Andhra HC (Pre-Telangana)
Surender Singh Bajaj vs Harmeet Singh Sethi And Anr. on 27 October, 2003
Equivalent citations: 2004(1)ALD91, 2004(1)ALT430, 2004(1)ARBLR436(AP), AIRONLINE 2003 AP 22
Author: N.V. Ramana
Bench: N.V. Ramana
ORDER N.V. Ramana, J.
1. Invoking the jurisdiction of this Court under Section 11(5) of the Arbitration and Conciliation Act, 1996 the applicant has filed this application praying for appointment of an Arbitrator for resolution of the disputes between the applicant and the respondents.
2. The applicant claims to have purchased an extent of Ac.2.02 guntas and Ac.2.24 guntas of land, comprised in Sy.Nos. 396 and 399 respectively of Medchal Taluk, Attavalli Village, Ranga Reddy District, benami in the names of respondent Nos. 1 and 2, under registered sale deeds. Respondent Nos. 1 and 2 are closely related to the applicant, Respondent No. 2 being his sister and Respondent No. 1 being the daughter-in-law of Respondent No. 2. In order to safeguard the interest of the applicant, an agreement acknowledging the real ownership of the property was executed by the parties on 6-2-1990 which according to the applicant reveals the real ownership of the applicant and the intention of the parties about the entire sale transaction. The said agreement contains an arbitration clause in Clause 8, which lays down the course of action to be taken by the parties in case any disputes arise amongst them, and names one Sardar Bhupender Singh to be appointed as Arbitrator, who unfortunately died on 25-4-1999.
3. The applicant submits that the respondents with a dishonest intention to grab the properties purchased by the applicant in their names benami filed a complaint against the applicant on the file of the V Metropolitan Magistrate, Nampally, stating that their signatures were taken on blank papers to make wrongful loss to them. On the complaint being referred to Banjara Hills Police Station, the police registered the same as FIR No. 556/2001, dated 21-10-2001 under Sections 379, 420, 467, 468 and 471 I.P.C. The applicant states that when he made an application to the Economic Offences Court, Nampally, for withdrawal of the surety given by him to Mr. H.S. Sethi, who is none other than the son of respondent No. 2 and husband of respondent No. 1, Mr. H.S. Sethi filed two suits against the applicant for recovery of certain monies, and one such suit being O.S.No. 21 of 2002 on the file of the in Additional Chief Judge, City Civil Court, Hyderabad, was withdrawn by Mr. H.S. Sethi on 10-4-2002 on the applicant filing his written statement. The applicant submits that Mr. H.S. Sethi is holding a number of non-judicial stamp papers bearing the signatures of the applicant and misusing the same. The applicant submits that earlier he filed application A.A.No. 57 of 2002 for appointment of Arbitrator, which he withdrew on 19-2-2003 reserving himself liberty to file fresh application in terms of Section 11 of the Arbitration and Conciliation Act, 1996. Thereafter, the applicant invoking the arbitration clause in Clause 8 of the agreement dated 6-2-1990, got issued legal notice dated 20-2-2002 to the respondents, calling upon them to appoint an Arbitrator for resolution of the disputes between the parties, and when there was no response from the respondents in spite of receipt of the said legal notice, the applicant moved the present Arbitration Application seeking appointment of an Arbitrator.
4. On behalf of the respondents, Respondent No. 1 filed counter-affidavit stating that the alleged agreement dated 6-2-1990 entered into between the parties is a void agreement, and having regard to the provisions of Section 4 of the Benami Transactions (Prohibition) Act, 1988 and the provisions of Sections 23 and 24 of the Indian Contract Act, 1872 the present application for appointment of an Arbitrator, is not maintainable. Even assuming without admitting that the alleged agreement is not hit by any of the afore-mentioned provisions, yet the alleged agreement is invalid and cannot be looked into for the same is insufficiently stamped and is hit by the provisions of the Indian Stamp Act, 1881 and the Indian Registration Act. As the applicant is claiming a right in respect of immovable properties by way of symbolic possession, the alleged agreement is required to be compulsorily registered. The respondents denied that the applicant purchased the properties in their names benami and submitted that it is they who purchased the properties under registered sale deeds. According to the respondents, the agreement dated 6-2-1990 upon which the applicant seeks invocation of arbitration clause, is a forged and fabricated document and cannot be relied upon, and more so when they had not acknowledged the ownership of the applicant at any point of time. As the applicant forged the signatures of the respondents, they filed complaint before the V Metropolitan Magistrate, Hyderabad, which on reference to the police, was registered as FIR No. 556 of 2001 on the file of Banjara Hills Police Station. They contend that it is the applicant who has taken signatures of Mr. H.S. Sethi on blank stamp papers. They denied having agreed for appointment of Arbitrator, including Sardar Bhupender Singh. The respondents while admitting that they have received the legal notice dated 20-2-2003 issued by the applicant for appointment of Arbitrator, submit that as there are no arbitrable disputes between them and as the applicant had no right in the properties, and in view of the counter filed by them in A.A. No. 57 of 2002, which was withdrawn by the applicant on 19-2-2003, there was no need for them to reply or appoint an Arbitrator as requested by the applicant. At any rate, they contend that the application is barred by limitation and submit that the application, be dismissed.
