Bombay High Court
Mumbai International Airport Limited vs Inc 5 Shoes Pvt Ltd on 12 July, 2024
2024:BHC-OS:10226
CARAPL-20326-2023-J-F-12-7-2024.DOC
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION APPLICATION (LODG.) NO. 20326
OF 2023
Digitally
signed by
SHRADDHA
SHRADDHA KAMLESH
KAMLESH TALEKAR Mumbai International Airport Ltd.,
TALEKAR Date:
2024.07.12
17:15:42
a company registered under the
+0530
Companies Act, 1956, having its
registered office at Terminal 1 B,
1st Floor, Chhatrapati Shivaji )
International Airport, Santacruz )
... Applicant
(East), Mumbai - 400 099
Versus
Inc. 5 Shoes Pvt. Ltd.,
a Company incorporated under the
Companies Act, 1956, having its
registered office at the Centrium, 3rd
floor, Unit No. 5 Phoenix Market City,
Kurla, Mumbai-400070 ... Respondent
Mr. Yashesh Kamdar a/w. Mr. Suhas S. Kadu i/b Wadia Ghandy & Co.,
Advocates for Applicant.
Mr. Durgaprasad Sabnis a/w. Rajani Yadav i/b Lex Firmus, Advocates
for Respondent.
_______________________
CORAM : SOMASEKHAR SUNDARESAN, J.
Reserved on : June 27, 2024
Pronounced on : July 12, 2024
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CARAPL-20326-2023-J-F-12-7-2024.DOC
Judgement :
1. This application is filed under Section 11 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") for appointment of an Arbitrator in connection with a "Concession Agreement" dated 22 nd May, 2019 ("Concession Agreement") between the Applicant and the Respondent. Disputes and differences have evidently arisen between the parties in connection with payments claimed by the Applicant from the Respondent under the Concession Agreement and ancillary and connected agreements.
2. The Respondent has strongly objected to this Court appointing an Arbitrator, on the premise that the disputes are subject to the exclusive jurisdiction of the Small Causes Court in Mumbai, which jurisdiction cannot be contracted out of by way of an arbitration agreement. Consequently, while the Respondent admits the existence of the arbitration agreement, it is the Respondent's contention that this Application must not be allowed because, by operation of law, the dispute is not arbitrable. Since the disputes are not arbitrable, the Respondent would submit, for purposes of the dispute, the legal effect is that there is no arbitration agreement. Invocation of Arbitration and Response:
3. The Applicant invoked arbitration on 22nd May, 2023, calling upon the Page 2 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC Respondent to make payments due under the Concession Agreement and connected agreements, and in particular, certain minimum monthly guaranteed payments owed under the Concession Agreement. In response, vide a letter dated 20th June, 2023, the Respondent asserted that the Applicant had waived certain payments owing to the financial distress caused by the Covid-19 pandemic. The Respondent protested againstthe forfeiture of deposits made by the Applicant. The Respondent asserted that the arbitration agreement was illegal since it gave the unilateral right to the Applicant to appoint the arbitrator. However, no argument about the absence of jurisdiction for an Arbitral Tribunal was made by the Respondent in this response.
4. This Application appears to have been filed on 22 nd July, 2023. In an affidavit-in-reply filed on 5th September, 2023, the Respondent has raised the issue of jurisdiction, asserting that only the Small Cause Court in Mumbai could hear the dispute since the claim related to recovery of license fee for usage of immovable property. An affidavit-in-rejoinder was filed on 16th October, 2023. This Application came to be heard on 15 th June, 2024. The parties sought time to file written arguments along with case law relied upon, by 4th July, 2024. Each party filed its written arguments. Page 3 of 26
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5. Before dealing with the core objections of the Respondent, it would be important to notice what the Concession Agreement entails. This is necessary because the subject matter of the agreement between the parties lies at the core of the objections from the Respondent. If the agreement is such that the dispute between the parties is about recovery of possession of immovable property given on leave and license, or about recovery of license fee, or rent or other charges for use of the immovable property, then the objection raised by the Respondent would gain credence.
