Delhi High Court
Bestech India Private Lim. vs Mgf Developments Ltd. & Ors. on 6 April, 2009
Author: Manmohan Singh
Bench: Manmohan Singh
* HIGH COURT OF DELHI : NEW DELHI
+ Arb. Petition No.147/2005
% Judgment reserved on : 14th January, 2009
Judgment pronounced on : 6th April, 2009
BESTECH INDIA PRIVATE LIMITED ...Petitioner
Through : Mr. Manish Sharma with Mr. Rohan
Sharma, Advocates
Versus
MGF DEVELOPMENTS LTD. & ORS. ....Respondents
Through : Mr. Jeevesh Nagrath, Advocate
Coram:
HON'BLE MR. JUSTICE MANMOHAN SINGH
1. Whether the Reporters of local papers may
be allowed to see the judgment? Yes
2. To be referred to Reporter or not? Yes
3. Whether the judgment should be reported
in the Digest? Yes
MANMOHAN SINGH, J.
1. The present petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short "the Act") has been filed by the petitioner for appointment of an Arbitrator. There is a contract dated 5 th December, 2000 having arbitration clause 49 and 51 which read as under:-
Clause 49:
"Except where otherwise provided, all disputes arising out of or relating to the contract, instructions or orders of Site engineers/Architect, or the execution or failure to execute the same, whether arising during the progress of the work or after completion or abandonment thereof shall be referred to a Sole Arbitrator to be appointed by Arb. P. No.147/2005 Page 1 of 14 accepting authority. The Arbitrator shall conduct proceedings as per the Arbitration Act, 1940 or any statutory modification or amendment to it from time to time."
Clause 51:
"This Contract shall be governed by the Indian Laws for the time being in force. Any legal proceedings related to this contract shall be limited to Courts of laws under jurisdiction of Delhi Courts."
2. The brief facts are that certain disputes arose in relation to two contracts regarding civil construction, fire fighting and plumbing work in terms of which an alleged claim of Rs. 3,21,11,007/- of the petitioner is outstanding towards respondents 1 and 2. M/s. Bestech India Pvt. Ltd. is a Pvt. Ltd. Company. According to the petitioner, the said company was earlier known as M/s. Bestech Engineers and Contractors (a Partnership firm) and the said Partnership Firm had originally executed a contract with the respondents. The said partnership firm was taken over by the petitioner as an ongoing concern on 1st October, 2001 which executed the work relating to the present contract.
3. The work of contract was completed on 1 st May, 2003, 7th May, 2003, 31st May, 2003 and 19th September, 2003 as per the information given by way of the communications. The Project Manager also issued a completion certificate for plumbing and fire fighting work on 31st May, 2003 and the defect liability period expired on 31 st May, 2004. Similarly the Project Manager on 19th September, 2003 certified the completion of civil and other related work and defect liability period of the said project expired on 15th September, 2004. Arb. P. No.147/2005 Page 2 of 14
4. The final bill No. 7 and 8 were raised and certificate of payment was issued by the respondent through their Agent and Project Manager M/s. Vastu Kriti for a sum of Rs. 7,99,22,509/- and Rs. 1,03,69,650/- respectively. Against these bills, a sum of Rs. 5,81,81,000/- was released by respondent No.1 and 2 in various instalments and balance of Rs. 3,21,11,007/- is outstanding towards respondents.
5. The petitioner submits that it was repeatedly assured by respondents No.1 and 2 that their pending payment would be released in instalments. However, after releasing a few instalments, no payment was received except false assurances. The petitioner thereafter sent reminders dated 20th October, 2003, 15th December, 2003 and 22nd March, 2004 followed by a legal notice dated 23 rd October, 2004 to the respondents. However, no payment was received by the petitioner who ultimately gave a notice dated 28th February, 2005 for appointment of Arbitrator within 30 days of the receipt of the notice. The said notices were duly received by respondents No.1 and 2. However, according to the petitioner, respondents No.1 and 2 failed to give any reply or appoint any arbitrator. Thereafter, the petitioner filed the present petition under Section 11(6) of the Act.
