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Karnataka High Court · body

2007 DIGILAW 276 (KAR)

DILIP BAFNA v. K. S. VASUDEVA

2007-04-16

N.KUMAR

body2007
ORDER The petitioner has filed this petition under Section 11 of the Arbitration and Conciliation Act, 1996 (for short hereinafter referred to as the “Arbitration Act”), for appointment of an Arbitrator to resolve the dispute between the parties. 2. The case of the petitioner is that the respondent is the owner of the sites bearing Nos. 228 and 228-A located at 8th cross, SBM Housing Colony, formed out of lands in Sy. Nos. 12/1, 21/2, 21/3, 21/4, 21/5, 21/6, 22/2 and 15 situated at Gerehalli Village, Bangalore North Taluk, Bangalore, measuring in all 4014 sq. feet. The petitioner has entered into an agreement with the respondent to purchase the aforesaid sites on 25th March, 2005, for a consideration of Rs. 53,00,000/-. The petitioner has paid Rs. 15,00,000/- as advance. Three' months is stipulated for completion of the transaction. The petitioner is ready and willing to perform his part of the contract. When the respondent did not perform his part of the contract, the petitioner was constrained to issue a legal notice dated 5th July, 2005 calling upon him to, receive the• balance consideration and execute the sale deed. The said notice was duly acknowledged by the respondent and he has sent a reply on 10th July, 2005 accusing the petitioner for not performing his part of the agreement and asking him to take refund of the advance with deduction of Rs. 3,00,000/-. Thereafter, the petitioner got issued another legal notice dated 23rd July, 2005 calling upon the respondent to give his consent for referring the matter to arbitration and for adjudication. When the respondent did not comply with the demand made therein he was constrained to file an application A.A. No. 57 of 2005 on the file of Additional City Civil Judge, Bangalore, under Section 9 of the Arbitration Act and he obtained a temporary injunction restraining the respondent from alienating the suit schedule property. In those circumstances the petitioner was constrained to prefer this petition for appointment of an Arbitrator. 3. The respondent entered appearance and filed his statement of objections contending, as the relief sought for by the petitioner is in the nature of specific performance the arbitration clause in the agreement is not attracted. The parties have specifically agreed to have the said dispute agitated in a Civil Court. 3. The respondent entered appearance and filed his statement of objections contending, as the relief sought for by the petitioner is in the nature of specific performance the arbitration clause in the agreement is not attracted. The parties have specifically agreed to have the said dispute agitated in a Civil Court. He further contends that it is the petitioner who committed breach of the terms of the agreement and consequently the agreement stands terminated. There is no live dispute between the parties and therefore it is stated that the petition is misconceived and not maintainable and liable to be dismissed. 4. Learned Counsel for the petitioner Sri C.G. Gopalaswamy submitted that when the respondent has not disputed the agreement entered into between the parties and when the said agreement at Clause 5 provides for arbitration and when a dispute has arisen between the parties. in respect of the subject-matter of the agreement all the ingredients which are required to be fulfilled before an Arbitrator is appointed are satisfied and therefore he submits that the petition is to be allowed. 5. Per contra, Sri H.S. Dwarkanath, learned Counsel appearing for the respondent contended, when the relief sought for is in the nature of specific performance of contract, as per Clause 6.2 they agreed to file a suit and therefore that is not a matter which is arbitrable. Secondly, he contended Section 20 of the Specific Relief Act, 1963 (for short hereinafter referred to as “the Act”) mandates that the jurisdiction to seek specific performance is a discretionary relief and such discretion has to be exercised by a Court which is guided by jurisdictional Courts and Court of appeal. Therefore, a valuable right of appeal is statutorily provided and if the matter is referred to arbitration the respondent is deprived of such a valuable right of appeal. Admittedly, against an Arbitral award no appeal lies and jurisdiction to interfere with the said Arbitral award is circumscribed by the condition stipulated under Section 34 of the Arbitration Act. Therefore, he submits, the dispute is not arbitrable. 6. In view of the aforesaid submissions the following questions of law do arise for consideration: (1) The relief of specific performance being discretionary to be exercised by the Court, whether such matters could be referred to arbitration under the Act? Therefore, he submits, the dispute is not arbitrable. 