6. The Recitals to the Concession Agreement set out the context and scope of what the Concession Agreement entails, and Section 2 of the Concession Agreement sets out the same in precise detail. These provisions are therefore, extracted below:
Recitals:
A. Pursuant to the Operation, Management, Development Agreement dated April 4, 2006 ("OMDA") entered into between Airports Authority of India ("AAI") and MIAL, MIAL has the exclusive right and authority inter alia to operate, manage, develop and perform services and activities relating to retail/food and beverage outlets and other passenger facilities at the Chhatrapati Shivaji Maharaj International Airport, Mumbai ("CSMIA" or "Airport") and to contract with third parties to undertake the functions of MIAL.
B. MIAL had issued a Request for Proposal for Category.Page 4 of 26
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C. Inc.5 Shoes Private Limited, being the successful Bidder has been awarded the Concession pursuant to the provisions of the RFP.
Section 2 :- CONCESSION 2.1 MIAL hereby grants the Concessionaire, the non-exclusive right for the Term set forth in Section 4 below, to design, fit-out, finance, develop, operate, maintain and manage the outlet at Terminal 1 of CSMIA for the category Footwear as further detailed in Schedule I (the "Outlet" or the "Retail Outlet") all in accordance with and subject to the terms and conditions of the Concession Documents (the "Concession"). Concessionaire hereby accepts the grant of the Concession and agrees to perform all its obligations under the Concession Documents in accordance with and subject to the terms and conditions thereof.
2.2. Solely for and incidental to the purpose of the Concession, MIAL will licence to the Concessionaire under a separate licence agreement ("Licence Agreement") the premises underlying the Outlet ("Licensed Premises"). The Concessionaire shall set up the Outlet at the premises specified in Schedule I and shall ensure that the Outlet is ready for commercial operations pursuant to the Concession by the Commencement Date.
2.3 Concessionaire shall not be allowed to do the following without the prior written approval of MIAL (i) change in the brand name of the Outlet, and (ii) change in the brand mix at the Outlet leading to non-alignment with the category description as specified in the RFP.
2.4 Pursuant to the Concession, Concessionaire hereby agrees to sell at the Outlet, the Products and Services, at the prices, as per the pricing policy specified in Section 13.1.
[Emphasis Supplied] Page 5 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC
7. It would therefore be seen that the Applicant was awarded a right to operate, manage, develop and perform services and activities relating to retail, food and beverage outlets and other passenger facilities at the Mumbai Airport. The Applicant was given the right to contract out to third parties the functions of the Applicant that were to be performed under an Operation, Management, Development Agreement, dated April 4, 2006 ("OMDA"). Pursuant to the OMDA, the Applicant sought bids and the Respondent, as the successful bidder, was granted the concession for the footwear retail outlet.
8. Section 2 of the Concession Agreement makes it clear that the scope of the Concession Agreement was not the mere license to use the premises at the Mumbai Airport but the grant of a non-exclusive right by the Applicant to the Respondent to design, fit-out, finance, develop, operate, maintain and manage a retail outlet at Terminal-1 of the Mumbai Airport in the footwear category. The Concession Agreement makes it clear that the pith and substance of the agreement was the operation of the retail footwear store on a revenue-sharing basis. The license to use the premises assigned to the Respondent was incidental to the Concession Agreement (as is seen from Section 2.2) by way of another agreement to license the premises of the retail outlet at Terminal-1 of the Mumbai Airport ("License Agreement"). Page 6 of 26
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9. The Concession Agreement entails a payment of a minimum monthly guaranteed amount to the Applicant. It entails various facets of operational control in the hands of the Applicant, and even control over change in shareholding and ownership of the Respondent. In short, prima facie, it appears that the Concession Agreement is a form of a commercial joint venture while the License Agreement is an ancillary feature of the Concession.
