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2017 DIGILAW 926 (RAJ)

Suryoday Construction Company Private Ltd. v. Arvind Pareek

2017-04-07

MOHAMMAD RAFIQ

body2017
ORDER : Mohammad Rafiq, J. This application under Section 8 read with section 11 of the Arbitration and Conciliation Act, 1996 was filed by the applicant way back on 3.2.2011 praying for appointment of an independent Arbitrator and referring the dispute between the parties for resolution to him. 2. In the application, the applicant has pleaded that a collaboration agreement was executed on 6.8.2007 between the applicant and the family members of the respondent-Smt. Kaushalya Pareek, Sunita Pareek, Sarita Pareek & Manisha Pareek, all legal representatives of late Narayan Pareek, resident of D67/A, Sawai Madho Road, Bani Parek, Jaipur. It was agreed between the parties that the land comprising in the said plot shall be developed by constructing multi-storied building. The respondent agreed to provide documents of the property to the applicant so that necessary permission for construction can be obtained from Nagar Nigam, Jaipur. The respondent also agreed to provide signatures of family members on collaboration agreement for all purposes. It was agreed that a sum of Rs. 60,00,000 would be given by the applicant to the respondent as security, out of which a sum of Rs. 21,00,000 was actually given to respondent. In spite of receipt of said amount, the respondent did not get the surrender deed from their sisters and also did not get the signatures of other family members on the collaboration agreement. The respondent even did not make the title documents available to the applicant so as to enable it to obtain permission of construction from the Nagar Nigam. 3. The applicant sent a legal notice to the respondent on 15.12.2009 requesting him to perform the conditions of the agreement. The respondent in reply to the legal notice sent through their counsel on 19.12.2009, stated that applicant was still required to pay Rs. 40,00,000 to the respondent as only Rs. 21,00,000 were paid. The applicant in rejoinder sent on 6.1.2010 mentioned that he is prepared to pay remaining amount of Rs. 40,00,000, subject to providing signatures of other family members. In response to this, the respondents sent a communication dated 12.10.2010 conveying that agreement be taken as cancelled. 40,00,000 to the respondent as only Rs. 21,00,000 were paid. The applicant in rejoinder sent on 6.1.2010 mentioned that he is prepared to pay remaining amount of Rs. 40,00,000, subject to providing signatures of other family members. In response to this, the respondents sent a communication dated 12.10.2010 conveying that agreement be taken as cancelled. It is at this stage that the applicant sent a notice to the respondent for referring the dispute to the arbitration and calling upon them to give their consent for appointing Shri Anil Suroliya, a retired District Judge as sole Arbitrator as per clause 25 of the agreement. The respondent refused to receive the said communication. The registered envelope was returned to the applicant with the remark that the respondent was not found on given address. 4. During the pendency of this application, the matter was referred to the Mediator, Mediation Centre, Jaipur with the consent of the parties by order of this Court dated 17.7.2015 for exploring the possibility of settlement. Both the parties on 2.9.2015 reached at final agreement before the Mediator by entering into a fresh collaboration agreement. It however appears that the parties did not act upon the fresh agreement. In these circumstances, when the matter came up before the Court on 21.10.2016, the learned counsel for the applicant submitted that further negotiations are required to take place in view of the subsequent development so that fresh agreement may be signed between the parties. The parties were then again sent to the Mediation Centre where none appeared for the applicant on 9.3.2017. Although when parties again appeared before the Mediation Centre, they agreed to initiate a dialogue, but no progress has taken place despite lapse of a long period of five months. The matter is therefore again listed before the Court. 5. Shri Anoop Dhand, learned counsel for the applicant submitted that the new agreement, which was signed between the parties after settlement before the learned Mediator on 2.9.2015 itself provides in clause 17 that if any further dispute arises between the parties before the start of the construction, this fresh agreement would stand cancelled, but therein an additional condition was put that matter shall not be referred to the arbitration. This additional contention cannot be acted upon because once the new agreement is cancelled, the earlier agreement would stand revived and according to clause 25 of the said agreement in case of any dispute between the parties, the same shall be settled through arbitration in accordance with Arbitration and Conciliation Act, 1996. 6. On the other hand, Shri Kushagra Sharma, learned counsel for the respondent submitted that once the new agreement was executed on 2.9.2015, it would tantamount to novation of the contract with earlier agreement having been superseded. In this new agreement, it was clearly stated in clause 17 that the earlier agreement would be treated as cancelled and that if owing to any dispute between the parties, construction does not start in execution of the new agreement, this new agreement shall stand cancelled and the dispute shall not be referred to Arbitration. In clause 18, it was mentioned that since the new agreement is being signed by resolving the dispute, after signing the new agreement, all the conditions contained in the previous agreement shall be treated as invalid. In any case, therefore, the present application should be dismissed as having been rendered infructuous as the clause of arbitration contained in earlier agreement has come to an end with the said agreement itself being superseded by the new agreement. 