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Rajasthan High Court · body

2017 DIGILAW 1021 (RAJ)

RAJ KUMAR BAPNA v. STORE ONE RETAIL INDIA LIMITED

2017-04-19

SANGEET LODHA

body2017
ORDER : Sangeet Lodha, J. This arbitration application has been filed by the applicant under Section 11 (6) of the Arbitration and Conciliation Act, 1996 ("the Act") for appointment of Sole Arbitrator on account of the respondents failing in appointing the Arbitrator in terms of the arbitration clause in the contract on demand being raised by the applicant. 2. The relevant facts are that the respondent entered into a Business Conducting Agreement with the applicants for utilising the space/property owned by them. The respondent company vide clause 3 of the said agreement confirmed entering into possession of the conducting area for the purpose of fit-outs on 1st November, 2007 for a period of eighty five days till 24th January, 2008 which was considered as conducting fee free period for undertaking civil, electrical and AC ducting work as per the requirements of the respondent company. Vide clause 4 of the said agreement, the term of the agreement was fixed for a period of nine years out of which the initial period of twelve months was to be lock in period during which neither party was entitled to terminate the said agreement. Vide clause 5 of the agreement, the respondent company agreed to pay to the applicants from the effective date a monthly conducting fee of Rs. 45 per sq. ft. carpet area amounting to Rs. 4,29,750/-. Under Clause 6, the respondent company was liable to deposit with the applicants a sum of Rs. 15,00,000/- to be retained by the applicants as interest free deposit of which last instalment of Rs. 3,75,000/- was payable on the effective date 25th January, 2008. All payments were to be made by the respondent company in the ratio of 3:1 (75% : 25%). The respondent company committed breach in payment of balance deposit of Rs.3,25,000/-. That apart, the respondent company failed to pay to the applicants in ratio of 3:1 the agreed conducting fee Rs. 4,29,750/- per month w.e.f. 25.1.08. Due to non-payment of agreed conducting fee for the period from 25.1.08 to 31.5.08 which comes to Rs. 18,16,040/-, the applicants exercising their rights under the said agreement vide notice dated 24.5.08 demanded total dues a sum of Rs. 42,75,540/- including the conducting fee for the notice and grace notice period amounting to Rs. 8,59,500/- and Rs. 16,00,000/- towards out of pocket investments on the premises as per respondent's requirements (after adjusting the amount of Rs. 18,16,040/-, the applicants exercising their rights under the said agreement vide notice dated 24.5.08 demanded total dues a sum of Rs. 42,75,540/- including the conducting fee for the notice and grace notice period amounting to Rs. 8,59,500/- and Rs. 16,00,000/- towards out of pocket investments on the premises as per respondent's requirements (after adjusting the amount of Rs. 11,25,000/- held by the applicants as interest free deposit). The applicants also informed the respondents that on failure to make payment, they will be constraint to approach this Court invoking arbitration clause 19 of the agreement for appointment of Sole Arbitrator under Section 11 of the Act. 3. The applicants preferred an Arbitration Application No. 51/08 before this Court. On notice being served, the respondent filed the reply and raised objection that as per clause 19 of the agreement, the Sole Arbitrator is required to be appointed by mutual consent, however, no efforts were made in this regard adhering to the arbitration clause and therefore, the application preferred under Section 11 of the Act is not maintainable. The objection raised was sustained by a Coordinate Bench of this Court vide order dated 21.7.2015 and accordingly the arbitration application was rejected in the following terms:- "Having considered the facts noticed above, I do not find the notice dated 24.05.2008 competent to get the arbitrator appointed by this court under Section 11 (6) of the Arbitration of Conciliation Act, 1996. Accordingly, this application is dismissed. However, dismissal of this application in no manner shall adversely affect rights of the applicant for appointment of arbitrator as per clause 19 under the separate notice, that is said to be already given. The respondents shall also be at liberty to agitate its all objections, if any such notice is received." 4. The applicants sent the respondent another notice dated 24.5.2015 for the appointment of Sole Arbitrator by mutual consent. However, it is stated that in view of the missing postal receipts, the said notice was again dispatched on 21.7.2015 to the respondent by way of speed post which was duly served upon the respondent on 25.7.2015 and 27.7.2015. Despite notice being given, the respondent failed to agree upon the appointment of Sole Arbitrator for the resolution of the dispute. Hence this application. 5. Despite notice being given, the respondent failed to agree upon the appointment of Sole Arbitrator for the resolution of the dispute. Hence this application. 5. Learned counsel appearing for the respondent company has questioned the maintainability of the application raising two preliminary objections; firstly, that the application preferred for appointment of Sole Arbitrator in the year 2015 for the reference of the dispute arisen on account of the default alleged to have been committed by the respondent company in the year 2008, is apparently relates to a claim barred by limitation and secondly, that the agreement in question is essentially a lease deed which being insufficiently stamped cannot be acted upon and enforced for purposes of arbitration. In support of the contentions, learned counsel has relied upon decisions of the Hon'ble Supreme Court in Shree Ram Mills Ltd. v. Utility Premises (P) Ltd. (2007) 4 SCC 599 , Indian Oil Corporation Ltd. v. SPS Engineering Ltd. AIR 2011 SC 987 , Wexford Financial Inc. Panama v. Bharat Heavy Electricals Limited (2016) 8 SCC 267 , Naina Thakkar v. Annapurna Builders (2013) 14 SCC 354 and in SMS Tea Estates Private Ltd. v. Chandmari Tea Company Private Limited (2011) 14 SCC 66 . 