Small Cause Court and its Jurisdiction:
10. Learned Counsel for the Respondent strongly emphasised that the dispute relates to recovery of amounts claimed by the Applicant from the Respondent. Such amounts are inter alia due under the License Agreement. There is no break-up in the invocation notice about the amounts due separately under the Concession Agreement without reference to the License Agreement, he would submit, to assert that the entire claim would be hit by the ouster of the jurisdiction of the Arbitral Tribunal under Section 41(1) of the Presidency Small Cause Courts Act, 1882 ("Small Cause Court Act") According to him, since the Full Bench has expressly ruled that the Small Cause Court Act would override any arbitration agreement, the ouster of jurisdiction of an Arbitral Tribunal is writ large on the face of the record. Therefore, he would submit, this Court must treat the arbitration agreement Page 7 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC as non-existent for the purposes of the disputes and differences involved. Consequently, he would argue, any appointment of an Arbitrator by this Court would be in the teeth of the judgement of the Full Bench, and indeed, in the teeth of the ouster of jurisdiction arising out of Section 41(1) of the Small Cause Court Act.
11. Whether the disputes and differences between the parties relate to their roles under an agreement to license immovable property, and whether the dispute is about recovery of possession of such immovable property or for recovery of license fee for use of such property, would be determinative of whether the argument on exclusive jurisdiction of the Small Cause Court in Mumbai, warrants consideration.
12. Section 11(6A) of the Arbitration Act explicitly provides that the Court exercising jurisdiction under Section 11 of the Arbitration Act shall, notwithstanding any judgment, decree or order of any Court, confine its role to the examination of whether an arbitration agreement is in existence. The Respondent's case is that while there may be an executed arbitration agreement, it is as good as non-existent since the subject matter of the dispute is between a licensor and licensee over recovery of license fee for usage of immovable property, and therefore, only the Small Cause Court in Mumbai can conduct proceedings. Therefore, he would argue, the dispute is Page 8 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC not arbitrable, and consequently, the arbitration agreement is as good as non-existent.
13. Having examined the pleadings by the parties, and having reviewed the case law cited by both sides, this Court is of the view that the objections of the Respondent are untenable. At the heart of the objections lies the interpretation of Section 41 of the Small Cause Court Act. It would be vital to examine its provisions, and therefore, they are extracted below:
"41. Suits or proceedings between licensors and licensees or landlords and tenants for recovery of possession of immovable property and licence fees or rent, except to those to which other Acts apply to lie in Small Cause Court:-- (1)Notwithstanding anything contained elsewhere in this Act but subject to the provisions of sub- section (2), the Court of Small Cause shall have jurisdiction to entertain and try all suits and proceedings between a licensor and licensee, or a landlord and tenant, relating to the recovery of possession of any immovable property situated in Greater Bombay, or relating to the recovery of the licence fee or charges or rent therefor, irrespective of the value of the subject-matter of such suits or proceedings.
(2) Nothing contained in sub-section (1) shall apply to suits or proceedings for the recovery of possession of any immovable property, or of licence fee or charges or rent thereof, to which the provisions of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the Bombay Government Premises (Eviction) Act, 1955, the Bombay Municipal Corporation Act, the Maharashtra Housing and Area Development Act, 1976 or any other law for the time being in force, applies."
[Emphasis Supplied]
14. Even a plain reading of the foregoing would show that Section 41(1) is Page 9 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC a non-obstante provision that would override anything contained elsewhere in the Small Cause Court Act, giving the Small Cause Court jurisdiction to entertain and try all proceedings inter alia between a licensor and licensee relating to recovery of possession of any immovable property situated in Mumbai, or recovery of any license fee relating to such immovable property. However, Section 41(1) is explicitly made subject to Section 41(2), which in turn, explicitly excludes the applicability of Section 41(1) to any proceedings for recovery of possession of immovable property in Mumbai, and recovery of license fee relating to such immovable property, if the provisions of the legislation listed therein or "any other law for the time being in force" apply to such proceedings.
