1. Heard Sri Srijan Mehrotra, learned counsel for the applicant and Sri Pranjal Mehrotra, learned counsel for the opposite party.
2. Present application has been filed for appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act").
FACTS
3. Both the learned counsels for the parties jointly agreed that there was a lease agreement dated 4.2.2009 between the applicant and M/s. Vishal Retail Limited, New Delhi for lease of a Commercial property bearing municipal No.111/18 A, Harsh Nagar, Kanpur Nagar, U.P., which is G+8 storied building with built up area of 20,199 Sq. Fts. at the monthly rent of Rs.7,50,000/- which was to be enhanced by 15% after every three years from the lease rent starting date. Lease is for a period of 9 years. Clause 15 of the aforesaid lease agreement contains an arbitration clause as under:
"In case of any difference or dispute arising between the parties herein or any of the terms and conditions contained herein, such difference or dispute shall be referred to sole arbitrator appointed mutually by the Lessee and the Lessor. The provision of the Arbitration and Conciliation Act, 1996 and any modification thereof shall be applicable for settlement of dispute, thus referred. The Courts at Kanpur shall have the sole and exclusive jurisdiction to try any such dispute that may arise out of this instant agreement."
4. Subsequently, a Deed-of-Attornment dated 31.10.2011 was executed between the applicant and one M/s. Airplaza Retail Holdings Private Limited. Whereby the applicant being owner, had let out the property in question to the opposite party on the terms and conditions of the aforementioned principal agreement dated 4.2.2009. Thus, it has been admitted before me that the applicant is the owner of the property in question which has been let out it to the opposite party under the deed of Attornment dated 31.10.2011 in terms of the lease agreement dated 4.2.2009. It has also been admitted before me by learned counsels for the parties that the agreement contains an Arbitration Clause and the applicant has issued a notice dated 5.9.2017, invoking the arbitration clause, requesting the opposite party for appointment of a sole arbitrator in terms of the deed between the parties regarding arrears of lease rent. Since despite reminders the opposite party has not agreed to the appointment of the sole arbitrator, therefore, the applicant has filed the present application for appointment of an arbitrator under Section 11(6) of the Act to resolve the dispute.
SUBMISSIONS
5. Sri Pranjal Mehrotra, learned counsel for the opposite party, has raised preliminary objection as to the maintainability of the application on the ground that dispute being a rent dispute, is not arbitrable Therefore, the arbitration application is not maintainable in view of the law laid down by Hon'ble Supreme Court in the case of Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd. and others, [(2011) 5 SCC 532] (paras 36 and 37), Natraj Studios (P.) Ltd. vs. Navrang Studios and another [(1981) 1 SCC 532] (paras 16 to 18) and Himangni Enterprses vs. Kamljeet Singh Ahluwalia, [(2017) 10 SCC 706] (paras 21 to 28).
6. He further submits that Small Cause Court has the exclusive jurisdiction to deal with the rent dispute in view of the provisions of Sections 15 and 16 of the Provincial Small Cause Courts Act, 1887. Therefore, the present dispute raised by the applicant being a non arbitral dispute and also since exclusive jurisdiction vests in Judge Small Cause Court, therefore, arbitrator can not be appointed under Section 11(6) of the Act.