5. Heard the learned Counsel for the applicant and the learned Counsel for the respondents.
6. The learned Counsel for the applicant submits that the applicant had purchased the two plots in the names of the respondents benami, and the respondents have even recognized the applicant as the owner of the said plots under an agreement dated 6-2-1990, entered into by the applicant with the respondents. The learned Counsel submits that the respondents though recognized the applicant as the owner of the plots purchased in their names benami, but with a dishonest intention to grab the plots, filed complaint against the applicant in respect of the said plots claiming as if they are owners of the said plots. As disputes arose between the parties with respect to the ownership of the plots purchased by the applicant in the names of the respondents benami, and having regard to the arbitration clause in the agreement in Clause 8 of the agreement, which provides for reference of disputes arising between the parties to an Arbitrator by name Sri. Sardar Bhupender Singh, who unfortunately died, the learned Counsel for the applicant submits that a new person be appointed as Arbitrator for resolution of the disputes between the parties. The learned Counsel for the applicant further submits that though the applicant got issued legal notice dated 20-2-2003 calling upon the respondents to appoint an Arbitrator, the respondents having received the said notice, have neither chosen to reply to the said notice nor appointed an Arbitrator, and therefore, the applicant was constrained to file the present application for appointment of Arbitrator. He, thus prayed that the application as prayed for be allowed and Arbitrator be appointed for resolution of the disputes raised by him.
7. Per contra, the learned Counsel appearing on behalf of the respondents would submit that the applicant has not purchased the plots in the names of the respondents benami, but it is the respondents who have purchased the said plots in their names under registered sale deeds. It is the applicant who with oblique motive to grab the plots purchased by the respondents, by making use of the blank stamp papers containing the signatures of the respondents, has fabricated the alleged agreement dated 6-2-1990 providing for appointment of an Arbitrator for resolution of the disputes arising therefrom.
8. According to him, even assuming that the applicant had purchased the plots benami in the names of the respondents, yet having regard to the provisions of Section 4 of the Benami Transactions (Prohibition) Act, 1988 the purchase of plots by the applicant in the names of the respondents benami, is an invalid and void transaction, and is unenforceable for the said transaction is not only violative of the provisions of a Parliamentary Act, but is also opposed to public policy.
9. The learned Counsel for the respondents while submitting that a transaction which is prohibited by law is unenforceable, including by way of arbitration proceedings, placed reliance on the judgments of the apex Court in R. Rajagopal Reddy v. P. Chandrasekharan, , and Konkan Railway Corporation, Ltd. v. Rani Constructions Pvt., Ltd, . The learned Counsel for the respondents submits that when the agreement under which the applicant claims to have purchased the plots in the names of the respondents benami, is itself an invalid and void agreement, no sanctity can be placed on the contents of the said agreement, including the arbitration clause, and in support of this argument, he , placed reliance on the judgments of the apex Court in Khardah Co. Ltd. v. Raymon & Co., AIR 1963 SC 1810, Waverly Jute Mills v. Raymon & Co., , and Jaikishan v. L. Kanoria & Co., .
10. The learned Counsel for the respondents further submits that inasmuch as Section 3 of the Benami Transactions (Prohibition) Act, 1988, prohibits purchase of property benami, the alleged purchase of property by the applicant under the alleged agreement dated 6-2-1990, in the names of the respondents benami, constitutes a criminal and punishable offence, it is only the competent Criminal Court which has the jurisdiction to go into the genuineness and veracity of the alleged agreement, and therefore, the disputes raised by the applicant are not arbitrable and in support of this submission, he sought to place reliance on the judgment of the Apex Court in Haryana Telecom Limited v. Sterlite Industries (Indian) Limited, .