15. Section 41 in its entirety has been discussed threadbare by a Full Bench of this Court in Central Warehousing Corporation, Mumbai Vs. Fortpoint Automotive Private Limited, Mumbai 1. Relying on the judgment of the Hon'ble Supreme Court in Mansukhlal Dhanraj Jain Vs. Eknath Vithal Ogale2, the Full Bench held that the jurisdiction referred to in Section 41(1) constitutes an exclusive jurisdiction. For such exclusive jurisdiction to be attracted, the suit or proceeding must be between a licensor or a licensee or a landlord and a tenant, and such proceeding must relate to the recovery 1 (2010) 1 MahLJ 658 2 (1995) 2 SCC 665 Page 10 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC of possession of any immovable property situated in Mumbai or recovery of licensee fee or charges or rent of such property. By a reading of this decision, it would be clear that should the Respondent's contentions about the disputes fitting the category described in Section 41(1) of the Small Cause Court Act, then the ouster of the jurisdiction of an Arbitral Tribunal would be attracted.
16. However, the Full Bench has also analysed in minute detail, the import of Section 41(2) of Small Cause Court Act, and has declared that the exclusive jurisdiction under Section 41(1) (which ousts jurisdiction of other courts) would itself stand ousted if any other law for the time being in force applies to suits or proceedings of the nature covered by Section 41(1). The Full Bench has declared that the phrase " or any other law for the time being in force" in Section 42(2) would not cover the Arbitration Act. However, the Full Bench ruled that considering the nature of the legislation listed in Section 41(2), if any other law were to be made applicable to proceedings of the same nature as are covered by Section 41(1), even if made subsequent to Section 42(2) having been legislated, then the provisions of Section 41(1) would cease to apply. Put differently, future legislation that would apply to suits or proceedings for recovery of possession of immovable property or for recovery of license fee or charges or rent would lead to Section 41(1) becoming inapplicable.
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17. In this Court's opinion, upon an examination of the material on record, it is apparent that by operation of Section 41(2), Section 41(1) has been rendered inapplicable to the matter at hand. Section 41(2) lists certain types of legislation and stipulates that if the provisions of those legislation apply to a dispute otherwise contemplated for coverage by Section 41(1), then nothing contained in Section 41(1) would apply. Some of these laws relate to eviction of occupants of public property. Along with such legislation, the phrase "or any other law for the time being in force " is used, meaning thereby, that if the legislation specifically listed in Section 41(2), or any other law for the time being in force were to be applicable to the suit or proceedings contemplated in Section 41(1), then nothing in Section 41(1) would apply to such suit or proceedings. In other words, the very provision that ousts the jurisdiction of other forums i.e. Section 41(1) would stand ousted by the operation of Section 41(2).
18. It is against this backdrop that one must note that the retail outlet given to the Respondent (and that too, incidental to the Concession Agreement) is situated in public property i.e. within the Mumbai Airport's premises. The provisions of Chapter VA of the Airports Authority of India Act, 1994 ("AAI Act") apply to eviction of persons occupying airport premises and to recovery of dues from them, owed towards use of premises within an airport. Therefore, the AAI Act applies to proceedings relating to Page 12 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC recovery of possession of immovable property and to proceedings relating to recovery of license fee for use of such immovable property. Therefore, by operation of Section 41(2) of the Small Cause Court Act, the exclusive jurisdiction of Section 41(1) would stand ousted. Therefore, in this Court's opinion, there is no merit in the Respondent's objection to this Application on account of operation of Section 41(1) of the Small Cause Court Act.
19. Therefore, the arbitration agreement cannot be regarded as non- existent despite having been executed. Even if one were to treat the element of the dispute relating to recovery of license fee under the License Agreement as tainting the larger claim under the Concession Agreement (although the parties have agreed that the License Agreement is only incidental to, and not the main substance of the Concession Agreement), the jurisdiction under Section 41(1) in respect of even that element or component of the claim, is ousted by Section 41(2) of Small Cause Court Act.