7. Sri Srijan Mehrotra, learned counsel for the applicant, submits that the scope of examination in applications under Section 11(4) of the Act for appointment of an arbitrator under sub-Section 6 is limited. The Court while considering such an application has only to see as to whether there exist an agreement between the parties which contains an arbitration clause. The question whether the dispute is arbitral or non arbitral can be well considered by the arbitrator under Section 16 of the Act. The provisions of Provincial Small Cause Courts Act, 1887 are procedural and it is a preferential jurisdiction and not an exclusive jurisdiction as held by Full Bench of this Court in Manzurul Haq and Anr. vs. Hakim Mohsin Ali 1970(All) 604 (para 21). It is admitted to the opposite parties that the Uttar Pradesh Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972, is not applicable inasmuch as the building in question is excluded from the purview of the Act in view of the provisions of Section 2(2). Thus, the special statute being U.P. Act 13 of 1972 deal with the eviction of a tenant, is admittedly not applicable. Therefore, the judgments relied by learned counsels for the opposite parties have no application on the facts of the present case. When an application under Section 8 of the Act questioning the maintainability of the suit on the ground that the parties have agreed to settle the dispute by means of arbitration having regard to the existence of an arbitration agreement between them, then, in such a case, the court has to pronounce upon arbitrability or non arbitrability of the dispute. Since in an application under Section 11(4) of the Act for appointment of an arbitrator under sub Section 6 the scope of inquiry is limited to the existence of an arbitration agreement or existence of an agreement containing an arbitration clause, therefore, the question of arbitrability or non arbitrability can not be entertained at this stage. The question may be raised by the opposite party before the arbitral Tribunal in arbitration proceedings in view of the provisions under Section 16 of the Act. In support of his submissions Sri Srijan Mehrotra, has relied upon the judgments of Supreme Court in the cases of Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd. and others, [(2011) 5 SCC 532] (paras 32), A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386 (para 12), Meguin GmbH Vs. Nandan Petrochem Ltd. (2016)10 SCC 422, Duri Felguera, S.A. Vs. Gangavaram Port Ltd. 2017(9) SCC 729 (para 59).
DISCUSSION & FINDINGS:
8. I have carefully considered the submissions of learned counsel for the parties.
9. Undisputedly, there exists a lease agreement between the parties which contains an arbitration clause. It is admitted that there is some dispute between the parties with respect to the payment of rent and arrears. The applicant has issued a notice to the opposite party requesting him to refer the dispute to sole arbitrator but the opposite party has not agreed to it. Therefore, the present application for appointment of an arbitrator under Section 11(6) of the Act has been filed by the applicant before this Court.
10. For the purposes of present controversy the provisions of Section 8, 11(6), 11(6-A) and Section 16 are relevant which are reproduced below:
Section 8 - Power to refer parties to arbitration where there is an arbitration agreement (1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
Section 11 - Appointment of arbitrators (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 the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(6A) 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.
Section 16 - Competence of arbitral tribunal to rule on its jurisdiction (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed , or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall he raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.
11. The Act, 1996 does not provide for the classes of disputes which are not arbitrable. However, Hon'ble Supreme Court has classified certain disputes to be non arbitrable, as under:
(i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
(ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody;
(iii) matters of guardianship;
(iv) insolvency and winding up;
(v) testamentary matters, such as the grant of probate, letters of administration and succession certificates; and
(vi) eviction or tenancy matters governed by special statutes where a tenant enjoys special protection against eviction and specific courts are conferred with the exclusive jurisdiction to deal with the dispute.
12. In Booz Allen and Hamilton Inc. (supra) Hon'ble Supreme Court considered the arbitrability of dispute and scope of Section 11 of the Act 1992 and held as under:
32. The nature and scope of issues arising for consideration in an application under Section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of "arbitrability" or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the Arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under Section 34 of the Act, relying upon sub-section (2)(b)(i) of that section.
33. But where the issue of "arbitrability" arises in the context of an application under Section 8 of the Act in a pending suit, all aspects of arbitrability will have to be decided by the court seized of the suit, and cannot be left to the decision of the arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject-matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.
34. The term "arbitrability" has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the Arbitral Tribunal, are as under:
(i) Whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).
(ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the "excepted matters" excluded from the purview of the arbitration agreement.
(iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the Arbitral Tribunal, or whether they do not arise out of the statement of claim and the counterclaim filed before the Arbitral Tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement, will not be "arbitrable" if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list of disputes, does not form part of the disputes raised in the pleadings before the Arbitral Tribunal.
35. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.
36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.
46. An agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but creates only a personal obligation. Therefore, if specific performance is sought either in regard to an agreement to sell or an agreement to mortgage, the claim for specific performance will be arbitrable. On the other hand, a mortgage is a transfer of a right in rem. A mortgage suit for sale of the mortgaged property is an action in rem, for enforcement of a right in rem. A suit on mortgage is not a mere suit for money. A suit for enforcement of a mortgage being the enforcement of a right in rem, will have to be decided by the courts of law and not by Arbitral Tribunals.