6. In view of the aforesaid submissions the following questions of law do arise for consideration: (1) The relief of specific performance being discretionary to be exercised by the Court, whether such matters could be referred to arbitration under the Act? (2) Even if it is held that it could be referred to arbitration, when Section 20 of the Act, provides, the said discretion exercised is to be guided by judicial principles and capable of correction by a Court of appeal, as no appeal is provided against Arbitral award, can such matters be referred to arbitration? (3) When the agreement between the parties specifically state that the parties are at liberty to file a suit for specific performance of a contract, in view of the arbitration clause in the agreement, can it be said that such dispute also could be referred to arbitration? 7. Point Nos. 1 and 2.-In order to answer the aforesaid questions it is necessary to look at Section 20 of the Act, which reads as under: “Section 20. (1) The jurisdiction to decree specific performance is discretionary, and the Court is not bound to grant such relief merely because it is lawful to do so; but the discretion of the Court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a Court of appeal”. A reading of the aforesaid provision makes it clear that jurisdiction to seek specific performance is discretionary. The said discretion is to be exercised by the Court. The discretion of the Court is not arbitrary but sound and reasonable, guided by judicial principles. It is capable of correction by a Court of appeal. The question is whether the discretion to be exercised by the Court could be exercised by an Arbitrator appointed under the Arbitration Act. 8. The Delhi High Court in the case of Sulochana Uppal v Surinder Sheel Bhakri, referring to Section 20 of the Act and deciding the question “Whether a relief sought under the Specific Relief Act can be referred to arbitration?” held: “An agreement to refer a dispute to arbitration, the effect of which would be to have an award directing specific performance of an agreement to sell, would have for its object to defeat the provisions of the Specific Relief Act, especially Sections 10 and 20 thereof. It is clearly intended by the aforesaid provisions that it is only Courts, and Courts alone who would have jurisdiction to grant or refuse specific performance. In view of the provisions of Sections 10 and 20 of the Specific Relief Act read with Sections 23 and 24 of the Contract Act, 1872, I am of the view that it is not permissible to any Arbitrator to give an award, directing specific performance of an agreement to sell. Such an award would go contrary to the terms and spirit of the Specific Relief Act”. Therefore, it was held that a petition under Section 20 of the Arbitration Act for the enforcement of an agreement to sell is not maintainable. However, the Calcutta High Court in Keventer Agro Limited v Seegram Company Limited, has taken a view that an Arbitrator can grant specific performance of a contract relating to immovable property. Mrs. Ruma Paul, J., as she then was observed: “that merely because the sections of the Specific Relief Act confer discretion on Courts to grant specific performance of a contract does not mean that parties cannot agree that the discretion will be exercised by forum of their choice. If the converse were true, then whenever a relief is dependent upon the exercise of discretion of a Court by statute e.g., the grant of interest or costs, parties should be precluded from referring the dispute to arbitration”. The Supreme Court after considering the aforesaid two views, in the case of Olympus Superstructures Private Limited v Meena Vijay Khetan and Others2, held: “The right to specific performance of an agreement of sale deals with contractual rights and it is certainly open to the parties to agree - with a view to shorten litigation in regular Courts - to refer the issues relating to specific performance to arbitration. There is no prohibition in the Specific Relief Act, 1963, that issues relating to specific performance of contract relating to immovable property cannot be referred to arbitration. Nor is there such a prohibition contained in the Arbitration and Conciliation Act, 1996 as contrasted with Section 15 of the English Arbitration Act, 1950 or Section 48(5)(b) of the English Arbitration Act, 1996, which contained a prohibition relating to specific performance of contracts concerning immoveable property”. Therefore, the Supreme Court agreed with the reasoning of the Calcutta High Court and overruled the view of the Delhi High Court. Therefore, the Supreme Court agreed with the reasoning of the Calcutta High Court and overruled the view of the Delhi High Court. It is stated in Halsbury's Laws of England, 4th Edition (Arbitration Volume 2, para 503), as follows.- “Nature of the dispute or difference.-The dispute or difference which the parties to an arbitration agreement agree to refer must consist of a justiciable issue triable civilly. A fair test of this is whether the differences can be compromised lawfully by way of accord and satisfaction (Cf. Bacon's Abidgement and Award A)”. 