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2023 DIGILAW 1816 (BOM)

Allied Digital Services Ltd. v. XL Dynamics India Pvt. Ltd.

2023-08-28

MANISH PITALE

body2023
JUDGMENT : Manish Pitale, J. Heard learned counsel for the parties. 2. This is an application filed under section 11 of the Arbitration and Conciliation Act, 1996, for appointment of arbitrator, in order to resolve disputes between the parties. The arbitration clause in the present case is found in a leave and license agreement dated 28/3/2023, executed between the parties. The applicant was the licensor and the respondent was the licensee under the said agreement. 3. It is submitted that after the respondent vacated the premises, the applicant was constrained to invoke the arbitration clause by notice dated 3/10/2019, for the reason that the damages caused to the premises in question, gave rise to cause of action for the applicant to claim appropriate amount from the respondent, which included damages suffered by the applicant for the reason that after the respondent had vacated the premises, the applicant could not let out the same for a considerable period of time. 4. The learned counsel for the applicant relied upon the arbitration clause in the leave and license agreement and invocation notice dated 3/10/2019, to submit that the nature of reliefs sought by the applicant is relatable to the agreement in question, particularly in the light of specific clause for damages incorporated in the agreement and that the Small Causes Court would not have jurisdiction to grant such relief to the applicant, even if the jurisdiction of the said Court was to be invoked. In that light, it was submitted that even if the arbitration clause is found in a leave and license agreement, the category of non arbitrable disputes identified in judgment of the Supreme Court in the case of Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 would not apply to the facts of the present case. The learned counsel for the applicant relied upon judgment and order dated 13/7/2016 passed by the Supreme Court in the case of M/s. Wexford Financial Inc. Panama v. Bharat Heavy Electricals Ltd. in Arbitration Petition (Civil) No.19/2015 decided on 13/7/2016. 5. On the other hand, Mr. Tripathi, learned counsel appearing for the respondent submitted that since the arbitration clause is admittedly found in a leave and license agreement, the aforesaid prohibition of such dispute being sent to arbitration recognised in the judgment of the Supreme Court in the case of Vidya Drolia v. Durga Trading Corporation (supra) would apply. 5. On the other hand, Mr. Tripathi, learned counsel appearing for the respondent submitted that since the arbitration clause is admittedly found in a leave and license agreement, the aforesaid prohibition of such dispute being sent to arbitration recognised in the judgment of the Supreme Court in the case of Vidya Drolia v. Durga Trading Corporation (supra) would apply. Apart from the aforesaid aspect of the matter, the learned counsel appearing for the applicant invited attention of this Court to Exh.M of the application, being an email dated 3/2/2016, sent on behalf of the applicant enumerating the amounts that were deducted from the security deposit of Rs.1,60,00,000/- lying with the applicant. It was submitted that the applicant itself conceded that after deducting amounts under the said head for damage rectification, the applicant was to refund the amount of Rs.9,94,177/- to the respondent on the basis of aforesaid document. It was contended that the disputes between the parties were settled and that therefore, there was no occasion for the applicant to have issued the invocation notice dated 16/10/2019. It was emphasized that the said notice was issued after a period of one year and eight months from the said email dated 3/2/2016, issued by the applicant, thereby indicating that there was no arbitrable dispute existing between the parties, for which an arbitrator could be appointed. Reliance was placed on judgment of the Supreme Court in the case of NTPC Ltd. v. M/s. SPML Infra Ltd, AIR 2023 SC 1974 . 6. Heard learned counsel for the rival parties and perused the material on record. It is undisputed that the arbitration clause in the present case is found in the leave and license agreement, executed between the parties. The Supreme Court in the case of Vidya Drolia v. Durga Trading Corporation (supra) has considered the aspect of certain disputes being non-arbitrable in nature and in the said judgment, it was observed that where the Special Courts are established under Statutes for deciding specific disputes between the parties, even if there is an arbitration agreement between the parties, such disputes cannot be referred to arbitration. In the category of disputes identified by the Supreme Court, all such disputes pertaining to landlord-tenant, lessor-lessee and licensor-licensee have been identified. In the category of disputes identified by the Supreme Court, all such disputes pertaining to landlord-tenant, lessor-lessee and licensor-licensee have been identified. To that extent, there is substance in the contention raised on behalf of the respondent that in the light of the said position of law, even if there is an arbitration clause in the leave and license agreement executed between the parties, disputes, if any, between the parties cannot be referred to arbitrator. 7. But, there is another reason why this Court is not inclined to entertain the present application and the said reason is based on the law laid down by the Supreme Court in the case of NTPC Ltd. v. M/s. SPML Infra Ltd. (supra), wherein it is laid down that although the question of arbitrability of disputes should ordinarily be decided by the arbitrator / arbitral tribunal, the Court exercising jurisdiction under Section 11 of the said Act retains narrow jurisdiction to enter into the aspect of arbitrality of the dispute and to rule upon the said aspect of the matter. The position of law is clarified by the Supreme Court in the following terms. 