13. In Ranjit Kumar Bose v. Anannya Chowdhury, (2014) 11 SCC 446, Hon'ble Supreme Court has dealt with the dispute of eviction and recovery of possession of tenanted premises by landlord from tenant under West Bangal Premises Tenancy Act, 1997 and in view of the provisions of Section 6 of that Act starting with the non-obstante clause, held, as under:
12. In this case, there is an arbitration agreement in Clause 15 of the tenancy agreement, which provides that any dispute regarding the contents or construction of the tenancy agreement or dispute arising out of the tenancy agreement shall be settled by arbitration in accordance with the provisions of the 1996 Act. But the words "notwithstanding anything in any contract" in Section 6 of the Tenancy Act, will override the arbitration agreement in Clause 15 of the tenancy agreement where a suit for recovery of possession of any premises has been filed by a landlord against the tenant. Such a suit filed by the landlord against the tenant for recovery of possession, therefore, cannot be referred under Section 8 of the 1996 Act to arbitration. In fact, sub-section (3) of Section 2 of the 1996 Act expressly provides that Part I which relates to "arbitration" where the place of arbitration is in India shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration. Section 6 of the Tenancy Act is one such law which clearly bars arbitration in a dispute relating to recovery of possession of premises by the landlord from the tenant. Since the suit filed by the appellants was for eviction, it was a suit for recovery of possession and could not be referred to arbitration because of a statutory provision in Section 6 of the Tenancy Act.
20. The High Court, therefore, was not correct in coming to the conclusion that as per the decisions of this Court in the aforesaid three cases, the Court has no alternative but to refer the parties to arbitration in view of the clear mandate in Section 8 of the 1996 Act. On the contrary, the relief claimed by the appellants being mainly for eviction, it could only be granted by the "Civil Judge having jurisdiction" in a suit filed by the landlord as provided in Section 6 of the Tenancy Act. The expression "Civil Judge having jurisdiction" will obviously mean the Civil Judge who has jurisdiction to grant the other reliefs: decree for arrears of rent, decree for recovery of arrears of proportionate and enhanced municipal taxes, a decree for mesne profits and a decree for permanent injunction claimed in the suit.
14. In Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386 Hon'ble Supreme Court considered the provisions of Sections 8 and 16 of the Act, 1996, specifically with regard to arbitrabilty or non arbitrability of dispute and held, as under :
12. In this behalf, we have to begin our discussion with the pertinent observation that insofar as the Arbitration and Conciliation Act, 1996 is concerned, it does not make any specific provision excluding any category of disputes terming them to be non-arbitrable.
12.1. A number of pronouncements have been rendered laying down the scope of judicial intervention, in cases where there is an arbitration clause, with clear and unambiguous message that in such an event judicial intervention would be very limited and minimal. However, the Act contains provisions for challenging the arbitral awards. These provisions are Section 34 and Section 48 of the Act. Section 34(2)(b) and Section 48(2) of the Act, inter alia, provide that an arbitral award may be set aside if the Court finds that the "subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force". Even when such a provision is interpreted, what is to be shown is that there is a law which makes subject-matter of a dispute incapable of settlement by arbitration. The aforesaid position in law has been culled out from the combined readings of Sections 5, 16 and 34 of the Act.
12.2. When arbitration proceedings are triggered by one of the parties because of the existence of an arbitration agreement between them, Section 5 of the Act, by a non obstante clause, provides a clear message that there should not be any judicial intervention at that stage scuttling the arbitration proceedings. Even if the other party has objection to initiation of such arbitration proceedings on the ground that there is no arbitration agreement or validity of the arbitration clause or the competence of the Arbitral Tribunal is challenged, Section 16, in clear terms, stipulates that such objections are to be raised before the Arbitral Tribunal itself which is to decide, in the first instance, whether there is any substance in questioning the validity of the arbitration proceedings on any of the aforesaid grounds. It follows that the party is not allowed to rush to the court for an adjudication. Even after the Arbitral Tribunal rules on its jurisdiction and decides that arbitration clause is valid or the Arbitral Tribunal is legally constituted, the aggrieved party has to wait till the final award is pronounced and only at that stage the aggrieved party is allowed to raise such objection before the court in proceedings under Section 34 of the Act while challenging the arbitral award.
