1/22 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 15th DAY OF DECEMBER 2017 BEFORE THE HON'BLE Dr.JUSTICE VINEET KOTHARI C.M.P. No.316/2017 BETWEEN:
DEGA DEVKUMAR REDDY S/O. LATE DEGA RAMGOPAL REDDY AGED ABOUT 57 YEARS DEGA FARMS AND ECO CONSTRUCTION R/AT NO.6/4A, MURUGAPPA ROAD KOTTAPURAM, CHENNAI-600 085.
(BY Mr. R. MADHUSUDHANA REDDY, ADV.,) AND:
M/S. PUSHPAM REALTY NO.191, 1ST CROSS, 1ST BLOCK JAYANAGAR EAST, BYRASANDRA BANGALORE-560 011 BY MANAGING PARTNER MRS. R.S. VEENA.
(BY Mr. ZULFIKIR KUMAR SHAFI, ADV.,) ... PETITIONER ... RESPONDENT THIS C.M.P IS FILED UNDER SEC.11(6) OF THE ARBITRATION AND CONCILIATION ACT 1996, READ WITH RULE 2 OF THE KARNATAKA HIGH COURT SCHEME, 1996, PRAYING THIS HON'BLE COURT TO I. APPOINT ANY ARBITRATOR TO ENTER UPON AS ARBITRATOR AND TO ADJUDICATE THE DISPUTE BETWEEN THE PARTIES AS PER ANNEXURE-B. II. IN THE ALTERNATE REFER TO ARBITRATION CENTRE, BENGALURU TO APPOINT THE SOLE ARBITRATOR TO ARBITRATE UPON THE DISPUTES BETWEEN THE PARTIES; AND III. PASS SUCH OTHER FURTHER ORDERS/DIRECTIONS AS MAY BE DEEMED FIT IN THE INTEREST OF JUSTICE AND EQUITY.
THIS C.M.P. COMING ON FOR ADMISSION THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER Mr. R. Madhusudhana Reddy, Adv. for Petitioner Mr. Zulfikir Kumar Shafi, Adv. for Respondent 1. The present petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, has been filed by the petitioner seeking an appointment of an Arbitrator on account of the arbitral dispute arisen between the parties.
2. The parties have entered into an Agreement vide Annexure-A on 24.06.2013 for Joint Venture Development of the land belonging to the petitioner to be developed by the Respondent-M/s.Pushpam Realty vide Annexure-B dated 28.06.2013. The relevant Arbitration clause between the parties in Annexure-B is clause (Q).
“Q. ARBITRATION:
The parties hereto agree that in the event of there being any dispute with regard to this Agreement or interpretation of any of the terms of this Agreement, the same shall be referred to a Sole Arbitrator appointed by consent of the parties. If there is consencess in such appointment, it shall be decided by draw of lots. The arbitration proceedings shall be governed by The Indian Arbitration & Conciliation Act 1996.”
3. The only objection raised by the learned counsel for the Respondent-Mr.Zulfikir Kumar Shafi is that no formal notice was given by the petitioner for appointment of an Arbitrator in terms of the aforesaid clause-Q to the Respondent.
4. Having heard the learned counsel for the parties, this Court is satisfied that the objection raised by the learned counsel for the Respondent is not sustainable, in view of the amendment of Section 11 of the Act by Act.No.3 of 2016 with effect from 23.10.2015, which was dealt with by this Court in the case of M/s.N.K.Developers Pvt. Ltd., vs. Concord India Ltd., decided on 26.10.2017 in C.M.P.No.98/2008, in which this Court is held as under:
“4. Admittedly, an arbitrable dispute exists between the parties who are Real Estate Developers and the agreement between the parties to the dispute contains the Arbitration Clause also. The Clause 12.4.1 of the Memorandum of Understanding dated 16.08.1999 between the two parties namely N.K.Developers and Concord India Ltd. is reproduced below for ready reference:
“That in the event of any question or dispute arising under, in connection with, incidental to and/or interpretation or scope of this MOU which is not agreed upon in consultation with each other, shall be referred to the Indian Council of Arbitration in accordance with the Arbitration and Conciliation Act, 1996.”
