Bombay High Court
Mr. Rajiv Vyas vs Johnwin Manavalan on 8 September, 2010
Author: S. J. Vazifdar
Bench: S. J. Vazifdar
1 ARB.162.09
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION NO. 162 OF 2009
Mr. Rajiv Vyas, of Bombay, Indian Inhabitant, ]
having his address at 601-A,Meghdoot Apartments]
Samarth Prasanna CHS, Lokhandwala Complex, ]
Andheri West, Mumbai 400059. ]...Applicant
Versus
1. Johnwin Manavalan,s/o.Shri George Manavalan ]
having his residence/office at M/30, ]
Himen Shopping Centre, Opp.Ratna Hotel, ]
S.V. Road, M.G. Road Junction,
ig ]
Goregaon West, Mumbai 400062. ]...Respondents
Ms. Soma Singh with Mr. Mahesh Londhe instructed by Mr. Sanjay
Udeshi and Co. for the applicant.
Mr. Sharan Jagtiani i/b M/s.Federal & Rashmikant for Respondent
Nos. 1 and 2.
CORAM: S. J. VAZIFDAR, J.
DATED: 8TH SEPTEMBER, 2010.
ORAL JUDGMENT :-
This is an application under section 11 of the Arbitration and Conciliation Act, 1996 for the appointment of a suitable arbitral tribunal.
::: Downloaded on - 09/06/2013 16:24:52 :::2 ARB.162.09 Every attempt, every gesture on the applicant's part to have the disputes referred to a conciliator and thereafter if necessary to arbitration has been rejected by the respondents on hyper technical grounds. The applicant has agreed to the name of a conciliator suggested by the respondents. Though the arbitration clause requires a reference of the disputes to an arbitral tribunal consisting of three arbitrators the applicant has agreed to the disputes and differences being referred to the sole arbitration of the arbitrator appointed by the respondents. Even this suggestion was rejected although it was made clear that this would be without prejudice to the respondents' rights and contentions and their right to challenge this order.
2. The application is based on an arbitration clause contained in a Shareholder Agreement entered into between the parties in the year 2007. I am saved the exercise of determining the issue as to the existence of the arbitration agreement as this question has already been determined by an order and judgment of this court dated 6th July 2009 in Arbitration Petition No. 222 of 2008 which was taken out by the applicant for reliefs under section 9 of the said Act. It was contended on behalf of the respondents in that case that the arbitration clause was incorporated in a document which was not a concluded ::: Downloaded on - 09/06/2013 16:24:52 ::: 3 ARB.162.09 agreement between the parties. Consequently, no part of the agreement including the arbitration clause therein came into existence.
The learned judge rejected the contention and held that the said agreement is complete and binding between the parties and the arbitration clause is valid, subsisting and binding between the parties.
It is not disputed that I am bound by the judgment.
Needless to add that the result of this application may well require to be reviewed in the event of the respondents succeeding in the appeal filed against the said judgment. I proceed therefore on the basis that there exists between the parties a valid arbitration agreement.
3. As the remaining contentions are based entirely on the construction of the arbitration clause it is necessary to set the same out in its entirety. It reads as under:-
"ARBITRATION CLAUSE
14. DISPUTE RESOLUTION 14.1 Settlement of Disputes through Good Faith Negotiations
a) The parties shall endeavour, in the first instance, to resolve any dispute, disagreement or difference arising out of or in connection with this Agreement, including any question regarding its performance, existence, validity, ::: Downloaded on - 09/06/2013 16:24:52 :::
4 ARB.162.09 termination and the rights and liabilities of the parties to this Agreement (a "Dispute") through good faith negotiations;
If a settlement is not reached within thirty (30) days after the date of receipt of the Dispute Notice by the non-initiating Party, such Dispute shall be referred for conciliation to one Conciliator in accordance with the provisions of Arbitration & Conciliation Act, 1996.
14.2 Arbitration
a) If good faith negotiations and conciliation have not been able to resolve a Dispute, such Dispute shall be referred to and be finally resolved by Arbitration in accordance with the Arbitration & Conciliation Act, 1996 and the rules made thereunder. Each party to the Dispute shall appoint one Arbitrator and the two Arbitrators shall mutually agree to and appoint the third Arbitrator. The Arbitral Agency so constituted, shall be the "Arbitral Tribunal". The provisions of the Arbitration & Conciliation Act, 1996 as may be amended from time to time and the Rules, if any, made thereunder, shall apply to such Arbitration proceedings. The place of Arbitration shall be Mumbai, India. The language of the Arbitration shall be English.
