Karnataka High Court
Mr. A. L. Muthiah vs M/S. Millennia Realtors Pvt Ltd on 28 November, 2022
Author: B. M. Shyam Prasad
Bench: B. M. Shyam Prasad
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 28TH DAY OF NOVEMBER 2022
BEFORE
THE HON'BLE MR. JUSTICE B. M. SHYAM PRASAD
CMP NO.581/2021 (GM-CPC)
BETWEEN :
1. MR. A. L. MUTHIAH
SON OF LATE M. AL. ALAGAPPA CHETTIAR,
AGED ABOUT 84 YEARS,
RESIDING AT NO. 34,
RAJMAHAL VILLA EXTENSION,
BENGALURU-560 080.
2. MR. A. L. ANNAMALAI
SON OF LATE M. AL. ALAGAPPA CHETTIAR,
AGED ABOUT 70 YEARS,
RESIDING AT NO. 221,
UPPER PALACE ORCHARDS,
GUTTAHALLI, BELLARY ROAD,
BENGALURU-560 080.
REPRESENTED BY THEIR
GENERAL POWER OF ATTORNEY HOLDER,
MR. ALAGAPPAN ANNAMALAI,
AGED ABOUT 38 YEARS OLD,
S/O. MR. A. L. ANNAMALAI,
RESIDING AT NO. 221,
UPPER PALACE ORCHARDS,
GUTTAHALLI, BELLARY ROAD,
BENGALURU-560 080.
... PETITIONERS
(BY SRI. AJESH KUMAR S, ADVOCATE)
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AND :
M/S. MILLENNIA REALTORS PVT LTD
MILLENNIA TOWER B, LEVEL 12 TO 14,
NO.1 AND 2, MURPHY ROAD,
ULSOOR, BENGALURU-560 008,
REPRESENTED BY DIRECTORS/
AUTHORIZED SIGNATORIES,
1) MR. CHATRU M MENDA
2) MR. RAJ MENDA
3) MR. MANOJ MENDA
4) MR. SURESH MENDA AND
5) MR. VENKAT REDDY.
... RESPONDENT
(BY SRI K G RAGHAVAN, SENIOR COUNSEL
FOR SRI. MANU KULKARNI, ADVOCATE)
THIS CIVIL MISC. PETITION IS FILED UNDER
SEC.11(6) OF THE ARBITRATION AND CONCILIATION ACT
1996, PRAYING TO APPOINT A SOLE ARBITRATOR TO
ADJUDICATE THE DISPUTES THE PETITIONERS AND
RESPONDENTS HEREIN WITH REFERENCE TO THE
CLAIMS MADE BY THE PETITIONERS IN THE LEGAL
NOTICE DATED 20/10/2020 AS PER ANNEXURE-G, IN
PURSUANCE TO CLAUSE 37 OF THE DEVELOPMENT
AGREEMENT (RESIDENTIAL) DATED 10/02/2011
APPENDED AT ANNEXURE-A.
THIS PETITION COMING ON FOR ADMISSION, THIS
DAY, THE COURT MADE THE FOLLOWING:
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ORDER
The petitioners have filed this petition under Section 11[6] of the Arbitration and Conciliation Act, 1996 [for short, 'the Arbitration Act]' relying upon the clause for Dispute Resolution which reads as under:
37.1 If any dispute/s or difference/s of whatsoever nature arise under or in connection with this Agreement relating to the enforcement of the rights, duties, powers and obligations conferred under this Agreement between the parties, such disputes shall be settled by a sole arbitrator to be appointed in accordance with the Arbitration and Conciliation Act, 1996.
The petitioners also rely upon the notice for arbitration dated 20.10.2020 which insofar as the appointment of a sole Arbitrator reads as under:
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"In the event you do not pay the said sums within 30 days, as per clause 37.1 of the Development Agreement, a Sole Arbitrator is to be appointed. You may take this notice also as a notice for referring the matter to an Arbitrator as per the Development Agreement."
