Gujarat High Court
Omega Elevators Through Proprietor ... vs Managing Director on 29 July, 2016
Author: Akil Kureshi
Bench: Akil Kureshi
O/IAAP/31/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN. UNDER ARBITRATION ACT NO. 31 of 2016
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OMEGA ELEVATORS THROUGH PROPRIETOR KUMARPAL MANHARLAL
DESAI....Petitioner(s)
Versus
MANAGING DIRECTOR....Respondent(s)
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Appearance:
MR.HARDIK B SHAH, ADVOCATE for the Petitioner(s) No. 1
MR HARSHADRAY A DAVE, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
Date : 29/07/2016
ORAL ORDER
1. The petitioner seeks appointment of an arbitrator in terms of two agreements both dated 28.09.2011. Under first such agreement, the petitioner had purchased certain software from the respondent. Second agreement was in the nature of service support agreement for such software. Both these agreements contain arbitration clause in slightly different language. In the software purchased agreement, arbitration clause provided as under:
""12. ARBITRATION: Except for the right of either party to apply to a court of competent jurisdiction for an injunction or other equitable relief available under applicable law to preserve the status quo or prevent irreparable harm pending the selection and confirmation of a panel of arbitrators, and for the right of SAP to bring suit on an open account for any payments due Page 1 of 12 HC-NIC Page 1 of 14 Created On Tue Sep 20 22:53:58 IST 2016 1 of 14 O/IAAP/31/2016 ORDER SAP hereunder, any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in India, in accordance with the Rules of Conciliation and Arbitration of the ICC and judgement upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof, Arbitration shall be conducted in the English language by a panel of three (3) members, one member selected by SAP, one member selected by License and the third member, who shall be chirman, selected by agreement between the other (2) members. The chairman shall be a solicitor, and the other arbitrators shall have a background or training in computer law, computer science, or marketing of computer industry products. The arbitrators shall have the authority to grant injunctive relief in a form substantially similar to that which would otherwise be granted by a court of law. The parties agree that the arbitration proceedings and the outcome shall be kept strictly confidential and that obligations under this Section 12 shall survive termination or expiration of this Agreement."
2. In support service, the arbitration clause was worded as under:
"11.7 This agreement and any disputes arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of India.. Except for the right of either party to apply to a court of competent jurisdiction for an injunction or other equitable relief available under applicable law to preserve the status quo or prevent irreparable harm pending the selection and confirmation of a panel of arbitrators, and for the right of SAP to bring suit on an open account for any payments due SAP hereunder any controversy of claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in New Delhi in accordance with any court having jurisdiction thereof. Arbitration shall be conducted in the English language by a panel of three (3) members. One member selected by SAP, one member selected by Customer and the third member, who shall be chairman, selected by agreement between the other (2) members. The chairman shall be a solicitor, and the other Page 2 of 12 HC-NIC Page 2 of 14 Created On Tue Sep 20 22:53:58 IST 2016 2 of 14 O/IAAP/31/2016 ORDER arbitrators shall have a background or training in computer law, computer science, or marketing of computer industry products. The arbitrators shall have the authority to grant injunctive relief in a form substantially similar to that which would otherwise be granted by a court of law. The parties agree that the arbitrator proceedings and the outcome shall be kept strictly confidential and that obligations under this Section 11.7 shall survive termination or expiration of this Agreement.
3. It appears that the petitioner has disputes about the quality and performance of this software. The petitioner, therefore, issued a notice dated 20.01.2016 referring it as arbitration notice. In such notice, the petitioner raised multiple disputes about the products supplied by the respondent and ultimately, conveyed as under:
"13. You are therefore called upon by our clients to enter in to negotiations and dialogue with our client for appointment of Arbitrator within 30 days from the date of receipt of this Notice, failing which appropriate legal proceedings would be initiated by our client against you by invoking the provisions contained in Section 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996, under AGREEMENT No.1 and AGREEMENT No.2. Please note that this arbitration clause has been invoked under AGREEMENT No.1 AND AGREEMENT NO.2, both."
4. In the reply to such notice, the respondent conveyed under letter dated 15.02.2016 that the matter can be resolved amicably. The respondent suggested a personal meeting.
