TMI Blog2019 (1) TMI 1810X X X X Extracts X X X X X X X X Extracts X X X X ..... ntend before the arbitrator that by filing the written statement in the suit, the petitioner has forfeited its right to refer the dispute to arbitration - The purchase order contains an arbitration clause. The existence of the purchase order is not in dispute. What could be the reason or plausible defence for not releasing the price of the goods sold and delivered under the purchase order is not a relevant consideration at this stage to decide an application for appointment of an arbitrator. The plaintiff in their wisdom may frame a suit with multiple parties and multiple causes of action but such of the parties in the suit whose agreements with the plaintiffs contain arbitration clauses and are desirous of seeking independent reference of their dispute to arbitration cannot be prevented from seeking such reference, particularly in view of the language of Section 11(6A) of the Act. The considerations for Section 8 and Section 11 of the Act are entirely different. The reference to Section 8 of the Act and the decisions on the said Section have been referred to only for the limited purpose of understanding whether the considerations for referring the dispute of the parties to arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the respondent and/or its nominated consignee. The petitioner was required to manufacture the said refractories and deliver them on FOB Mumbai basis as per Incoterms 2010. 6. The said purchase order dated 12th March, 2015, inter alia, contains an arbitration clause and/or arbitration clauses, and the same are set out hereinbelow for ease of reference: Clause 8.4 Applicable law and dispute settlement The Buyer and the Seller agree that any dispute or difference, which may arise out or in connection with this order, shall be amicably settled through mutual discussion. In case Buyer and Contractor fail to reach an agreement on any dispute, controversy, interpretation of any terms, claim arising out of or in connection with this order or the breach, termination shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Arbitration Conciliation Act, 1996. Both Buyer and Contractor shall each select an arbitrator and the two arbitrators thus chosen shall select an Umpire. The award of the arbitrator or umpire, as the case may be, shall be final and binding upon the parties hereto. The venue of arbitration shall be at Kolkata, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tence of any such arrangement and/or agreement between the parties. The petitioner has referred to an order passed by this Court on 17th February, 2017 in G.A. No. 117 of 2017 filed by this respondent, along with two others as co-plaintiffs, in the suit claiming diverse reliefs. In the said order, it was observed, at the interlocutory stage, that there is no prohibition clause in the contract in respect of the supplies made by the petitioner to the plaintiffs and the plaintiffs were directed to release the past and the present dues to each of the vendors in accordance with the directions contained in such order. The petitioner initially filed an interlocutory application being G.A. No. 2210 of 2017 praying, inter alia, for an order directing the respondent to pay the aforesaid sum of ₹ 2,96,09,916/- along with interest which, however, was not allowed since the petitioner did not raise any counter-claim in the suit. The said application was dismissed by giving liberty to the petitioner to pursue its remedy before the appropriate forum in view of an arbitration agreement between the parties. Thereafter, by a letter dated 23rd August, 2017, the petitioner invoked the aforesaid a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the arbitration clause. Accordingly, an arbitrator ought to be appointed. 11. Per contra, Mr. S.K. Kapoor, the learned Senior Counsel appearing for the respondent submits that having regard to the frame of the suit, the dispute cannot be referred to arbitration. The dispute sought to be raised by the petitioner cannot be decided in isolation. The causes of action of the plaintiffs against the defendant in the suit are for breach of agreement and the claim of the petitioner cannot be severed and tried separately. The disputes are interconnected. The plaintiffs have categorically stated in the plaint that the present petitioner is not entitled to directly negotiate with the Arcelor Mittal Companies or to effect direct supply to such companies bypassing the plaintiffs in disregarding to the existing arrangement thereby procuring a breach of contract. The plaintiffs have alleged that the defendants, in breach and violation of their binding contractual obligations, have wrongfully and fraudulently made a contract directly with the Arcelor Mittal Companies by which the petitioner illegally agreed to supply the second set of refractories directly to PJSC Arcelor Mittal Krives (t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has relied on the aforementioned set of facts to contend that since the purchase order dated 12th March 2015 is relevant to the main dispute in the suit, the dispute regarding the purchase order cannot be separated from the suit and tried separately. If this is done, it may result in bifurcation of the subject matter as well as result in different and contrary decisions. In this regard, it is submitted that the principles enshrined in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr. reported in (2003) 5 SCC 531 would apply to the present situation. In this context, reliance is also placed on India Household and Healthcare Ltd. v. LG Household and Healthcare Ltd. reported in (2007) 5 SCC 510 (paragraphs 21-22) and Tulip Hotels Pvt. Ltd. v. Trade Wings Ltd. reported in (2010) 2 ArbLR 286. 