6. Respondents No.1 and 2 have filed their reply to the petition mainly contending that (a) the petitioner has no locus standi to seek arbitration since there is no arbitration agreement between the petitioner i.e. M/s. Bestech India Pvt. Ltd. and respondents No.1 and 2 as the two contracts were between the respondents and erstwhile partnership firm Arb. P. No.147/2005 Page 3 of 14 i.e. M/s. Bestech Engineers and Contractors and therefore, the petition is not maintainable; (b) the respondents have appointed the Arbitrator vide their letter dated 4th April, 2005, therefore, the petition filed by the petitioner is not maintainable; (c) the respondents No.1 and 2 are separate legal entities and, therefore, separate notices for appointment of arbitrator should have been issued; and (d) the contracts were executed in Gurgaon and work was also performed in Gurgaon and merely because the contracts say that courts at Delhi will have jurisdiction, this court does not have the territorial jurisdiction to try this petition.
7. The main objection raised by respondents No.1 and 2, have stressed that the petitioner is a company which is a separate legal entity distinct from its shareholders and it does not make any difference if the said company is owned by the partners of the erstwhile firm. It cannot be said that merely because the partnership firm of which the shareholders of the company are partners has an arbitration agreement with a third party, the company will also have an arbitration agreement with them.
8. As regards the first contention raised by respondents No.1 and 2, the petitioner has relied upon the affidavit filed by Sh. S. Satija, Director of the petitioner company on 16 th May, 2006 wherein a statement has been made that the petitioner is a Pvt. Ltd. Company and at an earlier point of time was a partnership firm under the name and style of M/s. Bestech Engineers and Contractors wherein Mr. Dharminder Bhandari and Mr. Sunil Satija were the partners and the same had entered into an agreement with respondents No.1 and 2. M/s. Arb. P. No.147/2005 Page 4 of 14 Bestech Engineers and Contractors was taken over as an ongoing concern by the petitioner on 1st October, 2001.
9. All contracts, awards, obligations and undertakings of the running partnership concern had become the obligation of the petitioner. In support of the statement, the petitioner has filed a copy of the agreement dated 1st October, 2001 as Annexure A-1 with his affidavit. The said agreement indicates that the company was incorporated on 25 th May, 2001 by Mr. Dharminder Bhandari and Mr. Sunil Satija as promoters, shareholders and first Directors of the company.
10. Both the promoters were the partners of the firm having 50% share each. It is also mentioned in Para 2 of the agreement that all the assets and liabilities of the firm including tangible and intangible assets on the close of 30th September, 2001 shall become the assets and liabilities of the company with effect from 1st October, 2001. In Para 6 of the said agreement, it is also mentioned that all contracts, awards, obligations and undertakings of the running business of the firm shall become the obligations of the company and the company alone shall be liable for all past, present and future liabilities or commitments relating to the said firm.
11. In Para 5 of the affidavit, a statement has been made that the petitioner informed the fact of the takeover of M/s. Biotech Engineers and Contractors to the respondents and this position was also accepted by respondents and the petitioner herein continued to carry out the work under the agreement and the respondents and their agents issued Project completion certificate. The respondents also certified bills and made Arb. P. No.147/2005 Page 5 of 14 payments directly to the petitioner for the work done and also subsequently issued the TDS certificates in favour of the petitioner. In the light of the aforesaid, the respondents cannot claim that the petitioner has no locus standi to file the present arbitration application for appointment of an arbitrator.
12. On the other hand the submission of the learned counsel for respondents No.1 and 2 is that there is no privity of contract between the present petitioner and respondents No. 1 and 2. The right to seek arbitration under the contract between the parties cannot be transferred without the consent of the parties and in fact after taking consent, a fresh arbitration agreement ought to have been executed.
13. Further, it is submitted that the petitioner has nowhere pleaded that the firm M/s. Bestech Engineers and contractors has been dissolved or not. Mere allotment of shares to the partners Mr. Dharminder Bhandari and Mr. S. Satija is of no consequence as there is no written agreement between the petitioner and respondents. No document has been placed by the petitioner in support of the contention that the respondents have accepted the assignment or agreed to the assignment. There is no consensus ad idem between the petitioner and respondents for resolving their disputes by arbitration.
