Bombay High Court
Federal Brands Limited(Formerly Known ... vs Srinidhi Combines And 4 Ors on 2 February, 2024
Author: Bharati Dangre
Bench: Bharati Dangre
2024:BHC-OS:1991-DB
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION APPLICATION (L) No.
14669 OF 2022
Federal Brands Limited (formerly .. Applicant
known as Microtex India Ltd)
Versus
Srinidhi Combines and 4 ors .. Respondents
...
Mr. Anoshak Daver with Mr.Dhaval Shethia and Sunitha Perumal
i/b Sachin V. Masurkar for the applicant.
Mr.P.G. Sabnis with Kashmira Khedekar for the respondents.
CORAM: BHARATI DANGRE, J.
DATED : 2nd FEBRUARY, 2024 P.C:-
1 Heard learned counsel for the applicant and learned counsel for the respondents.
2 The present Application is filed, seeking appointment of an Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, in the backdrop fact that the disputes arose out of the Consignment Agreement executed on 14/10/2005 between the parties and pursuant thereto, the Arbitration was invoked by the applicant, but on noticing that the appointment of an unilateral arbitrator, would not sustain in law, Tilak ::: Uploaded on - 06/02/2024 ::: Downloaded on - 23/02/2024 03:51:39 ::: 2/11 25 CARAPL 14669-22 1st feb.doc the Arbitrator was approached, who terminated the arbitration proceedings, with liberty being conferred, in the claimant to adopt legal proceedings.
3 The Consignment Agreement contain an Arbitration Clause, which read as under :-
"24 In the event of any dispute, difference, claim or question arising out of the agreement touching any matter or thing herein during the continuance of this agreement or upon or after termination thereof, such dispute or difference shall be referred to the arbitration of a 'SOLE ARBITRATOR' to be appointed exclusively by the Company. The Place of Arbitration shall be in Mumbai or other place in India of the company's choice, chosen by the Company. This reference shall be deemed to be a submission to the arbitration within the meaning of "The Arbitration & Conciliation Act, 1996 and the provisions of the said Act so far as applicable or if any act of the legislature for the time being in force and passed or any modification thereof or any substitution thereof, shall apply to every reference herein."
4 Pursuant to the arrangement worked out, the applicant maintained running account of the invoices sent to the respondents for sale of goods, and according to the applicant, total amount of Rs.91,69,170.01 became due and payable in the wake of the ledger account. On 9/4/2021, a notice was addressed by the Advocate for the applicant to the defendant, setting out the details of the claim of unpaid invoices and informing that the disputes have arisen between the parties. It was called upon to pay the amount indicated in the notice along with interest of 20% per annum within a period of 7 days, failing which it was Tilak ::: Uploaded on - 06/02/2024 ::: Downloaded on - 23/02/2024 03:51:39 ::: 3/11 25 CARAPL 14669-22 1st feb.doc indicated that the applicant shall be constrained to invoke the arbitration, in the wake of the arbitration clause, by appointing a Sole Arbitrator by itself, which shall be entirely at the risk and consequences of the noticee.
On 28/4/2021, this notice was replied, denying the claims staked in the notice, about the outstanding dues.
Thereafter, on 12/5/2021, the applicant addressed another notice with reference to the earlier notice dated 9/4/2021 in form of "Notice of Invocation of Arbitration proceedings' in relation to the dispute arising out of the said agreement dated 14/10/2014.
The notice clearly spelt out as under :-
(1) By our above referred order dated 09/04/2021 which was issued on behalf of our client in which our client had called you to pay their outstanding dues for a sum of Rs.91,69,170/- under the fact and background as more particularly set out in the said notice dated 09/04/2021. The contents of said notice are self- explanatory, hence not required.
(2) You have received the said notice however till date you have failed and neglected to make the payment and you have also not replied to the said notice, in view thereof the dispute and differences have arose between our client and yourself under the said agreement.
(3) As per clause 24 of the said agreement, our clients have referred the dispute for arbitration to Mr.Manoj B. Dalvi, Advocate, High Court, Bombay having address at Office No.47, 3rd floor, Lawyers Chambers, R.S. Sapre Road (Picket Road), Near Small Cause Court, Dhobi Talao, Mumbai 40002.
Tilak ::: Uploaded on - 06/02/2024 ::: Downloaded on - 23/02/2024 03:51:39 ::: 4/11 25 CARAPL 14669-22 1st feb.doc (4) to act as a sole arbitrator. The copy of this letter is also forwarded to Mr.Manoj B. Dalvi for further process in the subject matter. He has formally informed his consent and the next directions will be issued the Ld. Sole Arbitrator.
It is the case of the applicant that this notice was never responded to, and it is construed by it, as invocation of the arbitration.
5 Being aggrieved by the unilateral appointment of an Arbitrator at the end of the applicant, the respondent approached Kerala High Court in a Writ Petition, and while admitting the Petition, the proceedings before the Arbitrator came to be stayed by order dated 17/1/2022.
At the same time, the respondent also filed an application under Section 16 of the Act before the Arbitrator, challenging his jurisdiction, and subsequent thereto, i.e. on 26/4/2022, the Arbitrator terminated the proceedings on the request of the claimant.