14. Mr. Kapoor submits that the disputes cannot be bifurcated. The entire dispute has to be considered holistically and not in a piecemeal manner. 15. Mr. Kapoor submits that even otherwise the petitioner is not entitled to the appointment of an arbitrator as the defendant has already filed a written statement on the substance of the dispute and if in law, the petitioner is not entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onduct of such party in the suit . In this context, reference has also been made to the principles of waiver and estoppel enshrined in section 4 of the Act. In addition, the learned Senior Counsel has relied upon the following decisions - i) Mussammat Gulab Koer v. Badshah Bahadur reported in 10 CLJ 420 : 13 CWN 1197; ii) Mani Lal Guzrati v. Harendra Lal Roy reported in (1910) 12 CLJ 556; iii) Scarf v. Jardine reported in 1882 (7) AC 345; iv) Jai Singh v. Union of India and Ors. reported in 1977 (1) SCC 1; 16. The respondent has also contended that this petition ought to be dismissed right at the outset on the ground of fraud since the written statement filed in the suit has not been disclosed by the petitioner in the petition. Reliance is placed on Mumbai International Airport vs. M/s. Golden Chariot Airport Anr. reported in 2010 (10) SCC 422 wherein it is stated that an action at law is not a game of chess and a litigant cannot change and choose its stand to suit its convenience. It is submitted the principles of approbate and reprobate squarely apply in the present matter. The respondent has also referred to Delhi Gate Auto Service Station and Anr. v. Bharat P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any arbitration agreement. Accordingly, the reference to Section 8 of the Arbitration and Conciliation Act is misconceived. Moreover, the reference to Sukanya Holdings (supra) would be of no relevance as Sukanya Holdings (supra) deals with bifurcation of claims and subject matter of disputes whereas in the instant case the dispute with regard to the purchase order is an independent cause of action and has no bearing to the cause of action as pleaded in the suit. Mr. Saha submits that there is no arbitration agreement amongst all the parties to the suit aggregating 45 in number comprising of the three plaintiffs on the one hand and the 42 defendants including the petitioner herein on the other hand. The decision in Sukanya Holdings (supra) shows that in respect of few of the parties there is an arbitration agreement. 19. The essential question arising for consideration in this application is whether the petitioner is entitled to appointment of an arbitrator in relation to the disputes and differences that have arisen between the parties in relation to the purchase order dated 12th March, 2015. 20. There have been significant changes brought about to the Act by the Arbitratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a fresh legislation may be brought after considering its recommendations. Accordingly, the said Bill was withdrawn from the Rajya Sabha. 3. On a reference made again in pursuance of the above, the Law Commission examined and submitted its 246th Report on Amendments to the Arbitration and Conciliation Act, 1996 in August, 2014 and recommended various amendments in the Act. The proposed amendments to the Act would facilitate and encourage Alternative Dispute Mechanism, especially arbitration, for settlement of disputes in a more user-friendly, cost effective and expeditious disposal of cases since India is committed to improve its legal framework to obviate in disposal of cases. 4. As India has been ranked at 178 out of 189 nations in the world in contract enforcement, it is high time that urgent steps are taken to facilitate quick enforcement of contracts, easy recovery of monetary claims and award of just compensation for damages suffered and reduce the pendency of cases in courts and hasten the process of dispute resolution through arbitration, so as to encourage investment and economic activity. 