Madras High Court
M/S. Quantum Real Estate And Property vs Bay Orient Realty Private Limited on 18 July, 2008
IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 05..12..2014 Delivered on : 12..12..2014 C O R A M The Honble Mr. SANJAY KISHAN KAUL, Chief Justice Original Petition No.636 of 2011 1.M/s. Quantum Real Estate and Property Development India Private Limited, No.101, Swastik Chambers, S.V. Road, Vile Parle (West), Mumbai-400 056, Represented by its Director Gagan Khemka. 2.Ms. Anithah Panickar .. Petitioners Versus Bay Orient Realty Private Limited, No.47, College Road, Chennai-600 006. .. Respondent - - - - - Prayer : Petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of an independent arbitrator in terms of the sale agreement dated 18.7.2008 to resolve the disputes that have arisen out of the said agreement. - - - - - For Petitioners : Mr. T.V. Ramanujum, Senior Counsel For M/s. M. Vidya For Respondents : S.D. Venkateswaran - - - - - O R D E R
The first petitioner, a real estate development company, along with the second petitioner, entered into an Agreement of Sale dated 24.2.2006 in respect of a land owned by the respondent, admeasuring 36.28 grounds situated in Velachery Main Road, Guindy, Chennai for a total consideration of Rs.24,77,00,000/- at the rate of Rs.68,23,457/- per ground. A sum of Rs.30,00,000/- was paid under the agreement towards the first instalment.
2. The said property had a number of issues, including a prior sale agreement of the respondent with Mrs. Rema Gopinathan Nair dated 20.12.1999; mortgage over a portion of the property with M/s. Ind Bank Housing Limited; disputes with Madras Race Club; encroachment and illegal occupation; and tax arrears.
3. In order to settle the issue with the first purchaser, a payment of Rs.3.66 Crores was made to the said Rema Gopinathan Nair, followed by another payment of RS.2.44 Crores under an affidavit-cum-receipt for part-payment of April, 2006. In terms thereof, M/s. Rema Gopinathan Nair discharged, cancelled and settled her rights under the sale agreement dated 20.12.1999 and thus, to that extent, the agreement inter se the parties stood complied with.
4. The second petitioner is also stated to have approached M/s. Ind Bank Housing Ltd., which had issued a notice dated 25.3.2006 under the SARFAESI Act demanding a sum of Rs.12.26 Crores to compromise and settle the claim. It is alleged that in order to ensure that no coercive steps are taken qua the property, payments were made. A One Time Settlement was reached dated 28.3.2008 for a sum of Rs.2 Crores for release of part of the Schedule property and an additional sum of Rs.1.4 Crores was paid for release of another premises. This is stated to be apart from the amounts paid towards the loan account.
5. In view of the passage of time, the parties are stated to have entered into a fresh sale agreement dated 18.7.2008, superseding the earlier agreement dated 24.2.2006, whereby the consideration was specified as Rs.24,56,88,160/- at the rate of Rs.67,72,000/- per ground. This agreement is stated to have recorded all the draft payments, though some cash payments made vide a separate affidavit-cum-receipt issued by the respondent was not recorded in it. The second petitioner, vide letter dated 31.12.1999 in terms of this agreement, was authorised to receive the original title deeds in respect of the property from M/s. Ind Bank Housing Ltd. The original title deeds thus came to the petitioners. In terms of the agreement, the respondent was further required to hand over vacant possession of the property to the petitioners and register a Power of Attorney in favour of the petitioners and their nominees to deal with the property in question, to the extent proportionate with the amount paid and signed all other connected documents.
6. The dispute with the Madras Race Club, however, was not resolved as litigation remained pending either before this Court or before the Honble Supreme Court and thus, the last instalment remained to be paid. Despite complying with the schedule upto the fifth instalment, the petitioners alleged that the respondent failed and neglected to execute the registered Power of Attorney and all endeavour to resolve the dispute failed. The petitioners, left with no other option, issued a letter dated 7.6.2010 seeking handing over vacant possession of the Schedule property and registration of the Power of Attorney, failing which the matter was to be referred to arbitration under Clause 17 of the Agreement dated 18.7.2008. The arbitration clause reads as under :-
17. The parties agree that in the event of any dispute or differences arising out of this Agreement or in the interpretation of any of the provisions hereof they shall endeavour to meet together in an effort to resolve such dispute by discussion between them, and failing such resolution the parties shall enter into any arbitration proceedings in relation to such disputes, differences, claims or interpretation issues, as per the Conciliation and Arbitration Act, 1996. The venue for such arbitration shall be BOMBAY. The Courts in BOMBAY shall have jurisdiction for the purposes of this Agreement.
7. Petitioners alleged that the parties also in the mean time explored the possibility of settlement, but the matter could not be resolved amicably. An application under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the said Act) had been preferred, but after no settlement was possible, that application was dismissed on merits by the learned single Judge vide order dated 28.3.2011. The learned single Judge opined that the clause in question was not actually an arbitration agreement, but merely an intent to enter into an arbitration agreement. It was further held that there could not be any specific performance in the given facts of the case as the title was not clear and some lis was pending. The petitioners, aggrieved by this order, preferred an appeal being O.S.A. No.179 of 2011. In response to the appeal, the respondent is stated to have filed a Memorandum of Undertaking that they have no intention to alienate the said property and the Division Bench disposed of the O.S.A. recording the said undertaking, leaving all issues to be determined in an application to be filed by the petitioners for appointment of an arbitrator under Section 11 of the said Act. Hence, the present petition has been filed.
