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the Legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by a public fora (courts and Tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for Page 10 of 13 O/IAAP/85/2014 JUDGMENT settlement of such disputes. The well recognized examples of nonarbitrable disputes are : (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes."

9. If the Civil Court had accepted the reference of the petitioner for referring the disputes to arbitrator, the question of such a decision being summary and, therefore, not having achieved finality would perhaps be open to further debate before the arbitrator in terms of section 8 read with section 16 of the Act. But when the Civil Court passes an order refusing to refer the matter for arbitration in the pending civil proceedings rejecting application of the defendant, such decision achieves finality. Such decision cannot be allowed to be tested before an arbitrator upon seeking reference under section 11(6) of the Act, urging him to go into the question of his own jurisdiction under section 16 of the Act. Any such view, as noted above, would give rise to two parallel proceedings with respect to the same subject matter.

10. One may now refer to the decisions cited by the counsel for the petitioner :

Page 11 of 13

      O/IAAP/85/2014                                      JUDGMENT




1)        In   case   of  Hindustan   Petroleum   Corpn.   Ltd.   v.

Pinkcity Midway Petroleums reported in (2003) 6 Supreme Court Cases 503 , it was held and observed that if there is any objection as to the applicability of the arbitration clause, the same will have to be raised before the Arbitral Tribunal. The Supreme Court relied on the decision in case of Konkan Rly. Corpn. Ltd v. Rani Construction (P) ltd. reported in (2002) 2 SCC 388 which was reversed by a later decision in case of SBP & Co. v. Patel Engineering Ltd and another (supra). In paragraph 24 of the judgement on which reliance was placed for by the counsel for the petitioner, all that was held was that the High Court ought to have exercised jurisdiction under section 115 of the CPC considering the error committed by the Court below.

2) In case of Havels India Limited v. Electrium Sales Ltd reported in (2013) 204 DLT (CN B) 1, learned Single Judge of Delhi High Court observed that a conjoint reading of sections 5, 8 and 16 of the Act stipulate that upon being satisfied of the prima facie existence of an arbitration agreement, it is imperative for a Court to refer the parties to arbitration. These observations however, may have bearing on the question of accepting the request of the petitioner for referring the pending civil dispute to arbitrator. In view of the fact that such issue has achieved finality, would have no application on the present proceedings.

3) In case of Amrit Bhikaji Kale and others v. Kashinath Janardhan Trade and another reported in Page 12 of 13 O/IAAP/85/2014 JUDGMENT (1983) 3 Supreme Court Cases 437, the Supreme Court upheld the view of the High Court that order passed by the Tribunal was null and void, proceeding on an erroneous assumption of a jurisdictional fact. On such basis, counsel tried to canvas that the order for non reference to the arbitrator should be ignored since it lacks any jurisdiction. For the same purpose, reliance was also placed on decision in case of Sushil Kumar Mehta v. Gobind Ram Bohra(dead) through his Lrs. reported in (1990) 1 Supreme Court Cases 193. However, such orders have been passed by the Courts of competent jurisdiction. The petitioner having not carried the matter further, cannot wish away the effect of such orders by simply requesting to ignore them.

11. In the result, arbitration petition is dismissed.

(AKIL KURESHI, J.) raghu Page 13 of 13

Unlock Advanced Research with PRISMAI

Gujarat High Court