5. As Parliament was not in session and immediate steps were required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointment of an arbitrator based on an arbitration agreement are made ten or twenty years after the period of the contract has come to an end. There have been cases where the appointment of an arbitrator has been sought, after the parties had settled the accounts and the concerned party had certified that he had no further claims against the other contracting party. In other words, there have been occasions when dead claims are sought to be resurrected. There have been cases where assertions are made of the existence of arbitration agreements when, in fact, such existence is strongly disputed by the other side who appears on issuance of notice. Controversies are also raised as to whether the claim that is sought to be put forward comes within the purview of the concerned arbitration clause at all. The Chief Justice has necessarily to apply his mind to these aspects before coming to a conclusion one way or the other and before proceeding to appoint an arbitrator or declining to appoint an arbitrator. 39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration). (ii) Merits or any claim involved in the arbitration. 25. In a fairly recent decision of the Hon'ble Supreme Court in Duro Felguera, S.A. Vs. Gangavaram Port Limited reported at (2017) 9 SCC 729, it was observed that the position of law as laid down in SBP Co. (supra) and Boghara Polyfab (supra) shall continue till the amendment was brought about in 2015 and 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 minimize 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 . 26. The scope and extent of the power of the High Court and the Supreme Court under sub-section 6 and sub-section 6A of section 11 of the Act has been discussed in Duro Felguera (supra) upon taking into consideration the Statement of Objects and Reasons of the Amendment Bill of 2015. In p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court ordinarily has plenary jurisdiction to decide all civil disputes. The parties by agreement cannot confer a jurisdiction on a civil court which it otherwise does not possess. However, the parties may in an agreement decide the choice of forum. In the instant case, the parties have agreed to decide their dispute arising out of the purchase order to be resolved in arbitration. In a given situation where notwithstanding the existence of arbitration agreement, if a party approaches a civil court and the other party does not object to the jurisdiction of such civil court on the ground of lack of jurisdiction due to agreed choice of forum, the party forfeits or loses its right to question the jurisdiction of the civil court later on after the said party surrenders to the jurisdiction of that court. The submission of jurisdiction to that court would disqualify a party from seeking a remedy in a different forum as he has acted in derogation of agreed procedure. This is what Section 4 of the Act recognizes and if a party has acted in derogation of the agreement which contains an arbitration clause, the said party would be considered to have waived its right to claim adjudication in ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empowered to review the existence and validity of the arbitration agreement prior to reference is more controversial. A majority of the countries admit to the positive effect of kompetenz kompetenz principle, which requires that the arbitral tribunal must exercise jurisdiction over the dispute under the arbitration agreement. Thus, challenge to the existence or validity of the arbitration agreement will not prevent the arbitral tribunal from proceeding with hearing and ruling upon its jurisdiction. If it retains jurisdiction, making of an award on the substance of the dispute would be permissible without waiting for the outcome of any court action aimed at deciding the issue of the jurisdiction. The negative effect of the kompetenz kompetenz principle is that arbitrators are entitled to be the first to determine their jurisdiction which is later reviewable by the court, when there is action to enforce or set aside the arbitral award. Where the dispute is not before an arbitral tribunal, the Court must also decline jurisdiction unless the arbitration agreement is patently void, inoperative or incapable of being performed. 85. This is the position of law in France and in some othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration clauses and are desirous of seeking independent reference of their dispute to arbitration cannot be prevented from seeking such reference, particularly in view of the language of Section 11(6A) of the Act. The considerations for Section 8 and Section 11 of the Act are entirely different. 