8. The respondent has contested the petition. The primary defence they have taken is that the clause in question is not an arbitration clause, but an intent to enter into an arbitration clause, as has been opined by the learned single Judge in the proceedings initiated under Section 9 of the said Act.
9. The findings of the learned single Judge about the enforcement of specific performance have also been relied upon. It is conceded that the Division Bench left all issues to be resolved in the present proceedings, but it is sought to be suggested that the Chief Justice of the High Court, as a single Judge, cannot question the views taken by another single Judge.
10. The pleadings also show that he respondent-company has two Directors and the last balance sheet was drawn in the year 1999. The affidavit has been filed by Mr. Fahim Ismail Sabri, the Managing Director, who seeks to put the blame on the other Director, Dr. Salim I. Firdouse, who was the then Managing Director. It is alleged that he acted contrary to the interest of the company. Doubts are sought to be thrown over some of the documents executed. The agreements are stated not to be enforceable. The pending dispute with the Madras Race Club is stated to be in any case an impediment in execution of any sale deed. In the end, it is pleaded that since allegations have been made of fraud, collusion and misappropriation, they can only be tried in a civil suit before the court of competent jurisdiction and not before an arbitrator, which proceedings are stated to be summary in nature and the rules of evidence are not applicable thereto.
11. I have heard the learned counsel for the parties and perused the pleadings and documents filed in support of the original petition.
12. During the course of argument, one of the objections raised was that since the parties really had not made any endeavour to settle the dispute, the prerequisite for invocation of the alleged arbitration clause had not been fulfilled. This was apart from the other plea urged of the clause not being one to refer the disputes to arbitration. On recording these contentions in the proceedings of 28.8.2014, learned counsel for the parties took some time to obtain instructions whether they were inclined to first explore the option of mediation before inviting an order in the present petition. On the next date of hearing, i.e., 5.9.2014, the parties stated that they had obtained instructions that the matter be referred to the Madras High Court Mediation and Conciliation Centre to appoint a Senior Mediator in view of the high stakes involved. Thereafter, the parties went to the mediation of Mr. M. Govindarajan, but unfortunately, no settlement was found feasible and the matter is back in Court, where it was finally heard to invite judgment on merits.
13. In view of the submissions advanced by the learned counsel for the parties, the issues which arise are set out hereinafter with findings on them.
I. Observations of the learned single Judge in the proceedings under Section 9 of the said Act and their effect on the present proceedings
14. A perusal of the order passed by the learned single Judge on the application filed under Section 9 of the said Act dated 28.3.2011 shows that what weighed with the learned single Judge was the pending litigation with the Madras Race Club as an impediment to invoke specific performance of the agreement. The learned single Judge also opined that the agreement cannot be said to be an arbitration agreement, but only an intention of the parties to enter into the arbitration agreement. No prima facie case was found and thus, the learned single Judge dismissed the application for interim relief.
15. The petitioners preferred an appeal and the appeal order dated 22.7.2011 took note of the Memo filed by the respondent that in view of various litigations pending against the party forming the subject matter of appeal and without prejudice to the rights of the respondent to challenge the genuineness of the agreement and object with regard to the applicability of Section 9 of the said Act, the said respondent had no intention to alienate the said property. On this undertaking, it was opined that the same safeguarded the interest of the petitioner. However, insofar as the observations made qua Clause 17 by the learned single Judge were concerned, it was opined that the same has to be decided and left open for proceedings under Section 11 of the said Act and that issue would be left open.
16. The aforesaid findings thus show that the Division Bench has relegated the parties to the proceedings under Section 11 of the said Act for any adjudication on the question of the existence and the validity of the arbitration clause and the interpretation thereof. I am thus of the view that the plea in the counter affidavit, though not seriously urged before me during the course of hearing, that this Court cannot go into the question of the arbitration clause and its effect in view of the findings of the learned single Judge, is completely misconceived in view of the order of the Division Bench.
II. Absence of any live dispute
17. Learned counsel for the respondent contended that there was no live dispute to be adjudicated upon as the party was embroiled in the litigation in Court and till that dispute was settled, there could not be any specific enforcement of the agreement. In this behalf, reliance was placed on the judgment of the Supreme Court in Speech and Software Technologies (India) Pvt. Ltd. vs. Neos Interactive Limited, (2009) 1 S.C.C. 475, more specifically paragraph 11, which is extracted hereunder :-
11. By now it is well settled that exercise of power under Section 11(6) of the Act is judicial power. After the decision of this Court in SBP and Company v. Patel Engineering Ltd., (2005) 8 S.C.C. 618, the Designated Judge has to consider the claim of both the parties to the matter and pass a reasoned order. It is also well settled that existence of arbitration agreement is a condition precedent before exercise of powers under Section 11(6) of the Act. The preliminary matters to be considered by the court are (1) existence of arbitration agreement, (2) territorial jurisdiction, (3) whether there are live issues to be referred to the arbitrator, and (4) whether application is filed within the period of limitation prescribed by the law. If the court finds that the arbitration agreement does not exist or is rescinded then the prayer for referring the dispute to the arbitrator will have to be rejected. (emphasis supplied)
