Calcutta High Court
M. D. Enterprise & Ors vs M/S. Whirlpool Of India Ltd. & Ors on 2 August, 2013
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
AP No.783 of 2013
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
M. D. ENTERPRISE & ORS.
VERSUS
M/S. WHIRLPOOL OF INDIA LTD. & ORS.
BEFORE:
The Hon'ble JUSTICE SANJIB BANERJEE
Date : August 2, 2013
Appearance:
Mr. Amitava Mukherjee, Adv.
Ms. Arpita Saha, Adv.
..for the petitioner
Mr. Moinak Bose, Adv.
..for the respondent
The Court : The second and third respondents have been improperly impleaded as they are not parties to the arbitration agreement. The names of the second and third respondents are deleted from the array of parties, leaving the first respondent as the sole respondent.
Though no affidavit has been permitted to be filed by the respondent to this request under Section 11 of the Arbitration and Conciliation Act, 1996, the facts as evident from the list of dates submitted by the respondent are 2 accepted. The respondent has not questioned the existence of the arbitration agreement but suggests that there is no live claim to be carried to a reference thereunder.
The petitioner was appointed in the year 1990 for selling certain consumer durables manufactured by the respondent. The agreement was terminated by a notice dated August 9, 2008. Upon initial complaints in writing made by the petitioner to the respondent yielding no benefit to the petitioner, the petitioner filed a suit in this Court for damages and seeking a decree of about Rs.66 lakh. The respondent applied under Section 8 of the Arbitration and Conciliation Act, 1996 and the parties to the suit were referred to arbitration in terms of the relevant clause in the matrix contract by an order dated July 15, 2010.
The petitioner thereafter applied under Section 9 of the said Act of 1996 before this Court and such application, AP No.452 of 2010, was disposed of by an order of June 16, 2011 in the presence of the respondent. Joint Receivers were appointed to conduct sale of some of the respondent's products that remained with the petitioner. It does not appear that at the time that the initial petition under Section 9 of the 1996 Act was filed in this Court, any objection as to jurisdiction was raised by the respondent herein.
A subsequent petition under Section 9 of the 1996 Act, AP No.718 of 2012, filed by the petitioner, was dismissed on January 11, 2013, upon the Court noticing that the petitioner had taken no steps to carry the claim to an arbitral reference. By a letter dated April 3, 2013, the petitioner invoked the 3 arbitration agreement. The respondent did not reply to the notice despite due receipt thereof. On July 22, 2013, the petitioner carried the present request for the constitution of the arbitral tribunal to the Chief Justice of this Court or his designate.
The arbitration clause contained in the matrix contract of June 10, 2004, provides as follows:
"10. ARBITRATION: Any dispute or difference whatsoever arising between the parties out of or relating to the construction, meaning, scope, operation or effect of this agreement or the validity or the breach thereof shall be settled through arbitration of the sole arbitrator to be appointed by the Company Secretary of M/s Whirlpool of India Limited and the proceedings will be conducted in accordance with the Arbitration and Conciliation Act, 1996 and Rules framed thereunder.
The decision of Arbitrator shall be final and binding on both the parties hereto. All the Arbitration proceedings will be held at New Delhi. The courts at Delhi shall have the exclusive jurisdiction to deal with the arbitration proceedings and the awards in accordance with law."
The respondent seeks to resist the request on the ground that the petitioner cannot pursue the claim by reason of the laws of limitation. The respondent contends that, in any event, the Chief Justice or his designate cannot entertain the present request since the forum selection clause in the agreement provides for exclusive jurisdiction of the courts in Delhi. 4
The respondent refers to the notice of termination of August 9, 2008 and says that since the arbitration proceedings have been sought to be commenced only after April 3, 2013 when the letter of invocation was issued by the petitioner, the claim of the petitioner cannot be pursued as it is barred by the laws of limitation. The respondent also suggests that in view of the petitioner not having taken diligent steps immediately after the suit was disposed of, the present belated request should not be entertained. The respondent contends that even if the period during which the suit remained pending is excluded by invoking Section 14 of the Limitation Act, 1963, a period of more than three years has elapsed from the date of the petitioner's receipt of the notice of termination of August 9, 2008 and the petitioner's invocation of the arbitration agreement on April 3, 2013.