5. On 25.02.2016, the petitioner, thereupon, wrote to the respondent titling the letter "As a last opportunity for amicable settlement to avoid litigation". In such letter, the petitioner Page 3 of 12 HC-NIC Page 3 of 14 Created On Tue Sep 20 22:53:58 IST 2016 3 of 14 O/IAAP/31/2016 ORDER requested the respondent to send technician at the site for inspection. On 29.02.2016, the petitioner sent an email to the respondent in which, it was conveyed as under:
"Dear Mr. Anil, As discussed with you please make sure to bring the technically competent person who can understand and resolve the issue. Also find attached the further notice issued by our advocate in reply of SAP's letter dated 15/02/2016."
6. On 12.03.2016, in reply to the notice dated 25.02.2016, the respondent raised multiple issues and denied various claims of the petitioner. Nevertheless, the respondent appointed one Shri Padam Kant Saxena, Additional District and Sessions Judge as a nominee of the respondent in the arbitral tribunal.
7. On 16.03.2016, the petitioner replied to the respondent vide letter dated 12.03.2016 and reiterated that the arbitration petition would be maintainable before the Gujarat High Court for which, the petitioner has already approached.
8. Learned counsel for the petitioner submitted that the agreements were signed by the petitioner at Ahmedabad after which they were taken to New Delhi for signature by the respondent. The product was installed and used at Ahmedabad. The defects occurred at Ahmedabad during the course of the use of the product and, this Court, therefore, has cause of action to entertain the arbitration petition. He pointed out that in the first Page 4 of 12 HC-NIC Page 4 of 14 Created On Tue Sep 20 22:53:58 IST 2016 4 of 14 O/IAAP/31/2016 ORDER agreement, there is no reference to the seat of arbitration being at New Delhi. In any case, merely because the arbitration proceedings would take place at New Delhi would not take away the jurisdiction of this Court for making appointment of an arbitrator. He further submitted that the term "ICC Rules"
has nowhere been defined or clarified in the agreements. In any case, the respondent waived the objection to referring the disputes to arbitrator by nominating an arbitrator.
9. On the other hand, learned counsel Mr. Sidhharth Silwal for the respondent opposed the petition raising following contentions:
(I) This Court has no jurisdiction to entertain the arbitration petition in terms of Section 11(12) read with Section 2(1)(e) of the Arbitration and Conciliation Act. In this context, he relied on the following decisions of Delhi High Court:
(i) Aishwarya Financial Services Pvt. Ltd and ors vs Future Value Retail Ltd.
(ii) Rohit Bhasin and Anr vs. Nandini Hotels (II) The arbitration agreements referred to the ICC Rules. In the present case, the petitioner had not followed such Rules before invoking arbitration clause. In this context, he placed reliance on the decision of Supreme Court in case of Standard Corrosion Controls Private Ltd. vs. Sarku Engineering Page 5 of 12 HC-NIC Page 5 of 14 Created On Tue Sep 20 22:53:58 IST 2016
5 of 14 O/IAAP/31/2016 ORDER Services SDN BHD reported in 2009 (1)SCC 303.
(III) The petition, in any case, is premature. The petitioner had not nominated his arbitrator giving clear 30 days notice to the respondent to appoint the respondent's nominee. In absence of any such notice, arbitration petition was premature.
(IV) Counsel lastly submitted that there is no arbitrable dispute which can be referred for arbitration.
10. As noted, the two agreements contained arbitration clauses substantially similar in language. Except that, in the second agreement, there is a reference that the dispute shall be settled by arbitration at New Delhi. In this context, question arises whether this Court would have jurisdiction to entertain this arbitration petition. Undisputably, in the first agreement the arbitration clause does not contain any such reference. It is also not in dispute that the product, which is the subject matter of the dispute, was installed by the respondent and used by the petitioner at Ahmedabad. Defects in the product which allegedly arose also happened at Ahmedabad. Part of cause of action therefore clearly arose within the jurisdiction of this Court. With respect to the first of the two arbitration agreements, therefore, there would be no further discussion needed to hold that the Court would have jurisdiction to appoint the arbitrator.