9. In view of the pronouncement of the Apex Court that even discretionary reliefs which are to be granted by the Courts could be the subject-matter of arbitration and the Arbitrator also has the same powers as that of the Court in the matter-of exercising discretion, the contention that jurisdiction to decree specific performance being discretionary and has to be exercised by a Court alone and such matters cannot be referred to arbitration is without any substance. The relief being discretionary, if the parties approach a Civil Court that discretion has to be exercised by the Court. The said discretion cannot be arbitrary. It should be sound and reasonable, guided by judicial principles. This is the substantive law of the land as contained in Section 20 of the Specific Relief Act, 1963. Section 28(1)(a) of the Act, expressly provides, that the Arbitral Tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force. Therefore, if such matters are referred to Arbitrator, the Arbitrator also can exercise such discretion and his discretion should also be .sound and reasonable and guided by judicial principles. 10. Next it was contended that though the discretion to be exercised by the Civil Court also can be exercised by the Arbitrator, Section 20 of the Act specifically provides that such discretion exercised by the Court is capable of correction by a Court of appeal. In other words, a party has been conferred the right to prefer an appeal, to the Court of appeal, complaining that the discretion has not been exercised reasonably or sound and unguided by judicial principles and therefore it requires to be corrected. Admittedly, against an award passed by the Arbitrator no appeal is provided for under the Act. In other, words, the award of an Arbitrator is not appealable. Admittedly, against an award passed by the Arbitrator no appeal is provided for under the Act. In other, words, the award of an Arbitrator is not appealable. But nonetheless the award of the Arbitrator could be challenged in a Court on the limited ground mentioned under Section 34 of the Act. Whether the Arbitrator has passed an award by exercising his discretion and whether such discretion is arbitrary or sound and reasonable and guided by judicial principles, is not one of the grounds which is contemplated under Section 34. In those circumstances, when the statute confers a right of appeal, can such right of appeal be taken away by referring the matter to arbitration or such matters cannot be referred to arbitration at all. 11. Under the scheme of the Act, the Court to which a petition under Section 34 is filed is not vested with the power to exercise the powers of an Appellate Court and an award cannot be corrected in such manner by the Court. However, it cannot be said, that in all matters of specific performance the question of exercising discretion would arise. If the agreement of sale itself is denied, or the contract is void and unenforceable, payment of consideration is denied, suit is barred by limitation, if it is contended time was essence of the contract and the petitioner has committed breach of contract and therefore not entitled to specific performance, and if such plea is proved and upheld by the Court, the question of granting a decree for specific performance would not arise. There is no occasion for the Court to exercise any discretion at all. The Court has not reached the stage of exercising its discretion. The suit is to be dismissed on the ground that the plaintiff has not proved his case, on appreciation of the evidence on record. The occasion to exercise discretion will arise only in cases where Court holds, that the plaintiff has proved his case and is entitled to specific performance, but still it is not bound to grant such relief. The suit is to be dismissed on the ground that the plaintiff has not proved his case, on appreciation of the evidence on record. The occasion to exercise discretion will arise only in cases where Court holds, that the plaintiff has proved his case and is entitled to specific performance, but still it is not bound to grant such relief. Section 16 of the Act deals with competence of Arbitral Tribunal to rule on its jurisdiction, Sub-section (5) provides that 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, continues with the Arbitral proceedings and makes an Arbitral award. In other words, if the plea as contended under sub-sections (2) and (3) is upheld by the Arbitrator, he can reject the claim and direct the parties to approach Court of law for the relief. Therefore, it a plea as aforesaid is raised, namely, the Arbitrator has no jurisdiction to exercise the discretion which is vested in a Court under Section 20 of the Act, the Arbitrator if he reaches the stage of exercising discretion in the dispute before him, he can decline to proceed further in the matter and terminate the proceedings reserving liberty to the petitioner to approach competent Civil Court for the very sale relief. Therefore, it cannot be said as a proposition of law, that in all matters where specific performance is sought for, irrespective of the stand taken by the parties, such matters cannot be referred to arbitration. 