(b) Any decision or award of the Arbitral Tribunal, subject to corrections/ recourse provided for under the Arbitration & Conciliation Act, 1996 be binding upon the parties. The Arbitral Tribunal shall give a speaking award."
4. Mr. Jagtiani, the learned Counsel appearing on behalf of the respondents, submitted that the application is premature and made ::: Downloaded on - 09/06/2013 16:24:52 ::: 5 ARB.162.09 without following the conditions precedent thereto. He submitted that it was mandatory for the applicant to first have the disputes referred for conciliation as provided in clause 14.1 (a). It is only in the event of the conciliation not being able to resolve the disputes that the parties are entitled to invoke the arbitration clause.
5. I will presume the submission to be well founded. Indeed I must in view of the judgment of a learned single judge of this court dated 19th March, 2008, relied upon by Mr. Jagtiani in the case of Tulip Hotels Pvt. Ltd. & Anr. Vs. Trade Wings Ltd. & Ors., Application for Appointment of Arbitrator No.4 of 2007. The arbitration clause in that case also required the parties to first try and resolve the disputes through the intervention of a conciliator and only in the event of the same being unsuccessful were the parties entitled to refer the matter to arbitration. The learned judge held as under: -
"4. The plain reading of the above clause would undoubtedly disclose that the matter can be referred to the arbitration in terms of the provisions of the said Act only after failure in the conciliation proceedings. The clause specifically states that the party shall first try to resolve the dispute through intervention of a conciliator. It also states that if the dispute is not resolved by the conciliation within one month after being referred ::: Downloaded on - 09/06/2013 16:24:52 :::
6 ARB.162.09 to the conciliator, the same shall be referred to the arbitration. In other words, the agreement between the parties clearly requires that the arbitration proceedings shall be preceded by the conciliation proceedings and even the subject matter of dispute which can be referred to the arbitration should be the same dispute which is referred for conciliation.
The subject matter of the dispute which can be referred to arbitration cannot be different from it nor it can be enlarged after failure of conciliation. The scope of arbitration would depend upon the scope of dispute which is referred to conciliation. Otherwise, there was no reason for the parties to use the expression "the same shall be referred to arbitration." The words ''the same'' clearly refers to the dispute which has been the subject matter of the conciliation. The expression "first be tried"
also discloses that the party should try to resolve the dispute by way of conciliation before the matter is referred to arbitration. The clause also provides that the proceedings before the conciliator shall be in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and not otherwise. It is settled law that when the parties agree for a specific procedure and mode for settlement of their dispute by way of arbitration and also prescribes certain precondition to be complied with for referring the matter to arbitration, the parties are required to comply with those pre-conditions and only then refer the matter to the arbitration. The parties having agreed for settlement of their dispute by way of conciliation and then by the arbitration in terms of the said Act, the party approaching the Court for appointment of arbitrator U/s.11(6) of the said Act has to make out a case of compliance of pre-requisite in terms of the said clause
7. Apart from the above letters, no other material ::: Downloaded on - 09/06/2013 16:24:52 ::: 7 ARB.162.09 has been brought to my notice which could disclose either the nature of the dispute which was sought to be resolved with the intervention of Mr. Om Navani nor any other material which could reveal the consent of both the parties to the proceeding for settlement of dispute by conciliation by Mr. Om Navani. Merely because in the letter 4.4.2006, it was stated on behalf of the respondents that Dr. Mittal and his father Parameshwar Mittal had requested Mr. Om Navani to intervene and resolve the matter, it cannot be said that the same was with reference to the dispute which is sought to be referred under the present application for arbitration. As already seen above, the arbitration clause clearly requires that the subject matter to be referred to the arbitration shall be the same as it had been referred to conciliation. Apart from the subject matter being the same, it is also necessary that the conciliation proceeding must have been conducted in terms of the said Act. When the parties have chosen a particular procedure for settlement of the dispute in conciliation proceedings, it is not permissible for one of the parties to choose any other procedure for the conciliation proceedings nor can unilaterally make amends to such procedure. It is not the case of the applicants in the said application that there has been prior compliance of the pre-requisite in relation to the conciliation proceedings in terms of the said Act in relation to the dispute which is sought to be referred to the arbitration."
6. Mr. Jagtiani submitted that in view of this judgment the only course is for the court to reject the application leaving the applicant at liberty to adopt appropriate proceedings.
::: Downloaded on - 09/06/2013 16:24:52 :::8 ARB.162.09
7. I am unable to agree with Mr. Jagtiani that if a party has not followed the procedure prescribed in the agreement it must in all cases without anything more result in a dismissal of the application under section 11. In my opinion it would be open to the court hearing an application under section 11 to make the order subject to the party first complying with the condition precedent, which in this case is referring the matter to a conciliator in accordance with the provisions of the said Act. The judgment in Tulip Hotels does not hold otherwise.
