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2013 DIGILAW 887 (BOM)

Blue Star Ltd. v. Farm Fresh Food Processors

2013-04-25

R.D.DHANUKA

body2013
Judgment : By this application filed under Section 11(6) of the Arbitration and Conciliation Act 1996, applicant seeks appointment of arbitrator in terms of clause 17 of the Offer Letter dated 10th February 2011. 2. It is the case of the applicant that vide Offer Letter dated 10th February 2011, the applicant offered to respondent No.1 installation and commissioning of Cold Rooms for total consideration of Rs.67,20,000/- including the installation and commissioning charges. According to applicant, there were five annexures annexed to the said letter of offer dated 10th February 2011 which are duly acknowledged by the respondents. Annexure-VII of the said letter of offer and in particular Clause-17 thereof records arbitration agreement. 3. The dispute arose between the parties. Applicant vide its letter dated 4th June 2012 after referring to the earlier notice of demand dated 19th April 2012 by which the respondents were called upon to make payment of Rs.40,98,808/- with interest and in view of the non payment of the said amount, the applicant issued the said notice dated 4th June 2012 invoking arbitration clause and nominated Mr Karl Shroff, Advocate as arbitrator and called upon the respondents to appoint their nominee arbitrator in terms of Clause 17. There was no response to the said notice. 4. Vide letter dated 22nd March 2012, the respondents alleged that the respondents had agreed the Terms and Conditions in the letter of offer dated 10th February 2011 except Term Nos.15, 17 and 18 and accordingly the Area Sales Manager of the applicant company had alleged to have accepted the said confirmation by the respondents of the letter of offer dated 10th February 2011 itself and accepted the token of advance of Rs.60,000/- on the same day. It is stated that the respondents thereafter paid the advance payment of Rs.14,60,000/-to the applicant on 14th February 2011. However in the said letter, respondents also raised the dispute about the quality of the material supplied by the applicant to the respondents. In paragraph 14 of the said letter, it has been alleged by the respondents that the applicant had made false representation on 10th February 2011 and induced the respondents to rely on promises and assurances made by the applicant in letter dated 10th February 2011 and had fraudulently and dishonestly induced the respondents to part with Rs.14,60,000/-by way of advance. 5. 5. Vide letter dated 19th April 2012, the applicant through its Advocate stated that the respondents had unequivocally accepted the offer letter dated 10th February 2011 and had placed an order based on the said letter for total consideration of 67,20,000/-, the respondents however, had only sought amendment of the terms of payment as stated therein and not otherwise. There is no response to the said letter. The respondents did not nominate their nominee arbitrator, hence this application under Section 11(6) of the Arbitration and Conciliation Act is filed by the applicant. 6. The respondents have filed affidavit in reply opposing the appointment of arbitrator on various grounds. 7. Mr Kanade, the learned counsel appearing for applicant invited my attention to letter of offer dated 10th February 2011 and annexures thereto in support of his plea that every page of the said annexure including letter of offer was signed by the representative of the respondent and the same has been stamped. Attention of this court is also invited to letter dated 22rd March 2012 from the respondents to the applicant in which, for the first time, plea has been raised by the respondents that except conditions recorded in terms of paragraphs 15, 17 and 18 rest of the conditions were accepted. The learned counsel submitted that though the respondents raised this issue for the first time in letter dated 22nd March 2012 regarding letter of offer dated 10th February 2011 was received by the respondents, admittedly no such alleged facts were placed on record by the respondents exclusion of Terms 15, 17 and 18. The learned counsel submits that thus, allegations made in letter dated 22nd March 2012 were afterthought. The learned counsel also invited my attention to other correspondence on record to demonstrate that the respondents have acted upon the said letter of offer dated 10th February 2011 and have made part payment. 8. The learned counsel appearing on behalf of the respondents on the other hand submits that the respondents have denied the signatures on the letter of offer dated 10th February 2011. The learned counsel also invited my attention to letter annexed to affidavit in reply dated 21st February 2013 in support of his plea that respondents had not agreed to Term Nos.15, 17 and 18 which was conveyed to the applicant. The learned counsel also invited my attention to letter annexed to affidavit in reply dated 21st February 2013 in support of his plea that respondents had not agreed to Term Nos.15, 17 and 18 which was conveyed to the applicant. The applicant has disputed the acceptance and receipt of any such letter addressed by the respondents. The learned counsel submits that in view of the serious allegations of fraud made by the respondents against the applicant, matter has to be tried by the civil court and not by the arbitral