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11. With respect to the second of the two agreements also, Clause (b) of the Section 11(12) of the Act provides that where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the term "reference to Supreme Court or the High Court, as the case may be, shall be construed as a reference to the High Court within whose local limits the Principal Civil Court referred in clause (e) of sub section (1) of Section 2 is situate. In turn, in Section 2 (1)(e) the term "Court" means in case of arbitration other than international commercial arbitration, the principal civil court of original jurisdiction in a district, and includes the High Court in exercise of its 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 the suit but would not include any Civil Court of a grade inferior to such principal Civil Court or any Court of Small Causes. It can thus be seen that merely because the parties decided that the arbitration proceedings would be held at New Delhi would not automatically mean that this Court would have no jurisdiction to appoint an arbitrator if otherwise in terms of the such provision the cause of action having arisen within the local limits of the Court the jurisdiction would have vested. In fact, the Delhi High Court judgement in case of Rohit Bhasin and Anr vs. Nandini Hotels was a reverse situation where the respondent had questioned the jurisdiction of Delhi High Court on a similar ground. In this background, Delhi High Court had held that:
Page 7 of 12HC-NIC Page 7 of 14 Created On Tue Sep 20 22:53:58 IST 2016 7 of 14 O/IAAP/31/2016 ORDER "13. From the above, it is clear that the Supreme Court while explaining the meaning of the term "court" as defined in Section 2(1)(e) has held that the subject matter on the basis of which the jurisdiction of a court can be decided is not confined within the barriers of Section 20 CPC but has a wider meaning thereby also concurring jurisdiction upon the Court where the seat of arbitration will be located. It is pertinent to mention here that the meaning of Section 2(1)(e) of the Act was not in dispute before the Supreme Court in the above said judgment and the Supreme Court has not overruled any previous law in relation to the same but has clarified the intent of the legislature in ascribing such broad meaning to the term "court" in Section 2(1)(e)."
12. Our High Court in case of Palihill Mercantile Company Pvt. Ltd. vs. Store one retail India Ltd. in Arbitration Petition No. 27 of 2010 in similar circumstances had observed as under:
"7. In the present case, I find that property is situated at Ahmedabad. Respondent had given the property on leave and license basis to the petitioner which agreement was executed at Ahmedabad. Petitioner had enjoyed use of such property under said agreement. Only clause which respondent has pressed in service to oust the jurisdiction of Gujarat High Court is contained in clause14, wherein it is specified that arbitration shall be held in Mumbai and that proceedings shall be conducted in English language. In my opinion this by itself would not be sufficient to oust the jurisdiction of this Court, particularly, when property itself is situated in Ahmedabad and the agreement was also executed at Ahmedabad. Counsel however, submitted that clause also provides that only Courts in Mumbai will have jurisdiction in this matter. This line is preceded by "The parties agree that the Arbitration Award shall be final and may be enforced as decree." Reference to Courts in Mumbai is therefore, for the purpose of execution of arbitral award and cannot be read as excluding jurisdiction of Gujarat High Court to the limited extent of appointment of arbitrator.
8. In somewhat similar circumstances, where arbitration Page 8 of 12 HC-NIC Page 8 of 14 Created On Tue Sep 20 22:53:58 IST 2016 8 of 14 O/IAAP/31/2016 ORDER clause in the agreement between the parties provided that arbitration would be in English and venue of arbitration shall be at Hyderabad and further that Courts in Hyderabad alone would have right to entertain suits or other claims arising out of contract, Learned Single Judge in judgement dated 10.5.2010 in Arbitration Petition No.6/2010 turned down the objection to the jurisdiction of Gujarat High Court for appointment of arbitrator making following observations :
"16. Considering clause30 of the Work Order / Agreement dtd.22/6/2005 and the fact that the registered office of the petitioner is at Ahmedabad and even the registered office of the respondent is at New Delhi and the respondent is carrying its business at New Delhi, it was suggested by the Court to mutually agree to fix the venue of arbitration at Ahmedabad to avoid wastage of time and expenditure, however, Mr.Joshi, learned advocate appearing on behalf of the respondent has not agreed to the same and therefore, as per Clause30 of the Work Order/ Agreement dtd.22/6/2005, the venue of the arbitration shall be at Hyderabad."
9. In case of Rajasthan State Electricity Board(supra), Apex Court was pleased to hold that in view of clause excluding the jurisdiction of other Court, Court at Jaipur alone would have jurisdiction to entertain the proceedings. It was a case where Arbitral Reference was being challenged at a Court other than Jaipur. In context of agreement excluding jurisdiction of other Courts, above observations and findings came to be recorded.
10. In case of Balaji Coke Industry Private Limited(supra), in which on facts, the Apex Court found that parties had voluntarily agreed to the decision of Kolkata High Court even though Court at Gujarat also had jurisdiction to decide arbitration dispute. It was in this background that the Apex Court upheld the objection of the parties to appointment of arbitrator at Ahmedabad and assumption of jurisdiction by Civil Court at Bhavnagar with respect to such arbitration proceedings.