There is no merit in any of the grounds urged by the respondent to resist the present request. There is a distinction between limitation applying to the principal claim of a party to an agreement governed by an arbitration clause and the limitation relating to a party's right to seek arbitration in terms of an arbitration clause. Section 43 of the 1996 Act recognises the distinction. Section 14 of the Limitation Act has no manner of application and, in any event, the petitioner has not invoked the same.
The date which is relevant for the purpose of limitation as ordinarily understood is the date of commencement of the arbitral proceedings under Section 21 of 1996 Act. The date of commencement of arbitral proceedings is akin to the date of presentation of a plaint if the claim were to be carried by way 5 of a civil suit to a regular forum. Once the arbitration clause is invoked and arbitral proceedings commence within the meaning of Section 21 of the 1996 Act, the clock of limitation is stopped so as to say; and, once the clock of limitation is stopped, it does not begin to run again. However, the right of a party to an arbitration agreement to seek an arbitral reference is also governed by the laws of limitation and, notwithstanding the commencement of arbitral proceedings, the party's right to have a reference in accordance with such agreement may not be pursued beyond the period of limitation.
In the present case, however, the petitioner chose to carry the claim by way of a suit and the clock of limitation stopped upon the previous suit being filed. That the respondent's petition under Section 8 of the 1996 Act was allowed and the suit was disposed of by referring the parties to arbitration several years later, is of no relevance in the consideration of whether the primary claim of the petitioner or the fundamental cause of action can any longer be pursued. Arbitration is, by its very nature, consensual and it is open to a party to an arbitration agreement to waive the right to proceed in arbitration. That is to say, if A and B enter into an agreement and A institutes a suit in derogation of arbitration agreement, B can accept such conduct and not insist on arbitration by contesting the suit on merits; if the other party to the agreement does not insist on the enforcement of the arbitration agreement, the Court in seisin of the suit has no authority to enforce the same. As a logical corollary, if it were possible for a party to an arbitration agreement to institute a suit (the distinction should be made between the institution of the suit and the continuance thereof), 6 and since the clock of limitation stops qua the primary claim upon the institution of the suit or the lodgment of the plaint relating thereto, it cannot be said that merely because the suit has subsequently been disposed of on a petition under Section 8 of the 1996 Act, the clock of limitation would start to tick again the moment that the petition under Section of the 1996 Act is allowed.
What will be of relevance upon an order allowing a petition under Section 8 of the 1996 Act is as to when the claimant (ordinarily, the plaintiff in the suit) seeks to make a reference to arbitration. If the plaintiff, despite the setback in the Section 8 proceedings, does not take steps to initiate the reference or commence the arbitral proceedings within the meaning of Section 21 of the 1996 Act within a period of three years from the date of receipt of a copy of the order under Section 8 of the 1996 Act, it may not be possible for the claimant to pursue the claim any further since no further arbitral proceedings can be had at the instance of the claimant.
Notwithstanding the agreement having been terminated in the year 2008 in this case since the suit was filed in the year 2009, the petitioner's right to pursue the substantive claim is not barred by the laws of limitation and could never have been since the petitioner had instituted the suit within the period of limitation. What could have been barred was only the petitioner's right to pursue the claim in arbitration after the suit stood disposed of by the order on the petition under Section 8 of the Act; and that would have been barred if the petitioner had not commenced the arbitral proceedings within a period of three years from the date of receipt of the order under Section 8 of the 1996 Act. Since 7 the order under Section 8 of the 1996 Act, in this case, was passed only on July 15, 2010 and the petitioner issued the notice invoking the arbitration agreement on April 23, 2013, the petitioner's right to proceed in arbitration has been exercised at the appropriate time and the present request made as a consequence of the respondent not acceding to the petitioner's request can be entertained. The clock relating to the petitioner's cause of action qua arbitration has been stopped upon the petitioner invoking the arbitration agreement by the letter of April 3, 2013.
