IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 8th DAY OF MARCH 2019 BEFORE THE HON’BLE MR. JUSTICE ALOK ARADHE C.M.P.NO.238/2018 BETWEEN:
MPHASIS LIMITED A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 HAVING ITS OFFICE AT BAGMANE WORLD TECHNOLOGY CENTRE MARATHALLI OUTER RING ROAD DODANEKUNDI VILLAGE MAHADEVAPURA, BENGALURU-560048 REP. BY ITS AUTHORISED SIGNATORY MR. HEMANTH ANANTH RAM.
(BY SRI. DHANANJAY JOSHI, ADV.) AND:
M/S. STRATEGIC OUTSOURCING SERVICES PRIVATE LIMITED HAVING ITS OFFICE AT No.70/25 80 FEET CIRCULAR RING ROAD KORAMANGALA 4TH BLOCK BENGALURU-560 034 REP. BY ITS CHIEF OPERATING OFFICER MR. PRADEEP PATIL.
(BY SRI. V. SANJAY KRISHNA, ADV.) - - -
… PETITIONER … RESPONDENT This CMP is filed under Sec.11(6) of the Arbitration and Conciliation Act 1996, praying to constitute an Arbitral tribunal by appointment of a suitable person as the Sole Arbitrator for the adjudication of the petitioner’s claim in accordance with the said Clause 5 (on the third page) of the Settlement Agreement, dated 15.7.2016 Annexure-B & etc.
This CMP coming on for Admission this day, the Court made the following:-
ORDER Mr.Dhananjay Joshi, learned counsel for the petitioner.
Mr.V.Sanjay Krishna, learned counsel for the respondent.
2. The Petition is admitted for hearing. With consent of the parties, the same is heard finally.
3. By means of this petition filed under Section 11(5) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’ for short), the petitioner interalia seeks constitution of Arbitral Tribunal to adjudicate the petitioner’s claim.
4. Facts leading to filing of this petition briefly stated are that the petitioner is a company incorporated under the provisions of Companies Act, 1956 and is engaged in the business of Information Technology, Information Technology enabled services and Business Process outsourcing. The parties entered into an agreement on 15th July 2016. Clause 5 of the aforesaid agreement provides that all disputes arising out of or in connection with the agreement between the parties shall be settled mutually between the parties through negotiations and in the event any such dispute does not get resolved within 60 days, either party may refer such dispute for arbitration under the provisions of Arbitration and Conciliation Act, 1996, by a sole arbitrator. The dispute between the parties arose under the aforesaid agreement. Thereafter the petitioner served a notice dated 25.01.2018 seeking invocation of the arbitration clause. The respondent filed a reply on 12.02.2018 in which it was stated that the petitioner has bypassed the alternative remedy of negotiation provided under the arbitration clause and therefore, the notice seeking invocation of arbitration clause is premature. In the aforesaid factual back-ground, the petitioner has approached this Court.
5. Learned counsel for the petitioner submitted that the agreement in question contains an arbitration clause and despite notice having been served, the respondent had failed to take necessary action. Therefore, an arbitrator be appointed to adjudicate the dispute between the parties. It is further submitted that in the notice dated 25th January 2018, the petitioner had clearly stated that it was following up with the respondent to abide by the respondent’s obligation under the agreement. However, the respondent neglected to respond to the petitioner and therefore, the petitioner was left with no option but to invoke the arbitration clause. It is further pointed out that the aforesaid averment of fact has not been specifically denied in the reply dated 12.02.2018 sent by the respondent and in the reply, it is stated that the petitioner has bypassed the remedy of negotiation. In any case, the aforesaid requirement is directory in nature. In support of aforesaid submission, reliance has been placed on the decision of the Supreme Court in ‘N.RADHAKRISHNAN v/s.MAESTRO ENGINEERS AND OTHERS (2010)1 SCC 72, A.AYYASAMY v/s.A.PARAMASIVAM AND OTHERS’ (2016)10 SCC 386, ‘DURO FELGUERA.S.A v/s.GANGAVARAM PORT LIMITED’ (2017)9 SCC 729 as well as the decision of the Delhi High Court in ‘RAVINDRAKUMAR VERMA v/s. M/S.BPTP LIMITED AND ANOTHER’ (2014 SCC ONLINE DEL.6602).