12. Point No. 3.-Next it is contended that on a reading of the two clauses in the agreement whether the Civil Court jurisdiction is completely ousted to entertain the matter arising under the said contract. Clause 5 of the agreement reads as under: “All questions, disputes, differences and claims whatsoever which may at any time arise between the parties hereto concerning this contract and all other documents in pursuance hereof or of any clause herein contained or as to the rights, duties, obligations or liabilities of the parties hereto respectively, shall be referred to arbitration in accordance with the provisions of Arbitration and Conciliation Act, 1996 as amended from time to time. Such arbitration proceedings shall be in English language and shall be held in Bangalore only. Such arbitration proceedings shall be in English language and shall be held in Bangalore only. Subject to the preceding paragraph, the Courts in Bangalore shall have exclusive jurisdiction over any disputes, differences or claims arising out of this deed”. Whereas, Clause 6.2 reads as under: “Both the vendors and the purchaser shall have liberty to file suit for specific performance of contract, if either of 'the party refuses to perform his/their the contract and complete the sale, in terms of this agreement and all the costs shall be borne by such person who fails to perform their duty in accordance with -this agreement”. (emphasis supplied) 13. Therefore, it is clear that all questions, disputes, differences and claims whatsoever which may at any time arise between the parties to the agreement shall be referred to arbitration in accordance with the provisions of the Act. Further, it makes clear that the Courts in Bangalore shall have exclusive jurisdiction over any disputes, differences or claims arising out of this deed. But it is to be noticed that in the said clause it is' not mentioned that it shall be referred to arbitration alone. On the contrary, Clause 6.2 reserves the liberty to both the parties to file suit for specific performance of the contract. In other words, the parties by an agreement do not completely oust the jurisdiction of the Civil Court and prefer arbitration for resolving all the dispute. On the contrary, they specifically agree in Clause 6.2 that each of the party shall have liberty to file suit for specific performance of contract. Therefore, the parties have got an option to approach the Civil Court also insofar as the relief to specific performance is concerned. 14. In a somewhat similar situation the Supreme Court in the case of Wellington Associates Limited v Kirit Mehta, dealing with the question “Whether an arbitration agreement necessarily or rather mandatorily requires the appointment of Arbitrator/Arbitrators is concerned, held that “the words in sub-section (1) of Section 7, means an agreement by the parties to submit to arbitration” postulates an agreement which necessarily or rather mandatorily requires the appointment of an Arbitrator/Arbitrators. Section 7 does not cover a case where the parties agree that they "may" go to a suit or that they “may” also go to arbitration”. Section 7 does not cover a case where the parties agree that they "may" go to a suit or that they “may” also go to arbitration”. Further, it was held that in most arbitration clauses, the words normally used are "That dispute shall be referred to arbitration". Dealing with the clauses which was the subject-matter of the said proceedings where the word used as "may", the Supreme Court observed as under: “22. It is contended for the petitioner that the word "may" in Clause 5 has to be construed as "shall". According to the petitioner's Counsel, that is the true intention 'of the parties. The question then is as to what is the intention of the parties? The parties, in my view, used the word "may" not without reason. If one looks at the fact that Clause 4 precedes Clause 5, one can see that under Clause 4 parties desired that in case of disputes, the Civil Courts at Bombay are to be approached by way of suit. Then follows Clause 5 with the words "It is also agreed" that the dispute "may" be referred to arbitration implying that parties need not necessarily go to the Civil Court by way of suit but can also go before an arbitration. Thus, Clause 5 is merely an enabling provision as contended by the respondents. I may also stated that in cases where there is a sole arbitration, clause couched in mandatory language, it is not preceded by a clause like Clause 4 which discloses a general intention of the parties to go before a Civil Court by way of suit. Thus, reading Clauses 4 and 5 together, I am of the view that it is not the intention of the parties that arbitration is to be the sole remedy. It appears that the parties agreed that they cim "also" go to arbitration also in case the aggrieved party does not wish to go to a Civil Court by way of a suit. But in that event, obviously, fresh consent to go to arbitration is