12.3. The aforesaid scheme of the Act is succinctly brought out in the following discussion by this Court in Kvaerner Cementation India Ltd. v. Bajranglal Agarwal [Kvaerner Cementation India Ltd. v. Bajranglal Agarwal, (2012) 5 SCC 214] : (SCC p. 214, paras 3-5) "3. There cannot be any dispute that in the absence of any arbitration clause in the agreement, no dispute could be referred for arbitration to an Arbitral Tribunal. But, bearing in mind the very object with which the Arbitration and Conciliation Act, 1996 has been enacted and the provisions thereof contained in Section 16 conferring the power on the Arbitral Tribunal to rule on its own jurisdiction, including ruling on any objection with respect to existence or validity of the arbitration agreement, we have no doubt in our mind that the civil court cannot have jurisdiction to go into that question.
4. A bare reading of Section 16 makes it explicitly clear that the Arbitral Tribunal has the power to rule on its own jurisdiction even when any objection with respect to existence or validity of the arbitration agreement is raised, and a conjoint reading of sub-sections (2), (4) and (6) of Section 16 would make it clear that such a decision would be amenable to be assailed within the ambit of Section 34 of the Act.
5. In this view of the matter, we see no infirmity in the impugned order so as to be interfered with by this Court. The petitioner, who is a party to the arbitral proceedings may raise the question of jurisdiction of the arbitrator as well as the objection on the ground of non-existence of any arbitration agreement in the so-called dispute in question, and on such an objection being raised, the arbitrator would do well in disposing of the same as a preliminary issue so that it may not be necessary to go into the entire gamut of arbitration proceedings."
12.4. Aforesaid is the position when the Arbitral Tribunal is constituted at the instance of one of the parties and the other party takes up the position that such proceedings are not valid in law.
13. What would be the position in case a suit is filed by the plaintiff and in the said suit the defendant files an application under Section 8 of the Act questioning the maintainability of the suit on the ground that the parties had agreed to settle the disputes through the means of arbitration having regard to the existence of an arbitration agreement between them? Obviously, in such a case, the court is to pronounce upon arbitrability or non-arbitrability of the disputes.
14. In the instant case, there is no dispute about the arbitration agreement inasmuch as there is a specific arbitration clause in the partnership deed. However, the question is as to whether the dispute raised by the respondent in the suit is incapable of settlement through arbitration. As pointed out above, the Act does not make any provision excluding any category of disputes treating them as non-arbitrable. Notwithstanding the above, the courts have held that certain kinds of disputes may not be capable of adjudication through the means of arbitration. The courts have held that certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, cannot be referred to arbitration. The following categories of disputes are generally treated as non-arbitrable [ See O.P. Malhotra on ''The Law and Practice of Arbitration and Conciliation', 3rd Edn., authored by Indu Malhotra. See also note 10 ibid.] :
(i) patent, trade marks and copyright;
(ii) anti-trust/competition laws;
(iii) insolvency/winding up;
(iv) bribery/corruption;
(v) fraud;
(vi) criminal matters.
Fraud is one such category spelled out by the decisions of this Court where disputes would be considered as non-arbitrable.
32. The Arbitration and Conciliation Act, 1996 does not in specific terms exclude any category of disputes--civil or commercial--from arbitrability. Intrinsic legislative material is in fact to the contrary. Section 8 contains a mandate that where an action is brought before a judicial authority in a matter which is the subject of an arbitration agreement, the parties shall be referred by it to arbitration, if a party to or a person claiming through a party to the arbitration agreement applies not later than the date of submitting the first statement on the substance of the dispute. The only exception is where the authority finds prima facie that there is no valid arbitration agreement. Section 8 contains a positive mandate and obligates the judicial authority to refer parties to arbitration in terms of the arbitration agreement. While dispensing with the element of judicial discretion, the statute imposes an affirmative obligation on every judicial authority to hold down parties to the terms of the agreement entered into between them to refer disputes to arbitration. Article 8 of the Uncitral Model Law enabled a court to decline to refer parties to arbitration if it is found that the arbitration agreement is null and void, inoperative or incapable of being performed. Section 8 of the 1996 Act has made a departure which is indicative of the wide reach and ambit of the statutory mandate. Section 8 uses the expansive expression "judicial authority" rather than "court" and the words "unless it finds that the agreement is null and void, inoperative and incapable of being performed" do not find place in Section 8.