5. Mr.Suraj Govinda Raj, the learned counsel appearing for the Respondent-Concord India Ltd., relied upon certain judgments to contend that the aforesaid Arbitration Clause between the parties required the parties to go before the Indian Council for Arbitration (ICA) and therefore, the petitioner without first approaching the ICA and that Institution having failed to appoint an Arbitrator, the petitioner could not approach this Court for appointment of the Arbitrator under Section 11(6) of the Act. He mainly relied upon the decisions of the Supreme Court in the following cases:-
i) Iron & Steel Co. Ltd. –vs- Tiwari Road Lines (2007) 5 SCC 703, ii) National Highways Authority of India and Another –vs- Bumihiway DDB Ltd. (JV) and Others (2006) 10 SCC 763 and iii) Walter Bau AG, Legal Successor, of the original contractor, Dyckerhoff and Widmann A.G. -vs- Municipal Corporation of Greater Mumbai and Another (2015) 3 SCC 800.
6. A brief of these cases is as under:
i) In Iron & Steel Co. Ltd. case (supra), the Hon’ble Supreme Court held has under:
“In the present case there being an agreed procedure for resolution of disputes by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration, Sections 11(3), (4) and (5) can have no application. Furthermore, the respondent did not make any effort to have the dispute settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration. On the contrary, it straightaway moved an application under Section 11. Since the parties here had agreed on a procedure for appointing an arbitrator for settling the dispute by arbitration as contemplated by Section 11(2) and there is no allegation that any one of the contingencies enumerated in Section 11(6) clause (a) or (b) or (c) had occurred, the application moved by the respondent was clearly not maintainable and the Court had no jurisdiction to entertain such an application and pass any order.”
ii) In National Highways Authority of India’s case (supra), the Hon’ble Supreme Court has held that unless the mechanism/procedure for appointment of the substitute arbitrator fails or the mechanism/procedure is not exhausted, the court cannot assume jurisdiction under Section 11(6) of the Act. The relevant para-44 is quoted below for ready reference:
“44…………..Unless respondent No.2 failed to exercise its jurisdiction, the High Court could not assume jurisdiction under Section 11(6) of the Act. Respondent No.1 has wrongly invoked the jurisdiction of this Court without first following the procedure agreed to between the parties. Thus no cause of action had arisen in the facts of the case to seek the appointment from the High Court under Section 11(6) of the Act and thus the said petition was premature. The High Court also is not correct in relying on the contention of the respondent No.1 that in case one of the arbitrators is retired Chief Justice, the Presiding Arbitrator should be at least a retired Chief Justice or a retired Judge of a High Court with considerable experience. It was submitted by learned Solicitor General appearing for the appellants that the said finding of the High Court is self contradictory inasmuch as if the Presiding Arbitrator is a retired Judge of the High Court and one of the arbitrators is a retired Chief Justice of the High Court, the member of hierarchy is upset. Even otherwise, there does not exist any such provision in law which requires that if one of the arbitrators is a retired Judge the Presiding Arbitrator also has to be a retired Judge. The parties have entered into a contract after fully understanding the import of the terms so agreed to from which there cannot be any deviation. The Courts have held that the parties are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong.”
iii) In Walter Bau AG’s case, the learned Single Judge of Hon’ble Supreme Court while dealing with the petition under Section 11(6) of the Act held that a strict compliance with the agreement procedure by parties and institutions nominated in agreement is necessary and the appointment of the Arbitrator as fait accompli, does not bar/oust jurisdiction of Court unless it is in compliance with agreement procedure. The relevant para-10 of the order of the said judgment is quoted below for ready reference:
“10. Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law. In the present case, the agreed upon procedure between the parties contemplated the appointment of the arbitrator by second party within 30 days of receipt of a notice from the first party. While the decision in Datar Switchgears Ltd. (supra) may have introduced some flexibility in the time frame agreed upon by the parties by extending it till a point of time anterior to the filing of the application under Section 11(6) of the Arbitration Act, it cannot be lost sight of that in the present case the appointment of Shri Justice A.D. Mane is clearly contrary to the provisions of the Rules governing the appointment of Arbitrators by ICADR, which the parties had agreed to abide in the matter of such appointment. The option given to the respondent Corporation to go beyond the panel submitted by the ICADR and to appoint any person of its choice was clearly not in the contemplation of the parties. If that be so, obviously, the appointment of Shri Justice A.D.