11. The learned Counsel for the respondents submits that the respondents had filed a criminal complaint against the applicant for fabricating the alleged agreement, and the competent Criminal Court is already seized of the matter. The learned Counsel further submits that even assuming the alleged agreement is a valid agreement, yet having regard to the provisions of the Indian Stamp Act, 1899 and the Indian Registration Act, 1908, the same is inadmissible in evidence for the same has been allegedly executed on an insufficient stamped paper. Inasmuch as the alleged agreement is an illegal, invalid and void agreement, the learned Counsel for the respondents submits that no sanctity can be accorded to the arbitration clause in the said agreement, and therefore, the respondents having received legal notice got issued by the applicant, have not chosen either to reply or appoint an Arbitrator, and therefore, the application at the instance of the applicant for appointment of an Arbitrator, on the basis of an arbitration clause in an invalid and void agreement, is liable to be dismissed.
12. The questions involved in this application, namely whether in fact, the applicant had purchased the plots in the names of the respondents benami, and whether in fact, there is at all an agreement entered into between the parties in respect of the said transaction, and whether having regard to the provisions of Section 3 of the Benami Transactions (Prohibition) Act, 1988, the alleged purchase of plots in the names of respondents benami, constitutes a criminal and punishable offence, and it is only the competent Criminal Court which is entitled to go into the genuineness or veracity of the agreement relied upon by the applicant to invoke arbitration proceedings, are all issues, contentious in nature, and cannot be gone into by this Court in an application filed under Section 11 of the Arbitration and Conciliation Act, 1996. Suffice it to state that having regard to the judgment of the apex Court in Konkan Railway Corporation Ltd. v. Rani Constructions Pvt. Ltd., the Chief Justice or his nominee while exercising jurisdiction under Section 11 of the Arbitration and Conciliation Act, 1996, discharges only administrative function and the order passed by him appointing an Arbitrator, is not a judicial order. In this context, it would be apposite to excerpt para 18 of the said judgment, which runs thus:
There is nothing in Section 11 of the Arbitration and Conciliation Act, 1996 that requires the party other than the party making the request to be noticed. It does not contemplate a response from the other party. It does not contemplate a decision by the Chief Justice or his designate on any controversy that the other party may raise, even in regard to its failure to appoint an arbitrator within the period of thirty days. That the Chief Justice or his designate has to make the nomination of an arbitrator only if the period of thirty days is over does not lead to the conclusion that the decision to nominate is adjudicatory. In its request to the Chief Justice to make the appointment the party would aver that this period has passed and, ordinarily, correspondence between the parties would be annexed to bear this out. This is all that the Chief Justice or his designate has to see. That the Chief Justice or his designate has to take into account the qualifications required of the arbitrator by the agreement between the parties (which, ordinarily, would also be annexed to the request) and other considerations likely to secure the nomination of an independent and impartial arbitrator also cannot lead to the conclusion that the Chief Justice or his designate is required to perform an adjudicatory function. That the word "decision" is used in the matter of the request by a party to nominate an arbitrator does not of itself mean that an adjudicatory decision is contemplated.
It was further held thus:
As we see it, the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the arbitration agreement or by the two arbitrators appointed by the parties and nominate an arbitrator. This is to enable the Arbitral Tribunal to be expeditiously constituted and the arbitration proceedings to commence. The function has been left to the Chief Justice or his designate advisedly, with a view to ensure that the nomination of the arbitrator is made by a person occupying high judicial office or his designate, who would take due care to see that a competent, independent and impartial arbitrator is nominated.
13. From the law laid down by the apex Court in the aforementioned judgment, it becomes amply clear that the foremost consideration either for the Chief Justice or his designate in an application under Section 11 of the Arbitration and Conciliation Act, 1996 is to see whether the 30 days period of notice has expired and nothing more, and his only function to be discharged is to fill the gap left by a party to the arbitration agreement. In the instant case, it is admitted by the respondents that they have received the notice got issued by the applicant requesting appointment of an Arbitrator for resolution of the disputes existing between them, but they have ignored the same on the ground that the alleged agreement, basing on which the applicant made a request for appointment of an Arbitrator, is a fabricated agreement and could not be acted upon. Once it is admitted by the respondents that they have received the notice requesting appointment of an Arbitrator, irrespective of the fact, whether the disputes raised by the applicant are arbitrable disputes or not and whether the alleged agreement, basing upon which, the applicant sought to invoke the arbitration proceedings, is a forged or fabricated document, the respondents are left with no other choice, but to name an Arbitrator, but on their failure to do so, it becomes incumbent upon the Court to appoint an Arbitrator, when a request in that regard is made by a party to the agreement. Even assuming that the contentions raised by the applicant are not genuine and the agreement relied upon by him to invoke the arbitration clause, is a fabricated agreement, yet having regard to the limited scope of Section 11 of the Arbitration and Conciliation Act, 1996, namely that of nominating an Arbitrator, this Court cannot go into such issues and record its findings, and it is for the Arbitrator appointed by this Court to rule on such contentious issues.