6. Replying the objections raised, learned counsel appearing for the applicants contended that the applicants were pursuing the earlier arbitration application seeking appointment of arbitrator preferred before this Court and therefore, the time spent in the proceedings before this Court has to be excluded by virtue of provisions of Section 14 of the Limitation Act, 1953. Learned counsel submitted that the provisions of Section 14 apply to the arbitration proceedings as well. In this regard, learned counsel has relied upon a decision of Hon'ble Supreme Court in the matter of State of Goa v. Western Builders (2006) 6 SCC 239 . Learned counsel would submit that the matter with regard to the claim being barred by time and the merits of the claim, needs to be decided by the Arbitrator and therefore, the question regarding the claim being barred by limitation is not required to be gone into by this Court in exercise of the power conferred under Section 11(6) of the Act. Learned counsel submitted that the agreement entered into between the parties is a conducting agreement and by no stretch of imagination, it could be construed to be a lease deed as claimed by the respondent company. Learned counsel submitted that in any case, the question regarding the construction of the document is certainly a question touching the merits of the case which is also required to be considered exclusively by the Sole Arbitrator to be appointed and not by this Court in the proceedings under Section 11 of the Act and thus, the contention raised is absolutely devoid of any merit. 7. I have considered the rival submissions of the learned counsel for the parties and perused the material on record. 8. Indisputably, there exists an arbitration clause in the agreement entered into between the parties which reads as under: "19. Any dispute arising from or in relation to this Conducting Agreement or relating to the interpretation thereof shall be referred to a sole arbitrator to be mutually agreed to and appointed by both parties and such arbitration shall be in accordance with the provisions of the Arbitration and Conciliation Act, 1996, or any statutory modification or re-enactment thereof for the time being in force. The venue of such arbitration shall be at Udaipur and be conducted in English language. The award shall be final and binding on both parties." 9. The factum of dispute having been arisen between the parties is also not disputed before this Court, rather, the application seeking arbitration is opposed on the ground that the claim of the applicants being barred by limitation, no live claim referable to the arbitration exists. 10. In the matter of "SBP & Co. v. Patel Engg. Ltd.", (2005) 8 SCC 618 , the Hon'ble Supreme Court while dealing with question relating to power of the Chief Justice or his designate to decide the issue regarding existence of arbitration clause, the territorial jurisdiction, live issue and the limitation under Section 11 of the Act, observed: "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 his own jurisdiction in the sense whether the party making the motion has approached the right High Court. 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 his own jurisdiction in the sense whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11 (6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal." (emphasis supplied) 11. In Shree Ram Mills Ltd.'s case (supra), relied upon by learned counsel appearing for the petitioner, the Supreme Court while referring to para no.39 of SBP & Company's case (supra), observed: "A glance on this para would suggest the scope of the order under Section 11 to be passed by the Chief Justice or his designate. Insofar as the issues regarding territorial jurisdiction and the existence of the arbitration agreement are concerned, the Chief Justice or his designate has to decide those issues because otherwise the arbitration can never proceed. Insofar as the issues regarding territorial jurisdiction and the existence of the arbitration agreement are concerned, the Chief Justice or his designate has to decide those issues because otherwise the arbitration can never proceed. Thus, the Chief Justice has to decide about the territorial jurisdiction and also whether there exists an arbitration agreement between the parties and whether such party has approached the court for appointment of the arbitrator. The Chief Justice has to examine as to whether the claim is a dead one or in the sense whether the parties have already concluded the transaction and have recorded satisfaction of their mutual rights and obligations or whether the parties concerned have recorded their satisfaction regarding the financial claims. In examining this if the parties have recorded their satisfaction regarding the sense that the Chief Justice has to examine as to whether there remains anything to be decided between the parties in respect of the agreement and whether parties are still at issue on any such matter. If the Chief Justice does not, in the strict sense, decide the issue, in that event it is for him to locate such issue and record his satisfaction that such issue exists between the parties. It is only in that sense that the finding on a live issue is given. Even at the cost of repetition we must state that it is only for the purpose of finding out whether the arbitral procedure has to be started that the Chief Justice has to record satisfaction that there remains a live issue in between the parties. The same thing is about the limitation which is always a mixed question of law and fact. The Chief Justice only has to record his satisfaction that prima facie the issue has not become dead by the lapse of time or that any party to the agreement has not slept over its rights beyond the time permitted by law to agitate those issues covered by the agreement. It is for this reason that it was pointed out in the above para that it would be appropriate sometimes to leave the question regarding the live claim to be decided by the Arbitral Tribunal. All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation. All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation. Thus, where the Chief Justice comes to a finding that there exists a live issue, then naturally this finding would include a finding that the respective claims of the parties have not become barred by limitation." (emphasis supplied) 12. In Indian Oil Corporation's case (supra), the Hon'ble Supreme Court while following the decision in SBP Company's case (supra), identified and segregated the issues that may be raised in application under Section 11 of the Act in three categories. The issue regarding the claim being a dead claim or live claim has been kept in second category covering the issues which the Chief Justice or his designate may choose to decide or leave them to decision of the Arbitral Tribunal. 