7. Having heard the learned counsel for the parties and perusing the material on record, this Court is not inclined to treat the present application, which is pending since 2011, as infructuous because there are contentious issues raised by both the sides. In order to better appreciate the questions posed, it is deemed appropriate to reproduce clause 25 of the old agreement and clauses 17 and 18 of the new agreement, which though is framed in Hindi, but when translated in English, read thus: Old agreement: "25. That if any dispute arises between the parties with regard to execution of the project in accordance with this agreement, the same shall be resolved by arbitrator/arbitrators appointed by the parties. All the proceedings shall be conducted as per the Arbitration Act." New Agreement: "17. That if any dispute arises between the parties with regard to execution of the project in accordance with this agreement, the same shall be resolved by arbitrator/arbitrators appointed by the parties. All the proceedings shall be conducted as per the Arbitration Act." New Agreement: "17. That both parties shall be bound by the agreement and if any party wants to terminate the agreement owing to any reason, it shall give notice of two months to other party and during this notice period, shall carry out all the transactions in accordance with the terms of the agreement. After two months time, the agreement shall be deemed to be terminated. If any dispute arises between the parties with regard to the terms of agreement, as to interpretation of the terms of agreement or obstruction of work or non-compliance of agreement due to any other reason, then both the parties shall appoint an 'Arbitrator' in this regard with mutual consent and shall resolve the dispute in accordance with the provisions of the Arbitration and Conciliation Act, 1996. It is made clear here that if the dispute arise before commencement of the course of action (i.e. construction work), then according to the terms of agreement, this agreement shall be deemed to be cancelled and the matter shall not be referred to the Arbitrator." "18. That this agreement, as mentioned above, is being executed after resolving the disputes arising out of the previously written agreement. Thus, the terms of previously written agreement shall be treated invalid as against the terms of this agreement." 8. The original agreement categorically provided in clause 25 that in the event of any dispute between the parties, the dispute shall be referred to Arbitration for resolution as per the Arbitration and Conciliation Act, 1996. The new agreement in clause 17 also provides that both the parties would be bound by the terms of the agreement and it would be open to either party to terminate the contract by serving notice of two months where after the agreement shall be treated as cancelled. If, however, any dispute arises with regard to interpretation of the conditions of the agreement or conduct of either of the parties and due to non fulfilment of contract, then both the parties by mutual consent shall get the dispute resolved by appointing an arbitrator as per the provisions of Arbitration and Conciliation Act, 1996. 9. If, however, any dispute arises with regard to interpretation of the conditions of the agreement or conduct of either of the parties and due to non fulfilment of contract, then both the parties by mutual consent shall get the dispute resolved by appointing an arbitrator as per the provisions of Arbitration and Conciliation Act, 1996. 9. Essentially, the dispute between the parties is as to the interpretation of clause 17 and 18 and, therefore, there should be no impediment for referring the dispute to arbitration. But then last sentence of clause 17 also provides that if any dispute arises between the parties before the commencement of construction, this agreement shall be treated as cancelled and the matter shall not be referred to arbitration. Apparently, the condition that the matter shall be referred to arbitration, is intended to be confined to three situations referred to in clause 17, namely; (i) if any dispute arises as to interpretation of any of the clauses, (ii) if any dispute arises regarding obstruction in execution of the work contract and (iii) non-fulfilment of the contract or any other reason. In anyone of these eventualities, the dispute can be referred to arbitration by mutual consent under the Arbitration and Conciliation Act, 1996. But the problem, as already noted above, is posed by the last sentence of clause 17, supra, to the effect that if the dispute has arisen even before the commencement of the construction, the agreement shall be treated as cancelled and the dispute shall not be referred to arbitration. There is thus inherent contradiction in the selfsame clause 17 because while it provides in earlier part that if any obstruction is created by any party in execution of the work, this by itself could be a premise for referring the dispute to arbitration, but in the last sentence it also provides that if the dispute arises before the commencement of the construction, the agreement shall be treated as cancelled and dispute shall not be referred to Arbitration. Not much is clear what would be the position if work could not be commenced due to obstruction by one party, which is why dispute might arise before the commencement of the Constitution. In such a situation, it cannot be said that there does not exist dispute between the parties and there is absence of arbitration clause. Not much is clear what would be the position if work could not be commenced due to obstruction by one party, which is why dispute might arise before the commencement of the Constitution. In such a situation, it cannot be said that there does not exist dispute between the parties and there is absence of arbitration clause. In any case, therefore, when any one of the eventualities referred to in clause 17 is attracted, dispute could be referred to arbitration. Even if the new agreement is taken as cancelled owing to any reason contained in clause 17 thereof, the normal consequence should be the revival of the old agreement, which contains the clause of arbitration. But then clause 18 then provides that since the new agreement was being executed after resolving the dispute arising out of the earlier agreement, the conditions contained in the earlier agreement shall be taken as invalid. 