14. The argument of the learned Counsel for the respondents that in as much as Section 3 of the Benami Transactions (Prohibition) Act, 1988, prohibits benami transactions, the agreement relied upon by the applicant to contend that he has purchased the plots benami in the names of the respondents, constitutes a criminal and punishable offence, and it is only the competent Criminal Court, which is entitled to go into such question, is noted only to be rejected. Whether or not the alleged benami transaction constitutes a criminal offence and the Criminal Court is alone competent to look into such question, is a matter, which cannot be gone into in an application under Section 11 of the Arbitration and Conciliation Act, 1996. Inasmuch as the alleged agreement dated 6-2-1990 upon which the applicant places reliance to invoke the arbitration proceedings, contains an arbitration clause in Clause 8, which provides for appointment of an Arbitrator for resolution of the disputes arising between the parties with respect to the sale transaction, and the Arbitrator named in the said agreement having died, and the respondents having received the notice got issued by the applicant for appointment of an Arbitrator, failed to appoint an Arbitrator, and the period of 30 days prescribed in Section 11 of the Arbitration and Conciliation Act, 1996 having elapsed, this Court has no alternative but to appoint an Arbitrator.
15. It is no doubt true that the respondents have made a criminal complaint against the applicant and the same is pending before the competent Criminal Court, but that by itself is not a ground not to entertain the Arbitration Application. One cannot dispute the fact that criminal proceedings and arbitration proceedings are distinct and independent of each other. If a party to the agreement has taken recourse to the criminal proceedings in respect of an agreement, it does not mean that the other party is not entitled to invoke the arbitration clause contained in the agreement for appointment of an Arbitrator for resolution of the disputes arising therefrom. Whether or not the alleged agreement relied upon by the applicant to invoke arbitration clause is a fabricated document, is a matter for the competent Criminal Court to decide, and if the respondents prove that the agreement relied upon by the applicant is a fabricated agreement, then the applicant will face the consequences or punishment arising therefrom, but certainly the respondents cannot contend not to maintain this application.
16. In this context, reference be made to the judgment of the apex Court in Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums, 2003 (5) ALD 26 (SC). In the said case, the appellant, namely Hindustan Petroleum Corporation Ltd., which is a company carrying on the business of manufacture, sale and distribution of petroleum products through its dealers, appointed the respondent, namely Pinkcity Midway Petroleums, as its Dealer, and a Dealership Agreement was entered into between them. Clause 30 of the said agreement empowers the appellant to stop supplies to the respondent if the respondent commits breach of the agreement and Clause 40 of the said agreement contains an arbitration clause, which enables the parties to refer the disputes arising therefrom to an Arbitrator. Clause 20 of the said agreement obligates the respondent not only to comply with the terms and conditions of the agreement, but also the directions, orders and guidelines issued for the prevention of malpractice and maintaining marketing discipline. The officers of the appellant in exercise of the power conferred by Section 3 of the Essential Commodities Act, 1955 and Order of 1998, inspected the outlet of the respondent and found him committing malpractices and indulged in short delivery of fuel and also tampered with the weights and measurement seals. In this factual background, it was contended by the respondent that inasmuch as short-delivery of fuel and tampering of seals constitute a criminal offence, it was not open for the appellant to arrogate to itself the statutory power of search and seizure relying on some contractual terms in the Dealership Agreement. Negating this contention of the respondent, the apex Court held:
Having considered the above arguments addressed on behalf of the respondent as also the findings of the Courts below, we are of the opinion that the same cannot be accepted because the appellant is neither exercising the power of search and seizure conferred on a competent authority under the Standards of Weights and Measures (Enforcement) Act, 1985 nor does the Dealership Agreement contemplate the arbitrator to exercise the power of a Criminal Court while arbitrating on a dispute which has arisen between the contracting parties. This is clear from the terms of the Dealership Agreement. In our opinion, the findings of the Courts below in this regard run counter to the clauses of the said Agreement, as could be seen from the clauses of the Dealership Agreement.