13. Recently, in Wexford Financial Inc. Panama's case (supra), the Hon'ble Supreme Court has specifically held that the matter with regard to the claim sought to be referred to arbitration being barred by law has to be decided by the arbitrator and not by the Chief Justice/Designate in proceedings under Section 11(6) of the Act. The Court held : "We have heard the learned counsel for the parties at some length. The material facts are not in dispute. That a Service Provider Agreement was executed between the parties is admitted. That Article 7 of the said agreement provides for settlement of the dispute in relation to the agreement by way of arbitration is also not in dispute. That disputes have actually arisen between the parties in relation to the agreement is also evident from the averments made in the pleadings. The only method for determination of such disputes is by way of arbitration. Whether or not the petitioner has provided the services envisaged under the agreement and, if so, whether the said services were adequate and satisfactory are matters that can be examined only by the arbitrator. So also the question whether the claim made by the petitioner is time-barred cannot be examined in the present proceedings and shall have to be left open to be raised before the arbitrator. So also the question whether the claim made by the petitioner is time-barred cannot be examined in the present proceedings and shall have to be left open to be raised before the arbitrator. There is, in that view, no gainsaying that the present petition under Sections 11 (5) and 11 (12) shall have to be allowed with appropriate directions, particularly when this Court is concerned primarily with the question whether an arbitration agreement exists between the parties and if so whether the disputes falling within the scope of the agreement have arisen for determination. Our answer to both these questions being in the affirmative, the petitioner has made out a case for appointment of an arbitrator and for reference of the disputes for adjudication to him/her." (Emphasis supplied) 14. In the backdrop of the position of law settled by the Hon'ble Supreme Court as aforesaid, adverting to the facts of present case, it is to be noticed that after service of the notice upon the respondent company, the applicants had earlier filed Arbitration Application No. 51/08 seeking appointment of arbitrator for reference of the dispute having been arisen between the parties but the same was dismissed by this court inasmuch as, before the service of the notice, the applicants had not made efforts for appointment of the arbitrator with mutual consent in terms of arbitration clause in the contract and thus, on the respondent company failing to agree for appointment of arbitrator by mutual consent, the applicants after service of the notice have filed this fresh arbitration application seeking appointment of the Sole Arbitrator. Obviously, the applicants are well within their right to contend that by virtue of provisions of Section 14 in computing the period of limitation, the time during which the applicants have been prosecuting their earlier arbitration application with due diligence has to be excluded. In this view of the matter, this court considers it appropriate to leave the question with regard to the limitation, which is essentially a mixed question of law and facts, to be decided by the Sole Arbitrator. 15. In this view of the matter, this court considers it appropriate to leave the question with regard to the limitation, which is essentially a mixed question of law and facts, to be decided by the Sole Arbitrator. 15. Coming to the objection raised by the respondent that the agreement in question is essentially a lease deed which is insufficiently stamped cannot be acted upon and enforced for purposes of arbitration, suffice it to say that the question whether the conducting agreement in question entered into between the parties is a conducting agreement or it deserves to be construed as lease deed having different consequences regarding the rights of the parties flowing therefrom, is essentially a question touching the merits of the case which cannot be gone into by this court as authority designate of the Chief Justice in exercise of power conferred under Section 11 of the Act. 16. In SMS Tea Estates Pvt. Limited's case (supra) and Naina Thakkar's case (supra), relied upon by the learned counsel for the respondent, the question of the construction of the document as such was not involved and the nature of document and insufficiency of the stamp was also not in dispute and thus, having regard to the factual position of the present case noticed hereinabove, in the considered opinion of this court, the said decisions of the Hon'ble Supreme Court relied upon by the learned counsel does not help the respondent company in any manner. 17. In view of the discussion above, the objections raised by the respondent are not sustainable in the eyes of law. Consequently, the arbitration application deserves to be allowed. 18. Accordingly, the application is allowed. Hon'ble Mr. Justice D.N. Joshi, Former Judge of Rajasthan High Court, is appointed as Sole Arbitrator for adjudication of the dispute that has arisen between the parties in relation to contract in question. It will be open for the respondent to raise all objections before the Sole Arbitrator including the objections raised before this court discussed hereinabove. The fee and expenses payable to the Arbitrator shall be determined as per clause 34 of the Manual of Procedure for Alternative Dispute Resolution, 2009 as amended vide Manual of Procedure for Alternative Dispute Resolution (Amendment), 2016. The parties shall appear before the Sole Arbitrator on 15.5.2017.