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2006 DIGILAW 882 (KAR)

ANALYTICA (INDIA) PRIVATE LIMITED, CHENNAI v. IT SOURCE LLC, WEST BOULEVARD HARTFORD, U. S. A.

2006-11-03

N.KHWAR

body2006
ORDER The petitioner is seeking for appointment of Arbitrator to resolve the dispute, which has arisen between the parties to the proceedings. 2. The petitioner is a Private Limited Company incorporated under the provisions of Companies Act, 1956 having its Registered Office at No. S-118, 6th Main Road, Annanagar, Chennai, India. It is in the business of development of software design and support services. Respondent 1 is a company incorporated and existing under the Laws of United States having its Registered Office at No. 873, West Boulevard Hartford, CT 06015. The second respondent is the Chief Executive Officer of the first respondent-company. The petitioner entered into written agreements executed on 1st April, 2001 and 1st September, 2002 with respondent 1 for providing certain software design and development and support services. Clause 15 of the said agreement deals with arbitration and further it is stated that the venue of arbitration shall be Bangalore. Annexures-A and B are the two agreements entered into between the parties. 3. The grievance of the petitioner is, for the services rendered by them, they were to receive payment from the respondents. However, the respondents have failed to pay the amount due for the services rendered. Therefore, they made repeated reminders calling upon the respondents to make the payment. Last of such reminders was on 19-8-2005 demanding the payment of US Dollars 4,26,203.00 as per Annexure-F. When the payment was not forthcoming, the petitioner got issued a legal notice on 21-9-2005 invoking the arbitration clause and appointed an Advocate as their Arbitrator. The notices sent were returned unserved with endorsements "refused". Therefore, the petitioner was constrained to file this petition under Section 11(5) of the Arbitration and Conciliation Act, 1996 for appointment of an Arbitrator. The respondents are duly served. However, the respondents have remained absent. 4. Learned Counsel appearing for the petitioner submitted that, as the agreement between the parties contain the arbitration clause and their exists a dispute regarding payment for the services rendered and on the refusal of the respondents to agree to the proposal of the petitioner, a case for appointment of Arbitrator is made out, as all the essential conditions required to be satisfied for appointing an Arbitrator under the Act is fully satisfied. 5. The agreement dated 1st April entered into between the parties contains an arbitration clause at Clause 15, which reads as under: "15. 5. The agreement dated 1st April entered into between the parties contains an arbitration clause at Clause 15, which reads as under: "15. Applicable law and dispute resolution.-This agreement and all questions concerning the validity, interpretation and performance of any its terms or provisions, or of any right or obligations of the parties hereto, shall be governed by and resolved in accordance with the laws of India. Any dispute arising out of or relating to this agreement shall be finally decided by arbitration in accordance with the provisions of Arbitration and Conciliation Act, 1996. The venue of arbitration shall be Bangalore". 6. A perusal of the agreement shows that one of the parties to the agreement is an American Company incorporated in America. The other company is an Indian Company incorporated in India. Thus, one is an Indian Company and another is a Foreign Company. The dispute between the parties arise out of a legal relationship and commercial in nature. Therefore, it falls within the definition of International Commercial Arbitration. Section 2(1)(f) of the Act which defines International Commercial Arbitration reads as under: "2. (1)(f) "International commercial arbitration" means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is.- (i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or (iv) the Government of a foreign country". 7. Then sub-section (9) of Section 11 which deals with appointment of Arbitrators in a case of international commercial arbitration reads as under: "11(9) In the case of appointment of sole or third Arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an Arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities". Consequently, sub-section (12)(a) of Section 11 gets attracted to such arbitration, which reads as under: "(12)(a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration, the reference to "Chief Justice" in those sub-sections shall be construed as a reference to the "Chief Justice of India"". 8. Section 11 of the Act provides for appointment of Arbitrators both in respect of domestic as well as international arbitration. A domestic arbitration is one, where, both the parties to the arbitration agreement are the nationals and residents of the same country and the agreement provides for arbitration in the country of the parties to the arbitration agreement. The arbitration agreement will be considered as international arbitration agreement where one of the parties is a foreigner, notwithstanding the fact that the arbitration is to take place in a particular country. In an international arbitration agreement, there is a foreign element or flavour involving international trade and agreement. 9. When one of the parties to the agreement is an Indian Company incorporated under the provisions of the Companies Act, 1956 in India and another party to the said agreement is an American Company incorporated in America and when the said agreement relates to and dispute arise out of legal relationships under the contract entered into between the parties, it is considered as commercial under the law in force in India. Thus, it falls within the definition of International Commercial Arbitration as defined under Section 2(1)(f) of the Act. 10. If any dispute arises under such International Commercial Arbitration, it falls within sub-sections (4), (5), (6), (7), (8) and (10) of Section 11 of the Act. The reference to Chief Justice under those sub-sections shall be construed as reference to the Chief Justice of India. In other words, insofar as International Commercial Arbitrations are concerned, it is the Chief Justice of India, who is empowered to appoint an Arbitrator. The Chief Justice of India, in exercising the said power in the case of appointment of sole or third Arbitrator in an International Commercial Arbitration, may appoint an Arbitrator of a nationality other than the nationality of the parties where the parties belong to different nationalities. The Chief Justice of India, in exercising the said power in the case of appointment of sole or third Arbitrator in an International Commercial Arbitration, may appoint an Arbitrator of a nationality other than the nationality of the parties where the parties belong to different nationalities. It is a departure from the general rule contained in sub-section (1) of Section 11, which provides that a person of any nationality may be an Arbitrator, unless and otherwise agreed to by the parties. Thus, if the agreement in question is a International Commercial Arbitration agreement and if the dispute arises between the parties and one of them had to approach the Chief Justice for appointment of an Arbitrator, it is the Chief Justice of India alone, or his designate who is empowered to appoint an Arbitrator. While so appointing an Arbitrator, the Chief Justice or his designate may appoint an Arbitrator of a nationality other than the nationality of the parties where the parties belong to different nationalities. 11. In view of the aforesaid legal position, as the agreement in question is an International Arbitration Agreement, the petitioner has to approach the Chief Justice of India and not Chief Justice of High Court for appointment of an Arbitrator. Therefore, this petition is not maintainable. Accordingly, it is rejected, reserving liberty to the petitioner to approach the Chief Justice of India for appointment of an Arbitrator.