20. In any case, it would be difficult to hold that any strand of a claim being relatable to the License Agreement would automatically oust the jurisdiction of the Arbitral Tribunal over any and every dispute under the Concession Agreement. Whether any element of a claim is covered by the License Agreement would be a mixed question of fact and law, requiring the Arbitral Tribunal to appreciate and weigh evidence, including potentially, Page 13 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC how amounts paid have been appropriated and treated. The jurisdiction of this Court, under Section 11 of the Arbitration Act is limited and confined to examining the record to determine the existence of an arbitration agreement. The only reason this Court has gone into the details of the arguments on behalf of the Respondent is to see if the ouster of arbitration under Section 41(1) of the Small Cause Court Act is of such a nature that the executed arbitration agreement can be regarded as non-existent in the eyes of the law.
21. It is also noteworthy that an integral provision in the Concession Agreement is the clause governing eviction of the Respondent from the licensed premises, which is contained in Section 14.1 of the Concession Agreement and also in Section 14.1 of the License Agreement. Essentially, this is a provision which stipulates that notwithstanding anything contained in the Concession Agreement or the License Agreement, the provisions of Chapter VA of the AAI Act shall be applicable in respect of any eviction proceedings relating to the licensed premises. Therefore, the Respondent is conscious of the fact that the AAI Act not only applies by operation of law, but also that the Respondent has acknowledged the same in the Concession Agreement and the License Agreement.
22. A quick review of the provisions of the AAI Act would make it Page 14 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC abundantly clear that it is a special legislation that deals with recovery of possession of "airport premises" and recovery of any consideration payable for occupation of such premises. The following provisions of the AAI Act are noteworthy:-
28A. Definitions. -- In this Chapter, unless the context otherwise requires,--
(a) "airport premises" means any premises-
(i) belonging to airport;
(ii) taken on lease for the purposes of airport;
(iii) acquired for the Authority under the provisions of the Land Acquisition Act, 1894 (1 of 1894) or any other corresponding law for the time being in force.
Explanation. -- For the removal of doubts, it is hereby declared that for the purposes of this clause, "airport" includes private airport;
(d) "rent", in relation to any airport premises, means the consideration payable periodically for the authorised occupation of the premises, and includes --
(i) any charge for electricity, water or any other service in connection with the occupation of the premises; and
(ii) any tax, by whatever name called, payable in respect of the premises;
[Emphasis Supplied]
23. Under Section 28B of the AAI Act, eviction officers may be appointed by the Airports Authority of India to issue a show cause notice for eviction of any person occupying airport premises. The eviction officer is empowered Page 15 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC under Section 28D of the AAI Act to make an order of eviction and take possession of airport premises from any person in occupation. Under Section 28G of the AAI Act, where any person is in arrears of "rent" (as defined above), the eviction officer may recover such rent from such person. Consequently, it would follow that the AAI Act applies to proceedings for recovery of possession of the immovable property in the airport as well as to recovery of license fee in connection with occupation of airport premises.
24. It would therefore follow that the proceedings contemplated in Section 41(1) of the Small Cause Court Act are in fact proceedings to which Chapter VA of the AAI Act applies. Since the AAI Act applies to such proceedings, it is the "law for the time being in force" that is referred to in Section 41(2) of the Small Cause Court Act.
25. In this regard, extracts from Paragraph 21 of the Full Bench's judgment is instructive and is set out below:
"21 Further, the term 'law for the time being in force' would apply not only to the prevailing laws, but also to laws on stated matter to be made in future. The State legislature, instead of naming different legislations in sub-section (2) - which may be State enactments or also Central enactments, has thought it appropriate to name only few Acts and then used the expression 'or any other law for the time being in force' so as to make it comprehensive enough to include any other prevailing laws or laws to be made in future, which may provide for mechanism for recovery of possession of specified immovable property governed by that Act or licence fee thereof."
[Emphasis Supplied] Page 16 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC
26. Therefore, it would be seen that the Full Bench has explicitly ruled that it had been felt appropriate to name only a few laws in Section 41(2) and use the expression "or any other law for the time being in force" so as to make it comprehensive enough to include any other prevailing laws or laws to be made in future, which may provide a mechanism for recovery of possession of immovable property governed by that Act or license fee in relation to usage of such property. The AAI Act, legislated in 1994, squarely fits the analysis given by the Full Bench namely that a future law that may be brought into effect to deal with proceedings of the nature referred to in Section 41(1), thereby removing the applicability of Section 41(1) of the Small Cause Court Act. Therefore, the ouster by Section 41(1) of other fora for conduct of proceedings is of no application to the facts of the case. Recovery of both these being subject matter of Chapter VA of the AAI Act, 1994, this Court has no hesitation in rejecting the argument that Section 41(1) of the Small Cause Court Act is attracted, thereby rendering the arbitration agreement as non-existent in the eyes of law.