6 It is in this background the appointment of the Arbitrator is sought and particularly, by availing the liberty conferred on the claimant to seek appropriate remedy for settlement of it's claim and Mr.Daver has specifically invoked sub-section (5) and sub-section (6) of Section 11 of the Arbitration and Conciliation Act, by submitting that once the Arbitration was triggered by the invocation notice, there is no need for a further invocation. According to the learned counsel, Tilak ::: Uploaded on - 06/02/2024 ::: Downloaded on - 23/02/2024 03:51:39 ::: 5/11 25 CARAPL 14669-22 1st feb.doc Section 21 of the Arbitration and Conciliation Act, which is referred to as 'Invocation of Arbitration' in fact, is a provision declaring the date of commencement of the arbitral proceedings.
According to him, by his communication dated 12/5/2021, the notice was served upon the respondent, intimating about the appointment of an Arbitrator, though unilaterally, there is sufficient compliance of Section 21.
Apart from this, Mr.Daver has placed reliance upon a decision of this Court in case of Fortune Integrated Assets Finance Ltd. Vs Srilakshmi Sai Auto Finance and 3 ors (CARAPL 2130/22), where, in a somehow similar situation, when the proceedings before the unilateral arbitrator, were deemed to have been terminated in the wake of the evolution of law by the Apex Court in case of Perkins Eastman Architects DPC and Anr Vs. HSCC (India) Ltd.1 It has been held that once the arbitration has been triggered, in the wake of the subsequent circumstances, like termination of the arbitration proceedings, or substitution of an Arbitrator, for whatever reason, it is not imperative to invoke the arbitration.
7 Per contra, learned counsel Mr.Sabnis for the respondent, referring to his detailed reply, raise three basic objections; the first being that it was not open for the claimant to approach the Arbitrator and get the proceedings disposed off without it being noticed, particularly, when the stay of the Kerala 1 (2020) 20 SCC 760 Tilak ::: Uploaded on - 06/02/2024 ::: Downloaded on - 23/02/2024 03:51:39 ::: 6/11 25 CARAPL 14669-22 1st feb.doc High Court in operation, and the course available was, to approach the Kerala High Court, first, get the stay vacated and then get the proceedings terminated.
In my considered opinion, this objection do not hold much substance, as the Kerala High Court was pleased to grant stay on being satisfied with the argument that there is no arbitration agreement between the parties and in fact, this is on account of the reference to the notice invoking arbitration dated 12/5/2021, which was referred to an agreement of 14/10/2014, but actually the Consignment Agreement is of 14/10/2005 and admittedly, there is no agreement of 14/10/2014 and as Mr.Daver has pointed out that is a typographical error. I am convinced to accept his contention, since this notice of 12/5/2021 make a reference to the earlier notice of 9/4/2021, where there is a clear reference of the dispute arising out of the consignment agreement dated 14/10/2005 and the unpaid invoices arising out of this consignment agreement.
The typographical error cannot be thus blown out of the proportion, when the parties are conscious of the fact that the disputes that have arisen between them is out of the agreement dated 14/10/2005 and the response of the respondent on 28/4/2021, is also as regards the invoices arising out of the Consignment Agreement dated 14/10/2005.
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8 The Arbitration clause in this Consignment
Agreement dated 14/10/2005, as permissible, prior to the Amendment in Section 12(5) of the Act of 1996, which came into effect from 23/10/2105, it was permissible to have an unilateral appointment of an Arbitrator. However, in the wake of the subsequent law, as declared by the Apex Court, such an appointment is foul of the impartiality of an arbitrator and hence, is clearly forbidden, but with the prospective effect.
However, since the Arbitrator was not appointed in the wake of the said agreement, which is in existence prior to 2015, when the question comes of Appointment of Arbitrator, definitely the law laid down by the Apex Court, prohibiting the unilateral appointment of Arbitrator, shall come into play. Realising that the Arbitrator Mr.Manoj Sharma, who was unilaterally appointed, could not act as an Arbitrator and his appointment would incur a dejure in capability to discharge his role as an Arbitrator, the claimant rightly moved before the Tribunal and sought disposal of the proceedings, by obtaining liberty to initiate appropriate proceedings.
In any case, as far as Kerala High Court is concerned, it is the duty of the petitioner before the Court, to approach and inform that the Writ Petition has now become infructuous, since the basic question, which he has raised about the arbitration being proceeded, by a unilateral arbitrator, has now been resolved, and the Arbitrator appointed by the claimant, no longer continue with Tilak ::: Uploaded on - 06/02/2024 ::: Downloaded on - 23/02/2024 03:51:39 ::: 8/11 25 CARAPL 14669-22 1st feb.doc the Arbitration proceedings.
