Andhra HC (Pre-Telangana)
Bernhard Consultancy Private Limited vs Ind Agro Synergy Limited, Nagpur on 29 June, 2001
Equivalent citations: 2001(4)ALT486
Author: Satya Brata Sinha
Bench: Satya Brata Sinha
JUDGMENT
1. In this application the petitioner has inter alia prayed for appointment of an Arbitrator as regards a dispute arising out of a memorandum of understanding between the parties dated 13-3-2000. The petitioner herein has invoked the arbitration clause as the respondent herein has allegedly failed to pay the total commission of 4.5% on the total draw down funds. Clauses (6), (9) and (10) of the memorandum of understanding read thus:
That in even of circumvention or breach of this agreement, directly or indirectly, the injured party shall be entitled to damages equal to the maximum fee or commission it should have realised from the said transaction conducted by the party who is in breach of this agreement.
The first party agrees to provide the documents as specified in clause 1 above as early as possible failing which the first party shall be liable to pay the second party the said commission as herein above agreed to as the work of the second party would be deemed to be completed. If any additional documents other than those specified above are required by the second party, the first party shall make best endeavour to procure and supply such documents to the second party. The failure of the first party, however, to supply such additional documents would not make the first party liable to pay to the second party the commission as herein before agreed.
In the event the first party delays, refuses or fails to provide the requested information, documents, data and/or materials, or if the furnished information, documents data and/or materials are false or misleading in any material way, or if the fist party, in any way, prevents or delays the second party from completing or submitting the necessary documentation, then any such failure, refusal, delay or prevention shall constitute a breach of this engagement by the first party.
2. A demand to the aforementioned extent was made by a letter dated 4-12-2000 by the petitioner herein which is in the following terms:
It is agreed in the MoU dated 13-3-2000 that in case of dispute the matter shall be referred to arbitration.
It is reminded that you approached for arranging foreign loan US $ 1.5 million comprising 8 million dollars for capital borrowing and 7 million dollars for sinking fund. You failed to provide the necessary documents and as such you are liable to pay commission of 4.5% on total draw down funds (See clauses 6 and 10 of MoU).
Before initiating further, I would once again ask you to pay the commission 1 am entitled to, or otherwise I will have no option but to take recourse to arbitration as agreed by us.
3. By another letter dated 29-6-2000 the petitioner, allegedly on the ground that the respondent herein has not abided by the conditions, inter alia stated:
We will give you 2 weeks time to tell us how to you are planning to pay us our commission.
If we do not hear from you by 15th of July, 2000, we will follow the procedure according to the agreement we made in such a situation (see para 8 of our MoU).....
Our lawyer accredited to the Andhra Pradesh High Court will according to paragraph 14.....initiate legal action against you.
4. It is not in dispute that the disputes and differences existed between the parties. However, a stand has been taken by the respondents to the effect that (1) there does not exist any arbitration clause; (2) even assuming that there exists an arbitration clause, as the provisions of sub-section (5) of Section 11 of the Arbitration and Conciliation Act, 1996 had not been complied with, this application is not maintainable; and (3) this Court has no territorial jurisdiction as the cause of action arose at Nagpur.
5. The purported arbitration clause is contained in memorandum of understanding which is in the following terms :
Arbitration :--The parties agree that the jurisdiction in relation to all matters arising under and/or in any way connected with this MoU shall be subject to the jurisdiction of Courts at Hyderabad. Arbitration if any shall also be at Hyderabad. The parties have confined the jurisdiction to Hyderabad Courts also have jurisdiction in the matter, the parties hereto shall be prevented from moving a Court other than the Court at Hyderabad.
6. It is, therefore, not correct to contend that there does not exist any arbitration clause. The respondent herein in the counter-affidavit denied and disputed the allegation made in the petition and thus the existence of disputes and differences which can be referred to for adjudication to an arbitral Tribunal in terms of clause (4) afore-mentioned of the memorandum of understanding is also beyond any doubt. In the said counter-affidavit, however, it is submitted that the memorandum of understanding was entered into by and between the parties at Nagpur.
7. An 'arbitration agreement' in terms of Section 7 of the Act reads thus:
(1) In this part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
8. Although the heading of clause (14) aforementioned is 'arbitration' the same is not an arbitration agreement within the meaning of the Act. It merely provides that the Courts at Hyderabad shall have jurisdiction to entertain any suit. It merely adds that arbitration if any shall also be at Hyderabad but by reason thereof only, it cannot be said that any arbitration agreement has been entered into which was enforceable in terms of Section 11 of the Act.
9. The petitioner has filed a reply to the said affidavit wherein it is specifically denied that the memorandum of understanding was executed at Nagpur.
10. The statement made by the opposite parties that no part of cause of action arose within the jurisdiction of this Court has not specifically been denied and disputed. No averment has been made in the petition as to how any cause of action has arisen within the jurisdiction of this Court.
11. The question as to whether in a case of this nature the Court should refer the matter to the arbitration or not has recently been considered by a Division Bench of this Court in Union of India v. Vengamamba Engineering Company, Juputi, Krishna District, , in which it has been held:
But, decision on a question as to whether an arbitration agreement exists at all or not inasmuch may attract the ambit of jurisdiction as even an administrative order can only be exercised provided the Chief Justice or his nominee satisfied himself as regards his jurisdiction under Section 11 (6) of the Act or not.
12. The Court derives its jurisdiction I under Section 11 of the Act only when there exists a valid arbitration clause. As there does not exist any arbitration clause, the question of referring the matter does not arise.
13. This aspect of the matter has also been considered by a learned single Judge of this Court in E.S.M. Dass, Secunderabad v. Alfa Lavai India Limited, Pwie, .
14. It is true that by reason of clause 14, the jurisdiction had been conferred upon this Court. Such a conferment of jurisdiction in one Court does not offend Section 28 of the Contract Act. But such clause in the contract can be taken recourse to only in the event of the cause of action or any part thereof arises within the jurisdiction of this Court as agreed to by the parties.
15. In A.B.C. Laminart Private Limited v. A.P. Agencies, Salem, , it has clearly been held whether such a clause can be enforced or not will depend upon the fact situation of each case.
16. For the reasons aforementioned, I am of the opinion that no case has been made out for exercising the jurisdiction of this Court under Section 11 of the Act. The arbitration application is accordingly dismissed. There shall be no order as to costs.