27. The jurisdiction of Section 41(1) of the Small Cause Court Act having been ousted in favour of the AAI Act, it may be noted that a review of the AAI Act would suggest that there is no provision in the AAI Act effecting an ouster of any court or tribunal. Therefore, while the special power to evict or recover by resort to Chapter VA of the AAI Act is made available by Page 17 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC Parliament, in its legislative wisdom, Parliament did not mandate that there ought to be an ouster of the jurisdiction of courts and tribunals. Where Parliament thought it necessary to oust jurisdiction of other forums for purposes of the AAI Act, it has done so - Section 18(4) is a non-obstante provision ousting the jurisdiction of courts, tribunals and authorities under the Industrial Disputes Act, 1947. This is quite akin to how secured creditors would have the right to resort to enforcement measures under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 without eroding the implications of arbitration agreements between secured creditors and their borrowers.
28. This Court has consciously refrained from commenting on the merits of the matter at hand. Whether there was a waiver by the Applicant of the amounts due from the Respondent (as is claimed), or whether there is any acquiescence in connection with non-payment of dues by reason of the Covid-19 pandemic, are all matters in the domain of the Arbitral Tribunal. It is the Arbitral Tribunal alone that must deal with such issues, on the basis of the pleadings by the parties in the arbitral proceedings.
29. Before parting, it must be mentioned that the Court exercising jurisdiction under Section 11 of the Arbitration Act continues to be repeatedly drawn into detailed examination of whether a dispute is Page 18 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC arbitrable. It bears mention that the jurisdiction of a Section 11 Court is now well declared in a judgement by a Constitutional Bench of seven judges of the Hon'ble Supreme Court in In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 18993. Section H of the judgment, by the seven-judge Bench has laid to rest all doubts about the scope of examination of issues by a Section 11 Court. Titled "Judicial Interference under the Arbitration Act", the section of the judgement contains an exhaustive declaration of the law and declares that the scope of the jurisdiction under Section 8 is different from the scope under Section 11 and that the Section 11 Court must strictly follow Section 11(6A) of the Arbitration Act. It would be instructive to extract from the said judgment, as follows :
144. In the Indian context, Section 8 provides that when an action is brought before a judicial authority in a matter which is the subject of an arbitration agreement, such judicial authority shall refer the parties to arbitration on an application made by a party to the arbitration agreement or any person claiming through or under him not later than the date of submitting their first statement on the substance of the dispute. Section 8 mandates the judicial authority to refer the parties to arbitration "unless it finds that prima facie no valid arbitration agreement exists." Section 8 is based on Article 8 of the Model Law which provides that a "court" before which an action is brought in a matter which is the subject of an arbitration agreement shall refer the parties to arbitration "unless it finds that the agreement is null and void, inoperative or incapable of being performed." It is evident that Section 8 has made a departure from 3 2023 SCC OnLine SC 1666 Page 19 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC Article 8 by using the expansive term "judicial authority" rather than "court." The intention of the legislature to provide an expansive application can also be gauged from the fact that the expression "unless it finds that the agreement is null and void, inoperative or incapable of being performed" does not find place in Section 8.
150. The decisions of this Court in Patel Engineering (supra) and Boghara Polyfab (supra) allowed for greater judicial interference at the pre-arbitral stage. In effect, the referral courts were encouraged to conduct mini-trials instead of summarily dealing with the preliminary issues. This was also noted by the Law Commission of India, which observed that judicial intervention in the arbitral proceedings is a pervasive problem in India leading to significantdelays in the arbitration process. The Law Commission recognized that one of the problems plaguing implementation of the Arbitration Act was that Section 11 applications were kept pending for years by the courts. To remedy the situation, the Law Commission proposed changing the then existing scheme of the power of appointment being vested in the "Chief Justice" to the "High Court"
and the "Supreme Court". It also clarified that the power of appointment of arbitrators ought not to be regarded as a judicial act.