necessary. Further, in the present case, the same Clause 5, so far as the venue of arbitration is concerned, uses word "shall". The parties, in my view, must be deemed to have used the words "may" and "shall" at different places, after due deliberation. xxx xxx 25. But in that event, obviously, fresh consent to go to arbitration is necessary. Further, in the present case, the same Clause 5, so far as the venue of arbitration is concerned, uses word "shall". The parties, in my view, must be deemed to have used the words "may" and "shall" at different places, after due deliberation. xxx xxx 25. Suffice it to say, that the words "may be referred" used in Clause 5, read with Clause 4, lead me to the conclusion that Clause 5 is not a firm or mandatory arbitration clause and in my view, it postulates a fresh agreement between the parties that they will to go to arbitration. Point 2 is decided accordingly against the petitioner”. From the aforesaid discussion it follows.- “An arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not”. Therefore, we have to gather the intention of the parties from the said arbitration clause to find out whether they intend arbitration to be the sole remedy and what are the disputes which they want to be resolved by arbitration, whether all disputes arising under the agreement is to be decided by the arbitration? Further, it has to be found out whether they intended to: oust the jurisdiction of the Civil Court completely or whether they reserved their right or liberty to approach the Civil Court also in respect of the disputes arising under the agreement. It is only if the arbitration agreement makes it clear that the parties agree to oust the jurisdiction of the Civil Court and all the disputes referred to arbitration and they did not want any of the disputes adjudicated by the Civil Court, the parties agree for resolution of the disputes through arbitration mandatorily or necessarily. It is settled law that while construing the provisions which oust the jurisdiction of the Civil Court, those provisions have to be, construed strictly. The exclusion of the Civil Court's jurisdiction should not be readily inferred. 15. If we look into the two clauses in the agreement viz., Clause 5 and Clause 6.2, Clause 5 makes it clear that all questions and claims whatsoever shall be referred to arbitration in accordance with the provisions of Arbitration Act. The exclusion of the Civil Court's jurisdiction should not be readily inferred. 15. If we look into the two clauses in the agreement viz., Clause 5 and Clause 6.2, Clause 5 makes it clear that all questions and claims whatsoever shall be referred to arbitration in accordance with the provisions of Arbitration Act. In the very same clause, it is mentioned that subject to the preceding paragraph, the Courts in Bangalore shall have exclusive jurisdiction over any disputes, differences or claims arising out of this deed. Though the word used is "shall", the same word "shall" is used in conferring jurisdiction on Bangalore Courts to resolve the dispute between the parties. Clause 6.2 exclusively deals with the relief of specific performance of a contract. A right is conferred on both the parties to approach the Civil Court by filing a suit for specific performance if the other party refused to perform his part of the contract. Here also the word used is "shall". In those circumstances, in the absence of the word "only" in Clause 5 of the agreement and Clause 6.2 of the agreement specifically providing an opportunity to both the parties to file suit for specific performance, it cannot be said because of the arbitration clause, the dispute cannot be agitated before a Competent Civil Court. At any rate, parties agree that insofar as the relief of specific performance is concerned, they shall have the liberty to approach the Civil Court and to that extent the jurisdiction of the Arbitrator to decide cases of specific performance of the contract is not exclusive. A cumulative reading of all these clauses, makes it clear that the parties never intended that insofar as the relief of specific performance of the contract is concerned, the parties are necessarily or rather mandatorily require to approach the Arbitrator for resolution of the dispute. It is not the intention of the parties that arbitration is to be the sole remedy. A harmonious interpretation of the said clauses would only mean the parties have kept their options open either to approach the Civil Court or arbitration as they may choose to do so. 16. Therefore, in view of express stipulation contained in Clause 6.2, reserving a right to approach Civil Court for the relief of specific performance this petition filed for appointment of an Arbitrator is not maintainable. 16. Therefore, in view of express stipulation contained in Clause 6.2, reserving a right to approach Civil Court for the relief of specific performance this petition filed for appointment of an Arbitrator is not maintainable. Hence, a case for appointment of Arbitrator is not made out and accordingly CMP is dismissed.