tribuanl. The learned counsel placed reliance upon the Supreme court Judgment in case of Bharat Rasiklal Ashra Vs Gautam Rasiklal Ashra & Ors. reported in (2012) 2 SCC 144 and in particular paragraph 13 thereof. Learned counsel also placed reliance upon the judgment of Supreme Court in case of Andhra Pradesh Tourism Vs Pamapa Hotels Limited reported in (2010) 5 Supreme Court Cases 425 and in particular paragraph 22 thereof in support of the plea that when question whether there exists arbitration agreement or not is raised in application under Section 11, the same shall be decided by the Chief Justice or his designate before the appointment of arbitrator. The learned counsel also placed reliance on the Judgment of Supreme Court in case of Booz Allen and Hamilton Inc Vs. SBI Home Finance Ltd. & Ors. reported in (2011) 5 Supreme Court Cases 425 in support of his plea that as third party bank is involved in view of the transaction between the applicant and respondents, the matter cannot be referred to arbitration which would involve the dispute not only between the applicant and respondents but would also involve a third party who is not party to arbitration proceedings. The learned counsel also placed reliance upon the Judgment in case of M/s Fair Air Engineers Pvt. Ltd. Vs. N.K. Modi reported in AIR 1997 Supreme Court 533 and in particular paragraph 15 thereof in support of the plea that the respondents already having filed a complaint before the Consumer Forum in respect of the same dispute between the parties, this matter should not be referred to arbitration. 9. N.K. Modi reported in AIR 1997 Supreme Court 533 and in particular paragraph 15 thereof in support of the plea that the respondents already having filed a complaint before the Consumer Forum in respect of the same dispute between the parties, this matter should not be referred to arbitration. 9. The next submission of the learned counsel appearing for the respondents is that in view of the fact that the equipment were to be supplied by the applicant from Nagpur to the respondents having their office at Nagpur, no cause of action has arisen within territorial jurisdiction of this Court, thus, the Honourable Chief Justice or his designate has no jurisdiction to entertain this application under Section 11(6) of the Arbitration Act. 10. The learned counsel also invited my attention to various correspondence in support of his plea that the respondents had agreed to and as a matter of record, taken back some of the equipments supplied by the applicant to the respondents and there was no live dispute. The learned counsel submits that the alleged letter of offer dated 10th February 2011 has been withdrawn and thus, there is no dispute exists between the parties which can be referred to arbitration. 11. In rejoinder Mr Kanade, the learned counsel appearing for the applicant placed reliance upon paragraph 16 and 17 of the Judgment of Supreme Court in Case of Bharat Rasiklal Ashra (supra). Paragraphs 13,16 and 17 of the said Judgment read thus: "13. It is clear from the said two decisions that the question whether there is an arbitration agreement has to be decided only by the Chief Justice or his designate and should not be left to the decision of the arbitral tribunal. This is because the question whether there is arbitration agreement is a jurisdictional issue and unless there is a valid arbitration agreement, the application under Section 11 of the Act will not be maintainable and the Chief Justice or his designate will have No. jurisdiction to appoint an arbitrator under Section 11 of the Act. This Court also made it clear that only in regard to the issues shown in the second category, the Chief Justice or his designate has the choice of either deciding them or leaving them to the decision of the arbitral tribunal. This Court also made it clear that only in regard to the issues shown in the second category, the Chief Justice or his designate has the choice of either deciding them or leaving them to the decision of the arbitral tribunal. Even in regard to the issues falling under the second category, this Court made it clear that where allegations of forgery or fabrication are made in regard to the documents, it would be appropriate for the Chief Justice or his designate to decide the issue. In view of this settled position of law, the issue whether there was an arbitration agreement ought to have been decided by the designate of the Chief Justice and only if the finding was in the affirmative he could have proceeded to appoint the Arbitrator. 16. The learned Counsel for the first Respondent next submitted that if the Chief Justice or his designate is required to examine the allegations of fabrication and forgery made by a party in regard to the contract containing the arbitration agreement, before appointing an arbitrator under Section 11 of the Act, the proceedings under the said section will cease to be a summary proceedings, and become cumbersome and protracted, necessitating recording of evidence, thereby defeating the object of the Act. In our considered view this apprehension has No. relevance or merit. Existence of a valid and enforceable arbitration agreement is a condition precedent before an arbitrator can be appointed under Section 11 of the Act. When serious allegations of fraud and fabrication are made, it is not possible for the Court to proceed to appoint an arbitrator without deciding the said issue which relates to the very validity of the arbitration agreement. Therefore the fact that the allegations of fraud, forgery and fabrication are likely to involve recording of evidence or involve some delay in disposal, are not grounds for refusing to consider the existence of a valid arbitration agreement. 