155. In Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman, a three-Judge Bench of this Court affirmed the reasoning in Duro Felguera (supra) by observing that the examination under Section 11(6A) is "confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense."
Moreover, it held that the position of law prior to the 2015 Amendment Act, as set forth by the decisions of this Court in Patel Engineering (supra) and Boghara Polyfab (supra), has been legislatively overruled. Thus, this Court gave effect to the intention of the legislature in minimizing the role of the courts at the pre-arbitral stage to the bare minimum.
156. Thereafter, in Vidya Drolia (supra), another three-Judge Bench of this Court, affirmed the ruling in Mayavati Trading (supra) that Patel Engineering (supra) has been legislatively overruled. In Vidya Drolia (supra), one of the issues before this Court was whether the Page 20 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC court at the reference stage or the arbitral tribunal in the arbitration proceedings would decide the question of non-arbitrability. This Court began its analysis by holding that an arbitration agreement has to satisfy the mandate of the Contract Act, in addition to satisfying the requirements stipulated under Section 7 of the Arbitration Act to qualify as an agreement.
163. The burden of proving the existence of arbitration agreement generally lies on the party seeking to rely on such agreement. In jurisdictions such as India, which accept the doctrine of competence- competence, only prima facie proof of the existence of an arbitration agreement must be adduced before the referral court. The referral court is not the appropriate forum to conduct a mini-trial by allowing the parties to adduce the evidence in regard to the existence or validity of an arbitration agreement. The determination of the existence and validity of an arbitration agreement on the basis of evidence ought to be left to the arbitral tribunal. This position of law can also be gauged from the plain language of the statute.
164. Section 11(6A) uses the expression "examination of the existence of an arbitration agreement." The purport of using the word "examination" connotes that the legislature intends that the referral court has to inspect or scrutinize the dealings between the parties for the existence of an arbitration agreement. Moreover, the expression "examination" does not connote or imply a laborious or contested inquiry. On the other hand, Section 16 provides that the arbitral tribunal can "rule" on its jurisdiction, including the existence and validity of an arbitration agreement. A "ruling" connotes adjudication of disputes after admitting evidence from the parties. Therefore, it is evident that the referral court is only required to examine the existence of arbitration agreements, whereas the arbitral tribunal ought to rule on its jurisdiction, including the issues pertaining to the existence and validity of an arbitration agreement. A similar view was adopted by this Court in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd.
166. When the referral court renders a prima facie opinion, neither the arbitral tribunal, nor the court enforcing the arbitral award will Page 21 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC be bound by such a prima facie view. If a prima facie view as to the existence of an arbitration agreement is taken by the referral court, it still allows the arbitral tribunal to examine the issue in-depth. Such a legal approach will help the referral court in weeding out prima facie non-existent arbitration agreements. It will also protect the jurisdictional competence of the arbitral tribunals to decide on issues pertaining to the existence and validity of an arbitration agreement.
[Emphasis Supplied]
30. It can be seen from a plain reading of the foregoing extracts, that the "examination" of whether an arbitration agreement exists does not connote or imply a laborious or contested inquiry. The Section 11 Court is only required to examine whether the arbitration agreement exists and thereafter, the jurisdiction of the Arbitral Tribunal starts. It is the Arbitral Tribunal that rule on the issue of its own jurisdiction, which would in turn, include questions about the validity of the arbitration agreement. The weeding out by the referral court under Section 11 of the Arbitration Act is only to deal with false assertions of arbitration agreements that in reality do not exist, and nothing more. It is clarified by the Hon'ble Supreme Court, both in the composite decision by the majority of the bench as well as in the concurring judgment, that in Vidya Drolia and Ors. vs. Durga Trading Corporation4 ("Vidya Drolia"), it had been erroneously assumed that the amendment to delete Section 11(6A) had taken effect. Since Section 11(6A) of the Arbitration Act is in full force, the role of the Section 11 Court is to be 4 (2021) 2 SCC 1 Page 22 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC confined to examining the existence of the arbitration agreement.