17. The apex Court upon referring to various sub-clauses in the Dealership Agreement observed that the respondent (dealer) is under an obligation to faithfully, promptly and diligently observe and perform and carry out at all time all directions, orders, rules, terms and conditions of safe practices and marketing discipline while carrying on the dealership of the appellant. Clause 20 of the said Agreement also requires the dealer to observe and comply with the provisions of the Petroleum Act, Explosives Act and the Weights and Measurements Act, 1976 and the rules and regulations made thereunder.
18. The apex Court on analyzing Clause 30 of the Dealership Agreement observed that the right of the Corporation to suspend the supply of petroleum products to an erring dealer is a right exercised under the terms of the contract and is independent of the statutory provisions of the various Acts enumerated in Clause 20 of the Agreement.
The apex Court further held as follows:
The Courts below, in our opinion, have committed an error by misreading the terms of the contract when they came to the conclusion that the only remedy available as against a misconduct committed by an erring dealer in regard to short-supply and tampering with the seals lies under the provisions of the 1985 Act. The Courts below have failed to notice that when a dealer short-supplies or tampers with the seal, apart from the statutory violation, he also commits a misconduct under Clause 20 of the Agreement in regard to which the appellant is entitled to stop supply of petroleum products to such dealer. The power conferred under the Agreement does not in any manner conflict with the statutory power under the 1985 Act nor does the prescribed procedure under the 1985 Act in regard to search and seizure and prosecution apply to the power of the applicant to suspend the supply of its petroleum products to an erring dealer. The power exercised by the appellant in such a situation is a contractual power under the agreement and not a statutory one under the 1985 Act. The existence of dual procedure, one under the criminal law and other under the contractual law is a well accepted legal phenomenon in the Indian Jurisprudence.
19. This being the legal position, it cannot be said that merely because the alleged benami transaction constitutes a criminal offence and is punishable for a criminal liability, it cannot be said that the applicant is not entitled to invoke the arbitration clause in the agreement. Be that as it may, merely on the basis of allegations and counter-allegations, it cannot be conclusively said that the agreement relied upon by the applicant is a fabricated agreement, engineered for the purpose of defrauding the respondents.
20. The contention of the respondents that inasmuch as the alleged agreement creates a benami transaction, the same is void, invalid and unenforceable, and consequently, the arbitration clause contained therein, also cannot be looked into for the purpose of maintaining the present application, for the reason that the same runs contrary to the provisions of the Parliamentary Act and is opposed to public policy, cannot be accepted. In this context, it would be apposite to refer to the relevant provisions of Section 16 of the Arbitration and Conciliation Act, 1996, which reads thus:
16. Competence of arbitral tribunal to rule on its jurisdiction :--(1) The arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose--
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the terms of the contract; and
(b) a decision by the arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
21. A bare reading of the above provision would disclose that the arbitral Tribunal, apart from being clothed with the power of ruling on its own jurisdiction, is also clothed with the power to rule on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose under Clause (a) of Sub-section (1) of Section 16, the arbitration clause in the agreement is treated as an agreement independent of the terms of the contract, and under Clause (b) of Sub-section (1) of Section 16, a decision by the arbitral Tribunal that the contract is null and void, would not entail ipso jure, the invalidity of the arbitration clause. Inasmuch as Section 16(1)(b) of the Arbitration and Conciliation Act, 1996, itself clothes the Arbitrator with the power to go into the question of the validity or otherwise of the arbitration agreement or the arbitration clause contained in the agreement, the contention of the respondents that the alleged agreement being void and invalid, the arbitration clause contained therein cannot be looked into for invoking the arbitration clause, cannot be accepted, and as such, the decisions relied upon by the learned Counsel for the respondents in support of his arguments, do not help him in any manner. The disputes raised by the parties being contentious in nature, it is not open for this Court in exercise of its jurisdiction under Section 11 of the Arbitration and Conciliation Act, 1996, to render its opinion upon such contentious issues, for the role of the Chief Justice or his designate, is limited to appointing an Arbitrator, once he is satisfied that the statutory period of 30 days notice has expired.
22. In the result, and for the reasons foregoing, the Arbitration Application is allowed, and Sri. Justice P.L.N. Sarma, a former Judge of this Court, is appointed as Arbitrator for resolution of the disputes between the parties. The respondents are directed to refer the disputes raised by the applicant forthwith to the Arbitrator appointed by this Court. The parties are at liberty to raise all the contentious issues before the Arbitrator. The Arbitrator is at liberty to fix his fee. No costs.