14. The learned counsel for the respondent has referred to the decision of this court reported in 2001(3) Arbitration Law Reporter 301 (Delhi), M.M. Aqua Technologies Limited vs. Wig Brothers Builders and Engineers Ltd and another. Para 10 of the said judgment read as under:-
Arb. P. No.147/2005 Page 6 of 14
"10. ......Arbitration is distinguishable from other clauses in the contract. The other clauses set out the obligations which the parties have undertaken towards each other binding them, but the arbitration clause does not impose on one of the parties an obligation towards the other. It embodies an agreement of both the parties with consensus ad idem that if any dispute arises with regard to the obligations undertaken therein which one party has undertaken towards the other, such a dispute shall be settled by Tribunal of their own constitution. It must be construed according to its language and in the light of the circumstances in which it was made."
It was further held in paragraph 11 that:
"11. From the foregoing discussion it is clear that to be a binding arbitration agreement between the parties, the same must be in writing and the parties should have specifically agreed to settle their disputes by arbitration. An arbitration agreement cannot be inferred by implication....."
15. This judgment of the Ld. Single Judge was affirmed by the Division Bench in their decision in the case of M.M. Aqua Technologies Ltd. v. Wig Brothers Builders & Engineers Ltd. & Anr. reported as 2002 (95) DLT 818. The Special Leave Petition bearing no. SLP (C) No.4102 of 2002, against the judgment of the Division Bench was dismissed by the Hon'ble Supreme Court by its order dated 12th March, 2008.
16. Another decision that has been cited by learned counsel for the respondent is Sethi Construction Co. vs. Chairman and Managing Director, NTPC and another, 2002 (65) DRJ 732 wherein this Court refused to appoint an arbitrator vis-à-vis NTPC holding that there was no arbitration agreement between NTPC and Sethi Construction Co.
17. The counsel for the petitioner has asserted that the decisions Arb. P. No.147/2005 Page 7 of 14 relied upon by the respondents are not applicable to the facts and circumstances of the present case as M/s Bestech India Pvt. Ltd. is not unrelated or totally stranger to the proceedings and he has referred to the following judgments in support of his contention.
18. In Patanjal & Anr. Vs. Rawalpindi Theatres (P) Ltd., AIR 1970 Del 19 it was held that the letter dated 21-7-1962 written by the petitioner to the respondent in the instant case did not purport to assign the rights of the respondent under the Contract in dispute to a third person who never asserted any right in himself as an assignee but only claimed to be an attorney representing and prosecuting the claim of the respondent and that, therefore, the latter could not claim a right to enforce the arbitration agreement, he not being a party thereto nor an assignee of the respondent was not entitled to claim its benefits or be bound by the obligations imposed thereby. Relevant portion of para 12 of this judgment is referred as under :
"(12)........From the legal position just stated, it follows that third persons who are not parties to the arbitration agreement or to the contract containing an arbitration clause and not claiming under such parties, are not bound by such agreement. And not being bound, they would, as a general rule, be disentitled to enforce the agreement.
.........Indeed, it is also the general fundamental rule that only a person who is a party to a contract can sue on it. The existence of statutory or equitable exceptions to this rule do not impinge upon its general fundamental character. Of course, if the subject-matter of the arbitration agreement is capable of assignment, then the assignee would step into the shoes of his assignor and be both bound by it and entitled to enforce it, but for this purpose, one has to look to the law relating to assignment of contractual rights and obligations and also to see whether in a given case, the assignee has exercised his right as such."
Arb. P. No.147/2005 Page 8 of 14
19. In Prem Lata Bhatia vs. Union of India, 128(2006) DLT 24 (DB) it was held in paras 23 and 24 as under :
"23. With respect we cannot share the view taken by the learned Single Judge. It is well known that it very often happens in the business world that when a person starts a business as a sole proprietor he later on converts it into a partnership firm along with some family member, and thereafter when the business further expands it is incorporated as a private limited company and thereafter on further expansion, it may also be made a public limited company. This is a very common feature in the business world.