Before embarking on any discussion as to why the respondent's reference to Section 14 of the Limitation Act is misplaced in the present context, it would do well to remember a cardinal principle that would also have a bearing in assessing the propriety of the present request being carried to the Chief Justice of this court or his designate. The jurisdiction of an appropriate civil court to receive an action in relation to any agreement is not influenced by either an arbitration clause or a forum selection clause governing the agreement. The authority of a civil court to receive an action is governed by the Civil Procedure Code or the Letters Patent in a High Court exercising ordinary original civil jurisdiction. A civil court in seisin of a suit in respect of an agreement cannot suo motu refuse to entertain or continue with the action upon noticing an arbitration clause or a forum selection clause governing the agreement. Just as a party to an agreement has the right to enforce the terms thereof, equally, it has a right to not do so. An arbitration clause or a forum selection clause is capable of being waived upon a party to an agreement governed by an arbitration clause or a 8 forum selection clause not objecting to the continuation of the suit in a civil court in derogation of either clause. Even Section 42 of the 1996 Act recognises such position.
Section 14 of the Limitation Act excludes the time spent by a plaintiff in prosecuting any civil proceedings with due diligence and in good faith in a court which did not possess the jurisdiction to entertain it. If a civil court has due authority to receive a suit but the continuation of the suit is subject to any agreement between the parties thereto, like an arbitration agreement or a forum selection clause, that would not make such court suffer from a defect of jurisdiction to entertain the suit. If, notwithstanding an agreement being governed by an arbitration clause or a forum selection clause or both, a suit instituted before the appropriate civil court is capable of being proceeded with upon the other party or parties not enforcing the arbitration agreement or the forum selection clause, it cannot be said that such court suffers from a defect of jurisdiction to entertain the suit. There is a distinction between the authority of a civil court to receive an action and the propriety of the action to be proceeded with before such court. The authority of a civil court to receive an action is not subject to any arbitration agreement or forum selection clause that may govern the parties qua the action. The propriety of continuing the action despite the arbitration agreement or forum selection clause governing the action being brought to the notice of the court by a defendant or a respondent is an entirely different matter.
9
In the context of both an arbitration agreement and a forum selection clause governing an action it has to be kept in mind that the civil court in seisin thereof will not throw out the action at the mere mention of there being either an arbitration agreement or a forum selection clause which the action may be subject to. The civil court has to assess the efficacy of an arbitration agreement or a forum selection clause before acceding to a request by a party to enforce the same. If, for instance, an arbitration clause governing an agreement which is the subject-matter of a suit provides for a reference thereunder to a particular person and the arbitration agreement is recognised to be effective only if the reference is made to such person and not otherwise, and the named arbitrator is not available, the invocation of the arbitration agreement will not impede the continuance of the suit. Similarly, if a forum selection clause governing an agreement confers exclusive jurisdiction on a particular court to receive an action arising out of the agreement governed by the forum selection clause, but such specified court otherwise lacks authority to receive an action arising out of the matrix contract, the forum selection clause has to be disregarded. It follows, therefore, that the mere existence of an arbitration clause or a forum selection clause in an agreement which is the subject-matter of a civil suit will not, ipso facto, denude the civil court of its authority to continue the action; an assessment is necessary into the efficacy of the arbitration clause or the forum selection clause. And, neither clause will tell upon the authority of a civil court to receive an action pertaining to the matrix contract if the court otherwise possesses the authority therefor.
10
Section 42 of the 1996 Act will override a forum selection clause if a previous petition under Part I of the 1996 Act has been carried to a competent court and no objection is taken to the petition being prosecuted on the ground of the forum selection clause governing the situs of the petition. Section 42 of the Act, in such context, recognises the principle of waiver.
A civil court having due authority to receive a suit, notwithstanding the subject-matter of the suit being governed by an arbitration agreement or a forum selection clause, cannot be regarded as a forum without jurisdiction, within the meaning of Section 14 of the Limitation Act, upon such court refusing to proceed with the suit following the invocation of the arbitration agreement or the forum selection clause governing the subject-matter of the action.
There is no merit in the ground urged on behalf of the respondent that the claim can no longer be pursued since a period of more than five years has elapsed from the notice of termination of an agreement issued in the year 2008.