18. It is thus submitted that this issue has to be determined by this Court and not by the Arbitrator.
19. The pleadings inter se the parties show that it is the case of the petitioner that as per the agreement to the extent that the payment had been made and some part of the property was available, a Special Power of Attorney had to be executed. As to what is the effect thereof, how would the terms be read of the agreement is a matter of adjudication process. It is not for this Court to sit as an arbitrator. It would be trite to say that even in a claim for specific performance, it may be open to the arbitrator to give an alternative relief of damages/refund of money. It thus cannot be said that there is no live dispute to be adjudicated inter se the parties, though the relief would have to be moulded dependent upon the situation in each case. I thus find no merit in this plea.
III. Nature of disputes are such that they cannot be adjudicated in arbitration
20. The aforesaid plea is taken in the counter affidavit, though was never seriously urged in the course of arguments. Suffice to say, that irrespective of the general allegations of fraud, collusion, misappropriation etc., which are really in the nature of apparent disputes inter se the Director of the respondent-company, the same can be adjudicated by the arbitrator in view of the recent view taken by the Honble Supreme Court in Swiss Timing Limited vs. Organising Committee, Commonwealth Games 2010, Delhi, (2014) 6 S.C.C. 677. The Supreme Court has in fact observed that it is not possible to shut out arbitration even in cases where the defence is taken that the contract is voidable.
21. Thus, this plea is really no more available to the respondent and it is accordingly rejected.
IV. The procedure for invocation of arbitration clause has not been followed
22. Learned counsel for the respondent referred to the arbitration Clause No.17 as aforesaid to contend that in the event of any dispute or difference arising out of the agreement or in interpretation of the provisions thereof, there had to be an endeavour to meet together in an effort to resolve such disputes by discussion between them, failing which only would the occasion to enter into any arbitration proceedings arise. This was, of course, without prejudice to the plea that Clause 17 is not an arbitration agreement clause, but only an intention to enter into an arbitration agreement. In this context, it was pleaded that this preliminary requirement had not been followed. Learned counsel relied upon the judgment of the Supreme Court in Iron & Steel Co. Ltd. vs. Tiwari Road Lines, (2007) 5 S.C.C. 703, more specifically paragraph 7, which reads as under :-
7. Sub-section (2) of Section 11 of the Act provides that subject to Sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator. The opening part of Sub-sections (3) and (5) of Section 11 of the Act use the expression "failing any agreement referred to in Sub-section (2)". Therefore, Sub-sections (3) and (5) will come into play only when there is no agreement between the parties as is referred to in Sub-section (2) of Section 11 of the Act, viz., that the parties have not agreed on a procedure for appointing the arbitrator or arbitrators. If the parties have agreed on a procedure for appointing arbitrator or arbitrators, Sub-sections (3) and (5) of Section 11 of the Act can have no application. Similarly, under Sub-section (6) of Section 11 request to the Chief Justice or to an institution designated by him to take the necessary measures, can be made if the conditions enumerated in Clauses (a) or (b) or (c) of this sub-section are satisfied. Therefore, recourse to Sub-section (6) can be had only where the parties have agreed on a procedure for appointment of an arbitrator but (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure. Therefore, a combined reading of the various sub-sections of Section 11 of the Act would show that the request to the Chief Justice for appointment of an arbitrator can be made under Sub-sections (4) and (5) of Section 11 where parties have not agreed on a procedure for appointing the arbitrator as contemplated by Sub-section (2) of Section 11. A request to the Chief Justice for appointment of an arbitrator can also be made under Sub-section (6) where parties have agreed on a procedure for appointment of an arbitrator as contemplated in Sub-section (2) but certain consequential measures which are required to be taken as enumerated in Clauses (a) or (b) or (c) of Sub-section (6) are not taken or performed.(emphasis supplied).
23. I fail to appreciate the aforesaid plea for the reason that it is the categorical averment in the petition that all endeavours to settle the dispute failed. In fact, even during the course of proceedings under Section 9 of the said Act, endeavours for settlement had not succeeded. The communications addressed by the petitioners to the respondent would support the lack of success of the endeavours to settle. In fact, vide letter dated 7.6.2010, the petitioners have put the respondent on notice that as per their understanding, the Madras Race Club had undertaken to hand over possession in the proceedings before the Honble Supreme Court and that the respondents were apparently attempting to alienate and encumber the property. A request was made to refrain from doing so and if they did not co-operate, there was willingness to arbitrate as per Clause 17 of the Agreement. The subsequent letter dated 15.9.2010 has called upon the respondent, while invoking Clause 17, within seven days from the date of receipt of the letter, to appoint an arbitrator mutually acceptable to both the parties to resolve the dispute. Thus, the procedure as envisaged under the said Act has been followed.