34. The scheme of the Arbitration Act, 1940 and the 1996 Act before the recent amendment has been considered in Kalpana Kothary v. Sudha Yadav reported at (2002) 1 SCC 203, where it is observed - 8......... In striking contrast to the said scheme underlying the provisions of the 1940 Act, in the new 1996 Act, there is no provision corresponding to Section 34 of the old Act and Section 8 of the Act mandates that the Judicial Authority before which an action has been brought in respect of a matter, which is the subject-matter of an arbitration agreement, shall refer the parties to arbitration if a party to such an agreement applies not later than when submitting his first statement. The provisions of the Act do not envisage the specific obtaining of any stay as under the 1940 Act, for the reason that not only the direction to make reference is mandatory but not withstanding the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes which may arise in connection with it, and the court of England enforce such a reference by staying legal proceedings in respect of any matter agreed to be referred if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission. Arbitration Act, 1889, sec. 4. Where proceedings at law are instituted by one of the parties to a contract containing an arbitration clause and the other party, founding on the clause, applies for a stay, the first thing to be ascertained is the precise nature of the dispute which has arisen The next question is whether the dispute is one which falls within the terms of the arbitration clause. Then sometimes the question is raised whether the arbitration clause is still effective or whether something has happened to render it no longer operative. Finally, the nature of the dispute being ascertained, it having been held to fall within the terms of the arbitration clause, and the clause having been found to be still effective, there remains for the court the question whether there is any sufficient reason why the matter in dispute should not be referred to arbitration. (emphasis supplied) 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application under Section 8 of the Act in any suit, nor will the Designate of the Chief Justice be precluded from considering and disposing of an application under Section 11 or 15(2) of the Act. (emphasis supplied) 37. The expression first statement on the substance of the dispute came up for consideration before the Hon'ble Supreme Court in Rashtriya Ispat Nigam Ltd. v. Verma Transport Co. reported in (2006) 7 SCC 275. It is stated therein: The expression 'first statement on the substance of the dispute' contained in Section 8(1) of the Act must be contra-distinguished with the expression 'written statement'. It employs submission of the party to the jurisdiction of the judicial authority. What is, therefore, needed is a finding on the part of the judicial authority that the party has waived his right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, in our opinion, the party cannot be said to have waived his right or acquiesced himself to the jurisdiction of the court. What is, therefore, material is as to whether the petitioner has filed his first statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been clarified/amplified to include persons claiming through or under such a party to the arbitration agreement; (ii) scope of examination by the judicial authority is restricted to a finding whether no valid arbitration agreement exists and the nature of examination by the judicial authority is clarified to be on a prima facie basis; (iii) the cut-off date by which an application under Section 8 is to be presented has been defined to mean the date of submitting the first statement on the substance of the dispute; and (iv) the amendments are expressed to apply notwithstanding any prior judicial precedent. The proviso to Section 8(2) has been added to allow a party that does not possess the original or certified copy of the arbitration agreement on account of it being retained by the other party, to nevertheless apply under Section 8 seeking reference, and call upon the other party to produce the same. (Ref: Justice R.S. Bachawat's Law of Arbitration and Conciliation, Sixth Edition, Vol. I (Sections 1 to 34) at page 695 published by Lexis Nexis). 30. Amendment to Section 8 by the Act, 2015 are to be seen in the background of the recommendations set out in the 246 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e suit. This is, in view of the aforesaid discussion, not a relevant consideration for appointment of an arbitrator under Section 11 of the Act. 44. In view of the amendment and Duro Felguera (supra), all the questions which could have been decided by the Court previously in an application under Section 11 of the Arbitration and Conciliation Act, 1996 have been taken away and the Court is now denuded of its jurisdiction to decide such questions which otherwise were available to the Court under the unamended Act as indicated in SBP Co. (supra) and Boghara Polyfab (supra). Even under the unamended provisions, the consistent view of the Court is to have minimum supervisory jurisdiction over the arbitral tribunal. This has now received a statutory recognition in various amended provisions carried out in 1996 Act, one of which is Section 11(6A). 45. Under such circumstances, the application is allowed. 46. Hon'ble Justice Jayanta Kumar Biswas (Retired), a former Judge of this Court, is appointed as the sole arbitrator. The Hon'ble Justice Biswas is requested to fix commensurate remuneration, at the fist sitting of the parties, to be shared by the parties in equal meas ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