33. Section 16 empowers the Arbitral Tribunal to rule upon its own jurisdiction, including ruling on any objection with respect to the existence or validity of an arbitration agreement. Section 16(1)(b) stipulates that a decision by the Arbitral Tribunal that a contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Hence, the invalidity of the contract between the parties does not render the arbitration agreement invalid as a consequence of law. This recognises as inhering in the arbitrator the jurisdiction to consider whether the main contract (other than the arbitration clause) is null and void. The arbitration agreement survives for determining whether the contract in which the arbitration clause is embodied is null and void, which would include voidability on the ground of fraud. The severability of the arbitration agreement is a doctrinal development of crucial significance. For, it leaves the adjudicatory power of the Arbitral Tribunal unaffected, over any objection that the main contract between the parties is affected by fraud or undue influence.
35. Ordinarily every civil or commercial dispute whether based on contract or otherwise which is capable of being decided by a civil court is in principle capable of being adjudicated upon and resolved by arbitration "subject to the dispute being governed by the arbitration agreement" unless the jurisdiction of the Arbitral Tribunal is excluded either expressly or by necessary implication. ........
45.2. Allegations of fraud are not alien to ordinary civil courts. Generations of judges have dealt with such allegations in the context of civil and commercial disputes. If an allegation of fraud can be adjudicated upon in the course of a trial before an ordinary civil court, there is no reason or justification to exclude such disputes from the ambit and purview of a claim in arbitration. The parties who enter into commercial dealings and agree to a resolution of disputes by an arbitral forum exercise an option and express a choice of a preferred mode for the resolution of their disputes. The parties in choosing arbitration place priority upon the speed, flexibility and expertise inherent in arbitral adjudication. Once parties have agreed to refer disputes to arbitration, the court must plainly discourage and discountenance litigative strategies designed to avoid recourse to arbitration. Any other approach would seriously place in uncertainty the institutional efficacy of arbitration. Such a consequence must be eschewed.
48. The basic principle which must guide judicial decision-making is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal. The intent of the parties is expressed in the terms of their agreement. Where commercial entities and persons of business enter into such dealings, they do so with a knowledge of the efficacy of the arbitral process. The commercial understanding is reflected in the terms of the agreement between the parties. The duty of the court is to impart to that commercial understanding a sense of business efficacy.
53. The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle.
54 [Ed.: Para 54 corrected vide Official Corrigendum No. F-3/Ed.B.J./101/2016 dated 17-7-2017.] . Academic literature on the law of arbitration points in the same direction. In Russell on Arbitration [ 24th Edn., 2015, para 2-007] , the doctrine of separability has been summarised in the following extract:
"The doctrine of separability.--An arbitration agreement specifies the means whereby some or all disputes under the contract in which it is contained are to be resolved. It is however separate from the underlying contract:
"An arbitration clause in a commercial contract ... is an agreement inside an agreement. The parties make their commercial bargain ... but in addition agree on a private tribunal to resolve any issues that may arise between them."
This is known as the doctrine of separability and Section 7 of the Arbitration Act, 1996 provides a statutory codification of the previous case law on this subject. As the House of Lords noted in Lesotho Highlands Development Authority v. Impregilo SpA [Lesotho Highlands Development Authority v. Impregilo SpA, (2006) 1 AC 221 : (2005) 3 WLR 129 (HL)] : (AC p. 233 F-G, para 21) ''21. It is part of the very alphabet of arbitration law as explained in Harbour Assurance Co. (UK) Ltd. v. Kansa General International Insurance Co. Ltd. [Harbour Assurance Co. (UK) Ltd. v. Kansa General International Insurance Co. Ltd., 1993 QB 701 : (1993) 3 WLR 42 (CA)] , QB pp. 724-25 ... and spelled out in Section 7 of the Act, that the arbitration agreement is a distinct and separable agreement from the underlying or principal contract.' The Court of Appeal has confirmed that the doctrine of separability as it applies to arbitration agreements and jurisdiction clauses is uncontroversial also as a matter of European law".