As to the objection that the forum selection clause contained in the agreement would preclude the Chief Justice of this court or his designate to entertain the present request under Section 11 of the 1996 Act, there may be a simple but somewhat misleading answer: that upon the forum selection clause having been waived in course of the concluded petition under Section 9 of the Act and Section 42 of the Act having come into play, the forum selection clause cannot be cited any further. However, it must be appreciated that Section 42 of the Act would ordinarily not impact a petition under Section 8 or a request under 11 Section 11 thereof. The reason why Section 42 has no effect on a petition under Section 8 of the 1996 Act is obvious. The rationale for Section 42 of the Act not applying to a request under Section 11 of the Act may be understood if it is appreciated that a request under Section 11 of the Act calls for a limited assessment; and only as to the efficacy of the arbitration agreement. The substance of the disputes between the parties are scarcely addressed in a request under Section 11 of the Act. At any rate, Section 42 of the Act may only have an indirect impact on the situs of a request under Section 11 of the Act in only a limited class of cases. That is because Section 42 of the Act identifies a Court, but a request under Section 11 of the Act has to be made to a Chief Justice or his designate.
Section 11(12)(b) of the Act empowers the Chief Justice of a High Court or his designate to receive a request under Section 11 of the Act if the relevant principal civil court referred to in Section 2(1)(e) of the Act is situate within the local limits of that High Court or, if such principal court is that High Court itself in exercise of its ordinary original civil jurisdiction.
Section 2(1)(e) defines "Court" as follows:
"S.2. Definitions.- (1) ...
(e) "Court means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-
matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes;"
12
The expression in Section 2(1)(e) of the Act, "having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit," identifies the appropriate court to which a petition under Part I of the 1996 Act (save under Section 8 thereof which has per force to be carried to the court in seisin of the action in derogation of the arbitration agreement; and, under Section 11 of the Act where a request has to be made, not to a court, but to a Chief Justice or his designate) has to be instituted. Section 2(1)(e) is concerned with only the institution of a petition and not the propriety of the continuation thereof in the wake of a forum selection clause being cited by the respondent. The effect of Section 2(1)(e) on a request to a Chief Justice or his designate under Section 11 of the Act is that as long as a petition under Part I of the Act (save under Section 8 thereof) can be carried to a court over which the relevant High Court exercises superintendence under Article 227 of the Constitution, or if the court is the High Court itself in exercise of its ordinary original civil jurisdiction, the Chief Justice of such High Court or his designate is empowered to entertain the request.
It is possible that a Chief Justice or his designate approached with a request under Section 11 of the Act may accede to the objection of the respondent to not make any order thereon upon a forum selection clause being cited under which a competent court of another State is exclusively conferred the authority to receive any petition in connection with the matrix contract governed by the arbitration agreement. Indeed, it would be desirable to yield to such an objection. However, when the forum selection clause has been waived and the 13 petitions relating to an arbitration agreement under Part I of the 1996 Act have, by virtue of Section 42 thereof, to be carried to a court over which the High Court presided over by the Chief Justice exercises superintendence, or if such court is the High Court itself exercising its ordinary original civil jurisdiction, such Chief Justice or his designate when approached with a request under Section 11 of the Act would disregard the objection.
In this case not only does the Chief Justice of this Court or his designate have due authority to receive the present request in view of Section 11(12)(b) of the Act read with Section 2(1)(e) thereof, but upon it now being apparent that future petitions under Part I of the 1996 Act pertaining to the arbitration agreement have to be carried to this High Court on its Original Side by virtue of Section 42 of the Act, it is only appropriate that the present request is dealt with by the Chief Justice of this court or his designate.
In view of the failure of the respondent to accede to the petitioner's request for the constitution of the arbitral tribunal by consent, an arbitrator needs to be appointed. Justice Sailendra Prasad Talukdar (Retired) is appointed arbitrator to adjudicate upon the disputes between the parties covered by the arbitration agreement at a consolidated remuneration of Rs.5 lakh to be shared by the parties in equal measure. The parties say that the arbitration should not take any more than four months from the date of the completion of the pleadings. The petitioner agrees to file the statement of claim within a period of a fortnight from the date of receipt of this order.14
For the respondent having wasted precious Court time in urging untenable grounds, the respondent will pay costs assessed at 3000 GM.
Certified website copies of this order, if applied for, be urgently supplied to the parties subject to compliance with all requisite formalities.
(SANJIB BANERJEE, J.) kc./bp.