24. In such cases, the doctrine of piercing the veil of corporate personality should be utilized. For instance, when a partnership firm converts itself into a private limited company with the partners in the firm becoming the shareholders and directors in the company it will not be a case of transfer of the property of the firm to the company, otherwise a huge amount of stamp paper and registration charges for the transfer of the property of the firm to that of the company will have to be paid, capital gains tax will have to be paid etc. In fact, it is well settled there is no transfer in such cases because in substance the owner remains the same though technically it becomes a different legal entity."
20. In this case, reference has also been made to the English case of Shayler vs. Woolf wherein it was held as under :
"THAT only leaves one point and that is the arbitration clause. It is said that the contract cannot be assignable because of the existence of the arbitration clause, inasmuch as such a clause is in its nature not assignable or is only assignable (it is said) where the assigns are expressly mentioned in the clause itself or the contract which contains the arbitration clause is itself expressly declared to be assignable. In my opinion, these propositions are incapable of support in the wide way in which they are stated; nor does any of the authorities quoted to us in support of them really touch the point.
THE question whether an arbitration clause prevents a contract from being assignable must depend on the Arb. P. No.147/2005 Page 9 of 14 intention of the parties, and the nature of the contract will, of course, be very important. Quite apart from an arbitration clause, if the nature of the contract is one which makes it incapable of assignment, owing to its personal nature, there is no question, of course, of the assignability of the arbitration clause; but that an arbitration clause is assignable in its nature seems to me to be quite clearly contemplated by the Arbitration Act, 1889, S. 4, and it has been recognised in this Court in one of the authorities referred to, namely, Aspell v. Seymour (5).
As I have said, apart from this arbitration clause, the agreement in this case is, in my opinion, quite clearly assignable. That is because, on its true construction, it is an assignable contract, that being the intention of the parties gathered from the document when read in the light of its subject-matter and the surrounding circumstances. It seems to me that the result of that must necessarily be that the arbitration clause also follows the assignment of the subject matter of the contract. There is nothing, I conceive, in principle or authority which would prevent that from taking place.
THE consequence is that, in my opinion, this was a contract assignable by Mrs. Peacock and, as it was assigned by her in her conveyance to the present plaintiff, the benefit of the contract is now vested in him and he is entitled to sue upon it."
(15)...... In an assignable contract, when assignment was held to have been made, the assignee was, in the reported decision, held entitled to the benefit of the contract and entitled to sue upon it. It is difficult to understand how the ratio of this case helps Shri Sawhney."
21. In the case of Hindustan Steel Works Construction Ltd. vs. Bharat Spun Pipe Co. Ltd., AIR 1975 Cal. 8, it was held in the following words :
".........whether the contract is assignable or not depends upon the nature of the contract. A contract in the nature of a personal covenant cannot be assigned. Secondly, the rights under a contract can be assigned, but the obligations under a contract lawfully cannot be assigned. Thirdly, the intention about assignability would depend upon the terms and the language used in Arb. P. No.147/2005 Page 10 of 14 a contract. Fourthly, and this is important for our purpose, existence of an arbitration clause per se does make neither the contract non-assignable or assignable. But in a particular case the arbitration clause may be so worded as to afford an indication about the contract being personal or not. But apart from that the existence of arbitration clause does not, in my opinion, affect either the rights or the assignability of the contract if it is otherwise assignable."
22. If a contract is assignable, an arbitration clause will follow the assignment of the contract. (Khardah & Co. vs. Raymon & Co., AIR 1962 SC 1810, 1818). Where a contract is entered into by the sole proprietor of a business in the business name, on his taking other partners in the business, the firm could enforce the arbitration clause. (Hindustan Steel Works Construction's case (supra)
23. It is not in dispute that various payments have been made by the respondent nos. 1 and 2 to the present petitioner M/s. Bestech India Pvt. Ltd. for the work done. Respondent nos. 1 and 2 have also issued TDS certificate in favour of the petitioner herein. In the instant case, there is an agreement executed between the present petitioner and partnership firm dated 1st October, 2001 by which it was agreed that all contracts, awards, obligations and undertakings of the running partnership concern had become the obligation of the petitioner. Hence, the arbitration agreement executed between the partnership firm is enforceable by the present petitioner. Both can enter into reference for arbitration. The petitioner rightly invoked the arbitration clause.