2. Sri. K G Raghavan, the learned Senior Counsel for the respondent, contests the maintainability of the petition. Sri. K G Raghavan argues that the parties have agreed for arbitration by a sole arbitrator but without agreeing on a procedure for appointment of the sole arbitrator; if the parties have not agreed on procedure for appointment of the sole Arbitrator, the arbitration notice under Section 21 of the Arbitration Act must be issued in terms of the requirements of Section 11[5] of the Arbitration Act. The respondent's arbitration notice dated 20.10.2020 does not contain 5 the requirements of Section 11[5] and as such, the petition is premature.
3. Sri. Ajesh Kumar, the learned counsel for the petitioners, in response, submits that the respondent cannot raise the question of maintainability because on an earlier occasion when a similar arbitration notice is issued in the backdrop of the clause for dispute resolution which is verbatim the same as in the present case, this Court has appointed Arbitrators in exercise of the jurisdiction under Section 11[6] of the Arbitration Act. He next submits that the expression "such disputes shall be settled by a sole Arbitrator to be appointed in accordance with the Arbitration and Conciliation Act, 1996" in Clause 37.1 is an agreement on the procedure for the appointment of a sole Arbitrator and because the respondent cannot dispute that in terms of this procedure, the sole 6 Arbitrator is not appointed, the conditions for exercise of the jurisdiction under Section 11[6][a] of the Arbitration Act are established.
4. On 17.11.2022, both Sri K G Raghavan and Sri. S Ajesh Kumar were heard on the question whether the present petition could be sustained when it is undisputed that the petitioner in issuing notice for arbitration has not nominated the sole arbitrator who could enter reference of the disputes. However, on 23.11.2022, both are once again heard on why this petition should not be considered as filed under Section 11[6] of the Arbitration Act.
5. The controversy as regards the maintainability of the petition must necessarily be 7 examined in the light of the provisions of Section 11 of the Arbitration Act which reads1 as under:
"11. Appointment of Arbitrators: - (1) A person of any nationality may be an Arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the Arbitrator or Arbitrators.
(3) Failing any agreement referred to in sub-
section (2), in an arbitration with three Arbitrators, each party shall appoint one Arbitrator, and the two appointed Arbitrators shall appoint the third Arbitrator who shall act as the presiding Arbitrator.
(4) If the appointment procedure in sub-section (3) applies and -
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party: or
(b) the two appointed Arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment.
(5) Failing any agreement referred to in sub- section (2), in an arbitration with a sole Arbitrator, if the parties fail to agree on the Arbitrator within thirty days from receipt of a request by one party 1 The provisions of Section 11 of the Arbitration Act prior to the amendment in 2019 are extracted.
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from the other party to so agree the appointment shall be made, upon request of a party, by the appointment shall be made, upon a request of a party by, [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court].
(6) Where, under an appointment procedure agreed upon by the parties, --
(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.
a party may request [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court ] to take necessary measure unless the agreement on the appointment procedure provides other means for securing the appointment.
6. On reading these provisions, this Court must opine that jurisdiction thereunder can be exercised under two scenarios. Firstly, when the parties agree on a procedure for appointing the Arbitrator [or Arbitrators] and one of the conditions mentioned under Section 9 11[6] is established. Secondly, when the parties have not agreed on a procedure for appointing the Arbitrator [or Arbitrators]. If the parties have not agreed on the procedure for appointment of the Arbitrator/s but have agreed for arbitration by three Arbitrators and such Arbitral Tribunal is not constituted as contemplated under Section 11[3], an application can be filed under Section 11[4] provided the conditions as contemplated therein are satisfied. If the parties without an agreement on procedure for appointment of the Arbitrator/s have agreed for arbitration by a sole Arbitrator but have failed to agree on the Arbitrator within thirty [30] days from the request by one party to another to agree on the appointment, an application can be filed under Section 11[5] of the Arbitration Act.
7. When the parties have not agreed upon a procedure for appointment as aforesaid and the 10 arbitration agreement contemplates a sole Arbitrator, or because of the provisions of Section 102 there must be a sole arbitrator, an application could be filed under Section 11[5] but there must be request by the party who seeks constitution of the Arbitral Tribunal to the other to agree on the Arbitrator, and if the parties fail to agree within thirty [30] days from the date of receipt of such request. A useful reference in this regard could be made to the following paragraph in the decision of the Hon'ble Supreme Court in Swadesh Kumar Agarwal v. Dinesh Kumar Agarwal & Ors. etc.3:
"In view of the aforesaid discussion and for the reasons stated above, it is observed and held as under: --
(i) xxxx xxxx xxxxx.