31. In these circumstances, the Application deserves to be allowed. One valid objection from the Learned Counsel for the Respondent is that the arbitration agreement as executed, confers power on the Managing Director of the Applicant or a person designated by him to make the appointment of a Sole Arbitrator. Consequently, the fundamental element of impartiality and objectivity of the Arbitrator so appointed can be called into question. Conscious of this issue and acknowledging the conflict with the core element of independence and impartiality that is a foundational feature of the Arbitration Act, the Learned Counsel for the Applicant has left it to this Court to make the appointment so that the vice of non-independence and partiality does not affect the arbitration agreement between the parties. The right of the Applicant to appoint the arbitrator under the arbitration agreement having been given up, it is trite law that the arbitration agreement does not become void but its conflict with the independence principle can be cured by the Section 11 Court making the appointment by taking necessary measures as contemplated in Section 11(6) read with the objectives discernible from Section 11(8)(b) of the Arbitration Act 5. 5 As articulated in Northern Railway Administration, Ministry of Railway, New Delhi vs. Patel Engineering Company Ltd. - (2008) 10 SCC 240 (Paragraphs 11 to 13); Also see Union of India and Others vs. Uttar Pradesh State Bridge Corporation Limited - (2015) 2 SCC 52 as cited in Lombardi Engineering Ltd. Vs. Uttarakhand Jal Vidyut Nigam Ltd. - (2024) 4 SCC 341 (Paragraphs 92 to 94).
Page 23 of 26
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32. Consequently, the following directions are issued:
a) Ms. Manjari Shah, an Advocate of this Court, is hereby appointed as the Sole Arbitrator to adjudicate upon the disputes and differences between the parties arising out of and in connection with the Agreement referred to above. The contact details of the Learned Sole Arbitrator are set out below :
Office Address : 101, 1st Floor, Rajendra Chambers, 19, Nanabhai Lane, Fort, Mumbai 400001.
Email id :[email protected]
b) A copy of this Order will be communicated to the Learned Sole Arbitrator by the Advocates for the Applicant within a period of one week from today. The Applicant shall provide the contact and communication particulars of the parties to the Arbitral Tribunal along with the copy of this Order;
c) The Learned Sole Arbitrator is requested to forward the statutory Statement of Disclosure under Section 11(8) read with Section 12(1) of the Arbitration Act to the parties within a period of two weeks from receipt of a copy of this Order;Page 24 of 26
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d) The parties shall appear before the Learned Sole Arbitrator on such date and at such place as indicated, to obtain appropriate directions with regard to conduct of the arbitration including fixing a schedule for pleadings, examination of witnesses, if any, schedule of hearings etc. At such meeting, the parties shall provide a valid and functional email address along with mobile and landline numbers of the respective Advocates of the parties to the Arbitral Tribunal. Communications to such email addresses shall constitute valid service of correspondence in connection with the arbitration;
e) The Learned Sole Arbitrator shall be free to fix her own fees in accordance with law;
f) All arbitral costs and fees of the Arbitral Tribunal shall be borne by the parties equally in the fist instance, and shall be subject to any final Award that may be passed by the Tribunal in relation to costs; and
g) The parties have agreed that the venue and seat of the arbitration will be in Mumbai. It is clarified that it shall be open to the Arbitral Page 25 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 ::: CARAPL-20326-2023-J-F-12-7-2024.DOC Tribunal to conduct the proceedings online through electronic mode.
33. This Application is accordingly disposed of. No costs.
34. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.
(SOMASEKHAR SUNDARESAN, J.) Page 26 of 26 July 12, 2024 Shraddha Talekar, PS ::: Uploaded on - 12/07/2024 ::: Downloaded on - 21/07/2024 22:54:21 :::