11. In facts of the case, I am of the opinion that objection of territorial jurisdiction is required to be turned down. However, Page 9 of 12 HC-NIC Page 9 of 14 Created On Tue Sep 20 22:53:58 IST 2016 9 of 14 O/IAAP/31/2016 ORDER clause providing for arbitration proceedings to be conducted in Mumbai must be given sanctity to. In that view of the matter appointment of a Judge retired form Gujarat High Court and settled in Ahmedabad as Arbitrator would not be conducive of smooth and expeditious conduct of the arbitration proceedings."
13. Regarding the applicability of ICC Rules, I cannot accept the contention of the petitioner's counsel that this term was not clear as not having been defined in the agreement was not enforceable. If the petitioner had any doubt about the reference to the ICC Rules, the petitioner should have sought clarification before executing the agreement. I must therefore proceed on the basis that the parties decided to follow the International Court of Arbitration Rules. The respondent has produced such Rules alongwith the reply. A glance of the Rules would suggest that a certain procedure has been laid down for drawing the arbitral tribunal. The Rules also recognize the rights of the parties to form the arbitral tribunal by nominating one arbitrator from either side and these arbitrators in turn selecting the third arbitrator or umpire. It is undisputed that the petitioner did not follow such procedure. Had the respondent, therefore, despite such lacuna on part of the petitioner, not nominated its arbitrator, I would have entirely agreed with the respondent that the procedure envisaged in the arbitration agreement not having followed the petitioner could not seek appointment of an arbitrator. However, in this case, the respondent under the above noted communication dated 12.03.2016 had nominated Shri Padam Kant Saxena, Additional District and Sessions Page 10 of 12 HC-NIC Page 10 of 14 Created On Tue Sep 20 22:53:58 IST 2016 10 of 14 O/IAAP/31/2016 ORDER Judge as its nominee to the panel of arbitrators. The grievance or objection that, before seeking appointment of an arbitrator the procedure envisaged in the ICC Rules was not followed, therefore, cannot be accepted at this stage.
14. Similarly, if the respondent had not made such nomination, the contention that the arbitration petition was premature as it did not provide 30 days clear notice to the respondent after invoking arbitration clause and nominating the petitioner's representative to the panel would have been perhaps the valid contention. In the present case, respondent having waived such requirements and having appointed its nominee to the arbitral tribunal such a contention would not be available. Likewise, the objection that no arbitrable dispute has arisen would have reference to the merits of the rival contentions on the dispute about the product supplied by the respondent which cannot be gone into in the present petition which only gives appointment of an arbitrator.
15. Having said all these, the question still remains should the request of appointment of an arbitrator, as made by the petitioner, be accepted. Answer has to be in the negative for the following reasons:
16. As noted, the arbitration clause in both the agreements referred to three member panel of arbitrators. One to be selected by the petitioner, one to be selected by the respondent and the Page 11 of 12 HC-NIC Page 11 of 14 Created On Tue Sep 20 22:53:58 IST 2016 11 of 14 O/IAAP/31/2016 ORDER third member who will be a chairman to be selected by agreement between these two members. Unless and until this formula failed, there would be no cause for me to make an appointment of an arbitrator that too in facts of the present case, ignoring the fact that both sides have already nominated one set of arbitrator of its choice. Unless and until the situation has arisen where these two arbitrators are unable to or for some reason, do not select the third arbitrator to chair the arbitral tribunal, the request for intervention by the Court would not be permissible. At any rate, the petitioner cannot seek appointment of entirely new independent arbitrator ignoring the two appointments already made.
17. For such reasons, the petition is dismissed.
(AKIL KURESHI, J.)
Jyoti
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O/IAAP/31/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN. UNDER ARBITRATION ACT NO. 31 of 2016
[On note for speaking to minutes of order dated 29/07/2016 in O/IAAP/31/2016 ] ========================================================== OMEGA ELEVATORS THROUGH PROPRIETOR KUMARPAL MANHARLAL DESAI....Petitioner(s) Versus MANAGING DIRECTOR....Respondent(s) ========================================================== Appearance:
MR.HARDIK B SHAH, ADVOCATE for the Petitioner(s) No. 1 MR HARSHADRAY A DAVE, ADVOCATE for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI Date : 16/09/2016 ORAL ORDER
1. Through this note, it is correctly pointed out that in the judgment dated 29.07.2016 in para 2, while reproducing para 11.7 of the agreement, one line has been, due to typographical oversight, omitted. A fresh copy of the said judgment shall be prepared carrying correct reproduction of para 11.7 and be placed for signature, which order will form the basis of issuing certified copies.
2. Note is disposed of accordingly.Page 1 of 2
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