2 Section 10: Number of Arbitrators: - (1) The parties are free to determine the number of Arbitrators, provided that such number shall not be an even number.
(2) Failing the determination referred to in sub-section (1), the Arbitral Tribunal shall consist of a sole Arbitrator. 3 2022 SCC Online SC 556 11
(ii) In a case where there is no written agreement between the parties on the procedure for appointing an arbitrator or arbitrators, parties are free to agree on a procedure by mutual consent and/or agreement and the dispute can be referred to a sole arbitrator/arbitrators who can be appointed by mutual consent and failing any agreement referred to section 11(2), section 11(5) of the Act shall be attracted and in such a situation, the application for appointment of arbitrator or arbitrators shall be maintainable under section 11(5) of the Act and not under section 11(6) of the Act;
(iii) In a case where there is a written agreement and/or contract containing the arbitration agreement and the appointment or procedure is agreed upon by the parties, an application under section 11(6) of the Act shall be maintainable and the High Court or its nominee can appoint an arbitrator or arbitrators in case any of the eventualities occurring under section 11(6)(a) to (c) of the Act."
8. In the present case, Sri Ajesh Kumar argues that the expression "such disputes shall be settled by a 12 sole Arbitrator to be appointed in accordance with the Arbitration Act" in the arbitration agreement must be construed as an agreement for procedure as contemplated under Section 11[2] and therefore, the application is rightly filed under Section 11[6] of the Arbitration Act. He tries to draw parallels with circumstances in which Part II of the Arbitration Act would apply and the parties choose to be bound by the provisions of this Act over the laws that may apply otherwise to bolster his case. On the other hand, Sri. K G Raghavan, relying upon the provisions of Section 2[5]4 of the Arbitration Act, argues that the clause relied upon by the petitioner would just be reiteration of the consequences that ensues by operation of law and therefore, cannot be construed as an agreement on 4 Section 2[5]: Subject to the provisions of sub-section (4) and save in so far as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this Part shall apply to all arbitrations and to all proceedings relating thereto. 13 procedure as contemplated under 11[2] of the Arbitration Act.
9. The provisions of Section 11[2] stipulate that the parties are free to agree on the procedure for appointing the arbitrators but without further defining features that will make such procedure, and this must be because the parties, given the circumstances of a given commercial transaction and the other variables, must have the liberty to devise the mode in which the Arbitral Tribunal must be constituted. The mode that the parties devise as the procedure for the appointment of arbitrators [or the sole arbitrator] must be sufficiently indicative of the actions to be initiated and followed for the appointment of arbitrators or the sole arbitrator. The agreement on the procedure for appointment must pass the muster as against these requirements lest the critical elements of the present arbitration regime such 14 as parties autonomy, procedural flexibility and expedited processes for resolution of the disputes are defeated.
10. Therefore, this Court opines that the expression such disputes shall be settled by a sole Arbitrator to be appointed in accordance with the Arbitration Act, as found in the present Dispute Resolution Clause does not contain the essentials to construe that the parties have agreed on a procedure for appointment of the sole arbitrator, and as rightly argued by Sri K G Raghavan, this clause is only a reiteration of the statutory consequence that flows from 2[5] of the Act. As such, the petitioners must cause a request with the respondent for the appointment of a sole arbitrator with its nomination, and if the respondent disagrees or fails to agree to such nomination within thirty days, 15 they may file an application under Section 11[5] of the Arbitration Act.
For the foregoing, the present petition, which is filed under Section 11[6] of the Act and without causing request to the respondent to agree to the appointment of a sole arbitrator, cannot be favored. Hence, the petition stands disposed of with all just liberty to the petitioners to file a petition under Section 11[5] of the Act after issuance of request as contemplated thereunder, and if there is occasion for the same.
The registry is directed to return the originals.
SD/-
JUDGE AN*