Indeed this aspect did not and could not have fallen for the consideration of the court as in that case the applicant contended that he had in fact complied with the condition of referring the matter to a conciliator. He did not even make an application to the court or suggest that they would abide by the provisions of the arbitration clause by first referring the matter to a conciliator. The judgment therefore does not support the contention that an application under section 11 of the said Act must be dismissed even if the applicant agrees to comply with the condition precedent for invoking the arbitration clause.
Ms. Singh, the learned counsel appearing on the half of the applicant, has agreed to refer the matter in the first instance to a ::: Downloaded on - 09/06/2013 16:24:52 ::: 9 ARB.162.09 conciliator in accordance with the provisions of the said Act. I see no reason why then the cumbersome procedure suggested by Mr. Jagtiani ought to be followed namely, rejecting this application under section 11, leaving the parties to refer the matter to a conciliator and in the event of the same being unsuccessful and the parties not resolving the disputes before the conciliator requiring the applicant to make a fresh application under section 11. This merely leads to a multiplicity of proceedings with no benefit whatsoever for any of the parties. In my opinion the correct procedure which would meet the ends of justice would be to make an order under section 11 but subject to the parties complying with any conditions precedent thereto including first referring the disputes to a conciliator as provided in the agreement.
This course would satisfy all the terms and conditions of the arbitration agreement contained in clause 14 of the Shareholders Agreement.
8. Nor do I find Mr. Jagtiani's reliance upon the judgments of the Supreme Court referred to in Tulip Hotels to be of any assistance to the respondents in this regard.
9(A) The arbitration clause in the case of M.K. Shah Engineers & ::: Downloaded on - 09/06/2013 16:24:52 ::: 10 ARB.162.09 Contractors v. State of M.P., (1999) 2 SCC 594, was as under:
"3.3.29 Decision of Superintending Engineer to be final except where otherwise specified in the contract.― The decision of the Superintending Engineer of the Circle for the time being in respect of all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship or material used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or those conditions or otherwise concerning the work of execution or failure to execute the same, whether arising during the progress of the work or after the completion or abandonment thereof, shall be final:
Provided that if any party to the contract is dissatisfied with the final decision of the Superintending Engineer in respect of any matter, he may within 28 days after receiving the notice of such decision, give notice in writing to the Superintending Engineer, requiring that the matter may be referred to an arbitrator and furnishing detailed particulars of the dispute or difference and specifying clearly the point at issue. If any party fails to give such notice within 28 days as stipulated above, the decision of the Superintending Engineer, already given shall be conclusive, final and binding on the parties. In case arbitration is to be held, it shall be effected by an arbitrator to be appointed by the State Government out of a panel of three names suggested by the State Government to the contractor, who shall give concurrence within a period of one month from the date of the communication. In case the contractor does not communicate the concurrence, the State Government shall appoint an arbitrator whose decision shall be conclusive, final and binding on the parties.
If the work under the contract has not been completed ::: Downloaded on - 09/06/2013 16:24:52 :::
11 ARB.162.09 when a dispute is referred to an arbitrator, work shall continue during the arbitration proceedings if it is reasonably possible and no payment due to the contractor should be withheld on account of arbitration proceedings unless it is required by the arbitrator."
(B) Such clauses are entirely different from the clause in the present case. It is obviously necessary to compel the parties to follow the procedure prescribed by such clauses for the result of the reference to the concerned officers, in this case the Superintending Engineer, materially affects the rights of the parties on the merits itself. This is obvious from the fact that the decisions of the Superintending Engineer on the aspects mentioned in the clause are final. The effect therefore of his decision on such aspects would affect the rights of the parties. Thus without first referring the matter to the Superintending Engineer it would be unfair and unjust to compel the parties to go to arbitration as it would deprive one of the parties the benefit of the decision of the Superintending Engineer.
(C) Moreover there is nothing in the judgment which indicates that even in such cases a court cannot pass an order under section 11 after making the same subject to the parties following the procedure prescribed in the clause provided the same is possible and does not ::: Downloaded on - 09/06/2013 16:24:52 ::: 12 ARB.162.09 affect the rights of the parties. Such a procedure in the case before me does not even remotely affect the rights of the parties.