25. Eye of the Needle: The above-referred precedents crystallise the position of law that the pre-referral jurisdiction of the courts under Section 11(6) of the Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant's privity to the said agreement. These are matters which require a thorough examination by the referral court. The secondary inquiry that may arise at the reference stage itself is with respect to the non-arbitrability of the dispute. 26. As a general rule and a principle, the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. As an exception to the rule, and rarely as a demurrer, the referral court may reject claims which are manifestly and ex-facie non-arbitrable. Explaining this position, flowing from the principles laid down in Vidya Drolia (supra), this Court in a subsequent decision in Nortel Networks (supra) held: "45.1 ...While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Explaining this position, flowing from the principles laid down in Vidya Drolia (supra), this Court in a subsequent decision in Nortel Networks (supra) held: "45.1 ...While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time-barred and dead, or there is no subsisting dispute..." 27. The standard of scrutiny to examine the non-arbitrability of a claim is only prima facie. Referral courts must not undertake a full review of the contested facts; they must only be confined to a primary first review and let facts speak for themselves. This also requires the courts to examine whether the assertion on arbitrability is bonafide or not. The prima facie scrutiny of the facts must lead to a clear conclusion that there is not even a vestige of doubt that the claim is non arbitrable. On the other hand, even if there is the slightest doubt, the rule is to refer the dispute to arbitration. 28. The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resources. Further, as noted in Vidya Drolia (supra), if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court. Therefore, this Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator, as explained in DLF Home Developers Ltd. v. Rajapura Homes Pvt. Ltd. 2021 SCC Online SC 781. 8. 8. It is significant that in the said case, after laying down the above quoted position of law, the Supreme Court applied the same to the facts of the said case and found that since disputes between the parties were already settled, there was no question of referring the parties to arbitration, as the claims made by the aggrieved party appeared to be an after thought. 9. In the present case, a perusal of Exh.M shows that an email addressed on behalf of the applicant to the respondent specifically stated the amounts that were required to be deducted from the security deposit of the respondent. This included amount towards Utility bills and specifically under the head of damage rectification. The said email specifies that after deducting amounts under such heads, it was the applicant that was liable to refund Rs.9,94,177/- to the respondent. There is substance in the contention raised on behalf of the respondent that the said document indicates that grievance, if any, of the applicant was settled and it was the applicant who was liable to pay the aforesaid amount to the respondent. The documents on record show that after more than one year and eight months, the petitioner issued the invocation notice to the respondent, despite the respondent having admittedly vacated the premises in February 2016 itself. 10. It is interesting to note that in paragraph 13 of the said notice, the applicant claimed that since the respondent vacated the premises after delay of a few days, prospective lessees were discouraged and hence, the applicant was entitled to claim damages to the extent of license fee for the next 10 months period. This Court is of the opinion that issuance of the aforesaid notice dated 3/10/2019, is nothing but an after thought and there is no arbitrable dispute existing between the parties, particularly in the backdrop of the document at Exh.M, noted hereinabove. 11. The present case clearly falls within the narrow scope of jurisdiction available to this Court under Section 11 of the said Act to examine as to whether arbitrable disputes arose between the parties. 11. The present case clearly falls within the narrow scope of jurisdiction available to this Court under Section 11 of the said Act to examine as to whether arbitrable disputes arose between the parties. In the above quoted portion of the judgment of the Supreme Court in the case of NTPC Ltd. v. M/s. SPML Infra Ltd. (supra), the Supreme Court laid down that under Section 11 of the said Act, the Court need not refer the parties to arbitration when the disputes appeared to be manifestly and ex-facie non-arbitrable. 12. In the facts and circumstances of the present case, this Court is convinced that after having settled the matter in terms of the document at Exh.M, the applicant issued the invocation notice after more than one year and eight months, merely as an after thought and therefore, no case is made out for appointment of arbitrator. 13. This Court is further informed that the respondent herein has filed a suit before the competent civil court seeking damages against the applicant for allegedly causing damage and loss of material belonging to the respondent, lying in the premises in question. This Court is further informed that the applicant has also filed written statement in the said suit. In the light of the above, this Court is of the opinion that the applicant has failed to make out a case for invoking arbitration under section 11 of the Arbitration and Conciliation Act, 1996, for appointment of arbitrator. There can be no quarrel with the proposition laid down in the judgment of the Supreme Court in the case of M/s. Wexford Financial Inc. Panama v. Bharat Heavy Electricals Ltd. (supra) But, there is no absolute prohibition for the Court exercising jurisdiction under Section 11 of the said Act, to examine as to whether arbitrable dispute at all exists for exercising jurisdiction under Section 11 of the said Act. In view of the above, the application is dismissed.