Mane is non-est in law. Such an appointment, therefore, will not inhibit the exercise of jurisdiction by this Court under Section 11(6) of the Arbitration Act. It cannot, therefore, be held that the present proceeding is not maintainable in law. The appointment of Shri Justice A.D. Mane made beyond 30 days of the receipt of notice by the petitioner, though may appear to be in conformity with the law laid down in Datar Switchgears Ltd. (supra), is clearly contrary to the agreed procedure which required the appointment made by the respondent Corporation to be from the panel submitted by the ICADR. The said appointment, therefore, is clearly invalid in law.”
7. It may be noticed here that all these judgments relied upon by the learned counsel for the Respondent were prior to the amendment of Section 11 of the Act effected by Act No.3 of 2016 w.e.f. 23.10.2015.
8. On the other hand, Mr.Udaya Holla, Senior counsel appearing with Mr.Vivek Holla, for the petitioner-N.K.Developers Pvt. Ltd. submitted that firstly, no such objection has ever been raised by the Respondent in the present petition filed way back in the year 2008, though a Statement of Objections has been filed by them and except baldly saying therein that the procedure has not been followed by the petitioner, the Respondent has never contended that this Court has no jurisdiction to appoint an Arbitrator under Section 11 of the Act, and secondly, the learned Senior counsel urged that Section 11 of the Act of 1996 stands amended recently by Act No.3 of 2016 w.e.f. 23.10.2015 and those newly inserted provisions of sub-sections (6- A) and (6-B) in Section 11 now provide that notwithstanding any judgment, decree or order of any Court, the High Court or Supreme Court, while considering any application under sub- sections (4), (5) or (6) of Section 11 of the Act shall confine to the examination of the existence of an arbitration agreement. The said sub- sections (6-A) and (6-B) inserted by Act No.3 of 2016 w.e.f. 23.10.2015 are quoted below for ready reference:
“(6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.
(6-B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.”
9. The aforesaid Sub-sections (6-A) and (6-B) inserted in Section 11 of the Act, 1996 were clearly brought on the statute book to undo the effect of the aforecited Supreme Court decisions and the said Arbitration and Conciliation (Amendment) Bill, 2015 was enacted on the basis of the recommendations, 246th Report of the Law Commission of India.
The brief look into the object behind effecting said amendments is opportune here. The said 246th Report of the Law Commission of India submitted in August, 2014 by its Chairman Sri Ajit Prakash Shah, Former Chief Justice of Delhi High Court and it undertook painstakingly a review of the deficiencies pointed out and recommendations contained in 176th Report on the ‘Arbitration and Conciliation (Amendment) Bill, 2001’ and the recommendations of Justice Saraf Committee. The Ministry of Law and Justice issued a Consultation Paper on 8th April, 2010 inviting suggestions from eminent lawyers, judges, industry members, institutions and various stakeholders and after several National Conferences across the country and after taking such suggestions into account, the Law Commission was asked to undertake a study of the amendments proposed in the said Act and consequently the following important recommendations for amendment of Section 11 of the Act in 246th Report of the Law Commission of India deserve a mention here. Proposed amendments of Section 11 are quoted below from the said Report of Law Commission of India for ready reference:
“7. In section 11, (i) In sub section (4), sub clause (b), after the words “by the” delete “Chief Justice” and add words “High Court” and after the words “designated by” delete the word “him” and add the word “it”.
(ii) In sub section (5), after the words “by the” delete “Chief Justice” and add words “High Court” and after the words “designated by” delete the word “him” and add the word “it”.