Dealing with arbitrability of matters of fraud, the treatise contains the following statement of the legal position:
"Fraud.--Claims involving conduct amounting to fraud can be the subject-matter of arbitration, as Section 107(2) of the Arbitration Act makes clear. The Act expressly recognises that an Arbitral Tribunal may decide an issue of fraud, and the courts have acknowledged that an arbitrator has jurisdiction to decide allegations of bribery against a party to an arbitration agreement. Even in this context, however, an Arbitral Tribunal does not have jurisdiction to impose criminal sanctions on a party, even if bribery of a public officer is established; its power is limited to the civil consequences of that conduct."
Under Section 24(2) of the Arbitration Act, 1940, the court could revoke the authority of a tribunal to deal with claims involving issues of fraud and determine those claims itself. This provision has been repealed in Section 107(2) of the Arbitration Act, 1996.
15. In Duro Felguera, S.A. Vs. Gangavaram Port Ltd., (2017) 9 SCC 729, Hon'ble Supreme Court considered the provisions of sub Section 6 and sub Section 6-A of Section 11 of the Act, 1996 and held as under:
48. Section 11(6-A) added by the 2015 Amendment, reads as follows:
"11. (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."
(emphasis supplied) From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect--the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple--it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.
59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] . This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists--nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.
16. In Himangni Enterprises v. Kamaljeet Singh Ahluwalia, 2017 (10) SCC 706, Hon'ble Supreme Court has considered the maintainability of an application under Section 8 of the Act, 1996 with respect to the lease agreement of tenancy containing an arbitration clause in the light of the provisions of Delhi Rent Act, 1995 and noticing the fact held as under:
4. The question, which arises for consideration in this appeal, is whether the two courts below were justified in rejecting the application filed by the appellant herein under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act") in a pending civil suit filed by the respondent seeking the appellant's eviction from the premises in question and for claiming some ancillary reliefs therein.
7. The suit is filed essentially to seek the appellant's eviction from Shop No. SF-2 measuring around 317.29 sq ft situated at 2nd floor in a commercial complex known as "Omaxe Square" in Block No. 14, Non-Hierarchy Commercial Centre, District Centre Jasola, New Delhi (hereinafter referred to as "the suit premises") and for recovery of unpaid arrears of rent and grant of permanent injunction.
20. This Court (three-Judge Bench) speaking through O. Chinnappa Reddy, J. rejected the application filed by the tenant under Section 8 of the Act and held, inter alia, that the civil suit filed by the landlord was maintainable. It was held that the disputes of such nature cannot be referred to the arbitrator. This is what their Lordships held as under: (Natraj Studio case [Natraj Studios (P) Ltd. v. Navrang Studios, (1981) 1 SCC 523] , SCC p. 536, para 24) "24. In the light of the foregoing discussion and the authority of the precedents, we hold that both by reason of Section 28 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 and by reason of the broader considerations of public policy mentioned by us earlier and also in Deccan Merchants Coop. Bank Ltd. v. Dalichand Jugraj Jain [Deccan Merchants Coop. Bank Ltd. v. Dalichand Jugraj Jain, AIR 1969 SC 1320] , the Court of Small Causes has and the arbitrator has not the jurisdiction to decide the question whether the respondent licensor-landlord is entitled to seek possession of the two Studios and other premises together with machinery and equipment from the appellant licensee-tenant. That this is the real dispute between the parties is abundantly clear from the petition filed by the respondents in the High Court of Bombay, under Section 8 of the Arbitration Act seeking a reference to arbitration. The petition refers to the notices exchanged by the parties, the respondent calling upon the appellant to hand over possession of the Studios to him and the appellant claiming to be a tenant or protected licensee in respect of the Studios. The relationship between the parties being that of licensor-landlord and licensee-tenant and the dispute between them relating to the possession of the licensed demised premises, there is no help from the conclusion that the Court of Small Causes alone has the jurisdiction and the arbitrator has none to adjudicate upon the dispute between the parties."