10 (A) Nor does the judgment of the Supreme Court in the case of Municipal Corpn. v. Rajesh Construction Co., (2007) 5 SCC 344, support Mr. Jagtiani's a submission. The arbitration clause in that case read as under: -
"29. Except as otherwise provided in this contract all questions and disputes relating to the meaning of the specifications, drawing and instructions hereinbefore mentioned and as to thing (sic anything) whatsoever, in any way arising out or relating to the contract, designs, drawings, specifications, estimates concerning the works or the execution or failure to execute the same, whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the City Engineer in writing for his decision, within a period of 30 days of such occurrence. Thereupon the City Engineer shall give his written instructions and/or decisions within a period of 60 days of such request. This period can be extended by mutual consent of the parties.
Upon receipt of written instructions of decisions, the parties shall promptly proceed without delay to comply with such instructions or decisions. If the City Engineer fails to give his instructions or decisions in writing within a period of 60 days or mutually agreed time after being requested if the parties are aggrieved against the decision of the CE, the parties may within 30 days prefer an appeal of MPL Com who shall afford an opportunity to the parties of being heard and to offer evidence in support of his appeal. MPL Com will give his decision within 90 days. If any party is not satisfied with the decision of ::: Downloaded on - 09/06/2013 16:24:52 ::: 13 ARB.162.09 MPL Com, he can refer such disputes for arbitration to an Arbitration Board to be constituted by the Corporation, which shall consist of three members of whom one shall be chosen from among the officers belonging to the Urban Administration and Development Department not below the rank of BE, one retired Chief Engineer of any technical department and City Engineer, Nagar Nigam, Jabalpur."
It is important to note a further provision in the said agreement regarding arbitration which reads and under: -
"(d) Where the party invoking arbitration is the contractor no reference for arbitration shall be maintainable, unless the contractor furnishes a security deposit of a sum determined according to the table given below, and the sum so deposited shall on the determination of arbitration proceeding, be adjusted against the costs, if any awarded by the Board against the party and the balance remaining after such adjustment or in the absence of the such costs being awarded the whole of the sum shall be refunded to him within one month from the date of the award."
(B) The Supreme Court set aside the order of the High Court appointing an arbitrator under section 11 on the ground that the condition precedent regarding furnishing security had not been fulfilled by the respondent. (See paragraphs 19 to 22 of the judgment).
This again is a provision which affects/circumscribes the rights of the parties to invoke arbitration clause.
::: Downloaded on - 09/06/2013 16:24:52 :::14 ARB.162.09 (C) The judgment in fact militates against Mr. Jagtiani's submission that when a condition precedent is not fulfilled the application under section 11 must be dismissed leaving the party to file a fresh application under section 11 only after fulfilling the condition precedent. It is of vital importance to note the course adopted by the Supreme Court. Thus despite the finding that the condition precedent had not been fulfilled the Supreme Court did not reject the application under section 11 but instead permitted the reference made to continue provided the applicant complied with the condition precedent. This is evident from the following observations of the Supreme Court: -
"22. It is not disputed before us that the learned Arbitrator appointed by the High Court has already commenced the arbitration proceeding. Mr. Mukherjee, appearing on behalf of the Corporation, on instruction, had submitted before us that they shall constitute an Arbitration Board as soon as the respondent furnishes security in terms of clause 29(d) of the contract and if any direction is given to the Arbitration Board to proceed from the stage the learned arbitrator had already reached, that would not be objected to. That is to say, Mr. Mukherjee contended that the Arbitration Board may be directed to take over the arbitration proceedings from the stage the learned arbitrator had already reached.
23. Such being the stand taken by the Corporation, we direct the respondent to furnish the security of a sum to be determined by the Corporation within six weeks from this date and in the event security determined by the ::: Downloaded on - 09/06/2013 16:24:52 :::
15 ARB.162.09 Corporation is furnished within the time mentioned herein earlier, the Corporation shall constitute an Arbitration Board in compliance with clause 29 of the contract. It is directed that the Arbitration Board shall proceed from the stage the learned arbitrator appointed by the High Court had already reached."
11. Mr. Jagtiani's submission that an application under section 11 must be rejected if a condition precedent to the invocation of the arbitration agreement is not complied with is therefore rejected. It is open in such cases to make an order of reference under section 11 subject to the parties complying with the same, after giving them an opportunity of doing so.
12(A) Moreover in the facts of this case the reference of the disputes by the applicant to a conciliator would be a mere empty formality as the respondents have made it clear that they deny the existence of the agreement and have therefore refused to have the matter referred to arbitration. It follows therefore that the respondent would also refuse to have the disputes settled by the intervention of a conciliator. This is evident from the submissions made before me. It is evident from the judgment I have referred to above dated the 6th July, 2009, in the applicant's application under section 9 of the said Act. It is evident ::: Downloaded on - 09/06/2013 16:24:52 ::: 16 ARB.162.09 from the respondents' advocates response to the applicants advocates letter invoking the arbitration clause. I will refer to the applicants letter dated 9th July 2009 invoking the arbitration clause later. For this purpose it is necessary only to read the respondents advocates response dated 12thJuly 2008 which reads as under:-
"This has reference to your letter dated 9th July, 2008 bearing Ref. No. 5941/2366/08/sj received by us on 9th July 2008 at about 6.30 p.m. We have now received instructions from our clients to address you as under.