24. In any case, even during the pendency of the present proceedings, as noticed at the inception, endeavour was to settle the dispute and the matter was even referred to the High Court Mediation and Conciliation Centre. But there was no success. There cannot be a plea of the respondents that there should now be a fresh invocation of the arbitration clause, an alternative dispute resolution methodology, whereby the parties choose a Judge in their own cause as an arbitrator, rather than the court process.
25. The aforesaid plea is thus also rejected.
V. Clause 17 of the Agreement is only an intent to enter into an arbitration agreement
26. The real fulcrum of the arguments of the learned counsel for the respondent was this plea, i.e., absence of any arbitration agreement inter se the parties and a construction placed on Clause 17 of the Agreement that the same was only an intent to enter into an agreement for arbitration. In this behalf, learned counsel strongly relied upon the observations of the learned single Judge in the proceedings under Section 9 of the said Act. To this extent, the reliance is misplaced because of the order of the Division Bench as already discussed aforesaid and this question is at large before this Court uninfluenced by the observations of the learned single Judge.
27. Learned counsel for the petitioners relied upon the following the judgments especially keeping in mind that in construing the arbitration clause, a meaning had to be assigned to the expression shall enter into any arbitration proceedings :-
(a) Sm. Reba Sircar vs. Bisweswar Lal Sharma, A.I.R. 1980 Calcutta 328 6. In Ganga Naicken vs. Sundaram Aiyar, A.I.R. 1956 Madras 597, it has been observed that a 'proceeding' may in some enactment mean an action or that which initiates an action and in other enactments it may also mean a step in an action. The word 'proceeding' is defined in the Shorter Oxford Dictionary as 'doing, a legal action or process, any act done or by the authority of the Court of law'. In 'Words and Phrases', Permanent Edition, Vol. 34, Page 142, a number of meanings taken from American decisions are given for the word 'proceeding'. There it is said that the term 'proceeding' is a very comprehensive term and generally speaking means a prescribed course of action for enforcing a legal right and hence it necessarily embraces the requisite steps by which a judicial action is invoked (see K. J. Lingan vs. Joint Commercial Tax Officer, A.I.R. 1968 Madras 76; Kochadai Naidu vs. Nagayasami Naidu, A.I.R. 1961 Madras 247). A proceeding in a civil action is an act necessary to be done in order to attain a given end. It is a prescribed mode of action for carrying into effect a legal right--(1940) Law Lexicon of British India, Page 1022. 7. It thus appears that a proceeding is a prescribed course of action for the enforcement of a legal right. In the instant case, the legal right was the right of the plaintiff to apply for a final decree. Such right was to be enforced by the making of an application as prescribed by Rule 5 (3) of Order 34 of the Civil P. C. when this Court by its order stayed all further proceedings in the suit, the effect of it was that the action that would be taken for the passing of a final decree was also stayed. In other words, the filing of an application for a final decree was stayed. Even if the plaintiff filed an application for a final decree, the Court could not entertain such an application.
(b) Ganga Naicken vs. A. Sundaram Ayyar, A.I.R. 1956 Madras 597 6. In Ramanathan Chettiar, In re, A.I.R. 1942 Madras 390, the proper stamp duty leviable on a memorandum of Civil Revision Petition presented to the High Court against the order directing a decree-holder to refund a sum of Rs. 987-3-11 received by him in rateable distribution was held to be Rs. 10 and not Rs. 5 where the value of the suit or the main proceeding wherein the order was made was above the value of Rs. 1000. In considering the meaning of the words "suit or proceeding," Venkataramana Rao, J., observed at page 112:
The words 'suit or proceedings' have been interpreted in various senses in different statutes according to the intent and scope of the statute, sometimes in a narrow sense and sometimes in a wide sense The word 'suit' in a narrow sense is confined to a litigation initiated in a trial Court and ending with a decree or a final order passed by it. In this sense it would not include execution proceedings or proceedings in appeal.
But in a wide sense it has been interpreted as comprehending the entire litigation commencing from the initiation of the litigation in the trial Court up to the state when the ultimate decision is reached in the final Court of appeal or revision. In this view it would include execution proceedings and proceedings in appeal as continuation of the suit.
The word 'proceedings' has been similarly interpreted. In its narrow sense, it is a step in any action or in an independent proceeding analogous to an action by which a litigation is initiated. In a wide sense it has been interpreted, if used in juxtaposition with a suit to include any proceeding in the nature of a suit. Even in this view having regard to the context it is sometimes limited only to the stage of litigation commenced by filing a petition or application in the trial Court and ending with an order or decree passed by that Court.
In another view it is meant to indicate all the applications in execution of a decree or order passed in the main proceeding and also all proceedings in appeal as continuation of the proceeding. The word 'proceeding' used alone has been interpreted to mean all judicial proceedings and when applied to suits to mean the suit as a whole. Therefore the meaning to be attributed to the word 'suit' or 'proceeding' must depend upon the scope of the enactment wherein the said expressions are used and with reference to the particular context wherein they occur.
7. The meaning that is given to the word 'proceeding' occurring in other enactments cannot be taken as a safe guide in its application to the meaning to be given in a particular enactment like the present one. As observed by Venkataramana Rao, J., in the case quoted above, the meaning to be attributed to the word 'suit' or 'proceeding' must depend upon the scope of the enactment and the words must be understood with reference to the particular context in which they occur.