24. The Delhi Rent Act, which deals with the cases relating to rent and eviction of the premises, is a special Act. Though it contains a provision (Section 3) by virtue of it, the provisions of the Act do not apply to certain premises but that does not mean that the Arbitration Act, ipso facto, would be applicable to such premises conferring jurisdiction on the arbitrator to decide the eviction/rent disputes. In such a situation, the rights of the parties and the demised premises would be governed by the Transfer of Property Act and the civil suit would be triable by the civil court and not by the arbitrator. In other words, though by virtue of Section 3 of the Act, the provisions of the Act are not applicable to certain premises but no sooner the exemption is withdrawn or ceased to have its application to a particular premises, the Act becomes applicable to such premises. In this view of the matter, it cannot be contended that the provisions of the Arbitration Act would, therefore, apply to such premises.
25. We have gone through the decisions cited by the learned counsel for the appellant in support of her contention. Having gone through the same, we are of the considered opinion that firstly, some decisions are rendered by the High Court; secondly, remaining decisions are distinguishable on facts; and lastly, in the light of two authoritative decisions [Natraj Studios (P) Ltd. v. Navrang Studios, (1981) 1 SCC 523] , [Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 : (2011) 2 SCC (Civ) 781] of this Court, which are directly on the point and continue to hold the field, no reliance can be placed by the learned counsel for the appellant on any decision of the High Court. Indeed, any such decision of the High Court, which has taken view contrary to the view of this Court, the same stands overruled. Such is the case here.
17. In Manzurul Haq and Anr. (supra) a Full Bench of this Court held as under:
20. By virtue of Section 15, Civil P. C. the court of Munsif is the only court in which civil suits upto a certain valuation can be filed. If the civil suits exceed that valuation, they have to be filed in the court of the Civil Judge. However, from that it cannot be inferred that the Civil Judge lacks-the initial jurisdiction to entertain cases below a certain valuation. In view of the fact that the law requires that all the suits shall be instituted in the court of the lowest grade competent to try it, a civil suit upto a certain valuation is filed in the court of the Munsif. Rut for that provision it could have been filed in the court of the Civil Judge also. Even with the provision, where the court of Munsif does not exist and a court of Civil Judge exists, all the suits whatever their valuation might be, will have to be filed in the court of the Civil Judge. In such circumstances it cannot be said that the court of the Munsif has exclusive jurisdiction to try civil suits upto a certain valuation.
21. Similar is the effect of Section 18 of the Provincial Small Cause Courts Act." If a small cause court has not been established for any particular area, all the civil suits, whether or not they might be cognizable by a court of small causes, shall have to be instituted in the court of the Munsil exercising jurisdiction in that area. It is only after a small cause court has been established for that area that all suits cognizable by a court of small causes are to be instituted before the court of small causes and not before the court of the Munsif. The Court of small causes thus becomes a court of "preferential jurisdiction", and not of "exclusive jurisdiction".
22. The marginal heading of Section 10 of the Provincial Small Cause Courts Act shows that the court of small causes exercises exclusive jurisdiction. The meaning of the word "exclusive" in that heading is ambiguous. From a reading of Section 16 of the said Act it is clear, that the court of small causes is merely a court of preferential and not of exclusive jurisdiction.
28. A suit for the recovery of the rent being a suit of a civil nature can be filed in a civil court where there is no court of small causes. However, in an area where a court of small causes exercises jurisdiction, the suit for arrears of rent upto the valuation cognizable by the court of small causes shall have to be filed in the court of small causes and not in the court of the Munsif, which might be the ordinary court to try such suits. In the absence of a court of small causes the court of Munsif has the jurisdiction to entertain and decide such suit. Therefore, it cannot be said that it lacks inherent jurisdiction to try such suits. It only loses jurisdiction when a court of preferential jurisdiction (to wit, a court of small causes) exists.