As you are aware, it is our client's contention, that the purported Shareholders Agreement, in which the arbitration clause invoked by your clients has been incorporated, has not come into existence or being and that accordingly there is no Arbitration Agreement between the parties. Accordingly, there is no question of our clients appointing any Arbitrator."
(B) It is evident, therefore, that the contention now taken is a mere hyper technicality as the respondents have no intention of abiding by its obligation under the said agreement having denied even the existence thereof. It was not even suggested on behalf of the respondents that even though they deny the existence of the agreement and thereby the arbitration clause contained therein they are willing to try and have the disputes resolved through conciliation. When ::: Downloaded on - 09/06/2013 16:24:52 ::: 17 ARB.162.09 defences such as these are raised it is the duty of the court to reject them without compelling the parties to go through an empty formality which is a mere waste of time and money. Despite the same the applicant has established his bona-fides by offering to have the matter referred to a conciliator in the first instance.
13. Mr. Jagtiani's next submission is that the applicant had not invoked the arbitration clause in accordance with the terms thereof.
He submitted that though clause 14.2 (a) requires the disputes and differences between the parties to be referred to a tribunal of three arbitrators the applicant sought to have the same referred to a sole arbitrator. In this regard he relied upon the said letter dated 9th July 2008 addressed by the applicant's advocates' to the respondents' advocates' the material part whereof reads as under: -
"As disputes have arisen between our respective clients we have been instructed by our client Mr. Rajiv Vyas the petitioner above name to invoke the arbitration clause in the agreement and thereby appointing Mr. Justice S.P. Bharucha (retired) or Mr. Justice S.M. Variava (retired) as sole arbitrator to the arbitrate disputes between our respective clients;
You are requested to advice your clients to concur upon appointment of any one of the arbitrator in the matter."::: Downloaded on - 09/06/2013 16:24:52 :::
18 ARB.162.09
14. I do not read the letter as an abandonment of the arbitration clause or a refusal to abide by the procedure prescribed therein. The applicant merely suggested the reference of the disputes to a sole arbitrator. This is not unusual. Parties often do so even where the reference is required to be made to a tribunal of more than one arbitrator keeping in mind the costs involved and the convenience of a reference to a sole arbitrator. This is why the respondents advocates were merely requested to advise their client to concur upon the appointment of one of the arbitrators mentioned therein. The letter can by no stretch of imagination obliterate the arbitration clause or suggest that the applicant did not agree to abide by the same. This is further evident from the fact that in the application the prayer is not for the appointment of a sole arbitrator but for the appointment of a suitable arbitral tribunal.
15. Even if a party invokes an arbitration clause contrary to the arbitration agreement there is nothing that prevents it from making an application under section 11 in accordance with the terms of the arbitration agreement. Especially where errors of this nature are inadvertent I see no reason to permit the other parties to abandon the arbitration agreement. Even if the error is not inadvertent there is ::: Downloaded on - 09/06/2013 16:24:52 ::: 19 ARB.162.09 nothing that prevents the court from passing an order under section 11 appointing an arbitral tribunal if before it is made the applicant agrees to abide by the procedure prescribed by the parties.
16. The respondents have without prejudice to their above contentions and their right to challenge this order agreed to the name of a conciliator and have also nominated their arbitrator. This, needless to add, is only in the event of the matter being ultimately referred to conciliation and thereafter, if necessary, to arbitration. It is clarified that by doing so the respondents have not given up any of their contentions and the applicant will not raise any contentions to this effect either.
17. The application is, therefore, disposed off by the following order :-
(a) The parties shall in the first instance refer the disputes between them for conciliation to Mr. R.A.Dada, a Senior Counsel of this court.
(b) If the reference to the Conciliator does not succeed in resolving the disputes and differences between the ::: Downloaded on - 09/06/2013 16:24:52 ::: 20 ARB.162.09 parties the same shall be referred to an arbitral tribunal consisting of Mr. Justice S.P.Bharucha, (retired Chief Justice of India) nominated by the applicant and Mr. S.H.Doctor, a Senior advocate of this Court, nominated by the respondents and to a presiding arbitrator to be appointed by the learned arbitrators.
(c) There shall be no order as to costs.
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