A 'proceeding' may in some enactment mean an action or that which initiates an action and in other enactments it may also mean a step in an action. In Pryor v. City Offices Company (1883) L.R. 10 Q.B.D. 504 (C), the word "any proceeding" in Section 89 of the Judicature Act, 1873, was understood to be equivalent to "any action" and not any step in an action. But in the rules of the Supreme Court, Order 64, Rule 13, ''proceeding" is used as meaning a step in an action (vide Stroud's Judicial Dictionary, 3rd edition, 3rd Volume, page 2309).
The taxation of costs is a "proceeding" within the phrase, "no actions, suits, executions, attachments or other proceedings," shall be continued or commenced without leave, (R. v. London, Chatham & Dover Railway Co.) (1868) L.R. 3 Q.B. 170 (vide page 2311 in Stroud's Judicial Dictionary). 'Any other proceeding in the action' in the rules of the Supreme Court, Order 26, Rule 1 mean any proceeding with a view to continuing the action, i.e., a step forward, not one backward (vide Spincer v. Watts (1889) L.R. 23 Q.B.D. 350). So the word 'proceeding' can be given a narrow or a wide import depending upon the nature and scope of an enactment in which it is used and in the particular context of the language of the enactment in which it appears. (emphasis supplied)
(c) Kochadai Naidu vs. Nagayasami Naidu, A.I.R. 1961 Madras 247 13. It is then necessary to consider whether these characteristics would be sufficient to constitute the case during its career in the civil court as a "proceeding" in that court so as to render Section 24 C. P.C. applicable. The word "proceeding" is defined in the Shorter Oxford Dictionary as "doing a legal action or process, any act done by the authority of a court of law" In "Words and Phrases" Permanent Edn. vol. 34, a number of meanings taken from American decisions are given for the word "proceedings". Two of them which I give below bring out the essential import of the words.
(1) "The word "proceeding" ordinarily relates to forms of law, to the modes in which judicial transactions are conducted", (p. 141).
(2) "The term "proceeding" is a very comprehensive term and generally speaking means a prescribed course of action for enforcing a legal right and hence it necessarily embraces the requisite steps by which a judicial action is invoked". (P. 142).
In Ramanathan Chettiar, In re, A.I.R. 1942 Madras 390, Venkatararnana Rao, J. construing the meaning of the term as it occurred in the Court-fees Act, 1870, observed that the word had been interpreted in various senses in different statutes according to the intent and scope of the statute, sometime in a narrow sense and sometime in a wide sense, and the word when used alone had been interpreted to mean "all judicial proceedings".
In Ganga Naicken v. Sundaram lyer, A.I.R. 1956 Madras 597, Krishnaswami Nayudu J. held that the meaning to be given to the word "proceeding" would depend on the scope of the enactment in which it occurred and the context in which the word was used. The learned Judge held that a copy application which could not be held to be a step in any action, would be a proceeding within the saving clause contained in Section 87(2) of the Madras Court-fees Act, 1955. Recently, I had to construe the same section in regard to the proceedings before the Collector antecedent to an award under the Land Acquisition-Act in Firm of Chakravarti lyengar v. Collector of Madras, (1960) 2 M.L.J. 207. The following passage at page 209 stated the rule of interpretation thus :
"It is an accepted rule of interpretation, where a statute does not provide an interpretation for a particular term or phrase, in order to arrive at the true meaning of the word or phrase one should have to understand it in connection with its context collocation etc., in accord with the intention of the enactment and that no word or phrase should be understood detached from the context."
Learned counsel for the contesting respondents contended that a proceeding under, the Civil Procedure Code should satisfy two conditions, namely, (1) that it should have been initiated in that court, and (2) that the court should be competent to give relief to the party. In support of the contention reliance was placed on the decision in Sheonath. Prasad v. City Magistrate, Varanasi, A.I.R. 1959 All 467. I shall advert to that decision later. Prima facie the first of the two Qualifications set out above does not appear to be an essential one. One can refer in this connection to the decision in Ramakka v. Nagesam, A.I.R. 1925 Madras 145, a case which in some respects is analogous to the present one.
There in a suit for partition the matter was remitted for enquiry into mesne profits by a commissioner. It was held that proceedings before the Commissioner would be governed by the provisions of the Code (Order 18 rule 1 in that case) by virtue of Section 141, which made the provisions of the Code applicable to "other proceedings". A matter which was referred to a Commissioner was treated as a proceeding before him. The second of the qualifications suggested mixes up two distinct ideas.
Authority to entertain a matter and dispose of the same need not necessarily include an authority to grant the relief. For example, if the jurisdiction of a court to entertain a suit is contested, the court can investigate the matter and if it finds that it is beyond its jurisdiction, it has only to return the plaint; no final order in the suit could be passed, but yet it cannot be denied that it would be proceedings in that court. I cannot, therefore, agree that in order that a matter before a court should be held to be part of its proceedings, it should either have commenced in that court or that the court should have a power to grant relief thereon to a party.