(iii) In sub section (6), sub clause (c), after the words “may request the” delete “Chief Justice” and add words “High Court” and after the words “designated by” delete the word “him” and add the word “it”.
(iv) after sub section (6), insert sub section “(6A) An appointment by the High Court or the person or institution designated by it under sub-section (4) or sub section (5) or sub section (6) shall not be made only if the High Court finds that the arbitration agreement does not exist or is null and void, Explanation 1 : If the High Court is prima facie satisfied regarding the existence of an arbitration agreement, it shall refer the parties to arbitration and leave the final determination of the existence of the arbitration agreement to the arbitral tribunal in accordance with section 16, which shall decide the same as a preliminary issue.
Explanation 2 : For the removal of any doubt, it is clarified that reference by the High Court to any person or institution designated by it shall not be regarded as a delegation of judicial power.
Explanation 3: The High Court may take steps to encourage the parties to refer the disputes to institutionalised arbitration by a professional Indian or International Arbitral Institute.
[NOTE: The proposed section 11 (6A) envisages the same process of determination as is reflected in the proposed amendment to section 8. Explanation 2 envisages that reference by the High Court to any person or institution designated by it shall not be regarded as a delegation of judicial power. Explanation 3 has been inserted with the hope and expectation that High Courts would encourage the parties to refer the disputes to institutionalize arbitration by a professional Indian or international arbitral institute.] (v) In sub section (7), after the words “or sub section (6)” add the words “or sub section (6A)” and after the words “to the” delete the words “Chief Justice or the” and add the words “High Court is final where an arbitral tribunal has been appointed or a” and after the words “person or institution” add the words “has been” and after the words “designated by” delete the words “him is final” and insert the words “the High Court, and no appeal, including letters patent appeal, shall lie against such order.”
[NOTE : This amendment ensures that a) an affirmative judicial finding regarding the existence of the arbitration agreement; and (b) the administrative act of appointing the arbitrator are final and non-appealabe].”
10. Besides the aforesaid Law Commission recommendations, one independent Institute for Public Research studies known as PRS Legislative Research also gave its comments on the aforesaid Amendment Bill, 2015 and in so far as the appointment of Arbitrators by the Court in exercise of its power under Section 11 of the Act is concerned, their comments are also worth noticing and they are as under:-
“Powers of Court to refer a party to arbitration if agreement exists: Under the Act, if any matter that is brought before a Court is the subject of an arbitration agreement, parties will be referred to arbitration.
The Bill states that this power of referral is to be exercised by a Court even if there is a previous court judgment to the contrary. The Court must refer the parties to arbitration unless it thinks that a valid arbitration agreement does not exist.
Appointment of Arbitrators: The Act permits parties to appoint arbitrators. If they are unable to appoint arbitrators within 30 days, the matter is referred to the Court to make such appointments.
The Bill states that, at this stage, the Court must confine itself to the examination of the existence of a valid arbitration agreement.”
11. The aforesaid legislative exercise was undertaken by the Parliament with a view to further expedite the process of alternate dispute resolution through the mechanism of arbitration under the Act of 1996 and all the requisite amendments effected in the Act, 1996 are geared with the object to achieve not only expedition, but, also to meet the international expectations on the international arbitration also governed by our Act of 1996 enacted on the UNCITRAL Model Arbitration Law.
12. LORD MUSTILL in the Foreword to the Book by O.P.MALHOTRA, Law and Practice of Arbitration (1st Edn, 2002, LexisNexis) said like this for Court’s role in arbitration proceedings:
“First, there is the Central importance of a harmonious relation between the courts and the arbitral process. This has always involved a delicate balance, since the urge of any judge is to see justice done, and to put right injustice wherever he or she finds it; and if it is found in an arbitration, why then the judge feels the need to intervene. On the other side, those active in the world of arbitration stress its voluntary nature, and urge that it is wrong in principle for the courts to concern themselves with disputes which the parties have formally chosen to withdraw from them, quite apart from the waste of time and expense caused by gratutitous judicial interference. To a degree both views were right, and remain so; the problem has been to give proper weight to each of them. It was an unhappy feature of discourse on arbitration in the century just past that the legitimate arguments which could be advanced in favour of one or another came to be expressed, in some instances at least, with quite unnecessary vigour. Fortunately, in recent years wiser counsels have prevailed, and it has, I believe, generally come to be recognized on both sides of the procedural divide that the courts must be partners, not superiors or antagonists, in a process which is vital to commerce at home or abroad…..”