18. The above discussion leads to the following conclusions:-
(a). Section 7 of the Act, 1996 defines "Arbitration agreement" to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(b). An arbitration clause in a commercial contract is an agreement inside an agreement. The parties make their commercial bargain but in addition agree on a private tribunal to resolve any issues that may arise between them.
(c). This is known as the doctrine of separability and Section 7 of the Act, 1996 provides a statutory codification of the previous case law on this subject. The arbitration agreement is a distinct and separable agreement from the underlying or principal contract.
(d). The basic principle which must guide judicial decision-making is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal. The intent of the parties is expressed in the terms of their agreement. Where commercial entities and persons of business enter into such dealings, they do so with a knowledge of the efficacy of the arbitral process. The commercial understanding is reflected in the terms of the agreement between the parties. The duty of the court is to impart to that commercial understanding a sense of business efficacy.
(e). While considering an application under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of "arbitrability" or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the Arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under Section 34 of the Act, relying upon sub-section (2)(b)(i) of that section.
(f). When arbitration proceedings are triggered by one of the parties because of the existence of an arbitration agreement between them, Section 5 of the Act, by a non obstante clause, provides a clear message that there should not be any judicial intervention at that stage scuttling the arbitration proceedings. Even if the other party has objection to initiation of such arbitration proceedings on the ground that there is no arbitration agreement or validity of the arbitration clause or the competence of the Arbitral Tribunal is challenged, Section 16, in clear terms, stipulates that such objections are to be raised before the Arbitral Tribunal itself which is to decide, in the first instance, whether there is any substance in questioning the validity of the arbitration proceedings on any of the aforesaid grounds. It follows that the party is not allowed to rush to the court for an adjudication. Even after the Arbitral Tribunal rules on its jurisdiction and decides that arbitration clause is valid or the Arbitral Tribunal is legally constituted, the aggrieved party has to wait till the final award is pronounced and only at that stage the aggrieved party is allowed to raise such objection before the court in proceedings under Section 34 of the Act while challenging the arbitral award.
(g). But where the issue of "arbitrability" arises in the context of an application under Section 8 of the Act in a pending suit, all aspects of arbitrability will have to be decided by the court seized of the suit, and cannot be left to the decision of the arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject-matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.
(h). The term "arbitrability" has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the Arbitral Tribunal, are as under:
(i) Whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).
(ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the "excepted matters" excluded from the purview of the arbitration agreement.
(iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the Arbitral Tribunal, or whether they do not arise out of the statement of claim and the counterclaim filed before the Arbitral Tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement, will not be "arbitrable" if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list of disputes, does not form part of the disputes raised in the pleadings before the Arbitral Tribunal.
(i). From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect--the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple--it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.
(j). The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.
(k). An agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but creates only a personal obligation. Therefore, if specific performance is sought either in regard to an agreement to sell or an agreement to mortgage, the claim for specific performance will be arbitrable.
19. Thus, since the present application is an application under Section 11(4) for appointment of an arbitrator under Section 11(6) of the Act, 1996, in terms of the arbitration agreement dated 31.10.2011 read with the agreement dated 4.2.2009, therefore, in view of the law settled by Hon'ble Supreme Court in Booz Allen and Hamilton Inc. (supra), Duro Felguera, S.A.(supra) and the provisions of sub-Section (6A) of Section 11, it is not desirable at this stage to embark upon an examination of the issue of "arbitrability" or appropriateness of adjudication by a private forum. Since there exists an arbitration agreement between the parties and there is some dispute touching the agreement, hence an arbitration needs to be appointed.
20. In view of the above discussion, let Mr. Justice Arun Tandon a Retired Judge of this Court, Resident of 3, Patrika Marg, Civil Lines, Allahabad (U.P.), Mobile No.9415214462, be appointed Arbitrator to resolve the dispute subject to his consent in terms of the Sub-Section (8) of Section 11 of the Act of 1996.
21. The Registry is directed to obtain consent of the proposed arbitrator in terms of amended provisions contained in Sub-Section (8) of Section 11 of the Act, within a period of four weeks from today.
22. List on 04.07.2018, before the appropriate Court.
Order Date :- 28.5.2018/vkg