I have already indicated that the term "proceeding" is not a technical expression with a definite meaning attached to it, but one the ambit of whose meaning will be governed by the statute. Essentially the term indicates a prescribed mode in which judicial business is conducted, Section 24 C. P. C., is a provision in an enactment which is a Code, which is exhaustive on all matters provided for by it. Therefore, the term should have a comprehensive meaning so as to include all matters of Judicial adjudication to which the Code will apply. As the provisions of the Code will apply to a matter referred under Section 146, Cr. P. C. that will be a proceeding to which Section 24 C. P. C. would apply.
28. On the other hand, learned counsel for the respondent relied upon the following judgments :-
(a) Jyoti Brothers vs. Shree Durga Mining Co., A.I.R. 1956 Calcutta 280 It was observed in this case that there could be no particular form laid down as universal for framing an arbitration agreement, but the words must be of choice and determination to go into arbitration and not problematic words on mere possibility. Thus, a contract to enter into a contract was not a valid contract in view of Section 2(h) of the Contract Act. The arbitration clause in question therein read as under :
In the event of any dispute arising out of this contract, the same can be settled by Arbitration held by a Chamber of Commerce at Madras their decision shall be binding to the Buyers the Sellers.
It was observed in paragraph 4 of the judgment as under :
4. I know of no reported decision where any Arbitration clause used the word "can" as in this case. The Arbitration Clause in this case can at best mean that the dispute "can" be settled by Arbitration. But that does not mean that the dispute shall be settled by Arbitration. It only means this that after the dispute has occurred, the parties may go to Arbitration as an alternative method of settling the dispute instead of going to the Courts. But that means that after the dispute has arisen, the parties will have to come to a further agreement that they shall go to Arbitration.
In other words, the clause at best means that it is a contract to enter into a contract. It denotes the possibility of Arbitration in the event of a future dispute. I do not consider a contract to enter into a contract to be a valid contract in law at all. I am, therefore, of the opinion that this is not a valid submission to Arbitration. The word "can" by the most liberal interpretation only indicates a possibility. A legal contract is more than a mere possibility. It is possibility added to obligation. If a seller says "I can sell goods" that does not mean an immediate or present contract to sell.
Similarly, if a person says "I can go to arbitration" that statement does not make an immediate contract to send disputes to arbitration. A mere pious wish or desire for arbitration does not make a contract for arbitration. An arbitration agreement has to be couched not in precatory but obligatory words. No particular form can be laid down as universal for framing an arbitration agreement but this much is certain, words used for the purpose must be words of choice and determination to go to arbitration and not problematic words of mere possibility.
Section 2(a) Arbitration Act defines an Arbitration agreement to mean "a written agreement to submit present or future differences to Arbitration whether an Arbitrator is named therein or not". It is quite true that it may be a present or future difference that is intended to be the subject of Arbitration. But nevertheless it is essential in my opinion for an Arbitration agreement to be a present agreement to submit present or future differences.
The Agreement must be a present agreement and a concluded agreement according to the test of an ordinary contract. If it fails in that test, then there is no submission and no Arbitration agreement at all. If in law it is not an agreement at all, it is no answer to say that this clause appears as one of the terms and conditions of the contract in Clause 11 as "other conditions". An invalid contract does not become valid by describing it as a "condition". Here the Arbitration clause which is Clause 11 is :
"In the event of any dispute arising out of this contract the same can be settled by Arbitration held by a Chamber of Commerce at Madras". On a proper construction of this clause, I have come to this conclusion that it means that after a dispute has arisen, the parties have further to agree that their dispute shall be referred to Arbitration and I suppose then to decide also which Chamber of Commerce at Madras. But the Arbitration clause as it stands is not an Arbitration agreement and is not a present contract to submit disputes to Arbitration. (emphasis supplied)
(b) Jagdish Chander vs. Ramesh Chander, (2007) 5 S.C.C. 719 In this case, the arbitration clause in question was as under :
16) If during the continuance of the partnership or at any time afterwards any dispute touching the partnership arises between the partners, the same shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine. (emphasis supplied).
In the aforesaid context, it was observed as under :
5. The appellant has challenged the said order appointing the Arbitrator. It is submitted that the power under Section 11 of the Act, to appoint an Arbitrator, can be exercised only if there is a valid arbitration agreement between the parties, and that as there is no arbitration agreement between the parties, the Arbitrator could not have been appointed. Strong reliance was placed by the Appellant on the decision in Wellington vs. Kirit Mehta, A.I.R. 2000 S.C. 1379, where a Designate of the Chief Justice of India held that the following clause was not an 'arbitration agreement':
5. It is also agreed by and between the parties that any dispute or difference arising in connection with these presents may be referred to arbitration in pursuance of the Arbitration Act, 1940 by each party appointing one arbitrator and the arbitrator so appointed selecting an Umpire. The venue of the arbitration shall be at Bombay. He also held that the use of the word "may" could not be construed as "shall" and that the clause was only an enabling provision and a fresh consent was necessary to go to arbitration. The decision of the Calcutta High Court in Jyoti Bros vs. Shree Durg Mining Co., A.I.R. 1956 Calcutta 280 was also cited with approval. 8. This Court had occasion to refer to the attributes or essential elements of an arbitration agreement in K.K. Modi vs. K.N. Modi, [1998] 1 S.C.R. 601, Bharat Bhushan Bansal vs. U.P. Small Industries Corporation Ltd., [1999] 1 S.C.R. 181 and Bihar State Mineral Development Corporation vs. Encon Builders (I) (P) Ltd., A.I.R. 2003 S.C. 3688. In State of Orissa vs. Damodar Das, A.I.R. 1996 S.C. 942, this Court held that a clause in a contract can be construed as an 'arbitration agreement' only if an agreement to refer disputes or differences to arbitration is expressly or impliedly spelt out from the clause. We may at this juncture set out the well settled principles in regard to what constitutes an arbitration agreement:
(i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. If the terms of the agreement clearly indicate an intention on the part of the parties to the agreement to refer their disputes to a private tribunal for adjudication and an willingness to be bound by the decision of such tribunal on such disputes, it is arbitration agreement. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement.