24. The second contention of respondents No.1 and 2 is that by sending the letter dated 4th April, 2005 to the petitioner, the respondents Arb. P. No.147/2005 Page 11 of 14 have appointed Mr. Sushant Jain as the sole arbitrator to decide all the disputes arising out of the contract. This fact has been disputed by the petitioner as the petitioner in his affidavit dated 16th May, 2006 in Para 11 stated that no letter dated 4 th April, 2005 as allegedly sent by respondents was ever received by the petitioner. It is stated that the letter dated 4th April, 2005 is first time produced by respondents No. 1 and 2 along with the reply filed on 28th January, 2006.
25. Learned counsel for the petitioner during the course of the argument has specifically asked the respondents' counsel to produce the evidence/proof of service of the said notice. The respondent is unable to produce any evidence in support of his contention. Hence, the contention of the respondents has no force in absence of evidence and specific denial of receipt of notice by the petitioner.
26. The third contention of the respondents No. 1 and 2 is that separate notices ought to have been issued by petitioner to respondents No.1 and 2 in accordance with law in order to invoke Section 11 of the Act. The learned counsel for the petitioner submits that both the respondents No. 1 and 2 have filed common reply through the same set of lawyers. Both the respondents have been authorised through their respective Board resolutions by the same person to take steps in relation to the arbitration application. The petitioner had executed the civil, plumbing and fire fighting works of both of them who were developing the property equally and were half owners of the same. They were also making the payments to the petitioner on ongoing basis during the pendency of the agreement and also have common shareholders and Arb. P. No.147/2005 Page 12 of 14 common directors. On the basis of these facts, they cannot raise a dispute about the issuance of separate notices for appointment of an arbitrator. The notice dated 28th February, 2005 for appointment of an arbitrator was issued to both respondents No. 1 and 2 according to the petitioner. I accept this contention of the petitioner and this court is of the opinion that the objections raised by the respondents have no force.
27. The fourth and last submission of the respondent is that the contract was executed in Gurgaon and work was also performed in Gurgaon. Merely because the contract stipulates that courts at Delhi will have the jurisdiction is not enough to invoke the jurisdiction of this court by the petitioner. Learned counsel for the respondents in support of his contention has referred to the decision reported in 2004(6) AD (Delhi) 195 Engineers project (India) Ltd vs. Greater Noida Industrial Development Authority & Ors and R.K. Constructions vs. NTPC Ltd, 1996(2) AD, Delhi 123. On the other hand, learned counsel for the petitioner referred to the judgment of this Court in the case of Chunni Lal Vs. RPG Home Finance Pvt. Ltd. reported as 134 (2006) DLT 212. Learned counsel for the petitioner has referred to clause 51 of the contract between the parties which stipulates that any legal proceedings relating to this contract shall be limited to the courts of law under the jurisdiction of Delhi courts. This Court while dealing with petitions under Section 9 of the Arbitration & Conciliation Act, 1996, in respect of a construction contract, held after noting several decisions including that of a Division Bench of this Court that even if Arb. P. No.147/2005 Page 13 of 14 some part of the cause of action has arisen in Delhi, the Court should abjure from exercising jurisdiction and it should be exercised by a court having jurisdiction at the place where the substantial or predominant part of the cause of action has arisen.
28. In view of the above, I am of the opinion that this court has the territorial jurisdiction to entertain and try this petition in view of clause 51of the contract.
29. The petition filed by the petitioner under Section 11(6) of the Arbitration & Conciliation Act, 1996 is allowed. Mr. Justice C.L. Chaudhary (D-15, Sector 20, Noida-201301, Phone No.95120-2542323) is appointed as Sole Arbitrator. The learned Arbitrator shall decide all questions raised by the parties. The parties would be at liberty to file claim/counter claims before the Arbitrator arising from the OMP. The parties would be at liberty to take all the pleas as may be available to them in law before the Arbitrator against claims/counter claims of each other. The arbitrator shall fix his own fee to be shared equally between the parties. The parties are directed to appear before the Arbitrator on 30th April, 2009.
In view of the above, the petition is disposed of. Parties are left to bear their own costs.
MANMOHAN SINGH, J.
April 06, 2009 SD Arb. P. No.147/2005 Page 14 of 14