13. In view of the aforesaid legal position, this Court is of the view that the objections raised by the learned counsel for the Respondent are not maintainable and sustainable. Not only because no such objections have been pleaded and raised before this Court either in the Statement of Objections or otherwise in the reply to the notice served by the petitioner on the respondent seeking an appointment of the Arbitrator, but also in view of the recent amendment in law by insertion of sub-sections (6-A) and (6-B) in Section 11 of the Act, which not only confers positive and over- riding powers upon this Court but also at the same time an obligation to confine their examination of the existence of a valid Arbitration Agreement between the parties and to see that the arbitration proceedings are not unnecessarily delayed on the basis of such technical objections.
14. The failure on the part of the Respondent-Company itself to take the petitioner through the arbitration proceedings to the ICA, now does not entitle it to raise this objection at the fag end after eight years of pendency of the present application before this Court under Section 11 of the Act and it can be inferred therefore that the said procedure agreed between the parties to approach ICA had failed and which itself has largely defeated the very purpose of expeditious disposal of the disputes through the mechanism of Alternative Dispute Resolution (ADR) provided under the Act and agreed to by the parties.
15. Sub-sections (6-A) and (6-B) now not only mandate the Court while dealing with application filed under Section 11 of the Act to confine its examination to the existence of a valid Arbitration Agreement which undisputedly exists in the present case and thus, the jurisdiction of this Court to appoint the Arbitrator in view of agreed Arbitration Agreement is not ousted at all. The failure of parties to appoint ICA or any other Arbitrator through the Institution of Indian Arbitration Centre can certainly be construed to be the failure of the parties, enabling any one of them to apply to this Court under Section 11(6) of the Act. Therefore, the said objection of the Respondent-Company deserves to be over-ruled and this Court is of the opinion that this Court has the jurisdiction to appoint the Arbitrator under Section 11 of the Act in the present case, at this stage.
16. The judgments relied upon by the learned counsel for Respondent on the provisions as they existed prior to the amendment of Act No.3 of 2016 w.e.f. 23.10.2015 are therefore of no help to the Respondent-Company. Those judgments only delineate that the procedure agreed upon between the parties for appointment of Arbitrator should be followed. That legal position, even if held applicable in the present case, has exhausted itself and the agreed mode of approaching the Indian Council of Arbitration at this belated stage is not an option for which this Court should either relegate the parties or refuse to appoint Arbitrator under Section 11(6) of the Act. Moreover, the amendment in law removes the rigour of those precedents”.
5. In view of this, the present petition deserves to be allowed and an Arbitrator deserves to be appointed to resolve the dispute between the parties.
6. Both the learned counsels have fairly agreed to the appointment of a Retired Judicial Member, Central Administrative Tribunal, namely, Mr.M.Nagarajan to act as an Arbitrator to resolve the dispute between the parties under the provisions of the Arbitration and Conciliation Act, 1996, as per the Rules governing the Arbitration Centre at Bangalore.
7. Accordingly, this petition under Section 11 of the Act is disposed of by appointing Mr.M.Nagarajan, Retired Judicial Member, Central Administrative Tribunal, to enter into the said reference of Arbitration and act as an Arbitrator in the present case in the Arbitration Centre, Bengaluru, as per the Rules governing in the said Arbitration Centre.
A copy of this order be sent to the Arbitration Centre, Khanija Bhavan, Bengaluru, for proceeding further in the matter, on administrative side and also to Mr.M.Nagarajan, on the address available with the said Arbitration Centre, Bengaluru.
Sd/- JUDGE Srl.