(ii) Even if the words 'arbitration' and 'arbitral tribunal (or arbitrator)' are not used with reference to the process of settlement or with reference to the private tribunal which has to adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract from the clause being an arbitration agreement if it has the attributes or elements of an arbitration agreement. They are : (a) The agreement should be in writing. (b) The parties should have agreed to refer any disputes (present or future) between them to the decision of a private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes in an impartial manner, giving due opportunity to the parties to put forth their case before it. (d) The parties should have agreed that the decision of the Private Tribunal in respect of the disputes will be binding on them.
(iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to Arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically excludes any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the Authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the Authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement.
(iv) But mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as "parties can, if they so desire, refer their disputes to arbitration" or "in the event of any dispute, the parties may also agree to refer the same to arbitration" or "if any disputes arise between the parties, they should consider settlement by arbitration" in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that "if the parties so decide, the disputes shall be referred to arbitration" or "any disputes between parties, if they so agree, shall be referred to arbitration" is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future. (emphasis supplied)
29. On appreciation of the aforesaid judgments, I am of the view that insofar as Jagdish Chanders case supra is concerned, the clause in question as discussed by the Honble Supreme Court was itself very clear. The dispute was to be resolved mutually by the partners or shall be referred for arbitration if the parties so determine. It clearly brooked of no two interpretations as the parties were required, on the failure of any settlement, to hold discussions to refer the dispute to arbitration only if the parties so determined. In that context, the judgment in Ganga Naickens case (supra) has been referred to in paragraph 5 of the Supreme Court judgment while observing that the word may could not be construed as shall. Thus, such a clause would be merely indicative of a desire or the hope to have the dispute settled by arbitration.
30. In Jyoti Brothers case referred to by the learned counsel for the respondent, what was in question was the word can and in that context, observations have been made in paragraph 4 that it was one possibility and there had to be thus a further agreement to go into arbitration.
31. I had already mentioned above that the particular phrase used in the clause in question would have to be construed. In that context, the word proceeding in a wide sense has been held to be used in juxtaposition to the suit, to exclude any proceeding in the nature of a suit and in a narrow sense, a step or action in an independent proceeding analogous to an action by which litigation is initiated. It is a comprehensive term and generally speaking means a prescribed course of action for enforcing a legal right and thus embraces the requisite steps by which a judicial action is invoked (p.142 of Words and Phrases Permanent Edn., Vol. 34) as referred to in Kochadai Naidus case (supra). The views expressed in the earlier judgments have been cited with approval in the subsequent judgment in Sm. Reba Sircars case (supra).
32. The word proceeding has been held to be more comprehensive than the word action and would include in a general sense all steps taken or measures adopted in the prosecution or defence of an action, including the pleadings and judgment. It includes the institution of an action Blacks Law Dictionary, IX Edition :
Proceeding. (16c) 1. The regular and orderly progression of a lawsuit, including all acts and events between the time of commencement and the entry of judgment. 2. Any procedural means for seeking redress from a tribunal or agency. 3. An act or step that is part of a larger action. 4. The business conducted by a court or other official body; a hearing. 5. Bankruptcy. A particular dispute or matter arising within a pending case as opposed to the case as a whole. [Cases : Bankruptcy 2156).
Proceeding is a word much used to express the business done in courts. A proceeding in court is an act done by the authority or direction of the court, express or implied. It is more comprehensive than the word action, but it may include in its general sense all the steps taken or measures adopted in the prosecution or defence of an action, including the pleadings and judgment. As applied to actions, the term proceeding may include (1) the institution of the action; (2) the appearance of the defendant; (3) all ancillary or provisional steps, such as arrest, attachment of property, garnishment, injunction, writ of ne exeat; (4) the pleadings; (5) the taking of testimony before trial; (6) all motions made in the action; (7) the trial; (8) the judgment; (9) the execution; (10) proceedings supplementary to execution, in code practice; (11) the taking of the appeal or writ of error; (12) the remittitur, or sending back of the record to the lower court from the appellate or reviewing court; (13) the enforcement of the judgment, or a new trial, as may be directed by the court of last resort. Edwin E. Bryant, The Law of Pleading Under the Codes of Civil Procedure 3 4 (2d ed. 1899).