9 The third point of objection, which the learned counsel has raised is, about the limitation and the delay in invoking arbitration from the point of time when the invoices remain unpaid, he has placed reliance upon the decision in case of B and T AG Vs. Ministry of Defence,2 On going through the said decision, I do not think that it takes his case any further as, on the facts it has to be seen that the invoices remain unpaid and therefore, on 9/4/2021, a notice was addressed, claiming the payment under the unpaid invoices and indicating that if the payment is not made along with interest claimed within 7 days, the applicant shall be constrained to invoke arbitration, which was contemplated in clause 24 of the consignment agreement. There was a response to the said notice on 28/4/2021, denying the claim set out in the said notice, and therefore, the applicant intimated about the intimation of a Sole Arbitrator unilaterally on 12/5/2021.
In case of B and T AG, (supra) Their Lordships of the Apex Court has specifically referred to 'action and cause of arbitration" in paragraph nos.71 and 72 and I must necessarily reflect the said observations:-
"71 In Law of Arbitration by Justice Bachawat at p. 549, commenting on Section 37, it is stated that subject to the Act 1963, every arbitration must be commenced within the prescribed period. Just as in the case of actions the claim is not to 2 2023 SCC Online 657 Tilak ::: Uploaded on - 06/02/2024 ::: Downloaded on - 23/02/2024 03:51:39 ::: 9/11 25 CARAPL 14669-22 1st feb.doc be brought after the expiration of a specified number of years from the date when the cause of action accrues, so in the case of arbitrations the claim is not to be put forward after the expiration of a specified number of years from the date when the claim accrues. For the purpose of Section 37(1) "action"and "cause of arbitration" should be construed as arbitration and cause of arbitration. The cause of arbitration arises when the claimant becomes entitled to raise the question, that is, when the claimant acquires the right to require arbitration. An application under Section 11 of the Act 1996 is governed by Article 137 of the Schedule to the Act 1963 and must be made within 3 years from the date when the right to apply first accrues. There is no right to apply until there is a clear and unequivocal denial of that right by the respondent. It must, therefore, be clear that the claim for arbitration must be raised as soon as the cause for arbitration arises as in the case of cause of actin arisen in a civil action."
72 Whether any particular facts constitute a cause of action has to be determined with reference to the facts of each case and with reference to, the substance, rather than the form of the action. If an infringement of a right happens at a particular time, the whole cause of action will be said to have arisen then and there. In such a case, it is not open to a party to sit tight and not to file an application for settlement of dispute of his right, which had been infringed, within the time provided by the Limitation Act, and, allow his right to be extinguished by lapse of time, and thereafter, to wait for another cause of action and then file an application under Section 11 of the Act 1996 for establishment of his right which was not then alive, and, which had been long extinguished because, in such a case, such an application would mean an application for revival of a right, which had long been extinguished under the Act 1963 and is, therefore, dead for all purposes. Such proceedings would not be maintainable and would obviously be met by the plea of limitation under Article 137 of the Act."
10 I do not find that there is a delay in instituting the arbitration proceedings or that the claims staked in the wake of the unpaid invoices is beyond the period of limitation, in the wake of the decision in case of BSNL Vs Nortel Networks India Tilak ::: Uploaded on - 06/02/2024 ::: Downloaded on - 23/02/2024 03:51:39 ::: 10/11 25 CARAPL 14669-22 1st feb.doc Pvt Ltd,3 by invoking the residual clause in the Limitation Act, it has been held that the period of three years shall be construed to be a period of limitation available for staking a claim.
11 The present case is not a case of the claim having become a deadwood and would particularly, when the point of limitation was never raised before the Kerala High Court or the Arbitrator.
In any case, since I do not find that the cause does not survive in the applicant, to stake its claim before the Arbitral Tribunal, which now will have to be appointed by the Court as an unilateral appointment, cannot be sustained, the objection raised by the respondent do not deserve any consideration and hence, is rejected.
12 Prima facie, in the wake of existence of an arbitration clause in the Consignment Agreement dated 14/10/2005 and on recording that the Arbitration has already been invoked by the applicant by its notice dated 12/5/2021 and there is no need to invoke a fresh arbitration, I deem it appropriate to pass the following order.
Advocate Apurva Thipsay, is appointed as Sole Arbitrator to adjudicate the disputes and differences that have arisen between the applicant and the respondent.
3 (2021) 5 SCC 738
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The details of the Arbitrator are as under :-
Ms. Apurva Thipsay C/o. Chambers of Dr Birendra Saraf, 302, Oval House, British Hotel Lane, Kala Ghoda, Mumbai - 400001.
Email: [email protected] Mobile : 9892806541 The Arbitrator shall, within a period of 15 days before entering the arbitration reference forward a statement of disclosure as contemplated u/s.11(8) r/w Section 12 of the Arbitration and Conciliation Act, 1996, to the Prothonotary and Senior Master of this Court to be placed on record.
The Arbitrator, shall after entering the reference fix the date of first hearing and issue further directions as are necessary.
The Sole Arbitrator shall be entitled for the fees as per Bombay High Court (Fee Payable to Arbitrators) Rules, 2018 and the arbitral costs and fees of the Arbitrator shall be borne by the parties in equal portion and shall be subject to the final Award that may be passed by the Tribunal.
All rights and contentions of the parties are kept open.
( SMT. BHARATI DANGRE, J.) Tilak ::: Uploaded on - 06/02/2024 ::: Downloaded on - 23/02/2024 03:51:39 :::