6. On the other hand, learned counsel for the respondent submitted that the petition filed by the petitioner is premature as the petitioner has failed to avail of the remedy of negotiation as provided in the arbitration clause. It is also submitted that a complaint has been filed by the petitioner against the respondent alleging fraud and since the issue relating to the fraud cannot be gone into in the arbitration proceeding, therefore, the respondent has filed a civil suit against the petitioner seeking damages on account of breach of contract. It is further submitted that notice was issued seeking invocation of the arbitration clause prior to filing of the proceeding under Section 9 of the Act and the petitioner has also filed an insolvency proceeding. Therefore, the instant petition is not maintainable in the absence of any arbitrable dispute. In support of aforesaid submissions, reliance has been placed on the following decisions. ‘IRON & STEEL CO.LTD. v/s. TIWARI ROAD LINES’ (2007) 5 SCC 703, ‘BOOZ ALLEN AND HAMILTON INC. v/s. SBI HOME FINANCE LIMITED AND OTHERS’ (2011) 5 SCC 532, ‘DEMERARA DISTILLERIES PRIVATE LIMITED AND ANOTHER v/s.DEMERARA DISTILLERS LIMITED’ (2015) 13 SCC 610.
7. By way of a rejoinder reply, learned counsel for the petitioner submitted that petitioner has not received any summons in respect of the civil suit instituted by the respondent and as and when the petitioner is served with the summons of the suit, it shall take action in accordance with law. It is also submitted that initiation of insolvency proceeding is not a bar seeking appointment of an arbitrator. It is also submitted that the recourse to the proceeding under Section 9 of the Act can be had either before or after commencement of the arbitral proceeding.
8. I have considered the submissions made on both sides and perused the record.
9. The provisions of the Act were amended by Act No.3 of 2016 which came into force with effect from 23.10.2015. Sub-section (6A) was added to section 11 of the Act which provides that the Supreme Court or as the case may be, the High Court, while considering an 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 existence of an arbitration agreement. Admittedly, in the instant case, the agreement dated 15.07.2016 executed between the parties contains an arbitration clause, viz., clause No.5. The respondent can raise all his objections before the arbitrator under Section 16 of the Act which need not be examined in this summary proceedings. So far as submission of the respondent that this petition is premature is concerned, suffice it to say that in the notice dated 25.01.2018, the petitioner has clearly stated that the petitioner has been following up with the respondent to perform its obligation under the agreement. However, despite lapse of 60 days, no action was taken and therefore, the petitioner is forced to invoke the arbitration clause. In the reply dated 12.02.2018, the aforesaid averment of fact has not been specifically denied and it has been merely stated that notice has been issued without exhausting alternative remedy. Besides that, Delhi High court in the case of RAVINDRAKUMAR VERMA supra, has held that even if the requirement as stated for invoking the arbitration is not complied with, the same cannot prevent reference to the arbitration because the procedure/precondition has to be taken as directory and not a mandatory requirement. I am in respectful agreement with the aforesaid view. Therefore, the objection raised by the respondent that this proceeding is premature cannot be sustained.
10. In view of preceding analysis, I deem it appropriate to appoint Mr.Justice Ashok B.Hinchigeri, a former Judge of this Court as sole arbitrator to adjudicate the dispute. Needless to state that the respondent shall be at liberty to take all such objections as are permissible in law before the arbitrator under Section 16 of the Act. Office to transmit a copy of this order to Mr.Justice Ashok B.Hinchigeri, former Judge, High Court of Karnataka.
11. A copy of this order be dispatched to the Arbitration Centre, Khanija Bhavan, Bengaluru for necessary action in that regard. Office to transmit Learned counsel for the petitioner to also approach the Arbitration Centre with the relevant papers to be filed therein. The learned Arbitrator appointed herein shall thereupon enter reference and proceed with the matter in accordance with law and the Rules governing the Arbitration Centre.
Accordingly, petition is disposed of.
Sd/- JUDGE BNV