10. In view of law that has developed following a catena of Supreme Court judgments on the subject, despite Clause 18 of the new agreement, which states that since it is being executed for resolving the dispute arising out of the earlier agreement, earlier agreement should be taken as not valid, cannot be interpreted to mean that clause 25 of the earlier agreement would be treated as invalid. The Supreme Court in Swiss Timing Ltd. v. Commean wealth Games 2010 Organisation Committee, (2014) 6 SCC 677 held that since arbitration clause in a contract is treated as an agreement, independent of the other terms of the contract, mere adjudication that underlying contract is null and void does not render arbitration clause invalid. Courts thus are empowered to refer disputes to arbitration even if underlying contract is found to be void ab initio. In view of sections 5 and 16 of the Arbitration and Conciliation Act, 1996 all matters including the issue as to whether main contract was void/voidable can be referred to arbitration. However, while exercising jurisdiction under Section 11, the court can decline to refer disputes to arbitration if contract is patently void or where it reaches a conclusion that contract is void on a meaningful reading of contract document, without requirement of any further proof. Mere claim that contract is void however will not suffice. 11. However, while exercising jurisdiction under Section 11, the court can decline to refer disputes to arbitration if contract is patently void or where it reaches a conclusion that contract is void on a meaningful reading of contract document, without requirement of any further proof. Mere claim that contract is void however will not suffice. 11. The Supreme Court in Enercon (India) Ltd. v. Enercon Gmbh, (2014) 5 SCC 1 held that concept of separability of the arbitration clause/agreement from the underlying contract is a necessity to ensure the intention of the parties to resolve the disputes by arbitration does not evaporate into thin air with every challenge to the legality, validity, finality or breach of the underlying contract. Section 16 of the Act accepts the concept that the main contract and the arbitration agreement form two independent contracts. Commercial rights and obligations are contained in the underlying, substantive, or the main contract. It is followed by a second contract, which expresses the agreement and the intention of the parties to resolve the disputes relating to the underlying contract through arbitration. This very view was expressed by the Supreme Court in Today Homes and Infrastructure (P) Ltd. v. Ludhiana Improvement Trust, (2014) 5 SCC 68 in which it was held that there is no automatic invalidation of arbitration clause, if main agreement is declared as void. Arbitration clause can continue to be enforceable, even if main agreement/contract is declared as null and void. 12. In view of the settled law on the subject, the clause of arbitration in the old agreement has to be accepted as stand alone agreement, regardless of what is provided in the subsequent agreement, especially when relevant clause in the new agreement suffering from inherent and irreconcilable contradictions. In spite of aforesaid contentious issues raised by both the parties, section 16 of the Arbitration and Conciliation Act, 1996 always leaves it open to either of the parties to raise all or every kind of objections it wishes to do as to jurisdiction of Tribunal at the stage of statement of defence. In spite of aforesaid contentious issues raised by both the parties, section 16 of the Arbitration and Conciliation Act, 1996 always leaves it open to either of the parties to raise all or every kind of objections it wishes to do as to jurisdiction of Tribunal at the stage of statement of defence. Reference in this connection may be usefully made to Sanghi Brothers (Indore) Pvt. Ltd. v. Muktinath Airlines Pvt. Ltd. & Anr., (2015) 16 SCC 471 , in which the Supreme Court was dealing with a case where Memorandum of Understanding was entered into between respondent No. 1 and respondent No. 2 on one hand and the petitioner, on the other, for sale of helicopter to the petitioner. Clause 24 of the MoU provided for arbitration. Respondent No. 1 resisted for appointment of the arbitration on the ground that clause 12 and clause 19 of the MoU dated 4th July, 2013 had been materially altered by changing the period of payment from one month to three months and further that the power of attorney in favour of respondent No. 2 was forged by it. It was held that such questions cannot be gone into by the court in exercise of jurisdiction under section 11(6) of the Arbitration Act. They can be raised before the learned Arbitrator and answered by the said authority under Section 16 of the Act. 13. In view of above, the present application succeeds and is accordingly allowed. Hon'ble Mr. Justice Bhanwaroo Khan (former Judge, Rajasthan High Court), R/o E-734, Gandhi Nagar, Jaipur (Cell No. 9829225441), is hereby appointed as an independent Arbitrator to resolve the disputes between the parties. It, however, would be open to the respondent to raise the objection with regard to jurisdiction of the Arbitral Tribunal itself in terms of Section 16 of the Act at the appropriate stage. Payment of costs of arbitration proceedings and the arbitration fees shall be made as per the Fourth Schedule of the Arbitration and Conciliation (Amendment) Act, 2015 read with Manual of Procedure for Alternative Dispute Resolution, 2009, of this Court, as amended from time to time. 14. A copy of this order be sent to Hon'ble Mr. Justice Bhanwaroo Khan (former Judge of Rajasthan High Court), R/o E-734, Gandhi Nagar, Jaipur (Cell No. 9829225441).