17. The apprehension that such contentions are likely to be raised frequently to protract the proceedings under Section 11 of the Act or to delay the arbitration process, thereby defeating the purpose of Section 11 of the Act is also without basis. Where agreements have been performed in part, such a contention will not be entertained. 17. The apprehension that such contentions are likely to be raised frequently to protract the proceedings under Section 11 of the Act or to delay the arbitration process, thereby defeating the purpose of Section 11 of the Act is also without basis. Where agreements have been performed in part, such a contention will not be entertained. It is only in a very few cases, where an agreement which had not seen the light of the day is suddenly propounded, or where the agreement had never been acted upon or where sufficient circumstances exist to doubt the genuineness of the agreement, the Chief Justice of his designate will examine this issue. This course has repeatedly held that on the ground of termination, performance or frustration of the contract, arbitration agreement cannot be avoided. The legislature has entrusted the power of appointment of an arbitrator to the holders of high judicial offices like the Chief Justice or Judge of the Supreme Court/High Court, with a view that they can identify and effectively deal with false or vexatious claims made only to protract the proceedings or defeat arbitration. If a party is found to have falsely contended that the contract was forged/fabricated, the Chief Justice or his designate may subject such part to heavy costs so that such false claims are discouraged. Be that as it may." 12. The learned counsel submits that there is no substance in the allegations of fraud made by the respondents. The respondents having acted upon the said letter of offer, cannot allege fraud and the said allegations are even otherwise totally baseless and by way of afterthought. 13. Perusal of offer letter dated 10th February 2011 and the correspondence annexed to the arbitration application and the reply, I am of the view that even the respondents referred to same letter of offer in their reply letter dated 22nd March 2012. I am not inclined to accept the submission of the learned counsel for the respondents that Term Nos.15, 17 and 18 recorded in letter of offer dated 10th February 2011 were not accepted. If that was so, the respondents ought to have brought these facts to the notice of the applicant immediately on receipt of said letter of offer dated 10th February 2011. Till 22nd March 2012, there was no such allegation made by the respondents in any of the correspondence. If that was so, the respondents ought to have brought these facts to the notice of the applicant immediately on receipt of said letter of offer dated 10th February 2011. Till 22nd March 2012, there was no such allegation made by the respondents in any of the correspondence. Record also indicates that respondents have acted upon the said letter of offer. 14. In my view once the parties have acted upon the contract, such parties can be allowed to agitate the issue of forgery subsequently. On perusal of correspondence, in my view, the allegations of fraud made by the respondents lack bonafide and thus matter need not to be referred to Civil Court. In my view, the learned counsel appearing for the respondents however is right that once issue whether dispute arose between the parties or not, the same shall be decided by the Chief Justice or his designate before referring the matter to arbitration. In my view, in view of the notice of demand raised by the applicant on 19th April 2012 demanding of Rs.40,98,808/-which was not met with by the respondents, the dispute arose between the parties. In my view, the applicant, thus rightly invoked arbitration clause recorded in Clause 17 of the letter of offer dated 10th February 2011 vide notice dated 14th June 2012. The respondents not having nominated their nominee arbitrator in response to the said notice, present application filed under Section 11(6) of the Arbitration Act is maintainable. In my view, arbitration agreement exists and in view of the dispute existing between the parties, arbitrator is required to be appointed. In view of Clause 18 of the agreement (annexure VII), proceedings filed before Hon'ble Chief Justice of this Court is maintainable at Mumbai. In my view, merely because respondent has filed proceedings against the applicant before consumer Forum, there is no bar under the provisions of the Arbitration Act for appointment of arbitrator. 15. In view of the fact that applicants have already nominated their arbitrator and respondents have not nominated their arbitrator, Mr Rahul Chitnis, Advocate is appointed as arbitrator on behalf of the respondents. Both the arbitrators are directed to appoint presiding arbitrator in accordance with the provisions of Arbitration and Conciliation Act, 1996. It is made clear that I have not expressed any views on the merits of the claim and all such issues will be decided by the arbitration.