33. The word Proceeding is explained in the Oxford Dictionary as "an action taken in a Court to settle a dispute." Words and Phrases (Legally Defined) [4th Edition] Butterworths Publication states the term Proceedings is frequently used to note a step in an action, and obviously it has that meaning in such phrases as proceeding in any cause or matter". When used alone, however, it is in certain statutes to be construed as synonymous with, or including "action" [Halsbury's Laws (3rd Edition) 5, 6]. The term "Legal Proceedings is explained to mean prima facie that which the words would naturally import - i.e., legal process taken to enforce the rights of the Shipowner, Runchiman & Co. v. Smyth & Co., 1994 (20) T.L.R. 625, per Lord Alverstone,C.J., at P.626.". Proceedings have been held to include appeal and covers any proceedings of a legal nature, even though it did not take place in a court of law (R vs. Westminster (City) London Borough Rent Officer, ex p Rendall (1973) 3 All ER 119 at 121, CA, per Lord Denning MR. It has been stated therein that legal proceedings include an arbitration in New Zealand. The said Dictionary also refers to a Book "The law of Pleading under the Code of Civil Procedure" by Edwin E. Bryant, and quoted as under :-
" Proceeding is a word much used to express the business done in courts. A proceeding in Court is an act done by the authority or direction of the court, express or implied. It is more comprehensive than the word 'action', but it may include in its general sense all the steps taken or measures adopted in the prosecution or defense of an action, including the pleadings and Judgment."
34. In P. Ramanatha Aiyars Advanced Law Lexicon, Volume 3, 2005, defines Proceeding to include any suit, appeal or application. It is stated that the word proceedings is a very general one; it is not limited to proceedings other than the civil proceedings, and civil proceedings other than the suit as a whole or it may be used, and often is used, to express the separate steps taken in the course of a suit the aggregate of which makes up the suit. It is also stated that the word proceedings must be interpreted, in its wider sense, as including, among other matters, appeals and revisions (State of J & K vs. Abdul Ghani Petwari, A.I.R. 1977 J & K 17, 19). A proceeding is a prescribed course of action for the enforcement of a legal right. The legal right of a person who has obtained preliminary decree is to apply for a final decree (Reba Sircar vs. Bisweswar Lal, A.I.R. 1980 Calcutta 328, 330). It is well settled that the word proceedings shall include the proceedings at the appellate stage (Mathew M. Thomas vs. C.I.T., 1999 (2) S.C.C. 543). Proceeding as distinct from the word Action, has been defined as a word with a larger meaning than action. Every action is a proceeding, but it is not possible to say that every proceeding is an action (Roberts vs. Metropolitan Borough of Battersea, (1914) 110 L.T. 568, as per Bucklky, L.J., as referred in Velayudhan vs. Rajeev, A.I.R. 1989 Kerala 12, 19).
35. The words used are shall enter into an arbitration proceedings mandating the arbitration proceedings to be entered into and not mandating a further agreement to be entered into. In that sense, the proceedings, in its wider compass, would mean the commencement of the proceedings under the said Act.
36. I am thus firmly of the view that the expression used in Clause 17 of the Sale Agreement dated 18.7.2008 entered into between the petitioners and the respondent herein cannot brook of two views, as it mandates that the party shall enter into an arbitration proceedings and proceedings being construed accordingly, it would imply that the arbitration proceedings would be commenced and not that it is an agreement to further enter into the arbitration agreement, any such eventuality arising.
37. The aforesaid plea is thus also rejected.
Conclusion
38. In view of the aforesaid discussion, Clause 17 of the Sale Agreement dated 18.7.2008 is held to be a binding and valid agreement inter se the parties and thus, the present petition under Section 11 of the said Act filed by the petitioners is liable to be allowed.
39. In terms of the arbitration clause, the venue of arbitration was to be at Bombay (Mumbai). Learned counsel for the parties jointly propose that the venue for arbitration should be at Chennai and that Mr. Justice K. Venkataraman, a retired Judge of this Court, should be appointed as the Sole Arbitrator. This is without prejudice to the rights of the respondent to assail this order on any other aspects of merits, if so advised.
40. Accordingly, I hereby appoint Mr. Justice K. Venkataraman, Judge (Retired), Madras High Court, as the Sole Arbitrator to adjudicate upon the disputes arising between the petitioners and the respondent herein in connection with the Sale Agreement dated 18.7.2008. The learned Arbitrator shall enter upon the reference and after issuing notice to the parties and hearing them, pass an award as expeditiously as possible, preferably within a period of six months from the date of issuance of the notice in the arbitration proceedings. It is open to the learned Arbitrator to fix the remuneration and other incidental expenses relating thereto, which shall be borne by both the parties equally.
41. The original petition is accordingly allowed with costs quantified at Rs.10,000/- (Rupees ten thousand only) payable by the respondent to the petitioners.
(S.K.K., C.J.) December 12, 2014 ab Index : Yes Website : Yes The Honble the Chief Justice ab Pre-delivery Order in Original Petition No.636 of 2011 Reserved on : 05.12.2014 Delivered on : 12..12..2014